HealthSouth plans $1 billion deal; GM leads autos higher, Unisys gains

By Paul Deckelman and Paul A. Harris

New York, May 26 - HealthSouth Corp. unveiled plans Friday to tap the high-yield bond market for $1 billion early next month, using the proceeds to pay down interim debt it took on when it recapitalized in March. Syndicate sources said the Birmingham, Ala.-based outpatient surgery, diagnostic and rehabilitative services clinic operator would be hitting the road Tuesday to sell the mega-deal to investors.

The market's new-deal arena was otherwise fairly quiet during the truncated session that officially ended at 2 p.m. ET, although activity had mostly ceased long before that as market players headed for the exits ahead of the three-day Memorial Day holiday break. Financial markets in the United States were also closed for the holiday on Monday.

Apart from the news about HealthSouth's upcoming big deal, TransDigm Inc. was heard to be planning to sell an issue of new senior subordinated notes via Credit Suisse, with the deal expected to launch in the coming month, concurrently with a refinancing of the Cleveland-based aircraft parts company's existing credit facilities.

In the secondary market, traders said that quotes on issues were hard to come by because, as one put it, "there's just nobody around."

However, the bonds of General Motors Corp. and its General Motors Acceptance Corp. financing unit were seen higher, carrying over the momentum seen during Thursday's session. That in turn helped to tow the bonds of some other automotive names higher, including GM rival Ford Motor Co. and its financing subsidiary - despite Standard & Poor's warning that the Ford bonds could be downgraded. Also seen taking an upside ride were such names among the parts suppliers as bankrupt former GM subsidiary Delphi Corp. and bankrupt automotive frames maker Tower Automotive Inc., as well as the non-bankrupt Dura Automotive Systems Inc.

Apart from the autos, Unisys Corp.'s bonds were seen firmer, in line with a hefty rise in the Blue Bell, Pa.-based information technology solutions providers' shares after the latter received some positive analyst commentary from Morgan Stanley.

Sources gave various marks on the broad high yield market during Friday's abbreviated session in the run up to the three-day Memorial Day holiday weekend.

A buy-side source said late in the shortened session that the market was flat but auto names were up. Meanwhile a sell-side source marked it slightly lower.

HealthSouth to market $1 billion

In the primary market no issues were priced.

Although market sources have been divided as to how active the primary market will be during the post-Memorial Day week, prospective issuance totals took on some freight Friday as HealthSouth announced that it will begin a roadshow on Tuesday for its $1 billion two-part offering of senior notes (CCC+).

The deal is expected to price on June 8.

The company is offering a tranche of 10-year fixed-rate notes and a tranche of eight-year floating-rate notes.

Merrill Lynch, JP Morgan and Citigroup are joint bookrunners for the debt refinancing from the Birmingham, Ala.-based nationwide provider of outpatient surgery, diagnostic imaging and rehabilitative health care services.

Under $500 million for the week

With no issues pricing on Friday, and high yield having spent much of the pre-Memorial Day week in the throes of a sell-off that stretches back to the middle of May, there was only $430 million of issuance in three dollar-denominated tranches during the May 22 week.

By contrast the previous week saw nearly 10 times that much: $4.236 billion of issuance in 11 tranches, which was the biggest week by dollar-amount since the week of April 3, which saw $4.704 billion.

At Friday's close, year-to-date dollar-denominated issuance stood at just under $54.5 billion.

Hence 2006 issuance continues to outpace that of 2005. At the May 26, 2005 close the market had seen just under $39.4 billion.

Year-over-year deal-volume, however, is just about dead even. Thus far in 2006, 158 tranches have priced versus the 161 that had priced by the May 26, 2005 close.

The week ahead

Aside from the HealthSouth roadshow start, the post-Memorial Day week will get underway with a thin forward calendar.

Libbey Glass Inc. has pushed back the pricing of its $400 million offering via JP Morgan and Bear Stearns into the post-Memorial Day week, according to market sources.

The company, which had been in the market with a single tranche of eight-year senior notes (B), is heard to be contemplating a different structure: possibly a $300 million tranche of second-lien secured notes and a $100 million tranche of unsecured PIK notes, both of which would be issued at the operating company level.

Also in the market with a deal that is expected to price before Friday's close is Perini Corp., which plans to sell $100 million of seven-year senior notes (B2/BB-), via Jefferies & Co.

TransDigm adds to June calendar

Cleveland-based aircraft components company TransDigm Inc. is expected to launch a new senior subordinated notes offering by the middle of June as part of an overall $888.4 million debt refinancing.

The company will also put in place new senior secured credit facilities.

Credit Suisse will be involved in both the bond and bank financing.

TransDigm joins a short-but-growing list of companies that are expected to price bonds during June.

Aside from those already mentioned, they include:

• NTL Cable plc with $1 billion equivalent of new high-yield bonds in dollar-, euro- and sterling-denominated tranches led by JP Morgan, Deutsche Bank, Goldman Sachs and The Royal Bank of Scotland;

• Williams Partners LP's $150 million of senior notes (BB-), expected to be led by Citigroup; and

• Interline Brands Inc. with new senior subordinated notes via Lehman Brothers.

Pondering post-holiday primary

Throughout the latter part of the May 22 week sources have given differing opinions as to how busy the post-Memorial Day week will be.

On Friday, however, sell-siders maintained that the period will see the forward calendar starting to build.

Witness HealthSouth's $1 billion deal, they said.

One sell-sider suggested that the week could get off to a somewhat pensive start. Recent new issues have tended to struggle with regard to the support they have received in secondary market trading, the source added.

However this sell-side official said that the latest news on the liquidity of the asset class, namely a $345.6 million outflow from high yield mutual funds for the week to May 24 as reported Thursday by AMG Data Services, is not very much of a concern.

"This market is so big that's just a drop in the bucket," the source said.

Meanwhile a senior sell-side source said that although the market was quiet on Friday a big forward calendar is expected to materialize during the post-Memorial Day week.

TransDigm, HealthSouth unchanged

Back among the established issues, TransDigm's 8 3/8% senior subordinated notes due 2011, which are to be taken out via a tender offer for the $400 million of notes announced earlier in the week, were not being quoted around on Friday and were assumed to have remained around the 105.125 bid area they moved to at mid-week on the tender news. The bonds had been trading as low as 101 earlier in the month.

There was meantime no activity seen in HealthSouth's only currently outstanding bonds, the remaining 10¾% senior subordinated notes due 2008, which trade sporadically around par, in small lots. Some 90% of those notes, as well as virtually all of the company's other, senior bonds, were bought back in a tender offer as part of the recapitalization earlier this year.

GM higher again

Among names without any new-deal ramifications, GM rose solidly for a second consecutive session. A trader saw the Detroit auto giant's benchmark 8 3/8% notes due 2033 at 76.75 bid, 77.25 offered, up 1¼ points, about matching Thursday's rise. He also saw GMAC's 8% notes due 2031 half a point better at 94.25 bid, 94.75 offered.

Another trader saw the GM bonds "a little stronger on the day," with the GMAC 8s up about ¾ point at 94.25 bid, 95.25 offered, while "middle of the curve GMAC paper," like the 7¼% notes due 2011, was up perhaps half a point, with those bonds driving off at 95.5 bid, 96.5 offered.

"There was definitely some strength" in the GM-related issues he said, "although muted activity, but there was definitely some stuff going on."

Yet another trader, while seeing GM up - the 8 3/8s pushing up to 77 bid, 78 offered, which he saw having risen from 74.5 bid, 75.5 previously - saw little movement in the GMAC issues.

A market source at another desk called GM's 7¼% notes due 2013 up 1½ points at nearly 80 bid, while GMAC's 6 7/8% notes due 2012 were up just a quarter-point at 93.5 bid.

Things seemed to be looking up for GM this past week on Wall Street, where first Merrill Lynch & Co. analyst John Murphy on Wednesday and then Prudential Securities on Friday, upgraded their recommendations on GM's stock. Murphy specifically cited a Detroit News report that as many as 20,000 of the carmaker's 113,000 hourly employees have already accepted GM's offers of buyouts if they take early retirement - two-thirds of GM's previously stated headcount reduction goal of some 30,000 workers by 2008.

"GM and its shareholders are clearly better off if buyouts are widely accepted, as are workers," the Merrill analyst wrote in his upgrade message. "A worker accepting the buyout is contributing to the health of GM making their future benefits more secure, especially versus the worst case scenario of a bankruptcy."

Prudential alluded to the buyout news as well, saying the company's goal of producing savings by workforce attrition was doing better than expected.

GM itself had some news of sorts Friday - making an announcement saying that it plans to make another announcement. It said that it will make what it described as a "major" investment announcement on Tuesday at its transmission plant in Ypsilanti, Mich.

The carmaker also got a psychological boost - even if not necessarily terribly significant financially - from the man widely considered to be America's most savvy stock picker. Fortune magazine's on-line service reported Friday that legendary billionaire investor Warren Buffett was so impressed by GM chairman Rick Wagoner's analysis of the company's problems and what his management plans to do about them in a recent televised interview that the Oracle of Omaha - who up until now was driving a Lincoln Town Car - went out and bought a new Cadillac DTS, at a price which for Buffett is like pocket change, in the $41,000-plus area. He also faxed Wagoner a note commending him on his interview performance and added, Fortune said, that he was "behind GM 100%."

Ford up with GM

All of that good GM news, large and small, was seen by traders as a catalyst for other upside movement in the sector Friday. A trader saw Ford's flagship 7.45% notes due 2031 at 73 bid, 73.5 offered and its Ford Motor Credit Co. financing arm's 7% notes due 2013 at 86.75 bid, 87.25 offered, both of which he called up a point.

Another trader saw the Ford 7.45s at 73 bid, 74 offered at the close, while the Number-Two domestic carmaker's 7 ¼% notes due 2011 were at 89 bid, 90 offered, although he only termed both up "a touch, up about a quarter," on the day.

Still, he said, the bonds were better despite S&P's threat to possible cut both Ford's and Ford Motor Credit's long-term ratings deeper into junk territory from their current BB- status. The agency cited shrinking market share, particularly for its mid-sized sport utility vehicles and full-sized pickup trucks, as well as higher costs for commodities such as steel and petroleum-based plastics.

Despite that somber caution from S&P, the trader said, "everything I updated [in the Ford names] was stronger, not weaker." He linked the firmer Ford performance to GM's strength.

Other auto names better

"If anything," another trader agreed, the firmness among other names in the auto sector was "because GM's doing better - some positive stories on GM, upgrades of the stock, the stock's better, so I think some of the auto stuff kind of went up in sympathy with it because there was nothing negative coming out on them. So a little bit of positive news on the sector helped."

He saw Novi, Mich.-based Tower Automotive's RJ Tower Corp. 12% notes due 2013 at 73.5 bid, which he called up 3½ points on the session.

A trader saw the bankrupt Troy, Mich.-based parts maker Delphi's bonds better on the session, also continuing the momentum they have carried over from the earlier part of the week. Its 6.55% notes due 2006 were up ¾ point at 80.75 bid, 81.75 offered, while its 7 1/8% notes due 2029 were as much as 1½ points up at 79.75 bid, 80.75 offered.

Delphi, another trader said, "was still hanging in there" at 80 bid, 81 offered on the 6.55s and the 6½% notes due 2009. Delphi's Pink Sheets-traded shares meantime jumped 14 cents (10.22%) to $1.51 Friday on volume of 11 million, somewhat more than usual.

Delphi investors seem to have drawn encouragement from the strengthening GM, its corporate parent till 1999 - perhaps reasoning that stronger GM will be in a better position and better disposed to offering more help to its problem child. The stock has lately climbed, and the Delphi bonds are about 10 points firmer than they were at the beginning of the month.

GM earlier in the year said it would fund early-retirement buyouts that Delphi is offering to 13,000 of its 34,000 hourly workers, while offering to take back another 5,000 Delphi employees. Delphi - which contends its contracts with its union members are too burdensome - is in the midst of negotiations with GM and the United Auto Workers union, seeking to come to a consensual agreement to cut the average $27 per hour wage, with Delphi hoping that GM agrees to make up the difference or otherwise partly subsidize Delphi's employee costs, something GM has not yet committed to do. At the same time, Delphi is seeking bankruptcy court approval to junk those pacts and unilaterally impose a lower wage scale - a move which could lead the company's unions to strike Delphi, which would also badly hurt GM, Delphi's biggest customer.

Delphi was back in court in New York Friday for the latest in a series of hearings at which it sought to make its case for voiding the contracts. However, at Friday's hearing lawyers for the union questioned Delphi executives about planned cuts among salaried and hourly employees. Delphi executive vice president Mark Weber acknowledged that the plan called for significant cuts, which would have much greater impact on the hourly workers than among salaried and managerial workers. The hearings resume next Friday.

Also in the automotive parts producer realm, Rochester Hills, Mich.-based Dura Operating's 9% notes due 2009 were seen a point better at 58.5 bid, while bankrupt Toledo, Ohio-based parts maker Dana Corp.'s 7% notes due 2028 were up a point at 78.5 bid, 79.5 offered. A rare downsider among the auto names was Southfield, Mich.-based interior and seating components manufacturer Lear Corp., whose 8.11% notes due 2009 lost 3/8 point, ending at 97.5 bid, 98 offered.

Unisys strong on analyst comment

Outside of the autosphere, a trader saw Unisys Corp.'s 6 7/8% notes due 2010 up 1¼ points at 95.25 bid, 95.75 offered. A market source at another desk pegged those same bonds up 1½ points at 95.5 bid.

Unisys' NYSE-traded shares were meantime up 37 cents (6.17%) to $6.37, on volume of 2.1 million, somewhat heavier than usual.

The shares and bonds rose after a Morgan Stanley equity analyst raised her price target for the stock and reported on possible strategic alternatives that could help the company, which is in the midst of trying to shed non-core operations and refocus its efforts on its profitable core business.

Analyst Julie Santoriello said that Unisys could choose one of three paths - continue its planned restructuring, sell off the company piece by piece, or try for a leveraged buyout. She upped her price target for the stock to $9 from $8 previously, noting that Unisys has intrinsic value of somewhere between $7 and $11 per share. The $9 price, she added "implies 50% upside to the current valuation."

AK Steel higher

A trader said that "metals were stronger," with AK Steel Corp.'s 7 7/8% notes due 2009 finishing at 100.25 bid, up from mid-week levels around 98.5 bid, while the Middletown, Ohio-based specialty steels manufacturer's 7¾% notes due 2012 had moved up to 99.75 at the close from mid-week levels around 98.

United States Steel Corp.'s 10¾% notes due 2008 moved up ¾ point to 108.75. The junk steel sector was helped by consolidation buzz in the industry, as French steel giant Arcelor said it planned to merge with Russian steeler Severstal. U.S. Steel's shares pushed up $2.47 (3.80%) on the NYSE to $67.47. Volume of 5.3 million was somewhat heavier than usual.

The news that Las Vegas Sands Inc. has gotten the nod to build and run the first-ever casino resort in Singapore sent the Nevada gaming company's shares flying Friday - but did little for its 6 3/8% notes due 2015. A trader said he saw the bonds up perhaps half a point at 94.5 bid, 95.5 offered, while another trader said he had not heard the bonds quoted at all Friday and estimated them as unchanged from where he had seen them on Thursday at 93.75 bid, 94.75 offered. The company beat out larger rivals including Harrah's Entertainment Corp. and MGM Mirage to win the potentially lucrative contract.

Las Vegas Sands' NYSE-traded shares jumped $5.96 (9.36%) to $69.63 on volume of 7.5 million shares, about triple the norm - proving, a bond trader said that it "was a story over there [the equity market] - but not over here."

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