Carriage, Forest City, Alliance deals price; Tower topples on guidance; funds see $446 million outflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 20 - Deathcare provider Carriage Services Inc. was heard by high-yield syndicate sources to have brought some life to the primary market Thursday with a successful offering of 10-year bonds. Also weighing in with new deals were Forest City Enterprises Inc. and Alliance Laundry Systems LLC.

In the secondary market, it was crash-and-burn time for the bonds of R.J. Tower Corp. after parent Tower Automotive Inc. issued bearish guidance. So did Calpine Corp., and the San Jose, Calif.-based power producer's bonds were lower.

And after trading had ended for the day, word percolated through the market that the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. showed $445.6 million more left the junk funds than came into them during the week ended Wednesday.

That followed a $265 million outflow seen in the previous week (ended Jan. 12). It was the second straight outflow, as the fund flows, considered a reliable barometer of overall junk market liquidity trends, have resumed the losing trend that had prevailed ever since mid-November, interrupted only by a $138.7 million outflow seen in the week ended Jan, 5, according to a Prospect News analysis of the AMG figures. During that time, outflows have been seen in eight weeks out of the last nine, totaling $1.284 billion, according to the analysis of the outflow data.

Outflows have been seen in two weeks out of the three since the start of the year, and now total $571.9 million year-to-date, according to the analysis. 2004 saw a total cumulative outflow of $3.26 billion, according to Prospect News's calculations.

The numbers measure only those funds that report on a weekly basis, and exclude distributions.

"It's not huge," one investment banker contended after the news had circulated.

"It's bigger than we have seen over the past several weeks, but it's the same trend that has been going on since late November.

"If we see a billion dollar outflow it might stick in peoples' throats."

The sell-sider added that the outflow does reflect what is happening in the high-yield secondary, with prices drifting lower since the beginning of the year.

"It's more of a symptom than a cause of what is happening in the secondary market," the source added.

The high-yield primary market saw $430 million price Thursday in three deals, including a $150 million drive-by from Cleveland, Ohio, real estate development and management company Forest City Enterprises, which completed a transaction for $150 million of 12-year bonds.

Forest City Enterprises priced a quick-to-market $150 million of 12-year senior notes (Ba3/BB-) at par to yield 6½%, on the wide end of the 6 3/8% to 6½% price talk.

Goldman Sachs & Co. ran the books for the debt refinancing and general corporate purposes issue.

Alliance Laundry, Carriage Services within talk

Elsewhere during the Thursday session Alliance Laundry Systems LLC, in conjunction with Alliance Laundry Corp., priced $150 million of 8½% eight-year senior subordinated notes (B3/CCC+) at 99.50 to yield 8.589%, toward the tight end of the 8½% to 8¾% price talk.

Lehman Brothers ran the books for the acquisition financing from the Ripon, Wis.-based commercial laundry equipment company.

And Houston-based death care company Carriage Services Inc. priced $130 million of 10-year senior notes (B2/B-) at par on to yield 7 7/8%, in the middle of the 7¾% to 8% price talk.

Merrill Lynch & Co. and Banc of America Securities were joint bookrunners for the debt refinancing deal.

That "remarkable" primary market

One sell-side source commented Thursday that given the sell-off in the junk bond secondary market, the primary market remains conspicuously open.

"It is somewhat remarkable that the primary market continues to favor the issuers," said the source, who spoke before the news of the $445.6 million outflow had circulated.

"Weak single-B credits and triple-C credits are still able to get it done," the sell-sider added.

However another sell-side source, speaking after the news of the outflow had circulated, suggested that the momentum could be shifting.

"Day by day investors gradually seem to be getting a little more clout, but they really haven't been able to exert it yet," the source commented.

Vedanta attracts assorted investors

Also pricing Thursday was Indian mining company Vedanta Resources plc's $100 million add-on to its 6 5/8% senior notes due Feb. 22, 2010 (existing ratings Ba2/BB+).

The add-on priced at 99.472, resulting in a 6.742% yield to worst.

Emerging markets, high-yield and investment-grade accounts took part in the deal, according to an informed source.

Barclays Capital ran the books.

The original $500 million priced at 99.739 on Dec. 10, 2004, resulting in a yield of 6.68%. The total issue size following Thursday's add-on is $600 million.

Talk on 3 deals

Meanwhile on Thursday price talk emerged on a trio of deals, with pricings scattered across the next three sessions.

Price talk of 7 1/8% to 7 3/8% emerged on Rayovac Corp.'s $500 million of 10-year non-call-five senior subordinated notes (B3/B-), expected to price on Friday via Banc of America Securities, Citigroup and Merrill Lynch & Co.

Moving to business expected to be completed in the early part of the Jan. 24 week, price talk is 10¼% to 10½% on Di Giorgio Corp.'s $150 million of eight-year senior notes (B2/B-), expected to price on Monday via Merrill Lynch & Co. and Deutsche Bank Securities.

And price talk is for a yield in the 9¾% area on Edgen Corp.'s $105 million of six-year non-call-three senior secured notes (B3/B-), expected to price on Tuesday via Jefferies & Co.

Carriage Services up in trading

Secondary investors were carried away by Carriage Services' new 7 7/8% senior notes due 2015, with a trader quoting the new bonds as high as 102 bid, 102.5 offered, well up from their par issue price earlier in the session. Another trader had the bonds going home at 101.875 bid, 102.375 offered.

The same could not be said for the new Forest City Enterprises 6½% notes due 2017, which ended at par bid, 100.75 offered, little changed from their par issue price. And several traders said that they had not seen the new Alliance Laundry Systems 8½% notes due 2013.

Tower down

Back among the established issues, Tower Auto was skidding out of control after the Novi, Mich.-based automotive components maker warned that its ongoing initiatives to improve liquidity "were adversely impacted by the length of customer shutdowns over the holiday season," in that the shutdowns were longer than expected. Cumulatively it said, those shutdowns will adversely impact the company's liquidity by as much as $40 million during the current 2005 first quarter.

Tower "was the poster child" for bad news Thursday, one trader remarked, quoting its 12% notes due 2013 as having tumbled to 67 bid, 69 offered from levels as high as 80 on Wednesday.

"Yikes," said another trader, who quoted the bonds at 67 bid, 68 offered, well down from 79.5 bid, 80.5 offered, while at another desk a market source had them only down about 10 points on the day, closing them at 69.5.

A trader called Tower "the casualty of the day," estimating that the bonds had moved as low as 66 bid from 78 on Wednesday. "Twelve points," he said, "that's pretty big."

Tower's New York Stock Exchange-traded shares likewise fell 64 cents (27.12%) to $1.72, on volume of 5.6 million, about triple the usual turnover.

Tower said that it continues to face "significant challenges in meeting its ongoing liquidity requirements" - especially in the wake of the elimination of early payment programs from the company's customers. For January, it said, those changes in payment terms will adversely impact liquidity by some $17 million.

To improve its liquidity situation, Tower recently announced that it had undertaken a number of initiatives, including the deferral of the $4.4 million dividend payment on the 6¾% trust convertible preferred securities issued by the Tower Automotive Capital Trust that would otherwise have been paid on Dec. 31, as well as its having obtained a $50 million accounts receivable securitization facility through GE Commercial Finance, which yielded net proceeds of approximately $44 million.

Tower said it was continuing to work with its customers and suppliers to address its liquidity issues and was also continuing to pursue a European factoring facility, the possible sale of certain equipment and other liquidity initiatives.

Auto sector lower

The Tower tumble dragged down other automotive names, which were already shaky on fears of a continued slowdown in the U.S. automotive market that those companies sell to. Weak quarterly earnings results this week from Detroit giants General Motors Corp. and Ford Motor Co. have added to investor angst. A trader noted that Ford's numbers showed that the Number-Two U.S. carmaker "isn't making any money making cars and trucks - only financing them."

Those soggy numbers raised "the fears of profit margins and squeezes and cutbacks," a trader said.

Among the names seen heading lower were Dura Operating, whose 9% notes due 2009 were seen down half a point at 95.5, while its 8 3/8% notes due 2012 lost a point to end at 102. Tenneco Automotive's 8 5/8% notes due 2014 dipped to 102.75 bid from 103.25, while its 10¼% notes due 2013 were a quarter point lower at 116.5.

A market source quoted Collins & Aikman Products Corp.'s 10¾% notes due 2011 as having fallen to 100.25 bid from 101.5, while its 12 7/8% notes due 2012 were half a point lower at 83.5.

A trader quoted Collins & Aikman's 103/4s off a quarter point at 101 bid, 101.625, while its 12 7/8s retreated to 84 bid, 85 offered from 85.5 bid, 86.5 offered. Another trader saw the senior bonds even lower, at 99.75 bid, 100.75 offered. The subs were "down a little, but not a lot, at 83 bid, 84 offered."

Calpine down on guidance

Also out with ominous guidance was Calpine, which cut its proved gas reserves by 6%, and warned that the reduction would widen its fourth-quarter loss.

Calpine "was weaker on the news," a trader said, quoting the company's 8½% notes due 2011 at 68.25 bid, 69.25 offered, down from 70.75 bid, 71.75 offered. He saw the company's 8½% notes due 2008 at 72.25 bid, 73.25 offered, down from 75.26 bid, 76.25 offered.

At another desk, Calpine's 8¾% notes due 2007 fell to 79 bid from 81.25.

Calpine announced that an independent, third-party engineer estimated at year end that Calpine had proved oil and gas reserves of 389 billion cubic feet equivalent (bcfe). That's about 25 bcfe below its previous projections.

Calpine further said that it would take a pretax non-cash charge of roughly $200 million in the fourth quarter in connection with its determination that the carrying value of certain gas properties in South Texas and offshore Louisiana exceeded the sum of projected cash flows.

Calpine said it therefore expects to post a fourth-quarter net loss on Feb. 24 of 48 cents to 56 cents per share, including the reserve impairment charge - a considerably wider loss than the 15 cents a share analysts were generally looking for. The company also said it expects EBITDA in the range of $200 million to $250 million in the quarter.

Delta lower on loss

Delta Air Lines Inc.'s bonds were seen down about a point or two after the Atlanta-based carrier reported a sharply wider loss for the fourth quarter and the full year, relative to year-earlier levels. It blamed the increased red ink largely on higher fuel prices (see related story elsewhere in this issue)

Delta's benchmark 7.70% notes due 2005 were seen at 87.5 bid, 88.5 offered, down from 88.75 bid, 89.75 offered, while its 8.30% notes due 2029 dropped to 39.25 bid, 40.25 offered from prior levels at 41.5 bid, 42.5 offered.

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