ONO, downsized Covalence price; HealthSouth gains on tender plans; funds see $27 million inflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 2 - Covalence Specialty Materials priced a newly restructured and sharply downsized offering of 10-year senior subordinated notes on Thursday. High yield syndicate sources also saw a euro-denominated pricing from Spanish broadband operator ONO Finance II plc. A quickly appearing deal from HCA, Inc. for $1 billion of new bonds is expected to price Friday.

In the secondary market, HealthSouth Corp. bonds got a boost from the news that the Birmingham, Ala.-based provider of outpatient surgical and rehabilitation services will tender for all of its outstanding bond debt.

General Motors Corp., its arch-rival Ford Motor Co., and their respective financial arms, General Motors Acceptance Corp., and Ford Motor Credit Co., were all seen lower, giving up the gains they had notched on Wednesday in reaction to better-than-expected January sales data - sales that were heavily dependent on one-off annual buys by rental-car companies and other fleet operators.

A high-yield syndicate official said that the broad market appeared to have firmed slightly during the Thursday session.

And after traders had pretty much called it a day, market participants familiar with the weekly high yield mutual fund low numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $27.3 million more came into the funds than had left them. That abruptly halted a three-week losing streak, including the previous week's $270.3 million outflow. In those three weeks, outflows totaled some $406 million, according to a Prospect News analysis of the AMG figures.

Inflows have now been seen in two weeks out of the five since the start of the year, for a cumulative 2006 net outflow of about $370 million, down from the previous week's $397 million.

The small gain also temporarily stopped the negative pattern that had been seen in six of the previous seven weeks, dating back to mid-December, during which time, outflows totaled about $1.247 billion, according to the analysis. Even counting the latest week's total, outflows since mid-December have been negative, to the tune of $1.22 billion.

Those results in turn confirm the predominantly negative trend that was in evidence throughout most of 2005, when around $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the approximately $3.236 billion net outflow seen in 2004.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Oversubscribed ONO deal prices

From Europe early Thursday, terms emerged on Spanish cable TV company Grupo Corporativo ONO SA's €270 million issue of eight-year senior notes (B3/CCC+/B-) which priced at par to yield 8%, on the tight end of the 8% to 8 1/8% price talk.

A source close to the deal said that the order book was six-times oversubscribed, and added that the bonds broke at 100.50 bid, 101 offered, and were holding there early Thursday morning, New York time.

The source added that the issuer "lost some accounts on price," but added that the overwhelming consensus was that the company's story and management are very strong.

JP Morgan, The Royal Bank of Scotland and Calyon Securities were joint bookrunners. Proceeds will be used to refinance debt taken on as part of ONO's acquisition of Auna Group in November 2005.

Covalence Specialty tight to talk

Also finishing tight to talk in Thursday's primary market session was Covalence Specialty Materials' downsized $265 million issue of 10-year senior subordinated notes (B3/CCC+). The bonds priced at par to yield 10¼%, on the tight end of the 10¼% to 10½% price talk.

Banc of America Securities, Credit Suisse, Merrill Lynch and Morgan Stanley were joint bookrunners for the LBO deal.

In a restructuring of its financing, the company shifted $25 million of proceeds to its term loan B, which was upsized to $350 million from $325 million. Meanwhile the company downsized a second-lien tranche to $175 million from $200 million and shifted it to bank loan market, abandoning a proposed $200 million tranche of second-lien senior secured floating-rate notes. In addition there was a $30 million working capital adjustment to the financing.

In total the bond offering was downsized from $495 million.

The notes were said to have priced too late in the session for any meaningful aftermarket activity.

HCA quick-to-market

Friday's session figures to see Nashville, Tenn., hospital management company HCA price a $1 billion offering of 10-year senior bullet notes (Ba2/BB+/BB+).

No official price talk had circulated Thursday night as Prospect News went to press but a source said that the notes are being whispered at a 200 to 205 basis point spread to Treasuries.

Citigroup, Banc of America Securities, Deutsche Bank Securities, JP Morgan and Merrill Lynch & Co. are joint bookrunners for the debt refinancing deal.

The only other business at hand for Friday comes from French shipping company CMA-CGM.

On Thursday the company talked its $250 million offering of seven-year senior notes at 7¼% to 7½%.

BNP Paribas has the books.

The notes are non-rated but the source said that CMA-CGM has issuer ratings of Ba2 from Moody's Investors Service and BBB- from Standard & Poor's, which assigned that investment-grade rating to the company in April 2005.

The source added that in December 2005 the company fully called its 9 7/8% notes due 2013 by exercising the make-whole call.

A source close to the deal said that there is a mixed bag of accounts in the deal, including crossover accounts, high-yield accounts and banks.

HealthSouth rises on refinancing

Back among the established issues, "HealthSouth was moving up" on the tender offer news, a market source said. He quoted the company's 8 3/8% notes due 2011 as having firmed to 107.75 bid from prior levels at 105, while its 7 5/8% notes due 2012 improved to 105.5 bid from 103.

At another desk, the company's 7% notes due 2008 were seen up 2½ points on the day at 103 bid, 104 offered, while its 10¾% notes due 2008 were likewise higher at 103.5 bid, 104.5 offered.

Yet another trader saw the 7 5/8% notes due 2012 "up three points prior to the news on rumors," then tacking on another two points to shoot up to 108.5 bid, 109.5 offered.

He noted that the end of the day price "went through [i.e. above] the current offer price" announced by HealthSouth of $1,062.50 per $1,000 principal amount as total consideration, "lending itself to the idea that the tender offer is below market [price]."

He said that all of the company's bonds were up three points on the session, other than the 7 5/8s, but added that "it's the longer-dated debt" that nobody is going to tender, because it's trading above the tender price now.

Automakers give up some gains

Elsewhere, the automakers' bonds - which had firmed smartly on Wednesday in response to the January sales data - were all seen in retreat, the trader said, quoting GM's benchmark 8 3/8% notes due 2033 down a point at 74 bid, 75 offered, GMAC's 8% notes due 2031 also a point lower, at 101 bid, 102 offered, and Ford's 7.45% notes due 2031 down a point as well, at 74 bid, 75 offered.

Another trader saw an even more pronounced retreat, calling the GM flagship issue down 1¾ points at 74.25 bid, 75.25 offered, the GMAC 8s off 2¾ points at 100.25 bid, 100.75 offered, and the Ford bonds off 1¼ points at 74 bid, 74.75 offered. He also saw the Ford Credit 7% notes due 2013 lower by 1½ points at 90.5 bid 91 offered.

The trader noted the bonds were down in tandem with the companies' New York Stock Exchange-traded shares, with GM stock closing down 90 cents (3.67%) at $23.60, while Ford lost 3.4% to finish at $8.37. Besides being pulled down by the overall negative equity market - the Dow Jones Industrial Average lost nearly 102 points, while the Nasdaq fell 29 points - the carmaker's stocks, and hence their bonds were skidding lower as market participants took a second look at the sales data, which had appeared so positive on Wednesday, following as it did several months of year-over-year losses since the end of major sales incentive programs last fall.

While GM reported a 6% increase in overall vehicle sales in January, that rise was purely due to a 30% jump in fleet sales, mostly to car-rental companies, government agencies, taxicab companies and the like, many of which due their purchasing of new vehicles at the start of the year. Retail sales of vehicles to regular motorists through dealer showrooms, on the other hand, actually fell 7% in the month from year-ago level.

The story was much the same at Ford, which saw a 2.7% gain in overall vehicle sales - because of a 21% surge in fleet sales. Excluding fleet sales, Ford's retail showroom sales were down 6% from year-ago levels. Analysts fear that those kind of weak non-fleet sales could leave the carmakers with bloated inventories of unsold vehicles, just as they did a year ago.

Besides distorting the companies' data by making sales look far stronger than they actually were, the fleet sales did little to add to the profit margins of the carmakers, since the carmakers generally give hefty discounts to encourage such high-volume sales.

"If you're selling a lot of cars," a bond trader said, "but you're not making very much money off of them then where does that leave you?"

Yet another trader saw the GMAC 8% notes fall to par bid, 101 offered from 103 bid, 103.5 offered, while GMAC's 6¾% notes due 2014 declined to 93.5 bid, 94.5 offered from 95 bid, 96 offered, and its 6 7/8% notes due 2011 were at 94.5 bid, 95.5 offered, down from 96 bid, 97 offered. GM's 8 3/8% notes were seen a point lower at 75 bid, 76 offered, while its 7 1/8% notes due 2013 were a point down at 78.5 bid.

Parts makers down

The falling automaker bonds also towed the auto parts companies lower as well, traders said, with one seeing bankrupt Troy, Mich.-based auto electronics manufacturer Delphi Corp.'s 6½% notes due 2009 down a point at 56.5 and its 6½% notes due 2013 off 1¼ points at 56.25.

He saw Visteon Corp.'s 7% notes due 2014 half a point lower at 77.75 bid, while the Van Buren Township, Mich.-based former Ford subsidiary's 8¼% notes due 2010 lost ¾ point to 84.75.

However, he did see Rochester Hills, Mich.-based components maker Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 up ¾ point at 82.75 bid, while its 9% notes due 2009 were half a point lower at 51.5 bid.

Owens-Illinois up on earnings

Outside of the automotive realm, a market source saw Owens-Illinois Inc.'s 7½% notes due 2010 half a point better, and its 7.80% notes due 2018 ahead by ¾ point, both at 102.

The Toledo, Ohio-based glass and plastic container maker reported a big fourth-quarter loss, versus a modest year-earlier profit, but attributed the red ink to nearly $1 billion of non-cash charges it took.

Company executives said on a conference call that on an operating basis, excluding special items, results for the quarter were positive. They also touted strong free cash flow generation and debt paydown that were, in the words of one, "way beyond expectations." (See related story elsewhere in this issue).

Also on the earnings front, fellow packaging concern Crown Cork International's 7 5/8% notes due 2013 were seen down half a point, while its 7¾% notes due 2015 were down ¼ point, both at 103.25. Its Philadelphia-based parent, Crown Holdings, reported a net loss of $458 million ($2.76 per share), versus a loss of $27 million, or 16 cents a share, a year earlier, mostly due to debt-, asbestos- and foreign exchange-related earnings charges.

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