UGS PIK floater prices; builders struggle; Avondale jumps in otherwise dull market

By Paul Deckelman and Paul A. Harris

New York, June 6 - UGS Capital Corp II successfully priced an issue of five-year floating-rate PIK notes on Tuesday to fund a dividend. Not too much else was seen going on in the primary arena, although pre-deal price talk was heard on American Achievement Corp.'s quickly-shopped offering of 10-year senior discount notes, which are expected to come to market on Wednesday, while Pokagon Gaming Authority was seen getting ready to hit the road on Wednesday to market its upcoming 8-year notes deal. But the big casino that most of the new-dealers are eagerly waiting for is HealthSouth Corp.'s billion-dollar two-part mega-deal, which is thought likely to price on Thursday.

In the secondary sphere, traders reported that dealings were generally restrained, with a heaviness felt pretty much across the board driving most issues down a quarter-to-half point. That even included General Motors Corp., which failed to gain traction from its annual shareholders' meeting in Wilmington, Del., even though the event afforded chairman and chief executive officer Rick Wagoner a bully pulpit from which to tout the giant carmaker's efforts to turn itself around.

But one name which bucked the trend and was seen trading strongly higher was Avondale Mills Inc., whose bonds firmed in apparent reaction to news that the stricken Monroe, Ga.-based textile company - which several days ago announced plans to liquidate the company - has found its first buyer for some of its assets.

Overall, a sell-side source said, the high-yield market ended flat on Tuesday.

Meanwhile in the primary market one deal priced, generating $297 million of proceeds. UGS Capital Corp. II placed a $300 million issue of six-month Libor plus 500 basis points senior floating-rate PIK notes (Caa1/B-) at 99.00.

The Texas-based product lifecycle management software provider's dividend-funding issue, led by Deutsche Bank Securities, priced on top of talk.

American Achievement talks notes

Also in the market with a dividend-funding deal, from Texas, is scholastic products company American Achievement Group Holding Corp.

The company talked its $150 million offering of 10-year senior discount notes at 12¼% to 12½% on Tuesday.

The Goldman Sachs and Lehman Brothers-led offering is expected to price on Wednesday.

Just about anything

An investor, speaking Tuesday on background, conceded that the UGS and American Achievement dividend-funding deals - the former a floating-rate PIK note, the latter a five-year zero-coupon discount note - were "racy."

However the investor said that "if you price it right you can still move just about anything," and added that floating-rate structures, as seen on UGS, are particularly popular at the present time.

This buy-sider said that there evidently remains cash to put to work in high yield because there is "pretty good demand," and there have not been too many sellers, "so not a lot of people seem to be having to liquidate."

The cash situation away from mutual funds is better than that of the mutual funds, which have been getting light redemptions, the source added.

Pokagon launches $305 million

News of one roadshow circulated Tuesday.

The Pokagon Gaming Authority will begin a roadshow on Wednesday for its $305 million offering of eight-year senior notes, which is expected late next week.

Banc of America has the books for the project financing from the native American gaming company which is operated by the Potawatomi Indians of New Buffalo Township, Mich.

One further primary market note: on Wednesday price talk is expected on this week's megadeal, HealthSouth Corp.'s $1 billion offering of senior notes (B3/CCC+).

The Birmingham, Ala.-based nationwide provider of outpatient surgery, diagnostic imaging and rehabilitative health care services is offering 10-year fixed-rate notes and eight-year floating-rate notes via Merrill Lynch, JP Morgan and Citigroup.

UGS up in trading

When the new UGS Capital floaters due 2011 were freed for secondary dealings, a trader saw the bonds trading at 99.5 bid, par offered, up half a point from their 99 issue price earlier in the session.

He also saw the newly issued Hovnanian Enterprises Inc. 8 5/8% senior notes due 2017, which priced on Monday at par, continuing to trade around that level. Investors "tried to bring them up today [Tuesday], but it didn't work," he said.

The Red Bank, N.J.-based homebuilder's bonds "traded right around issue. They tried to take 'em up, but a 100.5 bid in the Street got whacked - so no love there."

Technical Olympic drops

Hovnanian sector peer Technical Olympic USA Inc.'s bonds were meantime getting pushed lower, a day after the Hollywood, Fla. -based homebuilder warned that net orders for the second quarter would be down anywhere from 25% to 40% from company record year-ago levels, citing decreased demand, increased competition and higher cancellation rates.

A market source quoted Technical Olympic's 7½% notes due 2015 as heaving retreated to 86.5 bid from prior levels around 89, while its 9% notes due 2010 dipped to 99.75 bid from 100.5, and its 10 3/8% notes due 2012 eased to 102.375 bid from 102.875.

Technical Olympic's New York Stock Exchange-traded shares fell $1.30 (7.89%) to $15.18 on volume of about 1.2 million shares, more than triple the usual turnover.

The company's lowered sales guidance is the latest in a recent series of such warnings of expected lower sales and/or earnings from such industry names as Ryland Group Inc., Toll Brothers Inc., Pulte Homes Inc. and, most recently, Standard Pacific LP. The latter company cautioned late Friday that it will lower its full-year earnings guidance in July, citing a 41% fall-off from year-ago levels in new home orders during the first two months of the current second quarter.

Factors seen dampening home sales include continued consumer trepidation about making such a big-ticket purchase amid economic uncertainty, and the steady rise in interest rates over the past two years as the Federal Reserve tries to keep a handle on inflation. Fed Chairman Ben Bernanke indicated on Monday that the central bank - which was thought to be about done with its rate-hike program - might have to continue raising rates if core inflation does not subside.

Technical Olympic also announced Tuesday that it had named Randy L. Kotler, currently its senior vice president and chief accounting officer, as the company's interim chief financial officer, until a successor is selected. Kotler succeeds the previous chief financial officer, David J. Keller, who stepped down from that post and down from his other positions as the company's senior vice president and its treasurer at the end of May.

Another homebuilder seen on the slide Tuesday was Scottsdale, Ariz.-based Meritage Homes Corp., whose 6¼% notes due 2015 were pegged at 85.75, well down from prior levels at 88.5.

Avondale strong

Elsewhere, the biggest gainer on the session was Avondale Mills' 10¼% notes due 2013. A source saw those bonds at par bid, up from 95.75 previously, although another source said the bulk of that movement, to 100.25, had come late Monday, from closing levels of last week at 95.75.

Avondale's bonds were one of the big success stories in May, when they jumped from levels in the lower 60s to the upper 80s on the news that the company would be getting a $215 million insurance settlement for damages arising from a January 2005 railroad crash and chemical spill near one of its South Carolina textile factories. The toxic spill killed nine people, including six employees, disrupted production and forced the company to spend large sums trying to unsuccessfully clean up the factory. The bonds moved up further, into the mid 90s, on the subsequent announcement that Avondale would cease operations, liquidate its assets, and pay its bondholders and other creditors in full.

On Tuesday, Avondale said that it had sold mills in Alexander City and Rockford, Ala., along with a Graniteville, S.C., facility, to Parkdale Mills Inc. for $28 million. Almost all of the 400 jobs at the three sites are to be preserved.

Market generally weak

Apart from that hefty advance, though, traders said that most everything else was pretty much range-bound. A trader said that "there was weakness across the board, at least from what I could see.

"The market started off quiet," he said. "Then, varied sectors like service, retail and gaming were off at least a quarter to a half [point]."

For instance, he said, he saw lower levels on names like Landry's Restaurants Inc., Dole Foods and Wynn Resorts Ltd. He said that there was "some buyside interest" in Dole's 7¼% notes due 2010, which were recently in a 94-95 context, but which were finishing Tuesday at 93.5 bid, 94.5 offered, "off about half- to three-quarters of a point.

"There really weren't that many buyers out there, today."

He saw scant activity in the gaming sector, while noting that "It trades pretty much on a spread-related basis right now, although the Treasury market did pick up at the end of the day."

He said that names like Wynn Gaming, Las Vegas Sands, and MGM Mirage have been "pretty much rangebound - you can go away for a week, and they'd still be pretty much the same." What trading he did see was a "repositioning of names." He saw Wynn's 6 5/8% notes at 95 bid, 95.5 offered, down half a point."

The trader also saw only sporadic activity in diagnostic imaging names like MedQuest Associates LLC and Radiologix Inc., with the latter's notes unchanged at 90 bid, 92 offered, while MedQuest's 11 7/8% notes were easier at 91.5 bid, 92.5 offered.

Elan sees no Tysabri boost

Elan Corp. plc's, bonds, he said, were unchanged, even in the wake of the long-awaited announcement that the federal government had given clearance for the return of the Irish drugmaker's multiple sclerosis medication Tysabri to pharmacy shelves, from which it had been pulled last year amid patient safety concerns.

Its 7¼% notes due 2008 stayed at 99 bid, 99.75 offered, while its 7¾% notes due 2011 were about two points behind that. Another trader actually saw both issues half a point lower at 99.25 bid, 99.75 offered, and 96.75 bid, 97.5 offered, respectively.

Elan and joint venture partner Biogen Idec pulled Tysabri from the market for use in treating MS and several other ailments last year, after some patents developed a rare brain disease as a side effect. In allowing the drug back on the market, the Food and Drug Administration set strict labeling standards, among other safeguards, which might make sales of the drug less lucrative. Elan's bonds, and its American Depositary Receipts shares, had risen in the previous weeks on speculation that Tysabri would be restored.

GM slips

In the automotive area, General Motors' benchmark 8 3/8% notes due 2033 were seen down ¼ point at 75.5 bid, 76, a trader said.

He said that the GM paper "didn't get much of a pop" out of the shareholders' meeting, where Wagoner outlined the steps the company has been taking to try to turn its fortunes around.

The CEO said, among other things, that he was "quite pleased" with the level of participation seen so far in the company's offer of early-retirement buyouts to all of its hourly workers. He said that GM was making "significant progress" in improving its liquidity, chiefly through its pending sale of a 51% stake in its General Motors Acceptance Corp. financing unit., and he said that its efforts to cut structural costs were bearing fruit, with $7 billion in cost cuts in its North American operations expected on a run-rate basis by the end of this year. However, he also warned that progress might be slow in reducing its materials costs, due to higher prices for some key commodities.

Wagoner said that key GM goals in the near-term would include completion of the GMAC stake sale, continuing efforts to reach a consensual agreement with former subsidiary Delphi Corp. and the latter's unions on labor cost cuts for Delphi, and completing its buyout offer to however many employees sign up to take advantage of it. News reports indicate that 20,000 of GM's 113,000 hourly workers have signed up so far.

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