Six Flags firmer as Lehman touts company's chances; Accuride seen planning bond sale

By Paul Deckelman and Paul A. Harris.

New York, Jan. 3 - The high-yield secondary market - fresh off its 11% return in 2004 - got back to business on the first trading session of the new year, although activity was largely featureless, with a lot of players "just straggling in" as one trader put it, after two weeks of holiday-induced inactivity. One of the few names seen moving around was Six Flags Inc., whose bonds were seen up a little, as Lehman Brothers upgraded the theme park operator's shares.

In the primary market - still recovering from a year that saw record new-issuance levels of over $142 billion - things were a little slow getting back in gear, with, as expected, no deals pricing on the first day back.

While no issues priced, one $120 million deal from precision control components maker Moog Inc. came onto the radar screens, coursing a trajectory that should see it pricing by week's end.

Meanwhile, one source commented that the high-yield market felt firm in somewhat light volume on Monday, adding that new issuance could begin to pick up as early as Tuesday.

Moog's $120 million sale

Moog, of East Aurora, N.Y., announced an offering of $120 million of 10-year senior subordinated notes (Ba3) that it plans to price on Wednesday or Thursday after marketing the offering via an internet roadshow.

Banc of America Securities is running the books for the debt refinancing deal.

Elsewhere, Accuride Corp., an Evansville, Ind.-based truck wheel maker, was heard to be planning the sale of an unspecified amount of junk bonds in business that is weeks away, according to one informed source.

Lehman Brothers will be the bookrunner on the left. UBS Investment Bank will also be involved.

In addition the company is obtaining a $740 million credit facility that is set to launch this Thursday, led by Citigroup.

The bank deal is part of the financing of the company's acquisition of Transportation Technologies Industries Inc. that will be used to refinance both companies' senior bank debt and Transportation Technologies' subordinated debt.

The merger is expected to close this month.

Eyeing Ford and GM

The junk market continued to mull high yield's prospects for the year ahead, on Monday.

One market source told Prospect News that the performance of high yield in 2005 could hinge in large part on the fortunes of automakers General Motors Corp. and Ford Motor Co.

Together these companies have $450 billion of debt, the source said. And both, the source added, are rated BBB- by Standard & Poor's - one notch above junk, making them possible fallen angel candidates.

"The auto makers are seen as vulnerable," said the source who added that only a significant deterioration in earnings outlooks would likely prompt S&P to further downgrade the major auto makers.

However, the source added, the auto makers have realized significant profits in recent years from doing business in the People's Republic of China. And, because of tightened lending standards that have recently gone into place there, the Chinese market can not be counted upon to provide a significant lift through 2005. Also, the source said, further anticipated cuts in Chinese tariffs will serve to slow sales through the early part of 2005 because potential customers will await lower prices that come with the cuts.

"It is something that people are naturally watching," the source concluded.

"Any downgrade of Ford or GM by S&P would have a huge impact upon the bond market, and would not be good for high yield."

Six Flags gains

Six Flags bonds "were a little stronger," a trader said - "a touch stronger, though not a whole hell of a lot."

He quoted the New York-based theme park operator's 8 7/8% notes due 2010 at 101.25 bid, 102.25 offered, its 9½% notes due 2009 at 104.25 bid, 105.25 offered, and its 9¾% notes due 2013 and 9 5/8% notes due 2014 at 101.75 bid, 102.75 offered, and 100.5 bid, 102.5 offered, respectively.

"They've had a run," he said, contrasting the current levels with levels several weeks ago in the lower 90s, "but I didn't see them trading that much stronger [Monday]."

Lehman upgraded its assessment of Six Flag's stock on Monday, raising its recommendation to "overweight" from "equal weight" previously.

In a research note, the investment bank raised its price target to $7 from $4. The New York Stock Exchange-traded shares closed up 25 cents (4.66%) at $5.62 on Monday.

Lehman also said that with a substantial 2005 capital spending program that calls for major new rides and attractions in 13 of its 18 domestic theme park markets, the risk/reward equation in the shares is highly favorable, especially in light of a confluence of cyclical and seasonal upturns.

Lehman called the company's attendance outlook the best it has had in four years, given such factors as the robust $130 million to $135 million capex program, improving consumer confidence and what it sees as a strong recovery in destination theme parks, such as the Disney attractions and its competitors in 2004 - considered a positive harbinger for the regional operators like Six Flags. Lehman further projected easier national weather comparisons in spring 2005.

With all of these potentially favorable factors going for Six Flags, Lehman raised its 2005 adjusted EBITDA estimate to bring it into line with recently released management guidance of $300 million, up from $275 million previously.

High yield analyst Jacques Cornet of CIBC World Markets Inc. says it "will be interesting to see how they do earnings-wise. The balance sheet, with this convertibles deal they just did [$299 million of new 4½% converts due 2015, in mid-November], is liquid, it's fine, it can get them through several more years."

Cornet, who heads high yield research at CIBC, said that management has a certain amount of leeway because "there really isn't a trigger there that they've got to attain a certain earnings level to avoid a restructuring. They've done some things to enhance liquidity and buy them some time. So this will be an interesting thing to see if they can finally deliver on this $300 million of EBITDA that they've been promising for many years."

In its last several conference calls with investors, Six Flags executives have touted their plans to up capital spending on new rides and cited the likelihood of easier weather conditions after two pretty rough years, and the apparent resurgence of the amusement industry.

"They'll find out - we're going to find out [if the amusement industry rebound will help them bounce back]," Cornet told Prospect News. Even if they don't bounce back and they don't get to where they think they're going to get, from a balance sheet standpoint, there's enough liquidity there that they'll be OK.

There was a brief flurry of excitement last summer, as major stockholders Daniel Snyder and Bill Gates, in filings with the Securities and Exchange Commission within a day or so of one another, indicated a degree of unhappiness with the way current management has gone about maximizing shareholder value, and suggesting that either man could consider proposing nominating their own candidates for the company's board.

However, Cornet noted that such an attempted palace coup by one or both would seem to be unlikely at this point.

"They haven't done anything since those filings and it's been relatively quiet. What I would look for is somewhere around April-May, when Six Flags does its annual meeting and proxy statement, to see if there's any other activity at that point. If there isn't, I guess you can assume that [management] is going to get at least the year.

"Beyond that, without much in terms of a liquidity issue really putting a stress point to [management], there isn't a whole lot that [the dissident shareholders] can do. I think that they can certainly approach it from a friendly perspective and try to work with and provide additional resources to management - [but] I don't think that's the case yet."

Beyond that, not much was going on, a trader said, although he saw "some strength" in restaurant operator Sbarro's 11% notes, which moved up half a point to 101.5 bid, 102.5 offered.

He also saw "more buyers" for maternity-wear chain Mothers Work Inc.'s 11 ¼% notes due 2010, which moved as high as 98.5 bid late in the session from prior levels at 96 bid, 97 offered, before coming off that high to go home at 98 bid, 99 offered.

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