Cincinnati Bell, Stewart Enterprises price deals; Tower Auto gyrates after filing

By Paul Deckelman and Paul A. Harris

New York, Feb. 2 - Cincinnati Bell Inc. and Stewart Enterprises Inc. were heard by high-yield syndicate sources to have successfully priced new deals during Wednesday's session - the former a calendar deal which had been retooled into a two-part offering, the latter a quickly shopped issue eight-year notes. Also making an appearance on the primaryside was European issuer Rhodia SA's drive-by add-on offering of 2010 notes.

In secondary dealings, RJ Tower Corp.'s bonds bounced around at somewhat higher levels following the Novi, Mich.-based automotive frame maker's Chapter 11 filing, before coming off the highs and ending essentially little changed from their levels on Tuesday, when the bonds began trading without accrued interest.

Among non-bankrupt issues, MCI Inc.'s 10-year bonds continued to fatten up for a fifth straight session, the market apparently still enthused about takeover prospects for the Ashburn, Va.-based long-distance carrier in the wake of SBC Communications Inc.'s agreement to buy MCI rival AT&T.

The equivalent of well in excess of $1 billion priced Wednesday in the primary market, with French specialty chemical-maker Rhodia leading the pack, driving by with a €500 million add-on that priced inside of talk.

Meanwhile two companies stepped forward with new deals, both of which figure to be completed by this time next week.

Rieke says junk still rich

Louise Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund, told Prospect News that high yield remains liquid, even in the face of continued outflows from mutual funds.

However, she added, with the reversal of fortune in the lower quality credits since the beginning of 2005, its a more "defensive" market.

"On the quality end it's still very rich," Rieke said.

"I'm really trying to figure out what direction the market is heading," she added. "You have to figure out where the economy is heading and where Treasuries are heading before you can make that decision.

"The best-performing class right now is the split triple-Bs, followed by the double-Bs. So quality is outperforming beta.

"The sentiment of the market is getting more defensive."

Rieke went on to cite factors that are adding to the present liquidity of the high-yield asset class in spite of the loss of cash from mutual funds.

"The mutual fund outflows are not a true indication," she said. "It just means that there is a lot of cash on the sidelines.

"Right now any number of deals are being called or tendered or refinanced and are putting cash back into the market. That could also be one of the reasons why the market has been strong this week."

Rate hike should not impact junk

Rieke also said late Wednesday that the Federal Reserve's widely anticipated decision earlier in the day to hike interest rates by yet another 25 basis points should not have a dramatic impact on high yield.

"A more significant factor is what Libor is doing, because bank debt that the companies finance off of is Libor-plus," the portfolio manager said. "That makes it a much bigger barometer for what the market is going to do."

Rieke also believes that the U.S. central bank will maintain its measured pace of rate increases in the near term.

"So far the economics don't look like they justify more than 25 basis points," she said.

Rhodia reopens 8% notes

Wednesday's largest transaction came from Paris, France-based specialty chemical maker Rhodia.

The company priced a €500 million add-on to its 8% senior notes due June 1, 2010 (B3/CCC+) at 103.5, resulting in a 7.19% yield to maturity.

The deal, via Credit Suisse First Boston, came inside of the 103 area price talk, shaving 81 basis points off of Rhodia's initial interest rate.

The original €200 million priced at par on May 20, 2003 in a €1 billion equivalent four-tranche transaction that included $200 million of senior notes, $385 million of senior subordinated notes and €300 million of senior subordinated notes.

Cincinnati Bell completes restructured $350 million

Cincinnati Bell Inc. sold $350 million of high-yield bonds in two tranches on Wednesday.

The company priced $250 million of new 10-year senior notes (B1/B-) at par to yield 7%, in the middle of the 6 7/8% to 7 1/8% price talk.

Cincinnati Bell also priced a $100 million add-on to its 8 3/8% senior subordinated notes due Jan. 15, 2014 (B3/B-) at 102, resulting in a 7.991% yield to worst and an 8.054% yield to maturity. Price talk was 101.5 to 102. The original $540 million issue priced at par on Oct. 31, 2003.

Banc of America Securities, Credit Suisse First Boston and Lehman Brothers ran the books for the debt refinancing deal.

Cincinnati Bell restructured the issue from an originally planned single $350 million tranche of 10-year senior unsecured notes.

Elsewhere, Jefferson, La., death services firm Stewart Enterprises Inc. priced its $200 million of eight-year senior notes (B1/BB-) at par on Wednesday to yield 6 ¼%, at the tight end of the 6 ¼% to 6 3/8%.

Louise Rieke said that the deal came tight to talk in part because of the Standard & Poor's BB- rating.

Banc of America Securities ran the books for the debt refinancing deal.

More calendar

Two issuers were seen limbering up in the high yield dugout on Wednesday.

Constar International Inc. will begin a roadshow Thursday for $210 million of seven-year non-call-two senior secured floating-rate notes (B2/B), which are expected in the middle of next week.

Citigroup and Credit Suisse First Boston are the underwriters of the debt refinancing deal from the Philadelphia, Pa.-based producer of plastic containers for food, soft drinks and water.

And Radio One, Inc. will run a two-day roadshow beginning Thursday for $200 million of 10-year non-call-five senior subordinated notes (B2), with pricing expected on Friday.

Credit Suisse First Boston has the books for the debt refinancing deal from the Washington, D.C. broadcasting company.

Talk on Select Medical, Las Vegas Sands

Price talk emerged Wednesday on two of the deals that remain to be completed during the present week.

Select Medical Corp.'s $660 million of 10-year non-call-five senior subordinated notes (B3/B-) are talked at the 7¾% area, with pricing expected on Thursday via Merrill Lynch & Co., JP Morgan and Wachovia Securities.

Rieke said late Wednesday that the book on the deal is done.

And price talk is for a yield in the 6¼% area on Las Vegas Sands Corp.'s $250 million of 10-year non-call-five senior notes (B2/B), which are expected to price on Thursday via Goldman Sachs & Co.

Secondary trading restrained

When the new Stewart Enterprises 6 ¼% notes due 2013 were freed for secondary dealings, they went nowhere fast, pricing at par and then finishing the day at par bid, 100.5 offered.

The Cincinnati Bell bonds appeared too late in the session for any aftermarket dealings.

Overall, activity in the secondary market remained restrained, with many portfolio managers and other investment decision makers still at the J.P. Morgan high yield conference in Miami.

Tower up, then down

One of the few names showing any real movement - at least intraday - was RJ Tower, whose 12% notes due 2013 moved as high as 60.5 bid in morning trading, following the news that the company had filed for Chapter 11 protection.

A trader said that the bonds had shot up "right out of the box" as the market opened, digesting the news of the filing, which had only been announced a short time earlier at that point.

But those bonds were heard to have backed off that high as the day wore on, ultimately coming to rest around 58 bid, 59 offered, essentially little changed from Tuesday's levels. The bonds are now trading flat - without accrued interest - as is customary following a bankruptcy filing or other event of default.

But those bonds had actually begun trading flat on Tuesday amid investor concerns that Tower, a unit of Tower Automotive, either would not, or could not, make a scheduled coupon payment of about $7 million on its eurobond issue.

So when the filing finally did come, it was "no surprise," said analyst Joseph J. Farricielli of Imperial Capital LLC in Los Angeles, "since the company couldn't get its $200 million accounts receivable securitization done.

"Especially with the coupon due [Tuesday] on the euros, they probably decided just to conserve the cash and file."

Even with the bankruptcy filing though, Farricielli said that the company's 12% dollar notes and 9¼% euro notes are still a good buy at current levels in the upper 50s, since he projects likely recoveries for those obligations in the mid-70s, or even "potentially higher."

However, he cautioned that resolution would not come quickly predicting that the bankruptcy would take 1½ to two years to fully work itself out. And outside of the regular junk bonds, he warned, "the converts and the preferreds I don't see recovering anything."

Tower's bonds had slid into the 50s from levels above 80 after the company warned on Jan. 20 that its liquidity this quarter would be adversely affected - perhaps by as much as $40 million - by the longer-than-anticipated holiday-time shutdowns by its carmaker customers of many of their plants.

That having been said, Farricielli opined that: "I think the company has some good products - their Ford 500 model, I think, will be profitable for them. I think they have an opportunity to potentially pick up more business with Toyota, and especially Nissan, since Nissan is turning to make a push into the truck market in the U.S.," and Tower already makes the frames for the Japanese vehicle maker's Titan truck.

Tower, he continued "has a lot of prospects - this really was kind of a 'perfect storm' [that forced the company into bankruptcy]," including such factors as the production cuts, increased launch costs because of new business "which is not expected to recur in '05." On top of these, there was the suspension in December by the carmakers of their fast-pay programs.

A trader said that the Tower situation was "not that bad" and that the filing had been no surprise - and said that the filing "didn't really do much to the rest of the [automotive] sector," in terms of the bonds of such auto-sector companies such as Dura Operating, Collins & Aikman Products and Tenneco Automotive not declining in sympathy with Tower.

MCI up still more

Outside the automotive sphere, MCI's 8.735% notes due 2014, which have been on a tear over the past five sessions in response to market speculation that one of the regional Bell operating companies might make a pitch to buy the company, were seen up nearly a whole point at 111.25 bid, from Tuesday's close at 110.5 bid.

However, while those bonds have been climbing sharply ever since the market began talking about SBC Communications and AT&T to the tune of seven points, the company's other two issues have not risen that steeply and were seen little changed Wednesday, with its 7.688% notes due 2009 remaining around 105, and its 6.908% notes due 2007 still anchored around 102.5.

Allied Waste better

Allied Waste Industries' were seen up as much as two points after the Scottsdale, Ariz. -based waste-hauling company swung to a profit of $17.4 million, or 4 cents per share, from a year-ago loss of $2.8 million, or $2.38 per share.

Its 7 3/8% notes due 2014 were seen up two points at 93.5 bid, 94.5 offered, while its 8½% notes due 2008 were likewise up a pair at 106 bid, 107 offered.

Crown Cork gains

Crown Cork & Seal's bonds were up, after the Philadelphia-based packaging maker reported company had a narrower net loss of $27 million (16 cents per share) for the fourth quarter ended Dec. 31, an improvement from a year earlier, when the loss was $54 million (33 cents per share). It also reported continued progress in cutting debt and lowering interest costs (see related story elsewhere in this issue).

Crown Cork's 9½% notes due 2011 firmed to 112 bid, 113 offered, up about 1½ points on the day.

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