Metals USA, National Mentor price deals; Technical Olympic up on Transeastern settlement

By Paul Deckelman and Paul A. Harris

New York, June 29 - Metals USA Holdings Corp. and National Mentor Holdings Inc. brought new deals to market Friday, high yield syndicate sources said, the former after having been restructured and the latter after having been upsized.

That put a positive finish to a gloomy week which had seen three deals pulled from the forward calendar - a $1.1 billion offering for U.S. Foodservice Inc. and smaller deals for Magnum Coal Co. and Catalyst Paper Corp. All were seen to be victims of the ubiquitous "adverse market conditions," as investor ardor for new junk paper to finance a wave of leveraged buyouts and other transactions seemed to cool a little in the wake of recent problems in the broader financial markets, notably the subprime lending fiasco, and concerns about the impact those losses may have on hedge funds and other investors who had poured lots of money into such vehicles.

Even among the deals which did manage to make it to the finish line this past week, a number had to be restructured to make them more palatable to investors - besides the Metals USA deal Friday, there was Dollar General Corp.'s nearly $2 billion two-part issue on Thursday. Still others, like CanWest MediaWorks LP on Thursday and Community Health Systems Inc.'s $3 billion behemoth on Wednesday, had to be downsized.

Price talk was meanwhile heard on ServiceMaster Co.'s upcoming $1.15 billion offering - yet another deal that had to be restructured to adapt to current market realities.

In the secondary market, Dollar General's new eight-year cash-pay bonds were seen well down from their late Thursday issue price, while the company's new 10-year toggle notes were not seen at all.

Back among the established issues Technical Olympic USA Inc. "saw a lot of action," as one trader put it, moving higher after the late-day announcement that the Hollywood, Fla.-based homebuilder had reached an accord on the amount of debt it will take on from its troubled Transeastern Homes joint venture - a lesser amount that many in the market had feared.

There were a couple of names in the market which perhaps should have moved, on news, but which did not really go anywhere, including the distressed Dephi Corp. and the split-rated Expedia Inc.

News that telecom giant AT&T will buy Dobson Communications Corp. came too late in the day to affect the company's bonds.

A sell-side source saw the broad market "a little weaker" on Friday.

Meanwhile the primary market cranked out slightly more than $563 million of issuance in two tranches.

Hence, at the halfway point of the year, the June 25 to June 29 week becomes the second-biggest of 2007 to date, and just missed by a nose from being the biggest week of the year for dollar-denominated issuance.

Metals USA prices $300 million

Market sources on both the buy-side and the sell-side had been speculating since mid-week about the chances of a pair of dividend-funding deals, one from Metals USA Holdings, the other from National Mentor Holdings Inc. - and both of them floating-rate PIK toggle notes - getting done.

Heading into Friday, following a week during which deals were postponed, downsized, restructured and tending to price on the wide end - if not wide of - price talk, sources were looking for both deals to be pushed into the pre-July 4 week.

Nevertheless both were completed on Friday.

Houston-based Metals USA priced a restructured $300 million issue of five-year senior floating-rate PIK toggle notes (Caa1/CCC) at 97.00.

The notes have an initial cash coupon of Libor plus 600 basis points, and an initial PIK coupon of Libor plus 675 basis points. The coupon steps up by 25 basis points per year for the first three years.

The price talk was for a coupon of Libor plus 600 basis points at 99.00; hence the notes were priced at a significant discount relative to talk.

UBS Investment Bank ran the books for the Rule 144A/Regulation S with registration rights issue.

The tenor of the notes was decreased to five years from seven years.

National Mentor upsizes

Elsewhere National Mentor priced an upsized $175 million issue of seven-year senior floating-rate toggle notes (Caa1/CCC+) at 98.50 on Friday.

The notes have a cash coupon of three months Libor plus 637.5 bps. However, if the buyer chooses to pay in kind, the coupon climbs 75 bps to Libor plus 712.5 bps. The first coupon will be PIK.

There was no price talk prior on the issue.

Banc of America Securities LLC and UBS Investment Bank were joint bookrunners.

Second by a nose

With Friday's two issuers raising slightly more than $563 million of proceeds the June 24 to June 29 week came to a close having seen $9.808 billion of issuance in 15 dollar-denominated tranches.

Hence it came in slightly lower than the March 12 to March 16 week, which saw $9.887 billion, also in 15 tranches.

With Friday's deals in the tally, year-to-date issuance comes to $108.3 billion.

Hence with half of 2007 now in the books, issuance is running 57% ahead of the $68.9 billion that had priced by the June 30 close in the record-setting year of 2006.

ServiceMaster talks $1.15 billion

ServiceMaster Co. set price talk for its restructured $1.15 billion offering of eight-year senior notes (B3/CCC+) on Friday.

The Downers Grove, Ill., provider of home maintenance services talked a $575 million tranche of cash-pay notes at 10½% area.

Meanwhile a $575 million tranche of PIK toggle notes is talked at 11% area, with a 100 basis points coupon step-up should the issuer elect to make an in-kind, as opposed to cash, payment.

The books are scheduled to close at 2 p.m. ET on Monday.

Previously the company had been in the market with a single $1.15 billion tranche of eight-year notes.

JP Morgan, Citigroup, Goldman Sachs & Co., Morgan Stanley and Banc of America Securities are joint bookrunners.

In the two sessions leading up to the Fourth of July ServiceMaster is the only Rule 144A deal expected to price.

New Dollar General bonds trade down

No aftermarket activity was seen in either National Mentor's floating-rate toggle notes due 2014 or in Metals USA's toggle floaters due 2012.

"The big trader was Dollar General," a trader said, quoting the discount retailer's new 10 5/8% senior notes due 2015 at 96.5 bid, 97 offered, well down from its late-Thursday issue price at 98.027.

Another trader saw the bonds at 96.25 bid, 96.75 offered.

He said that he had "read in the paper" about rumors that the issue's lead underwriters had taken up all of the bonds themselves, but opined "I don't know if that's true."

He did note that the other half of that deal - the $725 million of 11 7/8% senior subordinated toggle notes due 2017, which priced at par, "is on Bloomberg. I see 'em up there. I don't know if they were placed, or what - but they're up there. It would be surprising if they were just sitting on [lead underwriter] Goldman's books and still be on Bloomberg, so I'm not 100% sure."

Of one thing he was quite certain though - "there was no trading in that one - that's for sure."

Technical Olympic up on Transeastern deal

Back among the established names, Technical Olympic "saw a lot of action," as it "moved up a bit," a trader said, helped by the late-day announcement of the debt settlement involving its troubled joint venture, Transeastern.

He saw Technical Olympic's 10 3/8% notes due 2012 move all the way up into the mid-to- high 80s, including "a small piece" at 88 bid, before coming off that peak and finishing around 80, which he said was not far from where they had begun the day.

He also saw the company's 7½% notes due 2015 move from the low 70s to as high as 75, before coming off that peak and heading back downward to end around 69.

But another trader, noting that "we had some excitement" late in the day, clearly saw sustained upside movement in the Technical Olympic bonds, pegging the 10 3/8s as having risen to a peak around 84 - which he called a 10 point gain over recent levels - and then coming off that zenith to end at 79 bid, 81 offered, which he called a 5 point gain on the day.

Technical Olympic, the first trader said, "was the most active name, with most of the action occurring in the last hour."

As part of the settlement announced Friday, Transeastern - a money-losing joint venture between Technical Olympic and the company's former owners, the Falcone Group - will become wholly owned by Technical Olympic and merged into one of its subsidiaries. Transeastern's bank debt will be repaid in full, rather than being assumed by Technical Olympic and inserted into the latter's credit structure, much to the relief of Technical Olympic bondholders who envisioned their bonds being pushed further down the totem pole.

To fund the Transeastern senior debt repayment, Technical Olympic will come to market in July with $500 million in new term loan debt comprised of a $200 million first-lien term loan and a $300 million second-lien term loan.

Citigroup is the lead arranger, bookrunner and administrative agent on the deal.

In addition, as a condition to the new deal, the company's existing revolving credit facility will be amended and restated to reduce the size to $700 million from $800 million and allow for the new bank debt.

Also under the settlement, Transeastern's senior mezzanine lenders and junior mezzanine lenders will release Technical Olympic from its obligations.

The senior mezzanine lenders will get $20 million in 14.75% senior subordinated PIK election notes due 2015 and 8% series A convertible preferred PIK preferred stock.

The junior mezzanine lenders will get warrants to purchase shares of Technical Olympic common stock. The warrants will have an estimated fair value of $16.25 million at issuance.

The settlement is expected to close on or about July 31.

Delphi quiet - Expedia as well

Elsewhere, there were some credits which had news out - but saw little movement in their bonds.

For instance, traders did not see much going on in the bonds of Delphi Corp., despite the news that members of the United Auto Workers had voted to accept labor cost concessions the bankrupt Troy, Mich.-based parts maker says it needs to come out of Chapter 11 and continue to compete. About 68% of the 17,000 UAW members voting on the accord approved the package of pay cuts and other contract changes. Delphi's 6.55% notes that were to have come due in 2006 remained in their recent 118-119 context. The Delphi bonds had firmed, however, when the UAW accord was recently first announced.

Another name where not much trading was seen was in split-rated credit Expedia, the on-line travel company. It recently announced plans to buy back up to one-third of its outstanding shares, which caused Standard & Poor's to dump its ratings to junk at BB+, down a notch from its previously investment-grade status at BBB-. Moody's Investors Service said that it also might downgrade the ratings. The agencies cited the likelihood that the big stock buyback might be funded by debt, worsening the company's leverage profile.

And sure enough, Expedia said Friday that its debt level could balloon out to more than $4 billion from current levels at about $500 million, should it tap the debt market to fund the stock repurchase.

But although the company's 7.456% bonds due 2018 were quoted down about 5/8, just below 99.5, trading activity was seen largely restrained.

Little impact from late Dobson news

And a trader said that Dobson Communications bonds were little changed, owing to the lateness of the hour, as news moved across the screens - well after 5 p.m. ET - that AT&T had agreed to buy the Oklahoma City-based provider of rural wireless services for $2.8 billion, in a transaction having a total value of $5.1 billion, including debt assumption.

"Nothing is going on at this second," he said, "since it's too late for anything." He saw the Dobson 8 3/8% notes due 2011 at 104.5 bid, 105.5 offered, its 9 7/8% notes due 2012 at 107.5 bid, 108.5 offered and its 8 7/8% notes due 2013 at 104.5 bid 105.5 offered.

Subprime angst seen as main influence

A veteran trader said that overall, the market was lower, with the widely followed CDX index of junk market performance down 9 1/16 on the day to 97 7/16 - 97 9/16.

He scoffed at the notion that the market might have been reacting to Thursday's announcement by the Federal Reserve Board that while there has been some "modest" improvement lately on inflation, the nation's central bank - which left its key lending rate unchanged at 5¼% - still sees the possibility of a price spike as the "predominate" risk to the economy. "A sustained moderation in inflation pressures has yet to be convincingly demonstrated," the Fed governors warned.

"No, I don't think the Fed's got anything to do with it," he declared - "it's all of the sub-prime mortgage stuff."

With Friday marking the last trading day of the second quarter and the first half of the year, he pointed out, "a lot of people have to mark-to-market at the end of the quarter. I think the marks are going to be pretty severe, as far as a lot of this mortgage-backed stuff. That's going to take a lot of money away, as people get margin calls, and will have to put up more money. So a lot of liquidity is going to be coming out of the market place. We still don't know how big it's going to be. "

And even though there's a degree of end-of-quarter/half book-squaring involved, he doubts that a lot of the money from the unwound trades is going to be coming back once that hump is past.

"Once that money goes, it's out of the market - it's pretty well gone. The only thing [that might make a difference] is if you had a big rally in that market, which I don't see happening. It will keep getting worse."

Stephanie Rotondo and Sara Rosenberg contributed to this report.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.