American Achievement prices PIK deal; L-3 up on takeover buzz after CEO dies

By Paul Deckelman and Paul A. Harris

New York, June 7 - American Achievement Group Holding the sole new junk bond to price Wednesday, with a restructured $150 million issue of PIK notes.

That was not the only tinkering going on, primaryside players said, noting that Libbey Glass Inc.'s prospective $400 million bond deal had been revamped into a two-part offering of five-year fixed-rate payment-in-kind notes and five-year floating-rate notes.

Pre-deal market price talk meantime emerged on Jacobs Entertainment Inc.'s pending eight-year offering of senior notes.

In the secondary realm, the sudden and quite unexpected death of L-3 Communications Holdings Inc.'s chief executive officer appears to have put the New York-based defense electronics manufacturer in play as a potential takeover target - and that sent its bonds up several points on the session.

The distressed-debt market was meantime hopping, with asbestos-challenged issues like Owens Corning and Armstrong World Industries Inc. initially trading upward, but then giving up those early gains and then some to end lower, as the proposed $140 billion national asbestos trust fund idea came under fire during Senate hearings Wednesday.

Also in distressedland, bankrupt automotive parts suppliers Delphi Corp. and Dana Corp. were each seen better, helped by reports that hedge fund tycoon David Tepper of Appaloosa Management LP seeks to raise $1.8 billion to solidify the Chatham, N.J.-based fund's investment in that sector.

Sell-side sources gave various marks on the broad market on Wednesday.

One high-yield syndicate official said that junk opened with a better tone and seemed to hold in, although it was quieter in the afternoon. Half an hour before the close the source said the broad market was slightly better to mixed.

Another high-yield syndicate source, at a different investment bank, said not long afterward that everything had been slow throughout the session, and marked the broad market down a quarter to a half, noting that the Dow Jones Industrial Average ended the session down more than 71 points. This source said that technology, wireless, gaming, pharmaceutical, chemical and cable names were all weaker in the afternoon.

"The sentiment is not that great," the source added.

American Achievement prices restructured deal

American Achievement Group Holding priced a restructured $150 million issue of 12¾% PIK notes due Oct. 1, 2012 (Caa2/CCC+) at 98.00.

The notes mature at a premium of par plus one-quarter of the coupon resulting in a yield of 13.556%, 105.6 basis points beyond the wide end of the 12¼% to 12½% price talk.

Goldman Sachs & Co. and Lehman Brothers were joint bookrunners for the dividend deal from the Texas-based scholastic products company.

The notes will pay in kind for the first five years, after which they will become cash-pay.

The notes were restructured from senior discount notes. The maturity of the notes was decreased from 10 years.

Junk buyers in Royal Caribbean

Meanwhile in crossover land, Royal Caribbean Cruises Ltd. priced an upsized $900 million split-rated two-part notes transaction (Ba1/BBB-) on Wednesday, according to an informed source who added that some high yield accounts participated.

The Miami-based global cruise vacation company priced a $350 million issue of 7¼% 10-year notes at a 227 basis points spread to Treasuries, tight to the Treasuries plus 230 basis points price talk.

The company also priced a $550 million tranche of 7% seven-year notes at a 210 basis points spread to Treasuries, again tight to price talk that had the seven-year notes coming 15 basis points inside of the 10-year notes.

Goldman, Sachs & Co., Barclays Capital, BNP Paribas, Morgan Stanley and Royal Bank of Scotland were joint bookrunners for the refinancing deal that was upsized from $700 million.

An informed source characterized the Royal Caribbean deal as a strong, upsized transaction in a choppy market, requiring a good amount of spread to get done.

The source added that the high-grade bond market has been something of a mess over the past couple of weeks, rather highly correlated with the equity markets - with the same kind of movements in corporate spreads, albeit not as severe.

Jacobs issues talk

Jacobs Entertainment Inc. talked its $210 million offering of eight-year senior notes (B3/B-) at a yield in the 9¾% area on Wednesday, with pricing expected on Friday.

Credit Suisse and CIBC World Markets are joint bookrunners for the debt refinancing deal from the Colo.-based gaming properties owner-operator.

Elsewhere Libbey Glass Inc. has restructured its $400 million notes offering.

The Toledo, Ohio, glass tableware manufacturer plans to offer $300 million of five-year senior secured floating-rate notes and $100 million of five-year senior subordinated secured PIK notes with warrants to purchase three percent of Libbey's outstanding common stock

The issue was restructured from single $400 million tranche of eight-year senior notes.

Market sources expect the deal to price before the end of the week. However no price talk was available as Prospect News went to press on Wednesday.

JP Morgan and Bear Stearns are joint bookrunners.

Hovananian holds steady

Back in the secondary sphere, the American Achievement and Royal Caribbean deals priced too late in the day for any kind of aftermarket activity, traders said. One saw Royal Caribbean's existing bonds down about half a point across the board in the wake of the new deal, with its 7¾% notes due 2018 at 98.75 bid, 99.75 offered. At another desk, the Miami-based cruise line operator's 8¾% notes due 2011 were seen down ¾ point at 108.25.

A trader also saw the new Hovnanian Enterprises Inc. 8 5/8% senior notes due 2017 continuing to trade right around par, where they had priced on Monday. The Red Bank, N.J.-based homebuilder's established 6 3/8% notes due 2014 were half a point better at around 90 bid.

L-3 bonds jump

But the big winner of the day was L-3, even as the company reeled from the news that its founder and chief executive officer, Frank C. Lanza, died suddenly late Tuesday at the age of 74. Lanza had been recovering from recent surgery on his esophagus.

His sudden passing - with no clearly designated successor waiting in the wings - raised speculation on Wall Street that L-3, the ninth-largest U.S. defense contractor, might be an attractive takeover target for a larger defense firm, such as Britain's BAE Systems plc - rumored earlier this year, even before Lanza's death, to be a possible interested buyer - or such U.S.-based rivals as Raytheon Co. or Lockheed Martin Corp.

That gave a solid bid to its bonds, with the 5 7/8% notes due 2015 seen up 1½ points at 93.5 bid, while its 6 1/8% notes due 2013 and 2014 were each seen up about the same amount, at 96 bid. L-3's 6 3/8% notes due 2015 were up slightly more than a point, also at 96, while its 7 5/8% secured notes due 2012 were seen half a point better at 103. L-3's New York Stock Exchange-traded shares climbed $3.44 (4.68%) to $76.93, on volume of 7.7 million shares, nearly eight times the usual turnover.

Delphi, Dana gain

Also seen heading upward Wednesday were the bonds of the bankrupt Troy, Mich.-based Delphi and bankrupt Toledo, Ohio-based components supplier Dana, given a boost by a Wall Street Journal report indicating that Appaloosa Management, the $4 billion fund run by Tepper that has invested in both companies, said in a letter to investors last week that it aims to raise as much as $1.8 billion to protect its positions.

A trader saw Delphi's shorter bonds, such as its 6½% notes due 2009, as having risen to 85 bid, 87 offered from prior levels around 82 bid, 84 offered, while its longer bonds, such as its 6½% notes due 2013, were at 81 bid, 83 offered, up from 79 bid, 81 offered previously.

Appaloosa has joined with several other hedge funds to form an ad hoc shareholder's committee that seeks to influence Delphi's restructuring - this after a court-appointed trustee nixed the big hedge funds participation in the official shareholders' committee. Appaloosa's rump committee has about 21% of the company's shares, compared with 11% for the official committee's holders.

And the Journal said that Tepper's fund plans to shore up its war chest so that it can potentially take an even bigger stake in both Delphi and Dana, by first tapping existing investors for the $1.8 billion. The paper said that if it could not obtain the full complement of additional funds that way, it would open the door to outsiders - which would constitute a radical departure from its usual way of doing business, since Appaloosa usually shuns new investors and only rarely accepts new money from existing clients.

The prospect that Appaloosa might take a larger stake in Dana sent that company's bonds up as well, with a trader seeing its 6½% notes due 2008 go up to 90 bid, 91 offered and its 7% notes due 2028 push up to 81 bid, 82 offered, each up two points.

However, other traders said that those early gains evaporated, although by how much was a matter of dispute. One said that Delphi and Dana both had risen three points on the initial Journal story, but then dropped back to end up perhaps a point on the session, quoting Dana's 6½% notes due 2009 going home up a point on the session at 88.5 bid, 90 offered.

Another trader said those Dana bonds, after gyrating around higher, ended unchanged at 87 bid 89 offered, while its 7% notes due 2029 likewise gave up their early gains to actually end down about a point on the day at 79 bid, 81 offered.

Asbestos names gain, fall back

The trader also saw the asbestos bonds rise early on, only to give it all back and close lower. He quoted Owens Corning's 7½% notes due 2018 as having moved up to 111 bid from 107 bid, 109 offered at the opening, before surrendering those gains and ending down a point at 106 bid, 108 offered. And he saw Armstrong's 6½% notes that were to have come due last year start at 81 bid, 83 offered, get as good as 83 bid, 84 offered - but then cough up all those gains and then some to end at 79 bid, 81 offered.

The Senate held a hearing Wednesday on the controversial plan to set up a $140 billion industry- and insurance-funded national trust mechanism to pay off the mountain of asbestos claims that drove Owens Corning, Armstrong and dozens of other manufacturers into bankruptcy.

But critics of the bill - which has been stalled in the Senate since February although Wednesday's hearing was on a revised version intend to address some of the concerns about the original proposal - took the opportunity to denounce the scheme as unworkable and the size of the fund as inadequate.

Sbarro higher on results

Elsewhere, a trader saw Sbarro Inc.'s bonds up on favorable first-quarter numbers, including a 6% year-over-year rise in same-store sales for the Melville, N.Y.-based operator of cafeteria-style Italian restaurants and food court locations. While the company posted a net loss of $2.475 million for the fiscal quarter ended April 23, that was less than half the year-earlier red ink of $5.741 million.

Sbarro's 11% notes due 2009 were up half a point at 102 bid, 103 offered. A market source at another shop saw those bonds half a point better at 102.5 bid.

The trader also saw Station Casinos Inc.'s bonds easier, in the wake of the Las Vegas-based operator of locally-oriented casinos having filed a mixed shelf registration that would allow potential future borrowings. Its 6½% notes due 2014 were off half a point at 95 bid, 96 offered.

Williams rises on Moody's upgrade

Williams Cos. Inc.'s bonds were better after Moody's Investors Service upped the Tulsa, Okla.-based pipeline operator's debt ratings, raising its corporate family rating a notch to Ba2 and its senior unsecured rating two notches, also to Ba2, with a stable outlook. The agency cited improvements in the company's core natural gas business, and expected growth in its operating cash flow. The senior unsecured ratings, which cover most of Williams' bond debt, got a two-notch upgrade to reflect the "virtual elimination" of the secured debt which sat above it in the capital structure, as Williams successfully paid that down.

Williams' 7 5/8% notes due 2019 were up 1½ points to nearly 103, while its 7 1/8% notes due 2011 also rose to that same area, a half-point gain on the day.

© 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.