Titan, Metals USA deals price; Adelphia gains late on greater valuation

By Paul Deckelman and Paul A. Harris

New York, Dec. 19- Titan International Inc. and Metals USA Holdings Corp. were heard to have successfully priced new deals Tuesday as the high yield primary continued to take care of last minute business and clear the decks before the traditional year-end lull in activity.

In the secondary market, the big news of the day - that Delta Air Lines Inc. had formally rejected the unsolicited $8.4 billion takeover offer it received last month from US Airways Group Inc. and had instead filed its own reorganization plan, aimed at producing a leaner standalone company less burdened with debt, came as no real surprise to market denizens, and resulted in only a small gain in the bankrupt Atlanta-based Number-Three airline carrier's bonds, several traders said.

Also coming out of the distressed markets were indication of some late-day upside activity in Adelphia Communications Corp.'s bonds, after the bankrupt Greenwood Village, Colo.-based cable company announced a $1.1 billion increase in the valuation of Time Warner Cable shares it plans to distribute to its creditors.

Outside of the distressed precincts, traders said, not much went on. Harrah's Entertainment Inc. bonds eased slightly in line with the news that the Las Vegas-based gaming giant had agreed to a $17 billion buyout from private equity investors, spurning a longshot takeover bid by considerably smaller industry rival Penn National Gaming Corp.

A high yield syndicate source said that the broad market was flat, with activity very slow on Tuesday.

Meanwhile in the primary market two issuers each priced a single tranche of bonds.

Titan tight to talk

Titan International, Inc. priced a $200 million issue of five-year senior notes (B3/B) at par to yield 8%, at the tight end of the 8% to 8¼% price talk.

Goldman Sachs & Co. led the debt refinancing deal from the Quincy, Ill.-based parts supplier for agricultural and construction vehicles.

An informed source told Prospect News that the deal went well and added that the order book was oversubscribed.

Metals USA atop price talk

Elsewhere Metals USA Holdings Corp. priced a $150 million issue of three-month Libor plus 600 basis points five-year senior floating-rate toggle notes (Caa1/CCC+) at 96.50, with the coupon and issue price coming on top of price talk.

Goldman Sachs & Co. and Credit Suisse were joint bookrunners for the dividend deal from the Houston metals production and fabrication company.

A source close to the Metals USA deal said that it was oversubscribed, and added that the deal had gone well.

Toggling in late 2006

Toggle features, such as that seen in the Metals USA deal, which specifies a 75 basis points premium when the company elects to pay the coupon in kind, have been generating considerable discussion of late among high yield market watchers.

The feature has appeared in several of the 2006 fourth quarter's most conspicuous deals.

To recap, on Nov. 9 Hercules Holding II/HCA Inc., as part of its overall $5.70 billion three-part deal, priced a $1.5 billion tranche of senior secured second-lien toggle notes due Nov. 15, 2016 (B2/BB-) at par to yield 9 5/8%.

On Nov. 14 Firestone Acquisition Corp. (Freescale Semiconductor Inc.) priced its landmark $5.95 billion four-part transaction which included a $1.5 billion tranche of senior PIK toggle notes due Dec. 15, 2014 (B1/B). Those notes priced at par to yield 9 1/8%.

On Nov. 29 Momentive Performance Management priced a $1.925 billion equivalent offering of high-yield notes in a four-part transaction. It included a $300 million tranche of senior toggle notes due Dec. 1, 2014 (B3/B-) which priced at par to yield 10 1/8%

On Nov. 30 VWR International priced a $350 million issue of three-month Libor plus 450 basis points five-year senior floating-rate toggle notes (Caa1/CCC) at 98.50.

Finally, as part of its overall $1 billion two-part deal, Aleris International, Inc. priced a $600 million tranche of senior PIK toggle notes due Dec. 15, 2014 (B3/B-) at par to yield 9%.

Sources tell Prospect News that toggle features seem generally to be well received among investors.

More than one sell-side source mentioned that the toggle deals apparently work for hedge funds.

One sell-side source, when pressed by Prospect News, conceded that the toggle feature may be a variety of "hot market deal," but went on to say that competition for paper among the accounts has lately been especially intense for some of the deals in the market - two sources told Prospect News on Tuesday that all three tranches of the above-mentioned HCA deal were trading north of 106 bid.

A buy-side source asserted that the recent toggle deals are merely "whistles-and-bells" variations on the garden variety PIK note, which, the investor added, is a well-known hallmark of a hot market.

However sources from both the buy side and the sell side expect these deals to keep coming in 2007.

New Titan bonds up slightly

When the new Titan International 8% notes were freed for secondary dealings, a trader saw them break around 100.325, up slightly from their par issue price.

A trader at another desk saw them a little later at 100.625 bid.

The Metals USA floating-rate toggle notes due 2012 were not seen in aftermarket dealings.

Delta bonds edge upward

Back among the existing issues, there was considerable news out about Delta and considerable activity in its bonds. But at the end of the day, a trader said, there hadn't been much actual bond price movement.

He saw Delta's 8.30% notes due 2006 up ½ point on the session at 66.5 bid, 67.5 offered after having been up a full point earlier, and also pegged Delta's other notes at 65.5 bid, 66.5 offered, also up ½ point.

"Delta was up a touch," another trader said, "but not really that much."

However, another trader quoted the 8.30s at 67.25 bid, 68.25 offered, which he called up ¾ point on the session.

And a market source at another desk went even further, indicating that although the Delta bonds had stayed pretty much within a narrow context for much of the day, though in very busy dealings, towards the end of the session there was some buying interest that boosted the 8.30s as high as 68 before they went home at 67.5, up 1½ points on the day.

Delta, to nobody's surprise, officially rejected US Airway's $8.4 billion cash-and-stock offer, and instead filed its own reorganization plan with the U.S. Bankruptcy Court in Manhattan that envisions Delta emerging from Chapter 11 next spring as a stand-alone company worth as much as $12 billion.

Delta's plan would completely wipe out its current shareholders, and its creditors generally would receive distributions of new Delta common stock to settle their claims. Unsecured creditors, like bondholders, would receive roughly 63% to 80% of their allowed claims.

Delta unveiled a five-year business plan that puts an equity valuation of between $9.4 billion and $12 billion on the company, projects a 50% reduction in net long-term debt and a return to profitability next year, and an increase in net income, after profit-sharing, from about $500 million in '07 to roughly $1.2 billion in 2010.

On a conference call, Delta executives sounded a defiant note, with chief executive Gerald Grinstein calling Tempe, Ariz.-based US Airways, the nation's fifth-largest carrier, "the worst of all potential merger partners."

In their presentation, Delta officials claimed US Airways is still having significant integration problems with last year's deal under which the low-cost carrier then known as America West Airlines acquired the larger and better known, but bankrupt US Airways; although the combined company carries the US Airways name, it operates out of America West's corporate headquarters in Tempe, and executives of the former America West occupy the key corporate slots. The two airlines plan to complete their integration by next year, but Delta said that even bigger problems would arise were US Airways try to swallow the even larger Delta.

US Airways, for its part, was also pretty defiant and not the least bit abashed by the bashing the Delta executives gave it. The would-be suitor said that it expected Delta to file its own plan and welcomed that step, and said it intends to continue its efforts to acquire Delta. It hopes to convince Delta creditors that it's plan provides greater value than the Delta standalone plan does since it includes an estimated $1.65 billion in cost savings it said would accrue from combining the two carriers.

While Delta's formal creditors committee is for the moment officially neutral on which plan it prefers, it is believed to be leaning toward the Delta plan. Some of the creditors, including Deutsche Bank and Lehman Brothers, formed a second, unofficial creditors committee that sought to have Delta management take the US Air plan more seriously and not reject it out of hand.

With Delta bonds seen having risen on Tuesday - either slightly, as some traders said, or a little more substantially, as others estimated - Northwest Airlines Corp.'s bonds, which have generally recently moved more or less in tandem with Delta's, were seen having also improved a bit on Tuesday.

A trader quoted the bankrupt Eagan, Minn.-based Number-Four U.S. carrier's 8 7/8% notes that were to have come due this year at 91.5 bid, 92.5 offered, up ½ point, and said that its 10% notes due 2009 were likewise up ½ point, at 92.5 bid, 93.5 offered.

Adelphia up in after-hours dealings

Adelphia Communications' bonds held fairly steady for most of the day, traders said. However, one of them saw some late-day activity in Adelphia, after the company announced an increase in the valuation of the Time Warner shares being given to its creditors, to $6.5 billion from $5.4 billion previously.

That trader said that Adelphia's 7 5/8% notes due 2009 at 93, which he called up 2 points "in after-hours trading. Guys are scrambling right now to see where the paper is."

Another trader however, saw Adelphia's widely quoted 10¼% notes due 2011 steady at 95 bid, 96 offered, with "no real run."

Adelphia filed for Chapter 11 in 2002, after revelations of massive accounting fraud by company founder John Rigas and members of his family, who held much of the stock and occupied key executive positions. Although it sold almost all of its assets to Time Warner Cable and Comcast Corp. earlier this year for $17 billion in cash and stock, it remains mired in bankruptcy, stuck there by intercreditor wrangling over the fair distribution of the proceeds of that sale.

Adelphia raised the estimated valuation of the Time Warner Cable stock it got from the asset sale at the order of Judge Robert Gerber of the U.S. Bankruptcy Court in Manhattan, who is overseeing the company's restructuring. While most of Adelphi's creditor classes would recover 99 cents on the dollar, or more, for their claims under the company's plans, one creditor group, the ACC Bondholders, will receive only stock, rather than any cash, as part of its distribution, which is capped at 89% of their claims. They argued in court that Adelphi had improperly undervalued the stock by hundreds of millions of dollars, further limiting the group's recovery.

Delphi bonds steady after big gains

Elsewhere in the distressed-debt precincts, Delphi Corp.'s bonds - which had shot up solidly on Monday on the news that a consortium of private equity investors agreed to put as much as $3.4 billion into the bankrupt Troy, Mich.-based auto parts maker - were seen little changed from those higher levels, its upside momentum apparently spent.

The company's 6.55% notes due 2006 were seen staying around 113 bid, 114 offered and its 7 1/8% notes due 2029 were at 114 bid, 115 offered.

A trader saw the 8¼% notes due 2033, which jumped into the mid-to-upper 120s Monday from prior levels around 105-106, at 125 bid, 128 offered, and saw its 6.197% bonds at the same 127 bid, 130 level where they had left off on Monday.

Harrah's off slightly on M&A news

A trader said that outside of merger and acquisition activity involving the volatile distressed names, there was not much going on, as the overall high yield market continued to head for its end-of-year wind-down of activity.

"Everybody seemed to already be in a vacation mode," one observed.

"It's all just clean-up crap," another trader cynically observed, "nothing doing. In January, we'll re-set the meter and get started again."

Yet another observed a paucity of activity Tuesday and warned that Wednesday "will be worse."

He saw a slight reduction in the bonds of Harrah's Entertainment, pegging its 5¾% notes due 2017 at 82 bid, 83 offered, down about ¼ point from Monday's levels.

The second trader saw Harrah's 6½% notes at 97.5 bid, 98.5 offered, down ¼ point, saying there was little impact from the announcement that Harrah's had accepted the $17 billion cash takeover bid from Texas Pacific Group and Apollo Capital Management, as opposed to the cash-and stock offer for around the same amount made by smaller rival Penn National Gaming. The news, he said, "had been expected."

Traders said they saw absolutely no activity in the bonds of Wyomissing, Pa.-based racetrack and riverboat gaming operator Penn National, although one said that now that the smaller company would not have to go out and raise $16 or $17 billion to buy Harrah's - the world's largest gaming firm - its bonds, like the 6 7/8% notes due 2011, recently at 101 bid, 101.75 offered, "might get a little stronger now."

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