Collins & Aikman carnage continues; downsized Borden prices; El Paso scrubs 6.14% remarketing

By Paul Deckelman and Paul A. Harris

New York, May 16 - Collins & Aikman Corp.'s bonds fell sharply for a third consecutive session on Monday, traders said, with the embattled Troy, Mich.-based automotive interior components maker's Collins & Aikman Products Co. 10¾% senior notes due 2011 having now traveled down into the lower 30s - and its 12 7/8% subordinated notes due 2012, already down in the single digits, approached near- worthlessness.

In the primary market, Borden Chemical Inc. was heard to have priced a downsized and restructured two part deal late in the session; earlier, word spread that El Paso Corp. had withdrawn from its planned remarketing of $272 million of 6.14% notes due 2007.

In the face of a three-digit rise in the Dow Jones Industrial Average, the high-yield market continued its downhill car-ride on Monday, trading off a quarter to a half point, according to one source who added that the session produced little news.

However the primary market did stir as the week of May 16 got underway in the beleaguered junk bond market.

Borden Chemical Inc. priced a downsized, restructured $150 million deal which sources said it positively had to get done.

And Equity Inns Inc. checked in Monday to the junk market knowing that although vacancies are presently plentiful, rates are no longer cheap.

And El Paso Corp. postponed its $272 million remarketing deal citing market conditions.

Borden gets it done

Sources characterized it as a deal that the company had to get done as part of the committed financing for the Hexion merger, and on Monday Borden Chemical did get the deal down.

BCI US Finance Corp. issuing in conjunction with Borden Nova Scotia Finance priced a downsized, restructured $150 million issue of second-priority senior secured floating-rate notes due July 15, 2010 at 98.846.

The notes will pay a coupon that floats at three-month Libor plus 550 basis points, inside of the revised Libor plus 575 basis points (which had widened from the original talk of Libor plus 475 to 500 basis points) but 75 basis points wide of where the original $150 million issue priced last August.

Credit Suisse First Boston, JP Morgan and Morgan Stanley were joint bookrunners.

The issue was downsized from $250 million, with $100 million shifted to the company's term loan. Also, a planned fixed-rate tranche was eliminated.

Upon completion of the pending merger of Borden Chemical and the Resolution companies will be merged into Hexion Specialty Chemicals.

Equity Inns checks in with $65 million

One new offering appeared during the Monday session.

Equity Inns Partnership LP (Equity Inns Inc.) plans to price a $65 million offering of seven-year senior unsecured bullet notes (B1/B+) during the next five-to-seven business days, pending market conditions.

A roadshow, if necessary, will take place late this week and early next week.

Morgan Keegan has the books for the debt refinancing, acquisition and general corporate purposes deal from the Germantown, Tenn.-based real estate investment trust with interests in hotel properties including Hilton and Marriott.

Mitch Collins, vice president and chief financial officer for Equity Inns, said that while the issuer ratings are Ba3 from Moody's Investor Services and BB- from Standard & Poor's, the notes received the B1/B+ ratings because the company is a first-time issuer with 95% of its debt secured, and the notes are being issued at the REIT level as opposed to the operating company level.

Collins, who added that Equity Inns' leverage is presently 4.4 times EBITDA, declined to specify what the company expects its new bonds to yield.

He said that market conditions currently are difficult, but the company is coming from a resilient sector with a strong balance sheet, and that it also stood to benefit from the relatively small size of the deal, in that the order book would not be nearly as difficult to fill as would be the case had it been in the market for $200 million or more.

El Paso passes for now

Finally on Monday El Paso Corp. joined the roster of recently postponed deals.

The company withdrew, temporarily, its remarketing of a $272 million issue of 6.14% senior unsecured notes due Aug. 16, 2007 (assumed ratings Caa1/CCC+) saying that it was unable to do so "at commercially reasonable rates."

The notes originally formed a part of El Paso's June 2002 issue of 9% equity security units, which include obligations to purchase the company's common stock on August 16, 2005.

Credit Suisse First Boston, the remarketing agent, will have two more opportunities to remarket the notes prior to Aug. 16, 2005, at commercially reasonable rates, after which the notes that have not been separated from the equity security units will be canceled in satisfaction of holders' stock purchase obligations.

Tough sledding in 2005?

One sell-side source, examining Monday's paucity of headlines, as well as a high-yield market that continued to trade off in the face of advancing equity prices, said that the 2005 high-yield market's candle is a flickering one.

"Right now the story seems to be liquidity," the source said, adding that people might begin to reason that the stock market will have better returns than junk.

"People are having redemptions, and that has the accounts on the sidelines," the source added.

The source noted that even though the Dow Jones Industrial Average closed over 112 points higher on the session, high yield continued to get hammered.

When Prospect News asked this source whether the new issue market, which saw $142 billion of total issuance in 2004, could reasonably expect to reach $100 billion in 2005, the source expressed doubts.

"Some peoples' market models for 2005 tended not be as big as last year's models," the sell-sider said, adding that models generally did not factor in the downgrades of Ford Motor Co. and General Motors Corp. debt to junk.

Collins & Aikman down again

Back in the secondary arena, Collins & Aikman continued to dominate the proceedings for a third straight day, a session characterized by relatively light activity level - but a heavy tone, with the deteriorating fortunes of Collins & Aikman casting a pall over pretty much everything else.

"CKC got clobbered again," a trader said, referring to the company by the ticker symbol it used to use when it traded on the New York Stock Exchange, up until the end of last week, when it was unceremoniously suspended and slated for de-listing after falling well below the minimum $1 per share price and staying there for a number of days.

He saw the 10¾% notes fall to 33 bid, 35 offered from prior levels around 38 bid, 40 offered, while the 12 7/8% notes dropped to 4 bid, 5 offered from previous levels at 5.5 bid, 6.5 offered.

Another trader agreed that Collins "got beat up today," for a third straight session, with the senior bonds pegged at his shop down five points from the open to a level of 34 bid, 35 offered.

That was where another market source also saw them, while quoting the 12 7/8s down a point on the day to 4 bid.

There was no fresh news seen out on the company on Monday, although some published reports said that it was scheduled to be meeting with its banks.

The Collins senior bonds had swooned a whopping 20 points on Thursday, from the mid-60s down to the mid-40s, and then had fallen another seven or eight points Friday, to the upper 30s. The juniors, meantime, collapsed from the low 20s to around 8 bid on Thursday, and then down to around the 5-6 area Friday, before both issues continued their slide on Monday. Collins' bank debt also declined precipitously in that stretch, from near-par levels, to the upper 80s, by Monday afternoon.

The rout was triggered by Thursday's announcement of the resignation of its chief executive officer, David A. Stockman, its disclosure that it had breached its loan covenants and was being forced to seek waivers from its lenders, and its revelation of a perilous liquidity situation, with less than $14 million of cash and borrowing capacity available.

Ousted chief Stockman had previously expressed cautious confidence that the company would find the sufficient liquidity resources from its operating cash flows to allow it to keep functioning and meet its obligations. But it faces a $26.875 million interest payment June 30 on its $500 million of outstanding 10¾% notes, and then, on Aug. 15, it faces another $26.71 million coupon payment on its $415 million of outstanding 12 7/8s.

At the same time, Collins & Aikman, like the other automotive suppliers, has been badly hurt by the downturn in the U.S. automotive industry. Recent credit ratings downgrades to junk by Standard & Poor's for the bonds of General Motors Corp. and Ford Motor Co. had the impact of drastically cutting Collins' availability under its accounts receivable facilities, which is tied to the ratings status of its bread-and-butter customers.

With many market denizens speculating that a bankruptcy filing now is at most, only weeks away, the major agencies last week sharply reduced their ratings on Collins & Aikman's $2 billion of outstanding debt, which includes the $915 million of junk bonds. S&P lowered its unsecured and subordinated debt ratings to CC from CCC and downgraded the company's corporate credit rating, to CCC- from CCC+, while Moody's Investors Service cut the senior notes to Ca from Caa1, lowered the subordinated notes to C from Caa2 and downgraded the senior implied ratings to Caa2 from B3. Both agencies have negative outlooks on the debt as well.

Other auto names drop

Elsewhere, "everything was getting clocked," a trader said, particularly in the same automotive sector that's been dominated this past week by Collins & Aikman.

For instance, Dura Operating Corp.'s 9% notes due 2009 were seen down a point at 58.5 bid, 59.5 offered, while Tenneco Automotive Inc.'s 10¼% notes due 2013 were a point easier at 108. ArvinMeritor Inc.'s 7 1/8% notes due 2009 were two points lower at 90 bid.

The only real exception to the rule among the auto names Monday was Delphi Corp., which had on Friday announced that it would seek to refinance about $3 billion of debt to shore up its liquidity position, in preparation for having to make large pension fund contributions this year and next and pay off $500 million of bonds coming due next year. Delphi said in a filing with the Securities and Exchange Commission that it was meeting with its banks on the refinancing Monday, and word from the bank debt markets was that it had launched a $2.75 billion deal.

Delphi's 6½% notes due 2013 were seen up a point at 71.5 bid, 72.5 offered, although at another desk a source saw the 6.55% notes due 2006 - the issue being taken out next year - down half a point at 93.5.

Delphi also disclosed in its filing that that two unidentified lower- and mid-level executives had quit due to an ongoing accounting investigation.

El Paso little moved

Outside of the automotive area, though, little real movement was seen. For instance, traders saw not a lot of activity in El Paso, even with the news that the remarketing of the 6.14% notes was off. A trader saw the company's 7¾% notes due 2032 at 88.5 bid, 89.5 offered post-news, versus earlier levels of 87.5, but said he had seen no comparable changes in other issues from the Houston-based energy and power concern. He quoted its 7¾% notes due 2010 and 7 5/8% notes due 2012 both at 94.5 bid, 96.5 offered post-news, but had no pre-news levels with which to compare them.

"It was just a quiet day," he said.

Another trader pronounced El Paso's 6½% notes due 2008 and 7¾% notes due 2010 "pretty much unchanged" at 94 bid, 95 offered and 94.5 bid, 95.5 offered, respectively.

Rite Aid unchanged

A trader said there seemed to be little impact from the news late Friday that billionaire investor Carl Icahn has taken a 10 million-share position in Rite Aid Corp. That was disclosed in a filing with the SEC - and follows the sometime-corporate raider's recent successful effort to shake up another company in which he had taken a sizable stake, Blockbuster Inc.

Whether he would want to similarly challenge the management of Camp Hill, Pa.-based drugstore chain operator Rite Aid is not known. Icahn's holding is about 2%

The news seemed to have little impact on the company's bonds, which the trader said were "not much changed"; he quoted Rite Aid's shorter paper as "hanging in there," with the 7 7/8% notes due 2007 at 99.5 bid, 100.5 offered, although he said its longer-date issues were recently "under pressure a little," with its 7.70% notes due 2027 in a 73-76 range, and its 6 7/8% notes due 2028 around 70-72.

"They're definitely off over the past couple of weeks, with everything else, but they didn't rally on this news. I didn't really see any upward momentum from that news."

At Dallas-based Blockbuster, Icahn, who owns about 10% of the company, won a proxy battle last week to put himself and two allies on the underperforming movie rental company's board, in the process ousting chairman John Antioco, a frequent Icahn target for what Icahn called his "heavy spending." After having made his point though, the unpredictable billionaire quickly reversed course, as the newly reconstituted board then voted in a special meeting to create another seat and reinstate Antioco. Icahn too went along with the move, possibly to extend an olive branch to his erstwhile foe - or more pertinent, to save Blockbuster the expense of having to pay the ousted exec $54 million of severance by un-ousting him.

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