Collins & Aikman tumbles on Chrysler report; Parker Drilling prices

By Paul Deckelman and Paul A. Harris

New York, Oct. 3- Collins & Aikman Products Co. bonds were soundly thrashed Friday, after the Detroit Free Press ran an article quoting executives of Chrysler - Collins & Aikman's biggest customer - saying that the No. 3 U.S. automaker was dissatisfied with the Troy, Mich.-based auto components supplier and would look to rebid all or most of its $1.2 billion of supply contracts - a potential disaster for Collins & Aikman.

On the primary side of the fence, Parker Drilling Co. sold $175 million of new 10-year bonds, as scheduled.

When the new 9 5/8% senior notes were freed for trading, they firmed to 101.875 bid, 102.125 offered from their par issue price.

But the big news in junkbondland Friday clearly was Collins & Aikman, whose bonds had been firming solidly earlier during the week on market talk of a possible bank financing in the offing, before suddenly careening downward on Friday in reaction to the newspaper story.

A trader quoted the company's 10¾% senior notes due 2006 as having fallen from Thursday's close around 87 to levels as low as the lower 70s during Friday's busy trading, and then having firmed slightly off those lows to go home at 78 bid,79 offered, - still down around 10 points on the session. And he saw its more volatile 11½% subordinated notes due 2006, which had closed in the 77.5 bid neighborhood on Thursday, as having swooned as low as the mid 50s in early trading Friday, before recovering a little bit of lost ground to finish around 60 bid.

"They raced up and the 111/2s got to 77, and then - KABLAM!" said another trader. "It was sheer ugliness today," as the subordinated bonds fell to 61 bid, 63 offered from 77 at his shop, and the seniors dipped to 79 bid, 80 offered from previous levels at 87 bid, 89 offered.

The Free Press reported that Chrysler was planning to solicit bids from other potential suppliers for nearly every product Collins & Aikman sells to Chrysler, which itself is struggling to cut costs, boost sales and make a profit this year.

Such a development would be disastrous for Collins & Aikman, which gets some one-third of its $4 billion of annual revenues from selling auto interior components to Chrysler.

The paper quoted an unidentified Chrysler executive as blasting the parts maker in harsh terms. "By any measure - cost, quality, delivery or technology - Collins & Aikman is probably our worst supplier," he declared. "Every piece of business they do with us is at risk it either is now or it will be soon."

Collins & Aikman chairman and chief executive officer David Stockman doesn't seem to be worried; he was quoted by the newspaper saying the idea that Chrysler would put most or all of Collins & Aikman business up for grabs was "flat wrong." The story also quoted another unidentified executive of the parts supplier as saying that Chrysler could not re-source most of its business with Collins & Aikman - among its ten largest suppliers - because it has several new models upcoming for which Collins & Aikman is a key supplier of interior component parts on, and throwing those contracts to someone else at this stage of the game would disrupt the rollout of those new Chrysler models.

Despite such confident talks from Collins & Aikman management, Evergreen High Yield Bond Fund manager Prescott Crocker warned that Collins & Aikman faces some rough sledding ahead.

"The reality is that Collins and Aikman has renewed its challenge to survive. The business is going to get a lot tougher. Thirty five percent of its business is with Chrysler. And there are a lot of big thinkers who are saying that Chrysler is going to go out of business, ultimately."

Equity investors voted with their feet on Friday, taking Collins & Aikman shares down $1.30 (34.85%) to $2.43 in heavy New York Stock Exchange dealings of 7.2 million shares - about 23 times the usual turnover.

Bond investors, however, face a quandary: whether the debt will keep sliding, stabilize or recover.

A trader said that the analysts at his shop believe that there is about "a 25% chance of a blowup in this credit," with the senior notes falling as low as 35 in a worst-case scenario and the subordinated bonds to 18. They see about a 50% likelihood that C&A stays in its current weakened state, with the senior bonds holding in a range of 72 to 78 and the subordinated paper at 62 to 68, and a 25% chance that the credit will improve somewhere down the line, with both tranches of bonds firming into the high 90s in a best-case scenario.

Elsewhere, AK Steel - struggling the past several sessions after the company warned that its third-quarter losses would likely come in larger than analysts were anticipating - firmed smartly on Friday after AK said it had met with the United Steel Workers of America to offer a "new approach" toward resolving outstanding issues that kept the company and its main union from reaching a contract agreement earlier in the year.

Its 7 7/8% notes due 2009 were seen having firmed to 68 bid from Thursday's levels around 65.75, while its 7¾% notes due 2012 were three points better at 66.5.

The sudden shift at the top of the Middletown, Ohio-based steelmaker may have something to do with management's renewed efforts to dialogue with the steelmakers union (one of five unions representing AK's workers; outreach efforts are also underway to those groups); recently resigned CEO Richard Wardrop had a reputation in the steel industry as a brusque, tough negotiator whose forte was confrontation with the unions. His successor, James Wainscott, is seen by analysts - and by the unions themselves - as likely to take a less abrasive approach.

AK, which was put into a competitive disadvantage in April when it was unable to reach agreement with the employees at bankrupt National Steel Corp., resulting in rival United States Steel Corp. snatching up National's assets at going-out-of-business prices, is trying to lower its labor costs and "legacy costs" of retiree benefits in order to stay competitive with U.S. Steel and International Steel Group, which bought the assets of Bethlehem Steel out of bankruptcy.

Market participants saw the bonds of Worldspan LP gyrating around in the wake of Thursday's news that news that one of the Atlanta-based travel industry technology company's principal online customers, Orbitz Inc., is trying to terminate its agreement with Worldspan, effective Oct. 31.

Worldspan's bank debt fell more than four points Thursday on investor concerns that the move by Orbitz' - Worldspan's second-largest customer - may convince other customers to follow suit and terminate their agreements, leading to a loss of revenue.

Earlier in the week, before the Orbitz news hit the tape, Worldspan's 9 5/8% notes due 2011 were being quoted around 104 bid, but a market source said that they swooned on Thursday to levels as low as 80 bid, before starting to firm off their lows; by the time trading wrapped up on Friday the bonds had recovered to around 96 bid.

Levi Strauss & Co, bonds "felt better." a trader said, quoting the San Francisco-based blue jeans maker's 11 5/8% notes having firmed to 85 bid, 86 offered from Thursday's levels at 83 bid, 85 offered. Its 7% notes due 2006 improved to 80 bid, 81 offered from 78.5 bid, 79.5 offered Thursday.

A market source saw Station Casinos' 8 7/8% notes due 2008 unchanged at 104.5 bid, with investors apparently unmoved by the Las Vegas-based casino operator's announcement terminating its previously announced tender offer for the $199 million of outstanding bonds (see Tenders and Redemptions elsewhere in this issue for full details).

Terms emerged on two deals during the relatively quiet final session of the Sept. 29 week, as Parker Drilling Co. bored into the high yield accounts for $175 million, and LBI Media Holdings, Inc. showed up with sufficient signal strength to complete a $40 million proceeds senior discount notes transaction.

In a deal that priced mid-talk, Parker Drilling sold $175 million of 10-year senior notes (B2/B-) at par to yield 9 5/8%.

Lehman Brothers and Deutsche Bank Securities ran the books for the deal from the Houston-based provider of contract drilling and drilling-related services, which had been talked at 9½%-9¾%.

The Parker Drilling Paper got anything but a crude reception as it broke into secondary trading, with one source reporting the new notes at 102 bid, 102.5 offered.

Terms also emerged on LBI Media's $40 million proceeds of zero coupon senior discount notes due Oct. 15, 2013. The $68.428 million principal amount of unrated notes priced at 58.456 to yield 11%, at the wide end of the 10¾%-11% price talk.

Credit Suisse First Boston and UBS Investment Bank led the deal for the Burbank, Calif.-based privately held Spanish language radio and television operator's deal.

One sell-side official commented that primary market has seen a spate of senior discount notes deals price during recent weeks, and that those deals have tended to get positive receptions.

They include Houghton Mifflin parent HM Publishing Co. which priced $265 million principal amount of 10-year senior discount notes (Caa1/B) at 56.96 on Sept. 30, resulting in an 11½% yield, and JohnsonDiversey Holdings Inc.'s $406.303 million of 11.67% 10-year senior discount seller notes (B3/B) which priced at 65.842 on Sept. 8 for a yield to worst of 11 1/8%.

Prescott Crocker, manager of the Evergreen High Yield Bond Fund, told Prospect News that he had put in for some of the LBI Media discount paper, but the deal wasn't big enough.

"That's the two-station Spanish radio broadcaster," commented Crocker. "In essence it was like buying a common stock."

The fund manager from Boston also said that he had found the structure of the LBI Media deal attractive.

"When this market turns bearish - which I think it's going to in the beginning of the New Year, if not before - you don't want to be in junior discounts," said Crocker. "But senior discounts aren't bad."

Aside from Friday's primary market business Crocker said that he is presently looking for a correction in the bond market.

"Stocks have done pretty well and the market is pretty well bid and it's pretty shy of new issues," he said.

"But it is also shy of new fund flow coming into it.

"There have been enough deals around, but I think the quality of the deals has been dropping substantially."

Meanwhile on Friday Von Hoffman Corp. announced that it intends to sell a $60 million add-on to its 10¼% senior notes due March 15, 2009, via Credit Suisse First Boston.

The St. Louis-based manufacturer of printed products for the educational and commercial markets sold the original $215 million offering (B2/B) on March 15, 2002 at par to yield 10¼%. It was upsized from $200 million.

Proceeds from the new issue will be used to help fund the company's acquisition of Lehigh.

Price talk of 10¼%-10½% emerged Friday on IFCO Systems NV's offering of €110 million eurobonds due 2010 (B-), which are expected to price on Monday via Deutsche Bank Securities.

And from the emerging markets corporates sector, Korea Exchange Bank Credit Service Co. Ltd.'s sale of $100-$150 million of subordinated fixed-rate notes due 2013 (B3/CCC+) with warrants is now reported to be in the market, and is expected to price during the Oct. 6 week via Credit Suisse First Boston.

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