Auto sector bonds seen better; Level 3 retreats; talk out on Rockwood deal

By Paul Deckelman and Paul A. Harris

New York, Nov. 3 - Automotive sector names were seen a bit improved in Wednesday's secondary market dealings, paced by Collins & Aikman Holding Co. and Tower Automotive, Inc.'s R.J. Tower Corp. bonds. On the downside, Level 3 Communications Inc. was seen easier after Standard & Poor's cut its debt ratings on the Broomfield, Colo.-based telecommunications company.

New-deal activity was very limited, although price talk was seen to have emerged on Rockwood Specialties Group Inc.'s planned offering of 10-year senior subordinated notes.

Collins & Aikman's 12 7/8% notes due 2012 were seen up more than a point on the session at 89 bid, while fellow automotive components maker Tower's 12% notes due 2013 were seen to have pushed up solidly for a second consecutive session to 73.5 bid, a gain of more than three points on the day. The Tower bonds had also risen two points on Tuesday.

Yet another auto-related name that seemed to be in the fast lane on Wednesday was Dura Operating Corp., whose 9% notes due 2009 were seen a point better at 98.5.

A trader said that in general, the industrial sector remains "very strong," with the auto names among the prime beneficiaries.

For instance, he said, the Collins & Aikman 10¾% notes were two points better, at par, while Goodyear Tire & Rubber Co.'s 7.857% notes had gained a point to 97.

Oregon Steel gains

Outside of the autos, he saw Oregon Steel Mills Inc. riding the crest of recent strength in the steel market amid red-hot demand for the metal. Its 10% notes were up about a point at 111.5 while AK Steel, which reported strong earnings last week, was likewise better. The Middetown, Ohio-based steelmaker's 7 7/8% notes due 2009 and 7¾% notes both up half a point, at 102 bid and 101.25, respectively.

"There were strong industrial markets, there's no question."

Remington up after earnings

The trader also said Remington Arms "is another name people are starting to look at on a constructive basis. They were up after earnings," which he said "weren't that bad, and people are getting comfortable with it, because they renewed their bank covenants, and they're fine."

He saw the company's bonds trade from a post-earnings high of 96 down to 88 several days ago, "due to a seller," before climbing back to around 91.25-91.5 bid.

Graham Packaging strong

Yet another industrial name trending to the upside this week, he said, was Graham Packaging Co. Inc., although he added: "don't ask me why."

He quoted the company's 8½% notes due 2012 as having firmed to 106.5 bid, 107.5 offered from prior levels at 105 bid, 105.5 offered, and its 9 7/8% notes due 2014 as having improved to 108 bid, 109 offered from 106.5 bid, 107.5 offered. "I didn't see any news on them."

Level drops on S&P cut

On the downside, Level 3 Communications' 10½% notes due 2008 were being quoted down more than a point at 79.5 bid. Standard & Poor's said Wednesday that it had lowered its corporate credit rating on Level 3 to CC from CCC previously, while the ratings on the company's four debt issues maturing in 2008 were lowered to C from CC.

S&P cited the cash tender offer that Level 3 announced for its 9 1/8% senior notes, 11% senior notes, 10½% senior discount notes and 10¾% senior euro notes, all due 2008. The ratings agency said that it views completion of the proposed tender offer - which offers holders considerably less than face value for their notes - as "tantamount to a default on the original debt issue terms."

The ratings were also put on CreditWatch with negative implications.

However, at another desk, the 10½% and 10¾% notes were quoted unchanged at 81.25 bid and 87.5, respectively, while the 11% notes were actually seen up a quarter-point at 85.

Bids strong

In general, a trader said that "right now in our market, there's too much money chasing too few quality bonds."

That, he said, was driving prices up. "Accounts want to sell some of the paper that's trading very tight, but they can't replace it."

Another trader disagreed with the assessment that there was too much money around, noting that recently, "there hasn't been that much money coming in," as exemplified by the relatively small junk bond mutual fund inflow numbers reported over the last few weeks by AMG Data Services. Those fund-flow numbers are seen as a reliable barometer of overall junk market liquidity trends.

That having been said, however, the second trader did acknowledge that "our market has just been bid without for the last two weeks," a condition he said was still in effect Wednesday.

"They're just listing anything and everything. The market's gone straight up."

PanAmSat gains

One issue that he saw gaining altitude was the new PanAmSat Corp. zero-coupon/10 3/8% senior discount notes due 2014, which were sold by the Wilton, Conn.-based satellite network operator back on Sept. 27.

Those bonds priced at 59.46, "and the word was they hadn't had the whole deal sold." That caused the bonds to retreat after pricing to as low as 57.5 bid, 58.5 offered "almost immediately on the break," and to continue languishing below or, at best, at their issue price after that.

"They were sitting at that level for quite a while," he said, adding "but recently, the bonds had been trending higher, rallying two or three points this last week," to Wednesday's level around 62.

"That is a powerful move," he declared.

The bond's gains had also translated to higher levels for the company's 9% cash-pay bonds, up around 107.5-108.5.

He also noted that the appreciation in the recently priced Vanguard Health discount notes, which "you couldn't give away at 56.5 last week; they traded at 61 [Wednesday]."

Asbestos names stronger

The trader saw Crown Cork & Seal Co. Inc. bonds "bid without" in response to the election news, which saw big Republican gains in Congress, seen by observers as increasing the likelihood that some form of a claims payment mechanism might now be able to move past the Capitol Hill logjam, with the Democrats now in a weaker position to strongly insist on changes that could hold up passage of such a bill.

The Philadelphia-based packaging company's 9½% notes were seen bid at 114-115 and its 7 3/8% notes due 2026 were seen firm at bid levels around 95-96.

"The stuff is just bid," he said.

The election news was also seen giving a big boost to many distressed-debt names that have asbestos exposure, such as USG Corp., Owens Corning, Federal-Mogul Corp. and Armstrong World Industries Inc. (See "Distressed Debt Commentary" elsewhere in this issue).

Homebuilders solid

Another trader saw continued firmness in some of the names in the homebuilding sector, which he said were doing "incredibly well."

Case in point: Champion Homes, of which he said "we like it a lot, from an equity and a debt perspective." He cited the company's recently released earnings.

"People were worried that the hurricanes were going to hurt them, but the earnings were actually quite good."

He saw the company's 7 5/8% notes due 2009 trading up to 101 bid from 99.5, while its 11¼% notes traded up to 111 from 109.5 bid, 110.25 offered. The movement, he said, was "all earnings driven." Overall, the first trader said, people just want to buy paper.

"The market has a rock-solid bid to it. There's no question about it."

No deals price

The post-Election Day junk bond new issue market slumbered, with no issues pricing.

Hence for the first two sessions of the first week of November 2004 nary a junk bond has been sold. Nor did any new issuers appear on Tuesday.

Heading into Wednesday, with three sessions remaining in the Nov. 1 week, four tranches totaling less than $1 billion equivalent are expected price before Friday's close.

"The general tone of the market is pretty firm after the result of the election," one sell-side source observed on Tuesday afternoon.

"In general the markets - apart from the Treasury market - had a big rally."

The sell-sider said that the U.S. Treasury's announcement that it would auction $51 billion of notes next week to help fund the government's $400 billion-plus budget deficit, now at an all-time high, took its toll on the 10-year Treasury note during Tuesday's trading session.

"The announcement of the imminent sale has put a little pressure on that market," the sell-sider added.

"But the high yield pace is kind of slow. The refinancing activity has really died down. Generally speaking, if you had the opportunity to do it you would have done it by now. So there doesn't seem to be much incentive for issuers to come to the market.

"And the lack of M&A and LBO activity raises questions about where the market is heading into 2005.

"One definite theme for 2004 in the high yield, is that we are seeing more and more shareholder-friendly transactions, with proceeds being used to pay dividends and buy back shares.

"With Bush having won the election you might look for activity like that to get a substantial boost."

Rockwood euro tranche a blowout

Price talk emerged Wednesday on Rockwood Specialties Group Inc.'s $625 million equivalent offering of 10-year senior subordinated notes (B3/B-).

Talk is 7¾% to 8% on the $150 million tranche and 8% to 8¼% on the €400 million tranche, with pricing expected on Friday via Credit Suisse First Boston, Goldman Sachs & Co. and UBS Investment Bank.

The transaction, proceeds from which will be used to repay an acquisition-related bridge loan, is said to be playing to heavy demand in Europe. In fact one source told Prospect News on Wednesday that the dollar and euro tranche sizes had pretty much reversed from the amounts that Princeton, N.J., chemical manufacturer originally intended to sell, owing to the robust demand for the new euro paper.

Integrated Alarm, Herbst to come

Aside from Rockwood Specialties group, only two other tranches, from two issuers, are now positioned on the forward calendar as business likely to be completed by the end of the week.

Integrated Alarm Services Group Inc. is selling $125 million of seven-year senior notes (B3/B-) via Morgan Joseph & Co. Price talk is 10¼% to 10½%.

And Herbst Gaming Inc. has $150 million of senior subordinated notes (B-) for sale via Lehman Brothers. No price talk has yet been heard on the deal.

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