Levi gains on probe results announcement; Perry Ellis, Buckeye Technologies price deals

By Paul Deckelman and Paul A. Harris

New York, Sept. 15 - Levi Strauss & Co. bonds - which had gotten badly cuffed around over several sessions last week - were back on the upside on Monday, after the San Francisco-based apparel maker announced that its audit committee had concluded an investigation of allegations that the company had engaged in fraudulent tax-motivated transactions and had apparently found nothing amiss.

In the primary market, fashion house Perry Ellis came to market with a $150 million deal and Buckeye Technologies Inc. priced a $200 million issue, both coming at their announced sizes and at the tight end of price talk.

Meantime, lawn and garden care company The Scotts Co. hopes to harvest some of the other kind of green stuff from junk market investors when it brings a new $200 million issue to market soon. Others hopping on the bandwagon included casino operator Pinnacle Entertainment Inc., which will roll the dice on a $130 million issue of 10-year bonds, and international music giant EMI Group plc, which plans a €300 million 10-year issue. Although the company said proceeds will be used it refinance debt, the news prompted speculation among industry-watchers that it may be part of an effort to snatch AOL Time Warner's music arm away from rival BMG, currently in acquisition talks with Warner Music.

Overall the week of Sept. 15 got underway with a Monday session that "felt fine," according to one sell-side official.

Buckeye Technologies sold $200 million of 10-year senior notes (B3/B+) at par, to yield 8½%, on the tight end of the 8½%-8¾% price talk.

Citigroup and UBS Investment Bank ran the books for the Memphis, Tenn.-based manufacturer of specialty cellulose and absorbent products.

And Perry Ellis International, Inc. sold $150 million of 10-year senior subordinated notes (B3/B-) at par to yield 8 7/8%. Price talk on the Miami-based branded apparel marketer's offering was 8 7/8%-9 1/8%. Hence the Perry Ellis deal, via Wachovia Securities and Merrill Lynch, came tight to talk.

Rosemary Trudeau, Perry Ellis International vice president of finance, told Prospect News when the deal launched that she expected the new notes to price in "the high-eights to low-nines," and come with a better yield than the 9½% print on the $57 million of notes that the company priced in March 2002 - a deal also run by Wachovia.

Meanwhile three dollar-denominated deals and one eurobond offering entered the pipeline.

Dallas-based wireless operator MetroPCS, Inc. will start the roadshow Tuesday for an offering of $150 million of eight-year senior notes (B3/CCC+), which are expected to price late in the week of Sept. 22 via Bear Stearns & Co. and UBS Investment Bank.

The roadshow begins Tuesday for Pinnacle Entertainment, Inc.'s offering of $130 million 10-year non-call-five senior subordinated notes which are expected to price on Friday. Bear Stearns is bookrunner for the Las Vegas company's off-the-shelf deal.

Also, an informed source told Prospect News that Chevy Chase Bank intends to raise $100 million in an offering of four million perpetual preferred shares (expected B+).

The Chevy Chase, Md. financial institution's offering, via Friedman Billings Ramsey and Legg Mason, is to be marketed via a conference call, and priced during the week of Sept. 22. Price talk is 8%-8½%.

And the roadshow starts Friday in Europe for EMI Group's €300 million of 10-year senior notes (Ba1/BBB-). An informed source said that the deal would primarily be marketed to high yield and crossover accounts.

Royal Bank of Scotland, Barclays Capital and Citigroup are joint bookrunners for the Rule 144A/Regulation S (with no registration rights) offering.

Scotts disclosed that it intends to bring $200 million of senior subordinated notes to the high yield, in a Monday tender announcement. JP Morgan is expected to emerge as the bookrunner, according to market sources. No timing or structure were heard.

The company will also obtain a $1.2 billion credit facility led by JP Morgan.

"The new issue calendar is beginning to build up and people are starting to pay attention to it," a sell-side official commented late in the session, adding that a perception seems to be emerging among investors that high yield at present presents "a nice balance of risk and return."

"There is still a lot of money in the market chasing deals," added the sell-sider. "I think we're dashing to a spectacular finish line for 2003.

"One factor to watch is the Treasury market. With the 10-year note trading, say, at 3.55%, there is really no other place except the high yield to put your money.

"And credit defaults are on a downward trend after spectacular defaults in 2001 and 2002."

Another sell-side source pointed to the session's two "tight-to-talk" transactions in the high yield primary and said: "The market felt fine today. Secondary trading was flat but the new issues were well-received."

Price talk was heard during the session on two deals, both of which figure to be completed by mid-day Wednesday.

Talk is 11¾% area on Huntsman LLC's $375 million of seven-year non-call-four senior secured notes (B2/B), expected to price on Tuesday via Credit Suisse First Boston and Deutsche Bank Securities.

And price talk of 10¾%-11% emerged Monday on Broder Brothers' $175 million of seven-year non-call four senior notes (B3/B-), expected to price late Tuesday or early Wednesday. UBS Investment Bank is the bookrunner.

A trader said that the new Quintiles TransNational Corp. 10% notes due 2013, which priced Friday at par, had firmed to 101.75 bid, 102.75 offered by the end of Monday's dealings.

He also saw Pathmark Stores Inc.'s new 8¾% senior subordinated add-on bonds due 2012, which had priced Friday at 102.5, as being offered around 103.5. Dobson Communications Corp.'s new 8 7/8% senior notes due 2013 - which priced Friday at par, pushed as high as 101.25 bid, 102.25 offered but then fell back to close Friday about 100.25, were heard around par bid, 100.75 offered on Monday.

Back among the established issues, the trader said, "not much was going on - it was really very slow."

Another trader chimed in that things were so slow, "I can't even make anything up." He noted that the policy-setting Federal Open Market Committee is scheduled to meet Tuesday "and people are using it as an excuse to not do anything."

The FOMC is generally expected to leave benchmark rates on hold at 1%, but financial markets will focus is on what the Fed committee will say about the competing risks of inflation or deflation.

"It was deadly quiet," the trader continued, although he added that he saw "a little bit of life" in Levi Strauss bonds after the company's audit committee announcement.

He quoted Levi's benchmark 11 5/8% notes due 2008 as having gotten as good as 94.5 bid from late-Friday levels around 92 bid, 94 offered. After that, he said, "they softened up a little," into a 94 bid by day's end.

Another trader said that 11 5/8s had gone home "really wide" on Friday at 92 bid, 95 offered, and then "tightened up on the bid side" to 94 bid, 95 offered by Monday afternoon.

He saw other Levi paper "up modestly," with its 12¼% notes due 2012 at 90 bid, 91 offered and its 7% notes due 2006 at 86 bid, 87 offered, both up about a point on the session.

Levi said that its audit committee had completed its investigation of the tax and related accounting issues raised in a wrongful termination suit brought by two former employees of the company's tax department, concluding that Levi's tax and related accounting positions "were reasonable and legally defensible and noted that in the course of its investigation it did not discover evidence of tax fraud."

Levi further said that the panel "also did not find evidence that information was improperly withheld from the IRS with respect to these issues in connection with IRS audits."

The issue of whether Levi Strauss had acted improperly arose following the filing in April of a wrongful termination complaint in the California state courts by two former employees, who charged that the blue-jeans giant had - among other things - "engaged in specified fraudulent tax-motivated transactions over several years and manipulated tax reserves to inflate reported income." The two ex-employees also alleged that the company's financial statements for several years violated generally accepted accounting principles and Securities and Exchange Commission.

Levi fought back first with a denial of any wrong-doing, and then with a cross-complaint against its accusers. In order to clear its name, the audit committee retained independent counsel, Simpson Thacher & Bartlett LLP, which in turn hired an independent accounting firm to consult on specified accounting issues.

Levi said that the committee further observed that during the period from 1994 through 2001, the company had established, maintained and released varying amounts of unspecified tax reserves. "These tax reserves were not supported by sufficient contemporaneous documentation that related the reserves to specified tax exposures. In reviewing the matter, the Committee noted that these tax reserves were communicated to and discussed with the company's outside independent auditors at the time they were created and maintained."

The Levi statement concluded that the company and the audit committee "are of the view that the handling of the unspecified tax reserves during these periods was not intended to, and did not, materially affect the company's SEC-filed financial statements."

Elsewhere, Northwestern Corp. sought Chapter 11 protection from its junk bond holders and other creditors - and its bonds actually rose, which one market observer said "didn't seem to make too much sense," quoting the Sioux Falls, S.D. -based utility operator's bonds as having firmed to about 83 bid, from prior levels at 76.

A trader, however, noted that when the senior unsecured bonds had been trading around the 74-76 area Friday, they were still trading with accrued interest; he saw issues such as the 8¾% notes due 2012 and the 7 7/8% notes due 2007 as having jumped to a level of 83 bid, 85 offered - but trading flat, or without the accrued interest, with the loss of the interest essentially balancing out much of the jump in the nominal price of the bonds.

Still, even with that cancellation effect, he said the bonds were higher overall because "you figure that all of the bad news is now out of the way." He also mentioned that the company had managed to obtain $100 million of debtor-in-possession financing and was continuing to operate normally. Additionally, he said, the company would likely continue paying interest on at least some of its securities - its secured first mortgage bonds. Quotes were not available on those securities.

A trader quoted Calpine Corp.'s bonds solidly lower from recent levels, pegging its 8½% notes due 2011 at 69.75 bid, 70.75 offered - well down from the late Friday level around 73.5 bid,74.5 offered that he had seen, and down as well from their opening Monday at 72 bid, 75 offered.

But no fresh negative news was immediately seen about the San Jose, Calif.-based independent power producer.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.