ISS prices upsized two-parter; Canadian forest bonds up on trade agreement; Elan better on Tysabri news

By Paul Deckelman and Paul A. Harris

New York, April 28 - ISS - issuing through FS Funding - was heard to have successfully priced a greatly upsized two-part euro-denominated offering on Friday. The Danish global facilities services provider thus became the week's second European issuer to bring a giant-sized, multiple-tranche deal to market, following the lead of Nordic Telephone Co. Holdings ApS, also based in Denmark, whose heavily oversubscribed three-part dual currency offering came at mid-week, and then traded sharply higher in aftermarket dealings.

Elsewhere in the primary market, Cumulus Media Partners LLC was reported by syndicate sources to have downsized its upcoming two-part deal, on which price talk was issued. And Affinion Group - which just a week earlier had brought a new issue of nine-year notes to market - priced a small add-on tranche to a different series of bonds.

In the secondary market, the bonds of Canadian forest products companies such as Tembec Industries Inc., Domtar Inc. and Abitibi-Consolidated Inc., were higher - Tembec's particularly - on the long-awaited news that the United States and Canada had reached agreement on a settlement to a long-running lumber trade dispute, clearing the way for the Canadian companies to recover most of some $5 billion of tariff penalties they had been forced to pay the United States on their softwood exports. The bonds and shares of U.S.-based lumber and pulp producer Pope & Talbot Inc. - which also has extensive operations in Canada and paid a lot of tariff penalties as well - were also up sharply on news of the lumber deal.

Elsewhere, the bonds of Elan Corp. plc moved higher, helped by the news that a European regulatory panel had given a positive recommendation on the use of the Irish pharmaceuticals company's trouble-plagued drug Tysabri as a remedy for multiple sclerosis - another step toward getting the medication back on drugstore shelves, from which it had been pulled last year on concerns about patient safety.

On the downside, Dura Automotive Systems Inc.'s bonds continued the retreat begun Thursday, when the Rochester Hills, Mich.-based automotive components manufacturer reported a wider fiscal first-quarter loss versus a year ago.

Overall, a buy-side source marked the broad market a quarter of a point higher on Friday, and said that the paper sector was the topic of the day owing to the soft lumber tariff deal struck between the United States and Canada.

Turning to the technology sector, this source also noted that Amkor Technology, Inc. is tendering for its 9¼% senior notes due 2008 and said that the deal will involve financing that is expected to come in the form of convertibles or equity.

"In general the earnings that were out this morning were pretty good," the buy-sider said.

"The GDP number wasn't what people expected but it's still 4.8%. Maybe it's a catch-up number from the fourth quarter, but it's still a pretty good number.

"Earnings have been pretty good for the most part," the source added. "The areas that were getting a little scuffed up - high-yield paper being one of them - are starting to come around.

"As a result there is less and less value to be had out there."

Meanwhile, in the primary market facilities services provider ISS became the second Danish company to price a massive multi-tranche euro-denominated junk transaction during the last week of April 2006.

ISS upsizes to €1.3 billion

Friday's biggest transaction came from FS Funding A/S, a special purpose vehicle of Denmark-based ISS.

The company priced an upsized €1.3 billion two-part offering of 10-year senior subordinated notes (Caa1/B3). The deal was increased from €975 million.

The €454 million issue of 8 7/8% fixed-rate notes priced at 99.182 to yield 9%, on top of price talk that had been revised from 9% area.

The company also priced an €850 million issue of floating-rate notes at par to yield three-month Euribor plus 662.5 basis points, on top of price talk that had been revised from Euribor plus 700 basis points.

Citigroup and Goldman Sachs & Co. were joint bookrunners for the deal which will take out a bridge loan that was incurred to fund the acquisition of the company by EQT Partners and GS Capital Partners.

One informed source told Prospect News that the deal had gone well, with both tranches heavily oversubscribed. The heaviest demand was seen in the floating-rate paper, the source added.

The company had considered doing a dollar-denominated tranche, which could have been possible, the source said, but in the end ISS elected to issue only in euros

The source also noted that price talk on the floating-rate tranche came in 37.5 basis points, and that the deal was upsized despite the fact that the upsizing caused Moody's to lower its rating on the bonds to Caal from B3.

European high-yield white hot

Sources have been telling Prospect News that due to investor demand the European high-yield market is presently white hot.

The ISS deal was the second massive multi-tranche euro-denominated deal to price in the final week of April - both done by Danish companies.

On Wednesday Nordic Telephone priced €2.031 billion equivalent of 10-year senior notes (B2/B/B+) in three tranches.

An official on a high-yield syndicate desk said Friday that in Europe there is a lot of demand for paper, which can be divined from the issuer-friendly call provisions in the floating-rate tranches of both the ISS and Nordic Telephone deals.

"They are long-dated floaters which are callable shortly," the official pointed out, adding that in the case of the Nordic Telephone floating-rate notes the call date arises in one year, while the ISS floating-rate notes are callable immediately.

"Both were heavily oversubscribed," the official added. "And both brought in pricing.

"Right now the hedge funds have a lot of money to put to work and the euro market is really hot - both on the bank side and the bond side," the source said.

"So if one investor is not willing to accept a 10-year non-call-one structure, another one is willing."

This source added that while there has been very little in the way of official announcements, euro issuance in the intermediate term figures to remain busy.

Affinion taps 10 1/8% notes

Friday's only dollar-denominated issue came from Affinion Group,which priced a $34 million add-on to its 10 1/8% senior notes due Oct. 15, 2013 (B3/B-) at 103.50 on Friday, resulting in a 9.29% yield to worst and generating $35.19 million of proceeds.

Credit Suisse and Deutsche Bank Securities were joint bookrunners for the debt refinancing.

The original $270 million issue priced at 98.662 to yield 10 3/8% on Oct. 3, 2005, so the Norwalk, Conn.-based direct marketer realized over 100 basis points of interest savings with the Friday tap.

Week's issuance tops $2.0 billion

Counting Friday's Affinion transaction in the tally the final week of April 2006 saw $2.14 billion of dollar-denominated issuance in 10 tranches.

That falls well short of the previous week's $2.54 billion.

The final week of April came to a close having seen slightly more than $44.6 billion of issuance for the year so far, as 2006 continues to march ahead of 2005, in terms of year-over-year dollar-denominated issuance.

At the April 28, 2005 close, the market had seen $36.5 billion of issuance.

In terms of deal volume, however, 2006, at 127 dollar-denominated tranches year-to-date, continues to lag 2005 which had seen 144 tranches price by the April 28 close.

Big demand for CMP bank piece

Among the dollar-denominated deals poised to price during the first week of May, news surfaced Friday on Cumulus Media Partners LLC's downsized $275 million bond deal.

The company has shifted $50 million of its acquisition financing to its term loan B, cutting the bond portion from the original $325 million.

CMP Susquehanna Corp., the operating company, has talked its downsized $225 million tranche of eight-year senior subordinated notes (B3/CCC) at 9¾% to 10%. The tranche was reduced from $275 million.

Meanwhile CMP Radio Holdings Corp., the holding company, has left unchanged its $50 million offering of 8.5-year senior discount notes. No price talk was heard on the discount notes.

Merrill Lynch & Co. Goldman Sachs & Co., Deutsche Bank, UBS Investment Bank and Banc of America Securities are joint bookrunners for the acquisition financing.

A buy-side source, speaking late Friday afternoon, said that the CMP bond deal is going fine, and added that the bank deal is "an absolute blowout."

Lottomatica brings hybrid deal

Lottomatica SpA will begin a roadshow Wednesday in Milan and Edinburgh for its €750 million offering of 60-year hybrid capital securities (expected Ba3).

Credit Suisse is the bookrunner for the acquisition deal for the Rome, Italy-based manager and operator of lottery games as well as a provider of other automated services.

The securities will be non-callable for 10 years. The margin will step up after 10 years in the event the securities are not called.

Lottomatica is expected to be assigned issuer ratings of Baa3 from Moody's and BBB- from Standard & Poor's.

The week ahead

The first week of May will get underway with just over $1 billion of prospective issuance on the new deal calendar.

In addition to the CMP deal, Rouse Co. LP/TRC Co-Issuer Inc. is in the market with $500 million of senior notes expected to be structured with a five-year or seven-year maturity (Ba1/expected BB+), via Lehman Brothers.

Also iPayment Inc. is marketing $280 million of eight-year senior subordinated notes (Caa1/CCC+) via Banc of America Securities.

In addition to those dollar-denominated deals Shaw Communications Inc. is in the market with a C$300 million offering of 6.15% 10-year senior unsecured notes (Ba2/BB+/BB from DBRS) via TD Securities and RBC Capital Markets. The deal is expected to price early in the week.

Nordic Telephone adds to gains

Traders did not see any secondary market dealings in ISS' new euro-denominated bonds, nor in the quite small and illiquid Affinion add-on deal.

Among bonds that priced earlier in the week, Nordic Telephone Co.'s new notes remained the stars of the new-deal sector. All three tranches had priced at par on Wednesday and had then moved higher in the aftermarket, with the new dollar-denominated 8 7/8% notes due 2016 having firmed to levels around 103 bid, 104 offered later Wednesday, and then having stayed there during Thursday's dealings. On Friday, a trader said, those bonds continued to rise, to 104 bid, 105 offered, up a point.

Activant Solutions Inc.'s new 9½% notes due 2016, which priced at par on Thursday and then moved up to around 101.5 bid, 102.25 offered when they were freed for secondary dealings, were seen continuing to hold those levels on Friday.

Also not much changed were Pioneer Natural Resources Co.'s new 6 7/8% notes due 2016 and Rural Cellular Corp.'s new add-on issue of 8¼% notes due 2012, each of which had priced late Wednesday. Rural Cellular's 8¼% notes due 2012 hung in around the same 104.5 bid, 105.25 offered, pretty much where they had been on Thursday and a little firmer than their late-Wednesday issue price at 104.125.

Pioneer's bonds were being quoted on a spread versus Treasuries basis and were seen having tightened slightly to a bid level equivalent to 176 basis points over Treasuries and an offered level of 174 bps, from 177 bid, 175 offered on Thursday and a bid-side spread of 178 bps on Wednesday.

"The market had a pretty decent tone to it," a trader said. "I haven't seen spreads this tight [in a long while]. You're seeing [junk] spreads trading 150, 160 [bps] off the curve, I can't believe it."

Canadian forest names strong

Another trader said that the Canadian forest products sector was "pretty much where the action was" on Friday, buoyed by the announcement late Thursday that after two decades of being at loggerheads over Canadian softwood exports to the United States, the nations had come to an agreement aimed at ending the long-running cross-border conflict.

While Canada will not cap its softwood exports at present levels - it has about one-third of the U.S. softwood market - it will impose a tax on its own lumber exports south should prices fall $10 below the current average price of $370 per 1,000 board feet. In return, Washington - which since 2002 has been collecting tariff penalties of up to 27% from Canadian producers it said were unfairly competing with domestic firms - will hand back 80% of the $5 billion it has collected.

Market buzz that a deal was near had pushed the bonds of Tembec and its sector peers up solidly over the previous several sessions, and the trader mused that "usually you buy on the rumor and sell on the news - but it didn't happen this time" - or, at least, the second part did not.

Montreal-based Tembec has been the biggest beneficiary among the junk-rated forest names because it stands to get one of the biggest refunds after having paid C$317 million in tariff penalties since 2002. The trader saw its 8 5/8% notes due 2009 move up to 59 bid in Thursday's session, then open at 61 bid, 62 offered Friday, move as high as 66 bid intraday, before going home at 63.5 bid, 64.5 offered, "up four or five points on the day."

A trader at another desk saw those bonds pop up to 64 bid, 66 offered from Thursday's closing levels at 56 bid, 58 offered, before coming off the highs to end up six points, at 62 bid, 64 offered. He also saw Tembec's 8½% notes due 2011 move up to 61 bid, 63 offered from Thursday levels at 54 bid, 58 offered, before closing Friday at 59 bid, 61 offered. And its 7¾% notes due 2012 likewise moved to a peak level Friday of 59 bid, 61 offered from 53 bid, 55 offered previously, before going home at 58 bid, 60 offered, still up five points on the day.

Among the other Canadian forest products names slated to get tariff refunds, Domtar's 7 7/8% notes due 2911 and 7 1/8% notes due 2015 were each up a full point, at 97.75 bid, 98.5 offered and at 90.75 bid, 91.5 offered, respectively, a trader said.

He also saw Abitibi-Consolidated's 8 3/8% notes due 2015 up 5/8 point at 100.5 bid, 101.5 offered. Domtar stands to get back most of the C$198 million of tariffs it paid since 2002, while Abitibi paid out C$240 million.

News of the deal also helped one U.S.-based forest products company - Portland, Ore.-based Pope & Talbot, which has extensive operations in British Columbia and which paid an estimated C$130 million in tariff penalties.

A trader saw its 8 3/8% notes due 2013 jump four points on the day to 90.5 bid, 91.5 offered.

"Last month, those bonds were trading at 72," said another trader, who saw the bonds zoom about four or five points on Friday to around the 90 bid level.

The company's NYSE-traded shares meantime rocketed up $1.12 (16.16%) to close at $8.05. The volume of slightly over one million shares was about four times the norm.

Elan up on European opinion

Elsewhere, Elan's bonds got shot in the arm from news that an advisory panel for the European Union's equivalent of the U.S. Food and Drug Administration, the European Medicines Agency, had issued a positive opinion on Tysabri, which Elan jointly developed with U.S. drugmaker Biogen Idec Inc. The Committee for Medicinal Products for Human Use suggested that Tysabri should be used to treat recurring MS in order to delay the progression of the disease.

Elan and Biogen yanked their drug from the market in early 2005 after Tysabri was linked to a potentially fatal brain disease. Since then, it has been undergoing review by the FDA, a process which the companies hope will eventually return the potentially lucrative medication to the marketplace. The E.U. panel arrived at its positive decision after reviewing data from clinical trials and the results of safety analyses that were performed after Trysabri's removal from the marketplace.

A trader saw Elan's 7¾% notes due 2011 up ¾ point to 96.25-96.75, while its 7¼% notes due 2008 were half a point better at 99.25-99.75.

Another said the bonds were "very active," with the 73/4s up ¾ at 95.75-96.25, and the 71/4s also up ¾ at 99.25-99.75.

Wolverine gains more

On the earnings front, Wolverine Tube Inc.'s 10½% notes due 2009 - which had jumped six or seven points Thursday, in line with a big gain in the company's stock in response to better quarterly numbers versus a year-ago - were again on the rise Friday, although not quite so dramatically.

Several traders saw those bonds having firmed to 83 bid, 84 offered, about a three-point gain on the session.

The company's 7 3/8% notes due 2008, one of them said, were up about three points on the day to 79.5 bid, 80.5 offered. "You couldn't give those bonds away before the numbers came out," he said.

The two-day gains in the bonds follows the company's report Thursday of a jump in first-quarter sales to $298.3 million from $213.5 million a year earlier. Its loss meantime narrowed to $2.1 million (14 cents per share) from $2.5 million (17 cents per share) a year earlier.

While the bonds were continuing to rise, the company's NYSE-traded shares - which zoomed nearly 26% on Thursday on four times their normal volume - moved as high as $3.59 intraday, well up from their $3.25 close Thursday, but surrendered those gains late in the session on profit-taking, ending actually down two cents at $3.23.

Land O'Lakes up on earnings

A trader saw that Land O'Lakes's Inc.'s 8¾% notes due 2011 "took off" and now are trading "at decent levels," after the Arden Hills, Minn.-based dairy products producer reported favorable results earlier in the week. He saw the bonds at 105, up about half a point, and characterized them as now trading on a yield-to-call basis. Meanwhile, its 9% notes are trading around 107, and its 7.45% notes due 2028, "which is the only one that's not trading on a yield-to-call basis," are at 82 bid, 83 offered, a gain of about 1½ points on the week.

The bonds firmed after the company reported net sales of $2.1 billion and net earnings of $26.1 million for the first quarter, up from year-earlier sales of $2 billion and net earnings of $24.3 million.

Company officials also reported on balance sheet improvements versus 2005, with a better long-term debt-to-capital ratio - 41.1% as of March 31, versus 50.7% on March 31, 2005 - increased equity ($915 million versus $864 million), and strong liquidity ($342 million in cash-on-hand and unused borrowing authority versus $227 million).

"You've had some decent earnings this week and the market continues to chug along," the trader said.

However, in some spots it seems to be mis-firing on a cylinder or two.

Dura extends losses

Dura Automotive - whose bonds were seen having moved down on Thursday following what the company's chief financial officer termed "a very disappointing quarter" - continued to move in reverse on Friday. Its 9% notes due 2009, which lost more than two points Thursday, fell another point Friday, a trader said, quoting the bonds at 54.5 bid, 55.5 offered. However, he saw its 8 5/8% notes due 2012, which had lost nearly a point Thursday, as holding essentially unchanged Friday at 85.75 bid, 86.75 offered.

Dura's bonds slid after the company reported a net loss for the quarter of $7 million (38 cents per share), versus year-earlier red ink of $4.8 million (26 cents per share), as sales dropped sharply amid continued problems in the domestic automobile industry, a major portion of Dura's customer base.

American Axle lower

Another automotive name limping along in the breakdown lane on Friday after "a little disappointing numbers," a trader said, was American Axle and Manufacturing Holdings Inc., whose 5¼% notes due 2014 were half a point lower at 82.5 bid, 83.5 offered. Its NYSE-traded shares lost $2.43 (12.13%) to end at $17.61 on volume of 3.7 million - nearly four times the norm.

The Detroit-based maker of driveline systems and related powertrain components and chassis modules said that its first-quarter profit fell 35% versus a year ago. It blamed the fall on a drop in gross margin and operating income as a result of higher expenses.

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