Oxford Auto deal pulled due to conditions; First Energy bonds widen on blackout issues

By Paul Deckelman

New York, Aug. 19 - Oxford Automotive Inc. pulled its planned $240 million offering of junk bonds off the table Tuesday, citing market conditions, and becoming the most recent prospective issuer to opt to play it safe.

Secondary players, while reporting a generally better tone in the market, said activity was sparse, and issues were mostly rangebound. Junk denizens were in fact taking advantage of the lull in the action in their own market to watch the tribulations of Toledo, Ohio-based utility operator First Energy Corp., which has come under critical scrutiny for the role which it may have played in last week's mammoth Northeastern power blackout. All of the negative attention has caused its bonds - still nominally investment grade, at least for now - to widen out sharply.

Back among actual junk issues, Flextronics International Ltd. bonds and shares were flexing some muscle, after the Singapore-based contract electronics manufacturer had what's been described as an upbeat mid-quarter conference call.

The outlook was anything but upbeat in the primary market, which has been battered in recent days by a number of issuers deciding now is not the time to try to get investors to loan them hundreds of millions of dollars on favorable terms.

Oxford Automotive (B3/B-) was to have sold a $240 million two-part deal - which had been restructured from an original solo tranche with the addition of a floating rate-note portion as well as equity warrants. But late in the session, the Troy, Mich.-based manufacturer of metal-formed assemblies for the auto industry was heard by syndicate sources to have put the deal up on blocks due to the unsettled market conditions, particularly since last Thursday's mammoth Northeast power blackout.

Oxford thus follows in the recent footsteps of Charter Communications Inc., which last week pulled the plug on its planned $1.7 billion deal, and of Gristede's Foods Inc. and Panavision Inc, which backed out of smaller deals, citing the ubiquitous "market conditions" (See related article on page one of this issue).

Even before the Oxford withdrawal, a primary-market source said, the deal had been regarded by players as - at best - "a who knows when? sort of situation," owing both to the worsening market conditions and the tinkering which joint bookrunners Lehman Brothers and Credit Suisse First Boston had been forced to do in order to keep the deal alive.

And apart from this last major deal, following Monday's pricing of $160 million of 11¾% senior subordinated notes due 2010 by Monitronics Inc., "nothing's happening," the source said. "Call it quits. Enjoy the next two weeks off.

"Your newsletter will be about four pages," he quipped - and I'd be impressed if you manage to get it to that level."

With everyone either already on vacation "or not motivated to do anything," he projected that the primary market would be shuttered until just before Labor Day (Monday, Sept 1), when "you might see a couple of deals announced for the following (i.e. post-Labor Day) week. But in this environment , which all depends on outflows and where rates are, I think most likely you're not going to hear anything until post-Labor Day."

Nominally, one deal remained on the forward calendar for what's left of the current week - PGN Eurofinance 2003 Ltd.'s (B-) $200 million offering of 10-year notes, being brought to market via CSFB. Price guidance in the 7¾% area was heard on the bonds, which are being issued by a funding subsidiary of Indonesian energy operator PT Perusahaan Gas Negara.

Things were not very much more active in the secondary sphere, where a trader said that "everything is in a vacuum."

While he said the market "has made a pretty impressive move the last two days, I don't think a lot has traded. I just think that offerings have been pulled and people are chasing it.

"The [Treasury] bond market is firming, there are no offerings around, and people got caught short."

In his own case, he saw, "not much activity, except that when you went to buy something - it was gone."

A market source agreed that in general "names were being quoted up anywhere from half a point to a point, although there was not a lot of real trading around."

One name that did seem to be going somewhere was Allied Waste Industries, whose shares and bonds firmed after the Scottsdale, Ariz.-based waste hauler's shares were upgraded to "overweight" from "neutral" by J.P. Morgan, which said that a pick-up in economic activity would generate more construction and manufacturing - and Allied was in a good position to turn that added industrial waste into profits.

"We expect AW to outperform the rest of the waste stocks over the next 12 to 24 months, based on our long-term earnings outlook relative to its current valuation," wrote Morgan analyst Amanda Tepper in her upgrade message.

She noted that relative to its sector peers, Allied has a low operating cost base - meaning that a higher volume of industrial waste, likely to be seen as economic activity picks up, will result in increased cash flows and the opportunity for Allied to pay down debt on a faster schedule.

Allied's New York Stock Exchange-traded shares were up 91 cents (8.43%) to $11.70, on volume of 1.8 million shares, somewhat above the usual turnover.

On the bond side, Allied's 7 7/8% notes due 2009 were heard to have firmed to par bid, 101.5 offered from prior levels at 99 bid, 101 offered. At another desk, a market source quoted its 10% notes due 2009 as having firmed to 107 bid from 105.75 on Monday.

Another gainer was Flextronics, which said in a mid-quarter conference call with investors and analysts that business in most of its markets appears stable and customers are increasingly optimistic - although the company is prudently declining to raise its outlook.

Executives said that the manufacturer had seen increased demand in several sectors. Business was better than expected in July and has been strong in August.

Flextronics' 6½% notes due 2013 were seen two points better at 94 bid. A trader said its 9¾% notes due 2010 were also in that same 94 bid, 96 offered context, up from 92 bid, 92.5 offered on Monday.

On the stock side, Flextronics' Nasdaq-traded shares jumped $1.19 (10.21%) to $12.84 and volume more than tripled to 31.9 million shares.

Late in the session, Loral Orion Inc.'s 10% notes due 2006 were being pegged in some quarters as much as eight points higher at 65 bid in every thin dealings; after the market had closed for the day, news reports circulated that EchoStar Communications Corp. had made a $1.45 billion offer for Loral Orion parent Loral Space & Communications Ltd.'s satellites and other assets. Loral is currently in bankruptcy. The New York bankruptcy court overseeing Loral's reorganization on Monday approved modified bidding procedures for its assets.

The normally little-traded Hexcel Corp. was the percentage gain leader Tuesday on the NYSE, booming by $1.01 (17.78%) to $6.69 on volume of 109,000, more than triple the norm, despite a lack of fresh news on the Stamford, Conn.-based industrial materials manufacturer. Its 9 7/8% notes due 2008 meantime were a point better at 108 bid.

United Pan Europe Communications NV's 10 7/8% notes due 2007 were heard a point better at 28 even though corporate parent UnitedGlobalCom's 10¾% notes due 2008 were unchanged at 72 bid; Liberty Media said that it would buy out the Class B common shares of UnitedGlobalCom's founding shareholders, which will give Liberty a composite 75% of the Denver-based UnitedGlobalCom's stock and 96% voting control.

On the downside, First Energy's bonds were heard to widened out around 30 basis points for a second straight session, in the wake of criticism of the Ohio-based utility, which is being blamed for the problems that started last week's massive Northeast power blackout - something the company stoutly denies.

Investors, however, seem to be voting with their wallets, pushing the company's 6.45% notes due 2011 up to a spread of 257 basis points over the comparable Treasury issue, up from 225 basis points over late Monday and 200 bps over on Friday.

Its 7 3/8% notes due 2013 were heard to have widened to 288 basis points over from 270 on Monday, while its 5½% notes due 2006 were quoted at 300 basis points over the three-year T-note, well wide of the 245-basis point spread on Monday.

While the bonds are nominally still investment-grade rated, at Baa2/BBB, Standard & Poor's said Monday that it might lower the ratings.

A market source said that the widening out reflected a sizable deterioration, with the change in the spreads on the 6.45% and 7 3/8% notes the equivalent of a two point drop in price in dollar terms, and a one-and-three-quarter point drop in the 5½% notes.

The source said that there was increased scrutiny of whether the company was to blame for setting off the chain of incidents which led to the blackout, all the more so because "they were trying to pin it all on Canada, that the Canadians had the problem, but [everyone] is beginning to realize that the problem could have been in Ohio."

He also said that there were other problems - unrelated to the blackout - as well; on Tuesday, First Energy said that it had its 2002 earnings restatement as a result of accounting changes were slightly bigger than forecast. It will also have to restate earnings for the first quarter of 2003, which, like the 2002 restatement, "reflect implementation of changed accounting treatments regarding the recovery of transition assets in Ohio and recognition of above- market values of certain leased generation facilities."

The market source noted that the bonds of a number of First Energy subsidiaries, such as Metropolitan Edison, Jersey Central Power & Light and Ohio Edison "had almost the same spread widening as First Energy; we saw the stuff down (i.e. the spreads wider) from Friday by 60 to 70 basis points. This obviously had ramifications for the subsidiaries."

One subsidiary whose bonds had not been seen widening out, however, he said, was Cleveland Electric. "We didn't see any market action in them," he said. "I'm surprised."

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