AutoNation, Technical Olympic deals price; asbestos bonds higher

By Paul Deckelman and Paul A. Harris

New York, April 5 - AutoNation Inc. drove off the lot Wednesday with a trunkload of fresh money, after having priced a restructured, downsized two-part offering of fixed- and floating-rate notes.

High yield syndicate sources also saw Technical Olympic USA Inc. price a quickly marketed offering of five-year senior notes. From the euro market, issues priced included a calendar deal for German industrial manufacturer Vacuumschmelze (VAC Finanzierungs GmbH) and Kronos International Inc.'s seven-year note placement.

In total the primary market saw $850 million come in three dollar-denominated tranches from two issuers.

The sources also saw a prospective new offering for Transcontinental Gas Pipe Line, which will sell an issue of 10-year notes. Price talk was meantime heard on MultiPlan Merger Corp.'s upcoming offering of 10-year subordinated notes, as the company also downsized the deal, replacing part of the issue with bank debt.

In the secondary market, the bonds of bankrupt asbestos-challenged manufacturers Owens Corning and Armstrong World Industries Inc were seen having moved up solidly on a mixture of news about Owens Corning, news about another asbestos-troubled company, USG Corp., and just plain old speculation and rumor.

Late Wednesday afternoon a buy-side source had a positive spin on junk.

"The autos took a shot this morning and it weighed on the market," the buy-sider added.

"But if you get outside of that it's doing pretty well."

AutoNation multiple-times oversubscribed

Terms emerged Wednesday on AutoNation's downsized $600 million two-par deal (Ba2/BB+/expected BB+)

The Fort Lauderdale, Fla. automobile retailer priced a $300 million tranche of seven-year floating-rate notes at par to yield three-month Libor plus 200 basis points, on top of price talk that had been revised from 225 basis points.

The company also priced a $300 million tranche of eight-year fixed-rate notes at par to yield 7%, again on top of price talk that had been revised from a range of 7% to 7¼%

JP Morgan, Banc of America Securities and Wachovia Securities were joint bookrunners for the stock repurchasing and debt refinancing deal.

Earlier in the week the bond offering was downsized by $200 million and the company's bank loan increased by $300 million.

An informed source told Prospect News that the deal had gone very well and added that the order book was multiple-times oversubscribed.

Technical Olympic drives through

From the home-building sector, Florida-based Technical Olympic USA came with the third of Wednesday's three dollar-denominated tranches - a $250 million issue of five-year senior notes (expected ratings Ba3/B+) that priced at par to yield 8¼%.

The Deutsche Bank-led drive-by debt refinancing and general corporate purposes deal came on top of the price talk.

Euro deals

Euro-denominated deals generated €527.224 million of proceeds during the mid-week session.

Texas-based titanium dioxide pigments producer Kronos Worldwide, Inc. priced a €400 million issue of 6 5/8% seven-year senior secured notes (B2/B+) at 99.306 to yield 6¾%, on the wide end of the 6½% to 6¾% price talk.

The issue generated €397.224 million of proceeds.

Deutsche Bank Securities ran the books for the debt refinancing.

Elsewhere German advanced magnetic materials manufacturer Vacuumschmelze GmbH & Co. KG, priced a €130 million issue of 9¼% senior secured notes (B3/CCC+) at par.

The notes, which also yield 9¼%, came at the tight end of the 9¼% to 9½% price talk.

Transcontinental Gas on deck

Another industry sector said to presently hold wide appeal for junk investors is the energy sector.

Tulsa-based Transcontinental Gas Pipe Line Corp., a subsidiary of The Williams Cos., Inc., showed up Wednesday with a $175 million offering of 10-year senior notes (existing ratings Ba2/B+) that it plans to price on Thursday afternoon.

Banc of America Securities and Royal Bank of Scotland are joint bookrunners for the bullet notes, proceeds from which will be used for general corporate purposes, including the funding of capital expenditures.

Although price talk is not expected to emerge before mid to late Thursday morning, sources say that the deal is expected to price at a spread to Treasuries in the mid to high 100 bps range.

MultiPlan shifts $25 million to bank loan

Multiplan Merger Corp. (MultiPlan Inc.) downsized its offering of 10-year senior subordinated notes to $225 million from $250 million on Wednesday, shifting $25 million of proceeds to its term loan.

The notes (Caa1/B-) are talked at 10 3/8% to 10 5/8%, and are expected to price on Thursday via Goldman Sachs & Co. and Banc of America Securities.

Whisper on Basic Energy, Burlington Coat

The above-quoted buy-side source said that although no official price talk has been heard on the Basic Energy Services Inc. $200 million offering of 10-year senior notes (B1) via UBS Investment Bank, Banc of America Securities and Lehman Brothers, the "whisper" is that the notes are expected to come in the 7% to 7¼% range.

The source said that the deal appears to be doing well and added that the senior notes should come at the tight end of that range.

And although no official price talk has been heard on the Burlington Coat Factory Warehouse Corp. $500 million two-part offering, the $300 million tranche of eight-year senior notes due 2014 (B3/CCC+) has a pro forma yield of 9¼% and the $200 million tranche of 10-year senior subordinated notes (Caa1/CCC+) has a pro forma yield of 10¾%.

The offering, via Banc of America Securities, Bear Stearns and Wachovia Securities, is expected to wrap up its roadshow on Thursday.

Braskem expected to market perpetual

Finally, a portfolio manager who plays both domestic high-yield and emerging markets issues told Prospect News on Wednesday that Brazilian chemical manufacturer Braskem SA is expected to roadshow its new $200 offering of perpetual notes (/BB/BB-) to investors in the United States.

JP Morgan is leading the deal.

Last June Braskem priced an upsized $150 million issue of perpetual bonds at par to yield 9¾%, so the $200 million would take the company's total issuance of perpetual notes to $350 million.

However, the source pointed out, Brazil-based sugar and ethanol producer Cosan Industria e Comercio SA currently has $450 million of 8¼% perpetuals (Ba2/BB) outstanding, while Brazilian steel maker Companhia Siderurgica Nacional SA (CSN) has $750 million of 9½% perpetuals (B1/BB-/BB-) outstanding.

AutoNation higher in trading

When AutoNation's 7% notes due 2014 and its floating-rate notes due 2013 were freed for secondary dealings, they were heard to have broken at 100.25 bid, up slightly from their par issue price.

By later in the session, a trader saw the 7% notes at 100.75 bid, 101.25 offered, while the floaters were at 101 bid, 101.5 offered.

"Around the break, [the company's ratings] was downgraded - but I think that was priced in," he said. Standard & Poor's lowered AutoNation's corporate credit rating to BBB- from BBB, cut its senior unsecured debt rating to BB+ from BBB- and its $60 million revolving credit facility due 2010 to BB+ from BBB-.

Another trader saw the 7s at 101 bid, 101.25 bid, while the floaters were at 100.875 bid, 101.375 offered.

He also saw Technical Olympic's new 8¼% notes due 2011 at 100.25 bid, 100.625 offered, up from their par issue price earlier in the session.

Asbestos issuers jump

Back among the already established issues, "the big names that moved were the asbestos companies," a trader declared, particularly bankrupt Toledo, Ohio-based insulation maker Owens Corning and bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries.

He saw Owens Corning's bonds push all the way up to 87 bid, 88 offered from 81 bid, 83 offered earlier, and pegged Armstrong's bonds at 74 bid, 75 offered, up from 71 bid, 72 offered.

At another desk, a trader saw Owens Corning's 7½% notes due 2018 four points better at 87 bid, 88 offered, while Armstrong's 6½% notes due 2005 gained three points at 73 bid, 74 offered.

Yet another trader saw the Owens Corning 71/2s up five points on the day at 87.5 bid, 88.5 offered, while its 7% notes due 2009 were 5½ points better at 86.5 bid, 87.5 offered. He saw Armstrong's 6.35% notes actually down a point at 72.75 bid, 73.75 offered.

What was going on with asbestos?

Several traders said they had seen no sector news, and there was certainly no news coming out of Washington, where a bill that would set up a $140 billion privately funded but federally administered trust to deal with medical asbestos claims remains bottled up in the Senate, put there by opponents' parliamentary maneuvering as well as by other, more pressing issues that pushed asbestos to the back burner, including the renewal of the Patriot Act, the recent flap over the Dubai Ports deal and the need to confirm two Supreme Court justices within a space of a few weeks.

However, a trader cited "rumors that there may be a settlement" of claims soon, while another suggested that the rise might be linked to news out on another member of the asbestos-challenged sector, USG Corp. The bankrupt Chicago-based building products company's New York Stock Exchange-traded shares rose $9.22 (8.81%) on Wednesday - although its bonds went nowhere - after analyst Jim Barrett of CL King & Associates raised his first-quarter and 2006 earnings estimates for the company. Barrett's research note was largely focused on the prospect of continued strong pricing and demand for the wallboard products USG makes, coupled with industry capacity constraints. He did note that USG - which, like Owens and Armstrong, was driven into bankruptcy earlier in this decade by a flood of asbestos-related personal injury lawsuits - moved in January to stanch the bleeding once and for all, putting together its own $4 billion trust fund plan to handle all present and potential claims. That plan must still be approved by the courts.

And there was some activity in the courts on Wednesday for Owens Corning, with the company asking for - and receiving - a delay in the scheduled hearing on its disclosure statement. Owens cited progress that it was making in settlement negotiations with holdout creditors opposed to its reorganization plan.

That hearing was to have been held Wednesday before U.S. Bankruptcy Judge Judith Fitzgerald of the federal bankruptcy court in Wilmington, Del., which is handling most of the major asbestos-connected reorganization cases.

Owens Corning is trying to win over those dissident creditors - mostly bondholders - who object to provisions of the plan, which would set recovery for most creditors at between 41 and 48 cents on the dollar.

At a hearing last week in Wilmington, Fitzgerald reportedly voiced skepticism at some of the arguments put forward by lawyers for the bondholders, who are challenging repayment guarantees made by the company's subsidiaries to its banks, who, unlike the bondholders and other unsecured creditors, stand to recover the full par value of the Owens Corning debt which they hold, assuming the company's proposed plan stands.

Tenet builds on gains

Apart from the asbestos names, traders said that the secondary realm was pretty quiet. "It seemed like a pretty low-volume day, one of them said.

Tenet Healthcare Corp. - whose bonds firmed smartly on Tuesday in response to news that a federal jury in San Diego had been unable to reach a verdict in the Justice Department's physician-payments case against the Dallas-based hospital operator, the second such mistrial in two years - continued to firm on Wednesday.

"The stock rallied pretty good," a bond trader said, noting the $1.12 (14.18%) rise in Tenet's New York Stock Exchange-traded shares to $9.02 on volume of 27.9 million, about eight times the norm. The stock was boosted by several equity analyst upgrades Wednesday. The trader said its 9¼% notes due 2015 were ¾ point better at 102.25 bid, 102.75 offered.

Another market source called the company's 6 7/8% notes due 2011 half a point better on the day at 93.

The government had alleged that Tenet had illegally made payments to doctors in return for referrals to one of its hospitals in the San Diego area; the company called the payments legitimate incentives paid to doctors to get them to relocate to the fast-growing but medically underserved eastern part of the San Diego metropolitan area. The complex case took seven months to try and the jury wrestled with the evidence for 60 days before finally calling it quits. Tenet expressed hope that the feds will now abandon the case rather than go through a third trial.

Radiologix climbs

Traders saw gains Wednesday in another medical name - diagnostic imaging provider Radiologix Inc., also based in Dallas - although nobody could say why the bonds were up.

Its 10½% notes due 2008 were seen up two points on the session at 77 bid by one, while a second pegged the bonds a little lower than that at the close, at 76.5 bid, 77.5 offered, but called that a three-point rise. Yet another trader saw the bonds up 2½ points, but only saw them going out at 75.5 bid, 77 offered.

SunCom edges lower

SunCom Wireless Inc.'s bonds lost ¼ point, a trader said, with the 8½% notes due 2013 finishing at 94.5 bid, 95.5 offered, as they apparently shrugged off Wednesday's news that Moody's Investors Service had downgraded SunCom Wireless' ratings, citing the "greatly increased probability that the company will seek to restructure its balance sheet in the near term." The ratings agency cut the Berwyn, Pa.-based wireless communications provider's 8½% senior notes due 2013 to Caa2 from Caa1 formerly, and lowered the company's corporate family rating two notches to Caa3 from Caa1. It also changed the outlook on the ratings to negative from the previous status of under review.

Moody's said the downgrade "reflects the very high probability of default" by Suncom Wireless - the old Triton PCS Inc. - absent an additional investment by its corporate parent, Suncom Wireless Holdings Inc. In the event of such a default, Moody's said, the holders of the $725 million of notes are likely to suffer "a more than modest impairment," in such a scenario, adding that while the lenders for the company's senior secured term loan are "well protected" due to their collateral and guarantee package and should enjoy full recovery in the event of default, the bondholders "are the most poorly positioned in the capital structure are will likely suffer substantial impairment upon any restructuring."

The bonds probably did not fall much because the Moody's move was something of an anti-climax; the bonds had fallen several points last month, when Suncom Wireless released its 2005 annual financial statement filed with the Securities and Exchange Commission. That 10-K report contained a warning from the company's independent auditor expressing its "substantial doubt" that Suncom Wireless can continue as a going concern since "it will not have sufficient resources to meet its working capital requirements, capital expenditures, contractual debt maturities, interest payments and other activities past early 2007".

In its downgrade message, Moody's noted that Suncom Wireless consumed over $215 million of cash in 2005 - cash provided by operations less capital spending - and said that the company "is unlikely to generate positive cash flow in the near term." The agency cautioned that in addition to its "considerable" debt burden for a company its size of some $1.7 billion, Suncom Wireless's cost structure "makes the company uncompetitive."

While its ARPU - average revenue per [customer] unit, i.e. per subscriber, a widely used telecom industry performance metric - is $52 per month, near the industry average, Moody's pointed out that Suncom subscribers have much higher usage than typical subscribers of competing services, which ups its costs and cuts into profit margins.

"Even if Suncom were to restructure its debt to reduce its interest expense burden, the company will require considerable liquidity before EBITDA can cover Suncom's ongoing capital expenditure and working capital requirements," Moody's concluded.

Sheffield inactive

Elsewhere, traders saw no trading in Sheffield Steel Corp.'s 11 3/8% senior secured notes due 2011, despite the news that Gerdau Ameristeel will buy Sand Springs Okla.-based metals maker Sheffield for $76 million in cash plus the assumption of $94 million of net debt and other liabilities. Sheffield, a trader said, "just never trades around."

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