North Atlantic Trading prices upsized issue; Goodyear Tire deflates on SEC news

By Paul Deckelman and Paul A. Harris

New York, Feb. 11 - North Atlantic Trading Co. Inc. was heard by high-yield syndicate sources to have priced an upsized issue of eight-year bonds Wednesday while General Communications Inc. upsized an offering of 10-year notes that priced last week.

In the secondary market, Goodyear Tire & Rubber Co.'s bonds moved lower after the Akron, Ohio-based tire giant was hit with a double whammy - a Standard & Poor's ratings downgrade, followed by the company's disclosure that what had begun as an informal Securities and Exchange Commission of the company's accounting has now morphed into a formal probe.

Also of note, Tenet Healthcare Corp. - whose bonds have been pushed lower over the past several sessions - appeared to rebound a little from its recent lows.

One upsized deal priced at the tight end of price talk during Wednesday's primary market session, as high yield appeared to fall into lock-step with the rest of the capital markets, buoyed by Fed chairman Alan Greenspan's upbeat report to the U.S. Congress.

One sell-side source said that the Fed chairman's expectation that U.S. gross domestic product could grow between 4½% and 5% in 2004, taken in conjunction with his statement that the Bush administration's latest forecast that 2.6 million jobs would be created this year could occur, could only be taken as a positive sign in junk land.

"The feeding frenzy that we saw in January is over," said the source. "But deals continue to get done. And given those statements that Greenspan made, I think the stage is set for a high-yield market in which people continue to reach for risk.

"Let's face it," the sell-side official added, "the higher quality deals, the double-B issuers, mostly got done in 2003. Those spreads have tightened about as far as they can. What remains is the lower quality.

"I believe that in an economy that appears to be growing at an annual rate of 4%-plus, and one that could produce over two-and-a-half million jobs, those deals can continue to get done."

Buy-side gets a hand on the wheel

However Mike Difley, vice president and portfolio manager of the American Century High Yield Fund, told Prospect News on Wednesday that the primary market has undergone a recent change - one that indeed favors investors, for a change.

In describing that change, Difley also cited the Fed. He said that the remarks from the Federal Open Market Committee meeting nearly two weeks ago - remarks that Wall Street read as a warning that interest rates won't stay low forever - set in train a series of events that resulted in the buy-side regaining some leverage in what had previously been a cash-heavy, bond-starved market.

That train of events culminated, Difley added, in the dramatic reversal of cash that had been flowing into high yield mutual funds for the previous 13 consecutive weeks - a string that ended last Thursday when a $1.56 billion outflow was reported.

"Certainly the new issue market has slowed from the frenzied pace we saw in January," Difley said

"And the quality of deals that are on the road now, at least in terms of credit ratings, seems to be a little bit better, although we're still seeing a number of deals that have the dividend payments to shareholders as a use of proceeds.

"In one week in January it looked like there were eight or 10 deals on the calendar that had triple-Cs. And a lot of accounts only have so much appetite for triple-C paper. And it caused a bit of a clog in the market in terms of what people were willing to buy.

"Now you are seeing some of these deals where it looks like investors are getting a little more say in how they are structured."

Woodcraft restructures, JSG talk

Indeed, events reported in Wednesday's primary market session tended to bear Difley out.

News was heard on two deals in the market that are headed for pricing during the remainder of the holiday-abbreviated Feb. 9 week, one of which has undergone structural changes. (The Bond Market Association is recommending an early close Friday ahead of the Presidents Day holiday.)

Price talk of 10% area was heard Wednesday on a restructured $130 million offering from Woodcraft Industries, Inc.

The Saint Cloud, Minn.-based manufacturer of kitchen and bath wood components is now offering eight year senior notes (B2/B-). Initially the company had gone into the market with eight-year senior subordinated notes (B2/CCC+).

The higher Standard & Poor's rating of B- versus CCC+ reflects the enhanced seniority of the bonds now being offered, according to sources.

Credit Suisse First Boston is the bookrunner.

Meanwhile price talk of 12% area was heard Wednesday on JSG Holdings plc's €250 million equivalent offering in dollar and euro tranches, according to market sources.

The offering is comprised of 10-year senior zero-coupon discount notes (B/CCC+).

The deal, led by Deutsche Bank Securities, is expected to price on Thursday morning.

Difley said that in addition to gaining leverage on the structures of some deals the buy-side now has a bit more traction when it comes to pricing levels, as evinced by a number of deals that priced late in the Feb. 2 week at the wide end - and even wide of price talk.

"When the market isn't feeling as good obviously investors are able to demand a little bit more," said Difley. "And frankly with the outflow there wasn't as much pressure for money managers to put money to work, because they weren't quite as flush with cash.

"Right now buyers have a little more leverage."

Prospect News followed up by asking Difley whether the build-up on the forward calendar of comparatively low-rated deals, some of which specified dividend payments to equity holders, could actually have an influence on cash flowing into and out of high-yield mutual funds.

"It depends on how closely investment advisors, who are funneling money into high yield, are watching the markets, in terms of what kinds of deals are coming," he responded.

"The real astute ones are probably able to determine the quality of the deals on the new issue calendar. The astute ones can see that when there are a lot of terrible deals coming it is a sign that the market may be overheating and it may be time to take some profits, as opposed to putting money in.

"Conceivably that happens, but I'm not certain it has a big influence on the fund flows."

North Atlantic upsized

Only one deal priced Wednesday as investors chewed an upsized issue from North Atlantic Trading Co. Inc.

The New York City-based manufacturer of loose leaf chewing tobacco priced $200 million - increased from $185 million - of eight-year senior notes (B2/B+) at par to yield 9¼%.

The Citigroup-led deal price at the tight end of the 9¼%-9½% price talk.

Esselte, B&G Foods headed to market

The market heard Wednesday that Esselte Group Holdings AB is expected to start a Europe-only roadshow during the Feb. 16 week for an offering of €130 million of seven-year senior notes.

Credit Suisse First Boston will run the books on the deal from the Stamford, Conn.-based office supply company.

And B&G Foods Holdings Corp. will likely bring an offering of high yield bonds as the "senior debt" component of a refinancing package disclosed in a Wednesday filing with the Securities and Exchange Commission, according to Robert Cantwell, the company's chief financial officer.

Lehman Brothers will lead (see related report on page one of this issue).

Talk on Phillips-Van Heusen, Solo, UbiquiTel

Price talk of 7¼% area came out Wednesday on Phillips-Van Heusen Corp.'s planned $150 million of seven-year senior notes (B2/BB-), expected to price on Thursday morning.

Credit Suisse First Boston, JPMorgan, and Lehman Brothers are running the books.

Price talk of 8½%-8¾% emerged on Solo Cup Co.'s upcoming $325 million of 10-year senior subordinated notes (B3/B-), expected to price Thursday afternoon, via Banc of America Securities and Citigroup.

And price talk of 10%-10¼% emerged on UbiquiTel's $250 million of seven-year senior notes (Caa1/CCC), also expected to price on Thursday.

Bear Stearns & Co., Citigroup and Banc of America Securities are joint bookrunners.

GCI boosts deal further on new order

A late order prompted General Communications, Inc. to further upsize to $250 million its issue of new 7¼% 10-year notes (B2/B+), syndicate sources told Prospect News on Wednesday.

The already upsized $230 million issue priced at 98.264 on Thursday, Feb. 5 to yield 7½%.

Deutsche Bank Securities ran the books for the deal from the Anchorage, Alaska-based telecom, which was upsized from $200 million.

Brasil Telecom sells $200 million

A somewhat epic struggle to sell its offering of 10-year notes in the wake of the chop caused by late January's interest rate scare ended Tuesday for Brazil's third-largest telecommunications company, Brasil Telecom SA.

The company sold $200 million of 9 3/8% 10-year notes (Baa3//BBB-) at 99.826 on Tuesday to yield 9.4%, according to a market source.

Revised price talk on the Citigroup-led deal was 9.4% area, up from 9¼%. However during Brasil Telecom's roadshow guidance was heard to have crept up from the mid-to-high 8%-range.

Construtora Norberto to price $150 million

A $150 million offering of five-year bonds from Brazilian construction firm Construtora Norberto Odebrecht SA is reported on the road and expected to price on Friday, with Credit Suisse First Boston and Unibanco as underwriters, according to a market source.

North Atlantic firms in trading

When North Atlantic Trading's new 9¼% senior notes due 2012 were freed for secondary dealings, they were heard to have firmed smartly to bid levels around 102.75 from their par issue price earlier in the session.

Time Warner Telecom Holdings Inc.'s new 9¼% senior notes due 2014, which priced at par on Tuesday, had not moved from that neighborhood in Wednesday's dealings, going home quoted at par bid, 100.5 offered.

AES Corp.'s 7¾% senior notes due 2014, which had priced at 98.288 late Tuesday - too late for aftermarket dealings during that session - moved up to 99.75 bid, 100.75 offered in early dealings Wednesday, before settling in at 99.625 bid, 100.125 offered.

B.F. Saul Real Estate Investment Trust's new 7½% senior secured notes due 2014, which priced at par on Tuesday and did not budge from there when the issue was freed for aftermarket dealings, moved up to 100.75 bid, 101.25 offered in Wednesday's session.

Goodyear drops on SEC inquiry

Among established issues, Goodyear bonds skidded lower, after the company said in an 8-K filing with the SEC that it had been advised by the agency last week that the SEC was converting its previously announced informal inquiry into accounting problems into a formal investigation. Upgrading the investigation would allow the SEC's enforcement division to subpoena the company for documents and statements from current or former employees.

Goodyear also said that it was expanding its own internal probe of possible improper accounting at its European business segment to other overseas operations.

As a result of the widened investigation, Goodyear warned that this would likely delay its filing of its audited financial statements and its form 10-K for 2003, which had been scheduled to take place on or around March 15. Goodyear not specify when it expected to have the statements ready for filing.

A trader said that Goodyear's bonds fell across the board post-news, with the company's 6 5/8% notes due 2006 dropping to 98.5 bid, par offered from 100.5 bid, 101 offered pre-news. The tiremaker's longer-dated paper, he said, had lost about 3½ points on the session.

At another desk, the 7.85% notes due 2011 fell to 91 bid from 94 on Tuesday, although those bonds had dropped as low as 88 immediately after the news, before firming off its low for the day.

A market source quoted Goodyear's 6 3/8% notes due 2008 swooning to 89 bid from 94 and pegged its 8½% notes due 2007 at 98.5 bid, off from par.

News of the expanded SEC investigation and internal probe and the delayed filing followed the announcement earlier in the session by S&P that it was cutting the company's ratings, including that of its senior unsecured notes, which was lowered to B from B+ previously.

The ratings agency also lowered Goodyear's existing $1.3 billion U.S. bank facility and its $120 million of 5 3/8% notes due 2006 to B+ from BB- previously, citing reduced asset protection in the wake of Goodyear's planned new term loan, which will be senior to much of the company's existing debt, pushing the holders of the less-senior debt further to the back of the line in any kind of restructuring scenario. It put Goodyear on CreditWatch with negative implications - meaning it could downgrade those ratings again.

Goodyear equity holders were as perturbed as bond investors; the company's New York Stock Exchange-traded shares were down by as much as 17% during the session to a new five-year low before regaining part of that loss to close 96 cents (9.68%) lower at $8.96. Volume of 10.9 million shares was four times the norm.

Tenet firms a little

Elsewhere, Tenet Healthcare bonds seemed a little less sickly Wednesday, following several straight sessions in which the bonds of the problem-plagued Santa Barbara, Calif.-based hospital operator had moved solidly lower. It recently announced plans to close or sell almost a third of its properties.

Tenet's 6 3/8% notes due 2011 firmed a point to 90.5 bid, while its 7 3/8% notes due 2013 were half a point better at 94.75.

A trader at a different shop saw the company's 6½% notes due 2012 edge up to 89 bid, 90 offered, half a point up on the bid side, while its 6 7/8% notes also gained half a point to 83 bid, 85 offered.

Traders saw little real movement in the bonds of Rite Aid Corp., in the wake of news reports that the Camp Hill, Pa.-based drugstore chain operator was getting into the hunt for J.C. Penney Corp.'s money-losing Eckerd drugstore chain, apparently joining rival pharmacy operator CVS Corp. and Canadian-based retailer Jean Coutou Group Inc. According to market sources, Rite Aid would be making a cash and stock offer of around $4 billion for Eckerd's 2,700 stores. However, were it to eventually win the contest for Eckerd, Rite Aid would likely have to get rid of many of the stores, particularly in the northeast, to avoid anti-trust problems.

A trader said that "some were lower and some higher," but none had moved very much, with Rite Aid's 7 5/8% notes at 101 bid, 102 offered; its 8 5/8% notes at 107.5 bid, 108; and its 7.70% notes due 2027 at 94 bid, 95 offered.

There was likewise little movement in the bonds of EchoStar DBS, despite financial media speculation that the Littleton, Colo.-based satellite broadcaster might be an attractive M&A target should top cabler Comcast Corp.'s unsolicited bid for Disney Corp. produce a wave of media-industry consolidation. EchoStar's 5¾% notes due 2008 were unchanged at 102.

Overall, a trader said, "the market started off with no major conviction," before Fed Chairman Alan Greenspan's statement indicating "that he probably wasn't going to raise rates, ever," he said ironically, "lit a fire under equities and the higher-quality junk names, like Xerox and Georgia Pacific, and the market was off and running, though on not a lot of volume."

"Offerings were lifted," he added, "the market had a better tone."

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