Abitibi, Smart Technologies deals price; GM facility confusion roils auto names

By Paul Deckelman and Paul A. Harris

New York, March 22- Abitibi-Consolidated Inc. brought an upsized offering of 10-year notes to market on Tuesday. High-Yield syndicate sources also reported a pricing for Smart Modular Technologies (WWH) Inc.'s floating-rate offering of senior secured 10-year notes.

In the secondary arena, the already shaky automotive supplier sector got some further uncertainty, as questions swirled around whether a General Electric Corp. subsidiary had cancelled a financing facility which allowed General Motors Corp. to make quick payments to its parts suppliers like Collins & Aikman Corp. It was only later in the day that the market got the definitive answer - the facility had not been pulled. In the meantime, most auto sector bonds were lower and GM's own bonds - now just one step above junk and trading as if they had already been downgraded - gyrated wildly.

The primary market saw in excess of half a billion of dollar-denominated issuance on Tuesday as the high-yield market continued to be soft, according to sources.

Soft or not, however, the forward calendar grew, most notably with Cablecom Luxembourg SCA's CHF1.275 billion three-tranche deal that is expected to price Wednesday afternoon in London.

"The high yield was weaker again today," one investment banker told Prospect News late Tuesday.

"It underperformed Treasuries, which is significant because Treasuries weren't doing that well."

Abititibi upsizes, restructures

Tuesday's largest transaction came from Montreal forest products company Abitibi-Consolidated, which priced an upsized, restructured $450 million issue of 10-year senior notes (Ba3/BB-).

The bonds priced at par to yield 8 3/8%, at the tight end of the 8 3/8% to 8½% price talk.

The company dropped a plan tranche of seven-year notes.

Citigroup and Credit Suisse First Boston led the drive-by debt refinancing deal which was upsized from $400 million.

One source had the notes off a point in the aftermarket.

Smart on top of revised talk

The second of Tuesday's two deals was completed by memory technology company Smart Modular Technologies (WWH) Inc.

The company priced a restructured $125 million issue of seven-year senior secured second-lien floating-rate notes (B2/B) at par to yield three-month Libor plus 550 basis points, on top of revised price talk. On Monday the company widened its guidance on the deal by 125 basis points from 425 basis points area.

Citigroup and Lehman Brothers led the debt refinancing.

Higher rates now

Ever since the ratings agencies came forward with warnings that a mass of General Motors Corp. debt may not be long for the investment-grade universe on March 16, sell-side sources have been telling Prospect News that high-yield investors are at long last getting some traction with regard to where bonds price.

One source pointed to both of Tuesday's transactions, Abitibi (Ba3/BB-), which priced at 8 3/8%, and Smart Modular, which priced at talk that had widened by 125 basis points.

"Traders around here thought that the Abitibi deal might have come somewhat tighter than it did, in other circumstances," the source said.

"People are probably having to re-think their pitch levels in the present market."

Cablecom plans CHF1.275 billion

Tuesday's big news regarding the forward calendar came from Cablecom Luxembourg SCA.

The company plans to price CHF1.275 billion of senior secured floating-rate notes in three tranches on Wednesday afternoon London time via Goldman Sachs.

Cablecom aims to price CHF700 million equivalent in two five-year tranches: a euro-denominated tranche which is talked at Euribor plus 237.5 basis points area and a Swiss franc-denominated tranche talked at Euribor plus 250 basis points area.

The company also plans to price CHF545 million equivalent of euro-denominated seven-year notes which are talked at Euribor plus 275 basis points area.

Proceeds will be used to repay essentially all of the company's bank debt.

Pogo with $300 million drive-by

Nor was Cablecom the only quick-to-market deal to appear Tuesday.

Pogo Producing Co.'s $300 million of 10-year non-call-five senior subordinated notes (Ba3/BB) are talked at a yield in the 6½% area, and are expected to price on Wednesday, also via Goldman Sachs.

The oil and gas exploration and production company will use the proceeds to repay debt.

Sirius to hit the road

Elsewhere one roadshow start was heard during the session.

Sirius Satellite Radio Inc. will start a roadshow Wednesday for its $250 million offering of 10-year senior notes, which are expected to price late next week.

JP Morgan and Morgan Stanley are joint bookrunners for the debt refinancing and general corporate purposes deal from the New York satellite radio broadcast company.

Talk on Stile/Masonite

News was heard Tuesday on the biggest of the junk bond deals lately making the investor roadshow rounds.

Price talk went out on Stile Acquisition Corp./Masonite International Corp.'s $825 million two-part offering, which is expected to price on Wednesday via Deutsche Bank Securities, UBS Investment Bank and Scotia Capital.

A $300 million tranche of eight-year non-call-two senior floating-rate notes (B3/B-) is talked at Libor plus 325 basis points area.

Meanwhile a $525 million tranche of 10-year non-call-five senior subordinated notes (Caa1/B-) is talked at 9% to 9¼%.

Elsewhere talk of 8½% to 8¾% emerged on 155 East Tropicana LLC/Finance Corp.'s $125 million of seven-year senior secured notes (B3/B-), which are expected on Wednesday afternoon.

Jefferies & Co. has the books for the deal, proceeds from which will be used repay debt and fund the construction of Hooters Casino.

And Ameriqual's $105 million of seven-year non-call-four senior secured notes (B1/B+) are talked at 8 7/8% to 9%, and are expected to price late Thursday morning, also via Jefferies.

Abitibi lower in trading

When the new Abitibi-Consolidated 8 3/8% notes due 2015 were freed for secondary dealings, they were seen having fallen as low as 98.5 bid, 99.5 offered from their par issue price earlier in the session, although a trader said that the new bonds had been dragged down by the fall in Treasury bonds following the decision by the Federal Open Market Committee to again raise interest rates, rather than because of any particular investor dislike with the Abitibi deal itself.

At another desk, a trader pegged the new Abitibi bonds at 98.875 bid, 99.375 offered.

The trader meantime saw Smart Modular Technologies' new 10-year floaters offered at 101.25, but saw no actual bids on the bonds, which had priced earlier in the session at par.

And he also said that Affinity Group Holding Co.'s new 10 7/8% senior notes due 2012, which had priced on Monday at 96.377, moved out to 97 bid after being freed for aftermarket dealings later that session; however, he saw no activity in those bonds on Tuesday.

GM question hurts autos

Back among the existing issues, the GM financing question was the latest negative development to hit a sector already reeling from decisions by some sector companies, such as Collins & Aikman, to delay reporting their financial results, and others, such as Dura Automotive Systems Inc. - not to mention GM itself - to issue bearish guidance to investors.

The Financial Times got the ball rolling with a report Tuesday morning to the effect that GE'S financing arm, GE Capital, had withdrawn a $2 billion factoring facility which let GM quickly pay for parts and components bought from outside vendor companies.

On the face of it, the news seemed to signal yet another loss of financial industry confidence in the once mighty GM, which last week warned that its first-quarter results would be in the red to the tune of as much as $150 million - Wall Street had been expecting a small profit or, at the worst, a break-even quarter - while full-year 2005 earnings would come in between $1 and $2 per share - far less than the $4 to $5 per share analysts had predicted.

It also raised the specter of more financial problems for the supplier companies, which depend heavily upon the rapid payments made by giant customers like GM to keep up their own liquidity.

Later in the day, GM and GE issued a joint clarification - indicating that GE had told GM as far back as last May that it was planning on leaving the trade receivables business at the end of 2005 - a decision apparently unrelated to the current difficulties of GM or other carmakers. GM then set the wheels in motion to have its GMAC Commercial Finance arm take over funding such early pay programs, with GE Capital continuing to find the receivables facility until the GMAC funding is ramped up.

Even with the clarification, some of the sector names ended lower on the day, including Rochester Hills, Mich.-based steering systems manufacturer Dura, whose Dura Operating Corp. 8 5/8% senior notes due 2012 were seen down a point at the close at 93.5 bid, 94.5 offered, while its 9% subordinated notes due 2009 were seen down almost four points on the day at 85 bid.

Another automotive sector loser was Akron, Ohio-based tiremaking giant Goodyear Tire & Rubber Co., whose 7.857% notes due 2011 were down nearly two points at 95.5.

Collins & Aikman mostly lower

Collins & Aikman, meanwhile, was being quoted at mostly weaker levels, with a trader in distressed notes pegging the Troy, Mich.-based interior components maker's two tranches of bonds both down a point on the day, its 10¾% senior notes due 2011 dipping to 80.5 bid, 81.5 offered - after having firmed at one point earlier in the session to 83 bid, 84 offered - while its 12 7/8% subordinated notes due 2012 eased to 42 bid, 44 offered.

Another trader saw the 103/4s "continue to weaken," pegging them down a point on the day at 79 bid, 81 offered, while seeing the junior bonds "kind of unchanged" at 43.5 bid, 44.5 offered.

Yet another trader characterized Collins & Aikman as "sloppy but basically unchanged," while a fourth saw the 12 7/8s trading as low as 41.5 bid, 43.5 offered early in the day before closing at 42 bid, 44 offered, still off a point on the session.

Proving that it takes all kinds to make a world, a source at another desk took a decidedly contrarian view, estimating the junior bonds to actually be up a point on the day at 44 bid.

Other automotive names seen trading around included Tenneco Automotive Inc., whose 8 5/8% notes due 2014 were quoted down more than three points at 96, and Exide Technologies, whose 10½% notes due 2013 were two points lower, hovering below 96.

Delphi gains

Not all of the autos were down, however; a trader noted that Delphi's 6½% notes due 2013 were up about a point at 81.5 bid, 82.5 offered. Although the Troy, Mich.-based maker of automotive electric systems announced that it was selling its auto battery division to Johnson Controls Inc. for $212.5 million, the trader thought it far more likely that the bonds were up because of Delphi's separate announcement that its audit committee had substantially completed its investigation of the company's accounting practices, and "no significant issues have been identified other than those previously disclosed . . . although we continue to review the conduct of certain lower- and mid- level executives, we have concluded our review of officers and believe that no further changes in the company's top management will be required as a result of our investigation."

Delphi had previously disclosed that improper accounting caused it to overstate its cash flow by $200 million in 2000 and overstate its pretax income by about $61 million in 2001. The full results of the investigation will be reported when Delphi restates its earnings by June 30.

Another trader saw Delphi paper "all over the place," with its 7 1/8% notes due 2029 popping up to 79.5 bid, 81 offered from prior levels at 78 bid, 79 offered, buoyed by the asset-sale news, and maybe the announcement about the conclusion of the probe as well. However, he said the rise "petered out as stocks got whacked" in the wake of the bearish Fed announcement about interest rates and inflation - although not Delphi, which still posted a modest gain on its news. He saw the bonds close at around the same 78-79 context at which they had begun the day.

GM wider/lower

The bonds of Delphi's former corporate parent - GM - continued to jump around at far wider spread levels against Treasuries than they had just a week ago, before the world's largest automaker made its bombshell earnings announcement.

In Tuesday's dealings, its 8 3/8% notes due 2033, which on Monday had closed at a bid level equivalent to 500 basis points over Treasuries and an offered level 490 bps over, opened sharply wider on the initial news about the GE funding facility, at 530 bps over bid, 510 bps over offered. Later in the day, a trader said, those bonds had tightened from the wide morning levels, after GE and GM issued their clarification, closing at a bid level of 510 bps over Treasuries and an offered level at 500 bps over.

At some desks, GM's bonds are already being quoted in dollar-price terms, like junk bonds, rather than on a spread basis like the investment-grade instruments that technically speaking, they still are - for the moment.

"I think the company goes sub-investment grade," one trader said. "I think if the high-yield guys have any brains at all they should be sitting there and waiting [for it to fall] because it's coming their way," since any downgrade of GM to junk status - the next likely move for all of the major ratings agencies - would cause a massive dumping of the company's bonds by some mutual funds and other accounts whose rules prevent them from holding any junk bonds, sending the price down further still. Trying to buy the GM bonds now, with a downgrade and further price fall quite possible, he said, is like trying "to catch a falling knife."

The mutual funds that can't hold junk "will be punting these bonds [away] in that event. Right now, you've got people nervous about that trying to get out - but there's just too much swirling around about it right now."

Beverly higher on sale

Elsewhere, Beverly Enterprises Inc. 7 7/8% bonds due 2014 were being quoted higher, after the company said that its board had voted to put the Fort Smith, Ark.-based nursing home company up for sale via an auction process.

Those bonds - which had traded around 110.125 bid on Monday - were seen going home Tuesday at 111.5 bid.

The move was seen as an effort by the company to counter a hostile $1.5 billion takeover bid that it received in December from Formation Capital LLC, an Alpharetta, Ga.-based investment group, which Beverly subsequently rejected.

"I think management had thought about fighting the Formation investor group," a trader said. He said the bonds had been around the 110.5-111.5 area, "and then they bounced up after that [auction announcement]." He saw "a whole mess of bonds trading between 111.5 and 111.75," and pegged the market for the bonds at 111.25 bid, 112 offered.

"If that [sale of the company] goes through, they're going to tender for the bonds," he predicted. "There's a make-whole call at plus 75 basis points over, like a 114 handle. They'll probably take that paper out ultimately."

Beverly, saying it was acting in the interest of all of its shareholders - Formation currently owns 8.1% for the company - said it has directed its financial advisors, Lehman Brothers and JPMorgan, to immediately begin contacting potential bidders, including Formation, and has instructed management to work with all qualified bidders.

Formation said Tuesday in response that it would evaluate the terms of the auction process Beverly had initiated, including proposed standstill and confidentiality agreements, to ensure that it was being treated fairly.

Formation, which includes Appaloosa Management, Franklin Mutual Advisors and Northbrook NBV, offered $11.50 per share - a 30% premium over the average level at which Beverly's stock had been trading on the New York Stock Exchange prior to takeover bid. Beverly announced its formal rejection of the Formation bid on Feb. 3, prompting the investment group to nominate candidates for six director seats in an attempt to gain control of the company via a proxy fight at Beverly's April 21 annual meeting.

Formation also took to the courts, filing a lawsuit against state health officials who have proposed a "Long-Term Care Resident Protection Act" that would, if passed into law, would force any would-be buyers of long-term care facilities, such as Beverly's nursing homes, to undergo a lengthy review process that would focus on the impact such a change of ownership would have. Formation calls the bill a hastily designed piece of special-interest legislation aimed at protecting Beverly's incumbent management by allowing it to stall off any takeover try.

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