Collins & Aikman bonds bounce around on financing move; GM unit sells euro deal

By Paul Deckelman and Paul A. Harris

New York, July 6 - Collins & Aikman Corp.'s bonds were gyrating around at higher levels as the bankrupt Troy, Mich.-based automotive components supplier came to an agreement with its six biggest customers for a $165 million package of emergency loans and price hikes aimed at giving the troubled company some breathing room while it tries to restructure itself.

Overall a well-bid junk market ended the day basically unchanged, according to one source - despite the bashing that took place in the stock market with the Dow Jones Industrial Average ending the session down more than 100 points.

The big news in the primary arena was also heard coming out of the automotive sector, as General Motors Corp.'s financing unit, General Motors Acceptance Corp., successfully priced a half-billion-dollar issue of split-rated euro-denominated bonds - GM's first foray into the markets on its own corporate credit since it was downgraded to junk status by Standard & Poor's nearly two months ago.

GM returns to the primary

Even as the primary market sat mostly listless, one source commented that the forward calendar is beginning to build.

But one story did unfold Wednesday involving perhaps the most talked about name in junk for 2005: General Motors Corp.

GMAC International Finance BV, a subsidiary of the financing arm of the world's largest auto maker, priced a €500 million issue of 5 5/8% two-year senior unsecured notes (Baa2/BB/BB+) at 99.919 to yield 5.665%.

The issue came on top of the mid-swaps plus 337.5 basis points area price talk.

Lehman Brothers and Citigroup ran the books.

The deal marked GM's first pass at the primary market since its credit ratings were cut to junk in the spring of the present year - although a newly formed subsidiary recently brought a large investment-grade offering.

However the deal seemed to generate very little interest among high-yield observers in the United States, most of whom said that the split-rated GMAC credit continues to be the focus of investment-grade players.

One market source in the United States reasoned that at €500 million Wednesday's deal amounts to a mere bucketful of issuance in an ocean of debt - in mid-May of this year Bear Stearns high yield strategist Mike Taylor estimated that the GM downgrade would result in approximately $48 billion of dollar-denominated fixed-rate unsecured General Motors paper coming into the junk index.

"It's kind of small," the market source remarked Wednesday, adding that the deal is also euro-denominated and likely to have been more closely tracked by investors in Europe as well as investment-grade players.

Iesy returns

German cable service provider Iesy Repository GmbH announced its return to the junk market on Wednesday.

The Frankfurt-based company is coming back with a downsized €360 million equivalent two-part offering of 10-year senior notes (Caa1/CCC+) in both dollar and euro tranches.

The notes were talked at 10¼% on Wednesday, and pricing is expected on Friday.

Citigroup, Deutsche Bank Securities and JP Morgan are bookrunners. Iesy will use the proceeds to take out the bridge loan that it obtained as part of the financing of its acquisition of German cable operator Ish.

The company postponed a €525 million equivalent two-part offering on April 28 due to unfavorable market conditions.

Expecting the SunGard deal

A growing chorus of voices in high yield has lately taken to professing the expectation that SunGard Data Systems, Inc. is set to launch a massive junk bond deal during July.

The company is expected to issue in the high-yield market as part of its financing of the $11.3 billion acquisition of the company by Solar Capital Corp., a group formed by Silver Lake Partners, Bain Capital, The Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. LP, Providence Equity Partners and Texas Pacific Group.

Deutsche Bank Securities is known to be in the bond deal. The financing also includes a $5 billion credit facility via JP Morgan and Citigroup, both of which are expected to also play prominent roles in the bonds.

The financing contains a $3 billion bridge loan to high yield.

Prospect News asked a buy-side source to comment on the likelihood that the company could show up with issuance sufficient to take out that bridge, and the source said that it is conceivable.

Asked if investors might be expected to take down such a hefty supply of paper from one issuer, the buy-side source also responded in the affirmative.

CSN a blowout

Finally, although the deal seems to primarily be of interest to emerging markets accounts, some junk players began expressing an interest Wednesday in the massive book that is building for an upsized $500 million perpetual preferred deal (B1/BB-/BB-) from Brazilian steel maker Companhia Siderugica Nacional SA.

Credit Suisse First Boston and Deutsche Bank Securities are running the books for the offer, talk for which tightened Wednesday to the 9½% area from the 9 5/8% area, as the deal size more than tripled from $150 million.

One investor in Asia told Prospect News of having put in for "a big bundle" of the CSN paper, clinging to the hope that the price would hold at 9½% but conceding that with more than $1.5 billion in the book the talk could tighten still further.

GM lower in trading

The news about GMAC's financing had little impact on secondary levels for the company's bonds, traders said, with one quoting the benchmark GM issue, the 8 3/8% notes due 2033, at 82.25 bid, 83.25 offered, down 1½ points on the session.

"GM was a little weaker, but it felt like it was just a trickle," he said, "not a huge sell-off for any reason."

He opined that maybe "the announcements yesterday [Tuesday, that GM will extend its popular "employee discount" incentive promotion to Aug. 1, a move quickly matched by Ford Motor Co. and the Chrysler division of DaimlerChrysler AG] certainly had something to do with it [the price decline], and also the earnings season that's coming up shortly with these guys reporting numbers is putting a little bit of fear into people."

He also saw Ford's flagship bonds, the 7.45% notes due 2031, down a point at 81 bid, 82 offered.

While GM's June sales surged an amazing 41% over year-earlier levels mostly due to the new incentive program, which lets the general public buy most new GM cars and trucks at the same discounted prices that GM's own employees have enjoyed for years, analysts have cautioned that it may be trying to buy market share at the expense of its bottom line, which will see a much smaller margin per vehicle. And now that GM's two biggest rivals have also jumped on the "employee discount" bandwagon and will ride it at least through Aug. 1, they warn that a prolonged price war, while spurring sales, might similarly cut revenues, margins and ultimately, earnings for all of Detroit's no-longer-so-Big Three.

Another trader said that he had "hardly even seen" the GM bonds Wednesday.

Collins & Aikman jumps

The clear focus of many in the market was another automotive name, Collins & Aikman, whose Collins & Aikman Products Co. 10¾% senior notes due 2011 bounced around crazily at higher levels on the news that the company and its half-dozen largest customers had come to an agreement on an emergency funding plan, which they will present to Judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan at a hearing Thursday in Detroit.

A trader saw those bonds having zoomed as high as 34 bid from levels late Tuesday in the 24-25 area, before they backed off those highs. He saw them going out at 31 bid, 33 offered, and saw the company's 11 7/8% subordinated notes due 2012, which have recently languished at around four cents on the dollar, rise to about 6 bid, 7 offered.

Another trader pegged the bids up around five points on the day at 30 bid, 31 offered.

However, a third trader, speaking a little later, said that after the bonds had jumped up, "they came right back down" and gave up most of their gains.

He saw the bonds open around a 25ish context, and then zoom as high as 33.5 bid. "They certainly popped earlier," he said, attributing the sharp rise to the news that GM, Ford, Daimler Chrysler, Honda Motor Corp., Nissan Motor Corp. and Toyota Motor Co. had agreed to extend the struggling company $82.5 million in loans, and also agreed to a 15% price increase for the next 90 days, which will put another $82.5 million into Collins & Aikman's depleted coffers, for a total of $165 million.

However, he said that "the bonds started trickling back down [from their highs], but at the end of the day, within the last hour or two, there was a rumor of a bank call [involving the bank lenders and the company] and the bonds weakened and went back down again. I wouldn't even want to speculate on what it was [on the rumored call] "but certainly, there were some nervous people out at the end of day, for whatever reason. Maybe they knew something that we don't, and therefore, the bonds weakened up," falling back down to levels around 28 bid, 29 offered.

The trader pegged that as still three or four points up on the day, but "they had been up like eight points earlier. Certainly they ended off their highs."

According to court documents, the customers fronting Collins & Aikman the latest injection of money - who collectively account for 85% of Collins' estimated $4 billion of annual sales - also agreed to provide an additional $140 million in relief over the next 90 days from expenditures required for startup costs for existing contracts and new product launches.

The $165 million of financing would expire on Sept. 30, and the new loans from the customers - essentially, a second debtor-in-possession financing - would be subordinate in the capital structure to the company's pre-petition loans and to the $150 million of DIP money which a bank syndicate led by J.P. Morgan & Co. provided to Collins & Aikman following its May 17 bankruptcy filing.

That $150 million was supposed to be only the first installment of the full DIP, with another $150 million waiting for the company, but the bank syndicate backed out in late June after seeing the way Collins burned through the first $150 million in little more than a month. That forced Collins to borrow $30 million in emergency bridge financing from its customers - a sum that will run out some time around Thursday, the day of the hearing on the new financing plan.

The bankers and other creditors have criticized the customers, saying their contracts with Collins are unprofitable to the company and are making it impossible for it to get out of its financial hole. The price increase the big customers agreed to and the reported subordination of the new loan to the original DIP could be seen as moves by the company and its customers to mollify the banks and keep them from opposing the new financing plans in court.

The Collins & Aikman motion seeking court approval for the new financing said that the steering committee of bank lenders had participated in the negotiations for the new financing package and would support it.

Besides the temporary price increases, Collins & Aikman said in its filing that the company would work with its respective customers on permanent price adjustments, as the banks and other creditors had urged. It is to present a comprehensive strategic business plan to the court by Aug. 30.

PacifiCare steady at make-whole level

Elsewhere, the news that PacifiCare Health Systems Inc. was in merger talks with United Health Group Inc. (and the later news that PacifiCare had agreed to be acquired in an $8.1 billion deal) had little impact on the Cypress, Calif.-based health insurance plan company's 10¾% senior notes due 2009, a trader said, quoting those bonds as already trading at around their likely T+50 basis points make-whole call takeout level of 111 bid.

"They're callable in a year, so they're sort of trading at yield-to-call anyway," he said. "The bonds are already as high as they're going to go."

He also saw no impact from Tuesday's news that Omnicare Inc. has sweetened its previously rejected purchase offer for rival pharmaceutical services provider NeighborCare Inc. to $1.53 billion from $1.46 billion previously, and that the two competitors are actually in talks about a possible friendly merger.

He saw Covington, Ky.-based Omnicare's 8 1/8% senior subordinated notes due 2011 at 98 bid, about where they were pre-news, while Baltimore-based NeighborCare's 6 7/8% senior subs due 2013 were at 106.5 bid, 107.5 offered, also pretty much unchanged.

Sealy keeps rising

Sealy Mattress' 8¼% notes due 2014 continue to climb, traders said, given a little bit of bounce by the Triad, N.C.-based mattress company's upcoming initial public offering of shares. A trader saw the bonds firm to 104.5 bid, 105.5 offered from levels about a point lower on Tuesday, while a second saw them rise to 104.75 bid, 105.75 offered, a ¾ point gain on the day.

Yet another trader estimated the bonds at 104 bid, 105 offered, and noted that last week, they had "been around par," and so had firmed smartly.

Another factor a trader noted was optimistic pronouncements about from the CEO of rival Simmons Bedding - considered a bullish development for all of the mattress makers.

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