Allison deal prices, trades up, Biomet as well; Beazer up on restatement news; funds see $26 million inflow

By Paul Deckelman and Paul A. Harris

New York, Oct. 11 - Allison Transmissions Inc. successfully priced a $550 million issue of eight-year senior notes Thursday, high yield syndicate sources said. After they were freed for secondary dealings, the bonds firmed smartly, traders said.

Elsewhere on the new-deal scene, Biomet Inc. - whose recently priced three-part issue of new 10-year bonds has recently gained solidly from the anemic levels at which the bonds initially traded - decided to give investors even more of those bonds, pricing a quickly marketed $217 million three-part add-on deal, which was also seen trading mostly better.

In the secondary market, Beazer Homes USA Inc.'s bonds were seen up about 2 points across the board, even as the troubled Atlanta-based homebuilder announced that an internal probe had discovered that its mortgage unit had violated federal lending standards, forcing the company to restate several years of financials. But while that sounds like bad news on its face, the silver lining could be that the announcement ends the uncertainty about what the probe would find, and the restatements will quantify the extent of the company's problems - a key step in putting those problems to rest, once and for all.

General Motors Corp.'s bonds were seen riding in the fast lane, up several points as unionized employees ratified a new four-year contract that allows the automotive giant to sharply cut its retiree healthcare costs by establishing a trust fund for that purpose.

A high yield syndicate official, speaking well after the Thursday close, said that the market was up most of the day, but traded off late in the session with equities.

The source marked junk up a touch, and firmer overall.

And as trading wound down for the session, market participants familiar with the weekly high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif. said that in the week ended Wednesday $26 million more came into weekly-reporting funds than left them.

It was the third consecutive inflow those funds have seen, although it is just a fraction of the inflows seen in the previous week, ended Oct. 3 - $221 million - and the $465.8 million inflow recorded the week before that, ended Sept. 26. That latter infusion was the largest since a nearly $974 million inflow in early June 2005.

Those three inflows follow a lengthy string of outflows which had begun around mid-year, completely wiping out the roughly $1.6 billion cumulative inflow which had built up over the first half of the year and plunging the year-to-date fund flow numbers deeply into the red.

Even with the last three weeks of inflows, that 2007 cumulative total remains decidedly on the downside, at $1.383 billion, although that deficit is slightly smaller than the prior week's $1.409 billion.

However the funds which report to AMG on a monthly basis paint an altogether different picture.

During the most recent period those funds saw $33.2 million of inflows, extending their year-to-date infusions of cash to $5.024 billion.

That leaves the year-to-date aggregate flows, which tally both the weekly and monthly reporting funds, squarely in the black at $3.641 billion.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

LBO day for primary

Meanwhile in a bifurcated primary market-which has lately been seeing quick-to-market "corporate" deals from well-known issuers who are principally refinancing debt, and "LBO" deals which feature underwriters attempting to offload risk related to hung LBO-related high yield bridge loans - the LBO deals enjoyed a day in the sun on Thursday.

Allison Transmission placed the cash-pay part of its bridge, representing half of the overall $1.1 billion bond portion of the acquisition financing.

Meanwhile underwriters finished taking out the entire Biomet high yield bridge loan with a three-part $217 million tap of three issues that were priced less than three weeks ago.

Both transactions were reported to have gone well.

Allison prices cash-pays

Underwriters priced a $550 million tranche of eight-year senior cash-pay notes (Caa1/B-) from Allison Transmission at par to yield 11% on Thursday.

There was no official price talk. However market sources told Prospect News on Wednesday that unofficial guidance had the notes pricing at par to yield 11%.

Citigroup, Lehman Brothers and Merrill Lynch & Co. were joint bookrunners for the notes, which are part of the overall $1.1 billion of bond financing backing the acquisition of the company by Carlyle Group and Onex Corp. from General Motors Corp.

The bond financing also includes toggle notes, which are not in the market at the present time.

Allison Transmission is a Speedway, Ind., designer and manufacturer of automatic transmissions.

A portfolio manager from a high yield mutual fund spotted the par-pricing notes trading at 103½ bid, 104 offered mid-Thursday afternoon, and surmised that the deal must have gone okay.

Meanwhile a market source told Prospect News that the price talk on a $500 million block of Allison Transmission's term loan B was hiked by 75 basis points to 98.25 from 97.50 due to the strong momentum of the Allison cash-pay notes.

Biomet bridge taken out

Less than three weeks after it placed $2.348 billion in three tranches of 10-year high yield notes, Biomet returned to the primary to tap all three of those issues.

The $216.786 million quick-to-market transaction, led by left bookrunner Bank of America Securities, combined with the original issuance which priced on Sept. 24, takes out the entire Biomet $2.565 billion LBO bridge loan, according to an informed source.

Joint bookrunners were Goldman Sachs & Co. Lehman Brothers, Merrill Lynch & Co. and Wachovia Securities.

The transaction included a $56.242 million add-on to the 10% senior notes due Oct. 15, 2017 (B3/B-) which priced at 104.25, resulting in a yield of 9.333%. The original issue size was $718.758 million.

Thursday's transaction also included a $56.242 million add-on to the 10 3/8% senior toggle notes due Oct. 15, 2017 (B3/B-) which priced at 101.50 to yield 10.128%. The toggle notes have a cash-pay coupon of 10 3/8%. The coupon steps up by 75 basis points to 11 1/8% should the issuer elect to make an in-kind, as opposed to cash, interest payment. The original issue size was $688.758 million.

In addition underwriters also priced a $74.302 million add-on to the 11 5/8% senior subordinated notes due Oct. 15, 2017 (Caa1/B-) at 103.25 to yield 11.074%. The original issue size was $940.698 million.

No official price talk had been circulated on any of the three add-on tranches that priced on Thursday.

All three of the original issues were priced at par.

The issuer is a Warsaw, Ind., designer and manufacturer of musculoskeletal medical products.

A source close to the deal noted that the add-ons were obviously placed in a pretty good market, and commented that both the senior cash-pay notes and the senior toggle notes traded up in the aftermarket, while the senior subordinated notes were flat.

The official added that it took approximately two hours of marketing to get the drive-by add-on deal over the top, and added that investors who participated in the bridge got the first look at Thursday's tap.

Warming up

During the conversation with the sell-side official who commented on Thursday's Biomet transaction Prospect News suggested that the combination of the two "LBO" deals that were priced during the session pointed to a primary market that has regained momentum with remarkable swiftness, given the depth of the midsummer freeze in the credit markets.

In response, this sell-sider chose to pour some water on the fire.

The corporate deals led the way, and the market has stabilized a little, and has even rallied somewhat, the official reflected.

The new issue market has started to pick up steam and the LBO deals have started to hit, but with better structures than those that were floated back in May.

"There is definitely plenty of liquidity and appetite for some of these LBO deals," the source said.

"Things are definitely moving forward, but we're nowhere near where we were in May, because pricing has improved and structures are more reasonable.

"But the primary market is definitely warming up."

New Allison notes in high gear

When the new Allison Transmission 11% senior notes due 2015 were freed for secondary dealings, a trader quoted the bonds as trading at 103.75 bid, 104.125 offered in the early afternoon, well up from their par issue price earlier in the session.

Another trader saw the new notes doing even better at 104 bid, 105 offered.

With some degree of understatement, a trader who saw the bonds up about 3½ points from their issue level termed the move "a nice little jump on the first day."

The bonds, another trader said, "look like they broke around 103-104, and just stayed pretty much in that range."

Noting that a number of new deals have recently been trading solidly better from their issue levels, he said, tongue at least partly in cheek, "don't you know? Everything is great again. Everything is back to where it was," before the mid-year correction brought on by the subprime lending debacle and the resulting credit crunch.

Maybe that's not really the case - but at least some of those new deals are definitively doing better.

One such issue is Ryerson Inc.'s new 12% notes due 2015, which priced at par on Oct. 2 and which were seen having moved up at least 4 points since then. On Thursday, a trader reported still more movement in the Chicago-based metals distribution company's new bonds, seeing them up at least another point at 105 bid, 106 offered.

Another new deal which seems to have finally caught fire in the aftermarket, following a slow start, is Biomet's nearly $2.35 billion three-part mega-deal, which priced on Sept. 24, did not do particularly well initially - two tranches broke at levels well under their par issue price - but which has been moving steadily upward since early October.

And encouraged by the appetite that investors finally found for its paper, the Warsaw, Ind.-based orthopedic device maker brought its add-on issue to market Thursday. A trader saw the 10% senior notes trading at 105 bid, 105.5 offered when the deal broke, up from the 104ish level that the existing new bonds had been trading at on Wednesday, while the 10 3/8% toggle notes were at 102 bid, up from Wednesday's existing levels around 101.25. He saw the subordinated 11 5/8% tranche at 102 bid, 102.5 offered, although that was down a little from the 102.5 bid, 103.5 offered level that at least one trader had seen for the Sept. 24 bonds on Wednesday. However, another trader had seen those latter bonds actually trading closer to par on Wednesday.

The parade was apparently not rained upon by Biomet's announcement Thursday that it had received a letter from the Securities and Exchange Commission on Sept. 25 informing the company that the SEC is conducting an informal investigation regarding possible violations of Foreign Corrupt Practices Act in the sale of medical devices in a number of foreign countries by companies in the medial devices industry. Biomet said that it intends to fully cooperate with the probe.

That potentially bad news was probably softened by the other news which the company announced - it expects that net sales for the three months ended Aug. 31 were in the range of $550 million to $555 million - an increase of about 8% to 9% over its net sales of $508 million in the year-ago quarter. Estimated adjusted EBITDA for the quarter was in the range of $190 million to $195 million, about a 6% to 8% increase over year-ago adjusted EBITDA of $180 million.

Beazer up despite restatements

Back among the established issues, Beazer Homes' bonds were seen having gained around 2 to 3 points, with investors taking a positive view of the company's warning that it will have to restate some financials. A trader said that knowing the extent of the damages the company could face from irregularities uncovered in its internal probe is a comfort for investors, and so "shorts were trying to cover."

A trader saw the bonds up 1½ to 2 points, with the 8 3/8% notes at 81.25 bid, 82.25 offered, its 8 5/8% notes due 2011 at 82.5 bid, 83.6 offered, up from 80 bid, 81 offered, its 6½% notes due 2013 at 77.25 bid, 78.25 offered and its 6 7/8% notes due 2015 at 77 bid, 78 offered.

He ascribed the movement to investor relief that the other shoe had dropped - finally - in the company's internal investigation, which had been originally announced several months ago.

Another trader saw the 8 3/8s up 3½ points at 82 bid, 84 offered.

A market source saw the 8 3/8% notes having pushed up to 82.25 bid from prior levels around 80, with a number of big blocks of bonds having traded upward. Among the other Beazer issues, somewhat less actively traded, the 8 5/8s rose as high as 83 before coming off that peak to end at 82, up about a point, its 8 1/8% notes due 2016 were up almost 2 points at 81.5, and the 6 7/8% notes were seen up nearly 3 points to the 77.5 level.

Beazer's New York Stock Exchange-traded shares, meantime, were up 20 cents (2.01%) to $10.13.

Beazer said that it will its financial statements relating to fiscal years 2004 through 2006 and the interim periods of fiscal 2006 and fiscal 2007. The restatement is also expected to impact the financial results for fiscal years 1999 through 2003 and Beazer expects that it will reflect the impact of financial results for these prior years as a part of the opening balances in the financial statements for the restatement period. The company expects "the restatement's cumulative impact will likely be an increase in net income, but will reflect an expected decrease in net income for the company's 2006 fiscal year."

GM better on contract OK

Elsewhere, a trader saw General Motors' 8 3/8% notes due 2033 up a point at 92 bid, 993 offered, while another trader saw those bonds up a point at 92.5.

A market source saw GM's 7 1/8% notes due 2013 up 1¼ points at 94.75.

The rise was linked to good news on the labor front, as members of the United Auto Workers union approved a new contract that will allow GM to shave its retiree healthcare costs by transferring them to a newly set up trust fund, to be financed on a one-time basis by the company and administered by the union. Analysts anticipate several billion dollars a year of balance-sheet savings for the carmaker going forward.

American Media continues to gain

American Media Inc.'s 10¼% notes due 2009 were seen continuing to rise, up another 2 points Thursday to around the 96 bid level. The bonds have been steadily advancing from recent levels in the high 80s.

A trader said the Florida-based supermarket tabloid publisher "recently caught up with its financial filings - and the numbers it did report were better than expected."

Overall, a trader saw the widely followed CDX junk bond performance index up perhaps 1/8 point at 100 3/8-1001/2, although he said that at one point earlier in the day it had been as high as 100 7/8, "but sold off later on due to stocks," which turned lower late in the day and caused the benchmark equity indexes to finish in the red.

The KDP High Yield Daily Index was up 0.15 to 80.51, while its yield tightened 4 basis points to 7.71%.

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