Suburban, Trustreet price deals; Collins & Aikman gyrates at lower levels; funds see $681 million outflow

By Paul Deckelman and Paul A. Harris

New York, March 17 - After a one-day hiatus from pricing on Wednesday, the high-yield primary market got busy Thursday, with new deals seen having priced for Trustreet Properties Inc., Progress Rail Services Corp., and M/I Homes Inc., the latter deal after having been downsized. Add-on offerings were also seen having priced for Suburban Propane Partners LP and Nexstar Broadcasting Group Inc. At the other end of the spectrum, Hayes Lemmerz International Inc. postponed a planned euro-denominated bond offering.

The withdrawal of the bond deal by the Northville, Mich.-based maker of automotive wheels and brake assemblies is the latest item in a long string of bad news for the battered automotive supplier sector; another name in that group, Collins & Aikman Products Co., disclosed an accounting problem and said that it will delay filing its 10-K annual report with the Securities and Exchange Commission, causing its two issues of bonds to gyrate wildly at lower levels, before ending sharply lower on the day. Other auto names were also seen lower on the session, though none by anywhere near the margin seen for Collins & Aikman.

The auto sector was indicative of a generally easier high-yield market, traders said, with prices on average down half a point to a point across the board, as stocks continued to struggle while oil prices were still on the rise.

Against that somber backdrop, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News after the close of business that $680.5 million more left the funds than came into them in the week ended Wednesday - the fifth consecutive week in which the funds have bled money, including the $140.7 million outflow seen the previous week, ended March 10.

Over that five-week span, net outflows have totaled about $1.243 billion, according to a Prospect News analysis of the AMG figures. The fund flow numbers are considered a measure of junk market liquidity trends.

Outflows have now been seen in eight weeks out of the 11 since the start of the year. The year-to-date 2005 cumulative outflow rose to some $2.168 billion from $1.487 billion the week before, according to the Prospect News analysis. The figures exclude distributions and count only those funds that report on a weekly basis.

A sell-side source who spoke to Prospect News following the Thursday close characterized the present week's flow as a big one, but added that there is still cash to be put to work in the sidelines for "quality deals."

A fistful of deals priced Thursday in the primary market, as the day's tally came to $925 million. None was larger than $250 million.

However the fallout from Wednesday's negative outlook from General Motors Corp. continued to be felt in high yield on Thursday as Michigan wheel-maker Hayes Lemmerz International, Inc. withdrew a euro-denominated issue that had been expected to price during the session.

The five that priced

Leading Thursday's five transactions, in terms of size, were a pair of $250 million deals.

Suburban Propane Partners LP, from Whippany, N.J., priced a $250 million add-on to its 6 7/8% senior notes due Dec. 15, 2013 (B1/B) at 99.181 to yield 7%.

Wachovia Securities and Goldman Sachs & Co. were joint bookrunners for the debt refinancing deal.

The original $175 million issue priced at par on Dec. 18, 2003, so the company's interest rate increased with the add-on.

A source close to the transaction said that the deal, which went out without price talk, went well.

The day's other $250 million transaction came from Orlando, Fla., REIT Trustreet Properties Inc.

The company priced its 10-year senior notes (B1/B+/BB-) at par to yield 7½%, at the wide end of the 7 3/8% area price talk.

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

Elsewhere Thursday Progress Rail Services Corp., issuing in conjunction with Progress Metal Reclamation Co., priced $200 million of seven-year senior notes (B2/B-) at par to yield 7¾%, in the middle of the 7 5/8% to 7 7/8% price talk.

Morgan Stanley and JP Morgan were joint bookrunners for the acquisition financing from the Albertville, Ala., railroad equipment and services provider.

Also tapping existing bonds Thursday was Nexstar Broadcasting, Inc., which priced a $75 million add-on to its 7% senior subordinated notes due Jan. 15, 2014 (B3/B-) at 98.010 to yield 7.308%.

Price talk was the 97.0 area.

Banc of America Securities and UBS Investment Bank were joint bookrunners for the debt refinancing deal from the Irving, Tex.-based broadcasting company.

Signs of chop in the primary

In what one source characterized as a transaction that may have pointed up some choppiness in the present primary market, M/I Homes Inc. priced a downsized restructured $150 million issue of 6 7/8% seven-year notes (Ba2/BB) at 99.314 on Thursday to yield 7%, wide of the 6¾% area price talk.

The issue was downsized to $150 million from $200 million and the tenor of the notes was decreased to seven years from 10 years.

Citigroup and JP Morgan were joint bookrunners for the debt refinancing deal from the Columbus, Ohio, single-family home builder.

And Northville, Mich., wheel-maker Hayes Lemmerz International, Inc. withdrew its €120 million offering of senior unsecured notes on Thursday.

"As a result of recent industry announcements, current conditions in the high-yield market are no longer attractive," James Yost, vice president of finance and chief financial officer of Hayes Lemmerz, stated in a press release.

Citigroup and Merrill Lynch & Co. were joint bookrunners for the bond deal which had been talked 10¾%-11%.

Navarre launches $125 million

One roadshow start was heard during the session.

Navarre Corp. started a roadshow Thursday for $125 million of eight-year non-call-four senior notes (B+), which are expected late in the week of March 21 via Bear Stearns & Co.

The Minneapolis-based distributor of entertainment software will use the proceeds to fund an acquisition and for general corporate purposes.

Talk on Affinity, Escada

Friday's primary market session continued to take shape.

Price talk of 10½% to 10¾% was heard on Affinity Group Holding Co.'s $75 million of senior notes due Feb. 15, 2012 (Caa1/B-), which is expected on Friday afternoon via CIBC World Markets.

And Escada AG's €200 million of seven-year non-call-four senior notes (B2/BB-) were talked at a yield in the 7½% area.

Deutsche Bank Securities and HVB are the underwriters.

Progress Rail up in trading

When the new Progress Rail 7¾% senior notes due 2012 were freed for secondary dealings, a trader saw the bonds having moved up to 101.5 bid, 102 offered from their par issue price.

Traders did not see any of the other issues that priced as having moved into the aftermarket, since the pricings occurred late in the session.

The first trader did see DaVita Inc.'s new 6 5/8% senior notes due 2013 at par bid, 100.5 offered, and its new 7¼% senior subordinated notes due 2015 at 99.75 bid, 100.25 offered, both versus the par price at which the bonds had been issued on Tuesday.

Collins & Aikman lower

Back among the established names, Collins & Aikman's bonds "were on a roller coaster," a trader said, after the Troy, Mich.-based automotive components maker announced that it that it was not able to file its annual report with the SEC on time and had filed for an automatic 15-day extension - and warned even that might not be enough time. It 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 as well (see related story elsewhere in this issue).

Collins & Aikman's already weakened New York Stock Exchange-traded shares nosedived 39 cents (23.93%) to $1.24 on the news, seeing volume of nearly three million shares, six times the usual turnover. Its bonds, meantime "were probably the most active issue" in the junk market a trader said, estimating that the company's 10¾% senior notes due 2011 fell to 85 bid, 87 offered at the close from 87 bid, 89 offered on Wednesday, while its 12 7/8% subordinated notes due 2012 completely swooned down to 52.5 bid, 54.5 offered from prior levels in the mid-60s.

The first trader saw the subordinated bonds rocking and rolling all over the place at lower levels, opening trading at around 60 bid, 62 offered, well down from 65 bid, 67 offered on Wednesday. From that inauspicious opening, things only got worse, with the bonds cascading down to offered levels around 58, but then bouncing back up to 61 bid at mid-afternoon, before "they caved back in again" and tumbled into the low 50s at the close. Late in the day, he saw the bonds offered at 55, implying a bid level around 53 or 54, "if there is one."

He saw the 10¾% notes as having been "hanging in there" at higher levels, owing to their senior status, losing maybe a point or two during previous sessions when the juniors were getting killed on investor angst over the problems of the automotive industry in general and Collins & Aikman in particular.

But on Thursday, he described the bonds as having gyrated around, falling to 84 bid, 86 offered from prior levels around 87.5 bid, 89.5 offered, then "trickling back up" to 87 bid, 89 offered, virtually unchanged, before giving back its hard-won progress as the session closed, finishing down 2½ points on the day at 85 bid, 86 offered.

Other auto names lower

Besides Collins & Aikman, which a market source said "got crushed," other automotive names were also stuck in the downward lane, reacting not just to the Collins & Aikman problems, but to the whole automotive industry's troubles these days, particularly General Motors Corp.'s Wednesday warning that it will likely post a first quarter loss - everyone had been expecting GM to at least break even - and that its 2005 earnings will be down sharply from previous guidance. That caused both Moody's Investors Service and Standard & Poor's to put the auto giant's bonds and other debt under scrutiny for a possible downgrade to junk status.

That news caused bonds of the already junk-rated component supplier companies to retreat Wednesday and they continued to skid lower Thursday, with Dura Automotive Systems Inc.'s 8 5/8% senior notes due 2012 seen at 96 bid, well down from prior levels at 99.25, while its 9% subordinated notes due 2009 plunged to 86 bid from 92 previously, the source said.

He also saw Foamex International Inc.'s 10¾% notes due 2009 fall to 87 bid from 89.25, while the Linwood, Pa.-based automotive foam rubber products maker's 9 7/8% notes due 2007 were 1½ point lower at 56.

Visteon Corp.'s 7% notes due 2014 were being quoted down 1½ points at 85.5 bid and Tenneco Automotive Inc.'s 8 5/8% notes due 2014 were two points lower at 102 bid, while its 10¼% notes due 2013 lost half a point to 113. The Lake Forest, Ill.-based automotive parts maker's chief financial officer meanwhile said at a junk bond conference that the company was continuing to cut debt in hopes of eventually getting an investment-grade rating (see related story elsewhere in this issue).

Toys 'R' Us down on buyout

Outside of the auto sector, the big news was being rung up in retail, where toy seller Toys 'R' Us Inc. announced that it had agreed to be taken private in a $6.6 billion buyout deal proposed by a group that includes two equity firms - Kohlberg Kravis Roberts & Co. and Bain Capital LLC - as well as a real estate developer, Vornado Realty Trust. The deal also includes some debt assumption

That deal puts an end to a seven-month effort by the Wayne, N.J.-based toy store chain to divide its sluggish toy business from the smaller, but more lucrative, Babies 'R' Us segment. Vornado's presence in the buyout group suggests that at least some of the chain's 1,500 total stores are likely to be closed and liquidated for their real estate value - the pattern that Kmart Corp. followed when it successfully reorganized itself in a Chapter 11 proceeding earlier r in the decade.

While equity investors were pleased at the news, as were holders of the company's 6¼% convertible bonds, up 3 points on the news to 61.625 bid, 62 offered, bondholders were not, fearing that the chain's new owners will finance the deal through new debt, effectively subordinating the existing bonds.

Those existing bonds have been declining over the past few sessions, since it became apparent that a buyout deal was near, and on Thursday they continued to ease, with the company's 7 7/8% notes due 2013 seen down about 1½ points at 93.125, and its 7 5/8% notes due 2011 quoted by a market source down 1/8 point at 95.375.

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