Collins & Aikman continues slide; Triton rebounds; Escada prices euro deal

By Paul Deckelman and Paul A. Harris

New York, March 18 - Collins & Aikman Products Co. bonds continued to lose ground Friday in the wake of the Troy, Mich.-based automotive components' maker's announcement the previous session that it would not be able to file its 10-K annual report on time and had uncovered accounting problems that made it likely that previously reported results for 2004, ad well as those for 2003, would have to be restated. On the upside, Triton PCS Holdings was seen higher, despite a credit ratings downgrade from Standard & Poor's, with market participants apparently feeling that downgrade or no, the Berwyn, Pa.-based cellular telecommunications provider's bonds had been beaten down enough over recent sessions and it was time for a change.

Primary market activity was restrained, with only one deal seen having priced by the close - and that one a euro-denominated offering on behalf of German upscale apparel maker Escada AG. On the domestic front, price talk emerged on Smart Modular Technologies' $125 million seven-year floating-rate issue.

Collins & Aikman was the most prominent secondary issue Friday in a market that otherwise seemed all played out after a week of dramatic moves by C&A and by other issuers.

Collins "got whacked," a trader observed, quoting the company's 10¾% senior notes due 2011 two points lower on the session at 84 bid, 85 offered. But he said that "the subs [subordinated bonds] got hit a lot harder," with the 12 7/8% notes due 2012 swooning as low as 43 bid from Thursday's already depressed closing level of 54 bid 55 offered, although the bonds did bounce off those lows to finish at 48.5 bid, 49.5 offered, still down about 5½ points on the day.

At another desk, the junior notes were seen having fallen to 47.5 bid, off from a 52 close on Thursday, although the seniors were seen down half a point on the day at a bid level of 84.5.

No fresh news was seen out on the company Friday, leaving the apparent explanation for its continued erosion as additional market response to Thursday's announcement that it that it was not able to file its annual report with the Securities and Exchange Commission on time and had filed for an automatic 15-day extension - and even that might not be enough time to get the report done, since the company also revealed an accounting problem which will certainly cause a restatement of its results for the first nine months of last year, and which may make a restatement of its 2003 results necessary.

The Collins & Aikman bonds had already been staggering, along with the rest of the automotive sector, under the accumulated weight of a series of announcements from member companies of delayed results and earnings warnings. Prominent among the latter was industry leader General Motors Corp's warning at mid-week that it expected a first-quarter loss of $150 million, rather than the break-even result most Wall Streeters had expected. GM also said that full-year earnings would only be about $1 to $2 per share, down from previous estimates in the $4 to $5 range.

Tenneco, Dura lower

That helped push down not only the Collins & Aikman bonds, but the bonds of other automotive supplier names, including Tenneco Automotive Inc., whose 8 5/8% notes due 2014 were quoted at one desk down half a point at 101.5 bid. Another market source, however, pegged the Lake Forest, Ill.-based auto parts maker's paper lower, estimating that its 10¼% notes due 2013 were down nearly two points on the session to the 114 level.

Another auto name skidding lower was Dura Automotive Systems Inc., whose bonds were seen down a point across the board after Standard & Poor's downgraded the Rochester Hills, Mich.-based steering and braking system manufacturer's debt ratings.

A trader saw Dura's 8 5/8% senior notes due 2012 at 95.5 bid, 96.5 offered, and its 9% subordinated notes due 2009 at 85.5 bid, 86.5 offered, both a point lower on the day.

S&P lowered its corporate credit rating one notch to B from B+ previously. It cited factors including the auto parts maker's weak operating results and heavy borrowings.

Triton turns higher

Outside of the auto zone, an S&P downgrade failed to blunt a recovery by the recently hard-hit bonds of Triton PCS, whose subordinated 9 3/8% notes due 2011 and 8¾% notes also due 2011 were each seen three points up, at 71.5 bid, 72.5 offered and 70 bid, 71 offered, respectively, while its 8½% senior notes due 2013 were a point better at 92.5 bid, 93.5 offered.

"They were well bid for," a trader said, even with the downgrade,"

A market source said that the bonds had been "pretty well smacked around" and beaten down over the previous few sessions, and were apparently so oversold that the downgrade had little or no impact.

Toys 'R' Us down again

Toys 'R' Us bonds continued to head south in the wake of the Wayne, N.J.-based toy retailer's Thursday announcement that it has agreed to be acquired by an investment group led by Kohlberg Kravis Roberts & Co. for about $6.6 billion, plus debt assumption.

Its 7 5/8% notes due 2011 dipped to 91.25 bid from 95.375 on Thursday, a market-watcher said, while its 8¾% notes due 2021 lost 3/8 point to end at 92.5 bid. Bond investors were said to be wary of the deal, fearing that LBO specialist KKR has arranged a deal which calls for Toys to largely finance its own acquisition by taking out a store full of new debt, which will probably be structurally superior to the outstanding bonds, traders said.

GM talk dominates quiet primary

The high-yield primary spent most of the Friday session with its engine idling, as the market continued to mull the news that General Motors Corp. and possibly GMAC unsecured debt may tumble into junk.

Only one issue priced during the session: Escada AG sold €200 million of seven-year senior notes (B2/BB-) at par to yield 7½%, right on top of price talk.

Deutsche Bank Securities and HVB led the debt refinancing deal from the German designer and marketer of upscale women's apparel.

Will GM be junk's 800 lb. gorilla?

Since the ratings agencies extended warnings about the status of GM's debt on March 16, hardly a discussion takes place in the junk market without the subject coming up.

Mike Taylor, high yield strategist from Bear Stearns, told Prospect News on Friday that some junk players are indeed positioning themselves for such an event.

"We have broken out the U.S. dollar-denominated fixed-rate unsecured debt, that would be included in some of the unconstrained high yield indices like the Bear Stearns High Yield Index," Taylor said.

"That would total about $48 billion, therefore making it the largest issuer in the market, representing about 8% of the market.

"For that amount of debt to fall into the high-yield market is unprecedented. And I think some people are positioning themselves for it."

Taylor added that the dramatic increase in the supply of bonds would almost certainly have a dramatic impact on the supply and demand dynamics of the market.

"If you add $50 billion of debt, whether it's new issuance or fallen angel debt, it represents about half of what the consensus is in terms of new supply in 2005," he said. "And that $50 billion is from one issuer.

"Cash, of course, is limited. And even though there has been pretty good demand over the past couple of years I think there will be dislocation, whether it will be a widening in the secondary market or new issuers increasing their price talk."

Week to March 18 tops $3 billion

Although the negative headline news regarding GM debt created chop in the high-yield primary - most notably with the withdrawal of the Hayes Lemmerz euro-denominated deal earlier last Thursday - the week to March 18 nevertheless topped the two previous weeks in terms of issuance.

The market saw slightly over $3 billion in 11 dollar-denominated tranches, compared to $2.75 billion in 15 tranches for the week ending March 11, and $2 billion in nine dollar-denominated tranches for the week to March 4.

Year-to-date at Friday's close the market had seen $29.6 billion price in 109 tranches. Thus 2005 now significantly trails 2004, which had seen $38.5 billion price in $153 tranches.

Quiet Friday

Aside from the terms on Escada's €200 million transaction, the Friday session came and went almost devoid of news.

Chiquita Brands International announced that it plans to sell $150 million of senior notes to back the acquisition of the Fresh Express unit of Performance Food Group.

Morgan Stanley will have a role in the bond transaction, although structure and timing remain to be determined.

Hence, with Friday's paucity of news, sources were left to look toward the week ahead.

One investment banker said that for higher quality credits the junk market still appears to have a little room left to run.

"Deals that are viewed as high quality are going to do very well," source said. "But it looks like the tougher deals are getting killed."

With regard to the "higher quality" category the sell-sider expressed the expectation that the March 21 week's big deal, Stile Acquisition Corp./Masonite International Corp.'s $825 million two-part offering via Deutsche Bank Securities, UBS Investment Bank, Scotia Capital, should do well.

The company plans to sell $300 million of eight-year non-call-two senior floating-rate notes (B3/B-) and $525 million of 10-year non-call-five senior subordinated notes (Caa1/B-), with proceeds to help fund Kohlberg Kravis Roberts & Co.'s acquisition of Masonite.

"Masonite should go very well," said the investment banker. "There is a lot of cash flow there and it doesn't seem over-leveraged.

"That could be a very productive deal for the high-yield market."

The official added that the relative liquidity of the Masonite financing, given the present choppiness in high yield, would almost certainly be viewed as a plus.

"Right now you seem to get a lot of credit for a big issue with a lot of EBITDA behind it," the sell-sider observed. "People don't seem to want to get involved with the real illiquid smaller issues.

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