Levi Strauss two-part deal prices; Dana keeps heading north

By Paul Deckelman and Paul A. Harris

New York, March 10 - Levi Strauss & Co. successfully brought a two-part dual-currency offering worth about $470 million to market Friday, high yield syndicate sources said. That closed out a week which saw another familiar junk bond name - Level 3 Communications Corp. - also come to market with a new two-part deal, while other issuers like Ball Corp., Alliant Techsystems Inc. and Serena Software Inc. priced deals as well. One deal, for Longview Fibre Co., was pulled during the week.

Looking ahead, price talk emerged on Quicksilver Resources Inc.'s planned offering of 10-year notes, which is expected to come to market as early as Monday.

In the secondary arena, Dana Corp.'s bonds continued their upside ride, with the gains apparently linked to market anticipation that the bonds will be needed to settle many credit default swaps contracts issued on Dana debt - a recently common phenomenon with bonds of major bankrupt companies.

General Motors Corp. bonds and the notes of its General Motors Acceptance Corp. financial arm were also better, continuing the momentum seen Thursday when the bonds rose on news reports - later disputed by the United Auto Workers union - that the UAW, GM and the latter's former subsidiary, Delphi Corp., were nearing a deal that would help the bankrupt Delphi reduce the heavy labor costs that it inherited from GM when it was spun off.

A sell-side source marked the broad high-yield market "a little weaker with Treasuries, which were off about five basis points," on Friday.

The source added that higher-quality and therefore more Treasury sensitive paper was off a quarter of a point to half a point while lower-quality junk held in a little better.

Levi Strauss prices two tranches

Meanwhile the primary market saw Levi Strauss price $470 million equivalent in two tranches.

However no roadshow starts were heard, and the active forward calendar total slipped to just half a billion dollars and change.

Friday's sole issuer was San Francisco branded apparel maker Levi Strauss, a familiar name in the junk bond market.

The company priced $470 million equivalent of high-yield bonds in two tranches (B3/B-).

The transaction included a $350 million tranche of new 10-year senior notes that priced at par to yield 8 7/8%, on the wide end of the 8¾% price talk.

Levi Strauss also priced a €100 million add-on to its existing 8 5/8% senior notes due April 1, 2013 at 103.50 - on top of talk - resulting in a yield of 7.771%. The original €150 million priced at par on March 7, 2005, so the Friday tap resulted in an interest savings of over 84 basis points.

Banc of America Securities and Citigroup were joint bookrunners for the debt refinancing.

A source close to the transaction told Prospect News that it went well, with good participation in both the new issue and the add-on.

Week's issuance well below $2 billion

Tallying the new Levi Strauss issue of 8 7/8% notes due April 2016, the market saw issuers raise $1.786 billion of proceeds in six dollar-denominated tranches during the week to March 10.

That tops the previous week's $1.235 billion in four tranches.

Earlier in the week a senior sell-side source told Prospect News that the new issue calendar could grow back to $3.5 billion or $4 billion per week by the end of March.

On Friday another sell-sider commented that equity sponsors are active, and added that there will be more big LBO financings coming.

At Friday's close year-to-date issuance stood at $24.57 billion, less than $1.3 billion behind the same period in 2005, during which issuers raised $25.84 billion of proceeds.

However in terms of deal volume, 2006 with 62 dollar-denominated tranches substantially lags the 96 tranches that had priced by the March 10, 2005 close.

Dwindling calendar

With Levi Strauss clearing its two-parter on Friday, the active forward calendar dwindled down to just $550 million of expected issuance in two trances from two companies.

On Friday Quicksilver Resources talked its $300 million offering of 10-year senior subordinated notes (B2/B) at 7% to 7¼%, with pricing expected on Monday via JP Morgan and Credit Suisse

The only other deal on the calendar is Angiotech Pharmaceuticals' $250 million offering of eight-year senior subordinated notes (B2/B).

That transaction, which is being led by Credit Suisse and Merrill Lynch, is also expected to price during the March 13 week.

Fridson parses rising-rate impact on junk

Although market sources have roundly blamed rising Treasury rates for the underperformance of junk during recent sessions, Martin Fridson, editor and publisher of Leverage World, the weekly publication of high yield strategy, writes in the most recent edition that history demonstrates junk is not the worst place to be when rates are on the rise.

Fridson recounts that Treasury yields surged this past week to their highest level (on 10-year paper) since the Federal Reserve began tightening short-term rates in 2004.

Conventional wisdom holds that such a rate environment renders high-yield a bad place to be. However history tells a different story according to Fridson.

Since the inception of the Merrill Lynch High Yield Master II Index, there have been seven years in which the 10-year Treasury yield has risen.

Of those seven, junk's spread versus Treasuries tightened in five instances. High yield bonds outperformed Treasuries six out of seven times.

He explains that there is a widely held misperception about the impact of rising rates on high-yield issuers. "An increase in the new-borrowing rate for speculative grade companies does not immediately flow through to the companies' income statements," Fridson writes.

"The companies' interest costs are largely locked in for several years through long-term debt instruments."

He summarizes that "The total return contest between non-investment grade bonds and Treasuries" comes down to two factors that favor junk:

1. On the income side, non-investment grade bonds prevail by virtue of their higher yields, and

2. As for price return, non-investment grade bonds benefit in an environment of rising interest rates from lesser interest rate sensitivity.

Levi edges up in trading

When the new Levi Strauss 8 7/8% dollar-denominated notes due 2016 were freed for secondary trading, they didn't go very far. One trader saw the company's new bonds inch up to 100.125 bid from their par issue price earlier in the session, but another saw them just straddling par, at 99.875 bid, 100.125 offered. The new 8 5/8% euro-denominated add-on notes due 2013 were not seen trading around.

Level 3's new bonds - which priced too late Thursday for any kind of aftermarket activity then - were seen having firmed in Friday's secondary dealings, with the Broomfield, Colo.-based fiber optic telecommunications network operator's new 12¼% senior notes due 2013 seen at 97.375 bid, 97.875 offered, up from their late-Thursday issue price of 96.618. Level 3's floating-rate notes due 2011 moved up to 97.75 bid, 98.25 offered from their 96.782 issue price.

Another trader saw the seven-year bond at slightly better levels, at 97.5 bid, 98 offered, but saw the five-years up more modestly, at 97.25 bid, 97.75 offered.

Dana's rise continues

Among secondary issues not connected with new-deal transactions, Dana Corp., a trader said, was "a little weird - it keeps going higher," despite the Toledo, Ohio-based automotive components maker's bankruptcy filing a week earlier.

"They would have been better off filing for bankruptcy years ago," he quipped.

He saw the company's 6½% notes due 2009 get as good as 76.5 bid, 77.5 offered, before coming back in off that high to finish at 75 bid, 76 offered, which he said was still up a point on the session. Those bonds had been quoted at that same shop at 66 bid, 67 offered on March 2 - the day before Dana sought Chapter 11 protection from its junk bond holders and other creditors.

Another trader saw Dana's 6½% notes due 2008 2½ points higher at 76.25 bid, 77.25 offered, while its 5.85% notes due 2015 were up two points and its two issues of 7% notes, due 2028 and 2029, were 2½ points better, at 75.75 bid, 76.75 offered.

Yet another trader pegged the bonds up two to three points on the session at 76 bid.

The first trader agreed with the suggestion that Dana's bonds were likely being pushed up by demand from holders of credit default swaps contracts - which function like insurance against a company's default. Should a bankruptcy or other event of default occur, investors or speculators who have bought those contracts are paid the par value of the bond upon its surrender to the contract seller. While most CDS contracts can be settled for cash - the contract holder pays a designated settlement price in lieu of the bond, and receives the difference between that price and par - some of the contracts require the actual delivery of the bonds, which causes a short squeeze as holders of that particular kind of single-name contracts scramble around trying to obtain the bonds.

Other factors may be at play, however; there have been some suggestions that despite its bankruptcy filing, and the industry-wide troubles that helped lead to it, Dana's bonds are seen having a good deal of value.

In a research note on Friday, an analyst opined that the bonds have been rising at least in part on investor speculation that they could see a pretty good recovery - maybe even as good as par.

Proponents of such a scenario point out that Dana has a lot of assets, including joint ventures, its overseas operations and its Dana Credit Corp. financial arm that collectively could cover the value of its debt should those assets be liquidated. The non-U.S. operations, in Canada, Europe, Asia and Latin America, are not a part of the domestic Dana bankruptcy filing.

GM up again

Also in that same automotive arena, participants were mostly seeing GM's bonds, and GMAC's, continuing to rise, even though it would seem that the auto workers union's statement Thursday that no deal was imminent regarding Delphi had let the air out of that balloon.

A trader pegged GM's benchmark 8 3/8% notes due 2033 at 74.25 bid, 74.75 offered, up a point on the day, while GMAC's 8% notes due 2031 were likewise up a point, at 93.75 bid, 94.25 offered.

A second trader saw GM "up a little," at 74 bid, while the GMAC 8s were also firmer at 93.5 bid, 94.5 offered. However, yet another trader disagreed, seeing the GM bonds at 72.5 bid, 73.5 offered and the GMACs at 92.25 bid, 93.25 offered, both unchanged.

GM's bonds, and Delphi's also, had each moved up several points on Thursday after The Wall Street Journal reported the parties were close to an agreement. Such a deal, should it come about, would have GM investors breathing a sigh of relief, even though it could mean GM might have to take some Delphi operations and their highly-paid workers off Delphi's hands the way GM rival Ford Motor Co. did for its former parts subsidiary, Visteon Corp., last year.

That's because if it can't reach a deal with the union and GM, Delphi has threatened to ask the bankruptcy judge overseeing its case to toss out labor contracts covering 34,000 hourly workers, which could in turn send those workers out on strike, disrupting the flow of parts to GM - easily Delphi's largest single customer - just as the giant carmaker is trying to dig itself out of the hole it found itself in last year when it lost $8.6 billion.

Even though the UAW made it clear in its statement that "nothing could be further than the truth" regarding media suggestions that a deal on Delphi was near, GM bonds and those of Delphi as well, while coming off their euphoric early-Thursday highs, still ended the day higher, and GM continued to firm Friday, most traders said.

Delphi rises further

Delphi's bonds, meantime, were also seen better Friday, with one trader seeing the Troy, Mich.-based automotive electronics manufacturer's 7 1/8% notes due 2029 a point better at 61.25 bid, 62.25 offered.

At another desk, a trader saw Delphi's paper all up about 1½ points on the day at bid ranges from 60.5 to 62.5.

However, a third trader said that "there was not much going on in Delphi today [Friday]. All of the action was yesterday [Thursday]. The bonds were pretty much where they ended off on Thursday, around 60. "

A trader saw Ford's 7.45% notes due 2031 up ¾ point at 72.5 bid, 73 offered, while its Ford Credit 7% notes due 2013 were half a point better at 88.5.

Outside of the auto realm, traders saw not much really going on.

Young steady after earnings

Young Broadcasting Inc.'s bonds were seen pretty much unchanged even after the release of 2005 fourth-quarter and full-year numbers by the New York-based television station group owner.

Those numbers showed a sharply wider net loss for each period versus a year-earlier due to factors ranging from a fall-off in political advertising in 2005, with no hot races going on in any of the 10 markets where the company owns stations, to a reduction in compensation the major TV networks pay to affiliates carrying their programming. Company executives, however, asserted on their conference call following the numbers' release that the "perfect storm of negativity" had passed and the company was poised to deliver better results this year (see related story elsewhere in this issue).

A trader said that Young's 10% senior subordinated notes due 2011 were at 88 bid, 89 offered, and its 8¾% subs due 2014 were at 83 bid, 84 offered, with "not really any change there." Another trader saw them at about that same level, but called them down ¼ point on the day.

Jean Coutu slips

Elsewhere, Jean Coutu Group's 8½% notes were seen ending the week at 91.25 bid, 92.25 offered, "down a couple of sticks" from 94.75 bid, 95.25 offered at the beginning of the week, while its 7 5/8% notes were at 97 bid, 98, down from 99.5 bid, par offered at the start of the week.

The bonds fell as the Montreal-based retailer, which operates most of the Eckard drugstore chain formerly owned by J.C. Penney Corp., asked its credit facility lenders for easier terms earlier in the week.

Cable weak

The trader also saw a tough week come to a close for cable operators, whose bonds were seen falling in response to the news early in the week that AT&T Inc. will be acquiring regional phone giant BellSouth Corp., creating a more formidable competitor as the cablers and the telecom providers square off and try to grab each other's traditional customers.

He saw Charter Communications Inc. as "the big loser," its 8 5/8% notes down a point on the day and five points on the week, while bankrupt cable operator Adelphia Communications Corp's 10¼% notes due 2011 were unchanged on the day but down two points on the week at 67.5 bid, 68.5 offered.

The more financially secure Cablevision Systems Corp.'s 8% notes due 2012 closed at 96.5 bid, 97.5 offered, down a point on the week.

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