SBA, Granite, Tenneco deals lead the way; steels firm, Goodyear rolls

By Paul Deckelman and Paul A. Harris

New York, Dec. 8- SBA Communications Corp., Granite Broadcasting Corp., Tenneco Automotive, Inc. and Callon Petroleum Co. were heard by high-yield syndicate sources to have priced new deals Monday as issuers continue to take advantage of favorable market conditions to meet their financing needs. The SBA and Granite deals were upsized from initially anticipated levels, while Callon came out of left field to opportunistically bring in a gusher of new money.

In the secondary arena, steel issues continued to firm, shrugging off last week's White House decision to end tariffs on imported steel. Another upsider was Goodyear Tire & Rubber Co., whose bonds got some bounce from market speculation the Akron, Ohio-based tire-making giant will manage to complete a sizable refinancing package before the end of the month.

Following the weekend break the high-yield primary market resumed its pace on Monday - more of a gut-busting sprint than a genteel trot - as the new issue market appears poised to launch an assault on its all-time new issuance record.

Four issuers priced $900 million proceeds during the session, bringing year-to-date new issuance to $130.59 billion. Statistics seem to indicate that the record, set in 1998, is between $138 billion and $140 billion. Presently the Prospect High Yield Daily forward calendar carries $5.430 billion of business expected to price before the end of the year.

"It's unbelievable how the activity level has picked up," one senior sell-side official told Prospect News on Monday.

"There is a lot of paper coming through," the source added. "Some of these deals require some study, as to their structure. Some of them are second lien pieces from companies with very small cash flow.

"But there are a lot of strong, well structured deals coming through too. I think the bulk of them will get through the system. The market continues to feel very strong."

Another sell-sider simply re-stated an axiom that has echoed through the high yield for weeks: "These deals will all get done this week because there is still money that needs to be put to work."

Investors put cash to work Monday in an upsized offering from the New York City TV-station owner Granite Broadcasting Corp., which priced an upsized offering of $405 million of 9¾% seven-year senior secured notes (B3/CCC) at 98.782, resulting in a 10% yield. The deal was increased from $300 million.

Price talk on the JP Morgan-led deal was 9¾%-10%.

SBA Telecommunications, a subsidiary of Boca Raton, Fla.-based wireless operator SBA Communications Corp., also priced an upsized offering: $275 million proceeds (increased from $200 million) of eight-year senior discount notes (B2/B+) at 68.404, yielding 9¾%. The Lehman Brothers-led deal came spot-on the 9¾% area price talk.

Tenneco Automotive priced quick to market $125 million add-on to its 10¼% senior secured second lien notes due July 15, 2013 (B2/CCC+) at 113, resulting in a 7.775% yield to worst.

Banc of America Securities and Citigroup ran the books on the deal that came at the tight end of the 113-113.5 price talk.

The issuer, a Lake Forest, Ill. auto parts maker, priced the original $350 million deal at par on June 10 and so walked away from Monday's transaction with an interest rate that is lower by an astonishing 2.475%.

Also in Monday action Callon Petroleum sold $100 million of unrated seven-year senior notes with warrants at par to yield 9¾%.

Callon chief financial officer John S. Weatherly told Prospect News that the company is using the proceeds to call the company's 10 1/8% senior subordinated notes and its 10¼% senior subordinated notes, both issues maturing in 2004.

"The timing of this deal involved a combination of things," Weatherly said. "We have $63 million in debt maturities coming up next year and we knew were going to have to do something.

"Also, oil and gas prices maybe added a little momentum in the Callon story due to the big deep water discoveries just coming on line," the CFO added. "We have a 15% interest in the Medusa field, which is operated by Murphy, and we have an 11 ¼% interest in the Habanero field, which Shell is in the process of turning on.

"In the end of the first quarter of next year our production rate will be double what we averaged this year.

"These are high impact fields."

Asked for his reaction to the 9¾% fixed rate that resulted from Monday's transaction, Weatherly said: "I'm fine with the rate we got. There was a chance we could have gotten less if we had gotten a rating [he anticipates it would have been single-B]. Energy Partners got a deal done last July for 8¾%.

"But our production rate is going to double," Weatherly reiterated. "And the longer you stretch that timeline out there, for when you might have done a Rule 144A deal at a lower rate, the higher the risk you run that the high yield market is going to turn on you. It has turned on me before.

"So this is a good trade off. The market is hot. We just did an un-rated, un-registered deal and got 9¾%, with some of our notes coming due in July of next year."

Aside from the two drive-by deals that priced on Monday, another showed up that is probable of being completed during Tuesday's session.

Hanover Compressor Co. plans to price $200 million of senior notes due 2010 (B3/B) on Tuesday, according to a syndicate source.

No price talk was available when Prospect News went to press on Monday.

JP Morgan, Citigroup are joint bookrunners.

Exactly one week ago the Houston-based natural gas compression and treating services company sold $262.6 million of zero-coupon subordinated notes due March 31, 2007 (Caa1/B-) for 69.307, with a yield to maturity is 11 3/8%.

And the roadshow started Monday for Suburban Propane Partners, LP and Suburban Energy Finance Corp.'s offering of $150 million of 10-year senior notes, expected to price late in the week of Dec. 15.

Wachovia Securities and Goldman Sachs are joint bookrunners on the acquisition financing.

Price talk of 9%-9¼% emerged Monday on Equinox Holdings' upsized offering of $160 million of six-year senior notes (expected B3/B-), expected to price on Tuesday, via Merrill Lynch & Co.

And from the universe of emerging markets corporates, price talk of a yield in the 11¼% area was heard on Axtel SA's upcoming $150 million of 10-year senior notes (B2/B). The company, a CLEC based in San Pedro Garza García, Mexico, expects to price its deal on Tuesday, via Credit Suisse First Boston.

When the new SBA Communications zero-coupon/9¾% senior discount notes due 2011 were freed for secondary dealings, they were heard to have firmed to 70.75 bid, 71.75 offered, well up from their 68.404 issue price earlier in the session.

Meantime the new Granite Broadcasting 9¾% first lien notes due 2010, which priced at 98.782, firmed to 99.5 bid, par offered. The Tenneco and Callon deals emerged too late in the day for any appreciable aftermarket trading.

Back among the existing issues, Goodyear's bonds - which have been rising for the past few sessions on rumors that it would soon complete refinancing transactions that could bring it anywhere from $325 million to as much as $1 billion - continued strong.

"Goodyear has been doing better on those rumors for a couple of days," a trader said, quoting the company's 6 5/8% notes due 2006 as having firmed to 100.25 bid, 101.25 offered from 99.75 bid, 100.25 offered on Friday. He saw the 7.857% notes due 2011 as having firmed to 92.25 bid, 93.25 offered, up from 91.75 bid, 92.75 offered on Friday and up "dramatically" from week-ago levels at 84.5 bid, 86.5 offered.

On the long end of the curve, he saw Goodyear's 7% bonds due 2028 unchanged on the session at 80.5 bid, 82.5 offered - but still well up from 75 bid, 77 offered a week ago. However, he noted that most of the advance in Goodyear had in fact come last week, with only a relatively small rise Monday. The fact that Goodyear hopes to complete the refinancing deal soon "was old news today."

The trader also noted continued strength in the steelmakers, which he called the biggest news of the day. "The stock of these companies was up big - and the bonds reacted equally well."

He saw AK Steel Corp.'s 7 7/8% notes due 2009 going home at 78 bid, 79 offered, up smartly from Friday's 74.75 bid, 75.75 offered, and well up from 70 bid, 72 offered last Monday. At another desk, AK's 7 ¾% notes due 2012 were a point-and-a-half better at 74.

United States Steel Corp.'s 9¾% notes due 2007 were likewise up a point to 109 bid, 110 offered and up nearly three points from week-earlier levels. Big Steel's 10¾% notes due 2008 traded up to 112.75 bid, 113.75 offered, up half a point from Friday's levels and up further still from 111 bid, 112 offered the previous Monday.

Oregon Steel Mills Inc.'s 10% notes due 2009 were better than two points ahead at 83 bid.

While the decision last week to end the tariffs and thus avoid a possible trade war with the European Union was greeted with dismay by the steel companies and their unions, analysts said that in reality the tariffs were no longer needed, since the steel industry of today is much improved from the disaster area of 1999-2000; since then, a number of former steel companies have undergone reorganization and in many cases their assets were sold to healthier industry players - for instance, U.S Steel's purchase at fire-sale prices of bankrupt National Steel Corp.'s assets. They also note that the currently weak dollar works to make American-made steel more attractive abroad - and foreign-made steel less attractive to customers in the U.S.

Among the largest users of steel is the automobile industry, and if news that the protectionist tariff was history was greeted with dismay in Pittsburgh, it was seen as good news in Detroit, helping to further buoy the fortunes of automotive companies, whose shares and bonds have recently been improving anyway on expectations of a stronger economy.

On Monday, auto names on the upside included Collins & Aikman Products Co., whose 11½% notes due 2006 were a point higher at 85.

Dana Corp. - which on Friday announced that it had received a potentially lucrative contract to supply axles and driveshafts for the new 2004 Dodge Ram SRT-10 high-performance pickup truck - was up for a second consecutive session, its 6¼% notes due 2004 a quarter point better at 101 bid and its 6½% notes due 2008 firming to 104.25 bid from 102.75 on Friday.

Durra Operating Corp.'s 9% notes due 2009 were a point better at 99 and even J.L. French Automotive Casting's 11½% notes due 2009 - which have been languishing in the 40s and which lost a point Friday - rose more than two points Monday, to 48.5.

Elsewhere, a trader saw Great Atlantic & Pacific Tea Co.'s bonds "continuing on a tear," ever since the Montvale, N.J.-based operator of the venerable A&P supermarket chain reported last week that it had amended and extended its $400 million revolving credit facility. He quoted A&P's 7¾% notes as having risen to 92.75 bid, 93.75 offered from 90 bid, 91 offered Friday and from 88 bid a week ago.

The trader also saw Hovnanian Enterprises 6½% notes a point better at 100.5 bid, after the Red Bank, N.J.-based homebuilder reported that in the fiscal fourth quarter ended Oct. 31, its net income rose 68% to $91.2 million ($2.79 per share) from $54.4 million ($1.66 per share) a year ago. It also upped its fiscal 2004 earnings guidance to $9 per share, above the $8.87 that analysts generally expect.

Another upsider was El Paso Corp., whose 6¾% notes due 2009 advanced to 93.5 bid from 91 bid, 92 offered Friday and its 7% notes due 2011 were a point better at 91.5 bid. 92.5 offered. The Houston-based energy operator late Friday announced that a California state judge had approved a $1.55 billion proposed settlement of claims against the energy company arising from the Golden State's 2000-2001 energy crunch, when critics say El Paso and other out-of-state energy producers manipulated prices.

On the downside, Solutia Inc.'s bonds "were getting hammered," the trader said, on indications by the St. Louis-based chemical company that it could face possible bankruptcy if former corporate parents Monsanto Co. and Pfizer Inc. (Monsanto's former controlling owner) don't give it additional financial help. The company faces chemical pollution lawsuits similar to a case which the three companies settled in Alabama several months ago, as well as underfunded pension liabilities for Monsanto's former employees.

He said that Solutia's 6.72% bonds putable in 2004 were offered at 77, looking for bids, down from prior levels at 78 bid, 79 offered, while its 11¼% notes due 2009 dipped to an offered price of 91 from 92 bid, 94 offered previously, while its 7 3/8% bonds due 2027 were offered at 60, versus 62 bid, 64 offered previously. At another desk, however, a trader saw the Solutias up slightly from Friday's levels.

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