NRG sees huge demand for $3.6 billion deal; GM, Ford higher; AK, ArvinMeritor up on earnings

By Paul Deckelman and Paul A. Harris

New York, Jan. 24 -NRG Energy Inc.'s planned $3.6 billion mega-deal, set to price on Wednesday, was said to be a "complete blowout," by market sources

And Charter Communications, Inc. led a parade of potential issuers that stepped into the light on Tuesday.

Meanwhile C&M Finance Ltd.'s upsized offering of fixed- and floating-rate notes priced Monday, was seen trading higher when they were freed for secondary trading.

In the secondary markets, General Motors Corp. bonds, and those of arch-rival Ford Motor Co., continued to rise, apparently helped by investor hopes that the auto industry in the United States might in fact be able to turn itself around, after Ford on Monday posted better-than-expected numbers and fleshed out its recovery plan of facility closings and headcount reductions with actual details.

Beyond the beleaguered Detroit giants, auto supplier ArvinMeritor Inc.'s bonds rose after the company released better quarterly earnings data, as did AK Steel Corp.

Overall a buy-side source marked the broad high-yield market up a quarter of a point "with stocks" on Tuesday.

The source commented that there had been "good news out of AK Steel," adding that the company's stock rose 30%, while its 7¾% notes were up 5½ points.

"The market seems to be doing better," the buy-sider said. "I don't think it's a huge, broad rally but in general the tone is a little better."

Meanwhile a sell-side source marked the broad market up an eighth to a quarter despite a plentiful new issue supply.

NRG called a complete blowout

A buy-side source told Prospect News on Tuesday that NRG Energy's $3.6 billion three-part deal (B1/B-/B) has garnered the lion's share of attention in the primary market.

On Monday on the Princeton, N.J.-based independent power producer talked a $2.2 billion tranche of 10-year fixed-rate notes at 7 3/8% to 7 5/8%, and a $1.1 billion tranche of eight-year fixed-rate notes at 12.5 basis points to 25 basis points inside of the 10-year notes.

At press time Tuesday, no price talk had been heard on the proposed $300 million tranche of eight-year floating-rate notes.

Morgan Stanley and Citigroup have the books for registered deal.

A buy-sider forecasted Tuesday that the 10-year fixed-rate notes figure to come at the tighter end of talk, "probably 7 3/8%, maybe 7¼%.

"The 10-year is generating the most interest, which is why it's two times the eight-year in terms of size," the buy-sider added.

"They're telling people that orders on the eight-year will help them with their allocations on the 10-year," the source said, adding that there are "numerous accounts" that have put in orders of $200 million, $300 million and more. "[The underwriter] said it's going to be one of the most broadly distributed deals they've ever done, across a very large swath of their account base," the source said.

Charter coming with $400 million

Well after Tuesday's market close a source told Prospect News that Charter Communications, Inc. plans to hold an investor conference call at 11 a.m. ET Wednesday for a $400 million two-part bond offering (expected ratings Caa1/CCC-) to be issued via subsidiary, CCH II, LLC.

The company plans to offer seven-year senior notes with a coupon that will be cash-pay or pay-in-kind at the company's discretion. The new senior notes will come with five years of call protection.

The St. Louis cable TV and high-speed Internet services provider also plans to do a tap of its 10¼% senior notes due 2010. The present outstanding amount of that issue is $1.6 billion.

JP Morgan, Credit Suisse and Deutsche Bank are joint bookrunners for the debt refinancing deal.

Elsewhere terms are expected Wednesday on CRC Health Corp.'s $220 million offering of 10-year senior notes (Caa1/CCC+), which were talked at the 10¾% area on Tuesday via JP Morgan, Merrill Lynch & Co., Citigroup and Credit Suisse.

The calendar grows

Finally, three prospective issuers took the wraps off of deals expected to price in the coming weeks.

Covalence Specialty Materials will begin a roadshow on Wednesday for its $495 million two-part offering, which includes a $200 million tranche of seven-year second-lien senior secured floating-rate notes and a $295 million offering of 10-year senior subordinated notes.

Banc of America Securities, Credit Suisse, Merrill Lynch and Morgan Stanley are joint bookrunners for the acquisition financing.

Also hitting the high-yield market to finance an acquisition is Stratos Global Corp., which plans to price a $150 million offering of seven-year senior notes (B2) late in the week of Feb. 6, via RBC Capital Markets and Banc of America Securities.

And from Europe, Spain's Grupo Corporativo ONO SA will begin a roadshow on Friday for its €270 million offering of eight-year senior notes.

JP Morgan, The Royal Bank of Scotland and Calyon Securities are leading the cable television company's deal, which it is bringing in order to refinance debt related to an acquisition.

C&M up in trading

When the new C&M bonds were freed for secondary dealings, the 8.10% senior notes due 2016 was quickly heard to have pushed as high as 101.375 bid, 101.875 offered, up from their par issue price, although the floating-rate seniors due 2011 did not budge, hanging in around issue at par bid, 100.5 offered.

Later in the day, a trader quoted the 8.10s at 100.75 bid, 101.25 offered, somewhat off from their earlier highs. He also said that he had not seen any quotes on the floating-rate notes.

At another desk, a trader was quoting both tranches late in the afternoon as trading around 100.75 bid, 101.25 offered.

Charter Communications' announcement of its bond-issue plans came too late in the session to affect the St. Louis-based cable company's existing bonds.

Ford, GM keep rising

Back among the established issues which don't have any new-deal ramifications, Ford and General Motors continued to lead the way, pushing upward for a second consecutive session following Ford's better-than-expected fourth quarter and 2005 numbers and the company's revelation of its plans to make needed cuts in its capacity and to try to bring its costs into line with its sales.

Traders said that GM - which is slated to release its own quarterly and year-end numbers on Thursday - seemed to be the stronger of the two, helped by a better than 5% boost in the auto giant's stock price. A market source quoted GM's benchmark 8 3/8% notes due 2033 two points better at 72.5 and saw the carmaker's 7 1/8% notes due 2013 at 75.5 bid, up from 72.75 on Monday. He also saw GM's 8¼% notes due 2023 better by 1½ points at 70 bid.

A market source at another desk saw the 7 1/8s a full three points better at 76.5, and quoted the company's General Motors Acceptance Corp. 6 7/8% notes due 2012 a point better at 94.

GM and Ford "rallied with their stock," another trader said, quoting the GM 8 3/8s 1½ points better at 72 bid, 73 offered, while Ford's benchmark issue, the 7.45% notes due 2031, were also in that 72-73 context, up a point on the day.

Yet another trader, while seeing the GM 8 3/8s up 1¼ points at 71.5 bid 72.25 offered, saw the Ford bonds at 71.75 bid, 72.5 offered, up a point. As for the bonds of the respective financing units, GMAC and Ford Motor Credit Co., he saw GMAC's 8% notes due 2031 up 1¼ points at 101 bid, 101.75 offered, while Ford Credit's 7% notes due 2013 were unchanged at 88.75 bid, 89.75 offered.

GM's New York Stock Exchange-traded shares gained $1.20 (5.49%), to $23.05 on volume of 30 million, almost double the usual turnover, while Ford, in contrast, was up just eight cents (0.96%) to end at $8.40.

Other auto names steady

While the bonds of the auto giants were doing better, traders said that other automotive-related names were pretty much status quo. "Nothing big," was how one market observer characterized movements in the parts supplier sector, seeing the recently beleaguered Dana Corp.'s 5.85% notes due 2015 unchanged at 65.25, while the Toledo, Ohio-based vehicle systems maker's 6½% notes due 2009 were perhaps half a point better at 72.25.

He saw Dura Automotive Systems Inc.'s 9% notes due 2009 half a point lower at 52 bid, while the Rochester Hills, Mich.-based parts supplier's 8 5/8% notes due 2012 were off 1/8 point at 82.75.

A trader at another shop concurred that "pretty much all of the autos [apart from Ford and GM] were roughly unchanged, and they were also unchanged the day before."

About the only exception to the rule that he could see among the parts suppliers were the bonds of Southfield Mich.-based interior components maker Lear Corp., whose 5¾% notes due 2014 were a point better at 79.5 bid, 80.5 offered.

ArvinMeritor up on earnings

One other automotive-related name that was seen doing better was ArvinMeritor, after the Troy, Mich.-based components maker reported strong results for the 2006 fiscal first quarter ended Dec. 31.

Arvin "reported decent numbers," a trader said, quoting the company's 8¾% notes due 2012 two points better at 96.25 bid, 97.25 offered. "It's one of the ones that's starting to turn around the trend of negative numbers and lower dollar prices on the bonds."

A trader at another shop saw those bonds at 97 bid, 98 offered, which estimated was up two to 2¼ points, while Arvin's 6.80% notes due 2009 were 1¼ points better at 93 bid, 93.75 offered, and its 8 1/8% notes due 2015 were up a deuce at 91.5 bid, 92.5 offered.

Arvin's NYSE-traded shares jumped $2.84 (20.71%) to $16.55 on volume of 2.8 million, about four times the norm, after the company reported that net earnings for the quarter were $34 million (49 cents per share), an 88% rise from $18 million (26 cents per share) a year earlier. Income from continuing operations, before special items, was $11 million (16 cents per share), at the higher end of the company's previous guidance and a penny about Wall Street's expectations. On a GAAP basis, income from continuing operations was $27 million (39 cents per share), up from $14 million (20 cents per share) a year ago. Arvin also issued earnings per share guidance above analysts' estimates and reiterated other previously announced projections.

It also said that its first-quarter free cash flow of $75 million represented "a significant improvement" from the first quarter of fiscal year 2005. Net debt as of Dec. 31 had improved $120 million since the end of the 2005 fiscal fourth quarter on Sept. 30, to the lowest level since the merger of Arvin and Meritor.

AK Steel gains on results

Another company whose bonds were up on favorable results was AK Steel Corp. The Middletown, Ohio-based specialty steels producer's 7¾% notes due 2012 were seen at 94.5 bid, 95.5 offered, well up from 90 bid, 91 offered on Monday, a trader said, while its 7 7/8% notes due 2009 improved to 96.25 bid, 97.25 offered, up from 95 bid, 96 offered.

A second trader quoted the company's bonds up three points "across the board," with the 73/4s at 94.25 bid, 95.25 offered, and the 7 7/8s at 98 bid, 99 offered.

AK's NYSE shares zoomed $2.21 (27.80%) to $10.16 on volume of some 21 million shares, about eight times the average daily handle.

AK said its fourth-quarter net loss in the period ended Dec. 31 was $41.5 million (38 cents per share) - a substantial improvement from its year-earlier loss of $102.8 million (95 cents per share), although the company failed to meet analysts' estimates of a 2 cent per share profit. AK attributed most of the loss to large charges for special items, and said that it swung to an adjusted pre-tax income profit of $65.1 million in the quarter, excluding the special items, from a $44.9 million loss in the third quarter.

AK also noted the impact of soaring raw materials and energy costs which AK executives, on a conference call following the release of their numbers, pointed out that the company had no control over.

As for things that AK did have control over, the chief financial officer, Albert E. Ferrara, told analysts on the call that AK had incurred the large, mostly non-cash charges for the writedown of certain investments in facilities and for pension adjustments "as a result of actions which better position the company for the future, by consolidating and rationalizing our operations to be more cost effective, and addressing long-term pension and health-care costs."

However, the company's president, chairman and chief executive officer, James L. Wainscott noted that AK had cut costs by about $400 million over the past two years and was operating in a leaner, more efficient manner, and that "while other names in the steel industry have vanished, AK and [predecessor company] Armco before it have always managed to win."

But, Wainscott continued, more remained to be done to ensure that AK would be able to continue to compete effectively. He noted that with many former competitors having shed much of their healthcare and pension obligations by restructuring through the bankruptcy process and emerging as lower-cost producers, AK now had "the richest health benefits package in the industry - maybe in corporate America," and said that AK would be asking its unionized workers at its core operations in Middletown for concessions to bring its costs down.

"We've got to have health care cost sharing," he declared, hoping that AK would be able to reach the kind of cooperative agreements on curbing its sizable benefit costs and reducing headcount at Middletown that it had been able to win from the employees of its Ashland, Ohio, plant recently.

AK, he said, has to produce "more, better, faster, safer and with fewer people - because that's what it takes to compete."

During the call, Ferrara also noted that as of the end of 2005, the company had $520 million in cash on hand, an increase of $143 million over its cash balance on Dec. 31, 2004. He said that $520 million cash balance is net of a $150 million early voluntary pension contribution in 2005. AK also had $510 million of credit facility availability, and there had been no borrowings against the facility during the year, for total year-end liquidity of $1.03 billion.

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