TransDigm, downsized International Coal deals price; GM off on ratings downgrades

By Paul Deckelman

New York, June 20 - Fresh from having priced nearly $3 billion of new junk bonds on Monday, the high-yield primary market continued to bubble merrily along on Tuesday, syndicate sources said, with pricings on two offerings, for TransDigm Inc. and for International Coal Group Inc. - the latter, however, sharply downsized from the deal that was originally talked around the market.

There were meanwhile new deals climbing about the forward calendar, for Headwaters Inc., Armor Holdings Inc. and Millipore Corp. - the latter a split-rated euro-denominated offering. WCA Waste Corp. began shopping its previously announced deal around as well.

In the secondary market, bonds of General Motors Corp. were seen lower, after both Moody's Investors Service and Standard & Poor's announced that they were downgrading the Detroit automotive giant's senior unsecured debt ratings - because a big new secured financing facility which the company is entering into pushes GM's unsecured bonds further to the back of the line in the event of a default.

The GM downgrades also helped push some of the automotive parts supplier names lower, including former GM subsidiary Delphi Corp., whose faltering financial fortunes remain closely tied to those of its erstwhile corporate parent, still its biggest customer.

Out of the distressed-debt markets came word that Tembec Industries Inc.'s bonds continued to retreat on investor fears that Canada's government might not meet a Friday deadline for signing off on a U.S.-Canada trade dispute settlement that could potentially mean over C$300 million for the cash-strapped Montreal-based forest products company.

Much of the drama in Tuesday's primary arena surrounded International Coal Group, whose notably downsized issue of eight-year senior notes priced Tuesday - but did so well wide of pre-deal market price talk, in apparent response to less than overwhelming enthusiasm for the deal, according to the syndicate sources.

That issue had been downsized to $175 million from the originally envisioned $250 million. It priced at par to yield 10¼% - outside of the price talk indicating a yield in the 9¾% to 10% range.

A market source said before the midday pricing that it was his impression that "people aren't that crazy about ICG, even with the downsizing."

The deal was brought to market via joint book-running managers UBS Investment Bank, JP Morgan Securities and Goldman Sachs & Co.

The Ashland, Ky.-based coal producer plans to use the proceeds of the offering to repay debt, including its revolver and its term loan debt, as well as funding future capital spending, and for general corporate purposes.

TransDigm at wide end of talk

Also pricing - and doing so long after other had wrapped up for the evening - was TransDigm, which brought a quickly marketed $275 million issue of eight-year senior subordinated notes to market. Those new bonds, due July 15, 2014, priced at par to yield 7¾%, at the wide end of pre-deal market price talk that envisioned a yield in the range of 7½% to 7¾%.

The drive-by deal, details of which only emerged late Monday, priced after a whirlwind one-day roadshow, which included a morning breakfast presentation in Boston, a lunchtime presentation in New York, and a midday investor call.

The deal was brought to market by joint book-running managers Banc of America Securities and Credit Suisse.

Cleveland-based TransDigm, a designer, producer and supplier of precision components widely used in military and civilian aircraft, plans to use the deal proceeds, along with those from a new $800 million credit facility, to fund the refinancing of its debt, including a tender offer for its $400 million of existing 8 3/8% senior subordinated notes due 2011.

Headwaters plans $150 million

Apart from the pricing, the day's focus seemed to be calendar-building. Headwaters Inc. announced plans to sell $150 million of 10-year senior subordinated notes, using the proceeds to repay bank debt.

Market sources said that the deal will be presented to potential investors via a roadshow that begins Wednesday, with pricing expected in the middle to latter part of next week.

Morgan Stanley will be the sole bookrunner for the deal.

The South Jordan, Utah-based provider of products, technologies and services to the energy and construction materials industries, plans to use the net proceeds from the offering, plus a small amount of cash, to retire a portion of its senior secured credit facility.

Armor to bring $400 million

Also announcing an upcoming new deal Tuesday was Jacksonville, Fla.-based defense contractor Armor Holdings which said that it would sell $400 million of 10-year senior subordinated notes. Further details on the Rule 144A offering were sketchy, other than that the proceeds will be used to refinance debt that the company incurred in its recent acquisition of Stewart & Stevenson LLC.

And Stone Energy Corp. may be doing a bond deal.

The Lafayette, La.-based independent oil and gas exploration and production company on Tuesday announced a $190.5 million acquisition of Gulf of Mexico drilling rights, and said that it would finance that purchase with a new issue of floating-rate debt. However, the company did not offer further details as to whether this would take the form of a bond issue, bank debt, or some combination of the two - although it did say that if the acquisition does not close it will use the proceeds of the new floating-rate debt to reduce existing credit facility debt.

Company officials could not be reached for clarification following the late-session announcement.

WCA Waste meantime hit the road on Tuesday to market its previously announced offering of $150 million of eight-year senior notes. The deal is expected to price around the middle of next week.

The sale of the notes, announced Monday by the Houston-based solid waste disposal company, is the latest of several moves the company has made to improve its capital structure, including a $75 million convertible preferred deal with a private investor last week, and a new proposed $100 million credit facility revealed in an SEC filing on Monday.

From Europe came word that Massachusetts-based biotech firm Millipore will be selling E250 million of 10-year notes in a split-rated (Ba2/BBB-) deal. The offering begins a roadshow Wednesday, and will price early next week, market sources said, off the European desks of joint lead managers Banc of America Securities and UBS Investment Bank.

Intelsat/PanAmSat steady

Back in the secondary market, participants saw the new bonds issued Monday by the satellite operators Intelsat Ltd. and PanAmSat Holding Corp. to finance the former's acquisition of the latter, pretty much holding their own at the levels to which they moved late Monday after having priced at par earlier that day. A trader saw PanAmSat's 9% notes due 2016 at par bid, 100.5 offered, and Intelsat's guaranteed 9¼% notes due 2016 at 100.5 bid, 101 offered. The latter name's non-guaranteed floating-rate notes due 2013 "came off a bit" from the Monday levels to 99.75 bid, 100.5 offered, while the non-guaranteed Intelsat 11¼% notes due 2016 continued to struggle, languishing at 98.5 bid, 99 offered.

Another trader saw the first three tranches of that nearly $3 billion bond issue keeping their heads above water by trading at a slight premium to par, but also saw the 111/4s floundering around at 98.5 bid, 99 offered.

GM slips on downgrade

Back among the established issues, "GM was the big rating news," said a trader who pegged the carmaker's benchmark 8 3/8% notes due 2033 half a point lower at 75.75 bid, 76.25 offered.

Another trader saw those GM bonds down a full point at 75.5 bid, 76.5 offered, although he saw only minimal erosion - a quarter point - in the General Motors Acceptance Corp. 8% notes due 2031, which closed at 94.5 bid, 94.5 offered.

In their downgrade messages, Moody's and S&P did not alter the ratings of the financing subsidiary. Both agencies expressed concern that GM's new secured credit bank facility - which gives those lenders security in certain GM collateral - thus leaves less in the way of collateral to cover the bonds and other unsecured GM debt.

Other auto names lower

The GM downgrades seemed to have a ripple effect among some of the names in the auto parts sector, who depend on GM as a large customer. A trader called the whole parts sector "a little weaker," pegging Delphi's 6.55% notes due 2006 at 82 bid, 83 offered, down three points on the day. He also pegged American Axle & Manufacturing Holdings, Inc.'s 5¼% notes due 2014 down a full point at 81.5 bid, 82.5 offered.

Another trader saw the Delphi 6.55s off 1½ points at 83 bid, 84 offered, while the bankrupt Troy, Mich.-based parts maker's 7 1/8% notes due 2029 were 1¾ points down at 77 bid, 78 offered.

Among other names, bankrupt Toledo, Ohio-based parts maker Dana Corp.'s 6½% notes due 2008 were 1½ points lower at 85 bid, 86 offered, while its 7% notes due 2028 were ¾ point off at 76.5 bid, 77 offered. However he saw its 5.85% notes due 2015 unchanged at 75 bid, 76 offered.

Car retailer Group 1 Automotive Inc.'s 8¼% notes due 2013 were off a point at par bid, 101 offered. The company successfully priced a $250 million convertible offering, it said on Tuesday.

Tembec lower again

Outside of the automotive realms, where not much else was going on, Tembec's bonds - which had weakened substantially on Monday - were again on the downside on Tuesday, a trader quoting the company's 8 5/8% notes due 2009 at 51 bid, 52 offered, a two-point loser. The trader cited the possibility that Canada's parliament might adjourn for the summer on Friday without having ratified the trade dispute settlement with the United States, which had imposed billions of dollars in tariffs on Canadian lumber companies over the past several years.

"They may wait till they come back in the fall to pass it" - but in the meantime, cash-strapped Tembec "could use the money [it would receive as a tariff refund under the settlement] right now." When the settlement is finally ratified, Tembec stands to get some C$317 million.

The trader said that Tembec's troubles did not affect the rest of the forest products sector, which was only down about ¼ point on the day. "Tembec," he said, "was the weak sister."

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