Loral bounces as assets auctioned; Hovnanian, Metaldyne price upsized deals

By Paul Deckelman and Paul A. Harris

New York, Oct. 20 - Bonds of Loral Space & Communications Ltd. were heard by traders to be orbiting around at higher levels Monday as the bankrupt New York-based aerospace company's satellite constellation was auctioned off - although late in the day, those bonds had come down from their peak levels somewhat.

In the primary market, a pair of upsized offerings were heard to have priced - Hovnanian Enterprises Inc.'s quickly shopped $215 million, and Metaldyne Corp.'s $150 million.

Sources warned toward the end of the Oct. 13 week that present market conditions in high yield can be expected to appeal to "opportunistic" issuers looking to take advantage of high investor demand for bonds and correspondingly comparatively low yields.

Forewarned is forearmed. So it was that the preponderance of news in Monday's primary involved quick-to-market deals.

Hovnanian upsized by $15 million what was heard in the morning to be a $200 million offering (Ba2/BB). And by the end of the session the deal was done on top of its 6½% area price talk.

Then Fisher Scientific International Inc. pulled the stopper on a $150 million add-on which it hopes will require only a short period of gestation: the company plans to complete the transaction on Tuesday.

"Everyone for the past several weeks has been hinting that there are add-ons and drive-bys to do," commented a sell-side official after the session had concluded.

"The deals people are now looking for are opportunistic ones, not 'pipeline'-kind of business.

"There are sales pitching going on," advised the sell-sider. "Some of the companies that are listening to those pitches can probably be expected to show up."

Hovnanian priced an upsized issue of $215 million of senior notes due Jan. 1, 2014 (Ba2/BB) at par to yield 6½%. Credit Suisse First Boston ran the books for Yardley, Pa. single-family home-builder's deal.

In addition to Hovnanian, Plymouth, Mich.-based automotive drive train parts supplier Metaldyne Corp. torqued up its offer to $150 million from $100 million.

The 10-year senior notes (B3/B) came at par to yield 10%. Hence, the Credit Suisse First Boston-led refinancing deal came inside of its 10¼%-10½% price talk.

Market sources point to upsized deals that price inside of price talk, such as Hovnanian, as evidence of high investor demand for new paper. Last Thursday the market eye-balled another such transaction as Parsippany, N.J. defense electronics supplier DRS Technologies, Inc. priced an upsized offering of $350 million of 10-year notes (B2/B) to yield 6 7/8%, upsized from $200 million and inside of the 7%-7¼% price talk.

In the wake of Hovnanian's quick-to- Hovnanian transaction, Hampton, N.H.-based scientific and laboratory products-maker Fisher Scientific also showed up with a drive-by that it plans to price on Tuesday.

Fisher is looking to sell a $150 million add-on to its 8% senior subordinated notes due Sept. 1, 2013 (B2/B+) via Deutsche Bank Securities.

Fisher priced its original $150 million deal on Aug. 6, an offering downsized from $200 million.

During that Wednesday session, in what was then reported to be a notably "choppy" new issue market, two of four deals that priced ended up downsized. In addition, two came wide of price talk, with a third, Fisher, coming at the wide end of revised talk.

That day saw Fisher price the notes at par, with the 8% yield coming at the wide end of the price talk that had been revised to 7¾%-8% from 7¼%-7½%.

In the secondary, Loral bonds had been bouncing around all day in anticipation of the auction, which saw Intelsat Ltd. face off against EchoStar Communications Corp. for control of four currently orbiting North American telecommunications satellites and a fifth scheduled to be launched early next year.

Loral had originally agreed to sell those satellites, and a sixth satellite which was in orbit but which later failed, to Intelsat for $1 billion. EchoStar, anxious to get a leg up on larger rival DirecTV, came forward with a $1.85 billion offer to buy the whole company (Loral also has satellite manufacturing operations, plus several other satellites aloft) and later, a $1.03 billion bid for just the five satellites sold Monday, both of which Loral rejected. Intelsat sweetened its $1 billion bid to $1.1 billion, prompting Loral to declare it the winner and to recommend that the bankruptcy court overseeing its reorganization accept the Intelsat offer.

Before the results of the auction were announced, a market source quoted Loral's 9½% notes due 2006 at 52.5, well up from 38 previously, although other sources said those bonds had gone home on Friday at 41 bid, 43 offered. At another desk, the 91/2s were seen at 49 bid, 51 offered, while the Loral Orion 10% notes due 2006 seen in the 83.5 bid, 85.5 offered area, up from 81 bid, 83 offered on Friday.

But a trader quoted the 10s as having firmed as high as 89 from prior levels in the low 80s, before dropping back later in the session - presumably after the results of the satellite sale became known and realization set in that the $1.1 billion winning bid was only incrementally higher than Intelsat's original offer to Loral. He quoted the bonds retreating off their highs to 85.5 bid, 87.5 offered.

Yet another trader, however, saw the whole paradigm for Loral's bonds lower than some of the other levels being quoted around. He estimated that the 10s had traded at 83.5 bid, 85 offered for most of the day, up from Friday's 79 bid, 81 offered - but then dropped back after Loral's 5 p.m. ET announcement that Intelsat had won to as low as 77 bid, 79 offered. He also saw the 91/2s rise to 49 bid, 51 offered during the day 42.5 bid on Friday - but then saw them go home Monday at 45 bid, 47 offered.

Elsewhere, a market source saw the bonds of Werner Holding Company Inc. quoted substantially lower in the wake of Friday's announcement by the Greenville, Pa.-based manufacturer of steel ladders that its biggest customer - Home Depot Inc., the huge home improvement supply retailer - will discontinue purchasing stepladders from Werner and is also reviewing its purchases of extension ladders, which Werner sells to the giant chain. That, in turn, caused Standard & Poor's to drop Werner's corporate credit rating to B from B+.

The source said that Werner's 10% senior subordinated notes due 2007, which previously had hovered north of par, were banging around as low as 92.5 on Monday.

According to data supplied by S&P, sales of stepladders to Home Depot accounted for 16% of Werner's 2002 net sales, or $82 million, and for the first nine months of this year Home Depot's Werner stepladder sales amounted to $46 million.

Combined step-ladder and extension ladder sales to Home depot account for fully 31% of Werner's revenues, and S&P warned that "it will be very difficult for Werner to replace these lost sales, as this is a mature market." Should Home Depot decide, after its review of extension-ladder suppliers, to also stop buying extension ladders from Werner, the ratings could be lowered still further, the rating agency warned.

Also on the ratings front, news hit the tape late in the day that Moody's Investors Service had downgraded Calpine Corp.'s senior implied rating to B2 from Ba3 and its senior unsecured notes to Caa1 from B1, citing the San Jose, Calif.-based independent power producer's weak cash flow and near-term outlook, although Moody's qualified its negative assessment with a stable outlook, reflecting its belief that Calpine will be able to refinance its maturing debt obligations in 2004.

The Moody's downgrade, released after 5 p.m. ET Monday, came too late in the day to affect trading, although a trader said it might have some impact Tuesday. However, he said that the Calpine debt had actually been weakening a little during the day, pegging the 8½% notes due 2011 as having opened around 75.75 bid, 76.75 offered but then having eased to around 75 bid, 76 offered by the close, before the Moody's news.

An observer opined that the Moody's move "was probably anticipated," and questioned how much impact it would really have - reiterating a stance often asserted by traders interviewed by Prospect News that the major ratings agencies are more often than not behind the curve rather than on the leading edge - in other words, essentially confirming after the fact what the market already believes anyway, rather than coming up with anything new and startling. He meantime saw Calpine's 8 5/8% notes due 2010 at 75, pre-news.

Great Atlantic & Pacific Tea Co.'s 7¾% notes due 2007 were quoted at 92 bid, 93 offered, down from their recent levels around 95, in the wake of Friday's report by the Montvale, N.J.-based operator of the venerable A& P supermarket chain that its fiscal second-quarter loss was $83.7 million ($2.17 a share). While that was narrower than last year's loss of $144.7 million ($3.76 a share), it still well exceeded Wall Street's expectations of around 88 cents per share of red ink. The results included a loss of $26.6 million from discontinued operations and a gain of $5.2 million related to the sale of assets - but losses from continuing operations still amounted to $62.3 million ($1.62 a share) in the latest quarter, versus $12.5 million (33 cents a share) a year ago.

A market source also saw A&P's 7.70% notes due 2004 and its 9 1/8% notes at around 90, "down a couple of points from last week" despite the company's announcement Monday that it will sell its Eight O' Clock coffee operation to a private investment firm for $107 million in cash and a $20 million contingent-value note in order to cut its costs and lower its debt.

Despite losses in specific individual names like Werner and A&P though, traders said the market's general tone was positive.

"Things generally keep moving up, amazingly," a trader said. "I keep asking myself just how high they can go?"

He saw "a lot of stuff unchanged to up half a point or so," including cosmetics maker Revlon, whose 8 1/8% notes and 9% notes "just keep moving up," ahead half a point Monday to 73 bid, 73.5 offered, while Levi Strauss & Co. was also better, its 11 5/8% notes due 2008 moving up to 83.5 bid from 82 bid, 82.5 offered Friday.

At another desk, someone agreed that the San Francisco-based blue jeans maker's bonds - still recovering from its recent admissions to the Securities and Exchange Commission that it had overstated earnings in 2001 by $26 million because of accounting errors on its 1998 and 1999 tax returns - were "moving up a couple," the 11 5/8s at 83.5 bid, up from 81.25 on Friday, and its 12¼% notes due 2012 at 81.5, up from 79.25.

Dan River Inc. bonds, which had swooned last week down to the lower 30s from prior levels in the upper 70s after the Danville, Va.-based textile company said it was talking with bondholders about a debt restructuring, remained quiet Monday, languishing in a 31-33 bid context.

And Collins & Aikman Products Co.'s 11½% notes due 2005 were seen unchanged at 76.5 bid, 77.5 offered, while its 10¾% notes due 2011 held steady in the mid-80s. The Troy, Mich.-based auto components maker's bonds have recently gyrated on speculation it might lose some or all of its $1 billion of supply contracts with Chrysler, partly offset by news that Ford had commissioned it to supply interior components on Ford's new Futura model.

A trader, noting the generally firm tone in the secondary market, noted that an article in this past weekend's Barron's had called many names overvalued - and he agreed with that assessment.

"Some Ba1/BB stuff is trading yields 150 (basis points) over governments - and that's ludicrous," he flatly declared. "Things are going to soften up - but there was nothing today."

© 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.