RathGibson prices, Covalence deal restructured; Revlon up on debt-pay plan

By Paul Deckelman and Paul A. Harris

New York, Feb. 1 - RathGibson Inc. successfully priced its issue of eight-year notes Wednesday, high-yield syndicate sources said.

They also heard prospective issuer Covalence Specialty Materials had radically downsized and restructured its planned two-part deal, dispensing with a proposed tranche of senior secured floating-rate notes in favor of just a single reduced tranche of senior subordinated notes.

In the secondary market, Revlon Corp. was up solidly as the New York-based cosmetics company said it would mount an equity rights offering and use the proceeds to redeem debt.

General Motors Corp. bonds were higher, as were those of arch rival Ford Motor Co. and various other automotive-related issues, as the two giant carmakers reported better-than-expected January sales.

One source said that high yield traded higher throughout the Wednesday session despite a sell-off in U.S. Treasuries.

However the source specified that volumes were light.

An official on a high-yield syndicate desk merely characterized the mid-week session as a quiet one.

In the primary market only one issue priced.

RathGibson Inc. placed its $200 million offering of eight-year senior notes (B2/B-), pricing them at par to yield 11¼%.

An informed source said that there had been no official price talk.

Bear Stearns & Co. had the books for the LBO deal from the Janesville, Wis., tubing and piping company.

The offering priced too late for any meaningful aftermarket activity.

Fiat on the road

Coming with its first bond deal since its credit ratings fell below investment grade in 2002, Fiat SpA of Turin, Italy, began its roadshow Wednesday in London for a €750 million offering of seven-year bullets (Ba3/BB-).

Sources say that the deal-size could grow, depending on the reception Fiat receives as it stops along the investor road.

Citigroup, Barclays Capital, BNP Paribas and UniCredit Banca Mobiliare are leading the Regulation S debt refinancing and general corporate purposes deal.

Project financing with a junk tranche

In the United States, meanwhile, only one roadshow start date was heard.

Windsor Financing LLC will begin a roadshow Friday for a $50 million tranche of 10-year amortizing subordinated notes (Ba2/BB).

The notes have a 7.1-year weighted average life.

The speculative-grade notes are part of an overall $316 million financing that includes an investment-grade $266 million tranche of senior amortizing notes due July 2017 (Baa3/BBB-).

Goldman Sachs & Co. has the books for the deal, which will provide project financing for two coal-fired electricity plants, with remaining proceeds to fund a distribution to Charlotte, N.C.-based Cogentrix Energy Inc.

Covalence talks downsized, restructured deal

Finally, Covalence Specialty Materials issued price talk on a downsized, restructured $265 million offering of 10-year senior subordinated notes (B3/CCC+).

The notes are talked at 10¼% to 10½%, with pricing expected Thursday.

Banc of America Securities, Credit Suisse, Merrill Lynch and Morgan Stanley are joint bookrunners for the acquisition financing.

In a restructuring of the 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 the 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.

Revlon up on equity plan

Among the established issues, Revlon's bonds - especially its 8 5/8% notes due 2008 - were sitting pretty as the cosmetics maker released additional details about its previously announced plans to issue new equity and use the expected $110 million proceeds to cut debt.

Revlon was one of the main issues moving up, a trader said, quoting the 8 5/8s as having pushed up to 99 bid, 99.5 offered before coming off that peak to end at 98 bid, 99 offered, still up a point to 1½ points from prior levels.

"That's the issue they are going to take a portion of out," he explained, "to keep the banks off their backs, because I think that in '07, the bank covenants require that that issue [be gone]."

He noted that even though Revlon also had guidance out, "nobody paid attention to that. It was all just what [Revlon parent company] MacAndrews & Forbes is doing and how they're raising more equity and abiding by their bank covenants."

He saw Revlon's 9½% notes due 2011 firmer at 92.5 bid, 93.5 offered.

Another trader saw the 8 5/8s at 98.5 bid, 99.5 offered, and called that a two-point rise on the session, while at another desk a market source pegged the bonds at 99.5 and termed that a two point gain for the issue.

Revlon said that sometime between now and the end of March it intends to conduct a $110 million rights offering, that will let existing shareholders purchase additional shares of the company's Class A common stock.

Revlon will use the proceeds from the rights offering to redeem $110 million of the Revlon Consumer Products Corp. 8 5/8% senior subs to satisfy the requirements under Revlon Consumer Products' bank credit agreement.

Revlon also said that MacAndrews & Forbes - the wholly-owned investment vehicle of Revlon's chairman and principal owner, billionaire financier Ronald O. Perelman - has agreed to purchase its share of the class A common stock in the rights offering and not to exercise its over-subscription privilege - but said that it will backstop the rights offering by purchasing any remaining shares offered but not purchased by other stockholders.

Revlon further said that it plans to conduct an additional $75 million equity issuance through an underwritten public offering that will take place by June 30. MacAndrews & Forbes will also backstop that offering. And MacAndrews & Forbes agreed to extend the $87 million existing line of credit it had extended to Revlon Consumer Products until the consummation of the $75 million equity issuance.

Separately, Revlon reaffirmed its previously announced outlook for 2005 and 2006, saying it continues to expect adjusted EBITDA to approximate $170 million. Revlon projected that net sales for 2005 would approximate $1.33 billion, up from 2004's net sales of $1.297 billion.

Revlon also indicated it expects to take a charge in 2006 of about $10 million to cover severance and other expenses associated with an organizational realignment that it concurrently announced, largely involving the consolidation of certain functions within its sales, marketing and creative groups, as well as certain headquarters functions. The vast majority of the charge will impact results in the current first quarter of the year. It estimated the ongoing annual savings associated with the charge at about $15 million, most of which is expected to benefit 2006. Revlon indicated that the organizational realignment does not alter its previous guidance for 2006 of strong growth in sales and adjusted EBITDA.

Revlon additionally said that it plans to amend its bank credit agreement to maintain its financial flexibility throughout 2006. The amendment would enable Revlon to exclude from certain financial covenants charges in connection with the realignment, as well as some start-up investment charges incurred by the company in 2005 for the launch of its new Vital Radiance product line and the re-launch of its Almay line.

GM, Ford gain on January sales

Elsewhere, stronger-than-expected January sales by Detroit's Big Three helped boost GM's bonds, Ford's and the bonds of their respective financing units, General Motors Acceptance Corp. and Ford Motor Credit Co.

A trader saw GM's benchmark 8 3/8% notes due 2033 jump to 75.75 bid, 76.25 offered, a two-point gain on the session. He saw GMAC's 8% notes due 2031 at 103 bid, 103.5 offered, up 1½ points on the day, and saw both Ford's flagship issue, the 7.45% notes due 2031 and its Ford Credit 7% notes due 2013 also up 1½ points - the Ford bonds to 75 bid, 75.75 offered, and the Ford Credit notes to 92 bid, 92.5 offered.

GM reported a 6% increase in overall vehicle sales in January, chiefly due to a 30% jump in fleet sales, mostly to car-rental companies, government agencies, taxicab companies and the like, many of which do their purchasing of new vehicles at the start of the year. Retail sales of vehicles through dealer showrooms actually fell 7% in the month from year-ago levels, but were more than offset by the jump in fleet sales.

The story was much the same at Ford, which saw a 2.7% gain in overall vehicle sales, powered by a 21% surge in fleet sales. While Ford's car sales were up 18%, sales of its large Expedition SUV declined 30%, while its mid-size Explorer was down nearly 23%; the SUVs had been Ford's bread-and-butter for the past few years, but sales have declined precipitously as gasoline prices have risen well above $2 a gallon and stayed there.

Dana rises

Apart from Ford and GM, other auto names - the parts suppliers - were strong pretty much across the board. As a measure of the sector's strength, a trader noted, Dana Corp's notes bounced off early lows they hit on the news that the Securities and Exchange Commission is formally investigating the Toledo, Ohio-based automotive systems maker's accounting practices and "actually ended higher on the day.

He saw Dana's 5.85% notes due 2014 ending at 69 bid, 70 offered, up ¼ point on the session. "They were knocked down on the news" of the SEC probe, to 67 bid, 68.5 offered, but they popped back up to end higher. I guess this was just considered a minor problem."

The SEC is scrutinizing matters related to Dana's restatement of financial results. Back in December, Dana filed restated results going back several years, after an internal probe found it had inappropriately recognized price increases, supplier reimbursement costs and steel surcharges.

Dana said it cooperating fully with the government investigation.

The trader saw Lear Corp.'s 5¾% notes due 2014 at 82 bid, 83 offered, up ¾ point.

He also saw Visteon Corp.'s 8¼% notes due 2010 up a point on the day at 85 bid, 86 offered.

Another trader saw the Van Buren Township, Mich.-based former Ford parts unit's 81/4s two points better on the day at 86 bid, 87 offered. He saw ArvinMeritor Inc.'s 8¾% notes due 2012 a point better at par bid, 101 offered, while Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 firmed a point to 82.5 bid, 83.5 offered.

He additionally saw the Dana 6½% notes due 2009 a point better at 79 bid, 80 offered despite the news about the expanded SEC investigation.

Forest names sink

The trader saw the bonds of Canadian forest products companies fall in the early going, after Abitibi-Consolidated Inc. reported a sharply wider quarterly loss from a year earlier, and Domtar Inc. later did the same, but they bounced off their lows to finish only moderately lower.

"They weren't great - they got hit in the morning - but they came back later on" to cut their losses, he said.

He saw Abitibi's 8¾% notes due 2015 open at 92.5 bid, 93.5 offered, down two points from Tuesday's closing levels. But by the end of the day, he said, they had come back to close at 93.25 bid, 94.25 offered, down 1¼ points on the session.

He also saw Domtar's 5 3/8% notes due 2013 opening at 76.5 bid, 77.5 offered, also down two points at the open, before coming off their lows to finish at 78 bid, 79 offered.

And he saw Tembec Industries Inc.'s 8½% notes due 2011 at 44 bid, 45 offered, down a point on the day.

At another desk, a market source estimated those Tembec bonds at 44.5 bid, down 1½ points on the day.

Another trader said the Abitibi bonds "looked unchanged," quoting the company's 8½% notes due 2029 at 83.25 bid, 84.25 offered. "The long bonds, like the 8 s, were down half a point, but the short paper didn't move a lot."

He also saw Domtar's 7 1/8% notes due 2015 "about the same" at 82.75 bid, 83.75 offered.

Domtar reported a sharply wider fourth-quarter net loss of $348 million ($1.51 per share), versus a year-earlier net loss of $26 million (11 cents per share). The latest-quarter loss was also considerably wider than the $52 million (23 cents per share) that the Montreal-based forest products company had posted in the 2005 third quarter.

Earlier in the session, Abitibi reported a fourth-quarter loss of $355 million (81 cents a share), sharply widened from its year-ago loss of $108 million (24 cents a share). The latest quarterly results include after-tax asset writedowns of $228 million.

The writedowns were mainly related to the permanent closure of the company's Kenora, Ont., and Stephenville, Newfoundland, and Labrador paper mills, as well as impairment charges related to its Lufkin, Tex., and Fort William, Ont., paper mills. The Montreal-based forest products company also closed its Champneuf, Que., sawmill and announced its intention to permanently close one paper machine at its Bridgewater facility in the United Kingdom. Costs associated with these actions were partly offset by the company's gain of $53 million on the sale of timberlands in the Thunder Bay area in Ontario.

The operating loss in the fourth quarter was $352 million, up from an operating loss of $346 million in the same quarter of 2004 on higher mill-related energy and fiber costs and a stronger Canadian dollar.

Abitibi also said that it repaid a total of $579 million on Dec. 16, comprised of $185 million of 6.95% notes due 2006, $139 million of 7 5/8% notes due 2007, $50 million of 6.95% notes due 2008, $100 million of 7 7/8% notes due 2009 and $105 million of 8.55% notes due 2010.

Flextronics slips

Another company reporting earnings was Flextronics Inc., which said after the close of trading on Tuesday that its 2006 fiscal third-quarter earnings plunged by more than half to $42.7 million (seven cents per share) from $98.7 cents (17 cents a share) in the year-ago period, although excluding special items, it earned $118 million (20 cents a share), about unchanged from a year ago and slightly better than the 19 cents per share Wall Street was looking for.

A trader saw the company's 6½% notes due 2013 half a point lower at 100.25 bid, 101.25 offered.

The Singapore-based contract electronics manufacturer - whose products include such familiar consumer staples as the popular Xbox 360 video game consoles it makes for Microsoft, computers it constructs for Dell and mobile phones it manufactures for Motorola - also announced a delay in the completing the previously agreed upon takeover of manufacturing plants in Canada and elsewhere from Nortel Networks Ltd. due to the need to make changes in several major computer systems. That will push the transfer off the plants off from the current fiscal fourth quarter, which will end in March, to the following quarter, causing Flextronics to lose about $100 million in revenue in the current period.

Accordingly, it lowered its projections for current-quarter earnings, excluding items, to 15 cents to 16 cents per share on revenue of between $3.5 billion and $3.7 billion - the low end of analysts' consensus forecasts of ex-items earnings of 16 cents a share on revenue of $3.70 billion.

Cablevision holds steady

And a trader said there had "no movement at all" on the session in the bonds of Cablevision Systems Corp. - even though it indicated late Tuesday that it might again attempt to pay a special dividend to its shareholders, a plan that was scrapped in December when the Bethpage, N.Y. -based cable systems operator discovered that it would create technical violations in some of its lending covenants.

He saw the company's 7¼% notes due 20008 at 100.25 bid, 100.75 offered. "They were off half a point early, but then they recovered," he said. He also quoted Cablevision's 7 7/8% notes due 2018 perhaps a quarter point lower at 96 bid, 97 offered.

Cablevision "was unchanged," another trader declared, "initially down a point, but then they came back." He saw its 8 1/8% notes due 2009 steady at 101.5 bid, 102.5 offered.

Cablevision said in an 8-K report filed late Tuesday with the SEC that it had now completed the comprehensive debt covenant compliance review that it announced on Dec. 19, when it decided to scrap its plan to pay a $3 billion special dividend and to cancel the debt financing that would have funded that payment.

The company said that its review had "identified certain technical covenant compliance issues" under the loan agreements for its CSC Holdings, Inc. and Rainbow National Services LLC subsidiaries. Cablevision said that CSC Holdings and Rainbow National Services have now gotten waivers from their lenders under those agreements and certain technical and clarifying amendments had been made to the Rainbow loan agreement. Meanwhile, it said that the covenant compliance issues under CSC Holdings' credit agreement required certain waivers under Cablevision's agreements covering its monetizations and interest rate swaps, all of which have been obtained.

Cablevision said that it and its subsidiaries are now all in compliance with their various debt agreements and instruments, clearing the way for the company's board of directors to begin reconsideration of a possible special dividend at its regularly scheduled meeting in March. It said that it would not need to reclassify debt or make other adjustments to its previously issued financial statements.

Cablevision did not indicate the possible timing of the dividend, nor did it say whether it would be for the same $3 billion as the plan that was pulled in December, nor did it indicate how such a dividend might be financed.

Back in December, Cablevision announced the cancellation of a new $1 billion issue of 10-year senior notes - taking the unusual step of scrubbing the deal after the issue had already been priced and was in the market - and a new $4.5 billion credit facility from Bank of America and Citigroup, citing the technical covenant violations which had been discovered.

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