Axcan Pharma prices a tranche; Hawker Beechcraft, Amkor gain on numbers; Idearc bounces back

By Paul Deckelman and Paul A. Harris

New York, Feb. 13 - On Wednesday the high yield primary market saw what market observers - most of them from the sell-side - have been characterizing as a first for 2008.

Although it is an LBO financing, Wednesday's Axcan Pharma Inc. deal was not entangled with the backlog of hung risk related to the massive, highly leveraged LBO deals hatched during 2006 and the first half of 2007.

Nor does Axcan emanate from the energy/resources sector.

Up until Wednesday all of 2008's issuance either came from energy/resources or was related to the backlog of hung risk.

However at the end of the session terms emerged on less than half of the Axcan issuance that had been expected and the bonds that did price came wide of talk.

That dashed hopes that a successful offering would help resuscitate a barely alive primary market.

Back among the established issues, company earnings continued to be a factor in secondary market movements. Hawker Beechcraft Acquisition Company LLC's bonds were seen solidly higher, taking flight on the Wichita, Kan.-based aircraft manufacturer's equally solid financial results for the nine-month period ended Dec. 31.

Good numbers also gave a boost to the bonds of Amkor Technology Inc.

General Motors Corp. continued to show strength, despite a record annual loss reported Tuesday.

Traders saw Idearc Inc.'s bonds - which had been getting clobbered all of last week on disappointing quarterly results before finally stabilizing at lower levels Monday and Tuesday - actually pushing upward a little on Wednesday from their oversold condition.

However, from deep in distressed territory, Tembec Inc.'s bonds were seen continuing to tumble, pushed down by the latest poor results from the Montreal-based forest products company. Sector peers such as AbitibiBowater Inc. and Ainsworth Lumber Co. were also seen on the downside.

Axcan prices secured notes

In a restructured LBO financing Axcan Intermediate Holdings Inc. priced a $228 million issue of 9½% seven-year senior secured notes (Ba2/BB-) at 98.737 to yield 9½% on Wednesday.

However Axcan withdrew from the market a proposed downsized $235 million tranche of eight-year senior unsecured notes (B3/B-). Instead of placing the unsecured notes the underwriters funded the bridge loan backing them. The piece had been cut from $240 million.

A source told Prospect News that the unsecured notes could re-emerge in the future pending market conditions.

The secured notes priced wide of the price talk which had them coming with a 9% coupon at a discount to yield 9¼%.

Earlier in the week Axcan restructured its $750 million of LBO financing by upsizing the bond portion to $460 million from $240 million, mostly with the addition of the senior secured notes.

In doing so the company eliminated a proposed $385 million institutional term loan B, replacing it with the senior secured notes and a new $165 million term loan A.

Banc of America Securities LLC was the left lead bookrunner for the notes. HSBC and RBC Capital Markets were joint bookrunners.

Adding to the load

Wednesday night a high yield syndicate official not in the Axcan deal, but who was watching it unfold with baited breath, characterized the results as discouraging.

This source and others have recounted for Prospect News that the $1.3 billion Axcan LBO deal was announced in late November 2007, long after sponsors and underwriters had accepted the deep distress in the credit markets as an accomplished fact.

Hence, those sources say, the Axcan debt financing was outfitted with leverage ratios and bridge caps built to suit the new realities in the high yield and leveraged loan markets.

In spite of that, one sell-sider said, neither the unsecured bonds nor the institutional term loan ended up being placed.

Although the deal came together approximately five months after market conditions turned for the worse, the Axcan unsecured bonds now become part of the hung risk, the sell-sider said.

Several traders said they had not seen any sign of the new Axcan Pharma 9¼% senior secured notes due 2015 in the secondary arena.

Market barometers pointing upward

A trader said the market source indicated that the widely-followed CDX index of junk market performance moved up by a full point on the day to 88½ bid, 88¾ offered. Meanwhile, the KDP High Yield Daily Index broke a string of several consecutive daily declines and rose by 0.07 to 74.18, while its yield narrowed by 2 basis points to 9.60%.

In the broader market, advancing issues narrowly led decliners by a not-quite five-to-four margin. Overall activity, reflected in dollar volumes, rose by 23% from Tuesday's levels.

A trader said facetiously that the main focus of the day at many trading desks "was Roger Clemens," referring to the widely publicized exchange of accusations, under oath, before a congressional investigating committee Wednesday by the all-star pitcher and his former personal trainer over whether he had used steroids and human growth hormone to enhance his athletic performance; each man all but called his former friend a bald-faced liar.

But even with that distraction, the trader acknowledged that most of the issues he was watching ended the day on the upside, or pretty much unchanged at worst.

Another trader declared that the high-yield market "was a lot higher today," taking its cue from equities, which were higher all day but which put on a late-session push to close near their day's highs; the bellwether Dow Jones Industrial Average ended up nearly 179 points. Stocks - and by extension, junk bonds - were helped at least in part by an unexpected surge in January retail sales - Washington said they gained 0.3%, versus the roughly 0.3% decline which most Wall Streeters had been expecting.

Besides drawing strength from stocks, the trader said, junk also got a boost from a better loan market, with the LCDX index up "about 80 cents" on the day.

He suggested that market participants probably "figured out that they took them [junk bonds] down far enough - for the time being."

Auto benchmarks hold their own

He saw the big automotive benchmark bonds essentially unchanged on the day, with General Motors' 8 3/8% paper due 2033 holding steady at 81 bid, 82 offered and GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 at 71 bid, 72 offered.

Another trader saw the GM bonds actually up ½ point at 80.5 bid, 81.5 offered, and also saw the Fords little moved at 71 bid, 73 offered.

"For some reason." he said, "the GMs were up" even amid the widely reported Tuesday news that the giant carmaker had lost more than $38 billion last year, its widest-ever annual loss. He noted that the company's fourth-quarter loss of $722 million - most of that due to a big charge attributable to GM's efforts to help its troubled former parts unit Delphi Corp., now restructuring under Chapter 11 - "was less [than expected], so it was OK and [investors] think they're going in the right direction."

However, another market source saw the benchmark GM bonds down more than a point around the 78.375 level, although Ford's 6 3/8% bonds due 2029 were up nearly 2 points at 66.

Beechcraft flies on strong earnings

Apart from the autosphere, Hawker Beechcraft's 8½% notes due 2015 were quoted by a market source up nearly 3 points on the session to just below the 101 level.

Another source saw those bonds up around 2 points to the 100.5 level, in brisk trading, but saw the big mover of the day as the company's 9¾% notes due 2017, which opened up 1½ points over Tuesday's close at 94, and which tacked on another 3 points to end at 97. Trading volume was seen as active, with a number of big-block transactions.

Those bonds were reaching for the skies after the manufacturer of business, special-mission and trainer aircraft reported sales of $2.793 billion and operating income of $148.3 million for the nine months that ended Dec. 31, covering the period from the time in March when the giant defense contractor Raytheon Corp. completed the sale of its civil aviation division, then known as Raytheon Aircraft, in order to focus on its military business, and the end of the year. During this time period, it delivered 351 business and general aviation aircraft. The company did not release comparable figures from the year-earlier period, when it was still a Raytheon subsidiary.

The company's chief executive officer, James E. Schuster, said in a statement announcing the results that the company "has had a terrific first nine months with tremendous customer response to our new product introductions, as is evident by our unprecedented growth in bookings and record backlog." Hawker Beechcraft reported net bookings of $5.1 billion for the nine months ending Dec. 31, resulting in a record backlog of $6.3 billion.

Amkor up on good numbers, other techs mixed

Also seen heading higher on good numbers, a trader said, was Amkor Technology, whose 9¼% notes due 2016 were seen up 2 points at 92.5 bid, 93.5 offered. Its 7¾% notes due 2013 were up ½ point at 87.5.

Amkor's Nasdaq-traded shares meantime gained 88 cents, or 10.33%, to end at $9.40, on volume of 7.2 million, more than triple the usual turnover.

The Chandler, Ariz.-based provider of semiconductor testing services said that its fourth-quarter net income jumped to $93.7 million, or 46 cents per share, from $59 million, or 30 cents per share, a year earlier. Those numbers also handily beat analysts' expectations of profits around 28 to 30 cents per share.

Spurred on by demand from the makers of wireless, computing and gaming applications, sales rose 9% year-over-year to $746.9 million from $683 million, and again handily topped Wall Street projections of about $700 million.

Elsewhere in the high-tech sphere, Austin, Tex.-based chipmaker Freescale Semiconductor Inc.'s 8 7/8% notes due 2014 gained ½ point to the 81 level. However, Advanced Micro Devices Inc.'s 7¾% notes due 2012 were seen down a point at 82.5, and Nortel Networks Corp.'s 10 1/8% notes due 2013 were off about 1¼ point to just below 95, despite a jump of $1.29, or 12.51%, to $11.60 in its NYSE-traded shares, attributed to reports that it will form a joint venture with Motorola Inc. that would combine their wireless network infrastructure divisions.

Idearc turns back upward

Dallas-based telephone directory publisher Idearc's 8% notes due 2016 were seen by a market source to have gained more than 3 points on the day to finish around the 76 level, in active dealings.

It was sharp comeback for those bonds, which had gotten pounded down by nearly 20 points over the span of a few sessions last week, languishing in the low 70s, on sagging fourth-quarter numbers.

After having apparently found a bottom in the 71-73 area on Monday and Tuesday, putting a halt to the slide, the bonds began to move back up from their oversold condition. A trader at another shop quoted the bonds up a point at 72 bid, 74 offered, although another market source pegged them at 73 bid, down ½ point on the day.

The trader meantime saw the 8 7/8% notes due 2016 of Idearc rival R.H. Donnelley Corp. ending at 72 bid, 73 offered, which he called unchanged on the day. He said that the bonds of the Cary, N.C.-based company - which is being hurt by the same industry dynamics as Idearc as the slowing economy reduces directory advertising revenues - got as good as 75 during the session, but then fell back from that peak, mostly moving in a 71.75-72 context.

He said that all of its bonds, like the 6 7/8% notes due 2012, were still down around 10 to 12 points over the last week.

The 8% notes due 2013 of Donnelley's wholly owned Dex Media Inc. subsidiary were meantime down 2 points to 81 bid.

Tembec topples on bad numbers

A major downside mover on Wednesday, against the backdrop of a generally upbeat market, was Tembec, whose 8½% notes due 2011 were seen 5 points lower at 29, after the company's bad quarterly numbers released Tuesday, when the bonds had fallen an additional 4 points.

Tembec fell into the red in the fiscal first quarter ended Dec. 29 to the tune of $60 million, or 70 cents a share, a sharp deterioration from its year-earlier net earnings of $138 million, or $1.62 a share. Sales for the quarter fell to $545 million, down from $649 million a year earlier. The company blamed the negative results on lower lumber prices, declining demand and the appreciation of the Canadian loonie, which drives up the price of lumber and other forest products exported to the United States or other non-Canadian markets, cutting into sales.

Out of that same sector, a market source saw Ainsworth Lumber's 6¾% notes due 2014 off a point at 61.5.

A trader said forest products concern AbitibiBowater's 5¼% notes slated to come due this June were down a point at 94.5 bid, 95.5 offered "on refinancing concerns."

Another market source likewise saw its 6.95% notes coming due April 1 at 95 bid, down nearly 2 points on the day.

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