Retooled School Specialty, LIN, Brookstone deals price; Delphi moves higher

By Paul Deckelman and Paul A. Harris

New York, Sept. 23 - School Specialty Inc. did a little tinkering with its planned bond deal and then brought the offering to market Friday, high yield syndicate sources said, albeit in a slimmed-down, one-tranche form - and it was not the only deal to price after a little rejiggering. Brookstone Inc. was also retooled, and downsized, while LIN TV Inc.'s offering likewise underwent a little surgery before finally appearing. Res-Care Inc. priced as well, although it did so in its originally proposed form.

Delphi Corp.'s bonds were several points better, apparently taking their cue from the Troy, Mich.-based automotive electronics maker's stock, which rose handsomely after Merrill Lynch upgraded the recently hard-hit name to a "buy."

That in turn helped some of the bonds of other automotive names, including Delphi's former corporate parent, General Motors Corp., and the recently skidding Dana Corp.

Elsewhere, packaging names were for the most part higher, led by Pliant Corp., although there seemed to be no fresh news out on the Schaumburg, Ill.-based manufacturer.

For the first time in a week, high yield overall traded higher on Friday, with two sources marking the broad market up a quarter of a point.

One of those sources, however, said that on the week he had junk off one whole point.

Meanwhile sell-side sources who focus on the new issue market had pretty much unanimous color: "It's tough out there."

Four tranches priced Friday for a total of $858 million of proceeds. Three of the four tranches priced at discounts to par; two were downsized; three were restructured; and two priced wide of price talk while a third priced at the wide end of talk.

A rocky week in the primary

With Friday's four tranches in the bag, the week of Sept. 19 came to a close having seen just under $2.8 billion price in nine dollar-denominated tranches.

That draws up short of the previous week's $3.83 billion in 16 tranches.

Throughout the period market sources said that the new issue bourse had been a buyer's market, an assertion that seems to be backed up by the fact that five of the week's nine tranches came wide of price talk, and of the four that came within talk two priced at the wide end. Meanwhile four of the nine priced at discounts to par.

School Specialty downsized, restructured

Friday's biggest deal was the significantly transformed School Specialty, Inc. $350 million issue of eight-year senior notes (B3/CCC+), which priced at par to yield 10%, 50 basis points beyond the wide end of the 9¼% to 9½% price talk.

The Greenville, Wis., company withdrew a planned $225 million offering of 10-year senior subordinated notes which it had downsized from $300 million earlier in the week.

The entire bond offering, including the abandoned 10-year subordinated notes, was announced to the market at a size of $650 million.

The eight-year senior note tranche had been upsized earlier in the week to $425 million from $350 million, prior to Friday's downsizing back to $350 million.

Banc of America Securities, JP Morgan and Deutsche Bank Securities ran the books for the leveraged buyout funding deal.

LIN TV restructures $190 million

Also restructured was the LIN TV Corp.'s $190 million add on to its 6½% senior subordinated notes due May 15, 2013 (B1/B-).

The add-on notes priced at 92.238 resulting in a 7 7/8% yield.

The yield came in the middle of the 7 ¾% to 8% price talk.

JP Morgan, Goldman Sachs and Deutsche Bank Securities were joint bookrunners for the debt refinancing issuer related to LIN's acquisition of five television stations from Emmis Television Broadcasting.

Originally the offering was structured as a planned sale of new 10-year senior subordinated notes.

Brookstone downsized, restructured

Specialty retailer Brookstone Inc. priced a downsized, restructured $185 million issue of 12% eight-year second-lien notes (B3/B) at 98.833 to yield 12¼% on Friday, versus the price talk, which was 10¼% to 10½%.

The structure of the bond was changed from a senior unsecured note.

Goldman Sachs & Co. ran the books for the acquisition deal that was downsized from $185 million

Res-Care at the wide end

Finally, the fourth of Friday's four tranches came from Louisville, Ky.-based Res-Care Inc.

The company priced $150 million of 7¾% eight-year notes (B1/B) at 99.261 on Friday to yield 7 7/8%, at the wide end of the 7¾% area price talk.

JP Morgan and Goldman Sachs & Co. ran the books for the debt refinancing deal.

The big deals ahead

With the buy-side having apparently gained the advantage during the week of Sept. 19, sources were looking ahead to what is in store for the primary market as the last week of September 2005 gets underway.

In particular people pondered the possible fortunes of three big transactions that are expected to be completed by Friday's close.

Generating the most conversation is The Neiman Marcus Group's $2.175 billion three-part LBO deal, via Credit Suisse First Boston, Banc of America Securities, Deutsche Bank Securities and Goldman Sachs.

Then there is the $750 million LBO deal from Affinion Group, which also features Credit Suisse First Boston on the left, with Deutsche Bank Securities as joint bookrunner.

Also expected to price by Friday's close is Greek telecom TIM Hellas's €1.28 billion equivalent transaction, which is expected to come in both dollars and euros. Lehman Brothers and Merrill Lynch & Co. are the bookrunners.

In addition to the big deals, the calendar contains an assortment of expected transactions in the below-$300 million category.

They include:

* Whiting Petroleum Corp.'s $250 million via Merrill Lynch, JP Morgan and Lehman Brothers;

* Chart Industries' $170 million via Morgan Stanley and Citigroup;

* Comsys IT Partners Inc.'s $150 million via Wachovia Securities and Merrill Lynch;

* DriveTime Automotive Group/DT Acceptance Corp.'s $150 million via UBS Investment Bank and Bear Stearns;

* Middletown Rancheria Gaming Enterprises '$50 million via Jefferies; and finally

* Pregis Corp.'s €100 million of 7.5-year senior secured second-lien floating-rate notes and $150 of eight-year million fixed-rate senior subordinated notes. The floater (B3/B-) was talked Friday at Euribor plus 475-500 basis points while the fixed-rate note (Caa1/CCC+) was talked at 11½%-11¾%.

And a little more calendar

Finally on Friday one prospective issuer took a stop aboard what sources are describing as a large forward calendar.

Dycom Industries will start a roadshow Monday for its $150 million offering of 10-year senior subordinated notes (Ba3/B+), via Merrill Lynch and Goldman Sachs.

The Palm Beach Gardens, Fla. -based services provider to telecom companies will use the proceeds to repurchase common stock.

School Specialty, LIN up in trading

When the new School Specialty 10% notes due 2013 were freed for secondary dealings, the bonds were seen at 100.25 bid, 101 offered, up from their par issue price earlier in the session.

A trader saw LIN TV's new 6½% add-on notes due 2013 at 93.5 bid, 94.5 offered, up from their 92.238 issue price. The Res-Care and Brookstone deals priced too late in the session for any meaningful aftermarket activity.

Back among the established issues, traders noted that it was, in the words of one, "a very slow afternoon. People were waiting to see what would happen over the weekend," with Hurricane Rita barreling down on the Texas Gulf Coast and, possibly, the western part of already hard-hit Louisiana. With that said, they noted that there seemed to be an overall better tone in the market.

Delphi up

There certainly was an improved tone in the recently battered auto supplier unit, with Delphi leading the way.

A trader quoted the company's 6.55% notes due 2006 up two to three points at 75 bid, 76 offered, while its 7 1/8% notes due 2029 were "maybe a point or so higher" at 64 bid, 66 offered.

Another trader estimated the 6.55s to be up as much as four points on the session, at 75 bid, 77 offered, and the 7 1/8s about three points ahead at 64.5 bid, 66.5 offered.

Another trader stated what everyone was thinking - "it looks like they had a pretty good day," with the 6.55s at 75.25 bid, 75.75 offered, up some three points on the session.

Delphi's bonds seemed to follow the stock up; the New York Stock Exchange-traded shares firmed by 34% (10.90%), to $3.46, on volume of 13.1 million, about double the usual.

The shares - and the bonds - climbed after Merrill Lynch upgraded the stock, saying that it expects Delphi, the largest U.S. auto parts maker to avoid bankruptcy.

Merrill Lynch analyst John Casesa said in a research note that "despite the speculation surrounding a possible bankruptcy, we believe it is probable that Delphi, GM and the [United Auto Workers union] will come to an agreement to avoid Chapter 11 because bankruptcy would be too costly to GM and the UAW.

The analyst acknowledged, however, that there had been no new reports on the three-way talks between Delphi, GM and the UAW, or whether the three parties have recently softened their positions. Delphi said it needs help from its former corporate parent, GM, and from the UAW in getting out from under high-cost facilities it inherited from GM when it was spun off several years ago. Delphi chairman Robert S. "Steve" Miller has talked about going into bankruptcy if no assistance is forthcoming, although he said this past week that he would prefer to not see that happen.

Delphi also got a boost from its revelation in a mid-week filing with the Securities and Exchange Commission indicating that the company still has some $300 million of remaining availability under its bank credit line, contrary to assertions by some market participants that Delphi was already fully tapped out.

Other auto names higher

Apart from Delphi, other auto names were also seen doing well, coming along for the ride, such as Dura Operating Co. A market source saw the Rochester Hills, Mich.-based automotive systems provider's 9% notes due 2009 two points better at 71 bid, while another trader saw the 9s at 71.5 bid 72.5 offered, up "significantly" from the upper 60s recently.

He saw the company's other issue, the 8 5/8% notes due 2012 three points above recent levels, closing at 90.5 bid, 91.5 offered.

Dana Corp.'s bonds were better, with a market source seeing the Southfield, Mich.-based automotive systems manufacturer's 5.85% notes due 2013 move up to 80.25 bid, 81 offered from 79.5 bid, 80.5 offered.

A trader saw GM's 8 3/8% benchmark notes due 2033 a point better at 79.25 bid, 79.75 offered, while rival Ford Motor Co.'s 7.45% notes due 2031 were ¾ point better at 79.5 bid, 80 offered.

Goodyear steady

Goodyear Tire & Rubber Co.'s bonds were meantime "basically unchanged," the trader said, with the Akron, Ohio-based tiremaking giant's 7.857% notes due 2011 at 96.5 bid, 97 offered, while its 11% notes due 2011 closed at 111.5 bid, 112.5 offered. Goodyear executives proclaimed the success so far of the company's turnaround efforts over the past 2½ years, during its first investor meeting since 2003. One of the key measures they touted was the fall in the company's debt-to-EBITDA leverage ratio. Goodyear also plans some further cost-cutting moves (see related story elsewhere in this issue).

Packaging higher

Apart from the automotive names, traders saw packaging companies doing well, particularly Pliant. A trader quoted its 11 1/8% notes due 2009 at 87.75 bid, up from 83.5 on Thursday, and said its 13% notes due 2010 moved up to 53 bid from 48.5.

He opined that the bonds went higher as oil and natural gas prices eased, since packaging companies like Pliant are big users of petroleum-based plastic materials in their packaging, while "all of them use gas to fire their plants."

He said that the strength was seen in an across the board move by the packaging companies, with Smurfit-Stone Container Corp.'s 8 3/8% notes due 2012 at 94 bid, 96 offered, up from 93.25 bid, 95.25 offered. The Chicago-based packaging company also said that it had sought an amendment of its credit terms from its bank lenders so as it keep it in covenant compliance.

Even Tekni-Plex - whose bonds were off Thursday after the Somerville, N.J. -based packaging company said it would have restate some of its results due to accounting errors it discovered - were propelled higher, with a trader seeing its 8¾% notes at 85.25 bid, 86.25 offered, versus 84 bid, 85 offered Thursday. Its 10 7/8% notes due 2012 were at 106 bid, 107 offered, unchanged.

Traders saw little or no movement in the bonds of Houston-based companies as the killer storm Rita approached the area. Lyondell Chemical's 9 ¼% notes due 2008 were unchanged at 105 bid, 106 offered, while Huntsman Chemical's 10 1/8% notes due 2009 were at 102.74. "They just don't move," a trader said.

Continental Airlines Corp.'s 8% notes coming due in December were also seen rock-steady at 99.5 bid.

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