Dynegy, Koppers, Houghton-Mifflin price deals; Collins & Aikman rise again

By Paul Deckelman and Paul A. Harris

New York, Sept. 30- Dynegy Inc., Koppers Inc. and Houghton-Mifflin Co. successfully priced new deals Tuesday - Dynegy's being a quickly shopped two-tranche add-on offering to its existing notes - while Norcraft Cos. was heard to have climbed onto the forward calendar with a $150 million offering of eight-year notes that's scheduled to hit the road Thursday.

In secondary dealings, the new Koppers bonds were heard to have traded well in when they were freed; among existing issues, Collins & Aikman Products Co.'s bonds were on the rise for a second consecutive session, spurred by market scuttlebutt about a possible coming bank deal, even though bank debt players queried by Prospect News indicated that they didn't have the company on their radar screens.

As Tuesday's session got underway in the high yield primary, Houston energy firm Dynegy came speeding down the wire.

Dynegy Holdings Inc. priced $300 million in a pair of quick-to-market add-ons (B3/B-) - adding $100 million to its 9 7/8% notes due July 15, 2010 at a price of 104.25 to yield 8.917% and $200 million to its 10 1/8% notes due July 15, 2013 at a price of 105.25 to yield 9.615%. The tranches were talked at 104 and 105 respectively.

Credit Suisse First Boston was the bookrunner.

Both issues that Dynegy reopened on Tuesday were part of an upsized $1.45 billion deal that priced on Aug. 1. The $525 million of 9 7/8% notes priced at 99.371 to yield 10% and the $700 million of 10 1/8% notes priced at 99.217 to yield 10¼%.

Hence as the high yield market powered down Tuesday Dynegy walked away with a better interest rate.

Pittsburgh-based producer of carbon compounds and treated wood products Koppers Inc. priced an upsized $320 million of 10-year senior secured notes (B2/B) to yield 9 7/8%, bringing the deal, which was also led by Credit Suisse First Boston, inside of the 10%-10¼% price talk. The offering was increased from $300 million.

Late in the afternoon Koppers' new paper was seen trading as high as 103.5 in the secondary.

Also pricing Tuesday was a zero-coupon offering from Houghton Mifflin parent HM Publishing Co. The Boston publisher priced $265 million face amount of 10-year notes (Caa1/B) at 56.96 for an 11½% yield to maturity.

The sale resulted in $150.944 million of proceeds and was led by Deutsche Bank Securities.

In addition to Dynegy, one other company brought a new deal into the market during the session - this one coming with a roadshow that starts Thursday. Eagan, Minn.-based manufacturer of kitchen and bathroom cabinetry Norcraft Cos. intends to sell $150 million of eight-year senior subordinated notes (B3/B-) via UBS Investment Bank.

Meanwhile price talk was heard on three deals poised on the forward calendar as business still to be transacted during the week of Sept. 29.

Price talk is 7½% area on Intrawest Corp.'s upcoming sale of $250 million 10-year senior notes (B1/B+), which are expected to price on Wednesday via Deutsche Bank Securities.

Price talk is 7%-7¼% on Videotron Ltee.'s $325 million of senior notes due 2014 (Ba3), expected to price Wednesday afternoon or early Thursday via Banc of America Securities and Citigroup.

And price talk of 10½% area emerged Tuesday on Imco Recycling Inc.'s $200 million of seven-year senior notes (B3/B-), which are expected to price on Wednesday via JP Morgan.

Andrew Feltus, an assistant portfolio manager with Pioneer Investment Management, pointed to the 7% to 7¼% price talk on Videotron and the 10½% area talk on Imco Recycling and said that it is evidence of a "bifurcated market."

"You have the stuff that is pricing at 10, and then you have deals pricing at seven, and even in the sixes," Feltus commented.

Feltus spoke with Prospect News late Tuesday soon after the Dow Jones Industrial Average closed the session down 105 points, or 1.12%, with the capital markets reportedly riven by news of falling consumer confidence and a dollar that has been paling on the world currency exchanges.

Upon hearing these woes recounted Feltus shot back: "Yeah but look at all the deals that have priced this week. Everything that has priced with high coupons has done well.

"There is a lot of cash out there," he added. "People weren't aggressive buyers last summer when the cash was coming in. So they may still have their cash positions. I don't know if they were worried about the money leaving or if they were just taking a more defensive view of the market in general. But you can't sit on it forever. As time goes on the bosses pay attention."

As recently as three weeks ago, sources on the Street had been saying that tight though they were, junk bond yields still had some room to tighten, given an improving economy. Prospect News asked Feltus if that remains the case.

"High yield spreads are roughly where they have been on a historical average," he replied. "As long as the economy keeps growing there is no reason why they can't tighten.

"At the same time the big move has been done. I don't think you're going to see 25% returns over the next 12 months.

"The easy money in high yield is gone."

Prospect News also asked Kathleen Gaffney, vice president and portfolio manager of the Loomis Sayles High Income Funds, if she thought high yield spreads had room to tighten.

Gaffney's response was also inclined toward the negative.

"Everyone is just focused on currency, here, wondering what are the ramifications of a weak dollar, if it continues to fall under pressure, and if it's not such a gradual decline," she said.

"The South African rand was up to 6.88, this morning. The euro is close to $1.17. The yen has gone from 117 on the dollar to 111.

"The implications are not all that positive for equities," Gaffney continued. "It makes you think about the risks you are taking, given that the credit spreads have come in so much.

"I think we were priced for a perfect world. And right now it's not looking so perfect.

"And," added Gaffney, "we are heading into October."

A trader said that the new Koppers 9 7/8% notes due 2013 were "pretty well received" once they began trading in the secondary market, moving up to 103 bid, 104 offered from their issue price at par.

Also among the newbies, a trader quoted Dynegy's new 10 1/8% notes due 2013 as having moved up to 106.25 bid,106.875 offered from their 105.25 issue price. And he saw Dynegy's new 9 7/8% notes due 2010 at 105.75 bid, 106.5 offered, up from 104.25 at issue.

A trader saw the new Houghton-Mifflin bonds at 58 bid, 59 offered at the close, up slightly more than a point from their issue price at 56.96.

Back among the existing names, Collins & Aikman bonds were up for a second consecutive session on market buzz that the Troy, Mich.-based supplier of automotive components would be putting together some kind of bank financing - even though a quick Prospect News survey of some bank debt market participants produced no evidence of any imminent activity on that front.

That having been said, however, a bond trader asserted that "there are some rumors of a bank deal going through and the bonds were up pretty significantly. They were in a short squeeze anyway and now it's been exacerbated. Guys who got short that issue are now scrambling, because now there are rumors of a bank deal."

He quoted the company's 11½% subordinated notes due 2006, which had recently retreated as low as the 69-70 area, as having jumped to 77.5 bid, 78.5 offered Tuesday from Monday's close at 71.5 bid, 72.5 offered, "a pretty significant move" in the credit.

He saw its 10¾% senior notes due 2011 trade as high as 88 bid before coming off that peak level to close at 86.5 bid, 87.5 offered, essentially unchanged.

Another trader agreed that all of the bank debt deal talk - however unfounded the rumors may appear right now - had given the company's bonds, particularly the subordinated notes, a solid boost over the past two sessions.

"That's a good move," he said, "definitely moving today."

He saw the 111/2s having firmed to 77 bid, 77.75 offered from 70.5 bid, 72.5 offered several days ago, "so that was the big mover." The move in the senior bonds, he said, "wasn't so dramatic, because they're higher in the capital structure." He said those bonds had moved up to 86.5 bid, 87.5 offered Tuesday from 85 bid, 87 offered two days ago.

Collins & Aikman stock, which on Monday had jumped more than 11% in New York Stock Exchange dealings three times its usual turnover, was down three cents (0.88%) to $3.38, on volume of about 635,000, still more than double the usual activity level.

Elsewhere, "the market seemed pretty much flat," a trader said. While Levi Strauss & Co. reported that net income for the fiscal third quarter ended Aug. 24 nearly doubled to $26.7 million from $13.7 million a year earlier, the news did nothing to help the bonds, which in fact turned lower.

The trader, calling the San Francisco-based blue-jeans maker "the name du jour," pegged its 11 5/8% notes due 2008 down a point at 83.5 bid, 84.5 offered, while its 7% notes due 2006 likewise lost a point to end at 79 bid, 80 offered.

At another desk, a market source saw an even more pronounced retreat, with the 11 5/8s dropping to 82 bid from 84.5 offered, and the 7s at 79, down from 80.5 on Monday. He saw Levi's 12¼% notes due 2012 dipping to 80 bid from 82.5.

Bond investors were perhaps looking past the positive net results to the company's acknowledgment that its net debt rose to $2.3 billion by the end of the quarter - up more than half a billion dollars from where the debt load stood at the end of last fiscal year. The higher debt burden is attributed to borrowings the company incurred to launch its Signature brand and gear up for the back-to-school season. Industry watchers are concerned that sales during the quarter were at best mediocre - up 6% overall but only up 3% when the effects of a weak dollar on overseas sales are factored out - meaning the company may face a daunting task in generating enough revenue to stay on the good side of its bankers and bondholders.

Lucent Technologies Inc. bonds were essentially unchanged Tuesday, despite the Murray Hill, N.J.-based telecommunications equipment maker's announcement that Dutch telecom operator KPN had selected Lucent to supply asynchronous transfer mode infrastructure and software to its KPN Wireless business. Lucent did not give any indication of likely earnings from the supply agreement, other than to characterize it as a "multi-million dollar contract."

Lucent's 7¼% notes due 2006 eased to 96.25 bid from 96.5, while its 6.45% bonds due 2029 lost half a point to end at 69.

A trader at another shop, though, saw Lucent actually up slightly, with the 71/4s at 96.25 bid, 96.75 offered, up a quarter point, but said that all told, "it was nothing to write home about."

Right at the market close, Lucent filed a shelf registration statement with the Securities and Exchange Commission to sell up to $1.75 billion in debt securities, common and preferred stock and other securities - although the shelf does not represent new capacity to issue securities because it offset the filing fee by using unused amounts from a previous shelf registration.

Lucent said in the filing that it plans to use the net proceeds of such sales for debt service, preferred stock dividend requirements or redemptions, repurchases or retirement of debt or preferred stock, working capital, capital expenditures or other general corporate purposes.

A trader declared that "the market in general was pretty firm. It seems like everything was up a quarter, in some spots a half point, maybe. But it was really kind of thin. There was no real flow to it - dead quiet."

He said that there were potential buyers out there, "but there was no liquidity. There's nobody selling. They'd like to buy, but they're not paying these prices, so we're kind of stuck."

He noted that the Treasury market "had a big day," as the yields on the 10-year notes went back down below 4% amid falling consumer confidence numbers out of Washington and a slide in the purchasing managers' index.

The major stock market indices were all in the red Tuesday - the Dow Jones Industrial Average, for instance was down 105 points, with the trader opining that "the fast money" was being now sucked out of the equity markets and into Treasuries.

But in the fixed income markets, he said, "there were some bid lists in the [investment grade] corporate stuff. But we certainly didn't see any selling in high yield."

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