Abitibi bonds jump on Bowater merger news; calendar builds

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

New York, Jan. 29 - The news that Abitibi-Consolidated Inc. and Bowater Inc. have agreed to merge shot Abitibi's bonds skyward Monday in busy trading, while Bowater's bonds were also up, although not quite as dramatically. The news also lifted the bonds of some other companies in that same forest products and paper packaging sector - Tembec Inc., Caraustar Industries Inc. and Catalyst Paper Corp.

Elsewhere, the bonds of Tesoro Corp. were seen slightly firmer on the news that the San Antonio-based petroleum refining company had agreed to purchase a big California-based refinery from Shell Oil in a deal valued at nearly $2 billion.

On the downside, Dole Food Co. Inc. bonds were seen lower after Moody's Investors Service downgraded the Westlake Village, Calif.-based fruit and vegetable processing giant's ratings.

A sell-side source said the market was flat to slightly off, with junk perhaps 1/8 point lower on the day.

In the primary market, no deals were heard to have priced Monday; however, offerings from several prospective issuers emerged on participants' radar screens, including Compagnie Generale de Geophysique, Calfrac Holdings LP, Jarden Corp., Bankruptcy Management Solutions Inc. and TerreStar Networks Inc.

New Baldor, Sbarro bonds stay strong

Back in the secondary market, a trader said that the new Baldor Electric Co. 8 5/8% senior notes due 2017, which priced at par Thursday and then rose smartly in aftermarket dealings, remained well bid for at 103 bid, 104 offered, which he called a ¼ point gain on the session.

He also saw the new Sbarro Inc. 10 3/8% senior notes due 2015 hanging in at around the 102 bid, 102.5 offered level to which the Melville, N.Y.-based Italian restaurant chain operator's new bonds rose after pricing at par last Wednesday.

Bowater boosts Abitibi bonds

Among the established issues, Abitibi "made a nice move," a trader said, pushed up on the news that the Montreal-based forest products company will combine with Greenville, S.C.-based sector peer Bowater in what is being described as a "merger of equals" valued at about $1.4 billion. The newly formed AbitibiBowater Inc. will be the largest North American producer of newsprint, and expects to generate at least $250 million in synergies and other cost savings.

Equity investors liked the move, with the stock of both companies up over 20%, and bond investors, particularly Abitibi holders, were equally enthused.

The trader pegged the Abitibi 8 3/8% notes due 2015 at 98 bid, 99 offered, up from 92 bid, 93 offered on Friday. He saw other Abitibi issues similarly higher "across the board."

Another trader said that Abitibi was "up smartly," with its 6% notes due 2013 about 4 points higher on the session at 87.5 bid, 88.5 offered, while its 8½% notes due 2029 jumped to 92.5 bid, 93.5 offered from prior levels at 85 bid, 86 offered.

"There was a lot of action on the long side [of the curve] in Abitibi," he declared.

Yet a third trader pegged the Abitibi 8 3/8s as 5 point winners at 98 bid, 99 offered. He termed the bonds "very active," noting that there had been many "size trades" of big blocks.

Among other Abitibi paper, at another desk, its 8.85% notes due 2030 were up nearly 4 points at 93.5; its 7.40% notes due 2018 were nearly 8 points better at 89.25; and its 8½% notes due 2029 were up 4 points at 92.125. Abitibi-Consolidated Finance Corp.'s 7 7/8% notes due 2009 were up 2½ points at 102.5.

Bowater's bonds, while better on the session, were up less dramatically than Abitibi's, with a trader seeing the former's 7.95% notes due 2011 up 1½ points at 100.5 bid, 100.75 offered. Another trader saw those same bonds up ¾ point at that 100.5 level.

A third trader pegged Bowater's 6½% notes due 2013 a point better at 93.75 bid, 94.75 offered.

In the credit default swaps market, prices on contracts for both Abitibi and Bowater went down, suggesting the market viewed the prospective merger as likely to improve the financial stability and the credit quality of both companies.

Abitibi CDS slid 35% on the day to 334.6 bps - its lowest level in eight months - while a similar contract for Bowater debt eased 6% to 286 bps.

Tembec, others better on Abitibi deal

The big merger had a ripple effect on the bonds of some other companies in that same sector, notably Tembec, whose bonds were seen up around a point, traders said, although one cautioned that it was by no means certain that the Abitibi-Bowater news meant that the troubled Montreal-based forest products producer was necessarily "on someone's radar screen" for a possible acquisition attempt.

He saw Tembec's 7¾% notes due 2012 up a point at 72.25 bid, 73.25 offered, although he noted that Tembec paper has "had a huge rally" lately on the recent weakness in the Canadian dollar, which serves to spur export sales.

Another trader saw Tembec's 8½% notes due 2011 around 75 bid, 76 offered, up from 73.5 bid, 74.5 offered on Friday.

Yet another trader saw Tembec's 8 5/8% notes initially push up 2 points to around 86.5, before dropping back from that peak to end at 85, up ½ point.

The trader also saw Caraustar's 7 3/8% notes due 2009 a point better at 98 bid, 99 offered, while Catalyst Paper's 7 3/8% notes due 2014 were also up a point at 97.5 bid, 98.5 offered.

Ainsworth Lumber Co.'s 7¼% notes due 2012 were about ¾ point higher at 79.25 bid, 80.25 offered, although he saw Stone Container Corp.'s 7 3/8% notes due 2014 unchanged at 95.25 bid, 96.25 offered.

Tesoro improved on refinery deal

A trader said that the paper sector saw "the bulk of the day's activity" on account of the Abitibi deal.

But apart from the paper names, Tesoro was being quoted firmer on the heels of its big refinery deal, with one market source seeing the company's 6½% notes due 2012 and its 6 5/8% notes due 2015 each up a little more than a point, at 99.375 and 99.125, respectively.

However, another market source suggested the latter bond was actually down ½ point on the day at 99.

Tesoro announced that it had agreed to purchase a Los Angeles-area refinery and products terminal and approximately 250 Shell-branded retail sites in Southern California from Shell Oil Products US. It will pay $1.63 billion for those assets, plus the value of petroleum inventory at the time of closing, which at current prices would be an additional $180 to $200 million.

Tesoro also signed a long-term agreement allowing the company to continue operating the retail sites under the well-known Shell brand. The transaction will require regulatory approval and is expected to be completed in the second quarter of 2007.

Moody's Investors Service, which rates Tesoro's corporate debt and senior unsecured notes at Ba1, cited the impact of the deal as it upped Tesoro's outlook to positive from stable previously.

Dole down on downgrade

Elsewhere, a trader said Dole Foods' 8¾% notes due 2013 fell a point to 98.5 bid, 99.5 offered after Moody's downgraded the company's corporate family and probability of default ratings to B2 from B1, and lowered its notes to Caa1 from B3 previously, with a stable outlook.

The agency said the downgrade reflects Dole's weaker-than-expected operating performance, continuing competitive pressures in its key European banana markets and debt protection measures that are much weaker than those consistent with its previous rating category. The new ratings reflect the company's high earnings and cash flow volatility, high leverage and exposure to commodity markets as well as such uncontrollable factors as weather or political regulations on key product markets such as bananas.

Northwest gains altitude

In the distressed-debt precincts, a trader saw Northwest Airlines Corp.'s recently retreating paper "rebounding" Monday, with its 8 7/8% notes due 2006 up a point on the day at 93 bid, 94 offered, while Delta Air Lines Inc.'s 8.30% notes due 2029 climbed as high as 64, up 2 points on the day, before giving up those gains end unchanged at 62 bid, 63 offered.

Northwest "gained altitude after the drubbing they took on Friday," said another trader who also saw the '06 bonds firm up to the 93-4 area. The Delta benchmark bonds, he meantime said, got as good as 63.25 bid before coming down from that peak to end at 62-63.

Delphi steady, Remy routed

In the automotive arena, traders saw little movement in Delphi Corp.'s bonds, and said it had not moved much on Friday either in response to news stories suggesting that a Cerberus-led investment group might try to back away from its commitment to invest $3.4 billion into the bankrupt Troy, Mich.-based auto parts maker.

One trader who saw Delphi's 6.55% notes due 2006 at 110.25 bid, 111.25 offered, said that they were unchanged Friday and down perhaps a quarter-point on Monday, but "nothing dramatic."

A trader meantime saw Remy International Inc.'s bonds down about 3 points, its 9 3/8% notes due 2012 at 34.5 bid, 35.5 offered.

He saw no news out on the credit but said "they just started to melt around the end of the day - there was even a bid out there, but it was flat [without the accrued interest]." While he saw no interest payments scheduled to come up in the near term, he warned that "concerns are rising" about the troubled Anderson, Ind.-based vehicle electrical systems maker.

CGG launches $600 million

No issues were priced in the primary market during the opening session of the January-February crossover week.

However the forward calendar built significantly.

In terms of dollar-amount, the most conspicuous of the prospective issuers to unveil a deal on Monday was French seismic services firm, Compagnie Generale de Geophysique.

The company will start a roadshow on Tuesday for a $600 million two-part offering of senior notes (Ba3/B+).

CGG plans to offer a $300 million add-on to its 7½% senior notes due May 15, 2015. The original $165 million issue priced at par in April 2005, and a $165 million add-on priced at 103.25 in January 2006, resulting in a yield to worst of 6.9%, and a yield to maturity of 7.016%. The total size of the existing issue is $330 million.

In addition CGG plans to offer a $300 million tranche of new 10-year senior notes.

Credit Suisse is the bookrunner for the debt refinancing related to a merger.

TerreStar discount notes

Elsewhere TerreStar Networks Inc., a majority-owned subsidiary of Motient Corp., will begin a roadshow on Tuesday for its $450 million offering of eight-year senior secured discount notes, which will have a 0% coupon for the first four years, after which they will become cash pay.

JP Morgan, Lehman Brothers and UBS Investment Bank are joint bookrunners for the internet protocol-based integrated satellite and terrestrial communications network operator.

Approximately $72.0 million of the proceeds will be used to repay debt owed to Motient, with the remainder for working capital and general corporate purposes, including the buildout of TerreStar's network.

Calfrac starts marketing Wednesday

Calfrac Holdings LP will start a roadshow on Wednesday for its $125 million offering of eight-year senior notes (B1/B) via RBC Capital Markets and Morgan Stanley.

Proceeds will be used to repay bank debt, fund capital expenditures and for general corporate purposes.

The Delaware limited partnership, which is indirectly wholly owned by Calfrac Well Services Ltd., of Calgary, Alta., will use the proceeds to repay bank debt, fund capital expenditures and for general corporate purposes.

Jarden announces $400 million

Meanwhile Jarden Corp. announced in a Monday press release that it plans to commence, subject to market conditions, a $400 million offering of senior subordinated unsecured notes (B3) on Feb. 5.

Lehman Brothers and Citigroup will lead the debt refinancing deal for the Rye, N.Y.-based provider of niche consumer products used in and around the home.

BMS for Tuesday

With regard to business already in the market, BMS Holding Co. (Bankruptcy Management Solutions) talked its $150 million offering of five-year floating-rate PIK notes (Caa2/CCC+) to pay interest at Libor plus 700 basis points at an issue price of 99.00, on Monday.

The JP Morgan-led deal is expected to price on Tuesday.

And Mexican telecommunications firm Axtel, SAB de CV set talk for its $250 million offering of 10-year senior unsecured notes (Ba3/BB-) at 7¾% area.

Credit Suisse is the bookrunner for the Rule 144A and Regulation S transaction which is also expected to price on Tuesday.

In addition to those two, TransDigm Inc. is expected to price a $250 million add-on to its 7¾% senior subordinated notes due July 15, 2014 (B-) on Tuesday, according market sources.

However at press time Monday night no price talk had been heard on the Credit Suisse-led deal.

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