Collins & Aikman gains again after lender call, Williams up on tender; MTS sells $400 million deal

By Paul Deckelman and Paul A. Harris

New York, Oct. 8 - Collins & Aikman Products Co. bonds were heading higher for a second consecutive session, apparently buoyed by Tuesday's private lender call, during which management addressed some debtor concerns. Also higher Wednesday were the bonds of Williams Cos. Inc., which announced that it was tendering for $1.641 billion principal amount of its bond debt, and those of Lyondell Chemical Co., which plans to generate about $150 million of new cash in a stock sale. Cole National Group Inc. bonds were quoted at firmer levels after it received an unsolicited acquisition offer.

In the primary market, Russian cellphone operator Mobile TeleSystems sold $400 million of seven-year bonds, while Universal Hospital Services priced a $260 million eight-year offering.

Collins & Aikman's bonds were "up pretty strongly," a trader said, adding that "nobody knows what happened" on Tuesday's private lender call, "but the bonds were up big time."

He quoted the Troy, Mich.-based auto components supplier's 10¾% notes due 2011 as having firmed to 82.5 bid, 83, up about a point-and-a-half on the session, and pegged its more volatile 11½% subordinated notes due 2006 as having moved as high as 68 bid, 69 offered from prior levels at 65 bid, 66 offered.

At another desk, a market source only saw the 111/2s as hovering around the 65-66 area, but said that the 103/4s were actually as much as four points better, closing at 82.5

The company's bonds - which until the middle of last week had been firming smartly on market scuttlebutt about its efforts to line up new bank financing - suddenly shifted into reverse late last week after the Detroit Free Press reported that Number-3 U.S. automaker Chrysler would likely review most or nearly all of the $1.2 billion in supply contracts it has with Collins & Aikman, a Troy, Mich.-based supplier of interior components and other auto parts. The story quoted one unidentified Chrysler exec as blasting Collins & Aikman in no uncertain terms, calling it Chrysler's "worst supplier" by virtually any measure.

But while that caused the company's senior bonds to fall about 10 points, from the upper 80s down to about 78, and greased the skids under the subordinated debt's fall to around 60 bid from 78, the bond have been rebounding this week, helped by the private call with bank lenders and by the realization that while Chrysler accounts for almost one-third of Collins & Aikman's $4 billion in annual sales, the carmaker is likely to not do anything that might damage its planned rollouts of a number of new vehicles - such as dumping one of its 10 biggest suppliers and putting all of its contracts up for re-bidding. Standard & Poor's also weighed in, opining that while there are potential problems, including the possible loss of some contracts, it saw no reason to downgrade Collins & Aikman's ratings.

Elsewhere, Williams Cos. bonds were firmer on news that the Tulsa, Okla. energy company would tender for $1.4 billion of its 9¼% notes scheduled to mature next year, as well as $241 million additional face amount of several other series of bonds (see story on page one of this issue for additional details).

Lyondell Chemical Co. bonds firmed after the Houston-based chemical company announced plans to sell 12 million shares for $12.75, for total proceeds in the $150 million area, to be used to improve Lyondell's corporate liquidity.

A trader said that its 10 7/8% notes had "a pretty decent move" up to 93 bid, 93.75 offered from prior levels at 91 bid, 92 offered.

At another desk, a market source quoted the 9½% notes due 2008 firming to 94.25 bid, up from 93 on Tuesday.

Yet another trader, however, said that Lyondell was the "crazy bond" for the day. He saw its 9 7/8% notes moving as high as 98 bid, 99 offered, up around two points on the bid side, before retreating from its peak levels late in the session to close at 96.75 bid, 97.25 offered. He saw its 9 5/8% notes get as good as 97.75 bid, 98.25 offered before coming down to end around the same 96.25 area.

The trader said: "They ran up in the morning, a couple of big trades, and then, boom, boom, boom, they gave most of it [the day's gains] back."

He also saw Cole National's 8 5/8% notes due 2007 three points better, at 101 bid, after the Cleveland-based operator of the Pearle Vision and Sears Optical eyeglass outlets received an unsolicited offer to acquire the company for $19.65 per share.

"We'll see what happens," he said. "This is an unsolicited offer and is not a done deal. But the bond market traded like this was very good news for Cole, which it is; the $19 and change offer is a seven point premium above where its stock had been." Cole National stock closed Tuesday at $12.39, but rocketed up to $20.69 Wednesday, a gain of $8.30 (66.99%). NYSE volume of 2.7 million shares was about 50 times the usual activity level.

European entertainment giant Vivendi Universal said that it had definitively agreed to merge its U.S. entertainment unit into NBC. Its 9¼% notes due 2010 were seen up more than two points on the day at 116.5 bid.

A trader saw "a lot of activity" in the bonds of chemical maker Solutia Inc., with its 11¼% notes going to 98.375 bid from Tuesday's levels at 97 and its 6.72% putable bonds going to 98 bid from 96.5.

"Everyone overseas was telling me there's supposed to be an announcement of some sort soon - but I haven't seen it, he said.

He also mentioned that Benton Oil's 9 3/8% bonds had moved up to par. "I don't know if they're taking out the bonds."

Another gainer he saw Wednesday was Centennial Cellular, whose 10 1/8% notes moved up to 104.25 bid, 105 offered from 103 bid previously while its 10¾% notes were ahead about a point-and-a-quarter at 101.25 bid, 102 offered. "Everyone was scramblin'" he added.

"It wasn't that active a day," he concluded, "but some things moved."

As they have been doing throughout the Oct. 6 week market sources Wednesday attributed the dearth in primary market news events to this week's Deutsche Bank High Yield Conference, where the men and women who call the buyside-shots in the junk market are said to be congregating in Scottsdale, Ariz.

Late in the session the junk accounts, heard to still be well-healed in terms of cash that they need to put to work, discharged Universal Hospital Services from the new issue market with an extra $10 million, in a deal that priced at the tight end of talk.

And market sources reported that a significant number of junk bond accounts focused on Eastman Kodak Co.'s investment-grade deal, a low six-B $500 million issue that priced with at a spread of 300 basis points over Treasuries.

One of those sources was Louise Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund, who said a bookrunner had sent an official from the high yield marketing team on the road with the deal.

Kodak's new $500 million offering, incidentally, came with a 7¼% coupon, pricing at 99.879 to yield 7.265%.

Meanwhile, the only straight-out junk bond deal that priced during the session was from Bloomington, Minn. health care equipment and services provider Universal Hospital Services, which priced a slightly upsized $260 million of eight-year notes senior notes (B3/B-) at par to yield 10 1/8%. The deal was increased from $250 million.

The offering, which was led by Goldman Sachs & Co. and Credit Suisse First Boston, came at the tight end of the 10 1/8%-10 3/8% price talk.

Rieke told Prospect News that while the company's story may fall somewhat short of being wonderful, the 10 1/8% coupon these days is apt to catch an investor's eye.

"It's a company that is not going to delever," said the Waddell & Reed Advisors High Income Fund portfolio manager.

"All of their income is going to go into growing the business because it's a capital intensive business. From that standpoint I'm not crazy about it.

"But they have a big yield on it which kind of compensates you."

Despite the apparent low level of activity in the primary market on Wednesday, Rieke told Prospect News that the market appears strong to her.

"The secondary market is trading up anywhere from a point to a point-and-a-half," she said. "It almost feels as though money came into the market because somebody needed to put money to work."

Conceding that the recent high yield mutual funds flows numbers that have been reported by AMG Data Services have been relatively flat, Rieke expressed the opinion that nevertheless the buy-side remains notably liquid.

"That's why I think that in the last couple of days you've seen people out there trying to buy paper," she said. "And since they are willing to take it up a point or two, that smells to me like there is money coming in."

However, the portfolio manager said, recent offerings in the new issuance market have come in low-dollar amounts, a situation that tends to leave some investors heading home still hungry for paper.

"We're seeing a fair number of deals but they are small ones," she said. "You get a very small piece of it so you are still out there hunting around for something else.

"People probably still have a lot of high premium paper in their portfolios they would like to sell but they've got nowhere to go with it.

"We would like to see some good deals come along, where you could actually get some bonds, or go in the secondary and buy some."

When Prospect News brought up a couple of the new deal market's mammoths from the not-too-distant past - Nextel Communications' upsized $1 billion of 7 3/8% 12-year paper which priced on July 22 with a 7.4% yield and EchoStar DBS Corp.'s massively upsized $2.5 billion, which priced on Sept. 18 in tranches yielding 5¾% and 6 3/8% - Rieke indicated that the yields on both were far from sufficient to make a high yield investor jump for joy.

"Both of those are trading around the par-101 range," she said, "only because the coupons are so low and the spreads are so low to Treasuries that I almost think people are using that as a cash substitute.

"Those bonds really haven't gone anywhere," she added. "They have not really participated in the rally, like the higher-coupon stuff has."

A sell-side source, who heard this suggestion later in Wednesday's session, reasoned that Rieke's "cash substitute" hypothesis might stand up, particularly if - as has been rumored - hedge funds have been active in the junk market.

"Hedge funds are heard to have been coming into the bigger deals," said this official. "And of course it's not their primary objective most of the time to earn 6½%-7% interest on bonds. It's more of a short-term situation for them."

When Prospect News inquired of portfolio manager Rieke whether she anticipated any issuers bringing mega-deals to market in the foreseeable future she said: "There is the perception that Nextel has a lot more paper that they need to refinance. And Allied Waste said they wanted to take out their 10% notes, but they haven't really done anything about it yet. Maybe they have been out there buying them in the market. You can't really tell."

The same sell-side official quoted above said that this color, also, could not be discarded.

"There are stories of things that might be coming and there are situations that make sense because levels are still so tight," the sell-sider commented.

Meanwhile, Wednesday, in the realm of emerging markets corporate issuers, the stars were reported to have aligned themselves in storybook fashion for Russian mobile telephone giant Mobile TeleSystems Finance SA.

The company sold $400 million of seven-year senior unsecured notes (Ba3/B+) at par to yield 8 3/8% via Credit Suisse First Boston and ING.

Price talk on the deal tightened to the 8 3/8% area from the 8 5/8% area. And a buy-side source told Prospect News that the deal was six-times oversubscribed.

A sell-side official, who said that the deal was heard to have gone "gangbusters," suggested that the timing on MTS, coinciding as it did with Moody's upgrade of Russia's sovereign ratings to investment grade, could hardly have been topped.

"The sovereign rating just got back to investment grade for the first time since Russia's default in (August) 1998," said the official. "That's huge news.

"Moody's upgraded their rating for Russia's eurobonds to Baa3 from Ba2, because the government has made progress in reducing debt and controlling spending. That's a two-notch upgrade!

"And Moody's has upgraded the country's foreign currency long-term ratings six time since the default in 1998.

"So the deal has been going gangbusters in part because everybody got a healthy boost."

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