SBA, Six Flags, Simmons in forefront as calendar builds; Levi slides as turnaround firm comes aboard

By Paul Deckelman and Paul A. Harris

New York, Dec. 1- The high yield market, back from an elongated Thanksgiving holiday break, entered the homestretch on Monday as it kicked off the final month of the calendar year - a time for those who've made money (most investors) to lock in their profits and those rarities who've been unlucky so far to get in a few last licks. No domestic issues were heard to have priced, but several were heard to have climbed onto to the forward calendar, including SBA Communications Corp. and Six Flags Inc., which might be bringing a quickly shopped deal to market as early as Tuesday. That's also when THL Bedding - buying out mattress-maker Simmons Co. - is expected to begin roadshowing its 10-year deal. Several other issuers are also expected to kick off roadshows for their deals Tuesday.

In the secondary market, Levi Strauss & Co. bonds fell about four to five points across the board, after the San Francisco-based blue jeans giant announced that it had retained the turnaround specialist firm Alvarez & Marsal, one of whose executives was named Levi's interim chief financial officer in an abrupt management shuffle. A debt restructuring is now seen as much more likely

With the four-day Thanksgiving break behind them the investment banks spent Monday stuffing the forward calendar with deals that are expected to price before Christmas.

Including euro and emerging markets corporates, five new roadshow starts were reported during December's first session, with more waiting in (and conceivably chewing on) the wings.

One senior high yield sell-side official who spent a few minutes on the telephone with Prospect News said that demand for new paper, driven by cash continuing to come into the asset class - another $425 million into the high yield mutual funds for the week ending Nov. 26, AMG Data Services reports - is resulting in issuers that are more "aggressive."

"You have more aggressive use of proceeds, i.e. dividend deals and recapitalizations," said the official. "And you have more aggressive capital structures."

The official pointed to last week's deal from Jostens Holding Corp. - $247.2 million of 10-year zero-coupon senior discount notes (Caa2/B-) that priced to yield 10¼%. The source noted that the Minneapolis-based yearbook maker intends to use the proceeds to purchase outstanding senior redeemable preferred stock and to pay a dividend.

The source also brought up a deal from the previous week, Nortek Holdings' $515 million of eight-year zero-coupon notes (Caa1/B-), which priced to yield 10%, with proceeds slated to pay a distribution to Nortek Holdings' equity holders.

Fast forwarding, the official noted that at least one of the deals that is expected to hit the road on Tuesday can also be described as "aggressive" - the one from Woodland Hills, Calif. on-line mortgage lender WMC Finance Corp., which intends to price $250 million of five-year senior notes (B2/B-) during the week of Dec. 8 via Credit Suisse First Boston and Merrill Lynch & Co. Proceeds from that deal will be used to fund a dividend payment and for general corporate purposes.

"Investors are being more aggressive because they are looking for yield," said the sell-sider. "They may hate themselves for doing it, but they can't be in cash.

"And they also hate themselves for continuing to invest, and getting less and less yield."

However, this official counseled, the party - the high yield rally that has been in play for well in excess of a year - is not likely to last forever.

"The money has been coming into the high-yield market because people have been hearing about these double-digit returns," the official said. "But in the second quarter of 2004, when you're playing for the coupon, there is not going to be any benefit from lower credit spreads.

"I mean, look at how low we are already: the Lehman Brothers Single-B index now yielding 7.80%. The Lehman Brothers Liquid High Yield Index is yielding 7¼%. Where is it going to go?

"Liquid High Yield is up 31%," added the official. "The Single-B Index is up 24%. That's why money is running to this market. But when it starts returning 7% or 8% next year and the stock market or some other asset class is taking off, I think there is going to be a reallocation of assets."

Meanwhile during Monday's notable build-up in the new issue pipeline, Belgian communications company Telenet Communications was spotted heading for a Tuesday roadshow start in Europe for its offering of €400 million of 10-year senior notes (B3/B-) in dollar and euro tranches. A U.S. roadshow will kick off on Dec. 8, with pricing to follow later in that week.

JP Morgan, Goldman Sachs & Co., Merrill Lynch & Co. and Royal Bank of Scotland are joint bookrunners on the deal.

A roadshow also starts Tuesday for THL Bedding Co.'s $340 million of 10-year senior subordinated notes, which is expected to price on Dec. 11.

Goldman Sachs & Co., Deutsche Bank Securities and UBS Investment Bank are joint bookrunners on the offering to help fund the leveraged buyout of Atlanta-based mattress manufacturer Simmons Co.

And Boca Raton, Fla.-based tower operator SBA Telecommunications Inc. will start its roadshow Tuesday for $200 million proceeds of eight-year senior discount notes, also expected to price during the week of Dec. 8, via Lehman Brothers.

Two other names surfaced during Monday's session. Sensus Metering Systems Inc. is expected to come to the high-yield market with an offering of $225 million of 10-year senior subordinated notes (B-), although timing remains to be determined.

Credit Suisse First Boston will run the books for the deal from Raleigh, N.C. producer of water meters and automatic meter reading systems, proceeds from which will be used to help fund the $650 million purchase of Invensys plc's metering business by Jordan Co. and GS Capital Partners. The acquisition is expected to close in December.

And Six Flags is coming with an offer of unspecified size to take out its $422.6 million of 9¾% notes due 2007. Lehman Brothers is heard to be the bookrunner (see related story elsewhere in this issue).

Of deals that had been position on the forward calendar as this week's business, price talk of 11¼%-11½% emerged Monday on Hanover Compressor Co.'s $262.6 million of zero-coupon subordinated notes due March 31, 2007 (Caa1/B-). The securities - being offered in a seller note transaction by Schlumberger Ltd. - are expected to price late Tuesday, via Goldman Sachs.

In Monday's emerging markets action Vneshtorg Bank's VTB Capital Issuance priced a $500 million five-year eurobond offering at par to yield 6 7/8%. The deal from the Russian bank, via underwriters Deutsche Bank Securities and UBS Investment Bank, priced at the wide end of revised price guidance.

And the roadshow starts Tuesday for Axtel SA's offering of $150 million of 10-year senior notes due 2013 (B2/B), according to a market source. The deal is expected to price during the week of Dec. 8.

Credit Suisse First Boston will run the books for the Mexican-based CLEC's refinancing deal.

Back in the secondary, Levi was the most notable name of the session, its bonds sagging around four to five points on the session after the company announced that it had hired Alvarez & Marsal, known for turning around troubled companies, as its advisor. A managing director from Alvarez & Marsal, Jim Fogerty, was named Levi's interim CFO, replacing Bill Chiasson, who had held the post for the past five years. Levi did not comment on the circumstances of Chiasson's departure, other than to merely say that he was leaving the company.

While Levi's bank debt improved on the news - a bank loan trader said that for players in that market the management switch and recruitment of the turnaround specialist was "all good news" - the bonds were headed the other way, probably, the trader said, "because it's more of a short-term negative, but a long-term positive."

A bond trader quoted Levi's 7% notes due 2006 as having fallen to 65 bid, 67 offered from opening levels at 69.5 bid, 71.5 offered, said its 11 5/8% notes due 2008 were being offered at 73, down from 75 bid, 77 offered at the open, and added that its 12¼% notes due 2012 were at 67.5 bid, 68 offered, well down from 72 bid, 73 offered earlier.

The change in CFOs and the presence of Alvarez & Marsal are signs that a restructuring of Levi's approximately $2 billion of debt is now virtually certain, the trader said; he noted, for instance, that the KDP investment advisory service now rates the likelihood of such an event at 6/6, meaning it is almost inevitable. "They're looking at a three- to five-year workout," he said.

Elsewhere on the retailing front, news that Kmart Corp. had hired away a senior executive of Gap Inc. to take on the post of chief apparel officer at the recently reorganized discount department store chain had little impact on Gap's bonds, which a trader said were "trading so damn tight" anyway. He quoted the San Francisco-based apparel retailer's 6.90% notes due 2007 unchanged at 109.5 bid, 110.5 offered, despite the loss of John D. Goodman - up till now senior vice president at Gap Inc. Outlet, Merchandising, Planning, Production and Distribution.

Another trader saw the Gap bonds as having ended on Wednesday afternoon, before the holiday break, at 110, then having opened a point down Monday at 109 bid, 110 offered, before "recovering a lot of that" to close at 109.75 bid.

There was also little movement seen in what little outstanding public debt Troy, Mich. based Kmart still has (mostly real estate-secured passthrough notes) since its emergence from Chapter 11 in May; most of the pre-petition debt was converted to equity in that restructuring.

A trader saw international retailer Royal Ahold NV's bonds weaker, which he called "a little confusing since they are doing all the right things" to try to pull the Dutch-based global supermarket operator out of its financial hole, including a $3.5 billion rights offering (the proceeds of which will go to pay down debt) and an ongoing effort to sell its non-core assets, such as its Latin American operations.

No doubt overshadowing those moves was Wednesday's news of weak financial results, largely due to the continued effects of an accounting scandal earlier in the year at its U.S. Foodservice unit, as well as the effects of a weaker dollar.

The trader quoted Ahold Finance's 6¼% notes due 2009 at 99.5 bid, 101 offered, down from 101 bid, 102 offered during Friday's quiet half-session; he saw its 8¼% notes due 2010 at 108.25 bid, 109.75 offered, down from 109.75 bid, 110.75 offered on Friday; and saw its 6 7.8% bonds due 2029 drooping to 88.25 bid, 90.25 offered from 89.75 bid, 90.75 offered.

On the upside, the trader saw Six Flags bonds up "pretty good" on reports the amusement park company might do a new bond deal and use the proceeds to take out existing debt.

He quoted the company's 9¾% notes due 2007 up more than a point at 103.625 bid, 104.625 offered, while its 8 7/8% notes moved up to 98.75 bid. 99.75 offered from 97 bid, 98 offered previously, while its 9½% notes firmed to 101.75 bid, 102.75 offered, up from 100.75 bid, 101.75 offered.

SBA Communications' 10¼% notes due 2009 rose two points to 93.5 bid, while its 12% notes due 2008 - which are to be redeemed with the proceeds from the company's upcoming new bond deal were about three-quarters of a point better at 108.5.

Chesapeake Energy Corp.'s 8 1/8% notes due 2011 - the subject of a debt-for-debt exchange offer by the Oklahoma City-based energy operator - were seen up a point-and-a-half, at 110 bid (see tenders and redemptions section for full details on the Chesapeake exchange offer).

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