Dura, Ahold, Nextel Partners unchanged despite news in dead pre-holiday dealings

By Paul Deckelman and Paul A. Harris

New York, Dec. 23 - There was news out Thursday on several well-known high-yield names - but no corresponding activity in their bonds, as traders watched the clock before making an early (2 p.m. ET) exit ahead of the Christmas holiday weekend break, which also saw a full market closure on Friday.

Among the names which failed to react - one way or another - to news developments were Dura Operating Corp., Royal Ahold and Nextel Partners Inc. The same held true for American Greetings Corp.

"They just downgraded Dura," a trader said at mid-afternoon, "but it's too dead to do anything about it. No one's even around."

He saw the Rochester Hills, Mich.-based automotive systems company's 9% guaranteed senior subordinated notes due 2009 at 98.5 bid, 99.5 offered, pre-news, but saw no levels after the ratings downgrade announcement by Moody's Investors Service.

At another desk, a market source actually saw the company's bonds having "moved up a little," with the 9s going to 98.75 bid, up half a point, and the 8 5/8% guaranteed senior unsecured notes due 2012 up a quarter-point at 104.25, although it was not clear whether the quote had been seen before or after the downgrade news.

Moody's cut a number of different ratings for the company's debt, including those of the 8 5/8% notes, which went to B2 from B1 previously, and the 9% notes, which fell to B3 from B2. The ratings agency cited Dura's "persistently high leverage, which Moody's determined to be inconsistent with peers at the Ba3 senior implied level, together with the company's inability to realize material debt reduction over the past year and its weakening effective liquidity, margin compression, and long lead times necessary to realize organic net new business growth."

Moody's declared that the downgrades "reflect that Dura Automotive was unsuccessful at achieving meaningful debt or leverage reduction over the past year, despite successful implementation of several actions directed at improving the company's near-term cost structure and future revenue and margin base."

It said that had all other things been equal versus the prior year, Dura "would have achieved meaningful performance improvements exceeding annual customer price-downs which typically range between 1% and 3% of revenues per annum. However, the incremental savings that were realized ended up being absorbed by unanticipated industry developments including unprecedented cost increases for raw steel, steel components, and certain other commodities that Dura Automotive was only partially successful at passing on to its customers."

The ratings agency further noted the material slide in North American production volumes during the latter half of 2004, "which negatively impacted both revenues and the rate of fixed cost absorption. Additional year-over-year North American production declines are anticipated during 2005 (most notably by GM and Ford) due to growing dealer inventories."

Ahold unchanged

The first trader also saw no change in the bonds of Ahold, the Dutch-based international supermarket giant, which operates the Stop & Shop and Giant Food chains in the United States, as well as several lesser chains such as Bruno's and BI-LO. It's these less valuable properties that were the catalyst for Thursday's news. Ahold - still in the midst of pursuing a turnaround strategy after having been rocked by an accounting scandal in 2003 - said it will sell Bruno's and BI-LO for $660 million to Lone Store Funds, a Dallas-based investment company. The purchase price was somewhat below Wall Street estimates that the chains might go for as much as $700 million to $1 billion.

Ahold will get $560 million in cash and the other $100 million will be placed in escrow. Ahold will receive the amount held within 18 months of the closing if it meets certain conditions. The transaction works to de-lever Ahold, as BI-LO and Bruno's will retain all of their debt and other liabilities including capitalized lease obligations, although Ahold did not release details of the two chains' debt levels.

Despite that good news, though, Ahold's bonds were seen unchanged, with its 6 7/8% notes due 2009 steady at 98.25 bid, 99.25 offered, the trader said, chalking the lack of movement in Ahold - or any other issue he was looking at Thursday - up to "minimal attendance today [Thursday]."

Nextel Partners another non-mover

Also unchanged were the bonds of Nextel Partners, even as Standard & Poor's revised its outlook for the Kirkland, Wash.-based affiliate of Nextel Communications Inc. to positive from stable previously, citing, citing the potential for the company to sell its shares to Nextel as part of the latter company's recently announced planned acquisition by and merger into Sprint Corp.

A source saw the Nextel Partners' bonds - which had firmed about a quarter point across the board on Wednesday - as unchanged Thursday. Its 8 1/8% notes due 2011 remained at 111.5 bid, its 11% notes due 2010 at 112 and its 12 ½% notes due 2009 at 114.

S&P, which rates Nextel Partners' corporate credit at B+, noted that Nextel Partners' shareholders have the right to put their stock back to Nextel Communications within 18 months of the closing of the Sprint merger transaction. That would make Nextel Partners a wholly owned subsidiary of Nextel, which currently owns 32% of the company. In view of the fact that the Sprint merger deal will likely result in S&P raising Nextel Communications' debt rating to BBB- or even BBB, "exercise of the Nextel Partners' put . . . could result in a higher corporate credit rating for Nextel Partners, depending on further transaction details," the ratings agency said.

American Greetings yet another unchanged

The market source also saw no movement in the 11¾% notes due 2008 of American Greetings, which released positive third-quarter earnings but lowered its guidance for the year. Those bonds were unchanged at 110.625 bid.

The Cleveland-based greeting card company said third-quarter profits rose 35%, to $62.8 million (78 cents a share), versus $46.4 million (60 cents a share) in the year-ago third quarter. It said that an earnings boost from the sale of its reading glass division offset low sales of cards and gift wrap.

However, excluding such discontinued operations, the company only earned $40.3 million (51 cents per share) in the latest quarter, down from $45.1 million (58 cents per share) a year ago.

Analysts had been looking for 69 cents of earnings.

With that kind of weakness in its core business, American Greetings lowered its per-share earnings forecast for the year to $1.02 to $1.07, down from its previous forecast of $1.46 to $1.51. The company blamed plant closings and layoffs. Analysts have predicted full-year earnings of $1.76 per share.

Even with all of that news going on, a trader said of the session "it's a wrap. There was nothing going on." He noted that the Dow Jones CDX 100 junk market index had closed at 103.25-103.375, unchanged on the day.

"I wish I had something to tell you," he said, "but it was just Deadsville."

Primary working on 2005 deals

As anticipated, no activity was reported to have taken place Thursday in the primary market.

The few primary market sources who spoke to Prospect News during the session reported that they were at work on 2005 business, and declined to elaborate.

The year 2004, one source said, is now concluded as far as the junk bond market is concerned.

Given the accuracy of this source's color, the final U.S. high yield deal of 2004 priced on Tuesday, Dec. 21, from ACIH Inc., the holding company for Atrium Cos., which sold $174 million of eight-year senior discount notes (B3/CCC+) at 71.791 to yield 11½%. It generated $125 million of proceeds and priced wide of the 11% to 11¼% price talk.

That brought the month of December 2004 to a close with $14.666 billion in dollar-denominated issuance across 62 tranches, making December the fifth-highest month of 2004 in terms of new issue volume.

That compares with the $16.678 of issuance seen in March 2004, the year's highest.

The lowest month, in terms of issuance, was May, which saw $6.959 billion.

Into 2005

Throughout late December sell-side sources told Prospect News that January 2005 figures to pick up where December left off.

Various high-yield syndicate sources in the big investment banks confided that they were at work on deals, details of which will emerge early in the new year.

However the market is closing out 2004 with almost no pending business actually thought to be "in the market."

One deal, Cajun Funding Corp. (Church's Chicken)'s $155 million of seven-year senior secured second-lien notes, via SunTrust Robinson Humphrey - which has been on the calendar since before Thanksgiving - is still expected to price in the new year.

Elsewhere PanAmSat, the Wilton, Conn.-based satellite communications company, told Prospect News that it intends to sell bonds in the new year. And one market source has speculated that the bond deal, which is coming in conjunction with the company's Morgan Stanley, Citigroup, Merrill Lynch-led $1.12 billion IPO, will be January business.

Also in the high-yield skies, in an orbit that some sources say will bring an early 2005 transaction, is Intelsat.

In early December the company postponed its $2.55 billion offering of high-yield bonds until early January.

Private equity group Zeus Holdings Ltd., formed by private equity firms Apax Partners, Permira, Apollo Management and Madison Dearborn Partners, was re-evaluating its takeover of Intelsat in light of the company's electrical difficulties with its Americas-7 satellite.

Information is thin on those three deals, however. And thinner still is the amount of information on deals that are thought to be on the horizon, from Davita Corp., Adelphia Communications Corp., Dyncorp International LLC, Hollywood Merger Corp., Novelis, Verizon Hawaii and others.

On Thursday Prospect News asked one syndicate source whether anything can be read into such an insubstantial forward calendar, going into the New Year.

"Not really," the source replied.

"Underwriters don't really gain any advantage by announcing a roadshow start 10 days ahead of time. There isn't much of an advantage in being the first issuer to start a roadshow after the longest dormant period of the year.

"And there is a slight risk - you could call it headline risk - to announcing your deal before a long break. With more than a week between the announcement and the actual launch of the deal you could conceivably be overtaken by events and end up wishing you had held off.

"January is going to be a busy month, we think," the sell-sider concluded.

"But I don't see a lot of people elbowing each other to be the one to get the first deal out there."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.