Novelis up on acquisition news; Windstream, Jarden bring quickie deals

By Paul Deckelman, Paul A. Harris and Stephanie N. Rotondo

New York, Feb. 12 - Novelis Inc.'s bonds and shares were up sharply on the news that Indian metals company Hindalco Industries Ltd. has agreed to acquire the Atlanta-based aluminum products producer in a $6 billion deal that includes assumption of Novelis' debt.

Another gainer, also on merger and acquisition news, was Pinnacle Foods Group, Inc. after the Mountain Lakes, N.J.-based maker of such famous packaged food products as Duncan Hines cake mixes, Aunt Jemima pancake mix and Mrs. Paul's frozen fish products announced that it had agreed to be acquired by The Blackstone Group in a $2.16 billion deal that also includes the assumption of debt.

Another prospective takeover, on the other hand, is not meeting with bondholder approval, as Lear Corp. investors took that company's bonds lower in apparent dismay over plans to sell the Southfield, Mich.-based automotive components maker to a company controlled by billionaire investor Carl Icahn.

The primary market was meantime enlivened by the sudden appearance of two quickly shopped offerings - an add-on deal for Jarden Corp., which less than a week ago had tapped the junk market for an upsized issue of 10-year notes, and a half-billion-dollar drive-by offering for Windstream Corp.

A high yield syndicate official said that the broad market was flat on Monday.

Meanwhile in the primary market, as sources had predicted would be the case, drive-by deals continued to dominate new issuance.

Two issuers each priced a single tranche.

Both were done quick-to-market fashion, announcing the deals early in the morning and pricing them later in the same session.

Windstream a blowout

The biggest of Monday's pair of drive-by deals came from Windstream Corp.

The Little Rock, Ark.-based voice, broadband and entertainment provider priced a $500 million issue of 12-year senior notes (Ba3/BB-) at par to yield 7%, on top of price talk.

Merrill Lynch & Co. ran the books for the debt refinancing which one source close to the deal described as a blowout.

Jarden returns

Also driving through on Monday was Jarden Corp.

The Rye, N.Y.-based niche consumer products company, which priced $550 million of 7½% senior subordinated notes due 2017 at par last Wednesay, came with a $100 million add-on (B3/B-) to that issue on Monday.

The tap, which was also led by Lehman Brothers, priced at par.

An informed source told Prospect News that the add-on was driven by reverse inquiry, and added that there had been no price talk.

In their SOX

Since the beginning of February, as the new issue calendar dwindled, sources said that for various reasons the February through mid-March time frame was likely to see issuance lag.

The reason most often sited is that prospective issuers need to turn out fresh financial numbers in order to come into compliance with the financial disclosures provisions of the Sarbanes-Oxley Act of 2002, known in the vernacular as "SOX."

In the absence of a calendar, sell-side sources have been saying, select issuers might be depended upon to show up with quick-to-market deals, which could in fact make up a significant portion of new issuance through this "quiet period" while others were getting their SOX reports in order.

And indeed these sell-side sources have made an acurate call.

From Monday, Feb. 5, through the end of the the Monday, Feb. 12 session the market saw 12 dollar-denominated tranches of high-yield notes priced.

Of those 12, eight have been priced in drive-bys.

In addition to Windstream and Jarden, which were priced on Monday, quick-to-market issuers in that time period include:

• Level 3 Financing, Inc. with $1 billion in two tranches;

• DaVita, Inc. with $400 million;

• Claymont Steel, Inc. with $105 million;

• Griffin Coal Mining Co. with $75 million; and

• Minerva Overseas Ltd. (Industria e Comercio de Carnes Minerva Ltda.) with $50 million.

Two for the road

The market did see some growth in the new issue calendar on Monday as full roadshows got underway for a pair of sub-$200 million offerings, both being led by Jefferies & Co.

Key Plastics Finance Corp. started a roadshow for its $115 million offering of six-year senior secured notes (B2/B).

The Detroit-based supplier plastic components and functional assemblies to original equipment manufacturers of light vehicles will use the proceeds to refinance debt.

Also Concord, Calif.-based alcoholic beverage retailer Beverages & More, Inc. (BevMo) began a roadshow on Monday for its $100 million offering of five-year senior secured fixed-rate notes (CCC+) - a financing related to an acquisition.

Jarden deal up in aftermarket

When the new Jarden add-on deal was freed for secondary dealings, a trader saw the 7½% notes due 2017 at 100.25 bid, 100.75 offered, up from their par issue price earlier in the day.

Another trader, however, saw the new bonds get as good as 100.75 bid, 101.25 offered, before settling in a 100.5-100.75 context.

The new Windstream issue came too late in the session for any meaningful aftermarket activity

Rite Aid off as big bond issue, Eckerd challenges loom

A trader saw Rite Aid's existing bonds lower, pushed down by the reaction to the Camp Hill, Pa.-based drugstore chain operator's plans to swallow a hefty new dose of debt on top of obligations already on its books, and a ratings agency downgrade based on worries about a big acquisition Rite Aid is in the midst of making.

Rite Aid's 6 78% notes due 2028 were seen down a point at 81.5 bid, 82.5 offered.

The bonds fell after Moody's Investors Service downgraded the company's existing debt by a notch across the board, citing its concerns about increased leverage and the likely difficulty Rite Aid will have realizing synergies and savings from its pending purchase of the Eckerd and Brooks drugstore chains from Canadian retailer Jean Coutu Inc. It also assigned ratings to the upcoming tranches in line with that downgrade. The ratings agency dropped Rite Aid's existing and prospective second-lien senior secured notes to B3, and cut its senior unsecured notes to Caa2, both with a negative outlook.

It said that the downgrade "acknowledges Moody's opinion that . . . the company's credit metrics will meaningfully deteriorate and obtaining post-merger operating efficiencies will prove challenging given the weak store level revenue and profitability of a typical Eckerd store."

The agency further declared that Rite Aid's corporate family rating of B3 "considers weak credit metrics such as high leverage and limited free cash flow to debt, the company's aggressive financial policy in which leverage is increasing to acquire the poorly performing Eckerd chain, and the weak performance of the Rite Aid and Eckerd stores compared to best-in-class drugstore operators."

Also weighing down the overall rating, Moody's warned, "are the risks associated with the company's ongoing need to refinance its sizable debts in the capital markets, the high level of fixed charges (cash interest expense, capital investment, working capital investment) relative to EBITDA, and Moody's opinion that both Rite Aid and Eckerd have a store maintenance backlog."

Novelis get buyout boost

Novelis' 7¼% notes due 2015 shot up as high as 105.75, up more than 2 points from Friday's closing levels on the news of the impending acquisition by Hindalco, India's largest non-ferrous metals company. However, by the day's end, they had come off those peak levels, down to around 104.25.

Those bonds had begun the year hovering below 97, but had jumped from that mid-to-high 90s context to the 103 on Jan. 26, zooming more than 5 points that session as Novelis, which manufactures aluminum rolled products and recycled aluminum cans, announced that it was in talks that might lead to the sale of the company.

Novelis did not say at that time with whom who it was in talks, only making a vague reference to "various parties." But that announcement appeared to confirm news reports that the prospective purchaser was the Mumbai-based Aditya Birla Group, a conglomerate controlled by Indian tycoon Kumar Mangalam Birla. The Hindustan Times reported that Aditya Birla could make a bid of between $5 billion and $6 billion for the company, with an eye to combining it with the Birla-owned Hindalco.

Novelis' New York Stock Exchange-traded shares had jumped by nearly 24% during that same Jan. 26 session on almost 20 times their normal volume; investors relished the thought of getting out from under the company, which has turned in disappointing financial results since its 2005 spin off from Canadian aluminum producer Alcan Inc. Over the first nine months of 2006, it reported $170 million of losses.

Monday's definitive news that Novelis has in fact agreed to be acquired by Hindalco gave the shares another big boost, as they were up an additional 13.31% ($5.13) to close at $43.67 on volume of 25.8 million shares, more than 17 times the norm.

Under the terms of the deal announced Monday, Hindalco will buy Novelis for $44.93 in cash, or $6 billion total, including the assumption by the Indian company of $2.4 billion of Novelis debt. The transaction is expected to be completed in the second quarter.

Pinnacle pops on private-equity proposition

Also on the M&A front, the news that Blackstone Group had agreed to gobble up food processor Pinnacle sent the latter's 8¼% notes du 2013 up to 107.25 bid, 108.25 offered, which one trader called a 4 point rise on the session.

At another shop, however, while the bonds were seen to have risen even further - as high as 107.75, up 4 points from the close Friday, but by the end of the day they were quoted as having faded back down to a 103 context.

Those gyrations followed the announcement that Blackstone, a major private equity buyout specialist, will acquire the maker of Vlasic Pickles, Log Cabin Syrup and the Hungry Man and Swanson frozen dinners. It will pay $1.3 billion in cash to the current owners of the privately held Pinnacle, and absorb about $900 million of the latter's debt.

Delphi up on possible unit sale

The lure of M&A possibilities was also felt in the troubled automotive supplier sector, where Delphi Corp.'s bonds were seen better, with its 6.55% notes due 2006 up 1¼ points at 111.5 bid, 112.5 offered, likely in reaction to news reports indicating that billionaire industrialist Ira Rennert is in talks to buy the $1.3 billion vehicle interiors business of the bankrupt Troy, Mich.-based company.

The auto industry trade paper Automotive News - attributing its information to "a source with direct knowledge of the talks" - also reported that the tycoon's Renco Group Inc. and Delphi senior managers were considering other joint acquisitions, possibly including some assets of the bankrupt interiors manufacturer Collins & Aikman Corp.

Delphi and Collins & Aikman both declined comment on the story.

Delphi - currently undergoing a Chapter 11 restructuring that began in the fall of 2005 - is attempting to unload parts of the company that it does not see as part of its core operations. The latter category would include its electronics, entertainment, communications and safety products, but which would not include such areas as brake and chassis systems, interiors and steering systems.

It hopes to have inked deals to sell off the non-core businesses by the end of the year, and took a step toward that goal with its announcement last month that it expects to sell its steering-systems business to private-equity firm Platinum Equity LLC.

Meanwhile, Delphi announced last summer that it had retained Rothschild Inc. to market its interiors business, which makes instrument panels, cockpits, door modules and latches at 11 plants worldwide, including six in the United States.

Lear looks like a loser

But while talk of a deal for the Delphi unit helped to boost that company's bonds, it was quite a different story for Lear Corp. bondholders. Lear was perhaps the biggest mover in the sector, and one of the biggest in a generally calm high-yield market.

That was in contrast to Friday, when the company's bonds had not really moved much when it was announced that the auto seating and interior components maker had agreed to be acquired by a company controlled by billionaire mogul Icahn for about $5.3 billion - $2.8 billion for the company's shares, plus the assumption of $2.5 billion of Lear debt.

However, after having had a weekend to think things over, the company's bondholders - fearful of the prospect that Icahn will load Lear up with new debt to finance the buyout, traders said - showed their disapproval by taking the company's bonds lower, with a source at one desk quoting its 5¾% notes due 2014 as low as 86.25, down more than 3 points on the session.

Remy retreat continues

In that same sector a trader at another shop meantime saw Remy International Inc.'s 8 5/8% senior notes due 2007 - which had fallen about 3 points on Friday - down another point Monday to 82 bid, 84 offered.

He meantime saw its junior notes unchanged on the day - its 9 3/8% notes due 2012 at 30 bid, 32 offered and its 11% notes due 2009 at 33 bid, 35 offered.

The Anderson, Ind.-based automotive electrical systems maker's bonds had fallen about 3 points across the board Friday after the company announced that it had completed the previously announced sale of its light and medium truck diesel engine and component remanufacturing business conducted by Franklin Power Products, Inc. and International Fuel Systems, Inc. to Caterpillar Inc, for total cash proceeds of $153.2 million, including $3.2 million of an estimated post-closing purchase price adjustment.

When it announced how the sale proceeds were used, Remy said it had used $95.4 million to pay down outstanding revolving credit borrowings under its senior credit facility - indicating that the facility had been drawn down by a greater amount than expected. Traders said the greater borrowings had spooked investors, taking the bonds lower.

WCI gains on Goldman news

Outside of the autosphere, a trader saw WCI Communities Inc.'s 7 7/8% notes due 2013 up a point at 93.5 bid, 95 offered after the Bonita Springs, Fla.-based luxury homebuilder announced that it has hired Goldman Sachs & Co. to review the company's "business plans, capital structure and growth prospects."

WCI's chairman, Don Ackerman, said in a news release that the company's board "will evaluate the options that result from this process and determine whether to pursue any of those options based on their potential to deliver shareholder value."

WCI's move comes in apparent response to a recent move into the company by Carl Icahn - taking a break from his attempt to consolidate the auto parts industry, as noted, with investments in Lear, Federal-Mogul Corp. and Collins & Aikman. Icahn disclosed in a federal filing that he had built up a 14.57 percent stake in WCI, prompting it to adopt a shareholder's rights plan as a likely defense against a possible hostile takeover try, while at the same time now trying to shore up support for management among its other existing shareholders.

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