Sanmina-SCI prices upsized deal; Winn-Dixie bonds collapse on earnings restatement

By Paul Deckelman and Paul A. Harris

New York, Feb. 16 - Sanmina-SCI Corp. was heard by high-yield syndicate sources to have priced an upsized offering of eight-year bonds on Wednesday. Also on the new-deal front, CPI Holdco Inc. priced an issue of floating-rate notes, with interest payable either in cash or through the issuance of additional notes.

In the secondary sphere, bonds of Winn-Dixie Stores Corp. - which had plunged sharply over several sessions last week but then had appeared to stabilize in the mid-60s - were back on the slide Wednesday, swooning down into the lower 50s after the troubled Jacksonville, Fla.-based supermarket operator said it had incorrectly calculated EBITDA for the 2005 fiscal first quarter that ended in mid-September, calling into question the company's accounting.

In total the high-yield market saw $580 million price Wednesday in three tranches from three issuers, the biggest being the upsized $400 million drive-by from San Jose, Calif.-based electronic components-maker Sanmina-SCI.

The deal came at the tight end of talk.

Like Sanmina, FPL Energy National Wind Portfolio also priced its $100 million at the tight end of price talk, while the day's remaining transaction, a restructured $80 million floating-rate cash or PIK note from CPI Holdco Inc. (Communications & Power Industries) came on top of talk.

A sell-side source late in the session told Prospect News that although the forward calendar is at present extremely light, junk bond deals appear to still be receiving good executions.

And there also appears to be cash on the buy-side that still needs to be put to work.

Sanmina upsized, tight to talk

Wednesday's biggest transaction came from Sanmina-SCI Corp., which drove through with an upsized $400 million issue of eight-year senior subordinated notes (B1/B) that priced at par to yield 6¾%.

The Citigroup, Banc of America Securities and Merrill Lynch-led debt refinancing deal came at the tight end of the 6¾% to 6 7/8% price talk.

Elsewhere FPL Energy National Wind Portfolio (the holding company) priced $100 million of 14-year senior secured notes (Ba2/BB-/BB) at par on Wednesday to yield 6 1/8%, at the low end of the 6 1/8% to 6 3/8% price talk.

Credit Suisse First Boston ran the books for the dividend funding deal that is secured by the company's wind energy assets.

Pax World High Yield Fund portfolio manager Diane Keefe, who played the deal, compared the new notes to the FPL Energy Wind Funding LLC 6.876% senior secured amortizing notes due July 2017, which priced in a $125 million transaction in December 2003, also via Credit Suisse First Boston.

"The first deal went well," Keefe commented, "and this is a more diverse group of assets."

Keefe spotted the new 6 1/8% notes trading in the after market at 100.625 bid, 101.625 offered, and estimated that the order book was at least two-times oversubscribed.

Finally, in a deal that generated discussion on the sell-side which seemed altogether disproportional to its size, CPI Holdco Inc. priced a restructured $80 million issue of 10-year senior floating-rate cash or PIK notes (Caa1/B-) at 99.00 on Wednesday.

The coupon will float at six-month Libor plus 575 basis points, which is right on top of the price talk.

UBS Investment Bank had the books for the dividend funding deal from the Palo Alto, Calif. manufacturer and distributor of vacuum electronic devices and other related equipment for defense applications.

The company increased call protection to two years from one year.

The first coupon payment will be made in cash, and cash will be the default method of payment. The coupon will step up 100 basis points every time the issuer opts to pay in kind, as opposed to paying in cash, with a maximum 400 basis points total step up.

Harry and David, and that's it for the week

While one sell-side official refused to rule out the possibility that Thursday's full session and Friday's abbreviated pre-Presidents Day weekend session could see drive-by business in junk, nevertheless only one deal remains on the calendar as business for the present week.

Bear Creek Corp. (Harry and David) is offering $245 million in two tranches (B3/B-).

The gift catalog company is selling $145 million of eight-year senior fixed-rate notes and $100 million of seven-year senior floating-rate notes via UBS Investment Bank and Banc of America Securities.

Pricing is expected on Friday.

Although no price talk has been heard a market source told Prospect News that the fixed-rate notes are pro formaed at 8½% and the floater at Libor plus 450 basis points.

Keefe told Prospect News that she likes the Harry and David deal.

"The company didn't do that badly even when the economy was really weak after 9/11," she said. "They had some missteps in that they had some retail operations which they are now shutting down.

"But the gift fruit is really good," Keefe asserted, with Wednesday's session drawing to a close and the dinner hour fast approaching.

"They know their business. They know how to wrap it and ship it so that the pears are really juicy and the apples are really crisp."

Telcordia kicks off roadshow

One roadshow start was heard during the Thursday session.

Telcordia Technologies, Inc. kicked off a Feb. 16 to Feb. 25 roadshow for its $350 million offering of eight-year non-call-three senior subordinated notes (expected B3/confirmed B-).

The Piscataway, N.J.-based provider of telecommunications software plans to price on Monday, Feb. 28.

JP Morgan, Bear Stearns & Co., Deutsche Bank Securities and Lehman Brothers are joint bookrunners for the acquisition financing.

And the Alstom Group priced the new fixed-rate bonds involved in the exchange offer for its €650 million of 5% bonds due 2006 and €250 million of subordinated auction rate bonds due 2006, via BNP Paribas and Merrill Lynch & Co.

The new 6¼% notes due March 3, 2010 are priced 99.829 to yield 6.291%.

The French manufacturer of power generating and transportation equipment is mulling whether to issue some of the new notes for cash, and is accepting orders from Feb. 17 through Feb. 24.

Sanmina up in trading

When the new Sanmina-SCI 6 ¾% notes due 2013 were freed for secondary dealings, a trader said that the bonds "seemed to trade well," rising to end-of-session levels at 101 bid, 101.375 offered, well up from their par issue price earlier in the session.

The trader said that the new CPI Holdco floaters due 2015 were not seen in secondary, opining that there would not be much demand for a smallish ($80 million) floating-rate PIK note.

Winn-Dixie plummets

Back among the established issues, Winn-Dixie's 8 7/8% notes due 2008 were seen having plunged to levels as low as 50 bid, 52 offered from Tuesday's close in the 66 bid area, before firming off their lows to close at 54 bid, 55 offered.

That plunge mirrored a fall of 17 cents (9.71%) in the company's New York Stock Exchange-traded shares, which ended at $1.58. Volume of 2.8 million shares was about 12 times the usual turnover.

Winn-Dixie fell after it said that it had miscalculated EBITDA in the fiscal quarter ended Sept. 22, raising questions about its accounting, and leaving investors wondering what other unpleasant surprises may be in store for them.

In an amended 10-Q quarterly filing late Tuesday with the Securities and Exchange Commission, Winn-Dixie said that in its original 10-Q, filed last fall, it had stated that its total liquidity as of the end of the quarter was $452.5 million - $64 million in cash and cash equivalents and $388.5 million of net borrowing availability under the company's revolving credit facility. The latter is determined, in part, by a test under which the company must maintain a certain level of EBITDA, or face a $100 million reduction in borrowing capacity. Winn-Dixie said that the EBITDA amount it reported was incorrect, since it did not take into account certain non-cash charges as required by the revolver agreement.

If the cash-flow measure had been calculated correctly, the company said, its net borrowing availability for the quarter ended Sept. 22 would have been $288.5 million, not $388.5 million, and total liquidity as of that date would have also been accordingly reduced by $100 million to $352.5 million instead of the reported $452.5 million.

EBITDA "is a basic accounting number - and these guys couldn't get it right," a trader said. "So obviously their handle on the company doesn't seem to be very tight at the moment."

The admission of so basic an accounting error "says 'we don't know what we're doing'," he continued. "A junior analyst can come up with a correct EBITDA number and these mopes did that [mistake]? And who audited their books, by the way, and that statement they put out?"

The accounting snafu is the latest in a long series of events, stretching back over a year, that have got investors increasingly jittery about the venerable supermarket company - once the regional leader in the southeastern United States, but now clearly losing market share to other regional rivals such as Publix and Food Lion, and to Wal-Mart Stores. Winn-Dixie last week announced its numbers for the fiscal second quarter ended Dec. 25, including a net loss for the quarter and a year-over-year sales decline.

"Violent" reaction

"The violent reaction [to the announcement] kind of surprised me," another trader said, "because the revision has no effect on the numbers they just announced."

He said that it was just one more reason why, in his opinion, "vendors are going to get very nervous about this company and are going to demand at least a portion, if not a lot, of their payments in cash - and Winn-Dixie doesn't have the wherewithal to do that, which would prompt a [Chapter 11] filing.

"So this is just going to wake up more vendors and make it that much more difficult for them to continue operating the way they've been operating."

During the company's conference call following the release of its quarterly numbers, chief financial officer Bennet Nussbaum acknowledged that some vendors had recently toughened their payment terms with the company, although he said none was demanding cash on delivery - yet.

"The reality is that what they put out shouldn't have that kind of effect," the trader reiterated. "The "vehemence" of bond and equity investors' reaction to the disclosure of the accounting error "is telling you how nervous the market is about them. The more you look at things like this, the more you're going to say 'who's going to give them a line of credit? What vendor is going to sit there and say 'OK, we'll be an unsecured creditor to Winn-Dixie. We don't mind.'' Well, that's not going to happen."

He said that if a major vendor were to toughen up their terms, or even demand cash, would produce "financial strains that would mean everybody else" who deals with Winn-Dixie "would have to do it."

He said that in the long run, the company's only remedy would be to "file [Chapter 11] and clean themselves up" the way retailer Kmart did several years ago; once the Troy, Mich.-based discount department store operator sought Chapter 11 protection, it was able to break onerous leases on unproductive store sites and was able to thus drastically cut its operating costs, which helped the once struggling company to finally emerge from bankruptcy and become a new darling of Wall Street.

El Paso gains

Elsewhere, El Paso Corp. bonds were better, on news that the Houston-based pipeline company said that said it was on track to sell off selected non-core assets this year - which would help the company beat its previously announced debt-reduction target.

A market source quoted the company's 7% notes due 2018 at 93.5 bid, up from 92 previously, and its 7 3/8% notes due 2012 a point better at 103 bid. Its 8.05% notes due 2030 were half a point better at 101.25.

At another desk, El Paso Holdings Corp.'s 7¾% notes due 2013 were seen up a point at 108.5 bid.

B/E better after earnings

On the earnings front, B/E Aerospace Inc. said that its fourth-quarter net loss narrowed to $9.3 million (17 cents per share) from a loss of $19.5 million (53 cents per share) a year earlier. The Wellington, Fla.-based aircraft interiors company recorded debt extinguishment costs in the quarter of $8.8 million related to its retirement in November of $200 million of 9.5% senior subordinated notes.

B/E's 8½% notes due 2010 and 8 7/8% notes due 2011 were each seen up half a point, at 112 bid and 105.5 bid, respectively.

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