Profit-taking hits last week's gains; Libbey Glass plans 8-year deal

By Paul Deckelman and Paul A. Harris

New York, May 15 - High yield issues that were seen flying high last week came back down to earth Monday, traders said, as investors took profits on some recently hot names such as Owens Corning and other asbestos-challenged names as well as Movie Gallery Inc., and Delphi Corp.

Here and there was an upsider, such as Sea Containers Ltd., whose bonds continued to firm along with the Hamilton, Bermuda-based maritime container and transportation company's stock, helped by more asset-sale buzz.

In the primary market, participants reported a mostly blah day, with no issues seen having priced by the close and just one deal - an eight-year offering for Libbey Glass Inc. - having climbed onto the forward calendar. Meantime, Belvedere SA's seven-year euro-denominated deal was heard to have been upsized, and Edison Mission Energy's billion-dollar behemoth lumbered onto the road for a marketing campaign.

Back in the secondary realm, Owens Corning's bonds - which had shot solidly higher last week as the bankrupt Toledo, Ohio-based insulation maker came to an agreement on a reorganization plan with its various creditor groups - gave back a big chunk of their gains, although they still remain well above where they were a week ago.

A trader quoted the company's 7½% notes due 2018 as having dropped back to 115.5 bid from levels around 122 at the end of last week, and saw its 7% notes due 2009 at 114.25, down from 120.75 last week.

Another trader quoted the Owens Corning bonds at 116 bid, 118 offered, down from around 121 bid 123 offered on Friday. He declared that profit-taking was the sole reason for the downturn, as did a third trader, who pegged the bonds down seven points on the day at 115 bid, 116 offered. The trader also saw two issues which had risen on sector sympathy last week with Owens Corning - Armstrong World Industries Inc. and Federal-Mogul Corp. - likewise down in tandem with Owens on Monday.

He saw bankrupt Lancaster, Pa-based floor-covering maker Armstrong's 6.35% notes that were to have come due in 2003, as having retreated four points on the session to 85 bid, 86 offered, while bankrupt Southfield, Mich.-based automotive brake manufacturer Federal-Mogul's 7½% notes due 2009 were down a deuce at 61.5 bid, 62.5 offered.

The former had risen to around a 90 bid context and the latter into the mid-60s as Owens Corning's bonds soared over several sessions last week from the upper 90s to above 120 - first on speculation that the company would come to a settlement with its creditors and then, more strongly, when the reorganization deal was announced. It called for the establishment of a $5 billion trust fund to pay out all present and future asbestos medical claims, as well as the payment, in cash and in full of the company's bank creditors. Bondholders and unsecured creditors were envisioned getting back around 58 cents on the dollar, while the asbestos creditors would get about half their claims. Equity holder's current shares would be cancelled and they would be given warrants to buy newly issued stock in the reorganized company. With all of the major creditor groups signing off on the plan - which still needs to be voted upon by rank-and-file creditors and then approved by the U.S. Bankruptcy Court in Wilmington, Del. - Owens Corning, which was forced to duck into Chapter 11 in 2000 under a deluge of asbestos claims, envisions finally emerging from reorganization later this year.

Owens Corning's OTC Bulletin Board-traded shares - which also shot up smartly last week on news of the agreement - fell 25 cents (13.89%) on Monday to $1.55, although volume of 2.2 million shares was only a bit heavier than usual.

Movie Gallery rewinds rise

Also taking its lumps after last week enjoying big jumps was Movie Gallery's 11% notes due 2012, which had progressed steadily from the upper 50s to the lower 60s by mid-week on speculation that the Dothan, Ala.-based Number-Two U.S. video rental chain operator's latest quarterly results would be much better than Wall Street was expecting. Then, on Thursday, the bonds zoomed as those optimistic hopes came true and it reported that profits more than doubled from a year earlier, as did revenues, thanks to its absorption in the interim of larger rival Hollywood Entertainment Corp. The bonds had pushed to highs in the mid 70s by Friday afternoon, but began back pedaling from the get-go on Monday. A trader saw the bonds down three points to 71 bid, 73 offered, while another called the drop a two-pointer to 72 bid, 74 offered.

The company's Nasdaq-traded shares plunged 71 cents (15.33%) on Monday to $3.92 on volume of 4.7 million, about 1½ times the usual turnover.

Delphi slides

Profit-taking was also being blamed for the lower showing Monday of Delphi's bonds, which had firmed nicely last week on analyst speculation - sparked by comments from two senior General Motors Corp. executives - that the ongoing talks between the bankrupt Troy, Mich.-based automotive parts supplier, its former corporate parent, GM, and its unions would result in some kind of an agreement to give the beleaguered company some help meeting its high labor costs, without pushing the unions to strike, which would shut down Delphi and which would, within a few days, likely do the same to GM, which buys more parts from its former subsidiary than it does from any other supplier. GM chairman and chief executive officer Rick Wagoner and chief financial officer Fritz Henderson, in separate appearances last week, each waxed optimistic about the chances of settling the dispute between Delphi and its unions peaceably.

A trader quoted Delphi's 6.55% notes slated to come due on June 15 at 77.5 bid, 78.5 offered, and its 7 1/8% notes due 2029 at 74.75 bid, 75.75 offered, each down 2¼ points.

A market source at another desk saw a 1½ point retreat in the company's bonds, marking the 6½% notes due 2009 at 77.5 bid, and its 6½% notes due 2013 at 74 bid.

Yet another trader saw Delphi "a little weaker," seeing the 6½% '09s down about a point to 77 bid, 78. He mentioned as a possible catalyst the news that the United Auto Workers union is expected to release the results of a strike vote that its members at Delphi have been taking over the past two weeks - and indications are that the rank-and-file will give their leaders the authority to call a strike if they deem it necessary.

The union and the company have been facing off in court over Delphi's efforts to get permission to junk its contracts covering about 34,000 hourly workers represented by the UAW and several other unions. The unions have vowed a walkout if the company tries to void those pacts, which are slated to run through 2007.

GM, Ford firm

Even as Delphi's bonds were off, a trader saw GM's own 8 3/8% notes due 2033 up ¼ point at 76 bid, 76.5 offered, while financing arm General Motors Acceptance Corp.'s 8% notes due 2031 were unchanged at 93.75 bid, 94.25 offered. Elsewhere in the automotive sphere, he saw GM rival Ford Motor Co.'s 7.45% notes due 2031 and the latter's Ford Motor Credit Co. financing arm's 7% notes due 2013 each up 1/4, at 73.75 bid, 74.75 offered, and 87 bid, 87.5 offered, respectively.

Sea Containers rises

Among other bonds seen trading higher was Sea Containers' paper; a trader saw its 7 7/8% notes due 2008 up 1½ points to 96.5 bid, 97.5 offered, on "asset sale rumblings about a better price," in the wake of the news that Norwegian shipping investment company NorFerries has offered to buy Sea Containers' Baltic Sea ferry operations for the equivalent of $671 million - more than the $630 million likely sale price that was being talked about last week.

"The stock was up over two bucks today [Monday]," a second trader said, "but then it retraced a lot of its gains, so it was only up [less than a dollar] at its close." Sea Containers' NYSE-traded shares, which last week rose along with its bonds on the asset-sale hopes, were once again up on Monday, closing at $9.94, up 79 cents (8.63%) on volume of one million shares, about three times the norm.

He saw the company's 10¾% notes due 2006 "trading as high as 99, when the stock was up two bucks, because there was a lot of arbs [arbitrage] going on," before closing at 98.5-98.875, "which is still up." He also saw the 7 7/8s push as high as 96.5, but pegged them going out at 95.75 bid, 96.25.

He also said that the Sea Containers' 10½% notes due 2012 closed at 96.25 bid, 97. But said "I wouldn't [rely] too much on them [as being representative], because there's a short [squeeze] in them. But the paper definitely very strong [Monday], even though it was off its highs. There's a lot of people saying that the bonds are all money-good, and if they do an asset sale, the bonds are all covered and the stock should go to $15 to $20."

Tekni-Plex up on 10-Q

The first trader also saw Tekni-Plex Inc.'s 12¾% notes due 2010 "up a couple of points," adding that it rallied on the Somerville, N.J.-based packaging company's 10-Q annual report filed with the Securities and Exchange Commission. "People found some bright lights there," he said, and the bonds gained about four points to 75 bid, 76 offered.

Werner slips after missing coupon

Back on the downside, he said, Werner Holding Co. Inc.'s 10% senior subordinated notes due 2007 trading at 31 bid, 33 offered, down from recent levels around 33-34, "on conjecture that they weren't going to make the coupon payment" due Monday on the $135 million of outstanding bonds. He said he had seen no confirmation one way or another - although the company did release a statement Monday saying that it indeed had elected not to make the coupon payment at this time, instead invoking the standard 30-day grace period while it holds negotiations with it bondholders and other creditor constituencies on a potential recapitalization.

Junk weak

Overall an investor who plays both high-yield bonds and emerging markets marked junk off half a point to five eighths of a point late Monday afternoon.

This source added that the dollar was "getting hammered" owing to an assumption that the U.S. Federal Reserve may be at the end of the two-year old interest rate tightening cycle.

"It may just be a pause," the buy-side source said. "But right now the currency markets are assuming it's the end of the tightening cycle."

The source said that the forces holding the dollar up have been a strong stock market and a strong U.S. economy. The U.S. fiscal position has been weak, the source added, citing a bad current accounts deficit and a bad trade deficit. But tightening interest rates have served to counterbalance those deficits, and have helped to support the dollar.

"Now that might not be there anymore," the investor said.

Edison Mission launches $1 billion

Meanwhile in the primary market no issues were priced during the opening session of the May 15 week.

However Edison Mission Energy took the wraps off it its $1 billion two-part senior notes deal (B1/B) via JP Morgan, Citigroup, Credit Suisse, Merrill Lynch & Co. and Goldman Sachs & Co.

The roadshow started Monday, with pricing expected late Thursday or early Friday.

The company intends to sell a tranche of seven-year bullet notes and a tranche of 12-year notes that will come with five years of call protection. Tranche sizes remain to be determined.

Proceeds, together with cash on hand, will be used to fund the tender for $400 million of the company's 10% senior notes due 2008 and $600 million of its 9 7/8% senior notes due 2011.

EME is an indirect subsidiary of Irvine, Calif. independent power producer Edison Mission Group.

Barking with the big dogs

With the Edison Mission launch, the forward calendar appeared to be grinding its way toward the $5 billion mark, with respect to deals thought to be in the market.

Along with Edison Mission, at least two other offerings sized bigger than three-quarters of a billion dollars are in the market. Like Edison Mission both are expected to price by Friday's close.

Reynolds American Inc. is marketing $1.65 billion of senior notes due 2013, 2016 and 2018 (expected ratings Ba2/BB), via Lehman Brothers, JP Morgan and Citigroup.

The Winston-Salem, N.C., tobacco company will use proceeds to fund an acquisition.

And Education Management Corp. is marketing $760 million in two parts: $320 million of eight-year senior notes (B3/CCC+) and $440 million of 10-year senior subordinated notes (Caa1/CCC+).

Credit Suisse, Goldman Sachs & Co., Merrill Lynch & Co. and Banc of America Securities are leading the acquisition financing for the Pittsburgh-based provider of private post-secondary education.

Libbey launches $400 million

Elsewhere Libbey Glass Inc. announced that it will begin a roadshow on Tuesday for its $400 million offering of eight-year senior notes (B).

JP Morgan and Bear Stearns & Co. are leading the deal for the wholly owned subsidiary of Toledo, Ohio glass tableware manufacturer Libby Inc.

Proceeds, together with a new senior secured credit facility, will be used to finance the purchase of the 51% equity interest bringing Libbey doesn't already own in its Mexican joint venture Crisa with Vitro, SA de CV, to repay Libbey's existing senior secured credit facility, to redeem Libbey's outstanding senior notes, to repay existing Crisa debt, and to refinance the euro-denominated working capital line of credit of its wholly owned subsidiary Libbey Europe BV.

Belvedere upsizes euro deal

Nearer at hand than any of the above is Belvedere SA's upsized €375 million offering of seven-year senior secured floating-rate notes (B2/B).

The French beverage company talked the notes at Euribor plus 325 basis points and increased the deal from €300 million.

The books will close at noon, London time, on Tuesday, with pricing expected shortly after.

Credit Suisse has the books.

Proceeds will be used to finance the acquisition of Marie Brizard, to repay debt and for general corporate purposes. The proceeds from the €75 million upsizing will be used to pay down €46 million of priority senior debt and for general corporate purposes.

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