European calendar builds; Tekni-Plex rebounds; Delta holds firm; funds see $258 million inflows

By Paul A. Harris

St. Louis, Sept. 16 - "What's with Europe?!" an investment banker in New York demanded to know as Thursday's session passed the midpoint.

The source was referring to the continent's seeming dominance of recent high yield news.

In a session that saw no new issues price, two of the three new roadshow starts heard pertained to European issuers bringing euro-denominated deals.

In the secondary market, meanwhile, trading was reported to be muted by absences attributed to the Rosh Hashanah holiday.

However traders reported seeing activity in the existing bonds of Somerville, N.J., packaging products manufacturer Tekni-Plex, Inc. One trader told Prospect News that trading in the company's bonds was by no means a simple story.

Also traders saw airline paper taxiing purposefully while neither gaining or losing altitude - although Delta Air Lines Inc.'s bonds moved up sharply following its late-Wednesday announcement of a debt exchange offer before giving up most of the gains to end the day little changed to slightly firmer.

And late in the session one trader saw some of the existing bonds of Collins and Aikman Products Corp. give up a little ground.

Inflows approaching $1 billion

Late in Thursday's session market sources told Prospect News that AMG Data Services Inc. of Arcata, Calif. had reported an inflow of $258 million into high-yield mutual funds for the week ending Sept. 15.

It was the fourth consecutive positive flow reported. And although none of the four has gone north of the $300 million mark (leaving some observers to question the significance of the numbers) the inflow reported Thursday brings the net inflows over the four-week period to approximately $919 million.

One sell-side source, speaking in the wake of the news of the most recent inflow, insisted upon the significance of the trend, if not the week-by-week numbers.

"We were expecting a little more," said the sell-side official, pointing to recent strength in the secondary market.

"The net inflow number since late August, is now approaching $1 billion, with four consecutive weeks of $200 million-plus inflows.

"And that's only counting the high-yield mutual funds. The actual liquidity of the asset class could be materially higher."

The fund-flow numbers are considered a key barometer of overall junk market liquidity trends. But even with the nearly $1 billion of inflows over the past four weeks, the year-to-date fund-flows number remains mired deep in the red at $4.264 billion.

Primary with a continental flair

Away from the United States, there is a growing pipeline of euro- and sterling-denominated deals.

The forward calendar of euro deals actually in the market grew on Thursday to €835 million on Thursday, as two new prospective issuers climbed aboard.

The roadshow starts Monday for British steel-maker Corus Group plc's €500 million of seven-year senior notes (outstanding ratings B3/B-), which are expected to price late in the Sept. 20 week.

Credit Suisse First Boston will run the books debt refinancing deal.

ATU REI, a subsidiary of German auto parts retailer Auto-Teile-Unger AG, will start a four-day roadshow on Monday for €150 million of senior notes via Morgan Stanley and HSVB.

Proceeds will be used to help fund Kohlberg Kravis Roberts & Co.'s secondary buyout of the company.

Among market sources in Europe there presently seems to be a spreading belief that investors - much like their U.S. counterparts - are hungry for new paper.

As evidence they point to what was reported to be a massively oversubscribed €335 million issue of 10-year senior notes from Grohe Holding GmbH. The deal (B3/B-) priced at par on Wednesday to yield 8 5/8%.

Sources in Europe reported that the Grohe book was huge.

One source reported hearing that the deal was five-times oversubscribed.

Another European investment banker said that allocation ranges for the new Grohe paper were heard to be in the 15% to 30% range, implying that the book "was probably 4.5-times to 5-times oversubscribed.

"There's a lot of cash in the market," the source commented.

In the wake of this demand one European source said: "Everyone is going to hustle to push the pipeline through in the next month or so."

B&G Foods three-pronged approach

On the U.S. side Thursday one roadshow start was heard.

The roadshow starts Monday for B&G Foods Holdings Corp.'s $200 million of seven-year senior notes (B2/B), with pricing expected to take place during the week of Oct. 4.

Lehman Brothers will run the books for the Parsippany, N.J.-based food company.

Concurrently, B&G Foods Holdings Corp. plans to sell approximately $340 million of Enhanced Income Securities (EIS) and a new $30 million revolver.

Tekni-Plex with a twist

Beginning early in Thursday's session rumors began to move that the existing bonds of maker Tekni-Plex were not exactly holding their water.

Late Wednesday the company announced that it expects to report a net loss for the 12 months ending July 2, 2004. As a result, it is currently in default of its revolving credit agreement and senior secured term loan due 2008 as has breached the financial covenants.

Tekni-Plex added that it is currently in discussions with its bank group regarding a waiver of the defaults and amendment to these financial covenants.

But the debt had already taken a beating in the two sessions ahead of the announcement. The company's 8¾% guaranteed second lien senior secured notes due 2013 finished Wednesday down two points from Tuesday's close at about 91.5 bid, 93.5 offered while its 12¾% senior subordinated notes due 2010 swooned to 82 bid, 84 offered, a more than 10 point loss on Wednesday's session. But late Wednesday some in the market were forecasting the drop was overdone.

"As predicted the bonds kind of bounced off the lows," one trader told Prospect News late Thursday.

"There were buyers of the senior notes and buyers of the subordinated notes to sell senior notes," the trader added. "We had no sellers, just buyers."

The trader said that Tekni-Plex bonds closed around 91.5 bid, 93.5 offered on Thursday, after Wednesday trading activity during which "the senior notes may have traded at 91 or 92."

"We were working as good as a 93.5 bid or a 94.5 bid at one point, for decent size, this afternoon, and could not get an offering," the trader added.

"The subs are probably 86 bid, 88 offered."

Asked for an explanation of Thursday's positive movement in the Tekni-Plex paper the trader said "short covering and just valuation.

"I think KDP put out a report on it. At the end of the day even if these guys do $105 million for the year, which is what people are thinking, in EBITDA you put a 6-times or 6.5-times multiple on the thing and the senior notes are covered. And you're likely covered on the subs too.

"Unless you think this thing is a workout these bonds are cheap.

"I think a lot of people started shorting them. I think there were a lot of hedge funds and so forth that jumped in but did so at the lows. So a lot of guys are getting squeezed now as it turns around.

"I was told a couple of dealers got caught short, with the bonds moving higher."

Another trader had similar color on Tekni-Plex's bonds, citing the 12¾% senior subordinated notes due 2010 at 84 bid, 86 offered, up about three points in light trading.

He saw the 8¾% guaranteed second lien senior secured notes due 2013 at 91 bid, 93 offered.

Delta trades but little changed

Elsewhere airline issues, most conspicuously those of Delta Air Lines Inc., were seen moving around with no visible impact upon the altimeter.

Delta's bonds, in particular, were holding steady in the wake of the Atlanta airline's announcement of a debt exchange offer even though that news prompted ratings downgrades to the notes involved.

The short-dated Delta bonds, at least, traded sharply higher during the session before easing back by the end of the day.

One trader had the Delta 2005 notes trading up to 53, "but coming right back down."

Meanwhile, the trader said, the 8.30% due 2029 were pretty much unchanged on the day.

"The shorter paper was trading in the low 50s, and traded up, but gave it back toward the end of the day.

"They tried to take the long Delta paper higher, but it ended the day unchanged."

This trader also saw the existing bonds of Northwest Airlines and Continental Airlines "a little better bid for."

Another trader, commenting that "nobody was around" on Thursday, also had the Delta paper moving while neither climbing nor falling.

This source said that the Delta 7.70% notes due 2005 were better on the exchange news, closing Thursday at 48.50 bid, 50.50 offered, from 45 bid, 47 offered on Wednesday, up three points.

Meanwhile the source cited the 8.30s due 2029 at 26 bid, 27.5 offered, "which is off the high of the day, but up from Wednesday's 24.50 bid, 26.50 offered."

Another trader had the 7.7s of 2005 as high as 58 bid, 60 offered in the session before they dropped back sharply to close at 49 bid, 51 offered, still up about 5 points from Wednesday's close.

He had the 8.3s of 2029 pretty much unchanged, only about a half-point higher at 26.5 bid, 27.5.

Delta exchange seen doomed

While valuation levels on Delta's bonds appeared to be holding rather steady, many market sources said they really feel like the company's exchange offer is doomed to fail, mainly because it's too little, too late. Yet, at current levels for the bonds, some say they think it's a reasonable recovery rate even if the airline files bankruptcy.

S&P credit analyst Philip Baggaley said the Delta exchange offer would only be a net $875 million net debt reduction, which he said would clearly not make much of a dent in its total debtload of $20 billion.

"We don't like the DAL exchange - it's essentially too little, too late - and the company is going into the winter months when they will suck up a lot of cash," said Michael McNulty, a credit analyst with Context Capital in Connecticut.

Trading mostly quiet

But overall the session was seen as a quiet one.

"The market seemed a little softer in spots today," the trader commented. "The AMG number was $258 million in. The calendar seems to be building up a little bit for next week. So I think that there has been a little cash raising going on for that calendar.

"Today was really quiet so you did not really get a lot of dynamic in the market. The Jewish holiday kept people out.

"Things didn't seem softer necessarily but two-sided, whereas they had only been bid-for the last week or so."

Collins & Aikman slightly softer

Market sources also reported early Wednesday that weak demand that is reportedly squeezing U.S. auto makers was registering a negative impact on the bonds of Troy, Mich. auto interior manufacturer Collins & Aikman Corp., whose principal customers are the Big Three.

However late in the session a trader said that evidence of the softness was not easy to turn up.

"A lot of stuff feels softer in that sector," the trader said, adding that "some odd lots" of Collins & Aikman's 10¾% bonds due 2011 had a 102.875 bid. "They were 102 bid, 103 offered in the morning, to they're potentially weaker," the trader allowed.

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