Upsized InSight, NBTY lead new-deal deluge; Dana firmer after Thursday losses

By Paul Deckelman and Paul A. Harris

New York, Sept. 16 - The high-yield primary sector was percolating Friday, popping out one new deal after another - more than half a dozen of them, totaling some $1.3 billion principal amount by the time market denizens called it a week. No one deal especially stood out as a major event - but taken collectively, especially in tandem with a bunch of other deals that priced earlier in the week, they certainly would seem to paint a picture of a robust primary market continuing to make up for the lost time that it experienced at the end of August on into early September.

Besides upsized offerings from InSight Health Services Corp. and NBTY Inc., there were pricings from Ashton Woods USA LLC/Ashton Woods Finance Co., Metallurg Holdings Inc., IKON Office Solutions, Panolam Industries Inc., and Perkins Family Restaurants. From out of Europe came word that the roadshow for TIM Hellas' proposed €1 billion-plus dual currency mega-deal is expected to begin on Monday.

The secondary sphere definitely played second fiddle to the primaryside Friday, traders said, with the only real action coming out of the troubled automotive supply sector. The bonds of newly junked Dana Corp. bonds were seen better after the Toledo, Ohio-based automotive powertrain components manufacturer's notes had slid anywhere from two to four points on an earnings warning and the subsequent downgrading of its credit ratings to junk levels by two of the three major ratings agencies - with the third having long ago downgraded the company to junk status.

On the other hand, Delphi Corp.'s bonds kept skidding lower, as bankruptcy speculation about the Troy, Mich.-based automotive electronics manufacturer continued to intensify, especially after a research report came out indicating that it was more likely than not that the company will seek Chapter 11 protection from its bondholders and other creditors.

Overall, a sloppy day in the market saw junk trade off, with one source telling Prospect News that high yield was down half a point to a point and a half during the final two days of the Sept. 12 week.

This source, a sell-side official, said that the sell-off in Treasuries that took place throughout the week certainly did not help junk.

Primary active but sloppy

The Friday primary market saw $1.3 billion-odd of business price in seven tranches.

And it was in Friday's primary market that the "slop" was acutely evident, the sell-sider noted.

Of the seven tranches, six priced at discounts to par, five came wide of price talk, one came at the wide end and only one, the Ba2/BB rated IKON Office Solutions $225 million 10-year deal, priced on top of talk.

The Malvern, Pa. document management company priced its debt-refinancing senior notes at par to yield 7¾%, with Wachovia Securities and Lehman Brothers in the lead.

However the overall tone of the market took hold of Ikon's new 7¾% notes as they were released in the aftermarket, with a buy-sider spotting the par-pricing notes at 99.50 bid, par offered at the close.

NBTY completes upsized $200 million

The only other of Friday's seven transactions to price within talk was nutritional supplements company NBTY Inc. It upsized its deal to $200 million from $150 million and priced the 7 1/8% 10-year senior subordinated notes (B1/B+) at 99.117 to yield 7¼%, at the wide end of the 7% to 7¼% price talk.

JP Morgan ran the books for the debt refinancing deal.

The rest came wide

The remaining five issuers saw the yields printed on their new bonds blow through the wide end of price talk.

Insight Health Services Corp. priced an upsized $300 million issue of six-year senior secured floating-rate notes (B2/B) at 99.50.

The note will pay a coupon that will float at three-month Libor plus 525 basis points, wide of the three-month Libor plus 500 basis points area price talk. The deal was increased from $250 million.

Banc of America Securities ran the books for the Lake Forest, Calif., diagnostic imaging company's debt refinancing deal.

Elsewhere Perkins Family Restaurant priced $190 million of 10% eight-year senior notes (B2/B) at 98.647 to yield 10¼%, wide of the 9 5/8%-9 7/8% price talk.

Wachovia Securities ran the books for the acquisition deal from the full-service restaurant company.

Panolam Industries sold $151 million of 10¾% eight-year senior subordinated notes (Caa1/CCC+) at 99.342 on Friday to yield 10 7/8%, wide of the 10½%-10¾% price talk.

Credit Suisse First Boston and Jefferies & Co. led the acquisition deal from the interior surfaces company.

Homebuilder Ashton Woods USA LLC, issuing in conjunction with Ashton Woods Finance Co., priced a $125 million issue of 9½% senior subordinated notes (B3/B-) at 98.417 to yield 9¾%, wide of the 9¼% area price talk.

UBS Investment Bank and Wachovia Securities ran the books for the debt refinancing.

A buy-side source said that the notes had traded down in the aftermarket to 98.50 bid, 99 offered.

Finally Metallurg Holdings, Inc., issuing in conjunction with Metallurg, Inc. and Shieldalloy Metallurgical Corp., sold $117.5 million of 10½% five-year senior secured class A notes at 98.00 to yield 11.03%, well wide of the 10½% to 10¾% at 98.00 price talk.

Jefferies & Co. ran the books for the debt refinancing deal.

Interestingly, Metallurg's new 10½% notes appreciated in the aftermarket, with a buy-side source spotting them 99.50 bid, par offered, after having priced at 98.00. Another source spotted the 10½% notes at 99.75 bid.

And a trader saw the bonds as having moved up to 99.25 bid, 100.25 offered, from an issue price of 98 earlier in the session.

$3.83 billion week

Friday's completed transactions brought the week of Sept. 12 to a close having seen $3.83 billion of issuance in 16 dollar-denominated tranches, bringing the year-to-date total to $75.76 billion in 287 tranches.

In terms of year-over-year issuance that compares to $96.3 billion in 386 tranches that had priced by the Sept. 16, 2004 close.

Two for the road

News circulated through Friday's primary market that two sizable offerings are about to begin roadshows.

Hellas Telecommunications II will start a roadshow Monday in Europe for a €1.28 billion equivalent offering, with the U.S. roadshow to commence Monday, Sept. 26.

The Athens-based company plans to sell €925 million of seven-year senior secured floating-rate notes and €355 million of eight-year senior notes.

Both tranches are expected to be sold in dollar and euro denominations.

JP Morgan and Deutsche Bank Securities are joint bookrunners for the acquisition financing.

Meanwhile Affinion Group will begin a roadshow on Wednesday for a $750 million two-part offering via Credit Suisse First Boston and Deutsche Bank Securities.

The company plans to sell $250 million of eight-year senior notes and $500 million of 10-year senior subordinated notes, with proceeds also slated to fund the LBO of the company.

A $3 billion week ahead

With sizable deals in the market to price during the week ahead, the Prospect News forward calendar comes in at just below $3 billion expected to price by the Friday close.

They include:

* Williams Scotsman Inc.'s $325 million 10-year senior notes (B3/B) via Deutsche Bank Securities, Banc of America Securities LLC, Citigroup, Lehman Brothers, CIBC World Markets. The notes are talked at 8¼%-8½% and set to price Monday;

* Euramax International's $315 million eight-year senior subordinated notes (Caa1/B-) via Goldman Sachs and Credit Suisse First Boston, talked at 9¾% to 10%;

* Gamestop Corp.'s $950 million two-part senior notes (Ba3/B+) via Citigroup, Banc of America Securities and Merrill Lynch;

* School Specialty Inc.'s $650 million in two parts, $350 million of eight-year senior notes (B3/CCC+) and $300 million of 10-year senior subordinated notes (Caa2/CCC+), via Banc of America Securities, JP Morgan and Deutsche Bank Securities;

* Drivetime Automotive Group/DT Acceptance Corp.'s $150 million of eight-year senior notes (B2/B-), with UBS Investment Bank and Bear Stearns in the lead;

* Brookstone Inc.'s $190 million seven-year senior notes (B3/B) via Goldman Sachs;

* Comsys IT Partners Inc.'s $150 million eight-year senior notes (B2/B-), being run by Wachovia Securities and Merrill Lynch; and finally

* ResCare Inc.'s $150 million eight-year senior notes (B1) via JP Morgan and Goldman Sachs.

No sweat, as primary looks to week ahead

Prospect News asked one sell-side official, well after Friday's close, whether the slop that took hold of the primary market - and indeed the entire junk market - on Friday was cause for concern to those issuers hoping to price bonds this week.

The short answer was no.

"Up until very recently we had been seeing a strong market," the source said.

"People see that and get their clients all geared up and ready to go.

"Now we've seen the market slow down quite a bit in the last couple of days. I think the underwriters are going to be telling their clients that it's just a blip, and that the market will come back next week."

The official also said that in addition to the sell-off in Treasuries, the nearly $200 million outflow from high-yield mutual funds for the week that ended last Wednesday, while it may not seem significant, could not have helped the late-week primary market.

Nevertheless, the source said, it's likely that as the coming week gets underway the forward calendar will continue to build.

IKON steady in trading, Ashton up

In the secondary, a trader saw IKON office Solutions' new 7¾% notes due 2015 at par bid, unchanged from their issue price, while Ashton Woods' new 9½% notes due 2015 closed at 98.5 bid, 99 offered, up only slightly from its 98.417 issue price, and NBTY's new 7 1/8% notes due 2015 were at 99.25 bid, 99.75 offered, also up only slightly from their 99.117 issue price.

A trader at another shop saw the IKONs at 99.625 bid, par offered, and pegged the NBTYs at 99.25 bid, par offered, up slightly from issue, but added that it looked as though the bids were getting hit at that 99.25 level.

Among issues that priced during Thursday's session, a trader saw Select Medical Holdings Corp.'s floating-rate notes due 2015 at par bid, 100.625 offered, versus Thursday's par issue price.

Another trader saw San Pasqual Casino Development Group's new 8% notes due 2013 up a point from their issue price, at 101 bid , 101.5 offered, and quoted Pacific Energy Partners LP's new 6¼% notes due 2015 as having firmed to par bid, 101 offered, from 99.544 at issue.

Yet another trader saw the new Kerzner International Hotels Ltd.'s 6¾% notes due 2015 as having eased to 99.75 bid, par offered from Thursday's par issue price. He saw the Select Medical notes at 100.25 bid, 101.25 offered, and observed San Pasqual Casino at 101 bid, 101.5 offered.

The trader said that "this huge amount of new issuance is kind of setting the table for a little bit of a pullback [in secondary price levels]. They never seem to last. Maybe it will this time."

Looking at the market overall, the trader opined that "everybody freaked out because of Dana, and because of higher energy prices and higher steel prices."

He said that "I think what you're seeing now is that anybody who isn't going to be living up to their guidance is blaming it on [Hurricane] Katrina, and higher energy costs and higher steel prices, and that's why you're seeing weakness over the last day or two. Anybody in manufacturing is blaming it on that, so we're seeing weakness in steel, weakness in auto parts, etc."

Owens-Illinois lower on warning

As an example of one such industrial company, he cited Owens-Illinois Inc., which on Friday warned that its full-year results will fall below the low end of the $1.76 to $2 per share range that executives of the Toledo, Ohio-based packaging company confirmed during its second-quarter conference call in July. Wall Street on average had been expecting earnings of at least $1.80 per share.

That bearish revised guidance caused the company's 6¾% notes due 2014 to lose a point and end at 98 bid, while its 8¼% notes due 2013 were seen half a point lower at 105 bid, 106 offered.

Owens said in a statement that "for the last several quarters, rising energy, raw material and packing material (corrugated) costs have adversely affected the company's earnings compared to prior periods."

It said that during the third quarter, "energy costs have increased at rates that significantly exceeded the company's earlier expectations, resulting in higher manufacturing and distribution costs."

The lessened profit picture also means that Owens-Illinois' anticipated reduction in its net debt for the year will likely fall below the $150 million to $200 million range discussed in the second-quarter conference call. The company had $5.38 billion debt as of the end of the second quarter on June 30.

Dana rebounds slightly

Dana's bonds, which fell anywhere from two to four points on Thursday, were seen trading up. A trader quoted the company's 6½% notes due 2009 up half a point at 95 bid, 96 offered, while seeing its 5.85% notes due 2015 at 84 bid, 85 offered, and its 7% notes due 2029 at 82.5 bid, 83.5 offered, "all up a little."

Dana on Thursday had warned that it now expects full-year earnings in a range of $90 million to $105 million, or about 60 to 70 cents per share, well down from its previously announced guidance of $196 million to $219 million, or $1.30 to $1.45 per share (both the original and the revised outlook excludes gains and losses on divestitures and asset sales, and other unusual items). Dana blamed higher energy and steel costs.

That caused both Standard & Poor's and Fitch Ratings to knock its debt down to junk levels, going to BB+ from BBB- previously. Meantime, Moody's Investors Service - which lowered Dana to a junk credit all the way back in May of 2001 and which has kept the company there ever since - said on Friday that it was considering downgrading Dana further into speculative-grade territory from its current Ba2 senior unsecured debt level.

Delphi keeps dropping

Elsewhere in the auto sector, Delphi's bonds continued to erode, with renewed speculation about a possible bankruptcy filing only deepening investor angst.

A trader saw Delphi's 6.55% notes due 2006 retreating to 75 bid, 77 offered from 78 bid, 80 offered, while its 6½% notes due 2009 fell three points to 71 bid, 73 offered, its 61/2s due 2013 fell to 69.875 from 71 bid, 73 offered, and its 7 1/8% notes due 2029 down a point at 65 bid, 67 offered.

Another trader had the 6.55s going down to 76 bid, 77 offered from 78 bid, 79 offered, and its 7 1/8s down half a point at 66 bid, 66.5 offered.

Delphi's '06 notes, he said, are "just compressing slowly, catching up with the other ones, in case there really is a bankruptcy - which I still doubt, but at this point, who knows?"

Delphi - a former unit of General Motors Corp. - has asked its erstwhile parent and the United Auto Workers union for some help with its high labor costs, which were inherited when GM spun Delphi off several years ago and assigned a number of factories to it where workers received the prevailing automaker contract wage, which is considerably higher than the prevailing wage at Delphi's peers in the automotive components supplier sector.

Delphi has said that it must have the help before Oct. 17, or else it will file for bankruptcy. That's the deadline when the federal bankruptcy code is made tougher on debtors, giving them less time to come up with a reorganization plan, and traders see it as a looming factor in any decision Delphi makes.

More fuel was added to the fire on Friday when HSBC Securities in New York issued a research report that stated that "the possibility of a Delphi Corp. bankruptcy-law filing remains more likely than not."

However, the analysts noted that right now, "it is impossible to know with any reasonable degree of certainty where negotiations [with GM and the UAW aimed at saving Delphi from bankruptcy] stand."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.