Allied Waste, Host Marriott plan deals; Collins & Aikman bonds bounce off lows

By Paul Deckelman and Paul A. Harris

New York, March 2 - Allied Waste Industries Inc. and Host Marriott Corp. were heard by high-yield syndicate sources Wednesday to be getting ready to price sizable drive-by bond offerings during Thursday's session. Those impending big deals - each over half a billion dollars - overshadowed two smaller quickie deals that priced Wednesday, for Range Resources Corp. and for Colorado Interstate Gas Co., a subsidiary of El Paso Corp.

In secondary dealings, automotive names were being batted around for most of the session, pulled lower by the latest bad news out of Detroit, as Lear Corp. lowered its first-quarter estimates, in line with output cuts announced by General Motors Corp. and Ford Motor Co.

But the auto junk name that has been the most badly beaten of late, Collins & Aikman Products Co., seemed to finally hit bottom after several straight sessions on the downside, and bounced off its lows.

Elsewhere, the battle for MCI Corp. heated up, as the Ashburn, Va.-based long-distance operator said it would seriously consider an acquisition bid by Qwest Communications International Inc., even though MCI has already officially accepted a merger proposal from Qwest's larger and better financed rival, Verizon Communications Inc. However, MCI's bonds - which had been boosted some weeks back by speculation of a possible bidding war for the company - were seen not much moved on the news.

Primary sees drive-by activity

The familiar platitude holds that forewarned is forearmed, and so Prospect News readers should not have been taken by surprise as the primary market, which seemed to start the month of March in a state of cryonic suspension, burst to life Wednesday with a flurry of drive-by business.

Sources on Monday and Tuesday had advised that such would be the case.

The market saw $350 million price in issues from two different energy names on Wednesday, with another $1.3 billion on deck for Thursday.

There's cash out there

"There was not a single deal on the calendar scheduled to price at the end of last week," one investment banker commented after Wednesday's close.

"Then all of the sudden there are eight deals, for just shy of $2 billion - all of it drive-by activity.

"There is obviously cash out there and the sell-side is aware of it. And obviously they are taking advantage of it."

The uptick in issuance, the sell-sider added, seems to come in defiance of continuing negative cash flows from the high-yield mutual funds.

"The mutual fund community seems to represent a smaller and smaller proportion of the high-yield investor base," the investment banker explained. "The pension funds are a bigger part. The hedge funds are about on par with the mutual funds.

"There is just a lot of cash out there."

"The financial pages may be full of inflation warnings, the stock market may be see-sawing and the price of oil may tempt soccer moms to tow drill rigs behind their SUVs, but junk bond investors remain game," the sell-sider asserted.

"The only weakness in the market that we are noticing is very name-specific: Collins & Aikman, Elan and so forth - all situational, name-specific stuff," the source said.

"Overall the secondary market is pretty well-bid. New issuance is modest but it's getting done fairly well. You still have your fair share of triple-C rated deals. We haven't seen a dividend deal in the last week or 10 days.

"People were spoiled in 2003 and 2004," the investment banker added. "They got used to seeing $3.5 billion or $4 billion of new issuance every week. Right now we're averaging between $2 billion and $2.5 billion of new issues, week in and week out.

"I think that's a pretty healthy base."

Energy names gas up on junk

Two energy companies priced drive-by deals during the mid-week session.

Colorado Interstate Gas Co. priced a $200 million issue of 10-year senior unsecured notes (existing B1/confirmed B-) at par to yield 5.95%.

The notes priced at a spread of 158 basis points, slightly wide of the mid-point of the Treasuries plus 150-162.5 basis points price talk.

Citigroup and Credit Suisse First Boston ran the books for the debt refinancing and general corporate purposes deal from the Houston-based issuer, a subsidiary of El Paso Corp.

Also from the Lone Star State, Range Resources Corp. turned up from old Forth Worth on Wednesday, driving by with a $150 million issue of 10-year senior subordinated notes (B3/B) that it priced at par to yield 6 3/8%, on top of the price talk.

JP Morgan ran the books for the independent oil and gas company's debt re-financing deal.

Some familiar names for Thursday

The drive-by activity of which the market learned on Wednesday will continue into Thursday, with three prospective issuers poised to price deals in the afternoon following morning investor conference calls.

Allied Waste Industries Inc., the Scottsdale, Ariz., solid waste company, came out from behind the bushes with its $600 million offering of 10-year non-call five senior notes (B2/BB-/B+) via JP Morgan, UBS Investment Bank, Credit Suisse First Boston and Wachovia Securities.

Proceeds will be used to refinance debt.

Bethesda, Md., upscale hotel company Host Marriott, LP plans to price $500 million of 10-year non-call-five senior notes (existing ratings Ba3/B+) via Goldman Sachs & Co., also to repay debt.

And Florida master community company WCI Communities plans to price $200 million of 10-year non-call-five senior subordinated notes (existing ratings Ba3/B+) via UBS Investment Bank and Banc of America Securities, again to refinance debt.

Whither the dividend deals?

With the main use of proceeds in the Wednesday and Thursday quick-to-market offerings being debt refinancing and no proceeds to be distributed to shareholder such as has been seen in recent weeks, and with nary a C among the credit ratings of the prospective issuers, Prospect News asked an investor if credit quality in high yield is improving.

The investor, however, remained unimpressed.

"People are saying that triple-Cs are increasing as a total percentage of the calendar," the buy-sider said. "That can't be good.

"That trend has been in place for the last three months."

The above-quoted investment banker, when confronted with this assertion from the buy-side, said "Yes and no."

"Last week there was only one triple-C deal that priced," the source said.

"But on a year-to-date basis, compared with last year, we have had almost the same number - in terms of total dollar proceeds - of lower rated credits, with triple-C on at least one side of the line."

Rexel for the road

Finally, Wednesday saw one roadshow start.

Rexel SA, the Paris-based electrical equipment supplier, began its roadshow for €600 million equivalent of 10-year non-call-five senior subordinated notes which will be issued in dollar and euro tranches, sizes to be determined.

JP Morgan has the books for the acquisition deal that is expected to price next week.

Colorado Gas edges up in trading

When the new Colorado Gas 5.95% notes due 2005 were freed for secondary dealings, the bonds were seen to have firmed slightly to 100.5 bid, 100.75 offered from their par issue price earlier in the session.

The new Range Resources' 6 3/8% notes due 2015 priced too late in the session for any kind of aftermarket action Wednesday, traders said.

Autos fall - and rise

Back among the established issues, it looked like this session would be the latest in a recent string of beatings for the beleaguered auto industry, whose high-yield issuing component makers have been taking it on the chin of late, hit by the double whammy of production cutbacks among the Big Three and continued rising raw materials prices.

Collins & Aikman, which makes plastic interior and exterior components and is thus extremely exposed to rising oil prices - since most plastics are made from petroleum derivatives - has been getting pounded down on cutback and raw-materials concerns all this week and several sessions last week, and Wednesday started out as more of the same, with the Troy, Mich.-based manufacturer's 10¾% senior notes due 2011 quickly dropping another two points to 92 bid, while its 12 7/8% notes due 2012 likewise were down a quick deuce in morning dealings to 66 bid.

Other automotive names taking an early bath included Tenneco Automotive Inc., whose 10¼% notes due 2013 were seen a point lower at 117, and Dura Operating Corp., whose 9% notes due 2009 lost more than a point to 92 bid, and whose 8 5/8% notes due 2012 were down about a point at par bid.

A trader saw Metaldyne Corp., especially, "getting walloped," with the Plymouth, Mich.-based automotive metal components maker's 11% notes due 2012 pounded down to 84.5 bid, 85.5 offered from prior levels at 88.5 bid, 89.5 offered, this after Standard & Poor's dropped its debt ratings to B from BB- previously, with a negative outlook.

The ratings agency cited the company's high leverage, constrained liquidity and the increasingly challenging conditions in the auto industry.

"While we still expect that the company will be able to significantly offset higher raw-material costs and maintain viable liquidity in the face of challenging industry conditions during 2005, partly due to a fairly well-positioned customer mix, leverage is likely to remain high, as most cash flow will be used for debt service, capital spending and to support working-capital needs," S&P credit analyst Robert Schulz wrote in his downgrade message.

But despite all of those automotive negatives, the trader saw the sector having a bounce later in the session

For instance, he saw Dura's 9s, after having fallen as low as 90.75 bid during the session, getting off the floor to recover to 92 bid, 93 offered, which he pegged as down only half a point.

And Collins & Aikman, he said, also bounced from its lows, the 103/4s ending at 92.5 bid, 93.5 offered after having touched lows of 91.5, while the 12 7/8s came up from lows of 64 to end at 67 bid, down only a point.

At another desk, a trader, contacted later in the day, saw the Collins bonds actually "popping" quoting the 103/4s as going home at 93.5 bid, 94 offered, well up from their intra-day lows at 90.5 bid 92 offered, and the 12 7/8s getting as good as 68 bid, 70 offered, up from 64.5 bid, 65.5 offered at mid-afternoon.

"Something [positive] must have happened to trigger a rise like that in the bonds," he said, although he also acknowledged that "it could just be a bounce," after having been so oversold Tuesday and earlier Wednesday. "There were no news headlines saying great screaming news for CKC," he declared.

MCI bonds little moved

Outside of the auto sector, there was some interest in telecom, as the takeover fight for MCI got more interesting Wednesday, a day after Qwest chairman Richard Notebaert lobbied Wall Street to try to get the financial community behind his company's revised $8 billion bid for MCI, which is considerably above the roughly $6.8 billion that the Verizon bid for MCI is worth.

Verizon said that it would give MCI a two week window to study the Qwest bid and speak with Qwest, and expressed confidence that at the end of the day, MCI would still want to accept the lower offer to become part of the stronger company.

MCI said in a statement that "some 20 MCI representatives, including advisors, met with Qwest for the better part of a day in a series of constructive meetings that outlined a process and next steps for conducting a thorough review. We believe that constructive dialogue - rather than rhetoric - is in everyone's best interest. MCI remains committed to a full and meaningful exchange of information."

Qwest, however, is not so sure. Notebaert, in a letter to his opposite number at MCI, Nicholas Katzenbach, declared that MCI had not given his company's original offer a fair hearing, and expressed concern that "the process over the next two weeks will simply be process for process' sake, as opposed to a meaningful evaluation of our offer."

MCI bondholders did not seem much impressed with the latest turn of events, with the bonds being characterized by one trader as up 1/8 to perhaps ¼ point, while another had the bonds down ¼ with the most volatile and active issue, its 8.735% notes due 2014 seen around the same 112.5 level they had recently held. Its 7.688% notes due 2009 continued to hover in the 105 area, and its 6.908% notes due 2007 remained around 102.5 bid.

A trader did see Denver-based regional Bell operating company Qwest's bonds firm slightly on "chatter that Qwest is a little closer to winning on MCI"; he quoted its 6 7/8% notes due 2028 at 84 bid, 85 offered, while its 7.90% notes due 2010 were at par bid, 100.5 offered and its 7¼% notes due 2011 at 98.25 bid, 99 offered.

A&P gains

A trader saw Great Atlantic & Pacific Tea Co.'s bonds up - and wondered why. He quoted the Montvale, N.J.-based supermarket operator's 9 1/8% subordinated notes as having "marched up" as high as 100.5 bid before ending the session at 99 bid, par offered, well up from 95.5 bid, 96.5 offered on Tuesday.

And he saw the company's 7¾% senior notes due 2007 a point better on the day at 101.75 bid, 102.75 offered.

One possible explanation for the rise emerged from north of the border, where the Globe & Mail newspaper in Toronto reported that the company - the operator of the venerable A&P store chain - was considering the sale of its Canadian unit for as much as C$1 billion ($806 million). A&P characterized the story as mere speculation and rumor and declined comment.

Also among the retailers, the trader saw Finlay Fine Jewelry's 8 3/8% notes due 2012 drop to 94 bid, 95 offered from prior levels in the 97 area. He noted that the company - which leases space in department stores for its sales desks - could be adversely affected should Federated Department Stores inc. acquire May Department Stores Inc., since it operates in both companies' stores and some of those stores might be closed following a merger.

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