Freescale, Goodyear mega-deals price, Mosaic too; Northwest continues gains; funds gain $49 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 16- Firestone Acquisition Corp. successfully brought to market one of the biggest junk bond issues ever on Thursday, as it priced a restructured $5.95 billion four-part issue, intending on using the proceeds of the super-sized deal to help fund its pending $17.6 billion acquisition of Freescale Semiconductor Inc. Those bonds were seen by secondary market sources as higher after they were freed for aftermarket dealings.

The huge deal absolutely dwarfed another offering which under normal circumstances would be seen as a giant in its own right - Goodyear Tire & Rubber Co.'s quickly marketed $1 billion two-part offering. The new Goodyear bonds traded up after they broke - but the Akron, Ohio-based tiremaker's existing issues were seen having fallen ahead of the deal.

Also pricing were issues from The Mosaic Co. - just shy of $1 billion, at $950 million - and Americast Technologies Inc., slightly upsized to $105 million. All told, a cool $8 billion of new bonds priced during the session.

Price talk meantime emerged on eircom Group plc's upcoming €425 million of 10-year PIK floating-rate notes.

In the secondary market, Delta Air Lines Inc.'s bonds rose again in the wake of Wednesday's news that US Airways Group Inc. had made an unsolicited $8 billion offer for the bankrupt Number-Three U.S. airline carrier - though the rise was nowhere nearly as dramatic as Wednesday's more than 20-point jump. However, those bonds retreated from their earlier session highs, to close only modestly higher.

On the other hand, the bonds of Delta rival Northwest Airlines Corp. - also currently restructuring under Chapter 11 - held on to most of the gains it notched during the session, finishing with a handsome rise. The Northwest bonds had followed the Delta bonds up on Wednesday, likely driven by speculation that with Delta now "in play" as a possible takeover target, Northwest might also be seen as ripe for acquisition.

Back on solid ground, the news that The Readers Digest Association Inc. agreed to be acquired by an investor group led by Ripplewood Holdings LLC caused the Pleasantville, N.Y.-based publishing company's bonds to be quoted higher, though not much actual trading in them was seen.

Funds see third straight inflow

And well after trading had wound down for the day, participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $48.7 million more came into the funds than left them - the third straight inflow, following the $39.2 million infusion seen the previous week, ended Wednesday, Nov. 8, and the fourth in the last five weeks. During that time, a total of $265.1 million more came into the funds than left them, according to a Prospect News analysis of the AMG statistics.

That analysis shows that even though a negative trend has been effect so far this year, over the past roughly four to five months, inflows have held sway, totaling about $793 million, with 12 such infusions seen in the last 20 weeks.

However, despite that show of strength during the third quarter and the first half of the fourth, the year-to-date figures continue to tell a very different story.

Even counting the latest week's result, the funds have hemorrhaged approximately $2.843 billion since the start of the year, although that's down from the previous week's roughly $2.892 billion net outflow total, according to the analysis. Outflows have now been seen in fully 29 weeks out of the 46 since the beginning of the year, against just 17 inflows. The figures exclude distributions and count only those funds that report on a weekly, rather than on a monthly, basis.

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 10% to 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.

A couple of sources commented that the inflow is a comparatively low number, especially given the phenomenal amounts of cash said to be at play in the post-Labor Day 2006 new deal market.

Biggest primary day ever

The high yield market saw a face amount of slightly more than $8 billion of bonds price on Thursday in what sources speculate is the biggest day that the high-yield primary market has ever seen.

Freescale sets the record

Firestone Acquisition Corp. (Freescale Semiconductor Inc.) priced a landmark $5.95 billion four-part high yield bond transaction on Thursday, in what market sources estimate may be the biggest single amount of issuance ever placed at one time by a U.S. issuer.

The restructured transaction priced this way:

• A $2.35 billion tranche of eight-year senior notes (B1/B) priced at par to yield 8 7/8%, at the wide end of the 8¾% to 8 7/8% price talk which had been revised early Thursday from initial talk of 9% to 9¼%;

• A $1.5 billion tranche of eight-year senior PIK-election notes (B1/B) priced at par to yield 9 1/8%, with a PIK coupon 75 basis points higher at 9 7/8% than the 9 1/8% cash-pay coupon. The PIK notes priced on top of talk which had them coming 25 basis points behind the 8 7/8% cash-pay notes. That talk had been revised from 25 to 50 basis points behind;

• A $500 million tranche of eight-year senior floating-rate notes (B1/B) that priced at par to yield three-month Libor plus 387.5 bps, on the wide end of the Libor plus 375 to 387.5 basis points price talk which had been revised from Libor plus 400 to 425 basis points; and

• A $1.6 billion tranche of 10-year senior subordinated notes (B2/B) that priced at par to yield 10 1/8%, on top of price talk that had the subordinated notes coming 125 basis points behind the senior fixed-rate cash-pay notes. That talk and been revised from 125 to 150 behind.

Credit Suisse had the physical books for the LBO deal from the Austin, Tex., semiconductor company.

The Freescale book was rumored to have closed containing $22 billion of orders.

Goodyear $1 billion drive-by

Goodyear Tire & Rubber priced a $1 billion two-part notes transaction (B2/B-) on Thursday.

The Akron, Ohio-based tire maker priced a $500 million tranche of five-year fixed-rate notes at par to yield 8 5/8%, on the tight end of the 8¾% area price talk.

Goodyear also priced a $500 million issue of six-month Libor plus 375 basis points three-year notes at 99.00, on top of price talk.

Goldman Sachs & Co. ran the books for the quick-to-market Rule 144A/Regulation S issue.

Proceeds will be used to repay at maturity $515 million of notes due Dec. 1, 2006 and March 1, 2007, and for general corporate purposes, which may include addressing the continuing strike by the United Steelworkers union.

Mosaic prices $950 million

The Mosaic Co. raised $950 million with the sale of two tranches of senior notes (B1/BB+) on Thursday, according to a market source.

The Plymouth, Minn.-based phosphate and potash crop nutrients producer priced a $475 million tranche of eight-year notes at par to yield 7 3/8%, tight to the 7 3/8% to 7½% price talk.

Meanwhile Mosaic priced a $475 million tranche of 10-year notes at par to yield 7 5/8%, again tight to the price talk: 7 5/8% to 7¾%.

JP Morgan and Merrill Lynch & Co were joint bookrunners for the debt refinancing deal.

AmeriCast sligthly upsized

Finally AmeriCast Technologies priced an upsized $105 million issue of eight-year senior notes (B3/B-) at par to yield 11%, on top of the price talk.

Jefferies & Co. was the bookrunner.

The biggest ever

A sell-side source who spoke on background well after the Thursday close called the primary market session a new record in terms of dollar amount of issuance.

For comparison this source provided a list of the biggest-ever sessions.

In decending order, with figures that represent face amounts of issuance that factor euro and dollar issuance on an exchange-adjusted basis, they are:

1. Nov. 16, 2006, at $8.005 billion,

2. Oct. 5, 2006 at $6.899 billion (NXP BV),

3. Sept. 15, 2006 at $5.727 billion (Lyondell Chemical Co., Seagate Technology),

4. Nov. 9, 2006 at $5.70 billion (HCA, Inc.),

5. Nov. 1, 2006 at $5.032 billion (Idearc Inc., Sabine Pass LNG, LP),

6. Jan. 26, 2006 at $4.270 billion (NRG Energy Inc.),

7. May 5, 1999 at $4.182 billion,

8. March 29, 2006 at $4.120 billion,

9. July 27, 2005 at $4.0 billion, and

10. Nov. 12, 1999 at $3.809 billion.

The sell-sider drew attention to the fact that seven of the top 10 primary market sessions of all time have taken place in 2006.

Freescale trades up

When the new Firestone/Freescale bonds were freed for secondary dealings, they "traded extremely well," a trader said, seeing the new 8 7/8% senior notes due 2014 trading "on either side of 102," well up from their par issue price, before settling in at 101.375 bid, 101.75 offered, while the new 10 1/8% senior subordinated notes due 2016 initially zoomed to levels above 103, before coming off those early peaks to end at 102.75 bid, 103 offered.

At another desk, a trader saw the 8 7/8s, as well as the new 9 1/8% senior PIK notes and the floating-rate notes, both also due 2014, all trading at 101.25 bid, 101.5 offered, while the 10 1/8s were at 102.5 bid, 103 offered. Yet a third trader saw the 2014 bonds all at 101.25 bid, 101.75 offered, while the 10-years ended at 102.5 bid, 103.5 offered.

Goodyear's new bonds up, existing issues off

That latter trader saw the new Goodyear 8 5/8% senior notes due 2011 firm to 102 bid, 102.5 offered, up from their par issue price, while the tiremaker's new floating-rate notes due 2009 moved up to par bid, 100.5 offered from their issue price at 99. Another trader saw the floaters at 100.25 bid, 100.75 offered, and the fixed-rate notes at 102 bid, 102.5 offered.

While Goodyear's new bonds were up, its outstanding issues were seen falling back, with the company's widely quoted 7.857% notes due 2011 down a point at 99.5, and its 9% notes due 2015 likewise down a point, at 103.25 bid, a market source said. Goodyear rival Cooper Tire & Rubber Co.'s 8% notes due 2019, however, were seen up 1¼ points at 93.5.

Mosaic, Americast bonds move up

Also moving up when freed for secondary were the two new tranches of Mosaic Co. bonds, although a trader said that "we didn't see a lot [of dealings] in those once we started with Goodyear. It seems like these sort of died out a little bit.

"I didn't see as much [trading] on this new deal as I did on Freescale or Goodyear," despite the ample, liquid size of the offering - $450 million each.

The trader saw Mosaic's new 7 3/8% senior notes due 2014 and its 7 5/8% seniors due 2016 both at 102.25 bid, 102.5 offered, well up from their respective par issue prices.

However, another trader saw those bonds at lower levels, with the 7 3/8s at 101.125 bid, 101.625 offered, and the 7 5/8s at 101.5 bid, 102 offered.

And he saw the new Americast Technologies 11% seniors due 2014 at 101 bid, 101.75 offered, up from their par issue price.

New issues push rest to rear

With so much new paper hitting the market all at once - on top of some $11 billion of new issuance that priced last week - "the primary market takes the cake," a trader said, "as it has been for the past several days.

"With all of these mega-issues, it makes it hard for people who don't do a lot of new-issues - such as ourselves - to squeeze in there. We're doing it - but a lot of these accounts have stacks and stacks of stuff to look through as far as new issues go, and you have trouble getting their attention for anything that's not a $1 billion deal."

The trader said that the situation was being compounded by the fact that the market is entering the homestretch - the last month and a half of the year, which really means the last month of trading, since the market traditionally goes into its year-end shutdown mode somewhere around mid-December.

"You don't exactly want to take on a new name that doesn't trade that often and possibly wreck your entire bonus structure" if the gamble goes wrong and the issue loses value. "I'm not saying people are completely wrapped up," and not taking on any secondary market transactions beyond the new deals and the established big names, "but I think a lot of people are a little bit wrapped up as we head into the holidays."

Overall though, the trader said "business is good, as difficult as it is to get people's attention away from the HCAs and the Freescales, and the Goodyear Tires, and the big deals. Business is pretty decent.

"But we're just lucky."

Delta gyrates at higher levels

Apart from the new deals, there was brisk activity for a second straight day in Delta Air Lines' bonds, although nothing to rival the breathtaking 20 point-plus gain that the restructuring Atlanta-based carrier's bonds had notched on Wednesday, when news of US Airways' unsolicited $8 billion takeover offer first hit the market.

A trader saw the bonds go "on a nice ride today [Thursday]," with the company's widely quoted 8.30% notes due 2029 opening at 61 bid, 63 offered, about where they had closed on Wednesday, and then soaring to 68 bid, 69 offered during the session.

However, by the end of the session, he said, those bonds had dropped back to finish at 63 bid, 65 offered, a gain of about a point or two.

On the other hand, he saw Northwest Airlines' bonds gain about 4 points on the day, although those bonds too came off their intraday highs. The Thursday gain followed a rise of about 12 points on Wednesday, sparked by expectations that a wave of airline industry consolidation signaled by interest in a possible Delta deal might also see bids for Eagan, Minn.-based Northwest, the bankrupt Number-Four domestic carrier.

The trader saw Northwest's 8 7/8% notes that were to have come due in June open at 78 bid, 80 offered, get as good as 83 bid, 85 offered, and then go home at 82 bid, 84 offered, up 4 points.

Another trader saw the 8 7/8s end up 5 points at 83 bid, 84 offered - although that was down from peak levels at 86 bid, he said.

While Delta has said that it will consider the US Airways offer, the company has been aiming all along at coming out of Chapter 11 as a leaner, more efficient and debt-free stand-alone operation.

Reader's Digest firmer

Away from the airlines, a trader saw Reader's Digest's 6½% notes due 2011 quoted at 101 bid, 102 offered, up from prior levels at 97 bid, 98 offered, given a boost by the news that the company has agreed to be acquired by an investor group led by New York-based buyout shop Ripplewood Holdings LLC in a transaction valued at $2.4 billion, including the assumption of about $800 million of Reader's Digest debt.

A trader at another desk saw a par bid for the bonds, up from around 97.25 previously, but noted that it was "not a widely quoted issue."

The investor group, which also includes J. Rothschild Group, GoldenTree Asset Management, GSO Capital Partners, Merrill Lynch Capital Corp. and Magnetar Capital, has offered to pay Reader's Digest shareholders $1.6 billion, or 17 cents per share. It envisions the deal closing in the first quarter of next year.

Assuming the deal is completed, it would give the group control of one of the most well-known media names in the world, anchored by the company's venerable flagship publication, Reader's Digest. The little monthly magazine - a staple of the publishing industry since its debut in 1922 - is published in 21 languages, and has a monthly circulation of about 18 million, with an estimated 80 million readers worldwide.

Besides that title, the company puts out 20 other magazines, including Every Day with Rachael Ray, featuring the popular TV cooking show star's recipes and entertainment tips, and such special-interest titles as The Family Handyman, American Woodworker, Taste of Home, and Country Woman. The company also publishes book collections, such as its Reader's Digest Select Editions, how-to guides and cookbooks, as well as music collections, videos, financial and health products. Its Books Are Fun unit is a direct marketer of books and gifts.

The deal is the latest in a series of recent large acquisitions in the publishing industry, with investors hoping to find the right formula to unlock the value in well-known names like the Digest, newspaper and broadcasting giant Tribune Co., which is currently weighing buyout bids from at least three private equity investors, and The Philadelphia Inquirer, which was recently sold by Knight-Ridder.

Salton signs exclusivity pact

Also on the merger and acquisitions front, Salton Inc. said that it had entered into an exclusivity agreement with Harbinger Capital Partners Master Fund I, Ltd. which would bar the Lake Forest, Ill.-based small appliance maker from engaging in any kind of acquisition transactions for the next month with anyone other than Harbinger.

However, while the company's 12¼% senior subordinated notes due 2008 were quoted at higher levels - a trader heard them offered at 92, with no bids, versus their last known pre-news trading levels at 83.5 bid, 85.5 offered - market participants saw only a couple of small off-lot trades in the name, hardly representative of any kind of real trend, they said.

Harbinger, a New York-based investment company, is currently in talks with Salton about possibly combining Salton with rival small appliance manufacturer Applica Inc., which last month agreed to be acquired by 40% owner Harbinger. The investment firm said it expects to complete its due diligence on Salton and line up any necessary funding commitments for a transaction by Dec. 15.

Salton, which makes and markets the popular George Foreman line of electric hot dog and hamburger grills, among other appliances, last month formed a special committee of its board of directors and hired Houlihan Lokey Howard & Zukin Capital Inc. to conduct a "strategic review" of its business, with the possible sale of the company being among the potential options under study.

That move followed Harbinger's call for a combination of the two appliance makers. Harbinger agreed on Oct. 19 to acquire the remaining 60% of Miramar, Fla.-based Applica that it does not already own for $6 per share, or $88 million, in a transaction expected to close in the first quarter of 2007, subject to approval by Applica shareholders and regulators.

Besides controlling Applica, Harbinger is also a major Salton investor, with 30,000 shares of Salton's series A voting convertible preferred stock, convertible into more than 15% of the company's common shares.

In a letter to Salton's board and a filing with the Securities and Exchange Commission at that time, Harbinger declared that "[w]e are enthusiastic about the small household appliance market and believe that a combination of Salton and Applica is compelling. . . A combination of Salton and Applica will offer the best outcome for Salton's stockholders." It promised Salton shareholders "an attractive offer for their shares of common stock."

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