Northwest, Collins & Aikman gain on news; Columbus McKinnon, Mediacom deals price

By Paul Deckelman and Paul A. Harris

New York, Aug. 16 - Northwest Airlines Corp. and Collins & Aikman Corp bonds were each seen higher Tuesday on news - Northwest gaining altitude after Morgan Stanley upgraded the shares and bonds of the Eagan, Minn.-based Number-Four U.S. airline carrier, believing it has a good shot of staying out of bankruptcy and weathering a possible mechanics strike, and Collins & Aikman on Lear Corp.'s announcement that it is interested in pursuing a strategic transaction with the bankrupt Troy, Mich.-based automotive interior components supplier.

However, the bonds of Northwest rival Delta Air Lines Inc. failed to gain on the late-Monday announcement that the troubled Atlanta-based Number-Three U.S. carrier will sell its Atlantic Southeast Airlines Inc. unit for $425 million, rising initially, but then giving all of those gains back later.

Overall a source marked the junk market slightly lower on very thin volume Tuesday, as stock prices dove sharply with the S&P 500 down nearly 1.2%.

In the primary market, Columbus McKinnon Corp. was heard by high yield syndicate sources to have successfully priced a scheduled forward calendar offering of eight-year notes, while Mediacom Communications Corp. opportunistically brought a 10-year offering in, although it was downsized by a third from its originally planned size. Intcomex also priced a slightly downsized calendar deal, while Avnet Inc. brought a 10-year split-rated (Ba2/BBB-) deal that was mostly of interest to high-grade players reaching for a little extra yield.

"Marketing is slowing down," the senior sell-side official commented in a late Tuesday email message to Prospect News. "But August is a big coupon income month.

"There is decent liquidity."

Still the primary market remained active on Tuesday as three issuers priced three tranches totaling a face amount of $456 million.

Mediacom downsizes drive-by

Tuesday's sole surprise in the new issue market came from Middletown, N.Y.-based cable TV company Mediacom Communications Corp. However high yield sources had begun professing the expectation at least a week ago that the company would soon appear with a deal.

Subsidiaries Mediacom Broadband LLC and Mediacom Broadband Corp. priced a downsized $200 million issue of 8½% 10-year senior notes (B2/B) at 98.36 to yield 8¾%, on top of the 8¾% area price talk. The deal was cut from the originally announced $300 million.

JP Morgan, Banc of America Securities, Citigroup and Credit Suisse First Boston were joint bookrunners.

Columbus McKinnon oversubscribed

In a deal that was heard to have been well oversubscribed, Columbus McKinnon Corp. priced a $136 million issue of eight-year senior subordinated notes (B3/CCC+) at par on Tuesday to yield 8 7/8%, on the tight end of the 9% area price talk.

Credit Suisse First Boston ran the books for the debt refinancing deal from the Amherst, N.Y., hoist-maker.

Intcomex well wide of talk

Finally on Tuesday Intcomex, Inc., a Miami, Fla., company that distributes information technology products to Latin America and the Caribbean, priced a downsized $120 million issue of 11¾% 5.5-year second-priority senior secured notes (Caa1/B-) at 99.057 to yield 12%.

The yield came 62.5 basis points wide of the 11¼% area price talk. The offering was reduced from $130 million.

Banc of America Securities ran the books for the deal, proceeds from which were slated to repay debt, fund a dividend, and provide capital for general corporate purposes.

Avnet split-rated $250 million on top of talk

Meanwhile on Tuesday terms were heard on one crossover deal.

Avnet Inc., a Phoenix-based distributor of electronic components, priced a split-rated $250 million issue of 6% 10-year senior notes (Ba2/BBB-/BB) at 99.343 to yield 6.088%.

The bond priced at a 187.5 basis points spread to Treasuries, right on top of the price talk.

Banc of America Securities and Credit Suisse First Boston were joint bookrunners for the debt refinancing deal.

Market sources told Prospect News that interest in the deal among high yield accounts was very limited owing to the tight spread to Treasuries.

Interestingly, back in early 2003 Avnet priced a straight high-grade $475 million issue of five-year notes (Baa3/BBB-) at par to yield 9¾%, in a deal in which high yield players were said to have definitely been involved.

Winding down?

As Prospect News made the late rounds Tuesday, sources who picked up suggested that the session could indeed have been the primary market's last sizable pre-Labor Day burst.

One source, asked whether drive-by deals such as Tuesday's Mediacom transaction might continue to come as the Dog Days of summer continue to wind down, expressed doubts that such would be the case.

"This may be it," the sell-side official remarked.

The calendar thins

With Tuesday's transactions in the bag, only two deals totaling $320 million remained on the high yield forward calendar as business expected to be concluded by Friday's close.

On Tuesday CitiSteel USA, Inc. talked its $170 million proceeds offering of five-year senior secured floating-rate notes with an issue price of 99.00 to pay a coupon that will float at a rate of Libor plus 700 to 725 basis points.

Pricing is expected to take place late this week via Jefferies & Co.

Also wending its way through a brief investor roadshow is Syniverse Technologies' $150 million offering of eight-year senior subordinated (existing B2/confirmed B) via Lehman Brothers. The roadshow wraps up Thursday, with terms expected thereafter.

Columbus McKinnon up in trading

When the new Columbus McKinnon 8 7/8% notes due 2013 were freed for secondary dealings, they firmed slightly, to 100.5 bid, 101.5 offered, from their par issue price earlier in the day, a trader said. The new Mediacom 8½% notes due 2015 came too late in the session for any meaningful aftermarket action.

Northwest gains on stock upgrade

Back among the existing bonds, Northwest "was up three points, just on the Morgan Stanley upgrade," said a trader who quoted the company's bonds 8 7/8% notes due 2006 at 55 bid, 56 offered, and its 10% notes due 2009 at 38.5 bid, 39.5 offered.

Another trader saw the 8 7/8s at 55 bid, 57 offered, the 10s at 38 bid, 40 offered, and the company's 9 7/8% notes due 2007 at 44 bid, 46 offered, all up three to four points.

"Morgan Stanley came out with their recommendation, and the shorts all covered," he said.

The first trader, meantime, said that in moving both the stock and the bonds to "overweight" from "even-weight," the investment bank was saying that Northwest "will be able to stay off bankruptcy and get through this negotiations process, even if the mechanics decide to strike on Friday night. They'll have a solid contingency plan in place, so that buoyed the market, and the stock was also up."

Delta sees little gain

The trader meantime quoted Delta's benchmark 7.70% notes due 2005 at 25 bid, 26 offered, up perhaps a point, "but the longer stuff," such as Delta's 8.30% notes due 2029, was "pretty much unchanged," he said.

Another trader agreed that Delta ended up going nowhere, after initially looking that it would rise on the news of the Atlantic Southeast sale - but then giving back whatever gains it notched.

He saw the 7.70s get as high as 29 bid, 31 offered, before dropping back to end unchanged at 25 bid, 27 offered, while all of the company's longer-dated bonds got as high as 20, but then dropped back to end at bid levels in a 15-17 context.

"This doesn't save them," the first trader said. "It buys them a little time, but they have to have a lot of moving pieces fall into place to survive.

"The market pretty much initially thought it was positive news - but as the stock sold off [i.e. retreated somewhat from its peak, although it ended with a sizable gain], the bonds sold off as well, and they pretty much ended unchanged."

Collins & Aikman better

Collins & Aikman's 10¾% notes due 2011 were seen up about a point on the day to around the 34 level, while its subordinated 12 7/8% notes due 2012 gained almost a point to around a 7.75-8 bid context, traders said, on the news that Lear is interested in Collins.

Auto analyst Joseph J. Farricielli of Imperial Capital LLC in Beverley Hills, Calif. said he "wasn't surprised" when Lear emerged as a possible second partner for Collins & Aikman, along with Plastech Engineered Products Inc., which earlier this month said it was interested in buying Collins & Aikman out of bankruptcy for $1 billion - an offer Collins & Aikman has not run to embrace, leading some in the market to believe it was not a serious bid.

In a letter to Collins' recently installed president and chief executive officer, Frank Macher, Lear's executive vice president and chief financial officer, David C. Wajsgras, wrote that "[i]f Collins & Aikman intends to consider Plastech's offer or any other transaction proposal, we would welcome the opportunity to participate in that process."

Wajsgras noted that his company had recently announced plans to explore strategic alternatives for its interior components/systems business, and said that "[o]ne potentially attractive alternative, among others, would be for each company to contribute some or all of their respective interiors businesses to a newly-formed joint venture."

He further said that Lear was "as well positioned as any other potential bidder to raise third-party equity financing if necessary to complete a transaction," and asked that Southfield, Mich.-based Lear be given the same access to data needed to develop a specific transaction structure and proposal as might be granted to Plastech "or any other prospective bidder."

Farricielli said even now it was not yet clear whether Plastech's offer for Collins & Aikman is a firm bid, or, as Collins & Aikman spokesman David Youngman said, just "an offer to make an offer after they have done their due diligence."

Be that as it may, the analyst said that it comes as no surprise "that other people are interested in the assets."

But he said that rather than an outright acquisition offer, "it sounds like it's more of an exit play on [Lear's] part, to get out of their own interior segment" via the potential joint venture alluded to in Wajsgras' latter. "Lear has made comments in the past that they are looking to exit that business. So it sounds like they're looking to do a combination in an effort to unload their own interior components."

Another possibility that could take shape, he acknowledged, would be for Lear to offer to buy Collins & Aikman outright, combine the interior components businesses of the two companies and then sell that to some third party.

Farricielli said that although Collins & Aikman is on record as having promised to have a business plan ready by the end of the month, he opined that "that's probably only for the banks, not necessarily for the general public, so, no, there's no firm deadline" - meaning the current scenarios will have time to play themselves out.

"It's still very early in the process," he said. "Remember that we haven't even heard from two big players" - financier Wilbur Ross, "who owns most of the bank debt" and is the lender for the separate reorganization process for Collins & Aikman's European unit, and Third Avenue Management LLC, whom the analyst described as "a big holder of the 10¾% notes."

He said that Ross - whose big debt holding is expected to be converted to equity during the reorganization - "has the most control of the situation, what will ultimately happen," and said that it was unlikely that Ross would "sell out for a low-ball price or [be] willing to get into bed with someone that's just looking to do a quick combination and exit underperforming assets."

Farricielli said that assuming he gains control of the company, Ross might even emerge as the consolidator in the industry, scooping up assets at bargain prices the same way he did in the then-troubled steel industry several years ago (Ross bought the assets of humbled steel giant Bethlehem Steel Corp. and other steelmakers who had likewise fallen on hard times, such as LTV Corp., to form his International Steel Group, which Ross later sold to the present Mittal Steel Co. NV.)

Would a savvy investor like Ross want to wade further into the currently troubled sector? Farricielli thinks so, noting that he profitably did so when the U.S.-based steel industry seemed to be going to hell in a handbasket. Additionally, he said, whatever troubles the sector is currently going through, "the interior component part of the automotive parts supply sector has great growth potential, because the amount of content that's being added on interior components is increasing every year. As people come up with more gadgets to integrate in the car, it's just an opportunity for more product for the interior component suppliers."

Farricielli also said that after a lengthy delay in approving a controversial package of outright aid and acceptance of higher prices that Collins & Aikman's six largest customers offered the beleaguered company after its bank lenders pulled the plug on the second half of its scheduled debtor-in-possession financing, bankruptcy judge Stephen W. Rhodes granted final approval for the package at a hearing Thursday in Detroit, although the filings in the case did not become public until Tuesday.

That package includes $82.5 million in upfront cash, and another $82.5 million of higher prices that the six customers - the Big Three, plus the major Japanese carmakers - will accept on a temporary basis to help Collins out. Some other creditors objected to that plan, which was originally put forward in late June after the second part of the DIP was withdrawn - arguing that it gave the customers too much say in how Collins would be reorganized. Those customers contended that Collins & Aikman is in its current predicament largely because of the unprofitable contracts with those same customers it is saddled with.

United Rentals steady despite CFO exit

Elsewhere, United Rentals Inc.'s bonds were seen little changed on the news that the news that the Greenwich, Conn.-based equipment rental company had fired its president and chief financial officer, John Milne, for alleged failure to cooperate with a company probe of reported irregularities in past financial reports.

Its 7¾% notes due 2013 were seen down a quarter point on the day at 97.25 bid, while its 6½% notes due 2012 were unchanged at 97.

However, a trader said that even though the news initially seemed negative - adding more uncertainty to the company's situation - in the end, he said, "it shows that the company is concerned with getting its house in order. Management is doing the right thing."

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