Levi bonds better as new Dockers bidders seen; Visteon down as guidance withdrawn

By Paul Deckelman and Paul A. Harris

New York, Sept. 10- Levi Strauss & Co. bonds were seen up solidly Friday in response to news reports that its Dockers unit is attracting interest from several previously unseen potential buyers, pushing the likely sale price higher. On the downside, Visteon Corp. bonds were seen down about two points after the Dearborn, Mich.-based automotive components maker withdrew its previously announced guidance and warned that cuts in production by Ford Motor Co., Visteon's largest single customer, could hurt its earnings going forward.

Visteon's bonds were seen down two points across the board, a market source said, quoting its 8¼% notes due 2010 as having retreated to 105 bid from 107 and its 7¼% notes due 2014 as having dipped to 95 bid from 97 on the news.

A trader at another desk agreed that Visteon was "down a bit" on the news.

The company's New York Stock Exchange-traded shares meanwhile lost an even $1 (11.11%) to close at $8 on then nose, on volume of 6.8 million shares, more than five times the average daily handle.

Visteon - which is scheduled to release its third-quarter earnings on Oct. 21 - announced late Thursday that it would record a non-cash charge estimated to be in the range of $825 million to $900 million to write down its deferred tax assets in the third quarter.

The company said that the decision to record the charge was reached following an analysis of the anticipated impact of Ford's announcement of lower than expected North American production estimates for fourth quarter and full year 2004.

"As a result of this analysis, and considering Visteon's losses in 2002 and 2003, the timing of when Visteon will be able to generate sufficient taxable income in the United States and other affected jurisdictions to utilize the company's deferred tax assets is now unclear," Visteon warned in a company statement.

"In these circumstances, a write-down of Visteon's deferred tax assets is required under accounting standards."

Although the company said that it has made "significant progress" in diversifying its sales base, declining production volumes on vehicles on which Visteon has significant content continue to adversely affect financial performance.

This is especially true of its Dearborn neighbor, Ford, since the Number-Two U.S. auto giant is the company's largest single customer.

Visteon expects its financial performance for the second half of 2004 and for the full year will be "significantly below previously forecasted results," due to the impact of lower than anticipated Ford North American volume, as well as the write-down of deferred tax assets, increased steel and fuel costs, which Visteon has not been able to recover fully, and delays in the benefits that were expected to be achieved from labor strategies, such as flowbacks and plant-level operating agreements.

As a result of these factors, the company said it "expects to evaluate additional fixed assets for impairment, and may as a result of this evaluation, be required to write-down certain assets in the second half of 2004. Due to the uncertainty regarding this asset review, as well as the uncertainty on the outcome of Ford discussions, Visteon is withdrawing its prior guidance for third quarter and full-year 2004 revenues, earnings and cash flows."

Visteon's bad news had a ripple effect, helping to drag down the bonds of other high-yield automotive issuers, trader said.

Collins & Aikman down with Visteon

One noted particular weakness in Collins & Aikman Products Corp.'s bonds, "along with other weak automotive names."

He quoted Collins & Aikman's recently issued 12 7/8% notes due 2012, which had closed out trading Thursday at 98 bid, 99 offered, as having fallen as low as 95 bid, 96 offered in Friday's dealings, before firming slightly off those lows to end at 96.5 bid, 97.5 offered, still down 1½ points on the session. He quoted the company's 10¾% due 2011 offered at 103, with no bid.

At another desk, those bonds were quoted at 101.75 bid, down from 102.5 on Thursday, while the 12 7/8s were at 95.5 bid, down from 98.75. Collins & Aikman's 11½% notes due 2006, scheduled to be redeemed at par later this month, fell to par from 100.25.

Dura also lower

Another automotive name spinning its wheels Friday was Dura Operating Co. Its 8 5/8% notes opened at par bid, 101 offered and ended slightly above that at 101.5 bid, 101.5 offered - still down from Thursday's 102.5 bid, 103.5 offered.

At another desk, the Rochester Hills, Mich.-based auto controls company' 9% notes due 2009 were seen down two full points at 96.5 bid.

Levi gains on buyers report

Back on the upside, a trader said, Levi's bonds "opened higher," although he saw "not a lot of follow-through. They quieted down in the afternoon."

He saw the San Francisco-based apparel maker's 7% notes due 2006 at par and its 11 5/8% notes due 2008 at 104 bid, 105 offered, up at least 1½ to two points, he said.

The market, he said, "is still in a mood where investors have a lot of cash" - particularly in the wake of a third consecutive high-yield mutual fund inflow in the week ended Wednesday.

"There's a lot of cash there," he said, with hardly anything in the way of new issuance to sop some of it up.

However, buying in Levi was not universal; the trader said that there had been "no activity to speak of" in the company's 12¼% notes due 2012, which were recently trading in a 105.5 bid, 106.5 offered context. Several other traders also noted that the 121/4s were sidelined, while there was brisk interest in the other two Levi's bonds.

The Levi bonds rose in the wake of a piece in The Wall Street Journal on Friday reporting that clothing makers Perry Ellis International Inc. and Haggar Corp. have entered the bidding for Dockers, pushing offers for the casual khaki clothing line to between $750 million and $900 million. The paper cited unidentified sources "familiar with the matter."

The Journal said that each has either lined up or is in the process of lining up deep-pocketed equity partners - Oak Hill Capital Partners in Perry Ellis's case, while Haggar was reported to be in advanced talks with a number of private-equity firms to prepare a joint bid.

However, the paper also said that the Haas family, which controls the closely held Levi, wants to see bids above $900 million, and could still take Dockers off the table.

Debt-burdened Levi first announced in May that it would explore the possible sale of Dockers, with proceeds expected to be used to eliminate debt. Analysts and news reports have indicated that the unit could fetch anywhere between $500 million and $1 billion. Among the companies previously mentioned as potential buyers have been Jones Apparel, VF Corp. and Kellwood Corp.

A Levi Strauss representative was quoted by the paper as saying that the details of the sales process are "confidential between prospective buyers and us."

Qwest higher on SEC deal hopes

Elsewhere, Qwest Communications International Inc. bonds got a boost from news reports indicating that the Denver-based telecommunications company was nearing a settlement agreement with the Securities and Exchange Commission of financial and disclosure fraud allegations. According to the reports, Qwest would agree to pay the SEC $250 million to settle the case while admitting no wrongdoing. Settlement of the case, though expensive, would remove a major uncertainty from over the heads of the company's investors.

A trader saw Qwest's 13 % notes due 2007 up 1½ points at 114.75, while its 7¼% notes due 2011 were up two points at 88.5 bid. Qwest's 7¾% notes due 2031 rose to 76.75 bid from 75.5

Lucent better on Moody's upgrade

Telecommunications equipment maker Lucent Technologies Inc.'s bonds were heard to have firmed after Moody's Investors Service upped the Murray Hill, N.J.-based company's ratings, including the senior implied rating, which was elevated two notches to B2 from Caa1. The outlook is positive.

Lucent's 6.45% bonds due 2029 and 6½% bonds due 2028 were the biggest gainers, both up ¾ point to 79.75. Lucent's 5½% notes due 2008 were half a point better at 97.5 bid, while its 7¼% notes due 2006 edged up ¼ point to 105.25.

Moody's cited Lucent's adequate funds, stabilizing revenue and its better profitability and cash flow.

Primary quiet

The closing session of the four-day post-Labor Day week produced no news in the U.S. new issue market and next to no news elsewhere.

Prospect News learned from sources in Europe that Spanish gaming and leisure firm Cirsa Business Corp. SA is expected to soon reopen its 8¾% senior notes due May 15, 2014 issued through Cirsa Finance Luxembourg SA in order to price a €50 million add-on, with Deutsche Bank Securities leading the deal.

One source suggested Friday that the deal is imminent

Last May the company priced €210 million of the 8¾% notes, decreased from €260 million, at par.

The building European pipeline

European high yield sources also ran down what promises to be a comparatively busy early autumn in that sector of the junk market.

They first pointed to the pair of deals presently in the market:

* German plumbing fixtures company Grohe AG with €335 million 10-year senior notes (B-), via Credit Suisse First Boston, Citigroup, Deutsche Bank Securities, expected to price next week; and

* Culligan Finance Corp. BV's planned €185 million of 10-year senior subordinated notes (confirmed B3/expected B-), via Citigroup, Banc of America Securities, BNP Paribas, expected to price during the week of Sept. 20.

In addition to those deals, which are now being marketed, at least four other euro-denominated offerings are expected to emerge in September-October time frame.

These include:

* Paris-based publisher Editis (formerly Vivendi Universal Publishing) with €150 million via BNP Paribas, Credit Suisse First Boston, Lehman Brothers,

* Netherlands department store owner Royal Vendex KKB NV with €350 million bonds via ING and Citigroup

* German do-it-yourself retail markets and garden centers Hornbach-Baumarkt-AG with €200 million via Deutsche Bank Securities, and

* New Jersey chemical manufacturer Rockwood Specialties Inc. with €500-€600 million via Credit Suisse First Boston and Goldman Sachs & Co.

Somewhat further out in the pipeline, sources added, is a possible €100 million from Italian scooter maker Piaggio, which it will use to help fund its acquisition of Italian motorcycle company Aprilia, a deal expected to close on Sept. 30.

Finally, London-based steel-maker Corus Group plc is also expected to show up with new paper during the remainder of 2004, as is German glass-maker Gerresheimer Glas AG.

"Things are busy," one European source commented, adding that timing on several of the above-mentioned deals could emerge by mid-September - meaning this week.

What you can see (and what you can't)

Although in the run up to Labor Day sources forecast various buildup scenarios for the U.S. high yield calendar, as the Sept. 6 week came to a close only four dollar-denominated deals totaling $1.440 billion are actually thought to be in the market.

That said, late Friday sell-side sources warned Prospect News that the early part of the Sept. 13 week could conceivably bristle with new deal announcements.

Bear Stearns high yield analyst Mike Taylor told Prospect News on Friday that given present market conditions the forward calendar can only tell you so much about new issue supply.

"The visible forward calendar can mask true supply because market conditions are so important," said Taylor.

"Issuers can bring deals relatively quickly, as we saw this week with MGM Mirage."

He was referring to the Las Vegas casino and resort company's upsized $450 million add-on to its 6% senior notes due Oct. 1, 2009 (Ba1/BB+) which priced at 101.50 on Wednesday, resulting in a 5.653% yield. The deal was increased from $400 million.

"That can create issuance that is much greater than it appeared on the calendar the week before," Taylor added.

"People seem to be expecting robust issuance over the next couple of weeks. But it depends on what happens with interest rates and other factors.

"The demand is there," Taylor said. "And people may want to price things before the November elections just to keep that uncertainty out of the picture."

Taylor also said that the current market dynamics could be conducive to more quick-to-market business, similar to MGM Mirage.

"The reason that people are bidding up the secondary is, in part, because they are comfortable with the credit fundamentals, such as low defaults, and are also comfortable with economic fundamentals," Taylor said.

"And people also think that the Fed is not going to be too aggressive with rates."

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