Jefferson Smurfit sells three-part deal; Calpine seen better; Bowater drags paper names lower

By Paul Deckelman and Paul A. Harris

New York, Jan. 14 - Jefferson Smurfit Group was heard by high-yield syndicate sources Friday to have sold a quickly shopped three-part offering of dollar- and euro-denominated notes.

In the secondary market, "quiet" was the universally heard watchword of the day, as little of substance went on during an abbreviated session, which closed at 2 p.m. ET, ahead of the Monday's full market close for the Martin Luther King legal holiday. Calpine Corp. bonds were seen a little better, as the San Jose, Calif.-based power generating company considered selling a British power plant and using the proceeds to redeem preferred shares. On the downside, automotive names continued to skid around, while Bowater Inc.'s warning that it would post a fourth-quarter loss helped to shred the bonds in that paper-producer sector.

Friday's primary action focused on the European market as issuers from Greece and Ireland completed transactions amounting to €672.5 million equivalent in four tranches.

Two of those pieces were done by units of Jefferson Smurfit Group plc, which also priced the session's only dollar-denominated deal: $200 million of 10-year notes in one of two cash-pay tranches.

That brought the Jan. 10 week to a close with just shy of $1.8 billion of business having been transacted in eight tranches.

Issuers announce despite outflows

Although the news regarding the liquidity of the high-yield asset class has been anything but rosy - with six of the past seven weeks seeing outflows from high-yield mutual funds, according to AMG Data Services - prospective junk bond issuers continued to appear on Friday.

To recap, sources told Prospect News on Thursday that AMG reported a $265 million outflow from the funds for the week ending Jan. 12. That outflow trailed the only positive number - a $138.7 million inflow for the week to Jan. 7 - the market has turned up since mid-November 2004.

Not good, observed one investment banker on Friday.

But things are not that bad, either.

"There is still cash around," said the sell-sider. "And to a certain extent this burst of business on the new issue calendar is a holdover from last year.

"There is a delayed reaction on the part of issuers in high yield. It's not as quick as the high-grade market. Bankers were going out and telling everybody at the end of last year to bring deals. Some of that effort is just now bearing fruit.

"However if trends continue to go the way we have been seeing them - if levels keep going down and the mutual fund numbers continue to look bad, and if the unreported hedge fund and insurance fund numbers start to turn negative - eventually the primary market activity will trickle off.

"But for now, rates are still low and the signals are not that bad.

"I think issuers are going to continue to announce deals."

Another sell-side source merely observed: "The pace we're seeing right now is a steady one. Things have cooled off for a while.

"It's just not the torrid pace we were seeing in December."

Jefferson Smurfit with €695 million

In Friday's all-European session Jefferson Smurfit Group plc led the way with a €695 million deal that included three tranches from two issuing units.

JSG Funding plc priced a $200 million tranche and a €217.5 million tranche of senior subordinated notes due April 1, 2015 (Caa1/B-). Both priced at par to yield 7 ¾%, on the wide end of the 7½%-7¾% price talk.

Proceeds will be used to fund a tender offer for the company's existing 15.5% subordinated notes due 2013.

Meanwhile JSG Holdings plc priced an upsized €325 million of senior PIK notes due Oct. 1, 2015 (Caa2/B-) at par to yield 11½%, on the tight end of the 11½%-11¾% price talk. The PIK note issue was upsized from €300 million.

Proceeds from the sale of the PIK notes will be used to fund a return of capital to shareholders.

Deutsche Bank Securities and Citigroup ran the books for the Dublin, Ireland-based integrated manufacturer of containerboard, corrugated containers and other paper-based products.

Elsewhere on the new issue front, Friday, Fage Dairy Industry SA priced an upsized €130 million of senior notes due Jan. 15, 2015 (B1/BB-) at par to yield 7½%, tight to the 7½% to 7¾% price talk. The deal was increased from €120 million and was brought to market by Citigroup.

The Athens, Greece-based dairy products company will use the proceeds to refinance debt and fund its U.S. expansion.

Three for the road

Meanwhile on Friday, details were heard on investor roadshows about to be staged by three high-yield issuers.

AMR Holdco Inc. and EmCare Holdco Inc., currently subsidiaries of Laidlaw International units - will start a roadshow on Wednesday, Jan. 19, for a $250 million offering of 10-year non-call-five senior subordinated notes (Caa1/B-), which is expected to price late in the week of Jan. 24.

Banc of America Securities and JP Morgan will be joint bookrunners for the acquisition financing from the Greenwood, Colo.-based provider of ambulance transport services.

Elsewhere Indianapolis, Ind.-based privately held retailer Gregg Appliances Inc. will run a Jan. 18 to Jan. 27 roadshow for its $165 million offering of eight-year non-call-four senior notes (B), which are expected to price on Thursday, Jan. 27.

Wachovia Securities will run the books for the acquisition financing from the consumer electronics and appliances retailer.

And Boston-based Uno Restaurant Holdings Corp. kicks off an investor roadshow on Wednesday for $140 million of six-year non-call-three senior secured second lien notes (B3/B-).

Banc of America Securities has the books for the acquisition and debt refinancing deal.

Jefferson Smurfit near par

When the new Jefferson Smurfit 7¾% notes due 2015 were freed for secondary dealings, they didn't go far at all, with one trader quoting the new bonds at par bid, 100.25 offered, unchanged from their par issue price earlier in the session. Several other traders said that they had not seen any aftermarket activity at all in the Irish-based packaging company's new bonds, given that there were few people even in the market and fewer still doing anything concrete.

The new Warner Chilcott Corp. 8¾% senior subordinated notes due 2015 were being quoted around 100.5 bid, 101.5 offered, off slightly from 100.75 bid, 101.25 offered in the bonds' initial dealings on Thursday, though still up from their par issue price earlier Thursday. A trader Friday said he had heard that there had been a 101 bid on the bonds, but said that he had not seen it. At another desk, a trader said that he "had not seen any real inquiries in it," and quoted the bonds having been offered at 101.5 in the street, but with "no bid seen."

Calpine strong

Back among the established issues, Calpine's bonds "felt a little better, although there was nothing really huge," a trader said, quoting its shortest dated paper unchanged but seeing its 8½% notes due 2008 having pushed up to 76 bid from 74 bid, 75 offered earlier, while its 8½% notes due 2011 advanced to 71.25 bid, 72 offered from 70.5 bid, 71.5 offered on Thursday.

A market source saw the Calpine 8¾% notes due 2007 half a point better at 82.5 bid, while its 8¾% notes due 2013 rose to 77.5 bid from 76.75 offered and its 9 5/8% notes due 2014 finished at 101 bid, up slightly from 100.75.

Calpine's 8½% notes due 2010 were seen a point better at 81.

Calpine said late Thursday that it is "evaluating strategic financial alternatives" for its Saltend Energy Centre in Hull, England, including the potential sale of the facility, and has retained Credit Suisse First Boston to act as its advisor and assist in the process.

The plant is a 1,200-megawatt cogeneration power facility that delivers steam and a portion of its electrical output to an adjacent chemical plant. The majority of electrical output is sold into the British power market.

Calpine acquired the plant in late 2001 for about $800 million, but now obviously includes it among the non-core assets it would consider selling in order to raise funds with which to pay down debt. It said that net proceeds from any sale of the facility would be used to redeem the company's existing $360 million of two-year redeemable preferred shares. The remaining proceeds would be used in accordance with the asset sale provisions of Calpine's existing bond indentures.

Auto names weak

Elsewhere, light trading was "pretty sloppy in the autos and the paper companies," a trader said, as the automotive names continued the slide seen Thursday after one of the supplier sector's major customers, General Motors Corp., issued an earnings warning for 2005.

He saw Dura Operating's 9% notes due 2009, which had ended on Thursday about a point lower on the day at 96 bid, 97 offered, having opened Friday well down, at 94.5 bid, 95.5 offered, before firming off that low to end only slightly lower at 95.5 bid, 96.5 offered.

Tower Automotive, which had actually managed to firm Thursday when just about everybody else in the sector was running in reverse, "gave back ground" on Friday, with its 12% notes due 2013 dropping from Thursday's close of 80.5 bid, 81.5 offered to as low as 79 in Friday's early going. He saw those bonds closing out in the 79-79.5 area, down a point or 1½ points on the day.

At another desk, a market source saw Collins & Aikman Products Corp.'s 10¾% notes due 2011 move down to 101.5 bid from 102.25 on Thursday.

Other automotive losers on the day included Group 1 Automotive Inc., whose 8¼% notes due 2013 were a point behind at 105, while Cooper Standard Auto's 8 3/8% notes due 2014 lost nearly two points to end at 96.25.

The auto component makers - already under pressure from higher prices for steel and other raw materials, combined with production cutbacks by their customers among Detroit's Big Three and other auto makers, got further bad news Thursday when GM, the world's largest vehicle maker, warned that it expects earnings this year to fall due to lower profits at its financial services unit and a $1 billion rise in health-care costs. The auto giant projected that 2005 per-share earnings would drop to between $4 and $5 a share, excluding any one-time items. Analysts on average are looking for GM's earnings this year to total $4.91 a share, down from an estimated $6.31 for 2004.

Paper companies down

In the papermaker sector, Bowater's bonds, and those of such competitors as Tembec, Abitibi-Consolidated and Appleton Papers, were seen lower after the Greenville, S.C.-based paper and forest products company said Thursday that it would post a fourth-quarter loss of 45 cents to 55 cents per share before special items, and 75 cents to 85 cents on net loss basis, citing declines in pulp and lumber prices, as well as 23 cents per share of red ink due to foreign exchange losses. Such losses would far exceed the 14 cents share analysts had been projecting.

A trader saw Bowater's 7.95% notes due 2011 drop to 106 bid from Thursday's close at 108 bid, 109 offered, before bouncing off that low to end down a point on the day at 107 bid, 107.75 offered. He saw the company's 6½% notes due 2013 retreat to 98.5 bid, down from 100.5 bid, 101.5 offered on Thursday, before partly recovering to end at 99 bid, par offered.

He saw Abitibi's 6% notes due 2013 fall as low as 93 bid, 94 offered from Thursday's 95 bid, 96 offered, in sector sympathy with Bowater, before partly recovering to 94.25 bid, 95.25 offered, while Tembec's 7¾% notes due 2012 lost a point to 95 bid, 96 offered.

Another trader said that Bowater "dragged Tembec down with it," quoting the latter company's 8 5/8% notes at 99.5 bid, 99.75 offered, down half a point on the day, and Tembec's 8½% notes "trading right on top of that."

Bowater Canada's 7.95% notes due 2011 were also seen half a point lower at 107.25.

Appleton's 8 1/8% notes due 2011 were being quoted off nearly a full point at 107.5 bid.

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