Biomet in three-part mega-deal, American Tower, Waterford also price; GM gyrates on UAW news

By Paul Deckelman and Paul A. Harris

New York, Sept. 24 - The high yield new-deal market continued to revive on Monday, as Biomet Inc. decided to take advantage of a suddenly improved market climate, selling more than $2 billion of new bonds in a three-part offering - a big deal which many market-watchers had thought was merely on the horizon for a likely pricing sometime further down the road.

Several traders quoted the new bonds mostly lower, while others said they had seen no aftermarket dealings.

American Tower Corp. brought an upsized issue of 10-year notes to market, while Waterford Gaming LLC also priced a new deal.

In the secondary market, General Motors Corp. paper was seen gyrating around on the news that the United Auto Workers union had struck the giant carmaker after days of talks last week failed to craft a new contract to replaced their now-expired pact. However, after having moved several points lower in morning dealings on the news, GM's widely traded 8 3/8% benchmark bonds due 2033 firmed off their lows during the afternoon to stand essentially unchanged on the day.

Standard Pacific Corp.'s bonds were seen a little better after the Irvine, Calif.-based homebuilder - like others in its sector hard-hit by the recent turmoil in the mortgage industry and affected by softness in the overall economy - announced plans to eliminate its quarterly dividend as a money-saving measure, and also announced plans to raise capital via a sale of new convertible bond.

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

The source marked the high yield index 5 basis points tighter on the day.

American Tower atop talk

The primary market sparked to life with two drive-by deals being priced during the session.

American Tower doubled the size of its 10-year notes issue to $500 million, and priced the notes on top of the price talk.

In other drive-by action, Waterford Gaming LLC priced a $128.5 million issue of seven-year notes.

Meanwhile news surfaced during the Monday session that late last week underwriters priced notes backing two of the more conspicuous "hung" LBO financings.

Underwriters priced, and are believed to be holding, the greater part of a combined total of approximately $3.35 billion of bonds involved in the hung high yield bridge financings backing the LBOs of Biomet Inc. and First Data Corp.

Meanwhile, both of the issues that priced in Monday drive-bys came with double-B credit ratings on either side of the slash.

American Tower's new 10-year notes are rated just one notch below investment grade by all three ratings agencies.

The Boston-based broadcast and wireless communications sites owner operator priced an upsized $500 million - increased from $250 million - issue of 10-year senior notes (Ba1/BB+/BB+) at par to yield 7%, on top of the price talk.

Credit Suisse and JP Morgan were joint bookrunners for the debt refinancing deal.

Waterford Gaming sells $128.5 million

Also coming with four Bs was Waterford Gaming, which priced a $128.5 million issue of seven-year senior notes (Ba3/BB-) at par to yield 8 5/8% on Monday.

There was no official price talk, according to market sources who added that the deal had been "quietly marketed."

Merrill Lynch & Co. and Deutsche Bank Securities were joint bookrunners for the deal.

Proceeds will be used to repay the company's existing $101.1 million of senior notes due 2012 that are currently outstanding, pay a $26.5 million dividend to the Waterford Group, the parent.

Biomet $2.348 billion priced

As the result of bonds that went unplaced and leveraged loans left unsyndicated in the wake of the mid-summer sell off in the credit markets the big underwriters are believed to be holding on their balance sheets more than $300 billion of risk in the form of funded bridge loans.

In the post Labor Day period there have been reports that some of that risk has been sold off at significant discounts.

Names include Allison Transmission, Alliance Boots and Laureate Education.

However most if not all of that risk has reportedly been related to first and second-lien term loan debt and mezzanine debt.

According to sources that began to change late last week when underwriters priced bonds backing two of the LBOs.

Last Friday Biomet priced $2.348 billion of 10-year high yield notes via Bank of America Securities.

The company priced $718.758 million of senior cash-pay notes (B3/B-) at par to yield 10%.

In addition Biomet priced $688.758 million of senior PIK toggle notes (B3/B-) at par to yield 10 3/8%. 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 company also priced $940.698 million of senior subordinated notes (Caa1/B-) at par to yield 11 1/8%.

No price talk was set for any of the tranches.

Market sources noted that the Biomet bonds were trading sharply lower than their issue prices on Monday.

One investment banker told Prospect News that the Biomet bonds were expected to ease because it is believed that the underwriter bought the entire deal and is subsequently selling the notes at a discount in the secondary market.

First Data prices $1 billion

Also pricing last Friday was $1 billion of the bonds backing the First Data LBO. The buyout, as it happens, was closed on Monday.

New Omaha Holdings Corp. (First Data Corp.) priced the nine-year senior PIK notes at par to yield 11½%, via Goldman Sachs.

According to a market source the deal was not broadly distributed and is possibly held entirely by the underwriter.

New Biomet bonds seen struggling

When the new Biomet bonds were freed for aftermarket dealings, a trader saw them lower - particularly the tranche of 10 3/8% payment-in-kind toggle notes. Those bonds had priced at par, but were first being quoted around 97 bid, 98 offered at mid-morning, "which was slightly better than they are now - but not much." By the afternoon, the bonds had further retreated as low as 96.75. "The PIK notes are the ones that are getting hit the hardest. The others are down - but not really bad."

The 11 5/8% senior subordinated notes were not much better off, at 97.75 bid, 98.25 offered, also well down from their par issue price. The 10% senior notes hung in pretty well, at 99.75 bid, 100.125 offered only a bit below their par issue price.

A second trader quoted the 10 3/8 s at 96.5 bid, 97.25 offered, pegged the 11 5/8s at 97.25 bid, 98.25 offered, and said the 10s were straddling their par issue price at 99.75 bid, 100.25 offered.

Another trader, however, said he saw "nothing there" in terms of trades in the bonds.

He also said that he had seen no aftermarket dealings in American Tower's new 7% notes due 2017.

GM gyrates on labor woes, but goes nowhere

GM's most widely traded issue, the 8 3/8% 2033 notes, were seen by a market source as having initially opened a little higher Monday, around 88, and actually got as good as a 90-plus level, before coming off that peak level to trade down to the 85-86 area. However, later in the session, the bonds began to move back up to around an 87-88 context, essentially unchanged on the day. Trading in the credit was described as active. A source at another desk pegged those benchmark bonds down around ¼ point on the session at 87

A trader quoted the bonds going home at 87.5 bid, 88.5 offered.

Another trader said the bonds ended down ¼ at 87 bid, 87.5 offered. He noted that the news about the UAW striking GM "was supposed to be bad news" for the carmaker, but the junk market was treating it pretty much as a non-story.

According to a market source, the company's 7 1/8% notes due 2013, after closing around 90 bid on Friday, likewise opened higher, around 92, actually got as good as around the 94 mark, before coming off that peak to settle in around 91, still up around a point. Activity in that issue was considered fairly busy.

But while the cash bonds seemed to firm a little despite the potentially unsettling strike news, even if they did not hold onto all of their initial gains, prices for hedging against the possibility of a default via credit default swaps contracts pushed upward, usually an indicator of increased market wariness about the underlying name. GM's 5-year CDS spreads, after having opened quoted around the 505/510 basis points region, were seen having widened to around the 550 bps neighborhood later in the session.

The strike by the UAW, which represents some 73,000 hourly employees at 82 plants across the United States, was the first nationwide strike against a major U.S. automaker since 1976, and the first against GM itself in some 37 years, when a walkout closed down all of the company's plants for 67 days.

The strike began when the UAW's 11 a.m. ET deadline for reaching an accord came and went. The union contract had actually expired about 10 days ago, but the two sides kept talking in the following days, including marathon talks Sunday and early Monday aimed at reaching a deal before the deadline. Although they had made some progress in those sessions, they remained far apart on others, particularly union concerns over job security for its members, GM, like the other major U.S.-based carmakers, has seen its sales shrink in recent years - the traditional "Big Three" domestic nameplates now collectively account for less than half of all new vehicles sold in the U.S for the first time ever. Like smaller rivals Ford Motor Co. and Chrysler Corp., it has reacted over the past several years by massive belt-tightening, closing or downsizing some facilities, and has cut its workforce by about one-third, largely through buyouts and offering retirement incentives to senior, higher-paid workers.

GM said in response to the strike that the bargaining involves "complex, difficult issues that affect the job security of our U.S. work force and the long-term viability of the company," which do not lend themselves to easy assurances of job security.

The union and GM had also been bargaining over the company's efforts to set up a healthcare trust, known as a voluntary employees beneficiary association, that would administer GM's healthcare benefits obligations to its estimated 339,000 retirees and surviving spouses. Such a trust, if established, would let GM move over $50 billion of unfunded benefit obligations off its books. It would let the company shave as much as nearly three-fifths off its $5 billion of annual healthcare costs, in return for a one-time $30 billion payment to set up the trust fund. The union said that the VEBA bargaining was not the proximate cause of the walkout.

Industry-watchers say GM has enough cars and trucks already at its dealerships to last 67 days, at its current daily sales rate.

"It all depends on how long they [i.e. the UAW] strike for, eight hours, eight days, eight weeks or eight months," a trader said. Eventually, GM will cave in and "the contract will be the same as it always has been. That's what GM does."

Standard & Poor's meantime said its ratings on GM were unchanged, despite the strike. "We still expect GM and the UAW to reach an agreement in the near future that will start to address the automaker's legacy cost issues," the ratings agency said in a statement. S&P rates GM's debt at single-B, with a negative outlook, indicating a rating cut is likely over the next two years.

While GM was spinning its wheels, its 49%-owned GMAC LLC financing affiliate's bonds may or may not have been going anywhere as well, depending on whom you were speaking to. At one desk, GMAC's flagship 8% notes due 2031 were unchanged at 97 bid, 98 offered; a trader said "the bonds "were higher" earlier before settling at the unchanged level.

However, at another shop, the 8s were seen ending up more than a point at the 97.5 mark.

A trader opined that "prior to last week," when GMAC moved up solidly along with some other mortgage-related names after the Federal Reserve interest rate cut (besides being a major automotive lender, GMAC is also a big mortgage player through its wholly-owned Residential Capital Corp. unit), "you could have bought short-end GMAC paper, January, February March, April, for [a price resulting in a yield of] between 8.50% and 8.75%," a trader said. "Now everyone feels fine about it, and now we're back to like a 7½% where you can buy that paper.

"So that had a little aberration for a couple of weeks, when you could buy the really inside-one-year GMACs cheap - but you can't do that any more. I suppose if you say you can buy GMAC paper outside of 7.5%, you might say 'that seems cheap' - but not as cheap as it was a week and a half ago."

Standard Pacific gains on dividend, convert news

Elsewhere, Standard Pacific's bonds were seen better, after the builder announced that it would sell $100 million of five-year convertible notes to raise capital, and would eliminate its quarterly dividend.

A trader said "they had news out, and it was good, but I didn't see any trading today. I would say they're up a couple of points but I can't verify it."

However, a trader at another desk saw its 9¼% notes due 2012 up 2 points at 72 bid, 74 offered.

Meanwhile credit-default swaps on Standard Pacific's bonds, used to speculate on the company's ability to repay its debt, fell 24 basis points to 874 bps, a sign of increased investor confidence in the company,

Apart from Standard Pacific, a trader said the homebuilders "looked like they were the same" as Friday, "or maybe a little stronger."

A trader saw Hovnanian Enterprises Inc.'s 8 5/8% notes due 2017 up 2 1/8 points at 85.5 bid, 87.5 offered. The Red Bank, N.J.-based homebuilder's 6 3/8% notes due 2014 were up ½ point at 82. Hovnanian has been rising steadily for a week now, spurred by both the Federal Reserve interest rate cut, which has helped the whole sector, and its own positive results from its recent "Deal Of The Century" sales promotion that let it make over 2,000 sales in a frenetic 60-hour weekend blitz.

Retail continues rise

A trader said "what did look like they were holding in pretty well were some of the retail names."

Among these was Sally Holdings LLC, whose 9¼% notes due 2014 and 10½% notes due 2016 have both been trading in a 102-103 context, each up a point from Friday's levels.

The Denton, Tex.-based beauty supply retailer and wholesale distributor's bonds "are both up 2½ to 3 points since last week. It was one of those names that consistently traded in a 'par-ish' [level] - and then everything fell apart, It went down to the mid-90s, but then has slowly inched its way back up." The trader said that it was in the mid-90s "for most of August, but then crawled its way back up this month, like a lot of these other [retailer] credits."

One such name was Claire's Stores Inc., whose 10½% subordinated notes due 2017 were still "north of 80," trading as well as 81.5 bid, 82.5 offered on Monday, while its 9¼% notes were hanging in at 90 bid, 90.5 offered. Those bonds have been firming smartly since the Pembroke Pines, Fla.-based merchandiser of inexpensive jewelry reported quarterly results - even though those numbers were only so-so at best, and included a 1.7% consolidated drop in same-store sales, a key retailing industry metric.

"I'm confused by that one," the trader said. "The earnings were not so good" that they would explain the bonds' recent rise. "The sub notes are back above the 80s now - and holding in there.

"The other retailers also seem to have gotten better in the last week or so, the last week a and a half or so - and they're holding in pretty nicely too. So it appears that we don't have a huge fear that we're going into a recession here."

However, at another desk, a trader remonstrated that with troubles in the automobile, housing, banking and real estate industries "we're running out of legs on the stool" that holds the economy up.

A trader said that the widely followed CDX index of junk bond performance was 98-981/4, up ¼ on the day. Among other market performance indexes, the Banc of America Securities High Yield Broad Market Index was up 0.25%, boosting its year-to-date return to 3.06%. The KDP High Yield Daily Index was up 0.15 on the day to 79.81, while the yield tightened by 4 basis points to 7.90%.

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