AGY prices eight-year deal; airlines continue to soar; Salton up on takeover talk

By Paul Deckelman and Paul A. Harris

New York, Oct. 20 - AGY Holdings Corp. was heard by high yield syndicate sources to have successfully priced a $175 million offering of eight-year notes - although the bonds priced too late in the session for after-market activity.

Among the established issues, airline bonds continued to climb, fueled by the continued slide in world crude oil prices - seen as a sign that high jet fuel prices will moderate - and by profitable results posted by such operators as American Airlines parent AMR Corp. and Continental Airlines Inc.

Takeover talk was seen giving Salton Inc. a boost, although trading was fairly light. One of the company's largest shareholders broached the idea of combining it with one of its competitors - which that shareholder has agreed to acquire.

Overall, a buy-side source said that the broad market was slightly weaker Friday morning, and added that it never really got going during the final session of the week.

This source marked the market basically unchanged on the day.

Meanwhile the primary market saw a single issue price.

Glass fiber manufacturer AGY Holding priced a $175 million issue of eight-year senior second-lien notes (B2/B-) at par to yield 11%, 62.5 basis points beyond the wide end of the 10¼% area price talk.

UBS Investment Bank ran the books for the debt refinancing deal for Aiken, S.C.-based AGY.

A sell-side source not in the AGY deal said that presently "the market has leverage on smaller deals," and added that these issues under $200 million seem to be getting pushed around somewhat.

$3.7 billion issuance on the week

Tallying Friday's AGY transaction, the junk market saw slightly more than $3.7 billion of new bonds price during the week to Oct. 20 in 11 dollar-denominated tranches.

At Friday's close the primary market had seen slightly less than $104.9 billion of year-to-date issuance.

Hence issuance in terms of dollar amount for 2006 is now nearly 24% ahead of 2005 on a year-over-year basis: at the Oct. 20, 2006 close the market had seen $80.2 billion of new issuance, according to data developed by Prospect News.

Interestingly, year-over-year deal volume for 2006 and 2005 was dead even at 316 dollar-denominated tranches apiece, at Friday's close.

The week ahead

Friday saw a mere trickle of news on the $3.5 billion-plus worth of deals on the forward calendar representing business that is expected to be completed in the primary market before the end of the week.

Michael's Stores Inc. circulated price talk on its $1.075 billion two-part notes offering, with its $750 million tranche of eight-year senior notes (B2/CCC) talked at a yield in the 9¾% area, and its $325 million tranche of 10-year senior subordinated notes (Caa1/CCC) talked at a yield in the 11¼% area.

Deutsche Bank Securities is the left bookrunner for the LBO deal.

There was no word, however, on the even bigger deal from Dallas-based MetroPCS Wireless.

That $1.1 billion offering of eight-year senior notes (Caa2/CCC+) is now making the investor rounds on a roadshow that is expected to conclude on Thursday.

Bear Stearns & Co., Merrill Lynch & Co. and Banc of America Securities LLC have the books for the debt refinancing and general corporate purposes deal.

A late-week transaction is also expected for Hexion Specialty Chemicals Inc.'s $825 million offering of eight-year senior secured second-priority notes in two tranches (B3/B-), via Credit Suisse and JP Morgan.

Heavy calendar

During the latter part of the Oct. 16 week market sources seemed to be keyed not only into the above-mentioned sizable offerings from Michael's Stores, MetroPCS and Hexion.

There was also discussion regarding even bigger offerings out on the horizon, such as HCA Inc.'s up to $5.70 billion of senior secured second-lien notes, and Verizon Directories Disposition Corp.'s $3 billion to $4 billion of high-yield bonds.

On Friday a high yield investor told Prospect News that the market looks good.

The recent new issue supply has been absorbed, the source said. And demand appears to continue to exceed supply, even though there is a heavy calendar, which could cause things to change a little bit.

"The HCA deal is a landmark deal, and will have to be priced to move," the investor added.

"But as long as the Fed is on hold and there is no jump in defaults and no jump in negative credit events, spreads should stay where they are or go narrower."

AGY unseen, Buffets better in secondary

Traders said that the new AGY 11% senior notes came too late in the session for any kind of secondary dealings.

On the other hand, they reported that investors ate up the new Buffets Inc. 12¼% notes due 2014, which had priced too late on Thursday to break into the secondary.

One trader quoted the Eagan, Minn.-based buffet-style restaurant operator's new bonds at 101.125 bid, 101.375 offered, well up from Thursday's par issue price. Another quoted them somewhat wider, at 101 bid, 101.5 offered.

As far other recently priced issues, the first trader said, "they pretty much stayed where they already were," although he saw the new Cricket Communications Inc. (Leap Wireless International Inc.) 9 3/8% senior notes due 2014 at 101 bid, 101.75 offered. That was up perhaps 1/8 to ¼ point from prior levels. The San Diego-based wireless communications provider's bonds had priced at par on Wednesday, and then moved up to around the 100.75 level.

Airlines gain altitude

Recently firm airline bonds continued to head upward, propelled by the twin factors of lower oil prices and better financial results from some industry players.

"The airlines were better, especially the defaulted stuff," a trader observed, quoting bankrupt Atlanta-based Number-Three domestic carrier Delta Air Lines Inc.'s 8.30% notes due 2029 at 36 bid, 37 offered, which he called up a point, while Northwest Airlines Corp.'s 9 7/8% notes due 2007 advanced to 63 bid, 64 offered.

A second trader saw those bonds in a similar context.

The Delta bonds began the week at 31-32, while the Northwests were around 59. A year ago, the Northwests were trading in a 26 context, and the Delta bonds were at 15-16.

Delta's bonds, and those of Northwest, the bankrupt Eagan, Minn.-based Number-Four domestic air carrier, have lately gotten a boost, the traders said, from the cascading price of oil.

Light sweet crude for November delivery on the New York Mercantile Exchange fell $1.68 on Friday, to settle at $56.82 a barrel. It was the first time since last November that oil futures had settled below $57 - down more than $20 a barrel from the peak levels around $78 at which crude was trading during mid-summer. Oil prices have tumbled since then in response to rising global supplies, a weaker-than-anticipated hurricane season - unlike last year, when storms played havoc with U.S. Gulf Coast oil output - and expectations for slower economic growth.

Analysts said that oil fell Friday on market skepticism that the members of the Organization of Petroleum Exporting Countries would actually cut their collective output by some 1.2 million barrels a day, as the cartel's ministers had decreed following an emergency meeting of the group this week in Qatar.

Airline-industry watchers believe that the falling price of crude oil could translate into lower prices down the line for jet fuel, a key crude distillate, which has become an increasingly expensive component of the finances of Delta, Northwest and other carriers. Rising fuel prices helped to force both carriers into crash-landings in the bankruptcy courts within hours of one another on the same day a little over a year ago.

The airline bonds are also seen having firmed as airline companies not in bankruptcy, such as Fort Worth, Tex.-based AMR, the industry leader, and Houston-based Continental, the Number-Five carrier - reported profits for the most recent quarter, a far cry from the losses of a year ago. That boosted investor confidence in the industry's nascent recovery.

And that optimism was reflected on Friday as Fitch ratings raised its assessment on both AMR and Continental, upping both airlines' issuer default ratings to B from CCC previously, while their senior unsecured debt ratings were raised to CCC, from CC. The agency cited factors such as improved balance sheets and free cash flow in upping the ratings.

Salton gets buyout buzz boost

Elsewhere, Salton's 12¼% notes due 2012 were seen having jumped to 78 bid, a trader said, from prior levels in the lower 70s.

At another desk, the bonds were seen even up more, ending at 81 bid, up from 74 on Thursday.

However, traders said that while the quotes were impressive, actual activity in the bonds was pretty light.

The rise in the bonds' price coincided with a sharp boost in the Lake Forest, Ill.-based small appliance maker's New York Stock Exchange-traded shares, which jumped 31 cents (15.20%) to end at $2.35. Volume was 807,000 shares - more than 13 times the usual turnover.

A bond trader said that "someone was talking about buying" the company. "Harbinger was said to be interested."

He was referring to Harbinger Capital Partners - the largest shareholder in Salton rival Applica Inc., which on Thursday agreed to be bought out by Harbinger for $88 million. Harbinger also owns some 30,000 shares of Salton preferred stock, convertible into a 15% stake in the latter company, making it one of Salton's largest shareholders as well.

Harbinger sent a letter to Salton's board of directors, touting the benefits of a link up with Applica, declaring that "we are enthusiastic about the small household appliance market and believe that a combination of Salton and Applica is compelling.

Harbinger asked for access to Salton's books, to conduct due diligence.

Salton had no public comment on the overtures from Harbinger.

Autos hold gains

Automotive issues were seen unchanged to perhaps a bit higher, hanging onto the gains seen over the past several sessions.

A trader said that Dura Automotive Systems Inc.'s 8 5/8% senior notes due 2012 "moved up" to 33.5 bid, 35 offered, which he called a gain of about a point, while the Rochester Hills, Mich.-based auto parts maker's 9% subordinated bonds due 2009 were "up a bit" at 8 bid, 9 offered.

Another trader said that the Dura junior bonds were up a point on the week, while the seniors gained 3½ points on the week. The bonds were up from the lows they had hit on Monday, when they began trading flat, or without their accrued interest, after the company failed to make the scheduled coupon interest payment on those notes, sparking a renewal of market bankruptcy rumors.

That trader meantime saw Remy International Inc.'s bonds "pretty much where they were," with the Anderson, Ind.-based auto electronics manufacturer's 8 5/8% senior notes due 2007 at 89 bid, 91 offered, and its floating-rate notes due 2010 at 96 bid, 98 offered. Remy's subordinated 11% notes due 2009 held steady at 41 bid, 43 offered, while its 9 3/8% subs due 2012 hung in at 40 bid, 42 offered, he said. Those bonds had swooned badly earlier in the week, but bounced back around mid-week, a trader said, when investor bankruptcy angst proved to be unfounded.

He also saw auto wheelmaker Hayes Lammerz's 10½% notes "up a little bit" at 81 bid, 82 offered.

However, the trader saw no price movement in Ford Motor Co.'s 7.45% notes due 2031, unchanged at 76.25 bid, 76.75 offered, or in Ford Motor Credit Co.'s 7% notes due 2013, which held at 92.625 bid, 93.125 offered. The Number-Two domestic automaker is scheduled to report third-quarter numbers Monday - and is expected to record its third straight quarterly loss. Ford has lost $1.44 billion so far this year.

Builders better despite downturn

A trader said that U.S. Concrete's 8 3/8% notes due 2014 were off after the company cut its third-quarter outlook. He attributed that at least partially to the recent downturn in home building.

However, "the weird thing," he said, "is that the homebuilders themselves were better." For instance, he saw the 9¼% notes due 2012 of builder Standard Pacific Corp. up a point at par bid, 101 offered.

The builders' bonds "continue to do well, because they present a lot of yield in a yield-hungry environment."

He opined that "the supporting companies" that sell goods, like concrete, and other services to the homebuilders, "are gonna get hurt, because they don't own any land. Their profits are based solely on the level of homebuilding activity." The current downturn in the industry has reduced those levels, and their earnings.

"But the actual homebuilders - yeah, they got hurt [by the downturn] - but they're kind of rebounding because they're not going to go bankrupt - they own land, they own property. Someone's got to live somewhere. The slowdown is going to hurt them - but it's not really going to kill them."

He said that investors would "look at the assets under these companies" and would see the homebuilders as "the lesser of the evils."

He said the investors would say "this one has a lot of yield in it, we might as well take it at a lower dollar price, [since] it's gotten beaten up pretty badly, we might as well take a look at it."

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