Collins & Aikman firmer on new financing; DirecTV scrubs bond deal for bank debt

By Paul Deckelman and Paul A. Harris

New York, April 5 - Collins & Aikman Corp.'s bonds were seen unchanged to somewhat firmer on Tuesday as the market digested the impact of the Troy, Mich.-based automotive components company's late-Monday announcement that it had lined up $75 million of financing to improve its liquidity picture.

In the primary arena, yet another perspective high-yield bond deal has been cancelled in favor of bank debt financing, with DirecTV Group Inc. following in the footsteps of White Birch Paper Co. and Stile Acquisition Corp./Masonite International Corp., which each pulled deals and opted to go the bank debt route last week. However, a DirecTV subsidiary, Hughes Network Systems Inc., was heard to still be going ahead with its own planned issue of eight-year notes, and KCS Energy Inc. priced an upsized add-on issue of seven-year bonds.

In the secondary realm, news of Collins & Aikman's funding deal gave the company's bonds an early boost, although it was seen by some traders to have faded later on in the wake of continued negative news about two big Collins & Aikman customers, General Motors Corp. and Ford Motor Co.

A market source queried at midday saw the Collins bonds "up a little on the funding news." He pegged the company's 10¾% senior notes due 2011 half a point better at 83 bid, while its 12 7/8% subordinated notes due 2012 were up as much as 1½ points to 48 bid.

Later in the session, that same desk was seeing the 103/4s up a full point to 83.5 bid, saw the 12 7/8s still at 48, and the 9¾% notes due 2010 up a quarter point at 106.25.

Another market source had the 12 7/8s initially up as much as 2½ points to around 50 bid, but said the bonds had backed off that high to end up 1½ at 49.

A trader at another shop saw the senior bonds "pretty much within the same context" at bid levels between 82 and 83, though he saw the junior bonds up a point at 48 bid, 49 offered.

On a contrarian note, however, another trader estimated the 103/4s ending down a point at 82 bid, 83 offered, and the 12 7/8s off two points on the day at 45 bid, 46 offered, citing the impact of the GM and Ford news (Moody's Investors Service lowered GM's debt ratings to Baa3 - the last step before junk - and said it was also eyeing Ford for a downgrade).

Whatever gains the Collins & Aikman bonds did come away with Tuesday came on top of Monday's advance, which had been linked by traders to the news that Collins & Aikman's lenders gave it a waiver of the timely reporting covenants in its credit facility good through June 15. Collins had warned last month that it had uncovered accounting problems that would prevent it from filing its 10-K annual report with the Securities and Exchange Commission on time and cautioned that it probably would not even be able to get the report filed within the automatic 15-day extension the SEC gives, a prediction which proved to be accurate.

Then, late Monday, after the market closed, the company said that it had arranged for an additional $75 million in committed term loan financing from Credit Suisse First Boston under its existing senior secured credit facilities, with the extra funding earmarked for capital spending or to replenish other funds used for capex. The company said it expected the term loan funding to occur within a week, in connection with and subject to receipt of senior lender approvals of credit facility amendments modifying certain financial covenants and pricing terms.

The financing is seen as giving Collins & Aikman a badly needed liquidity boost. Its available liquidity - its cash and unutilized commitments under its revolving credit and account receivables facilities - stood at $81 million as of March 31, down a bit from $86 million at the end of 2004.

Continued access to credit facilities in satisfactory amounts is "essential," Collins & Aikman said in a statement announcing the finding. It also disclosed that as of March 31, it had $1.708 billion of outstanding debt.

GM widens, recovers partly

Also in the automotive sector, traders who say it is only a matter of time before the world's largest automaker suffers the indignity of being demoted to below-investment grade status, saw GM's bonds initially widen out somewhat on the news that Moody's had cut its ratings to just one step above junk, although they recovered some of their lost ground later on. Besides cutting GM's own corporates a notch to Baa3, Moody's also cut the bonds of its GMAC financing unit to Baa2 from Baa1.

Standard & Poor's currently rates GM debt at BBB-, also just a step above junk.

One junk trader saw GM's 8 7/8% notes due 2033, which began the day with a bid spread at 525 basis points over the comparable Treasury issue and an offered level 515 bps over, widen to a bid level of 540 bps off, before improving late in the day to about 530 bps over, not too much slippage.

The company's GMAC 6¾% notes due 2014 initially widened out 11 bps to a bid spread of 449 bps, but cut that loss later in the day to end at 445 bps over.

Moody's cited GM's warning last month that it might lose as much as $150 million in the first quarter - its weakest first-quarter showing since 1992 - and full-year profit might only come in at $1 to $2 per share, well down from earlier projections of $4 to $5.

The ratings agency also warned that GM might have a tough time staying investment grade unless it can come to grips problems like its high healthcare and retiree costs, declining market share and cash losses.

The ratings agency also warned that it might downgrade Ford as well, citing its concerns about the Number-Two carmaker's ability to achieve its 2006 before-tax profit target of $7 billion. Ford's corporate bonds are currently at Baa1 and its Ford Motor Credit bonds at A3.

Playtex better on restructuring plan

Elsewhere, Playtex Products Inc. bonds were better, after the Westport, Conn.-based consumer products company unveiled a corporate restructuring strategy Monday that will direct its focus on the feminine-, infant- and summer skin-care markets where it currently holds a leadership position. But while such non-core businesses as Binaca breath freshening spray and Ogilvie home perm kits will get less focus, the company said that it does not plan any asset sales.

A trader saw its 9 3/8% notes due 2011 at 104.5 bid, 105.5 offered, up half a point on the session, although another trader saw those bonds "weakening as the day progressed" to end at 105.25, down from 105.5 earlier.

But another trader, who had seen those bonds finishing lower Monday, said they were up a full two points to 105.

Playtex's 8% notes due 2011 were up a quarter point at 108.

Playtex said Monday that its new realignment plan will cut costs by $12 million to $14 million this year and $22 million to $24 million by 2006, and said that its previous restructuring plan, which began in 2003, will produce cost savings of $34 million to $38 million by 2006.

Playtex set a goal of double-digit profit growth in each of the next three years, and also reaffirmed its financial targets for 2005, including sales growth in the low-single digits, pro forma for its recent divestment of its Woolite clothing detergent business. Operating income for the year, including additional realignment charges of $6 million to $8 million, is expected to be $105 million to $115 million.

Bally gains on waiver

Bally Total Fitness Holding Corp. bonds were firmer after the Chicago-based fitness club chain operator announced that it has secured an amendment and waiver to its existing credit agreement with its revolving credit and term loan lenders.

That good financial news pushed its 9 7/8% subordinated notes due 2007 up 1¼ points to 86.5, while its 10½% senior notes rose 1½ points to 99.5

Bally said that the amendment exempts certain costs incurred in connection with investigations into accounting issues brought by federal regulators, as well as waiving certain technical defaults.

The company also announced plans to hold a conference with investors at 4 p.m. ET next Tuesday to provide a financial and operational update.

J.C. Penney up further

A market source saw J.C. Penney Co. Inc. bonds continuing to firm, as fears of a leveraged buyout that will saddle the Plano, Tex.-based department store operator with a ton of new debt superior to its existing bonds seemed to recede. Penney's 7.95% notes due 2017 were being quoted up three points to around the 103 level.

A trader at another shop saw the Penney bonds merely seeming to "stabilize" after several days of gains bounced the bonds back from the losses they suffered last week on the initial LBO speculation, sparked by a story in a fashion industry trade publication.

He saw its 7.40% notes due 2037 at 94 bid, 95 offered, its 7 3/8% notes due 2008 at 104 bid, 106 offered, and its 6 7/8% notes due 2015 at 96 bid, 98 offered, all "kind of hanging in there."

One deal in primary

The primary market flickered to life on Tuesday, with one deal pricing from KCS Energy, Inc.-an upsized $100 million add-on done as a drive-by.

One market source characterized it as a defensive play in a market that appears to be in the process of repricing itself.

Meanwhile news along the new issue pipeline was varied, with Hughes Network Systems LLC and Grupo Transportación Ferroviaria Mexicana, SA de CV announcing roadshow starts while elsewhere companies that had been measuring the high yield opted to take their business to the bank loan market.

"My guess would be that there are still a lot of deals waiting at the gates," one investment banker said.

"But market conditions are pretty choppy right now."

KCS Energy prices $100 million

The Tuesday session saw drive-by activity from the oil and gas exploration and production sector, which is perceived as a defensive one in times such as the present when energy prices are on the rise.

Houston-based KCS Energy, Inc. priced an upsized $100 million add-on to its 7 1/8% senior notes due April 1, 2012 (B3/B-) at 100.625. The deal was increased form $75 million.

The transaction resulted in a 6.974% yield to worst - bringing it toward the wide end of the 6 7/8% to 7% price talk.

Credit Suisse First Boston ran the books for the acquisition financing.

The original $175 million issue priced at par on March 25, 2004, having been upsized from $150 million.

One sell-side source said that although KCS Energy drove through with a low single-B rated deal, it is nevertheless believed to be a defensive play in a market that seems to be repricing itself.

"People are reassessing credit risk across the board," the source said. "In these circumstances it is more challenging to correctly assess risk.

"Right now people are looking first and foremost to credit quality. And they are naturally more open to stories from certain sectors which they believe to be defensive ones."

Roadshow starts

Two roadshow start dates also were heard on Tuesday.

Mexican freight railroad company TFM plans to sell $460 million of senior unsecured notes in two tranches (expected ratings B2/B).

A U.S. roadshow for the debt refinancing deal will take place during the present week and continue into the early part of the April 11 week. Pricing is expected to take place mid-to-late in the April 11 week.

The company is offering seven-year non-call-four notes and 10-year non-call-five notes, via Morgan Stanley.

Elsewhere a roadshow began Tuesday for Hughes Network Systems LLC's $325 million offering of eight-year non-call-four senior notes (B1), according to market sources.

Pricing is expected to take place late in the April 11 week.

JP Morgan and Bear Stearns & Co. are joint bookrunners for the acquisition deal.

Meanwhile the company's parent, DirecTV Group, Inc., decided it will not go forward with an anticipated $500 million offering of unsecured senior notes due to market conditions, and has opted instead to turn to the bank loan market.

"The bank market sometimes does not act in concert with the bond market," a sell-side source observed as the news circulated that DirecTV will not sell bonds.

"I think this is one of those times when those two markets have parted ways because we hear that the bank market is still pretty healthy. There is still quite a bit of money chasing deals over there."

Meanwhile Prospect News learned Tuesday that Brentwood, Tenn., hospital operator LifePoint Hospitals Inc. has also abandoned plans to come to the junk market with a $200 million offering. LifePoint also opted for the bank loan market.

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