Novelis, Inverness slate deals for Wednesday pricing; ArvinMeritor up in mostly firm market

By Paul Deckelman

New York, Aug. 4 - Novelis Inc. and Inverness Medical Innovations Inc. each unveiled a new bond offering on Tuesday, with high-yield syndicate sources hearing that both deals will be quickly marketed to investors via conference calls on Wednesday morning. Pricing for both is expected Wednesday afternoon.

Elsewhere on the new-deal scene, Global Aviation Holdings Inc., which has been shopping a new deal around to buyers for more than two weeks, is expected to wrap up its roadshow on Wednesday, with pricing seen sometime late in week.

And Dole Food Co. Inc. outlined plans in a regulatory filing to offer senior secured notes some time this quarter, although there is no definitive timeframe as yet.

Among recent new deals, Ford Motor Credit Co.'s three-year mega-deal continued to trade very actively, although prices didn't move very much. They did move - and by no small amount, in busy dealings - for Capital One Financial Corp.'s split-rated cumulative trust preferred securities.

In the secondary market, not-too-unfavorable earnings reports were seen giving some credits, like ArvinMeritor Inc. a big boost - although traders noted that the market was already generally firm and inclined to lift issues, with or without news. One example of the latter was Eastman Kodak Co., whose bonds and shares both rose splendidly, despite any kind of positive developments for the Rochester, N.Y.-based photography products company.

Novelis, Inverness seen pricing Wednesday

For much of the day, the primary market was dead in the water, with no deals pricing for a second straight session - this after last week's busy pace which saw nearly $6 billion of new paper make its debut. However, a buyside source noted that "we've had very large supply this year," with over $76 billion of junk bonds priced on a global basis so far in 2009, and around $60 billion of that in the U.S. market, with both far surpassing the comparable year-to-date figures from a year ago. With that kind of fast pace so far, the source said, this week's lull "is just a random slowdown."

Things suddenly picked up late in the session, as both Novelis, an Atlanta-based aluminum rolling and beverage can recycling company, and Waltham, Mass.-based medical diagnostic products and services company Inverness announced plans for respective new senior note offerings. And things promised to get even busier on Wednesday - junk bond syndicate sources said each offering is expected to price on Wednesday afternoon, after being marketed to investors via morning conference calls.

Novelis seeks to repay debt...

Novelis said it plans to sell $185 million of new 5.5-year senior unsecured notes due February 2015, and use the proceeds for debt repayment. The company is wholly owned by Indian aluminum company Hindalco Industries, and plans to use its deal proceeds to repay its unsecured credit facility from an affiliate of Indian conglomerate Aditya Birla Group, Hindalco's corporate parent, and to also repay a portion of its asset-backed revolving line of credit under its senior secured credit facilities.

The Rule 144A/Regulation S deal is being brought to market via bookrunner Credit Suisse, a source said. The notes will have three years of call protection.

A high yield market source saw the company's established 7¼% notes due 2015 having pushed up more than 2 points on the day

...but not Inverness

Unlike Novelis - and indeed, unlike the roughly 70% of high yield issuance to date that has gone to repay bank debt or refinance or redeem existing bonds, according to a recent Prospect News new-issue analysis - Inverness Medical Innovations plans to use the proceeds from the $150 million of senior notes due 2016 that it plans to issue to fund a previously announced acquisition, making its deal something of an extreme rarity.

While many junk deals in past years were used to fund acquisitions, changes in capital market conditions have made such junk-funded acquisitions almost as dead as the dodo, with less than 2% of this year's new-issuance to date going to fund acquisitions of other companies and absolutely none going to leveraged buyouts, according to the Prospect News analysis.

Even so, the company said it will use the proceeds to fund its pending acquisition of Concateno plc, a London-based supplier of diagnostic products and services used to detect drug and alcohol abuse. That transaction is expected to close next Tuesday. The cash-and-stock deal, which the two companies unveiled on June 5, is valued at approximately £147 million, or about $236 million, and includes assumption of £24 million of debt.

In another departure from junk market norm - where the vast bulk of new deals are covered by Rule 144A - Inverness is selling its notes through a public offering under the company's shelf registration statement already filed with the Securities and Exchange Commission. The bonds will carry call protection for the first three and a half years after issue, or until early 2013.

The offering is being led by joint bookrunning managers Jefferies & Co., Inc., Goldman Sachs & Co. and Wells Fargo Securities, LLC.

Global Aviation coming in for a landing

Elsewhere in the primary arena, a market source said Wednesday that Global Aviation Holdings Inc.'s $165 million senior secured bond deal is likely to "wrap up" late in the week

The Peachtree City, Ga.-based passenger and cargo air carrier hit the road during the third week in July to market its first-lien notes due 2013 to potential investors. Although participants originally expected that roadshow to have run through this past Friday, the source indicated that it had been extended and would now conclude on Wednesday, with pricing coming sometime after that.

The Rule 144A/Regulation S offering, with includes three years of call protection, is being brought to market via Jefferies.

Global Aviation Holdings, which provides worldwide commercial global passenger and cargo air transportation services under its World Airways and North American Airlines brands, and is thought to be the largest commercial provider of charter air transportation for the U.S. military, plans to use the proceeds of the bond offering - along with that of its $64.1 million five-year senior secured second-lien loan being concurrently marketed to bank debt investors by Jefferies - to refinance its outstanding bank debt.

Dole to do deal

A little further out on the horizon, new-deal players will be watching for an offering of senior secured notes from Dole Food Co.

The Westlake Village, Calif.-based producer of canned and fresh fruits, vegetables and juices, said in a Securities and Exchange Commission filing Tuesday that it plans to offer senior secured notes some time during the current quarter. Dole said it will use the net proceeds of the offering - the size of which has not yet been determined - along with cash on hand and/or borrowings from its revolver, to redeem its remaining outstanding 7¼% senior notes due 2012.

Dole had $400 million of the '12s outstanding, before buying back $17 million of them in the in the second quarter, and another $20 million so far in the third quarter.

It warned that a failure to buy back or otherwise redeem those notes at or before their maturity next June 15 could lead to an event of default.

Recent new deals busily traded

Among recently priced new deals, a trader saw Ford Credit's new 7½% notes due 2012 as the most active issue on the session, with some $49 million changing hands.

He saw those notes up very slightly, to 92 5/8 bid from 92½ on Monday.

At another desk, the bonds were seen up nearly ½ point on the day, at a little over 93 bid.

The auto-loan financing arm of Ford Motor Co. priced $1.75 billion of the notes on Thursday at 91.589 to yield 10 7/8%. After that pricing, the bonds moved above the 92 level, and have been there ever since.

Dearborn, Mich.-based parent Ford's 7.45% bonds due 2031 meantime were quoted by the first trader up a point at 781/2, though on only $3 million of turnover.

Among other recent new deals, the trader saw Capital One Finance's 10¼% cumulative trust preferred securities due 2039 trading at 104 bid, up from 102½ previously, on volume of $22 million.

The McLean, Va.-based financial services company priced $1 billion of the securities - upsized from the original $500 million - last Wednesday at 98.846, to yield 10 3/8%, and they have risen steadily and solidly ever since then.

With a split rating (Baa2/BB/BBB), traders said the new issue has attracted attention from both junk accounts and high-grade investors alike.

Market indicators turn mixed

Back among the more established issues, the CDX Series 12 High Yield index - which gained ½ point on Monday - fell back by 5/8 point on Tuesday, a trader said, easing to 90½ bid, 91 offered.

However, the KDP High Yield Daily Index, which gained 32 basis points on Monday, tacked on another 22 bps on Tuesday to end at 66.77, while its yield tightened by 6 bps to 9.07%.

In the broader market, advancing issues - which had led declining issues for a 12th straight session on Monday - continued to press their advantage on Tuesday, maintaining an eight-to-five lead.

Overall market activity, measured by dollar-volume totals, rose by nearly 33% from Monday's level.

A trader characterized the overall market as "extremely firm. There's a bias toward buying, with all of that cash around, and it's pretty much all being put to work."

For instance, he noted that bellwether issue First Data Corp.'s 9 7/8% notes due 2015 were trading at 89 1/8 bid, up slightly from Monday, with $13 million traded. While such a gain is really no great shakes, he said the Greenwood Village, Colo.-based financial transaction processor's levels were "remarkable" considering that just a few weeks ago, those bonds "were in the low 70s, and they've traded up since then." He laid the gains largely to "supply and demand, and the cash inflows," which have caused most credits to be lifted handsomely.

"[Portfolio] managers aren't going to be paid if they don't participate in this rally," he declared, adding that "there's not enough merchandise for sale - especially on the better end." Hence, even a very dicey credit like First Data (Caa1/NR/CCC) can firm solidly over some weeks and be trading near 90.

ArvinMeritor merits a raise

A market source saw Troy, Mich.-based automotive components maker ArvinMeritor's 8 1/8% notes due 2015 jump more than 5 points on the day to 80.5 bid, while another saw its 8¾% notes due 2012 up only slightly at the 86 level.

Another trader also saw the company's 8 1/8s climb above 80, up from 75 previously, on volume of $10 million, speculating: "My guess is the earnings and the call didn't look too bad," even though the partsmaker posted a fiscal third-quarter loss of $162 million, or $2.23 per share in the quarter ended June 30, versus a year-earlier profit of $44 million, or 60 cents per share.

However, its adjusted loss from continuing operations came in at 25 cents a share, beating Wall Street expectations by a nickel.

And ArvinMeritor also announced plans to sell its wheels business for $180 million.

Kodak up - but why?

While ArvinMeritor had news out, Eastman Kodak's notes were one of the more active names "by far," according to one trader - but with nothing seen that could explain its sudden popularity.

A trader saw its 7¾% notes due 2013 up 3/8 point at 653/4, on volume of $23 million.

And at another desk, a market source saw its 7¼% notes due 2013 gain more than 3 points, to go home at the 65 level, in active dealings.

A trader said the company's convertible notes - the 3 3/8% notes due 2033 - "traded a lot" around the 89 mark.

One other source pegged the 7¾% notes at 65 bid, 68 offered, unchanged, to slightly better on the day.

The first trader said there was "no news" in the name to explain the move, calling it "weird." Another deemed the activity "odd."

The company's stock also saw a surge Tuesday, gaining over 24%. Again, with no news, there was little explanation. In a Reuters interview published Tuesday, optionMonster.com co-founder Pete Najarian said that there was some short interest in the stock, which could "be at least one reason for the exaggerated move to the upside," he said.

The iconic photographic equipment and supply company - which has seen its historically dominant position as a supplier of film and cameras steadily eroded as more and more photographers, both professional and amateur, abandon traditional photographic technology in favor of digital cameras, where Kodak has been forced to play catch-up with limited success -- reported disappointing earnings last Thursday.

For the quarter, Kodak posted a loss of $189 million, or 70 cents per share, compared to a profit of $495 million, or $1.72 per share, the year before. Revenue meanwhile decreased 29% to $1.77 billion from $2.49 billion and gross profit margin dipped 18.5%.

Since then, there has been no hard news to explain the surge in the stock and the bounce in the bonds, only conjecture.

Still, "there will be news out tomorrow," opined a trader. "There's always news the day after something happens."

TXU trading continues

Another popular name over the past few days has been the company formerly known as TXU Corp., now called Energy Future Holdings Corp., as well as its Texas Competitive Electric Holdings Co. unit.

A trader saw the latter's 10¼% notes due 2015 firm to 77½ bid from 75¼ previously, on $9 million of volume. He meantime saw Energy Future unit Oncor Electric's 6 3/8% notes due 2015 at 109¾ bid, versus 107¼ previously, with $12 million traded, although he noted that the bonds had last previously traded on a round-lot basis a week ago, "so it's not typically active."

However, another market source saw the Texas Competitive 101/4s down 2 points at the 76½ level.

A portfolio manager said that the TXU complex of bonds had " traded up very substantially over the last few weeks, first on lack of supply - when the high yield market was moving, it was something liquid that you could buy - and second, on expectations of good earnings."

That investor, noting the company's release of earnings on Tuesday, called those results "a little disappointing, in terms of cash flow and EBITDA, and so those bonds, which had run up to the high 70s, have pulled back, maybe 3 or 4 points."

The manager - noting the sheer size of the company's issues -- $3 billion for the Texas Competitive Electric 10¼% notes due 2015, $2 billion for Energy Future Holding's 10 7/8% notes due 2017 and $2.5 billion for EFH's 11¼% senior toggle notes due 2017 - saw those bonds as "a sentiment indicator, a bellwether - a kind of highly liquid bond that people buy just for trades." The notes all "traded up - but then that faded, with the reality of their cash flow.'

Also in the mix was Monday's one-notch downgrade to Caa1 of Energy Future's corporate family rating. The downgrade - with Moody's citing its concerns "regarding the long-term sustainability of EFH's business model" due to its roughly $44 billion of debt, about half of it coming due in 2014, comes at an inauspicious time for the Dallas-based electric power producer, which said in an SEC filing Tuesday that it is seeking a credit facility amendment from its bankers to permit the extension of the maturity of individual loans. Meantime, company officials said on a conference call that they had asked the lenders for permission to issue as much as $4 billion of secured debt, although it is unknown at this time whether this would come in the form of bonds, new bank debt, or some combination.

"I think that will challenge bankers' creativity to put something out in the marketplace," the portfolio manager said.

Stephanie N. Rotondo contributed to this report.

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