Boise Cascade bonds jump on asset sale news; Tenneco plans $500 million bond deal

By Paul Deckelman and Paul A. Harris

New York, July 26- Boise Cascade Corp. bonds were doing anything but cascading downward on Monday, after the Boise, Ida.-based forest products and office supplies company announced plans to sell the former assets for $3.2 billion cash and focus on the latter businesses. It is expected to use proceeds from the sale to cut debt, including the likely redemption of at least two series of bonds.

Another company scheduled to do some bond redemption, Tenneco Automotive Inc., announced plans for a $500 million offering of 10-year notes - clearly the big primaryside news of the day.

The top gainer of the day in secondary trading was Boise Cascade, whose 7% notes due 2013 and 6½% notes due 2010 were both quoted up about five or six points on the session, the 61/2s at 108.5 bid, 109.5 offered and the 7s at 110.5 bid, 111.5 offered, a trader said.

The $300 million of 61/2s and the $200 million 7s, which were just sold in October, are expected to be taken out using a portion of the $3 billion-plus proceeds Boise Cascade stands to reap from its radical self-surgery, which will see the company chop away the lumber and paper operations that it is perhaps best known for and sell them sale to a new company formed by Madison Dearborn Partners LLC, and then re-name itself after its OfficeMax chain of retail office products stores and focus on the office products business (see related article elsewhere in this issue).

Tenneco's 11 5/8% notes due 2009 were little changed on the day, even though the $500 million issue is slated to be taken out with the proceeds of the upcoming new bond issue (see "Tenders and Redemptions" elsewhere in this issue).

"No, not really, one answered, when asked whether those bonds had gone anywhere on the news. He saw them at 107 bid, 108 offered, "pretty much where they were trading before."

Another trader - who pointed out the fact that the Lake Forest Ill.-based auto parts maker was "trying again" to take out the bonds, having unceremoniously abandoned an earlier effort this past May due to what were at the time deteriorating market conditions - said that the bonds had already been trading "at such a high level, on a yield-to-call basis" around 107.5, the anticipated take-out level, because holders surmised at the time the first tender offer was aborted that Tenneco would be back.

He did see the company's 10¼% notes due 2013 up two or three points on the session at 113.5 bid, 114.5 offered.

Land O' Lakes lower

But a trader saw the Boise bounce and Tenneco's rise as "the only exceptions to the rule today [Monday]." Just about everything else, he said "was soggy. The whole market was sloppy."

Case in point, he said, was Land O' Lakes Inc., after the Arden Hills, Minn.-based maker of butter and other dairy products posted second-quarter earnings that "fell short of expectations."

He saw Land O'Lakes' bellwether 8¾% notes due 2011 dip from Friday's levels at 96.25 bid to as low as 91.5 bid, 92 offered, before coming slightly off those lows to finish at 92.5 bid, 93 offered, still down four points on the session.

The company's 7.45% subordinated bonds due 2028 traded down to 60 bid from prior levels at 65 before recovering a little to end at 61, although the trader said that there wasn't much activity in that particular issue, as the 8¾% seniors are what investors mostly follow.

Net earnings fell 63% to $16.7 million in the latest quarter from $44.9 million in the same period last year - even though the privately held, farmer-owned food and agricultural products co-operative reported sales of $2 billion, up 43% from last year. It cited softening consumer demand for its products in reaction to higher milk and other dairy prices.

The trader also said that "there was supposed to be some sort of imminent asset sale, which I guess isn't going to be so imminent." In June, Land O' Lakes said that it had hired Goldsmith Agio Helms, a Minneapolis-based investment banker, to explore "strategic options" for its swine business, including joint ventures, partnerships or divestitures. Nothing much has been heard of the idea since, which apparently helped to push the bonds down.

But he said that it didn't take much of a push in the generally weaker market context.

Dura sinks

Other names he saw heading downward included Goodyear Tire & Rubber Co., "all weaker," and another automotive-linked name, Dura Operating Co., whose bonds, he said, "got hammered."

Dura's 9% notes due 2009, he said, pushed down to 96 offered from 98.5 bid, 99 offered previously. At another desk, the Rochester Hills, Mich.-based automotive controls maker's bonds were seen having fallen not quite two points to 97.5 bid.

And he also saw AK Steel Corp.'s bonds "continue to weaken," easing to 95.5 bid, 96 from 96.75 bid, 97.25 offered.

"The whole market is sloppy," he declared. "What's making people nervous is the prospect of higher interest rates and the anticipation of a huge calendar building up here. So a lot of that stuff is going on."

"We couldn't get anything done," another trader said. "We tried to buy bonds, couldn't buy 'em. It was kind of a nothing day.

Omnicare steady on earnings

Omnicare Inc. reported quarterly earnings below Wall Street expectations and warned of disappointing full-year profit due to pricing and reimbursement pressures, which caused its shares to swoon $8.87 (23.22%) in New York Stock Exchange dealings to $29.23, on volume of 16.4 million shares - more than 20 times the usual turnover.

But the company's bonds "pretty much hung in there," the trader said, its 6½% notes ending down a point at 95.1. He said the retreat is "probably a buying opportunity."

He said "this pretty much puts an end to the takeover" the Covington, Ky.-based pharmacy services company had been trying to engineer with rival NeighborCare Inc., which steadfastly refused Omnicare's overtures. "That kind of deleverages the company," since the acquisition would likely have been debt funded.

Plus, he said, "the earnings weren't all that bad - they just weren't what people thought.".

Net income for the second quarter rose to $60.5 million (58 cents a share), from $43.5 million (44 cents a share), a year earlier - but less than the 63 cents a share Wall Street had expected.

At another desk, Omnicare's 8¼% notes due 2011 were seen off about a point-and-a-quarter, at 107 bid.

Utility names were seen lower, with Calpine's 8½% notes due 2011 off two points to 62.5 bid. Its 8 5/8% notes due 2010 were likewise down a pair, at 63 bid.

Week starts slowly in primary

Following the frantic pace of the latter part of the July 19 week, the July 26 week got underway at a sleepy, high-summer pace, with no issues pricing during the Monday session.

However, sources commented, the forward calendar, which has an even dozen of deals now in the market, is anything but characteristic of high summer in high yield.

Tenneco, Chesapeake quick sales

Monday's session produced news of a pair of prospective issuers that plan to price deals before the end of Wednesday's session.

Tenneco Automotive Inc. plans to sell $500 million of 10-year senior subordinated notes on Tuesday via JP Morgan, Banc of America Securities, Citigroup and Deutsche Bank Securities.

No price talk had been released on the debt refinancing deal from the Lake Forest, Ill. automotive ride and emission control products company as Prospect News was going to press.

Meanwhile a two-day roadshow commences on Tuesday for a $300 million offering by Chesapeake Energy Corp. of 10-year senior notes (Ba3/BB-), led by UBS Investment Bank.

The Oklahoma City independent natural gas producer's acquisition financing deal is expected to price on July 28.

Roadshow for AMC

AMC Entertainment Inc. will begin a roadshow on Tuesday for a three-part sale of bonds that is expected to generate $625 million of proceeds.

JP Morgan and Citigroup will run the books for the acquisition financing deal from Kansas City, Mo.-based theater chain

Issuing through Marquee Inc., AMC is offering $455 million in two parts as $150 million of eight-year non-call-four fixed-rate senior notes and $305 million of seven-year non-call-two senior floating-rate notes.

In addition Marquee Holdings Inc. is offering $170 million proceeds of 10-year non-call-five senior discount notes.

Majority of deals M&A financing

As the with the three deals above, two of which involve merger and acquisition activity in their uses of proceeds, so with almost the entire active calendar, one sell-side official told Prospect News on Monday.

"Basically the entire calendar seems to be driven by M&A activity," the official said.

"Last week Duane Reade [$195 million on July 23] and Loews Cineplex [$315 million on July 22] were buyout deals.

"Fisher Scientific [$300 million on July 22] was to basically take out the bonds of Apogent, which they bought.

"Refco [$600 million on July 22] and Foundation PA Coal [$300 million on July 21] were also buyouts."

The source also mentioned The Jean Coutu Group, Inc. which sold $1.2 billion in two tranches on July 20, selling $350 million senior notes with a 7 5/8% yield, and $850 million senior subordinated notes to yield 8½%.

"Jean Coutu brought its deal to finance the acquisition of the Eckerd drugstore chain," the source added.

Likewise, the preponderance of deals now on the forward calendar are coming in conjunction with merger and acquisition activity, the official added.

Counting the above-mentioned offerings from AMC Entertainment and Chesapeake Energy, seven of an even dozen of deals presently regarded as being in the market involve mergers and acquisitions as their uses of proceeds.

These include

* Borden Chemical, Inc.'s $475 million via Credit Suisse First Boston and JP Morgan to fund the acquisition of Borden Chemical, Inc. by Apollo;

* PanAmSat Corp.'s $1.01 billion via Credit Suisse First Boston and Citigroup to fund tender offers as part of the sale of PanAmSat to affiliates of Kohlberg Kravis Roberts & Co., The Carlyle Group and Providence Equity Partners, Inc.;

* Stanadyne Corp.'s $160 million via Goldman Sachs & Co. to help fund the leveraged buyout of the company by an affiliate of Kohlberg & Co. LLC;

* U.S. Oncology Inc.'s $575 million via Citigroup, JP Morgan and Wachovia Securities to help fund the merger with Oiler Acquisition Corp., an affiliate of Welsh, Carson, Anderson & Stowe IX, LP; and

* Innophos Inc.'s $190 million via Bear Stearns & Co. and UBS Investment Bank to fund the acquisition of Innophos (Rhodia's North American phosphate chemical division) by Bain Capital.

"So you see," the official recounted, "most of this calendar is comprised of buyout activity."

Low defaults keep junk attractive

The sell-sider went on to say that, contrary to the preponderance of color Prospect News heard late in the week just concluded, the high-yield market at present appears to be in reasonably good shape.

"All signs point to the high-yield asset class remaining attractive, especially if you look at the default rates," said the official.

"Moody's is saying that by the end of the year defaults will be around 3%.

"Meanwhile, although equities have been falling for five or six days straight, it has not impacted our market at all - at least not yet."

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