Four deals price as market stays hot; Levi Strauss plunges on tax allegations, Charter up

By Paul A. Harris

St. Louis, April 15 - "Stand back: excessive heat!"

So warned one official from a high-yield syndicate desk when Prospect New inquired about conditions in the present junk bond market.

Terms from four separate transactions surfaced during and shortly after the primary market session.

Investors took an extra dose of Rite Aid Corp. which increased its deal to $360 million from $350 million and priced the seven-year paper with an 8 3/8% yield.

Susquehanna Media Co. upsized its already upsized and restructured pass at the high yield market, bringing $150 million of new 10-year paper while Richmond, Va. lubricant additives company Ethyl Corp. slid in with a quick-to-market deal for $150 million. Shortly after Tuesday's session closed Sugarland, Texas homebuilder Technical Olympic USA, Inc. brought a quick-to-market $35 million add-on to its 10 3/8% senior subordinated notes due July 1, 2012 (B2/B-).

Meanwhile in the secondary market sources told Prospect News that the notes of Levi Strauss & Co. were looking like low-riders, some off as much as 11.5-12.5 on the session, on news that two of the company's former tax managers were alleging that they were fired when they would not play along with what they called Levi's questionable tax accounting practices.

Also swooping on Tuesday were the bonds of AMR Corp. on the apparent news that its flight attendants would not follow other union members in granting concessions to save the airline from Chapter 11.

Not all of Tuesday's secondary action was glum, however. One source had notes of struggling cable systems operator Charter Communications Inc. moving up on news that chairman and majority shareholder Paul Allen is maneuvering to transfer some of Charter's cable systems to Comcast Corp. as the St. Louis cable operator attempts to pare debt.

In Tuesday's primary market activity, however, the news was just about uniformly upbeat.

"There is a ton of money in the market," said one source. "Over all the market is up about a half, today, maybe a little bit more.

"There are a lot of new deals coming, a lot of fly-bys. And they're all doing very well."

For example, said this source, Camp Hill, Pa. drugstore chain operator Rite Aid upsized its offering a little to $360 million from $350 million. It sold the 8 1/8% seven-year senior secured notes at 98.688 to yield 8 3/8%, at the low end of the 8½% area price talk.

The notes were seen trading in the aftermarket "around the 99.5/99.75 area, up about a point. And that came on the tight side for a single-B credit," a market source said.

Citigroup was the bookrunner.

Much the same or more could be said for the new bonds of York, Pa.-based Susquehanna Media Co.

It upsized its offering of 10-year senior subordinated notes (B1/B) to $150 million from $125 million and priced them at par to yield 7 3/8%, at the tight end of the 7 3/8%-7½% price talk.

They were later seen in secondary trading at 102.5 bid, 103 offered.

The deal, via joint bookrunners Banc of America Securities and Wachovia Securities, had already been upsized and restructured on Monday from a $100 million add-on to the company's 8½% senior subordinated notes due 2009.

Also pricing Tuesday Ethyl Corp.'s $150 million offer of new seven-year senior notes (B2/B). That deal, via bookrunner Credit Suisse First Boston, priced at par to yield 8 7/8%, actually coming inside of the 9%-9¼% price talk.

Finally during Tuesday's primary market session Technical Olympic priced a quick-to-market $35 million add-on to its 10 3/8% senior subordinated notes due July 1, 2012 (B2/B-) at 98.5, according to a syndicate source. The yield was 10.629%.

Citigroup was bookrunner.

In the secondary market, Levi Strauss, the privately held clothing giant from San Francisco, dominated discussions that Prospect News carried on with bond traders.

The San Francisco Chronicle reported that two former tax managers that the company recently fired are claiming in a lawsuit that Levi booked questionable income and tax deductions that served to artificially balloon profits by hundreds of billions.

Although the company denied the allegations in the lawsuit, which was filed Monday in San Francisco Superior Court, the appearance of the words "artificial" and "profit," in the same sentence may have worked its dark magic on the company's debt securities.

"The bonds took a huge dive," said one source. "The 11 5/8s of 2008 began the day at 94 bid. Once this news circulated I saw a wide 73/78-kind of context. And by the end of the day they were 82.5/83.5, down around 11.5-12.5 points from Monday's close.

"To make matters even more confusing there is a tender on the Levis 6.80%s of 2003, at a premium: 102.424," the trader added. "And they had cash restricted on the balance sheet to take out the '03s. So everything is kind of up in the air."

Another source said simply "I don't know if the tender on the 6.80s is going to happen. I would say it doesn't look good."

He quoted the 6.80% notes closing at 97.5 bid, 98.5 offered while he saw the company's 7% notes at 80 bid, 82 offered and the 11 5/8% and 12¼% notes at 84 bid, 85 offered.

In a statement released late Tuesday, Levi said it plans to "vigorously defend against these claims and pursue all available legal remedies."

"The two former employees who filed the lawsuit were dismissed late last year for reasons completely unrelated to the allegations made in their lawsuit," said Phil Marineau, Levi Strauss & Co.'s chief executive officer.

"After these two individuals raised concerns about Levi Strauss & Co.'s tax accounting, the company's audit committee launched a thorough and independent investigation using outside legal counsel and our outside auditors. Based on the results of the investigation, we confirmed that our tax accounting was accurate and appropriate."

Nor were any secondary market sources spotting an updraft that might lift the notes of air carrier AMR Corp., as news circulated that with 19,000 votes cast, flight attendants had rejected wage concessions to the company by fewer than 500 votes. The rejection, if it stands - and late in the day AMR said voting had been extended to 6.00 p.m. ET on Wednesday to allow votes to be changed - would apparently serve to nullify the positive impact of concessions from pilots and ground workers who approved their shares of the proposed $1.8 billion in cuts. Without all the concessions, including those of the flight attendants, AMR's flight plan puts it on a course toward bankruptcy court, company officials said.

And in a statement late Tuesday chairman Don Carty said the airline would "immediately" file for bankruptcy if the flight attendants did not back the agreements.

"AMR was trading at 35/36 area," one source advised Prospect News, late in Tuesday's session. "Then there was the news that the attendants blew off the concessions, and the paper traded down to around 26. Right now it's 27/9, so it's off about five points from its highs."

However not all of the secondary market news was so dire as the Levi and AMR stories.

A report in the Wall Street Journal that Paul Allen, chairman and majority shareholder of Charter Communications Inc., is reportedly in talks to transfer some of Charter's cable systems to Comcast Corp., in order to shave off some of the cable giant's massive debt, saw Charter's notes beaming up.

"The paper was on fire today," said one source. "The 5¾% converts of 2005 yesterday traded around 29. They finished out 36.5 bid."

He also saw the 8 5/8% notes close at 62.5 bid, looking for an offer, up a couple of points from 61 bid, 62 offered at the start of the day.

"But the stuff that was lowest in the capital structure ran the most," the source added.

Meanwhile in the primary market, with Tuesday's four transactions completed news circulated on deals still to price during the holiday-abbreviated week of April 14.

Price talk of 10¾% area emerged Tuesday on Equistar Chemicals, LP's upcoming $325 million of eight-year senior notes (B1/BB/B). They are expected to price on Wednesday via joint bookrunners Citigroup, Banc of America Securities and JP Morgan.

Word also circulated the market Tuesday that the official price talk is 8¾%-9% on Alpharma Inc.'s upsized offering of $220 million eight-year senior notes, which are expected to price on Thursday morning via bookrunner Banc of America Securities and co-manager CIBC World Markets. The deal was increased from $200 million.

Finally on Tuesday the Prospect News primary market desk got wind of a new offering of notes from CB Richard Ellis Services Inc. In a ratings release, Standard & Poor's assigned a B+ to $200 million of seven-year notes.

When contacted by Prospect News company vice president and treasurer Debbie Fan declined to answer questions regarding timing and underwriters, saying that the deal is still a work in progress.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.