Dura Automotive up after stock upgrade; Central European Distribution prices upsized deal

By Paul Deckelman and Paul A. Harris

New York, July 15 - Dura Automotive Systems Inc.'s bonds firmed smartly in generally thin mid-summer trading Friday, taking their cue from the Rochester Hills, Minn.-based automotive components maker's shares, which jumped after they were upgraded by Credit Suisse First Boston.

Overall sources marked junk higher on Friday as the week of July 11 came to a close, with one source commenting that there was a bid, "but you had to look for it."

In the primary market, players took a well-deserved rest after a startling burst of activity Thursday which saw some $1.8 billion of new bonds priced by half a dozen issuers, some of whom upsized their deals to meet increased investor demand.

On Friday things reverted more to a normal sleepy summer pace. But the one transaction, from Central European Distribution Corp., recalled themes that had been in play throughout the latter part of the July 11 week as the company priced an upsized deal - €325 million, up from €310 million - at the tight end of revised price talk.

On Thursday seven tranches priced with four coming upsized, four pricing tight to talk and two on top of talk.

An investor who spoke on background Friday conceded that primary market action during the latter part of the week suggested that the high yield may be getting hot.

When Prospect News pressed for an explanation the investor offered only one syllable: "Cash."

When Prospect News followed by pointing out that for the past month sources have been characterizing the mutual funds flows as "flat" - the most recent being a $12.4 million outflow for the week to July 13 - the investor replied that at present there is believed to be "a lot of institutional money" to be put to work, and also suggested that the hedge funds may currently be active in junk.

Busy for July

With no dollar-denominated transactions pricing on Friday, the week of July 11 came to a close having seen just over $2 billion price in 10 dollar-denominated tranches; incidentally, that is a fair match to the issuance seen during the first full week of business following the Independence Day 2004 break, July 12 through 16, during which a little less than $2.1 billion priced in eight tranches.

Tallying the week's business, the year-to-date total stood at $54.35 billion in 220 dollar-denominated tranches thus far into 2005. Year-to-date issuance to the same point in 2004 was $78.74 billion in 328 tranches.

Looking back on Thursday's $1.775 billion of issuance in seven tranches, sources commented Friday that the high-yield primary seems quite busy given that it is mid-July, a period during which issuance is generally expected to begin to lag.

Data compiled by Prospect News reveals that thus far July 2005 has seen $2.4 billion in 12 dollar-denominated tranches, whereas the same period in 2004 saw over $3.75 billion price in 18 tranches.

CEDC upsized, tight to revised talk

Friday's only transaction came from Bala Cynwyd, Pa., and Warsaw, Poland-based beverage distributor Central European Distribution, which priced an upsized €325 million issue of seven-year senior secured notes (B2/B-) at par to yield 8%, on the tight end of the revised 8% to 8¼% price talk. Initially the notes had been talked at 8¼% area.

ING ran the books for the acquisition deal that had been upsized from €310 million.

One source said that demand for the new Central European Distribution notes had to be robust, claiming to have seen a 103.50 bid for the par-pricing paper.

Preem comes with notes, loans

With regard to the new issue pipeline, news was scarce on Friday.

Corral Investment Co., the parent company of Swedish oil refiner Preem Holdings, will host an investor luncheon on Tuesday for an offering of approximately €500 million of five-year senior floating-rate split-coupon notes and loans.

The notes and loans will be issued in dollars and euros. The split coupon will pay Euribor plus 150 basis points in cash and Euribor plus 650 basis points in kind, for a total of Euribor plus 800 basis points.

Deutsche Bank Securities has the books.

Preem climbs aboard a calendar that contains only two other offerings that are expected to price this week.

Ashtead Holdings plc is in the market with a $250 million 10-year senior secured second-priority notes deal via Citigroup, JP Morgan and Deutsche Bank Securities.

And Kingston, Jamaica-based Caribbean wireless operator Digicel Ltd. is expected to price $250 million seven-year senior notes (B3/B) via JP Morgan and Citigroup.

Mylan slightly higher in trading

Secondary market traders saw little real activity in the issues that priced on Thursday; one said, for instance, that Mylan Laboratories Inc.'s new 5¾% notes due 2010 were quoted in the morning at 100.5 bid, 101 offered, up slightly from their par issue price on Thursday, but were not seen after that.

He also saw Clayton Williams Energy Inc.'s new 7¾% notes due 2013 straddling their par issue price, at 99.75 bid, 100.25 offered.

Both of those deals had priced too late in the session Thursday for any kind of after market activity then. He did not see Beazer Homes USA Inc.'s new add-on 6 7/8% notes due 2015, which had also priced very late in the session on Thursday.

Among the deals which priced a little earlier Thursday and hence enjoyed some aftermarket activity then, not much was going on. CCM Merger Inc./Motor City Casino's new 8% notes due 2013 - which had priced at par Thursday and moved solidly up on the break to around the 102.25 bid, 103.25 offered area, were heard to have opened just a little tighter, around 102.25 bid, 102.75 offered, and then were "just a touch weaker at the end of the day," a trader said, pegging those bonds at 102 bid, 102.5 offered.

Quiksilver Inc.'s new 6 7/8% notes due 2015 were seen hanging in around the same 101 bid, 101.5 offered levels to which they had moved on Thursday after pricing earlier that session at par.

Dura rises

Back among the established names, Dura "was definitely up," a trader said, quoting the company's Dura Operating Corp. 9% notes due 2009 at 80 bid, 81 offered, higher by about four points on the session, while its 8 5/8% notes due 2012 were seen up about 2½ points on the day at 95 bid, 96 offered.

Another trader saw the 9s ending at 79.5 bid, 80.5 offered, but had started those bonds off lower and so estimated that they were up five points on the session. He saw Dura's 8 5/8% notes three points better on the day, going home at 95 bid, 96 offered.

A market source at another desk said that after having peaked at 82 in the early going, the 9% notes came off their highs to go out at 80.5 bid, a four-point gain on the session.

It was the second consecutive sizable gain for Dura, which on Thursday rose about two points on the 8 5/8s to the mid-92 level and which rose more than two points to about the 75-76 area for the 9% notes.

Having already generated some good momentum, Dura's bonds continued on their upside ride all day Friday in tandem with the company's Nasdaq-traded shares, which jumped 91 cents (17.64%) to $6.07 on volume of 768,000, nearly four times the usual turnover.

The stock - and then the bonds - moved after Credit Suisse First Boston upgraded it to outperform from neutral and raised its target price to $6 from $4.

In announcing the stock upgrade, CSFB automotive analyst Chris Ceraso singled Dura out as a good way for investors to take advantage of the recent drop in steel prices, noting that it had been among the first companies to be hurt by rising steel prices in 2004; accordingly, the CSFB analyst said, it should now become one of the first to benefit from the recent fall in steel price levels.

"Even very modest declines in steel costs can have a meaningful effect on earnings for Dura, where net income is close to breakeven, and the share count is less than 19 million," Ceraso wrote in a note to the firm's clients.

Rest of auto sector quiet

Traders said that Dura did not have coattails to take other parts suppliers up for a ride with it.

A trader quoted Troy, Mich.-based automotive electronics maker Delphi Corp.'s 6½% notes due 2013 unchanged at 79 bid, 80 offered. Another trader saw Collins & Aikman Products Corp.'s 10¾% notes due 2011 at 29 bid, 30 offered, unchanged on the session. Goodyear Tire & Rubber Co.'s 7.857% notes due 2011 were quoted up perhaps a quarter point at 99.25.

The lack of much movement in the auto supplier sector, other than Dura, stands in contrast to the sector's firmer trend on Thursday, which came in the wake of the government's retail sales report for June, which saw a 4.8% surge in auto sales during the month - the biggest since May 2004 - on the strength of General Motors Corp.'s "employee discount for everyone" marketing promotion. That incentive initiative boosted GM's sales by an eye-opening 41% over year-earlier levels by giving ordinary carbuyers the same discounts, potentially worth several thousand dollars on some models, that GM employees have long enjoyed. The auto suppliers also benefited from a rise in GM and Ford Motor Co.'s shares Thursday after their upgrade by Lehman Brothers.

But while GM and Ford were the catalysts for the supplier sector's rise Thursday, on Friday, they were "pretty much status quo," a trader said, quoting GM's flagship 8 3/8% notes due 2033 at the same 87 bid, 88 offered level to which the notes had risen on Thursday, while Ford's benchmark 7.45% notes due 2031 hung in at 83.5 bid, 84.5 offered.

Apart from the carmakers themselves and the auto parts manufacturers, the trader saw some auto-related strength in names such as Bloomfield Hills, Mich.-based car retailer United Auto Group Inc., whose 9 5/8% notes due 2012 were a point stronger at 106.5 bid, 108.5 offered, while Philadelphia-based auto parts retailer and car repair chain The Pep Boys - Manny Moe & Jack's bonds were also a point up, at 92 bid, 94 offered.

Salton higher on coupon, exchange news

Outside of the autosphere, movement was seen in the distressed sector in Salton Inc.'s bonds, after the Lake Forest, Ill.-based maker of the George Foreman electric hot dog and hamburger grills and other small appliances announced Thursday that it had made the June 15 interest payment on its 10¾% senior subordinated notes within the allowed 30-day grace period, thus avoiding a default. Those $125 million of bonds are scheduled to mature on Dec. 15, although the company is hoping to convince their holders to exchange the bonds for new debt, plus preferred stock and common stock, via a complex exchange offer unveiled several weeks ago, which is slated to run through Aug. 2, subject to possible extension.

In announcing that the coupon on the bonds had been paid, Salton also announced that so far, holders of $77.8 million of those bonds, or 62.3% of the outstanding amount, have so far tendered their bonds under the offer, thus surpassing the minimum $75 million participation floor. It said that $50.9 million of its 12¼% senior subordinated notes due 2008 have also agreed to tender their notes in connection with the company's debt exchange offer. Salton is issuing $110 million of the new debt, and will issue the new bonds to the existing noteholders at a discount to par under a formula outlined in the exchange offer documents. While the company hopes to pick up all $125 million of the 103/4s, it will issue any new debt not given to the 10¾% noteholders to the 12¼% noteholders in exchange for their bonds.

A trader saw the 103/4s at 66 bid, 68 offered, and the 121/4s at 54 bid, 56 offered, saying that both issues "had been a few points lower than that pre-news." While the nominal price move was impressive, Friday's trading, he said, was "not very active."

Another trader said that the 103/4s fall into two categories - "voted" and "non-voted." The "voted" bonds, he said, are those already tendered, with the holders opting for the package of debt and stock that Salton is offering, while the "non-voted" bonds haven't been tendered yet, with the holders holding out on expectations that if the tender offer is largely successful without them, the company will just pay the relatively small amount of bonds that will remain outstanding at or at least near par levels. He likened it to a game of "chicken" with management, with the "non-voted" holders gambling on the expected higher return if they don't get with the company's program.

However, the trader pointed out, although the tender offer still has several weeks to run, if the numbers remain around current levels, "they'll take out the $75 million or $77 million of the bonds through the exchange offer, but would still have another $40 million to $50 million outstanding. Where are they going to get the money to pay for that" come Dec. 15?

"So that should be interesting to watch - they're still hoping to exchange the entire piece, because they don't want to have to come up with $50 million to pay those off."

He said that so far, the exchange offer was "half a success." He said it was "a little dicey the way they are trading."

With the holders of the "non-voted" bonds feeling they will get a better deal by not going along, those bonds, accordingly, were trading significantly higher than the "voted" bonds - 76 bid, 79 offered for the former, 64 bid, 66 offered for the latter.

"There's a differentiation there because with one, you give up your right to get your [full] money back, while the other one, you still have a chance" to be repaid in full.

Actually, the trader said, there had been not much movement in the bonds on Friday; "they popped" late on Thursday on the company's announcement. He saw that 10¾% "non-voted" bonds and the "voted" bonds having popped up four points on Thursday, to the levels of 76 bid, 79 offered for the former and 64 bid, 66 offered for the latter, while the 12¼% notes jumped as much as six or seven points on the session to 53 bid, 54 offered. On Friday, he said, the three categories of bonds were all "a touch stronger," but most of the gains did take place on Thursday.

Several traders queried on Thursday about what was going on in the market made no mention at all of Salton at the time; the trader theorized that "people saw it - but you had to take some time to figure out what was going on, because you didn't want to get crossed up on buying or selling bonds that were 'voted' or were 'not voted', so no one really said or did anything yesterday [Thursday] until they digested it."

Apart from movement in specific issues that had news out, "it was a tough day" as the trader put it, "with not much happening in the way of market gyrations. It was like Elvis without the wiggle."

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