Georgia Gulf, Berry slate $750 million deals; Visteon up on plant sale plans; funds see $74 million outflow

By Paul Deckelman and Paul A. Harris

New York, Aug. 17 - Georgia Gulf Corp. and Berry Plastics Corp. were each heard by high yield syndicate sources to be preparing to shop separate $750 million bond deals around the market, although not until September, when the primaryside pace is expected to pick up from the dull dog-days lassitude the new-deal arena is currently seeing.

In the secondary market, Visteon Corp.'s bonds, as well as its shares, were higher, apparently helped by the Van Buren Township, Mich.-based automotive components supplier's announcement Thursday that it plans to sell two of its five German factories and halve its workforce in that country.

Another positive factor may have been market buzz - strictly unofficial and unconfirmed at this time - that French auto parts maker Valeo SA wants to kick the tires on the former Ford Motor Co. parts unit with an eye towards a possible acquisition. According to the grapevine, also unconfirmed, Visteon is supposed to have retained J.P. Morgan to help it evaluate strategic alternatives.

A high yield syndicate source said that the broad junk market was up on Thursday, but added that the session was very quiet, with many players absent.

And as the session was winding down, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $73.7 million more left the funds than came into them. That broke a three-week winning streak during which inflows totaled $521.3 million, according to a Prospect News analysis of the figures, including the $129 million inflow seen the previous week, ended Wednesday Aug. 9.

Even counting the latest week's outflow - which a trader dismissed as "nothing significant" - inflows have still been seen in five weeks out of the last seven - a rarity in a fund-flow landscape so far this year that has been almost completely dominated by outflows. Over those seven weeks, net inflows have totaled $544.4 million, according to the Prospect News analysis.

However, the year-to-date figures tell a much different story. Thursday's outflow deepens the red ink for the weekly reporting funds, which have now seen flows totaling negative $3.148 billion thus far into 2006.

Meanwhile the funds that report on a monthly basis are in the black for 2006, according to AMG. The monthly reporters have seen more than $2.265 billion of inflows year-to-date.

Hence year-to-date aggregate flows, tallying both the weekly and monthly reporters, stood at negative $882.5 million.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

Post-Labor Day

With little if any business expected to materialize in the 10 and a half market sessions between the Thursday close and Labor Day, primary market watchers are focusing on what is expected to be a dramatic build up to the new issue calendar when business resumes after the three-day holiday weekend.

That three-day weekend represents a traditional summer-fall boundary mark in the junk market.

A high yield syndicate official said on Thursday that one of the first big deals out of the chute will likely be Atlanta-based Georgia Gulf Corp.'s $750 million of bonds backing its approximately $1.6 billion acquisition of Royal Group Technologies Ltd.

The deal is expected to include $500 million of senior unsecured notes and $250 million of senior subordinated notes.

Merrill Lynch is expected to lead the deal in a syndicate that will also include Banc of America Securities and Lehman Brothers.

Royal Group Technologies is a Toronto-based producer of home improvement and building products.

Also expected to show up in September is BPC Holding Corp., the parent of Berry Plastics Corp.

The Evansville, Ind., rigid plastics manufacturer is expected to bring a $750 million offering of senior secured second-lien notes via Credit Suisse, Deutsche Bank and Citigroup.

Proceeds will be used to help fund the $2.25 billion acquisition of the company by Apollo Management, LP and Graham Partners from Goldman Sachs Capital Partners and JPMorgan Partners.

A huge forward calendar

A high yield syndicate official said that a huge forward calendar is expected to emerge during the September-October time frame, and is looking for $25 billion to $30 billion of issuance from early September through the end of 2006.

The official added that 2006 total dollar-denominated issuance should easily eclipse that of 2005.

A peak into the Prospect News data base would seem to back up this source's assertion: given total year-to-date issuance of slightly less than $85 billion to Thursday's close, the low end of this official's projected issuance range for the remainder of 2006, $25 billion, would send the full year's tally to approximately $110 billion, nearly $6 billion higher than 2005 total dollar-denominated issuance which came in at just over $104 billion.

The syndicate official went on to say that on a total return basis junk is now at its high for the year, and added that at Wednesday's close the Banc of America Securities high yield index had returned 5.10%.

At the outset of 2006 high yield sources were projecting low single-digit returns for junk. Some sources have lately been saying that a mid single-digits total return now looks possible.

On Wednesday a high yield investor said that the market could rally through the end of the year, especially if the Federal Reserve stands pat with a short-term interest rate of 5¼%.

The syndicate official conceded that interest rates will likely be a factor that decides the total return for junk in 2006.

However another factor, the source warned, is a massive build up in the forward calendar.

"Last year we came out of Labor Day on fire," the official said, referring to the deal-churning fall 2005 primary.

"It was a huge calendar, and it ultimately weighed on the market."

Visteon gains

Back in the secondary market, Visteon's bonds were clearly the day's standout performers.

A trader said the company's bonds were "better across the board," quoting its 8¼% notes due 2010 as having firmed to 99.5 bid, while its 7% notes due 2014 finished at 89.75 bid, 90 offered.

A trader at another shop said that the bonds were "up 2 to 3 points on the day." He said the 81/4s opened at 96 bid, 98 offered, got as good as 101 bid, 103 offered, and then came off that peak level to finish at 98 bid, par offered, up by a pair, while the 7s opened at 85 bid, 87 offered, pushed up to 91 bid, 93 offered, and then settled in around 88 bid, 89 offered, a 3 point gain.

Another market source saw the 81/4s jump 5 points initially to about 99.5, and trade in a 99-par context all day, with the high print at 101.5. Meantime, the 7s jumped 4 points in the early going, from 86 to 90, and briefly pushed up to the dizzying height of 95 for a few trades, before dropping back to finish around 89.75 bid.

Visteon's New York Stock Exchange-traded shares rose 45 cents (5.11%) to close at $9.25. Volume of 8.5 million shares was more than triple the average daily turnover.

Visteon said Thursday that it is looking to sell its parts plants in the German towns of Wuelfrath and Dueren, which no longer fit Visteon's overall strategy of focusing on three areas - vehicle interiors, electronics and climate controls. The Wuelfrath plant, which employs 580 people, builds steering assemblies, while the factory in Dueren employs 850 people to produce drivetrains and transmission differentials - product lines that Visteon is looking to get out of. Visteon's German operations currently employ some 2,800 people.

Visteon said that it was prepared to sell the plants to either industrial or financial buyers, but offered no further details. A company spokesman reached by Prospect News, Jim Fisher, said he had no additional information about the possible timing of any such sales, whether Visteon had received any expressions of interest from potential buyers, ballpark amounts of anticipated proceeds from the divestments or the possible use of any proceeds thus generated.

"These commercial discussions are confidential and we are not at liberty to disclose any parties that may be interested. The specific timing for any actions will depend on the outcome of these discussions," he said in an e-mail message.

The announcement that the two German assets are to be sold is in line, Fisher said, with the previously announced restructuring portion of Visteon's three-year plan, which in part involves identifying non-strategic facilities to be sold or for which the company will seek partnerships. Visteon has said it is "actively working" with investment bankers on some of those facilities, he said, although it has declined to identify them at this stage of the proceedings.

The spokesman also declined to comment on news reports indicating that Valeo might be interested in acquiring Visteon - speculation that caused credit default swap contracts on Valeo's debt to widen out in Thursday dealings in Europe. The cost of protecting €10 million of Valeo debt against a default for five years increased by 20 basis points, or €20,000, to €89,000, or 89 basis points, with market participants citing speculation that the French company was involved in the first round of bids for Visteon.

The speculation had exactly the opposite effect on CDS contracts for Visteon's $3.3 billion of highly speculative junk-rated debt. The five-year Visteon CDS were reported by one source to have tightened roughly 120 bps to trade around 400 bps, meaning that it would now cost an investor $100,000 less per year for protection on $10 million than it did 24 hours earlier. Another source in the CDS market pegged the cost of guarding against a possible Visteon default at 449 bps, down from 526 bps previously.

News reports also mentioned that Visteon has apparently hired J.P. Morgan to help the company explore its strategic options. Fisher said in response to all of this that Visteon does not comment on market rumors or speculation.

Valeo, headquartered in Paris, is the third-largest European car parts supplier, making components for most major car and truck manufacturers, producing parts through three divisions - electronics and electrical, transmissions and thermal systems. Its electronics and electrical systems unit makes wiper systems, motors and actuators, security systems, electrical components, electronics, and lighting products. Valeo's transmissions division makes clutch systems, torque converters, and friction products, while its thermal systems unit offers climate-control and engine-cooling components. News reports indicated that it may be attracted by Visteon's air-conditioning and heating systems product line.

Solo up

Elsewhere, a trader said, "everything felt firmer," noting, for instance, that Solo Cup Co.'s 8½% notes due 2014 were "up 4 points on the day and 6 points the past few days," closing out the session at 87.75 bid and looking for offers, after having traded as high as 90.

The Highland Park, Ill.-based maker of disposable foodservice and beverage-related products announced Wednesday that the company's recently appointed president and chief operating officer, Robert M. Korzenski, will also assume the duties of chief executive officer, succeeding 50-year-plus Solo management veteran Robert L. Hulseman, who will stay on as chairman of the board of directors.

At another shop, a trader saw Finlay Enterprises Inc.'s 8 3/8% notes due 2012 up a point at 87.5 bid, 88.5 offered, citing better numbers for the New York-based operator of leased fine jewelry counters at major department stores.

Remington eases after gains

However, Remington Arms Co. Inc.'s 10½% notes due 2011, which had been hotter than a pistol lately, pushing as high as 90 bid earlier in the week from levels in the low-to-mid 80s, backed off that peak level to close at 88 bid, 89 offered.

While the bonds had been "creeping up" over the past few sessions, a trader said, they retreated on Wednesday's quarterly financial numbers. The Madison, N.C.-based manufacturer of shooting, hunting and fishing equipment reported second-quarter revenues of $91.1 million, down from $92.7 million a year ago, while its net loss widened to $8.8 million from a year-earlier loss of $7.6 million

Sea Containers lower

Another downsider was Sea Containers Ltd., whose bonds "were down with the stock," said a trader, noting a 2 point drop in the troubled Bermuda-based railroad and marine transportation company's close-in 10¾% notes slated to come due on Oct. 15. Those bonds backpedaled to 90.5 bid, 92 offered, while the company's NYSE-traded shares sank 47 cents (12.63%) to $3.25 on volume of 1.56 million shares, nearly four times the norm. The debt-laden company, which on Wednesday met with shareholders to outline its shaky financial status, held a similar meeting Thursday with bondholders. Sea Containers has promised to present a restructuring proposal to its creditors sometime in the next few weeks.

A market source at another desk saw the October bonds open around Wednesday's closing level at 94.25 bid, hold pretty steady just a little below that for most of the day, and then slide badly in the afternoon to around 90.25 at the end. Its 7 7/8% notes due 2008 were down about ½ point at 91.5.

Amkor firm despite restatement

And the news at Amkor Technology Inc. plans to restate seven years of results affected by its past treatment of stock options seemed to have little negative impact on the Chandler, Ariz.-based semiconductor manufacturing services provider's bonds. A trader saw its 7¾% notes due 2013 at 91 bid, 92 offered, "better, but I don't know why," while another source pegged those bonds up 2 points on the day at 91.25, and saw its 7 1/8% notes due 2011 up a similar amount at 92.25.

Moody's Investors Service, however, lowered Amkor's ratings in response to the news, downgrading the company's corporate family rating to Caa1 from B3 and cutting its speculative-grade liquidity rating to SGL-4 from SGL-3, citing the restatement decision as evidence of "material weakness in the company's disclosure and internal controls."

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