Kansas City Southern prices upsized offering, Moog slates deal; Standard Pacific jumps on equity boost

By Paul Deckelman and Paul A. Harris

New York, May 27 - Kansas City Southern Railway Co. chugged into the junk-bond market on Tuesday with a quickly shopped, upsized offering of seven-year senior notes. When the new bonds priced, they were seen firming from their issue level.

Also on the new-deal scene, Moog Inc. said it would sell $150 million of new 10-year bonds, with the deal proceeds slated for debt paydown.

In the secondary market, Standard Pacific Corp. was the stand-out name of the day, its bonds shooting solidly higher in busy trading on the news that the troubled Irvine, Calif.-based homebuilder had lined up a big equity investment.

Elsewhere, automotive credits like General Motors Corp. and Lear Corp. were seen lower, not helped by a Citigroup analyst's downward revision of equity price targets and earnings estimates for those two companies and a number of other auto names.

Although the summer solstice remains a month away the traditional summer season in the junk market got underway Tuesday as players returned from the Memorial Day weekend.

One senior high yield syndicate official, speaking well after the close, marked the cash bond market up ¼ point and noted that junk had rallied during the afternoon.

Another senior official from a different high yield syndicate desk, who spoke before the Tuesday close, remarked that there had been some softness in the secondary market last week, with some recent issues selling off. However this softness came against a backdrop of falling prices in the stock market, the official noted.

This source also remarked on "a degree of saturation with seven-handle energy paper," making reference to the onslaught of issuance from the oil and gas sector that has taken place during the spring.

"There has been some softness in the market as people focus on the impact of oil prices and its implications for inflation," the official said, adding that last week's poor performance in junk took place as equities were falling.

"We continue to expect to see pretty significant corporate activity this week and next week," the official asserted.

"You will see a broadening of the window that is open right now in high yield.

"And I think you will see some diversity away from the energy sectors."

The fast track

This banker spoke shortly after price talk had circulated on an upsized drive-by deal from Kansas City Southern Railway Co.

The $275 million issue - increased from $250 million - of seven-year senior notes (B2/BB-) came at par to yield 8%, at the tight end of the 8% to 8¼% price talk.

A source close to the deal said it had gone very well, and added that the order book was multiple-times oversubscribed.

Morgan Stanley served as left bookrunner for the debt refinancing and general corporate purposes deal. Banc of America Securities LLC was joint bookrunner.

The informed source cited three factors which caught the buy-side's attention as the deal was marketed on Tuesday.

First of all, Kansas City Southern is unique in that it's really the only high yield railroad issuer, the official asserted.

Second, investors seemed to go along with the company's assertions that on an economic landscape that is being rocked by precipitous increases in the price of fuel railroads are a defensive play: the more expensive fuel becomes, the more attractive it becomes to ship on rails.

"High fuel prices were actually a plus for the company," the official said.

Finally, the source said, the buy-side seemed to agree that Kansas City Southern, via its subsidiary Kansas City Southern de México, SA de CV, is well positioned to operate internationally, taking advantage of the North American Free Trade Agreement (Nafta).

The official spotted the new Kansas City Southern Railway 8% notes due June 2015 trading at 100¾ bid, 101¼ offered in the secondary late Tuesday.

Moog launches $150 million

Elsewhere Tuesday, Moog Inc. launched a $150 million offer of 10-year senior subordinated notes (Ba3/BB-).

A brief investor roadshow is scheduled for Wednesday in Boston and New York. Pricing is set for the end of the day on Wednesday.

Banc of America Securities has the books for the debt refinancing deal from the East Aurora, N.Y., manufacturer of precision control components and systems.

Moog is one of just two deals in the market.

Symbion Inc. remains in the market, attempting to place a $179.84 million offering of 11% senior PIK toggle notes due Aug. 1, 2015 (Caa1/CCC+).

A brief roadshow was held last week. Some market-watchers had been expecting it to price before the Memorial Day recess, however the deal has been carried over into the present week, according to an informed source.

Merrill Lynch & Co. and Banc of America Securities LLC are joint bookrunners for the bridge refinancing.

Although Moog and Symbion were the only deals on the calendar at Tuesday's close, sell-side sources continue to assure Prospect News that there is visibility on new issue business in the near-to-intermediate term.

As usual, no one was willing to supply prospective issuer names.

The backlog

With respect to the backlog of hung LBO bank and bond bridge loans, the grapevine has been conspicuously quiet for over a fortnight, sources have lately been telling Prospect News.

On Tuesday a senior high yield syndicate official said that there is presently a "wait-and-see" mentality among the dealers who have been keen to move the hung risk off their balance sheets since mid-summer 2007.

"The big news right now is BCE," the official said, referring to a last week's decision from the Court of Appeals of Quebec blocking the LBO of BCE Inc., in a ruling which sided with BCE's bondholders.

"Right now there are deals being litigated and deals going bust, but there aren't many backlog deals actually coming to market," the official commented.

"There are a couple that could come," the source added, noting that LyondellBasell Industries "has a lot of wood to chop" in the bond market now that the B-2 tranche of its term loan is done. The $8 billion equivalent of bonds is expected to include $5.5 billion equivalent senior secured second-lien notes (B2/B+) and $2.5 billion equivalent of senior unsecured notes (B3/B-) both in dollar and euro tranches.

Alltel Communications Inc./Alltel Communications Finance Inc. and Intelsat Holdings Ltd. could also potentially come at some point, the source added.

Asked to reckon the present size of the bond backlog, this senior syndicate official contested the relevance of any such number, but then produced one anyway: $60 billion.

"It's really not a number that we spend a lot of time focusing on anymore, because we know that it's no longer possible to come up with a reliable number, and the one you do come up with is probably overstated," the official said, adding that it would be no great surprise to learn that the size of the high yield bond backlog is now actually below $50 billion.

"It's not really that relevant anymore," the official contended.

When pressed for an estimate of the present bank loan backlog, however, the official quickly came up with $90.6 billion, and added that should the BCE deal disappear the size of the bank loan backlog would fall to around $74 billion.

Kansas City up in trading

When the new Kansas City Southern bonds were freed for secondary dealings, a trader saw them at 100.75 bid, versus their par issue price.

Another saw them going out at 100.25 bid, 100.75 offered.

"They were talked at 8% to 8¼%," another trader said. "It looked like they got the lower end - the richer end - of the range."

Market indicators mostly keep moving down

In trading, the widely followed CDX junk bond performance index was up by ¼ point to 96¼ bid, 96¾ offered, a trader said. But the KDP High Yield Daily Index fell by 32 bps to 75.78, while its spread widened by 10 bps to 9.26%.

In the broader market, advancing issues trailed decliners by a better than five-to-four margin. Activity, represented by dollar volume levels, was more than double Friday's sharply reduced pre-holiday levels.

A trader said that from where he sat, apart from the "big excitement" in Standard Pacific bonds, "the market opened up feeling softer, then sort of firmed up, but wasn't particularly active on the day, back from the holiday."

He said that initially, "it looked like [apart from Standard Pacific] the market tone would be a lot softer. There were a few trades down in some names, then the market seemed to stabilize." He said that there were a number of issues where "it looked like there were one trade - it wasn't a whole bunch of trades, it looked like one trade in each name. They seemed to be lower to start and then they sort of got two-sided around them, without much more trading."

Standard Pacific stands out

Against the backdrop of the news of a big investment in the company by the MatlinPatterson Global Advisors LLC private-equity firm, the trader called Standard Pacific "a standout. There weren't a ton of bonds - but it was certainly the most pronounced change in the market."

He saw the 7% notes due 2015 open at 75 bid, then push up to 78.25 going home, which he called up 3 points on the session from the opening, but up more than 7 points from Friday's closing levels at 71 bid.

At his shop there were "more quotes on the shorter paper than the longer," with the 6½% notes due 2010 trading "most of the day" at 87.5 bid, 88 offered, well up from their Friday close around 80 bid.

Another trader called Standard Pacific "the big news of the day," quoting the 7% notes and its 6¼% notes due 2014 "up 6 or 7 points" around the 77-78 level.

A trader also saw the 61/2s having risen about 7 points to 87 bid, 89 offered, and said that all of the bonds went up "on good volume trading."

Yet another trader saw its 6 7/8% notes due 2011 up 9 points on the day at 83.5 bid, 84.5 offered. He saw its 7¾% notes due 2013 open at 79 and finish at 81, up 2 points from the opening and up 6 points from the issue's previous close last week at 75.

Standard Pacific's New York Stock Exchange-traded shares meantime jumped $1.07, or 48.20%, to end at $3.29. Volume of about 4.9 million shares was 20 times the usual turnover.

The bonds and shares zoomed on the news that affiliates of MatlinPatterson had agreed to invest $530 million in the struggling California homebuilder. Under the terms of the deal, those affiliates will receive $381 million in preferred stock that is convertible into 125 million shares of Standard Pacific common stock at a price of $3.05 per share. MatlinPatterson will also exchange about $128.5 million of senior and subordinated debt it holds for warrants to purchase additional preferred stock that is convertible to 89.4 million shares at a price of $4.10 per share.

Further, Standard Pacific is issuing an additional 50 million shares of common stock at a price of $3.05 per share to raise $152.5 million more. MatlinPatterson will backstop the deal, purchasing any unsold shares. The private equity firm will also name three members to an expanded 11-member Standard Pacific board of directors.

Not much lift for other builders

Standard Pacific's good fortune did not translate into a vote of confidence by bond investors in other names in that same sector, nor did they seem to be very much impressed by the Commerce Department's announcement of an unexpectedly strong 3.3% rise in April new-home sales.

One of the traders quoted Hovnanian Enterprises Inc.'s recent 11½% notes due 2013 bid around 103.25-103.375, "probably near the lows where it's traded recently." He said the bonds had opened up in a 102.75-103.5 range before ending up where they did.

He said he saw "a lot of wide markets in a lot of the Hovnanian paper. The initial reaction [to the sector-positive news] was that a lot of the offerings that might have been around got jacked, but bids didn't follow along."

At another desk, a trader said he saw no activity in Red Bank, N.J.-based Hovnanian's bonds. He said that Beazer Homes USA Inc.'s 8 5/8% notes due 2011 were "maybe up a point" at 86 bid, 88 offered.

He also saw no activity in Tousa Inc.'s 9% notes due 2010, which were being quoted several points higher on Friday, apparently moved by the news that a bankruptcy court judge had extended the Hollywood, Fla.-based builder's exclusivity rights by five months.

Auto names spinning their wheels

A trader said that the automotive names "were getting killed" amid continued bad news about the prospects for the sector - just last week, Ford Motor Co. was forced to back away from hopeful earlier projections that it might return to profitability next year; at best, the second-largest domestic automaker now expects to break even next year.

He saw Ford's 7.45% bonds due 2031 down 1½ points to end at 69 bid, 71 offered, and saw General Motors' 8 3/8% bonds due 2033 down 2 points at 69 bid, 71 offered. He also pegged GM's still-49%-owned GMAC LLC financing unit's 8% bonds due 2031 lower by 1½ points at 75 bid, 77 offered.

Another trader saw the GMAC paper at 74 bid, 75 offered, "down a couple of points on the day." GMAC's 6 7/8% notes due 2012 were down 3 points at 80 bid,

A market source saw the GM benchmark bonds nearly 3 points lower, in active dealings, at around the 70.5 mark, while the GMAC 8% issue was likewise off 3 points, around 75.

Automotive component supplier Lear's 8½% notes due 2013 meantime were quoted down as much as 4 points, at the 93 level. At another desk, Lear's 5¾% notes due 2014 were down more than 2 points to 83.

A trader saw parts manufacturer Visteon Corp.'s 7% notes due 2014 in a 67-69 range, last traded at 67.5, which he said might be down a point, but he said activity there was "no great shakes."

Adding to the pessimism investors were feeling about the sector on Tuesday was the news that Citigroup equity analyst Itay Michaeli cutting his price targets and earnings estimates for a number of automotive names, including Ford, GM, Lear, Tenneco Inc. and Johnson Controls. He also downgraded GM's shares to "hold" from "buy" previously. The analyst said that rising oil prices, higher steel costs and continued credit pressure will all combine to erode sector sales this year.

NXP up as rival's CEO quits, deal seen possible

A trader saw Dutch semiconductor maker NXP's floating-rate notes due 2013 up 2 points on the day at 91 bid, 92 offered. He cited the news that the chief executive officer of a competitor, Infineon Technologies AG, had resigned.

According to published reports, the departure of Infineon chief Wolfgang Ziebart on June 1 could clear the way for a possible deal, brokered by NXP principal owner Kohlberg Kravis Roberts, that might combine some of Infineon's and NXP's operations.

Another market source saw NXP's 9½% notes due 2015 up nearly a point above the 94 level.

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