Hellas prices euro mega-deal; Pregis delays deal closing; Delphi up as analysts downplay covenant breach

By Paul Deckelman and Paul A. Harris

New York, Sept. 30 - Hellas Telecommunications closed out the week Friday with a €1 billion-plus two-part deal refinancing the leveraged buyout of parent TIM Hellas Telecommunications SA, high yield syndicate sources. Also coming out of the European communications sphere was news of an upcoming offering as soon as Monday by Liberty Global to help fund the acquisition of Swiss broadband cable operator Cablecom Holdings AG.

Elsewhere in the primary arena, Chart Industries priced a 10-year offering, and - most unusually - Pregis Corp, which on Tuesday successfully brought a two-tranche, dual currency offering to market, was heard to have postponed the closing of the deal citing disruptions in its raw materials supply chain.

In a relatively quiet secondary market, Delphi Corp.'s bonds were seen better in tandem with a rise in the company's shares, apparently motivated by analysts being not too worried about a possible upcoming breach of the company's loan agreements.

Friday saw three tranches price in the primary market as Chart Industries brought $170 million at a yield of 9 1/8%, on the wide end of talk, and Greek telecom TIM Hellas Communications priced €1.28 billion in two tranches.

Hence the final week of September 2005 came to a close with slightly over $2 billion of dollar-denominated issuance in eight tranches.

The month of September saw $11.4 billion price in 42 tranches, topping the year-ago month: September 2004 saw $8.9 billion in price in 33 dollar-denominated tranches.

TIM Hellas does €1.28 billion

The biggest of Friday's issues came from TIM Hellas

The company priced €1.28 billion, divided into €925 million of seven-year senior secured floating-rate notes (B1/B) at par to yield three-month Euribor plus 350 basis points, on top of the price talk, and €355 million of eight-year senior subordinated notes (B3/B-) at par to yield 8½%.

The yield on the subordinated notes came on top of the 8½% area price talk, which had been revised from 8¾% area.

JP Morgan and Deutsche Bank Securities were joint bookrunners.

A market source said that the deal was oversubscribed to a sufficient extent that the company pulled the dollar-denominated mirror tranches it had originally contemplated.

In the U.S. market, Chart Industries Inc. priced a $170 million issue of 10-year senior subordinated notes (B3/B-) at par on Friday to yield 9 1/8%, at the wide end of the 8 7/8% to 9 1/8% price talk.

Morgan Stanley and Citigroup ran the books for the LBO financing.

Liberty Global plans add-on

Denver-based cable and broadband provider UPC Holding BV, a wholly owned subsidiary of broadband distribution and content provider Liberty Global, plans to price a €300 million add-on to its 7 ¾% senior notes due Jan. 15, 2014 (existing ratings B3/CCC+) on Monday.

Credit Suisse First Boston, Deutsche Bank Securities and JP Morgan are joint bookrunners.

Proceeds will be used to help fund the Liberty Group's acquisition of Swiss broadband cable operator Cablecom Holdings AG from Apollo Management, TowerBrook Capital Partners and Goldman Sachs Partners.

Pregis postpones closing

Also late Friday, sources told Prospect News that Pregis Corp. has postponed the closing of the two issues of high-yield notes that it priced on Sept. 27.

The closing was scheduled for Sept. 30.

The postponement relates to a raw material supply disruption caused by Hurricane Katrina, which devastated the U.S. Gulf Coast in late August.

The proceeds from the $150 million and €100 million issues were pegged to help fund the approximately $530 million acquisition of Pactiv Corp.'s North American and European protective and flexible packaging businesses to an affiliate of AEA Investors LLC.

Hurricane Katrina has apparently disrupted the supply of plastic resins which Pactiv uses in its packaging manufacturing process.

Credit Suisse First Boston was the bookrunner.

Neiman Marcus deal and a big outflow

Late Friday one sell-side official reflected on two of the week's most prominent market events, the pricing of Neiman Marcus' downsized, wide-of-talk $1.2 billion LBO deal and the nearly $1.3 billion weekly outflow from high-yield mutual funds, as reported Thursday by AMG Data Services - the biggest outflow since the $1.5 billion that left in the week ending March 23.

"Neiman Marcus was the first big LBO financing to really get beat up," the official reflected, referring to the downsizing of the deal from the originally contemplated $2.175 billion, as well as its tranches pricing well wide of the original price talk.

The source added that the SunGard Data Systems' $3 billion LBO deal, which priced in late July, had been well received.

"Everyone ate that up.

"All of these big benchmark deals have done well, but Neiman Marcus did not, obviously.

"There has really been a disconnect between the bank markets and the bond markets," the source added, noting that bank pricing has been getting flexed down while the bond deals are getting beat up. Neiman Marcus itself shifted $975 million to the bank market from the junk offering.

The source also allowed that the outflow news creates negative sentiment, and added that in general the big institutional funds did not see such big outflows, but a couple of key ones, including American Express, did see substantial outflows, which would not be included in the AMG number.

Delphi jumps

Delphi "spurted" Friday, a trader said, quoting the Troy, Mich.-based automotive electronics maker's 6.55% notes due 2006 as having firmed up to 73 bid, 74 offered from opening levels at 70 bid, 70.5 offered, before coming off that peak level later in the session to close at 72 bid, 73 offered.

At another desk, a market source quoted Delphi's 6.55s up 2¾ points to 74.5, while its 6½% notes due 2009 were up more than two points at 70.5. The 6½% notes due 2013 were up ¾ point at 67.5, while its 7 1/8% notes due 2029 was also ¾ point ahead, at 64.5.

"All of the Delphis went up a little," another trader said, "but the '06s went up more - and came back down."

He saw the 6.55s push as high as 75 bid from 71 bid, 73 offered at Thursday's close, but then come back down to 73 bid, 75 offered.

He saw the 6½ 2009s coming off their peak and ending a point higher at 68 bid, 70 offered, while the 2013 61/2s were at 67 bid, 69 offered, and the 7 1/8s rose to 63 bid, 64 offered, all up a point.

Delphi's New York Stock Exchange-traded shares jumped 24 cents (9.52%) to $2.76, on volume of 31.4 million, four times the norm.

News reports said that the company was getting close to breaching certain debt-to-EBITDA requirements on its loan covenants.

However, analysts, such as J.P. Morgan's Himanshu Patel, downplayed the significance of this development. Patel wrote in a research note that "we do not see the tripping of this debt covenant as a major development in this story," even suggesting that it might work to Delphi's advantage to be in default, as this might add a sense of urgency to its ongoing talks with former corporate parent General Motors Corp. and the United Auto Workers union, which represents employees at some high-labor cost factories that Delphi inherited when it was spun off from GM several years ago.

Delphi is asking GM and the UAW for help in dealing with its labor cost problems, and has warned that it could file for Chapter 11 before Oct. 17, when changes making the federal bankruptcy laws less friendly to debtor companies are slated to take effect.

Patel also noted that while the alerted its hourly workers that their pensions could be at risk if it files for bankruptcy, "we do not see the existence of this letter [to workers] as a strong indicator of the status of the ongoing talks."

Delphi announced late in the session that it expects to end the current quarter with $1.6 billion of cash - up from financial market expectations - and is considering asking its lenders for a covenant waiver.

Scrutinizing Ford announcement

Market players meantime continued to analyze Ford Motor Co.'s announcement earlier in the week that it plans to radically overhaul its procurement policies, aiming to eliminate about half of the roughly 2,500 suppliers from which it buys an estimated $70 billion of auto parts for its vehicles per year.

The nation's Number-Two carmaker said it would restructure its purchasing activities to direct more of its business to certain dedicated key suppliers, including Delphi, Visteon Corp. and Lear Corp., along with Magna International Inc., Johnson Controls Inc., Yazaki Corp. and Autoliv Inc.

What might this mean to the junk world's automotive supplier sector?

High yield analyst Chris DeYoung of Schroders plc said that Ford's designation of Visteon, Lear and Delphi as key suppliers is "an obvious benefit to those companies." Of more interest from a high yield perspective, he said, is which of the companies in the automotive supplier sector will be left on the outside looking in when Ford makes its final cut sometime before it starts building its 2008 models.

Suppliers who stand to lose Ford business, he said, include Dura Automotive Systems Inc. and Collins & Aikman Corp.

He noted that Magna - one of the seven companies Ford named as key suppliers - "competes with Dura across a number of product lines, so I believe that Dura could be a potential loser from this acceleration of Ford's consolidation of its supplier base."

At a recent Bank of America investment conference, executives from the Rochester Hills, Mich.-based maker of automotive control systems touted a new electronic transmission shift module which Ford liked enough to order for all of its various models.

However, DeYoung noted that Ford's most recent consolidation move does not take effect till 2008 at the soonest.

Another potential big loser, he said, is Collins & Aikman, which currently gets about a quarter of its revenues from Ford-related sales.

The Troy, Mich.-based maker of automotive interior components is currently in the throes of bankruptcy - Ford, in fact, along with General Motors, Chrysler and several big Japanese automakers, all Collins customers, recently threw the company a financial lifeline by fronting it additional debtor-in-possession funding after a JP Morgan-led bank group refused to come across with a second scheduled installment of DIP funds, citing Collins' deteriorating outlook.

DeYoung noted that Collins competitor Lear - which has expressed interest in perhaps combining its interiors business with Collins & Aikman's in a joint venture - "made the list [of preferred suppliers] and CKC didn't. You could draw conclusions from that."

Other high yield automotive components makers who might also find themselves left without a chair when the music suddenly stops, in DeYoung's estimation, include Tower Automotive - like Collins & Aikman, now in bankruptcy - and Dana Corp., whose ratings were recently junked by the two of the three major agencies who previously had it as an investment-grade credit.

One name which was not on the initial list of the seven key suppliers Ford unveiled - but which might still wind up as a Ford supplier going forward, since Ford said it would be expanding its list - is TRW Automotive. DeYoung enthused that "there's no question about it" that Lake Forest, Ill.-based TRW "is a great credit, and I don't think TRW will be dropped from the list."

As far as other supplier names, he said "what I think you might find is some of the companies falling into the category of a Tier II supplier - supplying to the Tier I's that made the list."

The Schroders analyst said that Ford's move is certainly not a new development in Detroit - "it's something that's been unfolding in the auto industry for a number of years, consolidation of suppliers." While GM and Chrysler also previously indicated that they would be consolidating their supplier base, he said, Ford's formal announcement that it would be halving the number of its suppliers and announcing the first of the suppliers who will be a part of its new system "just seems to be one of the most dramatic moves by one of the Big Three in this timeframe."

Auto names gain

Traders saw other automotive names higher in line with Delphi's surge. TRW's 9 3/8% notes due 2013 were seen half a point higher at 109.5 bid.

At another desk, a market source saw Tower Automotive's 12% notes due 2013 up nearly a point at 86.75. A trader meantime said that "the whole sector was up," with Metaldyne Corp's 10% notes having apparently "gotten a boost" at the Deutsche Bank Securities conference in Scottsdale, Ariz.

Apart from the autos, a trader saw Dyncorp International's 9½% notes due 2013 up 5¼ points at 104. Eastman Kodak Co.'s bonds were off, as Standard & Poor's lowered the company's ratings; a market source saw the Rochester, N.Y.-based photography giant's 7¼% notes due 2013 off as much as three points at 95 bid.

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