NSG prices 18-year deal; market tone perks up; Fedders better on financing news

By Paul Deckelman and Paul A. Harris

New York, March 6 - Some years back, the noted songstress Dinah Washington famously crooned "What A Difference A Day Makes" - and that could have been the high-yield bond market's theme song on Tuesday, as junk pulled out of its funk and followed the lead of equity markets worldwide, which rebounded sharply from a week of declines. In the United States, Wall Street notched its biggest gains since July, given a boost by Treasury secretary Henry Paulson's statements easing fears that rising mortgage defaults might undermine the economy.

The junk secondary market "was stronger by a point or two," a trader said, seeing an advance that cut broadly across many sectors. Even previously battered issues like Dean Foods Co. - whose bonds swooned on Friday and continued to struggle Monday on company plans to pay a huge, debt-funded special dividend to shareholders - were seen bouncing back solidly.

Out of that same food processing sector, Chiquita Brands International Inc.'s recently battered bonds seemed to be stabilizing.

In the automotive realm, sector bellwether names General Motors Corp. and Ford Motor Co., which had each dropped sharply in Monday's trading, more than made up all of that lost ground on Tuesday.

Fedders Corp.'s bonds, on a nosedive the past few sessions on market fears the company would miss its scheduled coupon interest payment, were seen to have gyrated wildly around before finally coming to rest a few points off their peak levels for the session - but a few points up from Monday's close, helped by financing news.

Commenting on the better tone, two sources noted that much of the activity seen during the session was in credit default swaps, as opposed to the cash-pay portion of the market.

After the close a high yield syndicate official, noting that CDSs had widened out significantly on Monday, said that they had reeled in a lot of the slack on Tuesday to end higher on the session.

Cash bonds improved, the official added. However the move was not nearly as dramatic as was the case for the CDSs.

Early in the Tuesday session an investor said that a lot of high beta paper, especially the auto names, was being pushed around "for no particular purpose.

"Nobody seems very worried, and there are no real sellers coming out of the woodwork," the investor added.

The source went on to assert that should the sell-off in the capital markets conclude with Tuesday's rally, the downturn will have amounted to considerably less than a full correction.

"People seemed ready for this to be more than it seems to be turning out to be," the investor said, and added that the big downward moves seen in the equity markets over the past week may a good indicator of investor psychology "should something more real happen."

In the primary market, NSG Holdings LLC (Northern Star Generation Services Co. LLC) came to market with its $514 million issue of 18-year amortizing senior secured notes. The new bonds firmed smartly when they were freed for secondary dealings.

Pre-deal market price talk emerged on General Nutrition Centers Inc.'s planned $300 million issue of PIK toggle notes.

However, not everything was coming up roses in the new-deal area; American Cellular Corp. was heard to have withdrawn its $425 million offering of eight-year senior notes.

NSG oversubscribed

In the primary market, meanwhile, terms emerged on a single issue.

NSG Holdings LLC and NSG Holdings Inc. priced a $514 million issue of amortizing senior secured notes due Dec. 15, 2025 (Ba2/BB) at par to yield 7¾%, at the wide end of the 7½% to 7¾% price talk.

Lehman Brothers and BNP Paribas were joint bookrunners for the deal from the Houston-based privately held power generation company.

Proceeds will be used to repay debt, fund a debt service reserve account, fund the acquisition of O&M Star Holdings and pay a sponsor distribution.

A source close to the deal said that it was very well received, and added that the order book was approximately two times oversubscribed.

The source added that the new NSG 7¾% notes due 2025 closed Tuesday at 101.75 bid.

Earlier in the day an investor commented that NSG is "a conservative deal," which might be perceived by some accounts as "the right place to go and hide if you're nervous."

The buy-sider also allowed that at present there is probably no scarcity of "nervous" accounts.

The investor also suggested that the NSG paper probably would not be incredibly liquid.

However the sell-side source close to the transaction countered that at $514 million NSG is a decent-sized transaction, and added that the order book was not dominated with names that would simply sock the bonds away.

Hence, the sell-sider said, the NSG paper figures to see decent liquidity.

Earlier in the day sources around the market were speculating that NSG was seeing considerable play from high grade accounts.

However the sell-side source said that although there was some high grade play, well in excess of 75% of the accounts in the deal were high yield names.

A cheap bond?

The sell-sider also said that 7¾% for Ba2/BB rated paper rendered the NSG notes "cheap" for investors to own, and chalked that up to market volatility and as well as to the structure of the notes.

Another sell-side source who was not in the NSG deal agreed that the NSG notes were cheap for investors.

For example, this source said, Seminole Hard Rock Entertainment Inc.'s new Libor plus 250 basis points senior secured notes due 2015 (B1/BB), which priced Feb. 27 in an upsized $525 million issue, yield approximately 7½% when swapped out to a fixed rate.

Meanwhile American Railcar Industries, Inc.'s new senior unsecured notes due 2014 (B1/BB-), priced at par to yield 7½% on Feb. 23, in a $275 million issue.

Also, the sell-sider said, both the Seminole and the American Railcar notes are callable, whereas the NSG amortizing notes are non-callable.

Hence, according to this official, the NSG paper pays a comparatively higher yield to maturity and appears safer, with regard to both its credit ratings and its call protection, relative to the Seminole and American Railcar notes.

General Cable launches $325 million

General Cable Corp. will start a roadshow on Friday for its $325 million two-part offering of senior notes.

The Highland Heights, Ky., wire and fiber optic and cable products company is offering a tranche of 10-year fixed-rate notes and a tranche of eight-year floating-rate notes.

Goldman Sachs is the bookrunner for the debt refinancing and general corporate purposes deal.

GNC sets talk

Meanwhile General Nutrition Centers, Inc., talked its $300 million tranche of seven-year senior floating-rate toggle notes (Caa1/CCC) at Libor plus 450 basis points to price at an original issue discount of 99.00.

The notes come with a 75 basis points step-up should the issuer elect to make an in-kind, as opposed to cash, coupon payment.

The tranche is part of an overall $425 million notes offering that includes a $125 million tranche of eight-year senior subordinated notes (Caa2/CCC) which have already been placed, according to an informed source.

A market source said that word on GNC's privately place subordinated notes is that they, like the senior notes, come with only two years of call protection, and a 50% equity clawback, leaving plenty of room for an IPO.

Prospect News was unable to verify these structural details.

JP Morgan, Goldman Sachs & Co. and Lehman Brothers are joint bookrunners for the LBO deal.

American Cellular pulls bonds

Finally, American Cellular Corp. withdrew its planned $425 million offering of eight-year senior notes (CCC) on Tuesday.

At the same time the Oklahoma City-based company upsized its funded term loan B to $900 million from $700 million, and has decided to tender for 75% of its $900 million 10% senior notes due 2011 as opposed to 100% of the notes.

Morgan Stanley and Lehman Brothers were leading the bond deal.

Looking to Freeport

Throughout the two completed sessions of the March 5 week sources have been talking about the mega-deal from Freeport McMoRan Copper & Gold Inc.

The company is now roadshowing a $6 billion two-part offering of senior notes (B2/B+), with pricing expected on March 14.

The company announced an offering eight-year notes with four years of call protection and 10-year notes with five years of call protection.

JP Morgan and Merill Lynch & Co. are joint bookrunners for the LBO transaction.

Sources around the market say that the massive Freeport transaction could set the tone for the 2007 junk primary market, for good or ill.

On Tuesday an investor told Prospect News that the underwriters are continuing to search for the right structure for the deal.

"They are calling accounts, looking to see what structure would work for them in some kind of size," the buy-sider said, adding that Freeport is "typically the kind of deal that gets favored by the high yield market," because of its size.

"But it will be the first new issue test subsequent to everybody feeling a little more nervous," the investor warned, alluding to the sell-off that began one week ago, on Tuesday, Feb. 27.

Full speed ahead, but cautiously

Well after the Tuesday close, a high yield syndicate official, noting the improved tone of the junk market as well as that of the equity markets, said that it might not be wise to conclude that Tuesday's rally signals an end to the volatility seen during the past week.

"Is the market coming back, or was this a false rally?" the sell-sider asked.

It may have been a rhetorical question, because the official followed by saying that the sell-side can be expected to swing back into something of a business-as-usual mode, and added that there could be a significant number of deal announcements on Wednesday.

New NSG notes power up

When the new NSG 7¾% amortizing senior secured notes due 2025 were freed for secondary dealings, traders saw the bonds push solidly higher from their par issue price.

"They were up considerably." one trader said, quoting the notes at 101.5 bid, 102.25 offered, while another saw the bonds at bid levels around 101-101.25.

Most new deals struggling

That performance was especially notable because a number of new deals which have recently come to market have struggled, in some cases badly.

"Generally, the new deals have been trading like crap," a trader said, noting for instance that Reader's Digest Association's new 9% notes due 2017, which priced last week at par, struggled right out of the gate and were trading as low as the 96 region by Monday, although they too got back at least a little bit of those losses in Tuesday's trading.

One new issue which has bucked the trend though, another trader said, even when all of the other recently priced deals were at best treading water, has been American Railcar Industries Inc.'s 7½% notes due 2014. The St. Charles, Mo.-based railroad car manufacturer's issue priced at par on Feb. 23, and was trading this week at 101.5 bid, 102 offered, "one of the few issues to be trading up in this market environment," he said. That, in turn, has helped the 8 3/8% notes due 2015 of sector peer The Greenbriar Cos. Inc., a Lake Oswego, Ore., supplier of transportation equipment and services to the railroad industry. The latter's bonds, he said "have traded up, and are well-bid for" at 101.625 bid.

Auto issues drive ahead

Back among the outstanding issues without new-deal connections, a trader saw GM's bonds "up a lot," with the Detroit giant's 8 3/8% notes due 2033 zooming 3 3/8 points to 91.625 bid, 92.125 offered. That more than made up for the better than 2 point drop which those heavily traded bonds had suffered in Monday's session.

Also up were the bonds of GM's still 49% owned GMAC LLC affiliate, which had been getting whacked over the previous several sessions on market angst about turmoil in the sub-prime mortgage lending business, since GMAC's Residential Capital Corp. unit does business in that market. But in Tuesday's dealings, GMAC's 8% notes due 2031 were seen up ½ point on the day to 108.5 bid, 109 offered.

Following GM up was arch-rival Ford; the latter's 7.45% notes due 2031, which had fallen nearly 2 points on Monday, were up 2¼ points Tuesday, a trader said, to 77.75 bid, 78.25 offered.

Remy retreats on rumors

But the success enjoyed by the GM and Ford bonds failed to extend to some other parts of the automotive sector, including Remy International Inc., whose bonds were sharply lower Tuesday. A trader said the Anderson, Ind.-based electrical systems manufacturer's 8 5/8% notes due 2007 "sold off pretty aggressively," dropping about 3 points.

According to several market sources, the company is looking for debtor-in-possession financing, a sign that the company might file for Chapter 11 protection.

Calls made to the company were unreturned Tuesday.

As the buzz swirled around, the notes came in at 78.5, according to one trader. He said the bonds traded as high as 82.5 and as low as 77.5 during the trading day.

At another desk, a distressed trader saw the notes start the day at 82 bid, 83 offered and close at 78 bid, 79 offered.

Remy's 11% notes due 2009 retreated to 22 bid, 24 offered from 26 bid 28 offered. The companyıs 9 3/8% notes due 2012 retreated to 20 bid, 21 offered from 23 bid, 25 offered.

The speculation didn't surprise many market players.

"I guess that wouldn't be a surprise," a trader said.

"It wouldn't surprise me," another trader said. "They need it. I think they are bankrupt."

Yet another trader opined that the bonds are "probably going to go flat" at some point, although he had seen no fresh news out on the company and no announcement. He noted that the company has coupon interest payments scheduled for April 15 for the 9 3/8s and on May 1 for the 11s. "There's nothing urgent, or imminent - but they're coming up."

"If Remy doesn't get an out-of-court restructuring done in the next few months, bankruptcy appears inevitable," wrote Shelly Lombard, senior high yield analyst with Gimme Credit LLC, in a report issued last week. "The subordinated bonds are likely worthless in a bankruptcy. They are an expensive option since everything has to go right - no bankruptcy and high valuation - for them to be worth anything. The senior bonds could be worth par in or out of a bankruptcy but the bonds would certainly trade down if the company files."

Dean bonds recover

Apart from the autos, a trader saw Dallas-based dairy producer Dean Foods' 7% notes - which had swooned last week on the news it would pay a $2 billion special dividend to shareholders, funded out of borrowing, much to the chagrin of the ratings agencies - moving back up.

"They had a nice rally," he said. "They were 98.5 bid post-news, and now have rallied back to 99.75 bid, 100.75 offered." He acknowledged, though that the bonds were still well below the 102.5 bid, 103.5 offered levels they held before news of the big payout.

"If they shrugged this off, and they tightened up [afterward], they're going to continue to rally."

In that same sector, he saw Chiquita - after getting whacked around a few days on a delayed annual report and investor fears about banana industry weakness - now "hanging in," with its 8 7/8% senior notes at 93 bid, 94 offered, "hanging tough, while the 7½% notes at 88-89 didn't drop any more."

Pathmark move over

One name the trader saw holding steady and going no higher than it went on Monday's merger and acquisition news was Pathmark Stores Inc., whose 8¾% notes due 2012 had firmed to levels above 104 bid, up about 2 points from Friday's close, when the Carteret, N.J.-based supermarket operator and Great Atlantic & Pacific Tea Co. announced that Pathmark will be acquired by Montvale, N.J.-based A&P in a $1.3 billion deal, including debt assumption.

"That's finished," he said. "That 103.5-104.5 is right where they're going to take those bonds out. If they take them out at 50 bps, 75 bps, over, that's at 104.5."

"Last year at this time, they were in the mid-to-upper 80s, and they moved to the 90s around there and then at the end of the year, this speculation [of a deal] moved them higher. They were 101-102 for the longest time, and then they had this little pop. It wasn't a super surprise - but it was definitely built into the market."

Fedders better

Fedders' bonds bounced around before finally coming to rest a few points off their peak levels for the session - but a few points up from Monday's close. Traders said that the bonds were now trading flat, or without their accrued interest, after the Liberty Corner, N.J.-based air conditioner manufacturer apparently did not make the scheduled March 1 coupon payment on its 9 7/8% notes due 2014, opting instead to make the payment during the following 30-day grace period. The company has not officially said that it had not made the payment, but this was what the market surmised. "They're trading flat, with due bills," one trader said.

Another trader linked the rise to the fact that Fedders "had gotten some money from Goldman Sachs," announcing that the brokerage giant's Goldman Sachs Credit Partners LP unit had given Fedders a commitment letter for $90 million in financing under senior secured credit facilities. The proceeds of the financing will be used to refinance the company's existing $50 million senior credit agreement, for ongoing working capital requirements and for general corporate purposes.

He saw the bonds open at 52 bid, 54 offered, get as high as 60 bid, 62 offered in intra-day trading and then come down from that peak to finish at 57.5 bid, 58.5 offered. "From open to close, it was a pretty nice swing, about 4 points," he said, although the credit had fallen from its day's highs.

At another desk, a trader saw the bonds get as good as 61 bid, 63 offered, well up from a wide Monday close of 53 bid, 56 offered, although he saw them finishing at 58.5 bid, 60.5 offered.

Stephanie N. Rotondo contributed to this report.

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