KB Homes, Hanover Compressor deals price; Level 3 continues rise

By Paul Deckelman and Paul A. Harris

New York, March 27 - KB Homes opened the door Monday on a quickly shopped drive-by offering of 12-year notes. Also pricing was Hanover Compressor Co.'s offering of seven-year senior notes. The Houston-based company's issue also came to market fairly quickly, having just surfaced on Friday.

And Burlington Coat Factory Warehouse Corp. was heard getting ready to hit the road Wednesday with a $500 million two-part note deal.

In the secondary market, traders reported a generally quiet day as the financial markets in general shifted gears into the idle mode to await the results of the first Federal Reserve rate-setting meeting chaired by the central bank's new boss, Fed Chairman Ben Bernanke.

They did see a resumption of the firming trend seen in Level 3 Communications Inc. late last week after Bear Stearns touted the Broomfield, Col.-based telecommunications company's shares.

Delphi Corp. bonds, and those of its former corporate parent, General Motors Corp., were seen a little better as the bankrupt Troy, Mich.-based automotive electronics manufacturer made a new wage-cutting proposal to the United Auto Workers union. That opened the door to the possibility that Delphi and the union might come to some kind of an agreement - or at least be making measurable progress toward one - by Thursday, the company's self-imposed deadline for having at least the framework for a deal in place, which could head off a company attempt to junk its current contract, an attempt the union has vowed to fight with a strike if need be.

On the downside, there was further sinking in the bonds of Sea Containers Ltd., which lost several additional points on top of the six or seven points they surrendered Friday after the Bermuda-based maritime company announced a shipload of bad news.

Overall a high-yield syndicate official marked the market unchanged but firm on Monday, with very light volume.

KB Home's a.m. to p.m. drive-by

Los Angeles single-family home builder KB Home priced a $300 million issue of 7¼% senior notes due June 15, 2018 (Ba1/BB+/BB+) at a 258 basis points spread to Treasuries, at the tight end of the Treasuries plus 258 to 260 basis points price talk.

The notes came at a dollar price of 99.486 to yield 7.283%.

Banc of America Securities ran the books for the debt refinancing deal that came as an a.m. to p.m drive-by.

An informed source, noting that the deal came tight to talk, said that it went well.

Hanover a blow-out

In other quick-to-market action, Hanover Compressor Co. priced a $150 million issue of seven-year senior notes (B3/B) that were first announced last Friday.

The notes priced at par to yield 7½%, on top of the price talk.

JP Morgan and Credit Suisse were joint bookrunners for the debt refinancing deal from the Houston-based natural gas compression business.

An informed source said that the deal was a blow out.

A pair of roadshow starts

In what sources characterized as a primary market that is likely to see more business over the next two weeks, two roadshow starts were announced on Monday.

Burlington Coat Factory Warehouse Corp. will begin a roadshow on Wednesday for its $500 million two-part offering.

The Burlington, N.J., retailer of branded apparel plans to price a $300 million tranche of eight-year senior notes, which will come with four years of call protection, and a $200 million tranche of 10-year senior subordinated notes, which will come with five years of call protection.

Banc of America Securities, Bear Stearns & Co. and Wachovia Securities are joint bookrunners for the acquisition deal.

Also MultiPlan, Inc. will start a roadshow on Wednesday for its $250 million offering of 10-year senior subordinated notes (Caa1/B-) via Goldman Sachs and Banc of America Securities.

The New York-based independent provider of health coverage will use the proceeds to fund the LBO by The Carlyle Group.

The rest of the week

With the KB Home and Hanover Compressor transactions completed, the remainder of the final week of March 2006 contains less than half a billion of expected issuance in three dollar-denominated offerings.

Festival Fun Park is on the road with a $150 million offering of eight-year senior notes (B2/B) via JP Morgan.

French Lick Resorts and Casinos LLC is roadshowing $270 million of first mortgage notes in two parts (B3/B-) - seven-year floating rate notes and eight-year fixed-rate notes - in a deal led by Merrill Lynch & Co.

And Wood Resources LLC is marketing a $75 million offering of seven-year senior secured floating-rate notes (B3/B-) underwritten by Jefferies & Co.

In addition to those U.S. dollar-denominated deals, Saskatchewan Wheat Pool Inc. is marketing a C$100 million offering of seven-year senior secured notes via TD Securities.

During the March 20 week, Pool downsized the debt refinancing bond offering from C$150 million, shifting C$50 million proceeds to a common share bought deal.

KB steady in trading

When the new KB Home 7¼% senior notes due 2015 were freed for secondary dealings, traders said the new bonds were little moved from their 99.701 issue price earlier in the session. One said the deal was "not very exciting" from a high yield standpoint, since KB and its peers in the homebuilding sector trade very tightly and offer relatively low yields; he saw the new bonds at 99.75 bid, par offered. Another said that the new bonds "just stayed around issue, that's all."

The Hanover Compressor offering of new 7½% senior notes due 2013 priced too late in the session to any meaningful aftermarket activity, the traders said.

Secondary mostly quiet

Back among the already established issues, "there was nothing to report today," a trader said, adding that "everyone's waiting for the Fed."

Economists expect the Fed's policy making body, the Federal Open Market Committee, to conclude a two-day policy meeting Tuesday by raising its target rate to 4¾% - the 15th consecutive quarter-point rate hike that the central bank will have instituted since it put the brakes on a long stretch of interest-rate reductions in late 2004 and began tamping down the economic fires in order to avoid inflation. Expectations that the Fed will again raise rates - and fears that it is not yet done doing so - caused stocks to slide Monday in one of the slowest trading days of the year, a trend mirrored in the generally sedate junk bond arena.

"A lot of stuff was not being quoted today [Monday]," a second trader said. "I don't know if everybody's being like a turtle" and pulling their heads into their shells and covering up "because of the Fed tomorrow [Tuesday], or what. There's a lot of stuff that I would have thought that I'd have seen prices for - but I didn't."

"The market was pretty quiet," yet another trader agreed. "It appeared to be unchanged, maybe a little firmer in some spots, but [there was] not a tremendous amount of flow shaking out there."

Level 3 continues rise

One issue which he said did seem to be somewhat active was Level 3, "which continued to run pretty good."

He saw its 10¾% operating company notes due 2008 half a point better at 99.25 bid, 100.25 offered, while its holding company 11½% notes due 2008 were also half a point better at 94.25 bid, 95.25 offered.

He saw the company's stock-linked convertible notes especially strong, with its 2 7/8% converts due 2010 at 83 bid, 84 offered and its 6% converts due 2010 at 78 bid, 79 offered, both up a point.

Another trader said that the holding company debt was doing "not much - most of it has already been tendered [for and taken out]." He saw the company's former benchmark issue, the 9 1/8% notes due 2008, unchanged at 99.75 bid, 100.75 offered.

The company's bonds - particularly the operating company notes - had already risen solidly late last week after Bear Stearns equity analyst Steven Randall changed in his recommendation in the company's shares to "outperform" from "underperform" previously.

"We expect an improved operating environment and the impact of consolidation will benefit Level 3 over the next several years," Randall wrote in a research note Thursday.

"In 2006, we expect price declines to continue to moderate while traffic volumes increase" on Level 3's 23,000-mile long fiber optic broadband backbone network, "with the potential to accelerate in 2007 and beyond as the internet is increasingly used to transport voice, data and video."

The analyst also upped his fiscal 2006 EBITDA estimate to $583 million from $575 million.

Delphi, GM higher

Elsewhere, a trader saw Delphi Corp.'s bonds up about a point on the session at 66 bid, 68 offered, and saw GM's bonds, and those of its General Motors Acceptance Corp. financial subsidiary, up a point. He quoted the giant carmaker's benchmark 8 3/8% notes due 2033 at 74 bid, 76 offered, up a point, and also pegged GMAC's 8% notes due 2031 at 93 bid, 94 offered, while its 6¾% notes due 2014 were at 89 bid, 90 offered, and its 6 7/8% notes due 2011 were at 91 bid, 92 offered, all a point better.

Another trader called Delphi "maybe half a point better" at levels in the mid 60s, "but nothing really was going on in them - it was just grinding upward.

Another trader agreed that Delphi "was basically unchanged after its news blurb," with the company's 7 1/8% notes due 2029 staying at 67.

While yet another trader agreed that Delphi didn't do much on the news that it had made a revised offer to the UAW - calling for somewhat smaller, slower wage cuts than its original plan - he did see GM's bonds better, probably on the news, with the 8 3/8s up 1½ points at 74.25 bid, 75.25 offered, and the GMAC 8s at 93 bid, 94 offered, a ¾ point gain.

GM, Delphi's corporate parent till 1999 and still its largest customer - and Delphi, in turn, is GM's single largest parts supplier - has a vested interest in seeing Delphi and the UAW agree on some kind of plan for Delphi to be able to cut its heavy labor costs without provoking a costly strike by its more than 20,000 UAW members, since a labor shutdown would throw GM's own production schedules into turmoil at a time when the carmaker is trying to regain its own financial footing.

GM, Delphi and the union have been negotiating for months, with Delphi insisting that it must cut its labor costs - estimated at $27 per hour per worker on average in straight pay, and nearly $50 per hour more in healthcare and other benefits - if it is to be able to restructure its finances and survive as a company.

After Delphi filed for Chapter 11 protection last October, it quickly proposed cut in the average salary to about $9.75 per hour - an idea vehemently rejected by the union. Delhi said that if it could not reach a consensual agreement with the union and its former parent - whom it blames for its pricy labor cost structure - it would ask the court to allow it to throw out the negotiated contract and unilaterally impose a lower wage structure. The union threatened a strike. Delphi has since back off several deadlines - but now says at least a framework of an agreement must be in place by Thursday, or it will go to court Friday to junk the union contracts.

Delphi's new proposal would drop the wage rate gradually to about $16 per hour, according to Monday's editions of the Detroit News. The paper said the plan envisions likely assistance from GM.

There was no immediate response from the union. Officials from its Delphi and GM locals are scheduled to meet on Tuesday with executives of the two companies to discuss the special attrition program unveiled last week by Delphi, GM and the UAW, which would offer GM-funded buyouts to some 13,000 of Delphi's 34,000 hourly workers, while GM itself was concurrently offering buyouts - albeit on a much different financial structure - to its own more than 100,000 hourly employees, most of whom are not expected to give up their jobs even for a tempting lump-sum payment.

Enough workers may take the bait at both companies, though, to allow them to bring their labor costs down. That is critical for Delphi, which says it pays its employees far more than other auto-parts suppliers because it inherited such a labor cost structure from its carmaker ex-parent when it was spun off, and important also for GM, which lost more than $10 billion last year and which is losing market share to other carmakers partly because of the labor costs built into the production of every vehicle which rolls off its assembly lines.

Meantime, GM could announce details Tuesday on a wave of job cuts among its 36,000 salaried technical and professional workers. The carmaker - which has announced plans to eliminate 30,000 hourly jobs by 2008 - has also said that it will cut up to 7,000 salaried positions this year, although it has given no details yet. One facility that could be hard hit is GM's technical facility in Warren, Mich., where more than 14,000 research, engineering and design employees work.

GM on Monday said that its U.S. sales outlook for 2006 is "challenging" and its first-quarter market share will be slightly lower, at about 24%, due to aggressive competition. But its officials said that the carmaker would stick with a new pricing strategy that lowered the regular prices on most of its models and that seeks to avoid the kind of blowout discount programs GM put in place last summer that ended up selling a lot of cars - but at a very low margin that did not do much to help its profits picture.

GM said sales of its redesigned vehicles, including the Chevrolet Tahoe SUV and the Chevy Impala are strong (the latter is a European-styled mid-size sedan - not to be confused with the iconic, full-sized classic American sedan that was Chevy's sales mainstay back in its glory days from the late 1950s right up through the 1980s). Sales of new GM vehicles rose 23% in the first two months of this year versus a 7% drop for its older vehicles.

Also in the automotive area, a trader saw GM arch rival Ford Motor Co.'s 7.45% notes due 2031 up ¾ point at 74.25 bid, 74.75 offered, and saw the 7% notes due 2031 of Ford's credit arm at 88.5 bid, 89 offered, half a point better. Former Ford parts unit Visteon Corp.'s 8¼% notes due 2010 were half a point better at 82.5.

Sea Container sinks further

On the downside, a trader saw Sea Containers' bonds "down another point or so" after their seven-point slide Friday. He called the company's 7 7/8% notes due 2008 down two points on the session at 89.5 bid, 90.5 offered, and "down nine points from where they had been on Friday morning, before the news."

The marine transportation company's bonds had taken on considerable water on Friday after it revealed that it was in talks with its lenders on covenant relief and was getting out of the ferry business altogether, taking earnings charges in connection with that move.

Sea Containers - which runs ferry and railroad services in many countries as well as a maritime cargo container leasing business, from whence it derives its name - had said in November that it would seek to restructure its underperforming ferry operations and look for buyers for the business. However, this past week it said it would exit the business completely and take about a $500 million charge against its fiscal fourth-quarter earnings related to its departure from the ferry field, and to an impairment of its container business.

That charge - which is much higher than the $138 million impairment which had been previously expected from the ferry operations' restructuring - will in turn reduce the company's net worth by $475 million, putting it in violation of net-worth requirements under its credit facility covenants.

Sea Containers said that it will delay filing its 2005 financial reports while it seeks covenant amendments or waivers from its bankers. It also needs the extra time to restate its results for the first three quarters of last year in order to correct its accounting for the sale of shares in its former Orient-Express Hotels investment, reducing the sale gain it recorded.

S&P on Friday lowered all of its ratings on Sea Containers, including the corporate credit rating, which was cut to CCC+ from B+ previously. The bonds were cut to CCC- . S&P cited "heightened uncertainty regarding continued debt service after management stated that it was evaluating 'all options' for Sea Containers' financial structure."

Manitowoc steady

Traders reported no activity Monday in the bonds of construction equipment maker Manitowoc Co. Inc., even as its shares rose after a Robert W. Baird & Co. analyst affirmed his previously issued bullish recommendation on the stock and raised his target price estimate in a research note, citing an expected upturn in the construction equipment market.

Its 10½% notes were seen Friday at 109.5 bid, 110.5 offered, and its 7 1/8% notes were at 101.5 bid, 102.5 offered. Two traders said they had seen no fresh levels on Monday, despite the Baird news and the gain in the shares.

After the market closed for the day, Manitowoc lifted its full-year earnings guidance to $3.75 per share to $4 per share, up from previous guidance of $3.30 to $3.60 per share. It also said that quarterly earnings would likely beat analysts' expectations, on average around 62 cents per share, by at least 20 cents.

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