Beverly Enterprises, Plains Exploration price; Goodyear firm on earnings

By Paul Deckelman and Paul A. Harris

New York, June 18 - Beverly Enterprises Inc. priced a downsized offering of 10-year notes Friday while Plains Exploration also priced a 10-year offering, market participants said. On the minus side, ThermaClime Inc. - which had already downsized its planned two-part offering, was heard to have pulled the deal, citing market conditions.

In the secondary arena, Goodyear Tire & Rubber Co. - which had warned earlier in the week that it would have to delay its first quarter results - surprised many in the market by announcing those results late Friday, and they included a smaller loss for the Akron, Ohio-based tire giant. Goodyear bonds were heard to have popped in light end-of-day trading, and could go higher still following a scheduled Monday morning conference call.

Also on the upside was Levi Strauss & Co., with some participants suggesting the San Francisco-based apparel maker might be nearing a decision on its possible sale of its Dockers khaki clothing business.

The primary market closed the June 14 week with $465 million of business pricing in two issues, bringing the week's total to $2.565 billion in 10 tranches.

Meanwhile, a forward calendar that one sell-side source characterized as "pretty impressive," continued to build on Friday as three new roadshows headed for the starting line, each expecting the green flag early in the June 21 week.

$465 million from energy, healthcare

Two deals totaling $465 million priced during Friday's session.

Plains Exploration & Production Co. sold $250 million of 7 1/8% senior notes (Ba2/BB-) at 99.478 to yield 7.2%.

The Houston-based oil and gas exploration and production company's debt refinancing deal, via Lehman Brothers and JP Morgan, came towards the tighter end of the 7¼% area price talk.

The same bookrunning team, Lehman Brothers and JP Morgan, ran the books for a downsized $215 issue of 7 7/8% 10-year senior subordinated notes (B2/B/B+) from Beverly Enterprises, Inc., a Fort Smith, Ark. provider of healthcare services to the elderly.

The notes priced at 98.318 to yield 8 1/8%, in the middle of the 8%-8¼% price talk.

Elsewhere, LSB Industries, Inc.'s subsidiary ThermaClime Inc. announced in a Friday press release that it finds the present high yield market not to its liking.

Terminating its two-tranche $78 million deal, board chairman Jack E. Golsen stated: "Present market conditions, including higher than projected interest rates, are not conducive to achieve the structure of a deal that is acceptable to our board of directors."

Jefferies & Co. had the books for the deal from the Oklahoma City-based climate control products company, which was downsized to $78 million from $90 million on June 1 and at the same time restructured into seven-year fixed- and floating-rate tranches from the previously announced single 10-year fixed-rate tranche.

Forward calendar builds

Three roadshow starts set for the early part of the June 21 week were heard Friday.

Horizon Lines Holding Corp. will run a June 22-30 roadshow for an offering of $250 million of eight-year senior notes (B3) via Goldman Sachs & Co. and UBS Investment Bank.

The Charlotte, N.C. container shipping company will uses the proceeds as part of an acquisition financing.

Meanwhile a June 21-29 roadshow is set to run for MedCath Holdings Corp.'s $150 million of eight year senior notes via Banc of America Securities, Wachovia Securities and Citigroup.

The Charlotte, N.C.-based healthcare provider will use the proceeds to refinance debt.

And finally, a three day roadshow will commence Tuesday for Paramount Resources $125 million of 10-year senior notes (expected ratings B2/B). The deal is expected to price on Thursday June 24.

UBS Investment Bank has the books for acquisition financing deal from the Calgary, Alberta-based oil and gas exploration and development company.

Looking for more "buyout deals"

Two of the three roadshow starts mentioned above involve acquisition financings.

A sell-side official who spoke to Prospect News on Friday afternoon said that the trend in the new issue market is expected to shift increasingly toward acquisition financing and away from debt refinancing.

"Right now you are seeing a nice mix on the calendar between refinancings and buyouts," the official said. "That good mix is a healthy sign.

"However we think that buyouts are going to become a bigger part of the calendar than we have been seeing.

"Opportunistic refinancings might be out for a while, partly because rates right now are not attractive enough for companies to come and do straight-up refinancings."

Indeed a look at the primary market business scheduled to be completed during the June 21 week bears out this source's color.

In addition to the abovementioned Paramount Resources offering, the week's calendar includes the following deals, all or part of the proceeds from which are slated to finance acquisitions:

* Kabel Deutschland GmbH's €700 million equivalent via Deutsche Bank Securities and Morgan Stanley to help fund the purchase of former Deutsche Telekom assets Ish GmbH, Kabel BW and Iesy eKabel Hessen GmbH for €2.7 billion;

* Range Resources Corp.'s $100 million add-on to its 7 3/8% senior subordinated notes due 2013 (B3/B) via JP Morgan to partially fund the acquisition of the 50% of Great Lakes Energy Partners, LLC that Range does not currently own;

* Ames True Temper's $150 million of eight-year senior subordinated notes (Caa1) via Banc of America Securities to help fund Castle Harlan's LBO of Ames True Temper from Wind Point Partners;

* Pierre Foods' $125 million of eight-year senior subordinated notes (B3/B-) via Banc of America Securities and Wachovia Securities to fund an LBO by Madison Dearborn Partners,

* Wornick Co.'s $125 million of seven-year senior secured notes (B2/B+) via Jefferies & Co. to fund the acquisition of Wornick by Veritas Capital; and

* K2 Inc.'s $150 million of 10-year senior notes (Ba3) via JP Morgan and Banc of America Securities to help fund the acquisition of Volk Sports, Marker Group, Marmot Mountain Ltd. and to repay debt.

Hence, of the 12 deals that sources say will possibly price during the June 21 week, proceeds from seven will be used partially or totally to fund acquisitions.

Still cash to put to work

The sell-side source also told Prospect News that in spite of the continuing reported redemptions from high-yield mutual funds, as reflected in the weekly funds flow numbers published by AMG Data Services, the primary market continues to produce evidence that the buy-side still has cash to put to work.

The official pointed to the June 14 week's biggest deal, from Santa Barbara, Calif.-based acute care hospital company Tenet Healthcare Corp.: a massively upsized $1 billion issue of 9 7/8% 10-year senior notes that priced at 97.674 on Tuesday, June 15 to yield 10¼%. The deal was increased from $500 million.

"It got upsized to $1 billion with no problem and it traded up in the aftermarket," the sell-sider said.

"That would seem to indicate that there is enough liquidity out there."

Beverly edges up in trading

When the new Beverly Enterprises 7 7/8% senior subordinated notes due 2014 were freed for secondary dealings, a trader saw the bonds push slightly higher to 98.5 bid, 99 offered, up from their 98.318 issue price earlier in the session.

Another trader, however, saw the new bonds having gone not very far and having shown "not much pop," ending at 98.375 bid, 98.625 offered.

The first trader saw the new Plains Exploration 7 1/8% notes due 2014 having traded up to 100.75 bid, 101.75 offered, from their 99.478 issue price earlier in the session.

Goodyear rises late

Back among the established issues, the trader said that Goodyear "popped a little" after the company released earnings late in the session, although he said that with many people already gone by that time trading was extremely light and might not be representative.

He quoted Goodyear's 8½% notes due 2007 at 99.75 bid, 100.75 offered and its 7.857% notes due 2011 at 88 bid, both a point better on the day.

"We'll see what happens on Monday," when they have their conference call, he said, noting that the results that the company released Friday "were pretty positive," since Goodyear's shares were up 45 cents (4.77%) to $9.89 of New York Stock Exchange dealings of four million shares, about double the usual turnover.

Goodyear said 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.

Industrials better

The trader said other industrial names were better on Friday, with AK Steel Corp.'s 7 7/8% notes due 2009 at 91.5 bid, its 7¾% notes due 2012 at 89, and its 9% notes due 2007 at 97.5, all up half a point on the session. Fellow steeler Oregon Steel Mills' 10% notes were trading at 105, "the first time they've been there."

And he saw Lyondell Chemical Co.'s bonds up half a point across the board, except for the Houston-based chemical company's 9 5/8% notes due 2007, up a point at 105.

"That whole [chemicals] sector was very strong," he said.

Levi up on sale talk

Elsewhere, traders said that Levi bonds were doing better - possibly on speculation that Levi might soon announce some progress in its efforts to sell Dockers. By some estimates, such a sale could fetch the blue jeans maker as much as $1 billion in proceeds, although other analysts issued a more conservative estimate of proceeds in the $500 million to $800 million area.

Proceeds are expected to be used to pay down debt.

Levi's 11 5/8% notes due 2008 were seen having firmed to 96.5 bid from prior levels at 95. Its 12¼% notes due 2012 went to 95.5 bid from 93.5, while its 7% notes due 2006 advanced to 93.5 bid from 92.

A trader said Levi was "a little stronger - but on not much trading. You'd get some quoted markets higher, but no one would transact in them. It was like slow, slow torture."

Another trader agreed, calling it "extremely quiet - and it's been a brutal two weeks." He said the market was likely to see more of the same from now through June 30, the date of the planned handoff of authority form the U.S. military to Iraq's new civilian government - and the scheduled date for the next Federal Reserve meeting, which may provide some clue on how fast interest rates might go up.

"Nothing will happen till then. People are going to be even more lethargic than they are now - if that's possible."

Delta rises

Delta Air Lines Inc.'s bonds were firmer Friday on the news that the Air Line Pilots Association will head back to the bargaining table to talk with the troubled Atlanta -based carrier about its request for massive cost-cutting concessions the airline said it needs in order to stay alive beyond the next couple of quarters.

"There definitely were buyers out there for the shorter paper," a trader said, but even some long-term issues were up, like Delta's 8.30% bonds due 2029, which he quoted at 40 bid, 41 offered, up two points on the day.

Another trader said the 8.30s now seemed to be the Delta bond "that most people follow, because it's the lowest dollar-price bond," and he saw it likewise up two points, at 41 bid.

Although Delta's bonds, and its shares were both up on the news about the pilots - the shares rose 37 cents (6.30%), to 6.24% in New York Stock Exchange dealings - veteran airline analyst Ray Neidl, of Blaylock & Partners in New York was more cautious in assessing the news.

It was "no surprise that the pilots have to head back to the table," he asserted. "They've got to, otherwise the company will go into bankruptcy. And they were scheduled to go back anyway on Aug. 3 for the contract negotiations, so as I told people this morning, it's 'no big thing.' It will be a big thing when they realize that they do have to give the cost-cutting that the company needs. And this is not like your typical labor-management negotiations - the company really does need to cut their [pilot] costs, by my estimate, $850 million."

For more than a year, Delta had demanded a 30% cost, reduction from its pilots, the best paid in the industry, and the captains had countered with a 9% offer. Recently, the company - reeling from skyrocketing fuel prices and intense fare competition - increased its demand to a 34.5% cut, while the pilots upped their offer to about 13.5%

Neidl said the 34.5% Delta is asking for works out to about $800 million, and on top of that, he thinks it needs another $50 million or more in work rule savings.

They may not like it, but the pilots "are going to have to learn to live with it [the 34.5% concession]. I don't think they're going to receive it very well, but they're going to have to learn to live with it because the alternative [cost reduction] would be probably even more in bankruptcy and the possible loss of their pensions."

However, even though Delta is beset with competition from upstart low-cost carriers such as Jet Blue, Air Tran and ATA, he still believes that it can follow in the footsteps of industry leader AMR Corp. - which was staggering just a year ago but was able to wring enough concessions from its workers to remain a viable competitor.

Delta, he said, "is not going to get that low [cost parity with JetBlue and other low-cost carriers]. Their models are too different and their seniority lists are just too senior" to give the older airline the same kind of freedom to cut staff and lower costs.

While AMR was able to get total concessions from its employees worth $1.8 billion a year, "I estimate Delta needs $2.1 billion total, both wage concessions and other costs, to get down to a CASM [cost per average seat mile, a key measure of airline expenses] of 9 cents, to be competitive with American."

A trader said that Friday was unusually quiet. "Everybody is at the U.S. Open," he declared, with another trader also blaming the celebrated golf championship, which is not only on TV but which this year is being played on Long Island's East End, perhaps half a day's drive for Manhattan-based market participants who felt like playing hooky.

The second trader noted "There's always some excuses. I've been hearing excuses about slow business ever since the collapse of Russia in 1998, over five years ago. That is how long people have been saying it's slow.

"There have been good times in between, but even when it's in the best times, it's still felt slow. I guess that is reflective of our infinite capacity to write tickets - or our infinite desire to write tickets, at least."

A trader said that with a dearth of real activity going on, "the market closed the way it opened, with not a heck of a lot of activity."

Noting late Thursday's report by AMG Data Services that about $127 million more left high-yield mutual funds in the week ended Wednesday than came into them, he said that the outflow number was "benign. It doesn't mean [anything] - the market was half a point better across the board. Whether it's a lack of participants or liquidity, the market is definitely grinding stronger and stronger."

He said the junk market had "seen this before and we'll see it again. Hopefully, we'll have a few sellers come out and loosen things up a bit. It's just a one-way street right now - people looking for paper."

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