Owens-Brockway, Cascades price offerings; Rogers ride continues

By Paul Deckelman and Paul A. Harris

New York, Nov. 23 - The high-yield market wrapped the last full day of trading for the holiday-abbreviated week Tuesday by pricing upsized offerings from Owens-Brockway Glass Container Inc. and Cascades Inc. while Propex Fabrics Inc. was heard by high-yield syndicate sources to have also successfully priced a new deal, though this one was at the advertised size.

In the secondary market, the two upsized new deals did well when they were freed for secondary dealings, while another recently priced offering - Rogers Wireless Inc.'s five-part leviathan - continued to move up from where the various tranches had priced.

Strictly among the established issues, rises in Owens-Illinois Inc. and Bluegreen Corp. coincided with ratings upgrades for those companies, while R.J. Tower Corp.'s bonds were in retreat even as its debt ratings were lowered.

The high-yield primary cleared out the pre-Thanksgiving calendar during Tuesday's session, which just barely topped $1 billion equivalent, with four tranches pricing.

Leading the way was Owens-Brockway Container Inc., which priced an upsized $694 million in two of those tranches, denominated in dollars and euros, both of which played to healthy demand.

Meanwhile, although odds and ends regarding the post-Thanksgiving calendar circulated the market, no new deals were announced and sources professed the expectation that Wednesday's session would come and go largely without event.

Also, late Tuesday, email messages circulated from the Prospect News primary market desk generated a healthy smattering of "out-of-office" responses from sources who had apparently already begun looking to the cranberry grinding.

Owens-Brockway upsizes

Most market observers believe that the last big deal in the high-volume run-up to Thanksgiving priced Tuesday in the form of an upsized $694 million equivalent two-part deal from Owens-Brockway Glass Container Inc.

The Toledo-based company sold $400 million and €225 million mirror tranches of 10-year senior notes (B2/B) at par to yield 6¾%, which was the tight end of the 6¾% to 7% price talk.

Goldman Sachs & Co. had the books for the debt refinancing deal. Market sources told Prospect News that both tranches had seen significant demand from a buy-side that remains hungry for paper, despite the nearly $10 billion of issuance the market has seen in the past seven sessions.

Elsewhere Tuesday, Propex Fabrics Inc. sold $150 million of eight-year senior notes (Caa1/B-) at par to yield 10%.

The acquisition financing from the Atlanta-based polypropylene fabric manufacturer, brought to market by BNP Paribas, priced at the wide end of the 9¾% to 10% price talk.

And Cascades Inc. priced an upsized $125 million add-on to its 7¼% senior notes due Feb. 15, 2013 (Ba3/BB+) at 105.5 on Tuesday, resulting in a 6.167% yield to worst.

Pricing was wide of the 106.50 to 107 price talk.

CIBC World Markets and Scotia Capital ran the books debt refinancing deal from the Quebec-based packaging company, which was upsized from $100 million.

The original $450 million issue priced at par on Jan. 31, 2003, so Cascades managed to shave better than 100 basis points off of its original print.

In addition, a $100 million add-on priced at 104.5 on June 30, 2003.

Keefe likes floaters at present

On Tuesday Prospect News caught up with Diane Keefe, portfolio manager of the Pax World High Yield Fund, who had not participated in any of the day's deals.

She did specify, however, that given the current interest rate environment floating-rate bonds seem attractive.

"I've been continually looking to add floating-rate note exposure," said Keefe. "One of my colleagues in the market was bragging about having 30% of his portfolio in floating-rate notes. I would love to be in that position. I'm not now. I just haven't found the floating-rate notes to fill it up with.

"The floating-rate notes that I have observed have traded up pretty quickly in the market, to 103 or 104. And then your yield is ridiculously low.

"So I continue to buy those at par, when they come. And bankers know that there are a lot of people like me out there, so they continue to try to structure floating-rate notes into their deals when they can get issuers to do it."

Keefe said that although the present interest rate environment falls short of some noted dire predictions, the trends point in an unmistakable direction.

"A year-and-a-half ago [Pimco investment chief] Bill Gross thought the 10-year Treasury would be going toward 5% by now," she said. "He was wrong, for the last 18 months. But the fundamental underpinnings of the interest rate situation are getting weaker for the U.S. government.

"I suspect that rates will go higher from here. The weakness of the dollar is indicative of one part of the scenario that Gross had delineated. Having weakness in the budget deficit and weakness in the current account deficit leads to the deterioration of the currency.

"If that scenario continues to develop to the extent that foreign investors in Treasuries actually have negative returns, after adjusting for currency differences over a one-year time horizon, you would suspect that money would go elsewhere. And 80% of the incremental dollars invested in Treasuries, year-over-year, have come from foreigners.

"For that reason alone technicals should drive interest rates higher.

"I don't know where they are going, but I think they are going up."

Keefe bought Rogers' 7½% tranche

Having given the above color on floating-rate notes, Keefe told Prospect News that she had gotten in on what turned out to be the largest high-yield transaction in 2004 to date, the Rogers Wireless Inc. $2.350 billion equivalent five-tranche deal that priced last Friday via Citigroup.

Keefe got in on the $550 million tranche of senior secured fixed-rate notes due March 15, 2015 (Ba3/BB/BB+) that priced at par to yield 7½%, at the tight end of the 7½% to 7¾% price talk.

"We owned the shorter-maturity Canadian-denominated bonds due in 2006," she added.

"Basically all the analysts said that when Rogers was putting that much leverage on the company after they bought Microcell, the outstanding 6 3/8% bonds should trade down to the high-80s. And they never did. I think the lowest they got to was around 91.

"So we decided to stop waiting for them to get to where the analysts thought they should get to, because there is very little else that is high quality, predictable wireless credit that is yielding anywhere near 7½%."

Cascades up in trading

When the new Cascades 7¼% senior notes due 2013 were freed for secondary dealings, "they did really well," a trader enthused, quoting the bonds as having risen to bid levels around 106.878-107 offered, well above their 105.5 issue price.

He also saw Owens-Brockway's new 6¾% senior notes due 2014 get as good as 102.25 bid, well up from their par issue price, before coming off that peak to still finish with a nice gain at 101.5 bid, 102 offered.

Rogers rises again

Among recently priced issues, the Rogers Wireless U.S dollar-denominated fixed-coupon notes "kept going up, up, up," he said, with all three of those issues - the 7¼% senior secured notes due 2012, the 7½% senior secureds due 2014 and the 8% senior subordinated notes due 2012 - all at 104.5 bid, 105 offered, up from Monday's close around 104.

The Toronto-based Canadian wireless operator's three issues priced Friday - along with a tranche of dollar-denominated floating-rate notes due 2010 and a Canadian dollar-denominated 7 5/8% senior secured notes due 2011. All priced at par in a deal valued at the equivalent of $2.35 billion. The three main issues all rose to around the mid-103 level when the new bonds were freed for aftermarket activity Friday and had continued to advance to about 104 on Monday.

Holiday stills activity

Among the established issues, the trader said, "it was just quiet, as you can imagine," with some market participants choosing to write off the whole week and others coming in to do a little business on Tuesday but cutting out well before the market close - which took place at the usual hour - in hopes of getting a jump on what for many promises to be an extended vacation, given the odd configuration of the rest of the week. The Bond Market Association has recommended an early close (2 p.m. ET) for the U.S. debt markets on Wednesday ahead of Thursday's Thanksgiving Day holiday, which will completely shutter U.S. financial exchanges. Friday is another half day, as per the Association's recommendations.

A market source said that he had seen little in the way of big movers; "nothing," he lamented, "stood out."

Bluegreen better on S&P upgrade

There was some movement in the bonds of companies which saw ratings actions; for instance, Bluegreen Corp.'s 10½% notes due 2008 were seen up a point at 103, the source said, after Standard & Poor's raised its rating on Bluegreen's senior unsecured debt to B- from CCC+, and revised its outlook on Bluegreen to positive from stable. At the same time, the company's B corporate credit rating was affirmed.

The ratings agency cited the Boca Raton, Fla.-based timeshare vacation resort operator's good operating performance this year, driven by the strong demand in the timeshare industry and the company's recent addition of new timeshare units and sales offices.

Bluegreen had some further good news for the debt community this week when it announced Monday that it plans to call its $27.5 million of outstanding 8¼% convertible subordinated debentures due 2012 for redemption at par plus accrued interest on Dec. 30.

Owens-Illinois higher

Owens-Illinois' debt was seen firmer, with the Toledo, Ohio-based packaging company's 7.35% notes due 2008 having pushed up to 105 bid from prior levels around 104.25. Owens-Illinois was the beneficiary of an announcement Monday by Moody's Investors Service, saying that it had boosted its senior unsecured issuer rating by one notch to B3 from Caa1 previously.

The ratings agency said that the company's financial performance has "somewhat exceeded expectations," despite a challenging business environment.

Tower drops

On the downside, R.J. Tower's 12% notes due 2013 were quoted as having fallen 73.75 bid from 75.25 previously. At another desk, those bonds were quoted clinging to the 74 level, down from 76.5 the session before.

On Monday, Moody's put all of parent Tower Automotive Inc.'s ratings - including those of R.J. Tower, its bond-issuing subsidiary - under scrutiny for a possible ratings downgrade. Tower's $258 million of outstanding 12% notes and its €150 million of euro-denominated 9¼% guaranteed senior unsecured notes due 2010 are both currently rated B3.

Moody's cited the Novi, Mich.-based automotive components manufacturer's "increasingly constrained liquidity, insufficient cash interest coverage by operating earnings, and rising leverage." The ratings agency said that the company's cash flow generation "has been constrained by significant up-front launch costs and capital expenditures associated with new business rollouts, restructuring and consolidation charges, rising raw materials prices, lower North American [original equipment manufacturer] production levels, and other factors."

Moody's noted that over the 12 months ended Sept. 30, Tower's total leverage ratio of debt-to-EBITDAR, including off-balance sheet obligations as debt, rose to about 6.4 times. At the same time, its EBIT coverage of cash interest was about 0.6 times, a level Moody's warns is "insufficient."

Moody's said that Tower - which sell its products to Detroit's Big Three carmakers, particularly Ford Motor Co. - "appears unlikely" to realize its earlier projections that earnings would match its cash interest obligations through year-end. During the trailing 12 months, free cash flow was negative $142 million, while capital expenditures equaled about $227 million, or 1.6 times depreciation - clearly weak metrics in the eyes of the ratings agency.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.