Buhrmann, Celanese, Seitel deals price; little fallout from Titan merger failure

By Paul Deckelman and Paul A. Harris

New York, June 28 - Seitel Inc., Buhrmann NV and Celanese AG were heard by high yield syndicate sources to have successfully priced new deals Monday. Celanese's offering was a quickly shopped, opportunistically priced add-on offering to the $1 billion tranche of 9 5/8% senior subordinated notes due 2014 which the German-based chemicals maker brought to market just recently.

In the secondary arena, Titan Corp. - whose bonds had fallen badly on Friday on reports that the San Diego-based high-tech defense electronics company's planned merger with Lockheed Martin Corp. would likely fall apart - was largely a non-story Monday, even as those reports proved to be entirely accurate, with the Bethesda, Md.-based aerospace giant Lockheed pulling the plug on the deal over the weekend.

One story that was real on Monday was Crown Castle International Corp.'s planned sale of its British assets for over $2 billion - news which sent the Houston-based communications antenna tower operator's bonds up more than a point.

Titan Corp.'s 8% notes due 2011 had tumbled Friday down to about 102.25 bid from prior lofty levels at 109.5, and its New York Stock Exchange-traded shares had swooned more than 20%, after Lockheed indicated that it would not give Titan another extension on the latter company's efforts to come to an agreement with the Justice Department on allegations that it had improperly made payments to officials of foreign governments to drum up business - something that is now strictly against U.S. law. When the Friday deadline for reaching such an agreement with the feds came and went, Lockheed cancelled the proposed $20 per share merger, which would have also involved Lockheed assuming about $600 million of Titan debt, including the $200 million of the 8% notes.

Titan's bonds were hardly seen on Monday, traders said, noting that the real damage had been done on Friday.

After investment-grade-rated Lockheed had announced in September that it would purchase Titan and assume the bonds, those bonds had shot sharply up, then came down a bit before stabilizing for the longest time around the 109 level from which they fall on Friday.

Titan "went into crossover land," one junk trader said, "and now it's dead." Several other traders said Monday that there were just no markets around for the bonds.

Titan had been soliciting the consent of the bondholders to indenture changes that would have facilitated the Lockheed merger. With the demise of that deal, it cancelled the consent solicitation, while extending a parallel exchange offer for the unregistered Rule 144A bonds (see Tenders and Redemptions elsewhere in this issue.)

Crown Castle stronger

Crown Castle International's 7½% notes due 2013 were seen by one trader as having firmed three points to 100.5 bid, 101.5 offered on news of the big asset sale, although he said that the company's other issues "are trading like yield-to-call paper" and were little changed Monday. He quoted its 10¾% notes at 112 bid, 113 offered.

But another trader said that those bonds, like the 71/2s, were up, quoting the 103/4s as having risen to 112 bid, 113.25 offered from prior levels around 110.5, and he saw the company's 9 3/8% notes up nearly a point at 109.75.

Crown Castle said it had signed a definitive agreement to sell its UK subsidiary to National Grid Transco plc for $2.035 billion in cash, with the deal expected to close by the end of September.

Crown Castle will use about $1.3 billion of the proceeds from the transaction to fully repay the credit facility of its Crown Castle Operating Co. It expects to use the remaining net proceeds of some $740 million to invest in new business opportunities in the U.S. or to repay debt.

Crown Castle further anticipates utilizing a portion of its net operating losses to offset the taxable gain on the sale of the UK subsidiary.

Confusion on Goodyear convertible

News that Goodyear Tire & Rubber Co. was doing a $150 million sale of new convertible notes had the Akron, Ohio-based tiremaker's bonds "all over the place," a trader said. "People want to see where the converts stand in the capital structure."

He quoted Goodyear's 7.857% notes due 2011 as having eased to 90 bid, 91 offered from 91.5 on Friday, while its 8½% notes due 2007 ended at 101 bid, down a half point.

At another desk, however, a trader said Goodyear was "up a little" on the converts deal, quoting the 81/2s up half a point at 101 bid, 102 offered.

The convertible ultimately turned out to be double the planned size at $300 million and offered as convertible senior unsecured notes. They priced to yield 4% with a 30% initial conversion premium.

Xerox, Levi move up

The trader also saw Xerox Corp. paper better, with the Stamford, Conn.-based copier giant's 7 1/8% notes due 2010 half a point ahead at 101.5 bid. Its 9¾% notes due 2009 were up nearly a point, at 113.

Levi Strauss & Co. paper continued to firm on investor hopes that the San Francisco-based apparel maker might be close to selling its Dockers line of khaki clothing, perhaps for as much as $1 billion.

Levi's 11 5/8% notes due 2008 were seen a point better at 98, while its 12¼% notes due 2012 were at 97.75 bid, well up from 96.

Delta stronger

Delta Air Lines Inc.'s paper was clearly better, with a trader quoting its 7.70% notes due 2005 at 67 bid, 69 offered, its 10% notes due 2008 at 55 bid, 57 offered, its 7.90% notes due 2009 at 50 bid, 52 offered, and its 8.30% bonds due 2029 at 41 bid, 43 offered, all up several points.

With no firm positive news out during Monday's session on the Atlanta-based air carrier, short-covering was seen as a possible explanation for the rise in both Delta's bonds and its stock, which was up more than 6% on heavy volume. There was also speculation that coming talks with the company's pilots would result in the sizable concessions that the airline said it needs.

One trader espousing short-covering as his preferred theory saw the 7.90% notes due 2009 as high as 52.5 bid, 53 offered, from 50 bid, 51 offered previously, and saw the 8.30% bonds at 42 bid, well up from 39.5 bid, 40 offered.

Another trader pegged the Delta long bonds even higher, at 43.5 bid, 44.5 offered, up two points on the day, and saw the 7.70s at 67.5 bid, 68.5 offered, also up a deuce.

On Monday evening, well after the markets had closed up shop for the day, The Wall Street Journal's online edition was reporting that Delta creditors had formed a committee to pursue restructuring talks with the airline, although no other details were immediately available. Talk that such a committee was being formed could be possible explanation for Monday's gains.

$670 million in 3 new deals

Just under $670 million in three tranches, priced during the primary market's opening session of the pre-July 4 week.

Meanwhile the third Sprint PCS affiliate of the year rang in Monday with a roadshow start.

A sell-side official told Prospect News on Monday that high yield remained strong through the week of June 21.

"Everyone indicated that last week, despite low volume, was a strong week in the secondary market, the source said.

"If we didn't have this holiday-shortened week, this would be a great new-issue block of time."

Still cash despite outflows

The source added that in spite of continued evidence that high-yield mutual funds are undergoing a sustained period of redemptions, there remains money to put to work in junk.

"I still think the accounts have a fair amount of cash on hand," the sell-sider said.

"The thing is, you're seeing a lot of tender refinancings. In fact we are right now at record levels of tender refinancings. So a lot of these new issues are not necessarily new money.

"If we were bringing new paper we would feel the outflows a lot more.

"And the buy-side has incentive. Although funds are flowing out, assuming that they have even half the amount of cash on hand, if you take them out of paper they need to get it back in."

Source other than mutual funds

This sell-side official said that in addition to the residual cash in the high-yield mutual funds, other buyers are now active in junk.

"The hedge funds are as active as ever," said the official. "And they're playing new issues, which previously was not typical of the hedge funds.

"And not just the distressed credits.

"They like the floating-rate notes. And they tend to like the secured paper. But they will play for $5 million to $10 million in just about any credit spectrum, leaving out the strong double-Bs. Anything 8% or higher, they're game, whereas it used to have to come with a 12%-14% IRR just to get them to bite in small amounts."

Rising rates may not scare hedge funds

The source added that as the market wends its way toward the Wednesday event horizon when the Federal Reserve is widely expected to hike short-term interest rates for the first time in four years, the hedge funds figure to remain active in high yield.

"Obviously we will see the short-term paper back up a little," said the official.

"But these guys don't hedge most of their stuff anyway. They're looking for returns.

"So in the short term we will continue to see spread compression as the secondary market probably does not trade off in line with the Treasury market; it's not as liquid so it's not quite as sophisticated."

Celanese adds to mega deal

Three deals priced during Monday's primary market session.

BCP Caylux Holdings (Celanese AG) priced a $225 million add-on to its 9 5/8% senior subordinated notes due June 15, 2014 (B3/expected B-) at 103.375 to yield 9.019%.

Morgan Stanley and Banc of America Securities ran the books for the Kronnberg, Germany industrial chemical company's deal, proceeds from which will be used to refinance the holding company's preferred stock. Blackstone is the sponsor.

The original $1 billion issue was priced at par on June 3.

Also on Monday Houston-based seismic information and technology company Seitel, Inc. priced a restructured $193 million issue of 11¾% senior notes (expected ratings B3/B-) at 97.675 to yield 12¼%, right on top of the revised price talk. That revised talk was for a 11¾% coupon, priced at a discount to yield 12¼%, increased from the original 11¼%-11½%.

UBS Investment Bank ran the books for the deal, proceeds from which will be used to fund the company's exit from Chapter 11.

On June 23 Seitel restructured the deal into a seven-year bullet from an eight-year non-call-four structure.

Finally Buhrmann NV sold $150 million of 8¼% 10-year senior subordinated notes (B2) at 99.164 to yield 8 3/8%, in the middle of the 8¼%-8½% price talk, via Deutsche Bank Securities.

The Amsterdam, Netherlands-based office products company will use the proceeds to refinance debt.

Horizon PCS to start roadshow

A single roadshow start was heard during Monday's session.

Horizon PCS Escrow Co. will kick off its roadshow Tuesday for $125 million of eight-year senior notes (B3/CCC), which are expected to price late in the week of July 5.

Credit Suisse First Boston and Lehman Brothers are joint bookrunners for the deal, proceeds from which will be used to repay the Chillicothe, Ohio-based Sprint PCS affiliate's bank debt as part of the company's reorganization plan.

A source told Prospect News that the high yield primary is entering that time of year where the deals you want to bring are ones from the familiar names.

"A lot of people made their push for league table standings as we move toward the end of the first half," the official reflected.

"People will consider this a shortened week. You may see some drive-bys Tuesday and Wednesday. But to market a deal through what is potentially almost a five-day weekend, it's very hard to carry a roadshow over that span of break time."

That said, the source added, Horizon PCS can run a roadshow through the holiday because people understand the Sprint affiliates

Three deals from those affiliates have come in the past year.

On April 21 iPCS Inc. priced $165 million of eight-year senior notes (B3/CCC) at par to yield 11½%, via Credit Suisse First Boston.

Proceeds were designated for debt refinancing as the company exits from Chapter 11.

And on June 10 US Unwired Inc. upsized and priced its two-tranche high-yield deal to $360 million from $285 million.

The Lake Charles, La.-based Sprint PCS affiliate sold $125 million of six-year first lien floating-rate notes (B2/CCC+) at par to yield three-month Libor plus 425 basis points.

The company also priced an upsized $235 million of 10% eight-year second lien fixed-rate notes (Caa1/CCC-) at 99.326 to yield 10 1/8%.

Lehman Brothers and Banc of America Securities were joint bookrunners for the debt refinancing deal.

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