Sbarro, Allis Chalmers, MasTec price deals; airline issues steady to lower

By Paul Deckelman, Paul A. Harris and Stephanie N. Rotondo

New York, Jan. 24 - Restaurateur Sbarro Inc. served up an issue of new eight-year bonds Wednesday - one of several deals successfully pricing during the session, along with offerings from MasTec Inc., Allis-Chalmers Energy Inc. and a loan priced off the bond desks from Affinion Group Inc.

The new deals were all pretty well received when they began trading in the secondary market.

With the new-deal market bubbling busily, price talk was heard having emerged on upcoming deals for Greif Inc., Alion Science & Technology Corp. and Baldor Electric Co.

Terra Capital was meantime heard hitting the road for a short marketing push for its upcoming $330 million deal.

In the secondary market, on the other hand, outside of the warm welcome given to the newly priced bond issues, not much was going on, traders said, with many market decision-makers still down in Florida for the wrap up of the three-day JP Morgan bond conference.

The major mover was Northwest Airlines Corp., whose bonds were knocked down several points, in continued response to the company's revelations that allowed unsecured claims in its bankruptcy case could total as much as $9.5 billion - more than expected.

Asked to give a spot on the broad market well after the Wednesday close, a high yield syndicate official said there had been softness in airlines paper, and in the existing bonds of The Mosaic Co. However technology names had done well, he added.

The official summarized that the market had been "steady" on the session.

In the primary market, meanwhile, Wednesday saw three U.S.-based companies price one tranche of bonds, apiece, generating $550 million of proceeds.

One deal, from Allis-Chalmers Energy Inc., was upsized while the remaining two came at the expected sizes.

Allis-Chalmers oversubscribed

Wednesday's biggest transaction came from Houston-based oilfield services company, Allis-Chalmers Energy Inc.

The company priced an upsized $250 million issue of 10-year senior notes (B3/B) at par to yield 8½%, on the tight end of the 8 5/8% area price talk.

A source close to the deal said that it had gone very well, and added that the order book was more than five-times oversubscribed for the issue, which was upsized from $225 million.

RBC Capital Markets ran the books for the debt refinancing related to an acquisition.

Sbarro inside of talk

Also pricing a $150 million issue was Melville, N.Y.-based Italian restaurant company Sbarro, Inc.

The company priced its eight-year senior notes (Caa1/CCC) at par to yield 10 3/8%, inside of the 10½% to 10¾% price talk.

Credit Suisse and Banc of America Securities were joint bookrunners for the acquisition financing and debt refinancing deal.

MasTec prices $150 million

Elsewhere MasTec, Inc. priced a $150 million issue of 10-year senior notes (B1/B+) at par to yield 7 5/8%, in the middle of the 7½% to 7¾% price talk.

Morgan Stanley ran the books for the debt refinancing deal from the Coral Gables, Fla., telecommunications and energy infrastructure company.

Affinion term loan

Also on Wednesday Norwalk, Conn., membership and loyalty program operator, Affinion Group Holdings, Inc., priced a PIK toggle loan that was run off a high yield syndicate desk.

Affinion priced an upsized $350 million PIK toggle term loan due March 1, 2012 (Caa1/B-) at 99.00 on Wednesday, atop the price talk, according to an informed source.

The cash-pay coupon was set at a 625 basis points spread to Libor.

The borrower may elect to make in-kind coupon payments, triggering the toggle feature which increases that interest payment by 75 basis points.

Deutsche Bank Securities Inc. and Banc of America Securities LLC ran the books for the deal which was upsized from $300 million.

Proceeds will be used to redeem $106 million the company's preferred stock and pay a dividend to its stockholders.

Earlier in the month Italy's Prysmian Cables & Systems priced a similarly structured €800 million PIK loan, via Goldman Sachs and Deutsche Bank, at Libor plus 675 bps at an issue price of 99.50.

And Verso Paper Finance Holdings LLC is presently in the market with a $225 million six-year senior unsecured loan via Credit Suisse and Citigroup, which it has talked at Libor plus 600 basis points at 99.00, according to a market source.

High yield players on both the buy-side and sell-side have told Prospect News that these PIK loans, which are being run off the high yield syndicate desks, are "hot market deals."

Although they come with bond-like structures sell-side sources say they are loans and will not receive league table credit as bonds, the involvement by junk bond syndicates notwithstanding. (The loans will count in Prospect News' bank loan league tables, not the high yield rankings.)

"The market is not rejecting anything right now," a sell-side source said on Wednesday night, and added that issuers are likely taking advantage of the novel structures to ultimately reduce their costs of capital by raising it in the syndicated loan market as opposed to the high yield bond market.

Talking the deals

Price talk was heard Wednesday on deals expected to price during the final two sessions of the present week.

Baldor Electric Co. talked its $550 million offering of 10-year senior notes (B3/B) at 8½% to 8¾%.

BNP Paribas and Lehman Brothers are joint bookrunners.

Earlier in the week an investor said that the deal is multiple times oversubscribed.

Elsewhere Greif Inc. talked its $300 million offering of 10-year senior notes (Ba2/BB-) at 6 5/8% to 6¾%.

Deutsche Bank Securities is the bookrunner.

If it prices at that level, it will be the first deal with a yield below 6% since GMAC LLC's $1 billion sale of 6% notes priced to yield 6.131% on Dec. 12. Before that, the previous non-emerging markets issuer to come in below 7% was Seagate Technology HDD Holdings with two parts totaling $1.2 billion on Sept. 15.

Terra brings $330 million

Terra Capital Inc. started a brief roadshow on Wednesday for its $330 million offering of 10-year senior notes (B1//B+).

The roadshow concludes on Friday, and the deal is expected to price the same day.

Citigroup has the books for the debt refinancing deal from the Sioux City, Iowa, producer of nitrogen products and methanol.

Great Canadian for next week

Finally, Richmond, B.C.-based Great Canadian Gaming Corp. will begin a roadshow next week for its $170 million offering of eight-year subordinated notes (B2/B+) via Goldman Sachs.

Proceeds will be used to repay the company's bridge loan and to provide working capital, for capital expenditures and for general corporate purposes.

New deals trade upward

When the new Sbarro 10 3/8% notes due 2015 were freed for secondary dealings, a trader saw them at 102 bid, 102.5 offered on the break, well up from their par issue price earlier in the day.

The trader saw the new MasTec 7 5/8% notes due 2015 at 101 bid, 102 offered, also up from par, while Allis-Chalmers Energy's 8½% notes due 2017 blipped up to 100.5 bid, 101.5 offered from a par issue price.

Affinion's five-year PIK loan, which came off the high yield issue desks, moved up to 100.5 bid, 101 offered, from an issue price at 99.

Among other recently priced deals, a trader said, Aramark Corp.'s new bonds stood at 103 bid, 103.25 offered, up a point on the session.

The new Snoqualmie Entertainment Authority bonds, on the other hand, "hit 102," up from their par issue price on Tuesday, "and then just went to sleep."

But apart from those deals firming nicely once they were freed, "nothing really was trading around," one market participant opined. "The focus [of investors] was all the stock market, and the new deals."

Tech names taken upward

"The market was better [Wednesday]," another trader said.

For instance, he said, Freescale Semiconductor "finally broke out of its funk," moving up from prior levels around 99.5 bid, par offered, first to 99.75 bid, and then, later in the session, to 100.875 bid, 101.125 offered, up more than a point on the day. The Austin-Tex.-based chipmaker's 8 7/8% and 9 1/8% senior notes were at 100.375 bid, 100.625 offered, up from a 99.5 bid, 99.75 offered range previously.

The tech sector in the high yield market, he said, "seems to be following the lead in the equity market, after some good numbers came out" in that sector, including Yahoo! Inc. and Sun Microsystems Inc.

The high tech names had recently been drubbed in the stock market and were not doing much better in bonds, with investors worried about the health of corporate earnings.

'Waiting for the calendar'

However, the trader said, "away from that, generally speaking, you've got people waiting for the calendar, because when I look out and see what people are doing, they're buying bonds that they don't want to buy, at prices they don't want to pay - because after they get done doing that, they still have more cash than they started with. The only place they can really soak it up is in the calendar [of upcoming deals] - and I don't think there's any big deals in the pipeline at the moment."

He said there are "no Freescale or HCA-sized deals around for the time being," referring to the two $5 billion-plus mega-deals that priced late last year.

"The cash is not getting sucked up fast enough. From the standpoint of the market going up, there just seems to be more money coming out after bonds than there are bonds coming out."

Spreads, he said "are as tight as they can be. The government market has been flat to down this week, after being down the last couple of weeks - and we just continue to improve."

Northwest loses altitude

Even so, the major price mover Wednesday seemed to be definitely on the downside, as Northwest Airlines' bonds "got crushed on equity news," one trader, alluding to the continued reaction to the bankrupt Eagan, Minn.-based airline company's estimate earlier in the week of as much as $9.5 billion in allowable unsecured claims, and no recovery for shareholders.

It continued its downward spiral, dropping another dropping another 3 points on top of the previous day's losses of as much as 5 points. But trading slowed to almost a halt on the notes, as investors waited to hear what would happen next.

Northwest Air's bonds saw a "tremendous move in the tail that wags the dog," according to one trader.

In reaction to Tuesday's news of a larger-than-expected level of potentially allowable unsecured claims and the devaluation of the company's equity, along with yet another increase in the price of crude oil, Northwest, the parent company of the Number-Five domestic air carrier, saw its notes dip about 3 points.

One trader placed the company's 7 5/8% notes due 2023 around 97, and pegged its 10% notes due 2009 at 63.5 bid, 64 offered.

At another desk, a trader said that Northwest's 8 7/8% notes were down 2 points at 97 bid, 99 offered, its 9 7/8% notes maturing later this year 3 points lower at par bid, 102 offered, and the 10s also down a pair at 99 bid, par offered.

However, yet another trader said that while prices were down, trading had hit a "lull."

"I think everyone's waiting for the other shoe to drop," he said, pointing to the claims news.

Northwest revealed Tuesday that it estimates that anywhere from $8.8 billion to $9.5 billion in unsecured claims could be allowed in its bankruptcy case. The company also reiterated that shareholders would not receive any recovery under the terms of the company's recently filed plan of reorganization.

Despite the carrier's Pink Sheets-traded stock dropping 16 cents (3.85%) to an even $4 in Wednesday dealings, on three times the normal volume, a debt trader indicated that "bondholders seem to think there is value," in the company's paper.

Also probably helping to drag prices down, a trader said, was another increase in crude oil prices, which have been steadily rising since hitting 19-month lows around $50 a barrel earlier in the month. Despite an early dip on government figures showing increased crude, gasoline and distillate inventories, oil prices rallied on the prospect of increasingly cold weather in much of the northern United States, and potential output cuts by OPEC aimed at propping up price levels. Light sweet crude for March delivery closed up 33 cents at $55.37 on the New York Mercantile Exchange.

Crude prices are seen by many observers as a barometer forecasting the probable future price direction of jet fuel, a key distillate. Skyrocketing fuel prices helped to drive both Northwest and Delta into bankruptcy in the fall of 2005.

Northwest filed its reorganization plan earlier than anticipated, but without a disclosure statement. The company received an extension to file the statement by Feb. 15. So far there has been little talk from the company and lots of speculation from the market as to what that disclosure statement might include.

No mergermania for Delta

While Northwest's bonds were down several points, Delta Air Lines Inc. investors saw more mixed results as one trader placed the bankrupt Atlanta-based Number-Three U.S. airline company's 8.30% notes due 2029 at 63.5 bid, 64 offer - a 1 point dip from the previous day.

While another trader said that from where he sat, Delta's 8.30s were "3 or 4 points weaker," also at 63.5 bid, 64 offered, yet a third said that Delta had already suffered its big move downward to the 63 area on Tuesday, and called the bonds unchanged on the day at 63.5 bid, 64.5 offered.

While Delta's bonds pretty much fizzled, its stock sizzled, its Pink Sheets-traded shares emerging from the clouds to rise 12 cents (11.32%) to $1.18, after an earlier crash-landing.

"As the merger was discounted by Delta's CEO, the stock made a comeback. Generally, Delta stockholders have a better chance of recovery without a merger. Under a merger, in a combined company, the Delta bondholders will get more of the equity value," said one distressed stock trader.

In Delta chief Gerald Grinstein's testimony before the Senate's Commerce panel, he reiterated his adamant opposition to U.S. Airways' hostile takeover proposal, claiming Delta has already come far in the last 16 months since filing bankruptcy.

The committee was holding hearings to look at the impact consolidation might have on the airline industry and its customers.

"The stage is set for Delta to emerge as a powerful, competitive force to be reckoned with - unless US Airways' takeover bid is allowed to derail our momentum and jeopardize our hard-won gains," Grinstein told the Senate committee.

The committee was reviewing U.S. Airways' $10.2 billion bid for Delta, which expires on Feb. 1.

Grinstein also denied a Wall Street Journal report Tuesday that the company was in "detailed talks" with Northwest on a possible merger of the two bankrupt competitors. He said the company's investment banker recently looked into other possible options, as requested by the official creditors' committee.

Delta filed for bankruptcy in September 2005 - ironically, on the same day and at the same Manhattan bankruptcy court as Northwest. The company has maintained its desire to remain a standalone carrier, a move supported by its labor unions and Georgia state officials. A Feb. 7 bankruptcy court date will discuss the company's reorganization plan.

Jean Coutu higher

Back on solid ground, traders saw Jean Coutu Group's bonds better, with its 8½ notes up a point to 106 bid, 106.5 offered.

A trader mentioned the litigation now going on between the Canadian pharmacy company and disgruntled bondholders arising from Coutu's decision to sell its Eckerd drug stores to Rite Aid Corp.

Subordinated bondholders believe the company is obligated to buy their bonds back at or near par. "The feeling is it may turn out to be favorable for the bondholders," a trader said.

© 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.