Activant deal prices, Pregis re-prices; Delphi continues easing; funds see $69 million outflow

By Paul Deckelman and Paul A. Harris

New York, Oct. 6 - Activant Solutions Inc. priced a slightly upsized two-part note offering on Thursday, high-yield syndicate sources reported. Meantime, Pregis Corp. - which had priced a two-part offering last week - took the unusual step of re-pricing its deal, citing problems caused by a raw material supply disruption stemming from Hurricane Katrina.

Raw materials supply and demand - and their effect on prices - also continued to be felt in the secondary market, where industrial companies struggling with high raw materials costs, on top of their other problems, continued to struggle.

Once again, Delphi Corp. held the spotlight. A trader said: "It's the focus as we get closer and closer to Oct. 17" - the date on which federal bankruptcy laws get tougher for companies and individuals seeking court protection from their creditors. The deadline looms over Delphi, which has warned that it could go bankrupt.

Also struggling were the bonds of paper and packaging companies, including Tembec Industries Inc., Tekni-Plex Inc. and Solo Cup Co.

Overall the junk market continued to trade lower on Thursday, with a source marking the broad market down half a point.

And after the day's dealings had finished up, market participants familiar with the weekly junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that $69.4 million more left those funds in the week ended Wednesday than came into them.

It was the fourth straight weekly outflow, although it was dwarfed by the massive $1.295 billion hemorrhage seen in the previous week, ended Sept. 28; in that time, outflows have totaled $1.892 billion, according to a Prospect News analysis of the AMG figures. Outflows have now been seen in five weeks out of the last six, and 11 weeks out of the past 13. During that latter timeframe, net outflows have totaled approximately $2.745 billion - up from the previous week's $2.676 billion total, according to the Prospect News analysis.

For the year so far, outflows have now been seen in 31 weeks of the 40 since the start of the year, against only nine weekly inflows. Cumulative net outflows for the year total around $9.784 billion, according to the Prospect News analysis, up from $9.715 billion last week.

The latest week's outflow gives further credence to the notion that the funds have reverted to the trend seen earlier in the year, when outflows totaling about $6.776 billion were seen in 15 straight weeks from mid-February through late May, according to the analysis. After that, there was a short period in which no clear trend could be seen, with about a month of inflows and outflows showing up on alternating weeks - but since July, money has been almost consistently flowing away from the funds.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants, since they are considered a generally reliable barometer of the overall liquidity trends - and because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Activant adds-on, prices PIK

Activant Solutions priced two tranches of high-yield notes during the Thursday session.

The company priced a slightly upsized $145 million add-on to its Libor plus 600 basis points senior floating-rate notes due April 1, 2010 (B2/B+) at par to yield three-month Libor plus 600 basis points.

The issue, which was increased from $140 million, priced on top of the price talk.

The original $120 million issue priced at par on March 30, 2005, bringing the total issue size to $265 million.

The company also priced $40 million of new six-year senior floating-rate PIK notes (Caa1/B-) at par to yield Libor plus 850 basis points.

Deutsche Bank Securities and JP Morgan ran the books.

Pregis reprices

After postponing the closing of its bond deal owing to an adverse conditions disclosure issue relating to a raw material supply disruption caused by Hurricane Katrina, Pregis repriced the deal on Thursday.

The company repriced €100 million of 7.5-year senior secured second-lien floating-rate notes (B3/B-) at par to yield three-month Euribor plus 500 basis points, on top of price talk.

On Sept. 27, prior to the postponement of the deal, the original euro-denominated floating-rate notes had priced at par to yield three-month Euribor plus 475 basis points.

Also on Thursday Pregis repriced $150 million of 12 3/8% eight-year senior subordinated notes (Caa1/CCC+) at 98.149 to yield 12¾%, wide of the 12½% area price talk.

Originally the subordinated notes had priced with a coupon of 11 7/8% at 98.102 to yield 12¼%.

Proceeds will be used to help fund approximately $530 million acquisition of the Pactiv Corp.'s North American and European protective and flexible packaging businesses to an affiliate of AEA Investors LLC.

Credit Suisse First Boston had the books.

Donnelley/Dex takes shape

Finally, news emerged on the financing for R.H. Donnelley Corp.'s acquisition of Dex Media Inc., which will include $2.092 billion in high-yield bonds in addition to $503 million in incremental term loan bank debt, according to an 8-K filed with the Securities and Exchange Commission Thursday.

JP Morgan is the lead bank on all of the financing.

The bonds will be divided into a $1.842 billion senior notes offering from R.H. Donnelley and a $250 million senior notes offering from Dex Media, the filing said.

The transaction is expected to be completed during the first quarter of 2006.

Delphi lower

In the secondary arena, a trader said that Delphi's bonds were "active, but a little weaker," with the Troy, Mich.-based automotive electronics manufacturer's benchmark 6.55 % notes due 2006 closing at 69 bid, 70 offered, down a point from Wednesday's final levels.

Another trader saw the 6.55s open at 69 bid, 70 offer, and then drop a point lower as the day wore on to 68 bid, 70 offered, and saw the company's 7 1/8% notes due 2029 likewise down a point, at 61 bid, 63 offered. He saw the two issues of 6½% notes - due 2009 and 2013 - each down two points on the session, at 64 bid, 66 offered and 63 bid, 65 offered, respectively.

Delphi's New York Stock Exchange-traded shares, meantime, lost 30 cents (12%) to end at $2.20 on volume of 20 million shares, about 2½ times the norm.

"There was a lot of news, a lot of speculation," but nothing particularly firm to discuss," the first trader said. "They were moving up a little bit, then the union guy said we're not going to accept this [concession demand], and then S&P downgraded them."

Delphi, a former General Motors Corp. subsidiary before it was spun off in 1999, has warned that it could be forced into bankruptcy by its high labor costs, which it inherited at the GM plants it took over. It has asked its onetime corporate parent and the United Auto Worker union for help in cutting its heavy labor and pension costs, but so far the other two parties have remained warily non-committal.

A UAW-published internal newsletter for members said that so far, GM has refused to OK the concessions Delphi said it must have.

The newsletter for UAW local 292 in Kokomo, Ind., said that "during the last two weeks of meetings, Delphi representatives have clearly stated that regardless of what the UAW agrees to, GM must provide billions of dollars in financial support or Delphi will be forced to file Chapter 11 bankruptcy," - but added that the giant automaker "has not agreed to do so at this time," it said.

From the union, Delphi wants wages for covered workers rolled back to $10 to $12 per hour, cuts in healthcare benefits, and the elimination of a jobs bank that include 4,000 idle UAW workers, who get paid even when they are on furlough.

Also on Thursday, Standard & Poor's lowered Delphi's credit rating, citing its increasing concern that the parts supplier could file for bankruptcy in the next few days. S&P lowered Delphi's already weak credit rating two notches further to CCC- from CCC+.

Other auto names affected

Delphi's continued trouble "does precipitate some weakness in other [auto supplier sector] credits, more so than usual," a trader said. He saw Dura Operating Corp.'s 9% notes due 2009 a point lower at 68 bid, 69 offered, while ArvinMeritor Corp.'s 8¾% notes due 2012 were a point lower at 96 bid, 97 offered.

Visteon Corp. - a former Ford Motor Co. subsidiary that faced the same kinds of problems Delphi now faces, until Ford, with the UAW's approval, agreed earlier this year to take back about two dozen high-labor cost plants - was also lower, with its 8¼% notes due 2010 off half a point at 94 bid, 95 offered.

And Lear Corp.'s 5¾% notes due 2014 were down a point at 82 bid, 82.5 offered.

Solo Cup down further

Outside of the automotive sector, things were "kinda spotty, activity-wise," a trader said, with some market participants having not yet returned from the two-day Jewish New Year holiday at mid-week, while others cut out early ahead of Friday's abbreviated pre-Columbus Day session (the debt markets are slated to wrap up at 2 p.m. ET and then be closed on Monday, although the equity markets will be open).

In the paper and packaging segment, he saw "Solo Cup under pressure again today," with the company's 8½% notes due 2014 trading in the 84.5 bid area, down from 86.25 bid, 87.25 offered at the close Wednesday, and well down from levels as high as 89 just a few days earlier.

"There were a lot of sellers," he said, "and bonds were offered out there" after Standard & Poor's outlook on the company's B+ credit rating was revised downwards last week.

"People are just coming to the realization that the raw materials costs are going to hurt these guys, so a lot of bonds were traded today."

He said that the bonds "consistently traded today" in an 84.5- 85-85.5 context, and at the end of the day, an 85 bid "got hit." He said the recent pressure on the company's bank debt "definitely is carrying through to the cash bond market."

Tekni-Plex sinks

Looking generally at the sector, "packaging's been getting crushed over the last couple of weeks," such as the Tekni-Plex 8¾% notes, trading at around 85 bid, several points below recent levels, "with a lot of bids getting hit up around that level."

The company's 12¾% subordinated notes due 2010 were left at 50.5 bid, 51.5 offered.

"Over the last week, those were lower, they had been trading around the 53-54-55 area just a couple of days ago."

Another trader agreed that there was "still pressure" on Tekni-Plex, for a second straight session, following a drop of at least three points on Wednesday, which coincided with S&P's downgrade of the Somerville, N.J.-based packaging materials company's debt ratings, due to escalating raw materials prices.

He saw the Tekni-Plex 123/4s drop to 49.5 bid, 50.5 offered, down about a point on the session and a whopping 10 points over several sessions from its levels a week ago.

Tembec higher after presentation

The trader also said that "earlier in the day," there was a little rise in the bonds of Tembec Industries, on the strength of a presentation to analysts on Wednesday.

"I guess it went relatively well," he said, "for a distressed credit," and that helped to boost the Canadian forest product's company's 8 5/8% notes due 2009 as high as 69.5 bid from opening levels around 67.5 bid, 68.5 offered, although the bonds "did pull back" and finish no better than 68 bid, 69 offered, up half a point on the day.

At another desk, a market source saw the company's 8½% notes due 2011 up as much as 1½ points in the early going to 66.5, although they likewise came off a little from that peak level to end a point better at 66.

"These bonds [in the packaging sector] started to go down right before Hurricane Katrina, and they just never really recovered," the first trader said.

One of the few names among the packaging issuers whom he saw pretty much hanging in there was Stone Container. "They're not down as much as the other [companies'] bonds."

He quoted its 8¼% notes due 2012 were offered at 95, with no bid, while its 9¼% notes due 2008 closed at 102.5 bid, 103.5 offered, "only down a little bit, compared to some of the other names."

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