Constellation, Alliance Imaging price quickie deals; stock rally lifts junk broadly; builders on the rebound

By Paul Deckelman and Paul A. Harris

New York, Nov. 28 - Constellation Brands Inc. and Alliance Imaging Inc. were heard by high yield syndicate sources to have successfully brought quickly-emerging deals to market on Wednesday, as issuers scramble to get their financing done before the onset - in about two weeks time - of the inevitable year-end pre-holiday lull.

The new Constellation bonds were seen by traders to have firmed modestly when they were freed for aftermarket dealings - although the Fairport, N.Y.-based wine, beer and spirits producer and marketer's already outstanding bonds were seen down as much as several points in response to the new supply.

Elsewhere among the outstanding issues, the junk market was broadly higher in line with Wall Street's explosive stock rally, with some bonds seen up by as much as several points - not on any specific news, but just riding the equity train to higher levels.

Big gainers included Eastman Kodak Co., as well as the recently beleaguered GMAC LLC and battered homebuilders such as Hovnanian Enterprises Inc.

James River Coal Co. jumped on news of a planned stock sale.

Sources said that high yield felt better on Wednesday, citing surging stock prices in the United States, with the major U.S. indexes up between 2.5% and 3%.

In junk, one high yield syndicate official spotted the CDX High Yield 9 five-year index closing at 95 1/8 bid, up a point on the day.

Another banker from a different high yield syndicate marked both the index and cash bonds up a point, with some cash names up nearly 2 points.

The primary market, dormant since the Nov. 16 close, jerked to life on Wednesday with two issuers pricing single-tranche deals in drive-bys, generating a combined total of $637.25 million of proceeds.

Constellation prices $500 million

Constellation Brands priced a $500 million issue of 8 3/8% seven-year senior notes (Ba3/BB-) at 99.344 to yield 8½%, at the wide end of the 8 3/8% to 8½% price talk.

Banc of America Securities ran the books for the quick-to-market refinancing related to a pending acquisition.

An informed source said that the spirits-maker's existing 7¼% notes due 2017, which priced at par last May in a $700 million issue, were trading Wednesday morning at 95½ bid to yield 8% at a spread of 395 basis points.

Since the new 8 3/8% notes priced on Wednesday to yield 8½% at a 470 bps spread, the yield concession relative to the 71/4s was 50 bps and the spread concession was 75 basis points, the source said, noting that the new notes have a seven-year tenor which sees them maturing in 2014, whereas the 7¼% notes mature in 2017.

Earlier in the day another sell-sider, not in the Constellation deal, noted that strictly on a yield basis the new 8 3/8% notes due 2014, yielding 8½%, are only 125 basis points behind the par-pricing 7¼% notes due 2017.

Pointing out that beer, wine and spirits is a defensive sector in almost any economic circumstances, this official said that in round numbers Constellation gave up 125 basis points in a market that has lately seen spreads widen between 250 and 300 basis points.

Alliance Imaging upsizes

Also Wednesday, Alliance Imaging priced an upsized $150 million add-on to its 7¼% senior subordinated notes due Dec. 15, 2012 (B3/B-) at 91.5 to yield 9.41%, on top of the 91.5 price talk.

Deutsche Bank Securities ran the books for the debt refinancing and general corporate purposes deal.

The original $150 million issue priced at par on Dec. 10, 2004, hence the company's add-on notes have a yield to maturity that is 216 bps higher than that printed on the original notes, nearly three years ago.

An informed source told Prospect News that the Alliance Imaging tap was played by existing bondholders as well as investors new to the name.

The source added that although accounts seem hesitant, at present, to put money to work in new deals, fearing that issue prices might not hold, it nevertheless seems that "corporate deals," characterized by Wednesday's issuance from Alliance Imaging and Constellation Brands, can possibly succeed during the run-up to 2008.

However, the source added, during the remainder of 2007 it will probably be tough to move any of the hung LBO risk.

Sequa loan allocates

Meanwhile high yield primary market watchers have also been paying attention to Sequa Corp.'s $1.2 billion seven-year term loan because the company's $700 million two-part offering of eight-year senior unsecured notes (Caa2/CCC+) is expected to follow the bank deal to market, depending upon how the bank loan trades.

The loan priced on Wednesday at 95, with a Libor plus 325 bps coupon, on top of recent price talk.

Well after the Wednesday close a source close to the deal said that the bank loan was trading at 96 bid, and added that there was no new information on the bond deal.

Market sources say the bonds could come to market later this week or next week.

New Constellation bonds move up

When the new Constellation Brands 8 3/8% notes due 2014 were freed for secondary dealings, a trader saw them quoted as high as 100.375 bid, 100.5 offered, well up from their 99.344 issue price - but he said that the new bonds "didn't really do anything."

At another desk, a trader quoted the bonds at 100.25 bid, 100.5 offered, calling it a respectable gain of nearly a point above issue. Yet another trader, queried a bit later, saw the bonds going out at 99.875 bid, 100.375 offered.

One of the traders said that even as the new bonds were firming, holders of its existing bonds were not exactly popping the champagne corks, apparently dismayed by the new supply on top of the existing paper. The trader saw the outstanding 7¼% notes due 2016 down 2 points - a major move in an otherwise bullish market - to around the 94-95 level. At another desk, the 71/4s were seen down 3 points on the day at 93.5 bid.

However, a source pointed out late in the session there were several large-block trades for those bonds at levels slightly above par, in line with the market price on the new bonds - but a 6 or 7 point jump from where the older bonds had been hanging out all day.

At another desk, the company's outstanding 8¼% notes due 2012 were estimated to have risen about ½ point to just over par.

Alliance Imaging bonds little moved

A trader meantime said he had seen no aftermarket activity in the smallish add-on 7¼% 2012 deal which Alliance Imaging did. He said he had seen exactly one bid, at around 91, for the existing tranche of bonds, and said the new paper remained "right around where it came."

Stock rally lifts junk market

Apart from bonds impacted by new offerings, traders said things were up pretty much across the board, with some issues rising 1 point, 2 points or even more in line with the powerful stock market rally which saw the bellwether Dow Jones Industrial Average zoom by 331.01 points; combined with the 215 point jump Tuesday, it was the indicator's biggest two-day gain since the fall of 2002. Other, broader equity indexes were also solidly higher for a second straight day, spurred by renewed hopes that the Federal Reserve may again decide to cut interest rates when it holds its final policy meeting for the year on Dec. 11.

"It was a wild and busy day," a trader said, adding - tongue at least partially in cheek - "stocks were better, the banks are out of trouble, now that they've gotten the money they need [with the Citigroup Abu Dhabi investment deal announced Tuesday], yadda, yadda, yadda. Everything is beautiful - while yesterday [Tuesday], everything was awful."

Overall market volume was about 10% above Tuesdays, and advancing issues romped over decliners by about a seven-to-four margin.

"It was a robust day, with things pretty much up across the board - rentals, restaurants, retailers, everything." He pegged the broad gains at 1½ to 2 points.

"Gainers were everywhere," another trader said, "homebuilders, autos," wherever.

Kodak bonds produce a pretty picture

A market source saw Eastman Kodak's 7¼% notes due 2013 as having pushed up to 100.5 bid, calling that a 2½ point gain on the session. However, another source said that while that 100.5 bid was the high print for the day, the bonds came off that peak later in the day to end basically little changed around 99.5. However, that source also had its 3 5/8% notes due 2008 up around a point at 98 bid.

There was no fresh positive news out about the Rochester, N.Y. photography giant, which recently reported a third-quarter swing to a profit versus its year-earlier loss, as it gradually exits the old-style film and camera business which was its bread-and-butter for so many decades and begins to move into the burgeoning world of digital photography and imaging.

Homebuilders post gains - for now

Homebuilder names were seen higher across the board, swept along by the market's overall rising tide despite the battered sector's continuing problems. A trader saw Red Bank, N.J.-based high yield sector stalwart Hovnanian's 8 5/8% notes due 2017 up 2 points on the day at 73 bid, 75 offered, while a source elsewhere saw its 6 3/8% notes due 2014 better by 1 point at 71. The first trader also saw Standard Pacific Corp.'s 6 ½% notes due 2008 2 point better at 85 bid, 87 offered.

Another trader saw the latter company's 7% notes due 2015 some 2 points better at 63 bid, 65 offered, while Beazer Homes USA Inc.'s 8 5/8% notes due 2011 were also up a deuce at 76 bid, 78 offered.

He additionally saw WCI Communities Inc.'s recently hard-hit 9 1/8% notes due 2012 and its 7 7/8% notes due 2013 each up 1 point at 60 bid, 63 offered and 55 bid, 58 offered, each up 1 point.

Yet another trader was not much impressed by the sector's gains. He said that while "the better ones found a bid," along with just about everything else in the market, it was his opinion that "the weaker ones didn't do a whole heck of a lot of anything.

"I don't think they've found their bottom yet," he said, adding that "the weaker ones are still in trouble, and there's still a problem area there." He categorized Standard Pacific and WCI as being in that latter category, along with Tousa Inc.

He said that Hollywood, Fla.-based Tousa has "pretty much announced they're bankrupt - they're just waiting and hoping the bondholders come to them with a reasonable plan. When your sub[ordinate] debt is trading at 5 cents on the dollar, you don't have a lot of hope that you're not going to be bankrupt."

ResCap, GMAC, autos seen better

Hand in hand with the fortunes of the homebuilders are those of the mortgage companies, such as Residential Capital LLC, whose bonds had been seen a little lower Tuesday on profit-taking after the big run-up they'd experienced last Wednesday and, to a lesser degree, on Friday, after the Minneapolis-based company and its corporate parent, GMAC, announced that ResCap will tender for some of its shorter bond issues, while GM outlined plans to help support its problem child, possibly including a capital infusion or other strategic transactions.

On Wednesday, ResCap's bonds were better, in line with just about everyone else's, a trader seeing its 7½% notes due 2013 up 2 points at 62 bid, 64 offered. Another trader called them "up a little."

Parent GMAC's widely traded 8% notes due 2031 were seen by a trader up 2 points at 82.5 bid, 83.5 offered, while another saw those bonds up 1 point at 81 bid, 83 offered.

However, at another desk, a market source indicated that the 8s got as good as 84, up nearly 4 points on the day, while its 6 7/8% notes due 2011 were up nearly 2 points at 83.

GMAC's 49% owner, General Motors Corp.'s benchmark 8 3/8% bonds due 2033 were seen by a trader up 1½ points on the day at 80.75 bid, 81.75 offered, while the 7.45% notes due 2031 of the latter's domestic arch-rival, Ford Motor Co., gained ¾ point at 74 bid, 75 offered.

Also in the automotive sphere, among the few parts suppliers not bankrupt or otherwise considered to be in major trouble, Lear Corp.'s 8¾% notes due 2016 and ArvinMeritor's 8 1/8% notes due 2015 were each up 2 points, at 92 bid, 93 offered and 86 bid, 87 offered, respectively.

James River Coal heats up

Traders also saw a big jump in James River Coal's 9 3/8% notes due 2012, on news that the Richmond, Va.-based coal producer plans to sell 4.5 million shares of stock, which at current prices would produce about $31 million in proceeds, a sizable sum for a relatively smaller company such as James River.

"That will help their liquidity," said a trader who saw the bonds up about 2 points on the session at 85.5 bid, 86.5 offered.

Another trader saw the bonds even better, around 88, which he called a 5 point gain, and suggested that the company might be able to "pay off their revolver and put a few dollars in [their coffers]. "I think the fact that people are willing to buy $30 million of stock gives the bondholders a lot of comfort."

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