OPTI Canada, Buffalo Thunder push issuance to record, move up in trading; Northwest jumps

By Paul Deckelman, Paul A. Harris and Ronda Fears

New York, Dec. 8 - OPTI Canada Inc. and Buffalo Thunder Development Authority priced new deals Friday, and each one shot up sharply in aftermarket activity.

Also in the primary arena, price talk emerged on Hanesbrands Inc.'s upcoming eight-year deal, which is expected to come to market on Monday.

In the secondary market, aside from the good reception which the newly issued Buffalo Thunder and OPTI Canada deals received, a trader said that much, if not most, of the market's activity came in the distressed precincts, including a big jump in Northwest Airlines Inc.'s bonds, helped by news that the bankrupt air carrier wants to retain Evercore Group LLC as a strategic advisor - something which the market took as a sign that it is actively looking for a merger of acquisition. Bonds of bankrupt rival Delta Air Lines Inc., which frequently move in tandem with those of Northwest, were also seen heading skyward.

With two tranches totaling $1.245 billion pricing during the Friday session, the new issue market entered record territory, topping the previous all-time high issuance for the U.S. junk market seen in 2004.

Friday's two deals took the year-to-date total to slightly more than $143.4 billion, more than $1 billion higher than the $142.4 billion of dollar-denominated issuance that priced during all of 2004, the previous record issuance year.

OPTI a 'blowout'

The deal that took the 2006 dollar-denominated issuance total over the top was OPTI Canada Inc.'s $1 billion issue of eight-year senior secured notes (B1/BB), which priced at par to yield 8¼%, at the tight end of the 8¼% to 8½% price talk.

Credit Suisse and RBC Capital Markets were joint bookrunners for the debt refinancing and project financing deal. TD Securities was joint lead manager.

OPTI Canada is engaged in the development of the Long Lake oil sands project in Canada, a 50-50 joint venture with Nexen Inc.

An informed source referred to the OPTI deal as a "blowout," and added that the order book was massively oversubscribed.

Buffalo Thunder atop revised talk

Meanwhile Buffalo Thunder Development Authority, a special purpose vehicle of the Pueblo tribe of Pojoaque, N.M., priced its $245 million issue of eight-year senior secured notes (B2/B) at par to yield 9 3/8%, on top of talk, which had been tightened from 9½% to 9¾%.

Merrill Lynch & Co. was the bookrunner for the project financing deal.

$2.6 billion week

With Friday's business in the book, the first full week of December came to a close having seen $2.595 billion of dollar-denominated issuance.

By way of comparison the first full week of December 2005, from Monday, Dec. 5 through Friday Dec. 9, saw only slightly less: $2.343 billion.

However in keeping with a trend seen throughout 2006, tranche volume in that 2005 time period was more than double that of the present year. The week just ended saw six dollar-denominated tranches price whereas the tranche count for the first week of December 2005 was 11.

Turning back the calendar one more year to the previous record-holding year of 2004, the first full week of December, which ran from Monday, Dec. 6 through Friday, Dec. 10, saw a whopping $5.237 billion price in an even two dozen tranches.

Hence in comparison to both the dollar-amount of issuance and the deal volume both 2006 and 2005 pale in comparison to 2004.

Nevertheless, thanks to the march of mega-deals seen since market activity resumed after the Labor Day 2006 break, this year's dollar amount of issuance - with a fortnight remaining before the Christmas break - represents a new record for the junk bond market.

The week ahead

By circulating price talk on its $500 million two-part offering on Friday, Hanesbrands Inc. set the stage for what promises to be a busy week starting Monday.

Hanes talked its eight-year fixed-rate notes at 8¼% to 8½%, and its eight-year floating-rate notes at Libor plus 337.5 to 362.5 basis points.

Both tranches are rated B2 by Moody's, and are expected to be rated B- by S&P.

The Morgan Stanley and Merrill Lynch deal is expected to price on Monday.

Elsewhere timing was heard on Geokinetics Inc.'s $100 million offering of six-year second-priority senior secured floating-rate notes (B3/CCC+)

Books close at noon, New York time, on Monday, and the RBC Capital Markets-led deal is expected to price after that.

Earlier in the week the Geokinetics notes were talked at three-month Libor plus 650 basis points area.

Also expected to price on Monday is China Fishery Group Ltd.'s $200 million offering of seven-year senior notes (B1) via HSBC, talked at the 9 3/8% area.

Esco Corp.'s $275 million two-part offering of seven-year senior notes (B2/B), via Goldman Sachs and Morgan Stanley, is expected to price on Tuesday. No talk had been heard at press time on Friday.

Big boys later in the week

Heading toward the mid-part of the Dec. 11 week, a pair of billion-dollar plus whoppers sit parked on the forward calendar poised to price.

Georgia-Pacific Corp. is expected to price its $1.0 billion offering of senior guaranteed notes late Tuesday or early Wednesday via Banc of America Securities, Citigroup and Deutsche Bank Securities.

In approximately the same time-frame, sources say, Aleris International Inc. is expected to price its $1.1 billion two-parter, via Deutsche Bank Securities.

It is also expected that Greek shipping firm, Navios Maritime Holdings Inc., will price its $300 million offering of eight-year senior notes (B2/B), via Merrill Lynch and JP Morgan, on Tuesday.

The roadshow is expected to end on Tuesday for Tristan Oil Ltd.'s $300 million offering of five-year senior secured notes via Jefferies.

Later in the week Tropicana Entertainment LLC/Tropicana Finance is expected to price $925 million of eight-year senior subordinated notes (B3/CCC+) via Credit Suisse.

And in addition to the above, Mexico's Maxcom Telecomunicaciones, SA de CV is expected to price its $175 million offering of 10-year senior unsecured notes (B3/B) - a Rule 144A deal via Morgan Stanley.

Should all of that primary market business clear by the Friday close, the market should see no less than $4.875 billion priced during the second full week of December 2006.

And sell-side sources have advised Prospect News that at present the primary market is conspicuously open for "opportunistic" quick-to-market deals from well-known issuers.

The 2006 window

Sell-side sources have also advised Prospect News that following the Friday, Dec. 15, close, the high yield ranks are bound to begin to diminish.

Having mentioned that, however, it should be noted that Greek telecom TIM Hellas Communications plans to price €1.4 billion in four tranches during the Dec. 18 week, the final week in the run-up to Christmas.

Deutsche Bank Securities, JP Morgan, Lehman Brothers and Morgan Stanley are joint bookrunners for that debt refinancing and dividend funding deal.

December's second week

Should the $4.875 billion of issuance expected in the second full week of December 2006 materialize, with no surprises in the form of drive-by deals, the week would fall well short of the second full weeks of December 2005, which saw $7.732 billion of dollar-denominated issuance, and December 2004, which saw $6.746 billion.

OPTI Canada moves up

A trader said the new OPTI Canada 8¼% senior secured notes due 2014 were "going crazy, 10 times over [subscribed]." He saw the bonds trading at 102, well up from their par issue price.

Another trader quoted the bonds at 101.75 bid, 102.25 offered - the same level at which he also saw Buffalo Thunder Development Authority's new 9 3/8% notes due 2014. "Both deals performed very well," he said.

So does Buffalo Thunder

A trader at another desk said that the when the Buffalo Thunder bonds were freed for secondary dealings the market "couldn't get enough of it," with the bonds opening at 101.25 bid, 102.25 offered on the break, well above their par issue price, and then trading as high as 103 bid, 104 offered by mid-afternoon. Later, the bonds came off that peak, but were going home at 101.875 bid, 102.125 offered, "still pretty good," the trader said.

The solid aftermarket gains for both OPTI Canada and Buffalo Thunder's new notes stood in stark contrast to the meager gains which Regency Energy Partners LP's 8 3/8% notes due 2013 and NewMarket Corp.'s 7 1/8% notes due 2016. Each of those issues priced at par during Thursday's dealings, but then only firmed about ¼ point after they were freed.

Northwest lead with big gains

Among the established issues, Northwest Air was at the clear leader, as it posted as much as a 4 point gain after the company requested bankruptcy court approval for its request to hire Evercore Group LLC for strategic advice. The Evercore move has fueled speculation that Northwest, in bankruptcy since the fall of 2005, is actively looking for a merger or acquisition. Such requests are usually granted by the bankruptcy court, so this was considered a done deal, and Northwest bonds shot up 4 to 5 points on the session, traders said.

One trader said the bonds were up between 3½ and 4 points, with its 10% notes due 2009 rising to 90 bid, 91 offered, and its 8 7/8% notes that were to have come due earlier this year ending at 89.5 bid, 90.5 offered, which he called up 3 points.

Another trader saw the 8 7/8s at that same 89.5 bid, 90 offered level, which he called a 4 point advance, and attributed the rise to the Evercore news.

At another desk a trader saw the 10s closing out the day higher by 4½ points at 91 bid, suggesting the climb will resume on Monday.

A market source saw the company's 7 5/8% notes due 2008 up 2 points on the session at 88 bid.

Eagan, Minn.-based Northwest, the Number-Four domestic carrier, has been pushed higher over the past month or so - since US Airways Group Inc.'s $8 billion-plus bid for Delta emerged - on speculation that it could also go into play by virtue of the airline sector seeking further consolidation.

Another factor, onlookers say, is that Northwest might pick up some gates that would likely be sold off in the event of a combined Delta, US Airways operation. That angle apparently is part of Evercore's mission, one trader said.

Delta also seen higher

Delta's bonds were also meantime flying north on Friday, with a trader seeing its widely quoted 8.30% notes due 2029 up 3 points at 66 bid, 67 offered.

Another trader who also saw Delta up 3 points said he didn't really know why, but suggested that perhaps investors "think they're gonna pony up more dough," or "they just want to take a position" ahead of whatever restructuring eventually takes place - with or without US Airways.

Delta's management is legally obligated to consider the $8.6 billion takeover proposal from Tempe, Ariz.-based US Airways, which was formed in 2005 by the merger of America West Airlines with what was then another carrier in the throes of bankruptcy, US Airways. However, Delta has clearly indicated that its preferred game-plan is to restructure and then emerge from bankruptcy in the first half of next year a leaner, less debt-heavy standalone company - but not all of its creditors necessarily agree that this is the best strategy.

On Thursday, a group of nine unsecured Delta creditors filed notice with the U.S. Bankruptcy Court in New York, which is overseeing the Atlanta-based Number-Three domestic airline's restructuring, that they have formed an unofficial committee to represent their interests - a rival to the official creditors committee.

The new unofficial committee, which consists of creditors such as Deutsche Bank Securities Inc. and Lehman Brothers Inc. - none of whom sit on the official committee - is expected to put pressure on management to seriously consider US Airways offer, and not reject it out of hand. In a series of conference calls with bondholders late last month, Deutsche Bank and Lehman attempted to win their support for the unofficial committee.

Some observer have said that a US Air-Delta combination faces daunting hurdles, including possible demands from the Federal Aviation Administration that it divest itself of certain routes where the combined entity would have too heavy a presence, and the problems that occur when two airlines must combine their existing pilot seniority lists. However, others, including some traders, have said that the takeover deal might be the best thing for the bondholders, since they would be paid in cash and stock up front, rather than having to wait until Delta finishes its restructuring, then exchange their debt for new stock, and then first hope that the new stock keeps its value as the reorganized Delta tries to compete with other such reorganized rivals as US Air and United Airlines, not to mention lower-cost carriers such as Southwest Airlines and JetBlue.

That latter belief has been reflected in the movement of Delta's bonds, which have zoomed into the low to mid 60s from the prior levels in the upper 30s which they held before US Air made its unsolicited offer for Delta on Nov. 15.

Solo up on turnaround view

Back on terra firma, Solo Cup Co.'s bonds were gyrating around in the wake of meetings which the Highland Park, Ill.-based maker of disposable cups and plates was holding on Thursday and Friday with investors and lenders.

Traders were mixed as to the upshot of those meetings. One saw Solo lower, saying that "it was really bad initially," with the 8½% notes due 2014 at first falling as low as 84 from prior levels at 87.5 bid, 88.5 offered. However, he said, the bonds later "rallied back" off their lows to close down just point at 86.5 bid, 87.5 offered.

Another trader, though, said that the presentations resulted in positive views that the company's turnaround effort that have been in the works for months now seems to finally be making traction.

He said that the 8½% notes shot up 3 points on Friday to 86 bid, 86.5 offered.

In Thursday's investor presentation, Solo chief executive Robert Korzenski said that to improve liquidity, Solo will increase its second lien loan by $50 million and use that money to reduce borrowings under its revolver. The company also is still seeking an amendment of its existing credit facilities to allow additional debt and modify financial covenants regarding financial performance ratios, he added.

Solo is running against a Jan. 2 deadline to negotiate amendments to its existing loan facilities or to replace its first- or second-lien facility with new borrowings.

Beyond refinancing, Solo said in a Securities and Exchange Commission filing late Thursday that it has retained investment banking firms and a property management firm to market non-strategic assets, to follow through on those previously announced plans. The sale of certain non-core operating assets and the completion of certain sale-leaseback transactions will meaningfully reduce senior debt, Korzenski said.

On the operations end of the equation, Solo said that it has hired AlixPartners to help design and implement an integrated performance improvement program.

Dura up as new COO comes aboard

Traders saw Dura Automotive Systems Inc.'s 8 5/8% senior notes due 2012 shoot up, with one one pegging the bonds up three points at 28-29, although its subordinated 9% notes due 2009 were unchanged at 3-4.

That surge coincided with the announcement by the bankrupt Rochester Hills, Mich.-based auto systems manufacturer that it has appointed respected auto industry veteran executive David Szczupak as chief operating officer, effective immediately. He joins Dura from the Ford Motor Co., where he most recently served as Ford's group vice president of manufacturing. Szczupak joined Ford as chief engineer of Jaguar Cars in 1990. Before that, he served in engineering positions with U.K.-based Jaguar Cars Ltd. and with Holset Engineering.

Elsewhere in the autosphere, a trader saw Delphi Corp.'s bonds - which had previously risen several points on the bankrupt Troy, Mich.-based auto parts maker's announcement that it had booked over $3 billion in contracts for its steering-gear unit in the first part of the year - easing on apparent profit-taking off those gains.

He saw Delphi down about ½ to 1½ points across the board, with the company's 6.55% notes due 2006 off ½ point to 109.5 bid, 110.5 offered, its 6½% notes due 2009 off ½ at 109.75 bid, 110.75 offered, its 6½% notes due 2013 a point lower at 108.25 bid, 109.25 offered, and its 7 1/8% notes due 2029 off 1½ points at 109.75 bid, 110.75 offered.

Sea Containers better

Outside the automotive realm, the trader saw Sea Containers Ltd.'s bonds up 2 points on the session, but did not know why, with the bankrupt Bermuda-based railroad and maritime transportation company's 10½% notes due 2012 at 71 bid, 73 offered, its 10¾% notes due 2006 at 73 bid, 75 offered, up 3 points and its 7 7/8% notes due 2008 at 69 bid, 71 offered.

Technical Olympic firms despite payment demand

In a cooler section of the buying frenzy in distressed paper, Technical Olympic USA Inc. bonds were better even as the ongoing battle over the mezzanine financing for its Transeastern joint venture with The Falcone Group, TOUSA Homes, LP, escalated to a lawsuit filed by the banking group.

Technical Olympic's bonds were seen better by about ½ point by one trader, with the 7½% notes due 2011 at 84.5 bid, 86.5 offered.

In a press release Friday, Technical Olympic said Deutsche Bank, which heads the lending group for Transeastern, has filed a suit against the Hollywood, Fla.-based homebuilder seeking repayment of the mezzanine financing for TOUSA Homes, LP. On Oct. 31, Deutsche sent demand letters for payments in full on that debt.

While the statement from Technical Olympic was nothing new in the financing battle, the trader said that it may have eased some concerns about Transeastern filing bankruptcy. Earlier in the week, Technical Olympic's top executive also asserted at an industry conference that Transeastern was not considering a filing. A voluntary filing would put Technical Olympic and Falcone on the hook for the full $625 million of outstanding Transeastern debt, company officials have said.

"It's still pretty iffy as to whether they can pull out of this, if you ask me. Two days ago they said things should be worked out with Deutsche Bank. Two days later Deutsche Bank files a lawsuit," the trader said.

"This company is drawing down credit lines, cash is dwindling and their markets are shrinking while they are holding tons of houses unsold."

The lawsuit comes days after the Hollywood, Fla.-based homebuilder reiterated in a court filing that obligations related to financing the venture have not been triggered.

"Notwithstanding the lawsuits, TOUSA remains committed to working with the lenders to achieve a global resolution," Technical Olympic said in the press release Friday.

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