Blue Ridge deal, downsized THL/Simmons price; Collins & Aikman speeds upward

By Paul Deckelman and Paul A. Harris

New York, Dec. 10- Blue Ridge Paper Products Inc. and THL Bedding Co. were heard by high yield syndicate sources to have priced new bond offerings Wednesday - although the THL deal represented a break with the recent primary market trend, which has seen many of the new deals upsized to meet additional investor demand; the new THL issue, by way of contrast, was sharply reduced from the size originally talked around the market.

In the secondary arena, Collins & Aikman Products Co.'s bonds rose smartly, although traders said that there had been no fresh positive news about the Troy, Mich.-based auto-components manufacturer significant enough to move the market.

Another $625 million of junk bonds priced in the U.S. and emerging markets high-yield primary markets during the mid-week session, with the two U.S. deals and one Brazilian offering deals pricing at or at the tight end of talk.

Also the investment banks stuffed just under $600 million in three tranches from two issuers into what all sources seem to agree is a phenomenally full new deal pipeline.

And price talk came down during Wednesday's session on $2.040 billion of business - in seven offerings - that is expected to price on Thursday.

The largest issue to price in the U.S. junk bond market on Wednesday was THL Bedding Co.'s downsized offering of $200 million of senior subordinated notes due Jan. 15, 2014 (Caa1/B-), which priced at par to yield 7 7/8%. Goldman Sachs & Co., Deutsche Bank Securities and UBS Investment Bank tucked in the Atlanta mattress maker's new notes, which came at the tight end of the 7 7/8%-8 1/8% price talk.

THL stuffed the $140 million that it took from the bond piece into an additional tranche in its new credit facility.

And Canton, N.C.-based paper products and packaging manufacturer Blue Ridge Paper Products Inc. priced $125 million of five-year senior secured notes (B2/B-) at par to yield 9½%, with Jefferies & Co. handling the refinancing paper. The deal came at the tight end of the 9½%-9¾% price talk.

Meanwhile a pair of deals elbowed their way, Wednesday, onto a forward calendar which, market observers roundly concur, is exceptionally crowded with just nine full sessions to go in 2003.

The roadshow is expected to begin by the end of this week for Paxson Communications Corp.'s $365 million of senior secured floating-rate notes due January 2010, according to a syndicate source.

Citigroup will run the books for the offering from the West Palm Beach, Fla. broadcaster.

And late Wednesday another broadcaster, New York City-based Young Broadcasting, beamed in with a two-part $230 million offering which will be marketed via an investor conference call at 11 a.m. ET on Thursday and is expected to price late Thursday or Friday.

The offering is comprised of $140 million of senior subordinated notes due Jan. 15, 2014, via joint bookrunners Deutsche Bank Securities and Wachovia Securities, and a $90 million add-on to the company's 8 ½% senior notes due Dec. 15, 2008. The add-on finds the bookrunners listed in reverse order, with Wachovia Securities on the left and Deutsche Bank Securities on the right.

In addition to the deals that came on Wednesday market sources buzzed about what apparently will not come: an anticipated $800 million to $1.2 billion offering from Goodyear Tire & Rubber Co.

The Akron, Ohio tire-maker said it may have to delay the junk deal, along with at least $75 million in equity-linked financing, because an internal investigation has identified possible accounting problems.

If the securities sales are not completed, the USWA has the right to strike after going through a grievance process (see related story elsewhere in this issue).

With the U.S. primary market marching toward a possible record-setting year of new issuance, somewhere in the vicinity of $140 billion, Goodyear's approximate $1 billion might have been the deal to haul it over the threshold. But players will have little time to mourn its passing on Thursday, as $2.040 billion in seven deals are expected to price. Here is the preview of Thursday's action:

Price talk is

* 8 3/8%-8 5/8% on Ship Finance International Ltd.'s $580 million of 10-year senior notes (expected ratings B2/B), via Jefferies & Co.;

* 7½%-7 ¾% on Couche-Tard Inc.'s $340 million of 10-year senior subordinated notes (Ba3/B), via CIBC World Markets and Scotia Capital;

* 8 5/8% area on Bombardier Recreational Products' $300 million of 10-year senior subordinated notes (B3/B-), via Merrill Lynch & Co. and UBS Investment Bank;

* 11% area on WMC Finance Co.'s $250 million of five-year senior notes (B2/B-), via Credit Suisse First Boston and Merrill Lynch & Co.;

* 8¼%-8½% on Kraton Polymers LLC/Capital Corp.'s $230 million of 10-year senior subordinated notes (B3/B), via Goldman Sachs & Co. and UBS Investment Bank;

* 8¾%-9% on Sensus Metering Systems Inc.'s $225 million of 10-year subordinated notes (Caa1/B-), via Credit Suisse First Boston and Goldman Sachs & Co.; and

* 8¼%-8½% on United Agri Products Inc.'s $215 million of eight-year senior notes (B3/expected B), via UBS Investment Bank.

In addition, price talk of 8¼%-8½% was heard Wednesday on Mariner Health Care, Inc.'s upcoming $175 million of 10-year senior subordinated notes (B3/B-), with pricing expected on Friday. CIBC World Markets, JP Morgan and Lehman Brothers are joint bookrunners.

Meanwhile in emerging markets action on Wednesday, Tele Norte Leste Participacoes SA, holding company for Telemar, sold $300 million of 8% 10-year senior unsecured notes (Baa3) at 98.32 to yield 8¼%.

The JP Morgan- and Credit Suisse First Boston-led deal came spot on to the 8¼% area price talk.

One informed source drew a comparison between Telemar and the $250 million 10-year deal from another Brazilian issuer, steel producer CSN, which reportedly started its roadshow on Wednesday.

"Telemar is Baa3 from Moody's because it has political risk insurance," the source commented. "That covers some of the interest payments. And if you structure a deal like that so that the maturity of the bond is extended in the event of a currency-convertibility issue, you are actually able to get the bond rated at the local currency rating of the company.

"Moody's is more aggressive on that than S&P," the source added. "That's why Telemar just has the Moody's rating.

"If this company didn't have political risk insurance they would probably be constrained by the sovereign ceiling, which could be a mid-to-high single-B, in which case they would be issuing in back of the sovereign.

"I heard very whispered guidance of 9½%-10% on the CSN deal. Telemar would be more in that range, as opposed to 8¼%, if they didn't have that political risk insurance.

"The company actually saves a considerable amount with that structure."

This source also commented that the dynamics at play in the recent emerging markets deals somewhat resemble the forces currently at play in U.S. junk: for example Axtel SA priced an upsized $175 million B2/B at par Tuesday to yield 11%, inside the 11¼% area talk.

"There is a whole lot of cash," the official said. "And the other thing that has happened is that some people anticipated some sovereign supply from big issuers such as Brazil and Turkey, which has not materialized. That would have taken some of the cash out of this market.

"At the same time a number of managers continue to get good inflows and we're in a squeeze."

When the new Blue Ridge 9 ½% senior secured notes due 2008 were freed for secondary dealings, they "didn't trade that well," a trader said, quoting the new bonds at their par issue price "at best."

He said that "there were 64 accounts in the book and everybody got what they wanted" - adding, significantly, that "several of the accounts don't want it anymore" and were trying to unload their new bonds.

"At the end of the day, if you look through all of the numbers, even after you adjust for the EBITDA and everything else, it's very heavily levered, and it's a commodity business" - meaning low profit margins and intense price competition on the company's line of paper and packaging products.

"I don't know if they're going to have the scope or scale" to be able to successfully and profitably compete with larger, better-known rivals, he said, parenthetically noting that Portola Packaging Inc., a similar kind of company, announced plans to sell $180 million of new 2011 notes.

"I just don't see what the attraction is to this issue," he continued, speaking about the new Blue Ridge bonds. Plus, he said, several accounts had expressed opinions along the lines of "in a normal market, a deal like this gets priced at 13%" instead of the 9½% coupon that finally emerged. "I think it just seems way too rich."

Another trader saw the new Blue Ridge bonds going home offered at 100.25, with no bids seen.

And he saw THL Bedding's new 7 7/8% notes due 2014 finishing out the session at 100.75 bid, 101.5 offered, after having priced earlier in the day at par.

Earlier, the first trader had seen the Simmons bonds trading as well as 101 bid, 101.5 offered "with decent buyers and sellers."

And the trader also saw the new Granite Broadcasting Corp. 9¾% first lien notes due 2010 continuing to "trade at a decent premium" over Monday's issue price of 98.782 bid, as did the new Georgia-Pacific Corp. 8% senior notes due 2024, which priced a week ago at par and were quoted Wednesday around 101.

The new Valeant Pharmaceuticals International 7% senior notes due 2011, which had priced at par on Tuesday and then moved up to 101.75 bid, 102.25 offered in initial dealings, had firmed further Wednesday to bid levels around 102.125-102.25, while the new SBA Communications Corp. zero-coupon/9¾% senior discount notes due 2011, which had priced Monday at 68.404, were seen hovering around 71.25 bid, "holding in," he said.

Despite the strength in most of the newly issued bonds, though, "the market seemed a bit heavy today," the trader said. "There were a lot of bid lists and a lot of paper came in."

However, one name which was doing anything but that was Collins & Aikman, which a trader said was "clearly the name du jour, though it beats the heck out of me why. "

He saw the company's 11½% subordinated notes due 2006 as having opened at 86 bid, 88 offered, up from Tuesday's 85 bid, 86 offered, and then having moved steadily upward to close at 90 bid, 90.5 offered. The 10¾% senior notes due 2011 meantime moved up to 94 bid at the open from Tuesday's 92 bid finish, and then continued to rise, closing at 96.25 bid by day's end.

A market source elsewhere agreed that Collins & Aikman "was the only thing that jumps to mind" as a really significant mover on what he called an otherwise fairly slow day Wednesday, quoting the 10¾% bonds even higher, at 96.75 bid, and the 111/2s at 90.

There was some positive news out Wednesday on the company, which manufactures interior components, bumpers and other auto parts for use by Detroit's Big Three carmakers and such foreign-based automakers as Volvo, KIA and Honda in constructing their vehicles; Ford Motor Co. presented C&A's plants in St. Louis and in Cologne, Germany with the Number-2 carmaker's coveted Q1 Award in recognition of what it called "Outstanding Quality Performance" at the plants.

Certainly, winning such an award, and similar recent awards from Kia and Honda as "Most Valued Partner" and "Best Supporting Supplier" is very nice - especially in the wake of the criticisms of Collins & Aikman aired in a Detroit Free Press article several weeks ago which quoted unidentified executives of DaimlerChrysler, Collins & Aikman's biggest single customer, as slamming the company up and down and suggesting that Chrysler might take some, much or even all of its business to rival suppliers. That article sent C&A's shares and bonds into a tailspin, from which they now finally seem to be recovering.

But is news of such an award itself sufficient to cause a four-point jump in the bonds? The trader emphatically said no, and opined that it was more a case of an emerging consensus among analysts and investors that as the economy recovers and auto production picks up, the carmakers will be outsourcing more and more business to original equipment manufacturers such as Collins & Aikman (as well as such other high-yield issuer component suppliers as Dana Corp., Lear Corp., R.J. Tower Corp., Dura Operating Corp. and the like). He said that the strengthening in the formerly beaten-down Collins & Aikman bonds probably represented more a recognition of the auto components industry's strengthening fundamentals than a response to any specific news stimulus, such as the award story.

Another trader agreed that Collins & Aikman "was flying," pegging the 10¾% bonds at 96.75 bid, 97.75 offered and the 11½% notes at 90.5 bid, 92.5 offered.

Goodyear's bonds, which had been steadily accelerating over the past few sessions on speculation that the Akron, Ohio-based tire manufacturing giant would likely conclude a new refinancing, including a big bond sale, before the end of the month, skidded to an abrupt stop Wednesday, on news that the company had discovered more accounting problems. As a result, Goodyear - which earlier in the year had disclosed accounting problems - will now have to delay filing an amended 2002 10-K annual report with the Securities and Exchange Commission until its review of the newly discovered European accounting issues is complete.

That did not cause the tiremaker's bonds to deflate, market observers said - but it did stop their upward momentum. The bonds were unchanged on the session, with the 7.857% notes due 2011 at 93 bid, 94 offered.

Outside of such "old economy" industrial names, one major mover was Biovail Corp., which announced positive Phase III test results on a diabetes drug it is working on with DepoMed Inc. It was the second day in a row in which the Canadian pharmaceutical company - whose shares have slid recently - has gotten some good news. On Tuesday, international drug giant GlaxoSmithKline agreed to exercise its option to sell and distribute Biovail's antidepressant drugWellbutrin XL.

Biovail's 7 7/8% notes due 2010 moved up to 99.5 bid from prior levels in the mid-90s.

And despite a slide in homebuilders' stocks triggered by a warning Tuesday by major mortgage lender Washington Mutual Corp. that it expected rising interest rates to depress the mortgage market and with it, the market for new houses, bonds of the sector were seen little affected by the news. Toll Brothers' 8 1/8% notes due 2009 were at 105.25 bid, and its 8¼% notes due 2011 were at 110.5, both unchanged on the day. KB Home's 9½% notes due 2011 were actually seen firmer at 112.5 bid.

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