Tyco is tops on IPO OK; Alamosa ailing on lowered guidance; six new deals price

By Paul Deckelman and Paul A. Harris

New York, June 13 - Tyco International Corp. debtholders shrugged off the not-unexpected downgrade of the company's bonds to junk status by Moody's and took them sharply higher Thursday, focusing instead on the coming initial public offering for Tyco's CIT Group unit. On the downside, Alamosa Holdings Inc. noteholders ignored bullish cash flow projections from the Sprint PCS affiliate and instead fixated on its lowered new-subscriber estimates, and the bonds tumbled.

In the primary market, the activity pace was red-hot as one after another a total of half a dozen new deals came clattering down the chute to price, led by Fleming Cos., Inc.'s $200 million offering of new eight-year notes.

Making up the six were five high-yield deals and one split-rated offering.

But several sources who spoke to Prospect News noted that three of the junk bond deals priced wide of talk and two were downsized.

"It's crowded," one sell-sider offered by way of explaining why three of five speculative-grade deals might have priced wide of talk.

"The market sentiment right now isn't great. It's crowded. There's a lot of other deals competing for attention, and that probably didn't help."

Most conspicuous among the day's pricings, with regard to its yield relative to price talk, was Metaldyne's downsized $250 million of 10-year senior subordinated notes (B3/B), via joint bookrunners Credit Suisse First Boston, JP Morgan and Deutsche Bank Securities Inc. The Metaldyne notes, originally planned at $300 million, priced at par to yield 11%, 100 basis points wide of the 9¾%-10% price talk.

The same sell-sider quoted above attributed the wideness of Metaldyne relative to talk mainly to market sentiment and competition on the forward calendar.

"Today was a bad day for the auto sector," the investment bank official added, regarding the new notes from the Plymouth, Mich.-based designer and supplier of metal-based parts for the automotive industry.

"Retail sales numbers came out, and the autos were way down. In fact the auto sales drove the rest of the retail sales down significantly.

"You would think that the book on Metaldyne was built a couple of days ago, so that today's numbers would not have been significant. But on the other hand those numbers could not have helped, could they?"

Also downsized significantly on Thursday was the deal from Fort Worth, Tex. middle-market auto finance company AmeriCredit Corp. Its $175 million of seven-year senior notes (Ba1/BB-) was decreased from $300 million and priced at 98.78 to yield 9½%, 25 basis points wide of the 9%-9¼% price talk. Bear Stearns & Co. and JP Morgan were the joint bookrunners.

In addition, Fleming Cos., Inc. priced its off-the-shelf deal for $200 million of eight-year senior notes (Ba3/BB-) at par Thursday to yield 9¼%, wide of the 8 7/8%-9 1/8% talk. Deutsche Bank Securities was the bookrunner.

Do these three transactions, Metaldyne, AmeriCredit and Fleming - all of which priced wide of talk and two of them downsized - indicate that what had been regarded by some observers as a seller's market, with the cash on the sidelines and a limited supply of deals, has now transformed into a buyer's market?

"There's a lot of selection right now," the sell-side official allowed. "I think a lot of this is just indicative of the competition for dollars.

"And there's still a lot of cash," the source continued. "But even given all the cash that has been on the sidelines people have been pretty good about discipline in their approaches. Even though it was a 'seller's market,' quote-unquote, I wouldn't say it was really a seller's market. The buy-side wasn't out there making stupid decisions. They were patient, and they were willing to let some stuff go.

"And I think this is what they were waiting for."

Asked if the forward calendar would likely continue to build in the run-up to July 4 the sell-side source said it was not very likely, especially in light of what issuers saw Thursday.

However this source did sound one note of caution.

"Let's say there are some high quality double-B guys waiting in the wings," the source said. "We've seen Treasuries go down. The 10-year yield's way down, at 4.90%.

"That's the other side. You might get some guys that are high-quality double-B issuers that price really tight. And they might try to slip in, in which case that would hurt these other guys further.

"It's a crowded market right now," the sell-sider said. "You wouldn't want to see any well-known, on-the-run type issuers come to market with some double-B credit that was going to soak up a bunch of demand."

Also pricing in Thursday's primary market activity was an upsized offering of Advanced Medical Optics, Inc. It sold $200 million - increased from $175 million - of eight-year senior subordinated notes (B2/B). They priced at 98.597 to yield 9½%, in the middle of the 9½% area price talk, via joint bookrunners Merrill Lynch & Co. and Banc of America Securities.

And The Big Food Group, plc priced its eurobond offering of £150 million of 10-year senior notes (Ba3/BB-) at par to yield 9¾%, at the tight end of the 9¾%-10% price talk via Barclays Capital and UBS Warburg, joint books.

In addition to the five straight-up high yield deals Methanex Corp. priced its split-rated US$200 million of 10-year senior notes (Ba1/BBB-) at par to yield 8¾% via Goldman Sachs & Co.

One new deal came onto the forward calendar Thursday. Dallas-based upscale restaurant and entertainment complex operator Dave & Busters, Inc. will start the roadshow Tuesday for $165 million of seven-year senior secured notes via joint bookrunners UBS Warburg and Deutsche Bank Securities. The deal is expected to price June 27 or 28.

Finally, price talk of 10¼%-10½% was heard Thursday on Vertis, Inc.'s $250 million of seven-year senior notes (B2/B-), which are expected to price Monday via joint bookrunners Deutsche Bank Securities and JP Morgan.

And from the realm of emerging markets corporate credits, price talk of 14¼%-14½% emerged Thursday on Corporacion Durango's $175 million of seven-year senior notes (B3/B+), according to a syndicate source who added that the notes are expected to price Monday at a discount with a mid-to-high 13% coupon. Morgan Stanley is the bookrunner.

When the day's new deals were cleared for secondary trading, Fleming's new issue "did not do well, again" a trader lamented, "just like their other issue" (the $260 million 9 7/8% senior subordinated notes due 2012, sold back on April 3). He quoted Fleming's newest bonds as having traded down to 99.75 bid/100.25 offered from their par issue price earlier in the session.

But he saw Methanex's new 8¾% senior notes due 2012, by way of contrast, as having firmed smartly to 101.75 bid/102.25 offered from their par issue price, while a second trader called them "well received" and quoted the chemical company's bonds as having moved as high as 102.25 bid.

Also on the new-deal front, Advanced Medical Optics Inc.'s' upsized new eight-year issue were seen at 99.25 bid/99.75 offered, and Metaldyne Corp.'s new 10-years were at 100.25 bid/101 offered.

Back among already established issues, Tyco was the star of the day, its bonds trading about five points higher in the wake of the news late Wednesday - after the market closed - that the Securities and Exchange Commission had given its approval for the planned initial public offering of Tyco's CIT Group finance unit. That approval helped boost the troubled Bermuda-based conglomerate's shares in after-hours trading Wednesday, and that momentum carried through to Thursday's dealings on the New York Stock Exchange, where Tyco shares jumped $3.65 (35.96%) to $13.80, on heavy volume of 84 million shares, almost triple the usual turnover.

On the bond side, Tyco's bonds were "up five points, across the curve," one observer said, pegging its 6 3/8% notes due 2006 at 80.5 bid, up five points, while its 6¾% notes due 2011 were also five points ahead, at 76.5 bid.

He noted that just 24 hours earlier, Tyco had been hit with a two notch downgrade by Moody's that lowered its senior unsecured bonds to Ba2 from BBB- previously - usually a sure prescription for a slide in bond prices the following session. But that news was quickly eclipsed by the news that the IPO could now go forward. The stock floatation - which could raise as much as $5 billion or $6 billion for the beleaguered company - was seen as absolutely critical to any chance that Tyco may have to cut its $27 billion debt burden down to size; the company envisions using the IPO proceeds and about $4 billion of cash on hand to pay down debt slated to come due in the next year.

Had it not been for the IPO news, he acknowledged, "yeah, the bonds would have fallen" on the downgrade news, even though Tyco's debt had been heading southward for some months as the company's situation deteriorated and a downgrade was not unexpected.

Standard & Poor's meanwhile reiterated its recent caution that while Tyco's bonds will remain precariously investment grade at BBB- for now, S&P might still downgrade its ratings if the IPO doesn't launch within two weeks and conclude within six, and if the amount of proceeds raised is deemed insufficient to help Tyco meet all of its debt and liquidity needs.

At another desk, Tyco's 6 3/8% notes due 2011 were being quoted up three points at 74.

Elsewhere, Alamosa Holdings' debt was badly on the slide, after the Lubbock, Tex.-based Sprint PCS affiliate - the largest of a number of companies which market the Sprint service in smaller U.S. markets - said that it now expects net subscriber additions for the second quarter to only be in the 15 to 25 thousand range, well below previous expectations of as many as 30 to 35 thousand new customers.

For bond investors - although not for equity holders - that completely overshadowed the company's confident projections that full-year EBITDA - earnings before interest, taxes, depreciation and amortization, considered a key measure of a company's cash flow generation potential and ability to service debt - would now come in in the $25 to $35 million range, well up from the $15 to $20 million of cash flow previously expected.

While equity players took Alamosa's shares up 37 cents (33.64%) to $1.47 on busy NYSE dealings of 1.37 million shares, about five times normal, bond players were headed in the opposite direction, knocking Alamosa's zero-coupon/12 7/8% notes down to 25 bid/28 offered from prior levels around 37 bid/39 offered, while its 13 5/8% notes due 2011 dropped 10 points, to 51 bid.

Clearly, a trader said, "the subscriber numbers are [now] the focus, and if they don't make 'em, they've got a problem. Are they real subscribers or not?"

Alamosa was among a number of PCS affiliates and other wireless names whose bonds had declined earlier in the month when fellow Sprint PCS affiliate AirGate PCS warned that its net new subscriber addition totals for the current quarter would come in somewhere in the mid-20s from prior expectations in the 35 to 40 thousand range. AirGate's bonds tumbled at that time, and dragged Alamosa and other sector players down with it. In Thursday's dealings, AirGate was on the receiving end of being dragged down by someone else's bad news, its bonds quoted about five points lower, at 35 bid/37 offered.

Even junk market wireless bellwether Nextel Communications Inc.'s bonds - which had "seen a little pop early on," the trader said, as the company reiterated positive earlier guidance - "were languishing" after the Alamosa news. He quoted its benchmark 9 3/8% notes due 2009 as having fallen from Wednesday's levels in the 63 bid area to 61.25 bid/62.25 offered. Then, later in the day, he said, the Reston, Va.-based Number 5 U.S. wireless operator's notes had bounced off their lows to end at 63.25 bid/64.25 offered, essentially unchanged.

Also in the communications sphere, Adelphia Communications Inc. bonds were quoted firmer for a second straight session as the market seemed to get used to the notion that the troubled Coudersport, Pa.-based cable television systems operator would soon be heading for bankruptcy court.

Adelphia's 10 7/8% notes were quoted as having firmed to 49.5 bid from 46 previously, its 10¼% notes were seen at 50 bid, up from 46, and even the 8 7/8% notes due 2007 of its Century Communications Corp. unit - already in Chapter 11 - firmed a bit to 36 bid from 34. Adelphia shares rose two cents (16.67%) to 14 cents in pink-sheet trading.

News reports Thursday said that Adelphia had asked J.P. Morgan and Salomon Smith Barney to arrange a $1.5 billion bankruptcy loan - which would be one of the biggest bankruptcy financing packages in memory. Assuming the bankers take on the assignment, such a loan would take time to arrange, and Adelphia - currently facing a looming deadline for making good on overdue interest payments and already in default on its bank loans for non-filing of its financial statements - would be likely to delay any filing until the debtor-in-possession funding were lined up.

Should Adelphia line up a sizable bankruptcy financing package from its lenders, it is seen by the markets as a sign that it will be able to proceed with a more orderly restructuring and would be under less pressure to let valuable assets go for fire-sale prices, all positive signs for bondholders and other creditors.

Charter Communications Inc. - a rival cabler said to be affected by many of the same industry dynamics as Adelphia, although without the latter's tangled accounting problems - was meantime "down early in the day," a market source said, "but wound up being higher later on." He saw the St. Louis-based cable giant's 8 5/8% notes a point better at 77, and its 9.92% notes having firmed nearly two points to 59. At another desk, Charter's 6 5/8% notes due 2009 were a point stronger at 77, while yet another cable name - Cablevision's CSC Holdings Inc. - was likewise firmer, its 8 1/8% notes due 2009 up a point, at 93.5.

Lucent Technologies Inc. bonds were lower on the session, its 7¼% notes due 2006 quoted at 78 bid, down from 82.5 previously, and its shares lost 15 cents (5.08%) on the NYSE to $2.80 after the Murray Hill, N.J.-based telecommunications equipment giant issued bearish guidance figures in the face of a continuing telecommunications industry slump.

But a trader said that WorldCom Inc. bonds, after having not moved much during the session, pushed upwards in the last half-hour's dealings, its benchmark 7½% notes due 2011 ending up two points on the day, at 51.5. He cited market rumors that the Clinton, Miss.-based long-distance giant - scheduled to webcast its annual meeting Friday - would likely announce that it had completed arrangements for $5 billion of new financing it has been in negotiations with its lenders over for several weeks.

Outside of the communications sphere, CMS Energy Corp., whose bonds have slid badly over the last few sessions in the wake of the accounting problems caused by the Dearborn, Mich.-based power producer's admission of billions of dollars of bogus "round trip" trades with other power and energy trading companies, was again lower Thursday. But one market watcher said "it wasn't down as much as earlier in the week, maybe around three points."

CMS's 7½% notes due 2009 finished down three points, at 79.

© 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.