Norcraft's $150 million new deal oversubscribed; Collins & Aikman gains on Ford contract

By Paul A. Harris

St. Louis, Oct. 10 - In what was described as a "lightly attended" session, a pair of junk bond deals priced on Friday.

Sell-side sources were in a congratulatory mood as they mulled terms of what was reported to be a massively oversubscribed $150 million issue from Norcraft Cos. LP. And when the Minnesota cabinet maker's bonds were freed for trading in the secondary they popped their drawers, sources said.

Meanwhile in the secondary market Collins & Aikman Corp. bonds were jacked up Friday on reports that Ford Motor Co. has pegged them to do extensive work on the interior of the 2006 Futura model. The company's debt had been blasted in earlier sessions on news reports that Daimler Chrysler might rebid its contracts with the parts company - although after a private call with bank lenders Tuesday it recovered somewhat.

"Technicals are really driving this market," commented a sell-side official as Friday's abbreviated pre-Columbus Day session began winding down. The Bond Market Association recommended a 2.00 p.m. ET close Friday for trading and a full close Monday to market the holiday.

"People are coming into the home stretch of the year and they want to get invested. I think cash balances continue to tick up.

"And although you hear people coming out on both sides, I think people are sensing a better economic environment - the employment report has gotten everybody focused on a growing economy - so people are willing to take a little more risk to get a little more yield."

A case in point, the source said, was Universal Hospital Services' issue of 10 1/8% notes due 2011 (B3/B-) on Wednesday. During Friday's session the paper, which had priced at par, was reported to have traded as high as 103.625 bid, 104.5 offered and settled late in the session at the 103 level.

"That's what happens when you get a 10-handle on a piece of healthcare paper, regardless of how risky it might look," the sell-side official said.

Much the same dynamics that lifted Universal Hospital's notes on Wednesday seemed to drive Friday's Norcraft deal, brought to help finance the $315 million leveraged buyout of the company by Saunders Karp & Megrue and Trimaran Capital Partners from Pfingsten Partners, LLC and Goense, Bounds & Partners, LLC.

Issuing jointly with subsidiary Norcraft Finance Corp., the kitchen and bathroom cabinet maker sold $150 million of eight-year senior subordinated notes (B3/B-) at par to yield 9%, at the tight end of the 9%-9¼% price talk. The bookrunner was UBS Investment Bank.

Soon after terms emerged a sell-side source not involved in the transaction stated: "That's one hell of an execution.

"For an LBO to come at 9% there had to be pretty good demand.

"They were senior subordinateds," the source added. "And there is equity being thrown in, but not a ton of it."

Indeed, shortly later another source told Prospect News that Norcraft had been "massively oversubscribed," and added that the new notes shot up to 104 bid immediately after they were released for trading.

"It was a $150 million deal with a decent coupon," yet another source commented. "That kind of stuff has been happening if there is any kind of demand.

"Most of the new issues that have a decent coupon have been popping up to that 103-104 category."

Late in the session a secondary market source cited Norcraft at 104.25.

Also in the new issue market, Phibro Animal Health Corp. and Philipp Brothers Netherlands III BV combined as issuers to sell $105 million of four-year senior secured notes (B2/B-) at par to yield 13%, right on top of the 13% price talk.

Jefferies & Co. ran the books for the Fort Lee, N.J. animal health products refinancing deal.

Meanwhile in the secondary market trading was reported to have been comparatively light among existing issues.

However Collins & Aikman, the automotive parts supplier that recently hogged headline-space with reports that an apparently disenchanted DaimlerChrysler Corp. would dump its contract with the company, was back for more on Friday.

This time, though, Collins & Aikman's paper was reported to be getting significant lift on the news that Ford has contracted the parts supplier to furnish the interiors of the 2006 Futura, the line slated to replace Ford's long-popular Taurus.

Starting quite early in Friday's session sources told Prospect News that Collins & Aikman paper was on the move.

One secondary source cited the company's paper up as much as eight points on the news.

A trader singled out the 10¾% notes due 2011 and said that they were "up three to five points," at 87 bid, 88 offered.

A different observer said that the 10¾% notes due 2011 went to 85 from 82.5.

Another source pointed to Collins & Aikman's 11½% senior subordinated notes due 2006 which rose as high as 76 in morning trading, from Thursday's levels of 66 bid, 68 offered.

Towards the end of the session they settled down to 74, 75 area, added the source.

Yet another observer reported that the 11½% notes due 2006 went to 76 from 66.5 during the session.

A trader noted: "CKC traded between 76 and 79, today, with a lot of bonds having traded. The seniors and the juniors traded as low as 75 and as high as 78."

Also the beneficiary of good news Friday was San Jose, Calif. power producer Calpine Corp., which reported Wednesday that it had inked a 10-year contract to supply 570 megawatts of electricity to San Diego Gas & Electric.

"All of their paper was up a point-and-a-quarter to a point-and-a-half," said one source, citing Calpine's 8¾% notes due 2007 as having moved to 79 from 77.5 and the 7 5/8% notes due 2006 to 85.5 from 83.

Another source had Calpine's 8½% notes due 2010 at 96 bid, 96.25 offered, the 8½% notes due 2011 at 74 bid, 74.75 offered, and the 8 5/8% notes due 2010 at 74.5 bid.

Also showing evidence of lift were the bonds of some of the commercial air carriers.

"The airlines in general were up on the numbers showing a little better pricing and higher loads," said a trader

"They were slightly better; not out of the woods, but off the bottom."

Delta Airlines notes due 2005 were at 91 bid, 92 offered, added the trader, "probably up a point.

"The longer paper isn't up quite as much, probably half a point to a point," the trader added.

And Northwest Airlines notes due 2005 were 88 bid, while the notes due 2006 are 86 bid.

"I don't see people flooding the right side of this stuff," added the trader, referring to the offered side. He noted that Friday's session seemed to be "lightly attended."

The paper of St. Louis-based cable operator Charter Communications, which reportedly had firmed somewhat during Thursday's session, softened slightly on Friday.

A source gave Charter's 10¾% notes due 2009 at the 86.25 level, "down about half a point from Thursday."

The Charter 8 5/8% notes due 2009 at 81.5, were unchanged, added the source.

Finally, the bonds of San Francisco-based blue jeans maker Levi Strauss, which indicated in a filing to the Securities and Exchange Commission on Thursday that it overstated earnings in 2001 by $26 million because of accounting errors on 1998 and 1999 tax returns, also were heard to be on the descent Friday.

"They were down a point or two on the bid-side," commented a trader who cited the 12¼% notes due 2012 at 80.25 bid, 81.25 offered, compared to 82 bid, 84 offered on Thursday.

Another secondary market source had the 12¼% notes due 2012 moving down to 80.25 from 83, and the 11 5/8% notes due 2008 to 79.5 from 89.75.

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