Alliance One deal prices; Dean Foods drops; airlines keep falling amid market woes

By Michelle Anderson, Paul Deckelman and Paul A. Harris

New York, March 2 - Alliance One International Inc. was heard by high yield syndicate sources Friday to have successfully priced a quickly-shopped $150 million offering of five-year notes. But the tobacco merchant's new bond issue was hardly smokin' when it hit the secondary market, traders said, struggling to stay around its issue price.

Also in the primary arena, Owens Illinois Inc.'s subsidiary OI European Group announced plans to sell €300 million of 10-year notes. Syndicate sources said the Toledo, Ohio-based packaging company's unit will hit the road Monday to market the deal to potential investors.

Also starting a roadshow Monday is Belden CDT Inc., which announced plans for a $350 million issue of 10-year senior subordinated notes.

Building Materials Corp. was meantime heard to have restructured its planned offering of $325 million eight-year notes and put out price talk on the deal.

In the secondary realm, Dean Foods Co.'s plan to pay out a debt-financed $2 billion special dividend to its stockholders left a bad state in the mouths of the Dallas-based top U.S. dairy processor's bondholders and at least one of the major credit ratings agencies; the company's 7% notes due 2016 were one of the most actively traded bonds on the session, and slid more than 3 points.

Also on the downside were the bonds of troubled airline operators Delta Air Lines Inc. and Northwest Airlines Corp., which were brought lower by what one trader called "the combination of a weak economy and high oil prices."

Chiquita Brands International Inc.'s bonds were seen lower, as the Cincinnati-based fruit and vegetable importer said it would be forced to delay the filing of its 10K annual report with the Securities and Exchange Commission.

Sources from both the buy-side and sell-side more or less concurred that recently high yield has been moving in tandem with equities.

A buy-sider said that junk was off by as much as ½ point on Friday, and down by as much as 2 points on the week.

The buy-sider also said that, depending upon the name, some recent issues were lower by ½ to ¾ point.

One exception, the source said, was the new US Oncology Holdings, Inc. toggle notes, which priced at 98.00 in a $425 million issue on Thursday.

The buy-sider said that the accounts appeared to deem that original offering discount, 98.00, appropriate, given the present turbulence in the market, and piled into the deal.

At the Friday close the buy-sider spotted the Oncology notes at 99.50 bid.

US Oncology's deal came as senior unsecured floating-rate toggle notes (B3/B-) with a six-month Libor plus 450 basis points coupon.

Alliance One prices $150 million

Meanwhile Friday's primary market session saw a single dollar-denominated transaction completed.

Alliance One International, Inc. priced its $150 million issue of 8½% five-year senior notes (B2/B) at 99.507 to yield 8 5/8%, at the wide end of the 8½% area price talk.

Wachovia Securities was the left bookrunner for the debt refinancing from the Morrisville, N.C.-based leaf tobacco merchant.

A source close to the deal remarked that it had gone well.

Biggest 2007 week thus far

Tallying the Alliance One deal, which generated $149 million of proceeds, issuance for the February-March crossover week came to slightly less than $5.23 billion in nine dollar-denominated tranches.

In terms of dollar-amount of issuance it is the biggest among the eight weeks that have thus far passed in the year 2007, topping the Jan. 15 to Jan. 19 week which saw just over $5 billion in 13 tranches.

In fact last week's issuance represents the highest weekly volume, in terms of dollar-amount, seen since the week of Dec. 11 to Dec. 15, 2006, which saw a whopping $12.2 billion in 26 tranches.

Friday's Alliance One deal boosted 2007 year-to-date issuance to $29.6 billion in 87 dollar-denominated tranches.

Considering that 2006 set a new record for yearly high yield issuance it might astonish some market observers to consider that by the March 2, 2006 close the year's issuance only came to just under $22 billion in 54 tranches.

Hence 2007 issuance to Friday's close is more than 25% higher in a year-over-year comparison.

Deal volume thus far in 2007 outpaces that of 2006 to the March 2 close even more dramatically: thus far 2007 has seen 87 dollar-denominated tranches priced whereas 2006 to the March 2 close had seen only 54.

Building Materials Corp. rejigs

Elsewhere in Friday's new issue market, sources told Prospect News that Building Materials Corp. of America has restructured its $325 million offering of eight-year senior secured notes (Caa1/B), eliminating a proposed fixed-rate tranche.

At Friday's close the offering was comprised entirely of floating-rate notes which are talked at Libor plus 475 to 500 basis points.

Deutsche Bank Securities, Bear Stearns, JP Morgan are joint bookrunners.

Belden brings $350 million

Meanwhile St. Louis-based Belden CDT, Inc. announced it will start a roadshow on Monday for its $350 million offering of 10-year senior subordinated notes.

Wachovia Securities will run the books for the acquisition, debt refinancing and general corporate purposes deal from the designer, manufacturer and marketer of high-speed electronic cables and connectivity products.

OI launches €300 million

OI European Group BV, an indirect wholly owned subsidiary of Owens-Illinois, Inc., will begin a roadshow in Europe on Monday for its €300 million offering of 10-year senior notes (B3/B/B) via BNP Paribas, Citigroup and JP Morgan.

Proceeds will be used to repay debt under the company's existing secured credit facility. In May, a subsidiary borrower of Owens-Illinois, Inc. intends to borrow under the secured credit agreement in order to repay the $300 million of Owens-Illinois, Inc.'s, 8.10% senior notes due May 15, 2007.

The week ahead

In addition to OI and Building Materials Corp., two other deals are parked on the forward calendar as business that is expected to be completed by Friday's close.

NSG Holdings LLC (Northern Star Generation Services Co. LLC) is in the market with a $514 million offering of amortizing senior secured notes due 2025.

Lehman Brothers and BNP Paribas are leading the offering of amortizing notes, which will have a 14.4-year average life and be non-callable.

And General Nutrition Centers, Inc. has an overall amount of $425 million of proposed issuance expected to price during the week ahead.

The deal, wihch is being led by JP Morgan, Goldman Sachs & Co. and Lehman Brothers, includes $300 million of seven-year senior floating-rate toggle notes (Caa1/CCC) and a $125 million tranche of eight-year senior subordinated notes (Caa2/CCC) which have already been placed, according to a source close to the deal.

New deals struggle in secondary

When the new Alliance One International 8½% notes due 2012 were freed for secondary dealings, a trader saw the bonds having moved to par bid, 100.5 offered from the 99.507 level at which the bonds had priced earlier in the session.

However, a second trader said that he had seen the new bonds "trade around issue [price], at 99.5 bid, par offered.

Among other recently priced issues, that trader saw Univision Communications Inc.'s bonds having retreated to 99.25 bid, 99.75 offered - down from the par price at which the Los Angeles-based Spanish-language media company's $1.5 billion of new bonds were heard to have been issued on Thursday, and down further still from the 100.75 bid, 101 offered price to which those bonds had initially moved later that session, when they were freed to trade. A second trader saw the new bonds Friday at 99.5 bid, 99.75 offered, which he said was down a full point from Thursday's close.

One of the traders saw Leucadia National Corp.'s new 7 1/8% senior notes due 2017 at 99 bid, 99.5 offered, down a point from Thursday's par pricing level.

Dean Foods debacle

A trader saw Dean Food's 7% notes down 3 points on the day at 98.5 bid, 99.5 offered, citing the dairy products company's plan for the big one-time dividend for the shareholders, to be funded using borrowings from a special facility.

"They're not planning to take out any debt with that money, so therefore it's a negative for current bondholders."

Another market source pegged the bonds down nearly 4 points on the day at 99.25, and indicated that trading in the issue had been brisk.

But while bondholders jeered, stockholders, understandably, cheered. The company's New York Stock Exchange-traded shares jumped $1.64 (3.61%) to close at $47.03, on volume of 9.1 million, about nine times the usual turnover.

Dean said that it had lined up $4.8 billion of financing via JPMorgan Securities, Bank of America Securities LLC and Wachovia Capital, consisting of a $1.5 billion five-year revolving credit facility, a five-year $1.5 billion secured loan and a seven-year loan.

It will use $2 billion of those proceeds to pay the special $15 a share dividend on April 2 to shareholders of record as of March 27. Dean executives said on a conference call that the company's finances were strong enough to handle the debt increase without putting the company's balance sheet at risk. Annual interest expense will increase to around $315 million to $330 million as a result of the debt increase. Although the company did not say what it had been previously, KDP Investment Advisers Inc. estimated the previous total to be $195 million.

Dean is already fairly highly levered - its ratio of debt-to-assets at the end of 2006 stood at about 50%, more than double the comparable ratio at Arden Hills, Minn.-based competitor Land O'Lakes Inc. The new borrowings to fund the special dividend will increase that ratio.

That has got Standard & Poor's concerned - the agency lowered its rating on Dean's debt to BB from BB+, although it said the outlook was "stable."

S&P said the downgrade "reflects a more aggressive financial policy, given the company's willingness to fund this large dividend with 100% debt financing, and a weaker financial profile."

Chiquita down as filing delayed

Also in that food processing sector, a trader saw Chiquita Brands' 7½% notes due 2014 down a point at 88.5 bid, 89.5 offered after the banana giant announced that it would delay the filing of its 2006 year-end financial report with the SEC. Another source called the bonds ½ point down, but saw them at 89.5.

The annual report was due on March 1, but Chiquita now says it expects to have it in by March 16. It cites the need to obtain an amendment to its credit facility relating to the treatment of a $25 million charge it recorded and certain other related costs in connection with a previously disclosed U.S. Justice Department investigation of its Columbian operation. Chiquita says it is currently in compliance with its credit facility financial covenants, but needs the amendment to deal with potential financial covenant non-compliance in future periods.

Airlines keep losing altitude

Also on the downside, a trader said that amid a generally lower market "the airlines seemed like they were most moved."

He saw Northwest Airlines' 10% notes due 2009 at 88.5 bid, 89.5 offered, down from levels around 91 bid on Thursday. He said that Delta Air Lines "also went on a ride," with the bankrupt Atlanta-based Number-Three U.S. air carrier's 8.30% notes due 2009 heading home at 57 bid, 58 offered after trading as low as 56.25 bid, 57 offered. But while "they traded a lot of bonds," they ended essentially little changed on the day, he said. Airlines were "very active."

The Delta bonds were one of the most actively traded issues in the market, with a source at another desk pegging them at 58 bid, down a point on the day. Northwest's 7 7/8% notes due 2008 were meantime seen to have fallen another 3 points on the session to 88 - this after having begun the week above par.

Another trader saw the Delta benchmark bonds at 57 bid, 58 offered, while Northwest's 8 7/8% notes due 2006 eased to 86.5 bid, 87.5 offered.

A key factor behind the slide in the airline bonds has been the recent rise in world crude oil prices - considered a barometer of future airline jet fuel costs. Although prices eased a little on Friday - light sweet crude settled down 36 cents to $61.64 per barrel on the New York Mercantile Exchange - they remain high by recent standards, having hit a more than two-month high Thursday.

A rout - or not?

Overall, a trader declared, "high yield got killed today," with the widely followed CDX index down 1 1/8 points at 101.5-101.75.

"I think you'll see a real rout in this thing on Monday," he warned, adding "not that it hasn't been a rout already - but it could really get ugly.

"I think there were a lot of people who thought this would blow over" - but it has not, he said.

As an example of a downsider, he said that Middletown, Ohio-based steelmaker AK Steel's 7¾% bonds ended at 101 bid, 101.5 offered well down from 101.75 bid, 102 offered on Thursday.

He also saw weakness in General Motors Corp. Its benchmark 8 3/8% notes due 2033 lost 1 1/8 points to end at 90 bid, 90.5 offered, while rival Ford Motor Co.'s 7.45% notes due 2031 dropped 1 7/8 points to 77 bid, 77.5 offered - all symptomatic of junk's weak tone.

Another trader, however, disagreed with the notion that the junk market was getting clobbered, calling it "an overstatement."

Friday's market, he said "was too quiet to be clobbered - there were not enough people beating each other up."

While seeing the tone "generally negative, down ½ point, I wouldn't say that they were clobbered."

The erosion "was only among some names here and there," he said.

"It was fairly quiet - about what you would expect," the trader continued. "If it were a Monday, you'd probably have a little bit larger selloff with the equities late in the day as they trailed off after 3 p.m. [ET] and closed down 120, but [on Friday], everyone seems to have checked out a little bit early, so that's why we didn't have any follow-through [on Friday's equity retreat] in high yield."

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