Levi, Goodyear bonds firmer; Hanger falls on subpoena news

By Paul Deckelman and Paul A. Harris

New York, June 21 - Levi Strauss & Co. bonds were quoted higher Monday - with some market players attributing the rise to news that did not involve the San Francisco-based apparel maker, but two other companies altogether.

Also on the upside, Goodyear Tire & Rubber Co. got a boost from first quarter earnings results which it surprisingly released late Friday - just a day or so after having announced that the earnings would be delayed.

Little was happening in the new-issue sphere, apart from price talk emerging on several prospective deals.

A trader said that "on balance it was pretty quiet." With the end this weekend of the U.S. Open golf tournament - which seemed to have monopolized the attention of many traders and other participants last week - he simply said, in answer to the question of what are people using as an excuse for the slow market: "Good question."

He said the current state of market lethargy, coinciding nicely with Monday's official first day of summer, is "the culmination of a lot of different things happening here - people want to see what the end result is from this June 30 turnover of power in Iraq and they want to see what the Fed's going to do" - coincidentally, also on June 30, when the two-day meeting of the Federal Open Market Committee concludes.

With everything seeming to come to a head on June 30, "people are very leery about what could happen," either in Iraq or on the interest rate front. "So they're keeping their activity pretty much to a minimum. Nobody will really move the bid side, nobody will really move off the offered side, and everything is very flaky when you go to do something. So liquidity is less than wonderful."

Among the few names genuinely seen moving around, Levi Strauss was up, the trader said, in response to the news that Oxford Industries will buy Ben Sherman Ltd., a London-based sportswear maker, for $146 million. He said that such a deal is seen as positive for Levi, which is currently shopping its Dockers khaki clothing business around, with prospective prices heard anywhere from $500 million to $1 billion, because it "raises the bar" on what apparel making assets may fetch in the current market, and may mean Levi will get more than originally thought.

He quoted Levis short end bonds, such as its 7% notes due 2006, up three-quarters of a point at 94 bid, 95 offered, while its longer-dated paper, like the 12¼% notes due 2012, were a point better at 96.25 bid, 97 offered. Levi's 11 5/8% notes due 2008 were also a point up at 97 bid, 98 offered.

Another trader also saw the Levi 11 5/8% notes, "the one everyone was really buying," having pushed up to offered levels around 97.5 bid, up a point, while the 7s were half a point better at 93.75 bid, 94.75 offered, and the 12¼% notes also half a point better at 96.5 bid, 97.5 offered.

Goodyear gains

Goodyear, he said, "showed strength, with bonds up a point or two across the board."

He quoted the Akron, Ohio-based tiremaker's 7.857% notes due 2011 as having pushed up to 91.5 bid, 92.5 offered from prior levels at 89 bid, 90 offered, while its 8 ½% notes due 2007 firmed to 101.5 bid 102.5 offered from par.

Among other Goodyear notes, he saw "higher bids - but no real activity."

At another desk, Goodyear's 6 3/8% notes due 2008 firmed smartly to 93 bid from 90.5 previously.

Late Friday, Goodyear - which had earlier said that its first-quarter results would be delayed because it had taken the company so long to finally put together its fourth-quarter 2003 and year-end results, released earlier this month due to restatements - surprised market players with its announcement that its first-quarter net loss was $76.9 million (44 cents a share), versus $196.5 million ($1.12 a share). And on a continuing operations basis, excluding one-time items, Goodyear lost $29.8 million (17 cents a share) in the latest quarter, well below the year-earlier loss of $119.8 million (68 cents a share).

Goodyear attributed its smaller loss to cost-cutting, increased prices and improved sales of higher margin products.

It said that its turnaround plan remains on track. Goodyear is trying to bounce back from a stretch during which it lost some $2.3 billion in three years.

On a conference call Monday morning, the company's chairman, chief executive officer and president Robert Keegan said that the company was now "getting traction" in its plan to turn around its North American tire operations, helped by the introduction of major new products. Keegan told analysts and investors that the overall tire industry, which Goodyear leads, is experiencing strong growth and he expects it to continue.

Keegan cautioned, however, that Goodyear's high debt levels and unfunded pension obligations continue to be problems that need to be dealt with.

He outlined Goodyear's plans to refinance debt - especially that which is scheduled to come due next year - in order to lengthen maturities, including $680 million of U.S. revolving credit debt, $650 million of European bank facilities, both coming due in April, and $50 million of eurobonds maturing next June.

The executive said that Goodyear was still looking at asset sale possibilities but declined to release any more specific information at this time.

Revlon better

Elsewhere, Revlon's 12% notes due 2005 were heard to have firmed to 111 bid from prior levels at 109 after the New York-based cosmetics company announced plans to refinance the bonds (see Tenders and Redemptions elsewhere in this issue for full details).

However, a market source said its other bonds, such as its 8 1/8% notes and 8 5/8% notes, were unchanged at 98 bid, and 90.25 bid, respectively.

Hanger drops

On the downside, Hanger Orthopedic Group Inc. bonds and shares were lower Monday in response to the late-Friday announcement by the Bethesda, Md.-based provider of orthotic and prosthetic patient-care services that it had received a subpoena from federal prosecutors seeking records in connection with alleged billing irregularities.

After a local New York TV news broadcast aired charges last week that a clinician in one of its area centers had allegedly signed doctors' signatures on prescription forms, Hanger revealed that an employee had already informed the company and said it had mounted an internal investigation.

But that apparently wasn't good enough in today's post-Enron/WorldCom/Adelphia/Tyco environment of zero-tolerance for financial irregularities, real or presumed.

On Friday after the markets had closed for the week, Hanger announced that it had received a subpoena the previous day from the U.S. Attorney's Office for the Eastern District of New York, requesting that the company produce documents relating to the allegations. The federal probers are also seeking information concerning 14 of the company's patient care centers located in the New York metropolitan area. The Securities and Exchange Commission also requested information from Hanger relating to the allegations.

A market source quoted Hanger's 11¼% notes due 2009 - which last week had fallen as low as 101.5 bid from prior levels at 108.5, before working their way back up to 105 around midweek - as having dropped back to par bid Monday on the latest news. Its 10 3/8% notes due 2009 - which likewise had gyrated between 106.5 and 101.75 before settling in at 104 - tumbled to 99 bid on the latest developments.

Hanger indeed "was softer today," a trader at another shop, citing the subpoena news, even though at this point, "we don't really know how wide or how big a scope is expected."

He noted that the 14 downstate New York centers the feds are investigating account for a relatively small portion of the company's business - perhaps $12 million out of its $553 million of annual revenues.

Still, "it's definitely negative news, though not tremendously negative as far as the scope of it" is concerned.

Hanger's New York Stock Exchange-traded shares swooned Monday in reaction to news of the federal probe, nosediving $2.47 (20.91%) to $9.34, on volume of 1.63 million shares, nearly ten times the usual daily turnover.

Summer in the primary

Although the summer solstice occurred just before 9 p.m. Sunday night in New York, summer seems to have taken hold in the junk bond market several weeks ago, one sell-side source said late Monday at the conclusion of a generally quiet session in the high yield primary.

"The market is mixed to mildly positive with no real news to go on," the official said. "There were no economic numbers or anything else to go on today so the market is basically unchanged from last week.

"The calendar is a little lighter than average. New issuance is probably about average. Nothing priced today, but if you look at the average over the past couple of weeks it's in line with the average for all of 2004.

"We're still having outflows," the official added, making reference to the most recent report of weekly fund flows from AMG Data Services, which specified $126.5 million of redemptions from high yield mutual funds for the week ending June 16.

"But the accounts still seem to have money," the sell-side official continued.

"It's almost as though any point you can make, someone could just as easily make the opposite point."

Primary focuses on Kabel Deutschland

This week, the sell-sider said, the market is focused on the €700 million equivalent deal from Kabel Deutschland GmbH, structured as 10-year notes (B3//B+) to be sold in dollar and euro tranches via Deutsche Bank Securities and Morgan Stanley. Proceeds are slated to help fund the acquisition of former Deutsche Telekom assets.

Price talk on Kabel Deutschland, the sell-sider added, could come out as early as Tuesday morning.

Talk on three deals, two upsized

News circulated the market Monday that two offerings on the forward calendar are expected to price on Tuesday in sizes greater than originally anticipated.

Price talk is 7½% area on an upsized $500 million of 10-year senior notes (Ba2/BB-) from Pride International, Inc. The deal has been increased from $400 million.

The deal is expected to price midday Tuesday via Citigroup, Banc of America Securities and Deutsche Bank Securities.

Meanwhile German tourism group TUI AG upsized its offering of five-year floating-rate notes to €400 million from €250 million, while issuing price talk of three-month Euribor plus 210 basis points.

The deal is expected to price Tuesday morning London time via The Royal Bank of Scotland and WestLB.

And price talk of 97.75-98.50 emerged Monday on Range Resources Corp.'s $100 million add-on to its 7 3/8% senior subordinated notes due 2013 (B3/B).

The deal is expected to price on Tuesday via JP Morgan.

Buhrmann roadshow Tuesday

A United States-only roadshow is set get underway on Tuesday for an offering from Buhrmann NV of $150 million of 10-year senior subordinated notes, which is expected to price early in the week of June 28.

Deutsche Bank Securities is the bookrunner for the debt refinancing deal from the Amsterdam-based office products and graphic equipment company.

And finally, one deal did price during the Monday session, a private-private from Crosstex Energy LP.

The Dallas-based natural gas company placed $75 million of 6.96% 10-year senior secured notes with Prudential Capital Group, according to a company news release.

Crosstex will use proceeds to repay borrowings under its revolver.

Summer in junkland

With the mixed signals that the sell-side source mentioned above, Prospect News inquired as to whether the junk bond primary market is now fully suited up for the traditionally light volume of summer issuance.

"I think that's an apt way to describe this market," the official replied. "It's doesn't have the steam that it had three months ago but then again it's not dead.

"Unless there is a force that comes in and changes things I think we would just roll along at this pace, with a $3-$4 billion calendar, pricing around $3 billion a week, for the summer.

"But that's not going to happen," the sell-sider added. "Something will happen one way or another. There is volatility in the market.

"For the present, however, there just doesn't seem to be anything in the way."

Beat the Fed?

Prospect News followed by asking this sell-sider if, all things being equal, companies with deals now positioned on the forward calendar wouldn't prefer to complete those transactions ahead of the scheduled June 30 meeting of the Federal Reserve's Federal Open Market Committee, which is roundly expected to result in an increase of 25-50 basis points in the short term interest rate.

"High yield is less correlated with Treasuries than the investment-grade market," said the official. "Even if the Fed made a surprise announcement while a high yield deal was in marketing it wouldn't necessarily take the wheels off of the deal.

"It's unlikely that a 25 basis point increase would impact a 10-year non-call-five high-yield deal," the source added. "If the Fed raises 50 basis points I don't think that will necessarily throw high yield out of whack but will certainly send government traders into a frenzy.

"So absolutely it would be better to get a deal done before the meeting because that's just another risk you could take off the table. It would be better to do it the day before that meeting than the day of the meeting.

"But if other factors indicated that it would be best to run a roadshow through the day of the Fed meeting, I wouldn't kill the roadshow or shorten it just because of the Fed meeting."

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