El Paso remarkets '07 notes; Lear retreats on threatened downgrade to junk

By Paul Deckelman and Paul A. Harris

New York, June 27 - El Paso Corp. successfully remarketed an issue of senior notes scheduled to come due in August 2007, bumping the coupon up to 7 5/8% from 6.14%, effective with the expected closing of the notes Friday. Also in the primary sphere, Norcross Safety Products LLC came in with a $25 million add-on to its existing 11¾% PIK notes due 2012. D.R. Horton Inc. was heard getting ready to sell a split-rated $250 million seven-year note offering, probably on Wednesday, while price talk emerged on pending issues for Neff Corp., Texas Industries Inc. and Texas Industries' subsidiary, Chaparral Steel Co.

In the secondary market, the day was characterized by an upturn in most auto-related names - but not Lear Corp., whose Baa3/BBB- credit rating has been threatened with a cut back to junk levels - where Lear was till last year - by both Moody's Investors Service and Standard & Poor's. The company's bonds were being quoted down about five points across the board.

Overall a high-yield market source marked junk prices a quarter point to a half point higher on Tuesday, depending upon the sector, as recently priced bonds from Fisher Scientific International Inc. and Hynix Semiconductor Inc. were heard to be holding on to the premiums at which they have been trading in the aftermarket.

One source remarked that the accounts continue to appear risk-averse, and are shopping for quality names.

If that's the case Texas homebuilder D.R. Horton's $250 million drive-by, a seven-year deal (Ba1/BB+/BBB-) that has one investment-grade rating out of three and is expected to price off the Citigroup investment-grade desk on Wednesday, might be expected to generate some buzz among quality-seeking high-yield bond shoppers.

Norcross Safety drives through

In Tuesday's primary market action Safety Products Holdings Inc. (Norcross Safety Products) priced a $25 million add-on to its 11¾% senior PIK notes due Jan. 1, 2012 (Caa1/B-) at 94.00, resulting in a 13.155% yield to maturity.

The add-on came tight to the dollar price talk of 93.00 to 94.00, via Credit Suisse First Boston.

The original $92 million issue priced at par on Dec. 16, 2004. So even though the add-on came tight to talk, Norcross will pay up for the new notes.

The Oak Brook, Ill.-based supplier of personal protection equipment is using the proceeds to help finance its LBO.

El Paso remarkets $272 million

Elsewhere in the primary market El Paso remarketed $272.1 million of its 6.14% senior notes due Aug. 16, 2007 (Caal/B-).

The coupon was reset to 7 5/8% at a remarket price of 101.71 resulting in a 7.205% yield to maturity.

The deal was talked in a range of 7 5/8% at 101.714 to yield 7.203% to 7 7/8% at 101.714 to yield 7.465%, and the notes priced on the tight end of that range.

Credit Suisse First Boston also ran the books for the El Paso remarket deal.

A busy Wednesday

In addition to the above-mentioned offering from D.R. Horton, the investment banks on Tuesday continued to set the stage for what figures to be a busy mid-week session.

Texas Industries is talking its $250 million offering of eight-year senior notes (Ba3/BB-) at 7½% to 7¾%, with pricing expected on Wednesday via UBS Investment Bank and Banc of America Securities.

The same two investment banks, this time in reverse order, are running the books for Chaparral Steel Co.'s $300 million two-part offering (B1/B), which is also expected to price Wednesday.

Talk is 9% to 9¼% on its eight-year senior notes, and Libor plus 500 to 525 basis points on the seven-year senior floating-rate notes. Tranche sizes remain to be determined.

A source close to both deals commented that Chaparral is selling $300 million of bonds and making a $50 million draw on its credit facility, and giving the money to Texas Industries for its spin-off of Chaparral. Texas Industries will take that $350 million, plus the $250 million proceeds from its own bond sale, to take out the $600 million of 10¼% notes that Texas Industries has outstanding.

Elsewhere Miami, Fla.-based construction and industrial equipment rental company Neff Corp. is talking its $245 million offering of seven-year senior secured second-lien notes at the 11¼% area, with pricing expected to take place during the present week via Credit Suisse First Boston.

In addition to Chaparral, Texas Industries and Neff, market sources are also expecting terms to emerge Wednesday on:

* PCA International LLC's $50 million of seven-year second-lien senior secured notes (B3) via Jefferies & Co. Talk is the 14% area;

* Commercial Vehicle Group Inc.'s $150 million of eight-year senior notes (Ba3/B+) via Credit Suisse First Boston, talked at the 8¼% area; and

* Compression Polymers Holdings LLC's $215 million two parts offering via Wachovia Securities: $150 million of eight-year senior fixed-rate notes (B2/B-) are talked at 10½% to 10¾%, and $65 million of seven-year senior floating-rate notes (B2/B+) are talked at six-month Libor plus 650 basis points area.

Fisher better in trading

A trader saw no sign of the remarketed El Paso notes in aftermarket dealings Tuesday - but did see Fisher Scientific International Inc.'s new 6 1/8% notes due 2015, which came at 99.087 on Monday, as having moved up, straddling par at 99.75 bid, 100.25 offered.

Another market source also saw the new bonds better, at 99.5 bid, 99.875 offered.

While the El Paso's remarketed bonds were not seen in trading, the successful remarketing and the fact that S&P had on Monday raised the Houston-based energy operator's long-term debt rating one notch to B from B- previously, with a positive outlook, helped push the company's existing bonds up Tuesday, a trader said, quoting El Paso's own corporate 7 7/8% notes due 2012 up ¾ point at 102 bid, 103 offered, while the 7½% notes due 2006 originally issued by the El Paso subsidiary formerly known as Coastal Corp. were half a point better at 102 bid, 103 offered.

Its El Paso Production Holdings 7¾% notes due 2013 were seen half a point better at 107 bid.

In upping the ratings, S&P cited the company's recent asset sales and stock issuance, which it said had improved liquidity and had put El Paso in a better position to meet near-term maturities.

Lear falls on ratings worries

Back among established issues with no new-deal connections, Lear Corp. - which had been a junk bond until S&P upgraded it ratings in July 2003, and Moody's did the same in May of last year, could soon find itself right back in junkbondland, Moody's and S&P had said Monday, as a result of the current downturn in the automotive industry.

That prospect knocked the Southfield, Mich.-based automotive interior components manufacturer's bonds down, with a market source seeing its 8.11% notes due 2009 as having retreated to 102.25 bid from 105.625 on Monday before the news hit the tape, while its 5¾% notes due 2014 dipped to 89 bid from prior levels at 94.125.

Another trader saw the 53/4s as low as 87.5 bid, 89.5 offered, down from 92.5 Monday, while seeing the 8.11s as essentially unchanged at lower levels - 102.5 bid - that they essentially moved down to on Monday.

S&P noted the company's intention of incurring a $250 million restructuring charges over the next 18 months in connection with its announced plans to cut 7,700 jobs as it realigns its production to better reflect demand for its products.

The ratings agency noted that most of the charges would be incurred this year - and 80% of it would be in the form of cash disbursements. Moody's expressed similar concerns, warning that the downgrade review reflects its "concern over the adequacy of earnings and cash flow relative to the continuing debt level as well as the predictability of that cash flow."

Exide falls

Another downsider coming out of the auto segment was Exide Technologies, whose 10½% notes due 2013 ended Monday at 78 bid, 80 offered, fell as low as 76 bid, 78 offered Tuesday, before bouncing off the low to end at 77 bid, 79 offered.

A market source at another desk saw the bonds at 76, and noted that just recently, they had been as high as 81.

The Lawrenceville, N.J.-based maker of automotive and industrial-use storage batteries said Monday that its Monday that its independent auditor, PricewaterhouseCoopers LLC, will include a "going-concern" opinion in Exide's 10-K report for the fiscal year that ended on March 31, centering on the company's ability to meet financial covenants in fiscal 2006 under its credit agreement. Issuance of such an advisory will constitute a default, for which Exide is trying to obtain a waiver.

Auto names mostly higher

But while Lear and Exide were in retreat, most other automotive names were catching a bid, as the sector rose in tandem with most auto-related equities. Those stocks, in turn, improved as crude oil prices - which spiked up to closing levels above $60 per barrel Monday for the first time ever - tumbled from that peak to $58.20 Tuesday, down $2.34 on the New York Mercantile Exchange, as oil traders took profits ahead of the upcoming holiday weekend and a scheduled inventory report Wednesday that is not expected to keep prices rising.

With the auto stocks moving higher as crude prices fell, and the bonds of those companies coming along for the ride, Visteon Corp.'s 8¼% notes due 2010 improved to 92 bid from 90.5 Monday, while its 7% notes due 2014 were nearly a point higher at 81.

Delphi Corp.'s 6½% notes due 2013 were two points better at 76 bid, while at another desk, a trader saw the Troy, Mich.-based automotive electronics maker's 6½% notes due 2009 at 84.5 bid, 85.5 offered, up from 83 bid, 84 offered, and its 7 1/8% notes due 2029 were a point better at 69.5 bid, 70.5 offered.

Other auto names doing better included TRW Automotive Holdings' 9 3/8% notes due 2013, half a point better at 111, and Tenneco Automotive Inc.'s 10¼% notes due 2013, up 1½ points at 113 bid.

HealthSouth steady

Apart from the auto sector, a trader said that HealthSouth Corp.'s bonds were "pretty much unchanged" by the news Tuesday that the company's founder and former chief executive officer, Richard Scrushy, was acquitted of all federal fraud charges in connection with the problems of the Birmingham, Ala.-based outpatient surgery and diagnostic center chain operator - even though all five of the company's former chief financial officers had pled guilty to various federal charges and had testified that Scrushy led a scheme to inflate earnings by $2.7 billion.

Those allegations two years ago had caused a sharp fall in the company's bonds, but after the old management was ousted and replaced by new executives, the notes eventually worked their way back up to around the same pre-scandal levels they'd held, at or near par.

On Tuesday, its 8 3/8% notes due 2011 were at 100.25 bid and its 7 5/8% notes due 2012 at 97.75 - both unchanged on the day.

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