William Lyon off on going-private plans; Hawaiian Telcom, Triad deals price

By Paul Deckelman and Paul A. Harris

New York, April 27 - General William Lyon's battle plan to take his company private had equity investors of William Lyon Homes saluting smartly Wednesday - but bond investors decided to go AWOL and the issue sold off.

Also on the downside, Calpine Corp. bonds were once again on the slide, after having seemingly stabilized during the previous session. Visteon Corp. bonds were lower after the Van Buren Township, Mich.-based automotive components maker reported a skid into the red during the first quarter ended March 31, versus a year-ago profit.

And Maytag Corp. bonds traded off after Moody's Investors Service completed the process begun by Standard & Poor's and Fitch Ratings, and cut the appliance maker's bonds down to junk status.

In the primary market, two issuers priced deals totaling $650 million in four tranches, as various sources remarked that the only issuers who are pricing deals in the present sell-off are the ones with few alternatives.

Hawaiian Telcom Communications Inc. completed its downsized three-part $500 million, while Triad Acquisition Corp., which will be merged with Triad Financial Corp., priced a downsized and restructured $150 million single-tranche transaction.

Both issuers were in the market with LBO deals.

"Presumably these are all bridged transactions," commented one sell-side official not involved in either deal.

"You either have to fund the bridge or theoretically declare that there is a material adverse change in the market.

"So the issuer doesn't have much choice."

This sell-side official added that lately high-yield syndicate officials have the novel but hardly agreeable task of acclimatizing prospective issuers to a new reality in the interest rates they can expect to pay on high yield bonds.

"We have committed transactions in the works," the source said, "acquisition financings that will have to come to the market.

"We're in the process of readjusting client expectations for much higher rates.

"Right now that's what it's all about."

Success in a difficult market

The biggest issuer on Wednesday was Hawaiian Telcom, which priced a downsized $500 million transaction involving three tranches, reduced from $550 million.

The company sold $200 million of eight-year senior fixed rate notes (B3/B-) at par to yield 9¾%, on top of price talk that had been revised upward from 9% to 9¼%.

Meanwhile the company sold $150 million of eight-year senior floating-rate notes (B3/B-) at par to yield six-month Libor plus 550 basis points, again on top of price talk that had been revised upward from 475 to 500 basis points.

In addition Hawaiian Telcom sold $150 million of 10-year senior subordinated fixed-rate notes (Caa1/B-) at par to yield 12½%. The subordinated notes priced at the wide end of the 12¼% to 12½% price talk, which had been revised upward from the initial talk of 150 basis points behind the senior fixed-rate notes.

Also pricing Wednesday was Triad Acquisition Corp. (Triad Financial Corp.) with a downsized, restructured $150 million issue of 11 1/8% eight-year senior notes (B3/B-).

The notes priced at 99.35 to yield 11¼%, at the wide end of the 11% to 11¼% price talk, which had been upwardly revised from 10¼% to 10½%. The deal was reduced from $200 million.

One year of call protection was added to bond, making it non-callable for five years, increased from the former four-year call protection structure. And the novel eight-year non-call-five structure finds the note becoming callable after May 1, 2010 at 107.0 instead of the customary "par-plus-half-the-coupon" first call premium, which would have been 105.563.

Goldman Sachs had the books for both the Hawaiian Telcom transaction and the Triad Financial deal.

One informed source told Prospect News late Wednesday that both Hawaiian Telcom and Triad Financial were successful deals in a difficult market.

When the new Hawaiian Telcom notes were freed for secondary dealings, a trader said that both the new 9¾% senior notes due 2013 and 12½% senior subordinated notes due 2015 were trading at 99.25 bid, 100.25 offered, versus the par issue price for both tranches earlier in the session. The trader also saw the new floating-rate senior notes due 2013 "straddling" the par issue price, although there was no specific level seen.

How difficult?

To quantify how difficult the present market is, another market source gave a brief recap of the Triad deal: "It was pro forma-ed on April 19 at 9%," the source said.

"Talk was revised twice. It went out with price talk of 10¼% to 10½%, and then was revised Tuesday to 11%-11¼%.

Amid suggestions heard Wednesday that "the junk market is for sale," and that high yield is presently weathering a "buyers strike," this source professed the belief that high yield may have reached the point where it is oversold.

"This market is supposed to be just a function of default rates and base rates," the source said. "But the technicals right now are very ugly.

"It doesn't feel as though credit quality is deteriorating as rapidly as the market is selling off.

"It feels like this could be something that turns around in the near term."

The present sell-off, in context

The source added that investors have not demonstrated an aversion to high yield as powerful as the present one in well over half a decade.

"Last April and May we had a scare, with the 10-year Treasury spiking to 4.84%," source said. "That was just when the Fed was getting started ratcheting up.

"But we haven't had anything this severe at least since 1998-1999, in terms of rising Treasury rate fear being a major driver in people backing up bonds."

Primary marches on

Meanwhile Wednesday two more issuers with acquisition deals issued price talk on their bonds, which are expected to price before the end of the present week.

Quincy, Ill., compressor-maker Gardner Denver Inc. put out talk of a yield in the 7¾% area on its $125 million offering of eight-year senior subordinated notes (B2/B), via Bear Stearns & Co. and JP Morgan.

The proceeds will be used to help fund the acquisition of Thomas Industries Inc., a Louisville, Ky., compressor company.

Elsewhere Hamilton, Bermuda-registered Central European Media Enterprises Ltd., which is acquiring a controlling interest in the TV Nova group, which owns and operates TV Nova in the Czech Republic, announced talk on both tranches of its $350 million two-part offering of notes (B1/B+).

The company's €200 million offering of seven-year senior fixed-rate notes, which are non-callable for four years, is talked at 8% to 8¼%.

Meanwhile the €150 million offering of seven-year senior floating-rate notes, which are non-callable for six months, is talked at six-month Euribor plus 525 to 550 basis points.

Pricing is expected on Friday.

JP Morgan, Lehman Brothers and ING are joint bookrunners.

Lazard with $650 million split-rated deal

Finally on Wednesday news surfaced that Lazard LLC, a private investment bank headed by Bruce Wasserstein, plans to sell approximately $650 million of split-rated 10-year bullet notes (Ba1/BBB-) during the middle part of the May 2 week via Citigroup and JP Morgan.

One high-yield sell-side source, not involved with the deal, said that there would possibly be high yield interest due to a present shortage of high quality paper in the primary market.

William Lyon down

Back among the existing bonds, William Lyon's 7½% notes due 2014 were being quoted at 89 bid, 90 offered, down three points on the session. Its 10¾% due 2013 were likewise three points lower at 107 bid.

A trader noted the Newport Beach, Calif.-based homebuilder's plans to go private under the command of its founder, chief executive officer and 48% owner, Gen. Lyon, and observed that it "will take a lot of cash to buy up the shares" that Lyon doesn't already have, "and that's got to be bad for bondholders."

But what's bad for bondholders is, in this case, good for stockholders, and the company's New York Stock Exchange-traded shares jumped $10.73 (14.26%) to close at $85.98, on volume of 471,000 shares, more than five times the usual activity in that name.

Calpine down further

Elsewhere, Calpine "was down sharply," a trader said, noting no particular fresh negative news out about the troubled San Jose, Calif.-based energy generation company. But with Calpine's NYSE-traded shares also on the slide, "the bondholders got nervous, thinking 'maybe someone knows something.' People were looking to get out."

Calpine's bonds had slid badly last week and earlier this week, with the carnage fueled by all kinds of rumors that Calpine had missed, or was about to miss, payment on a particular series of debt, or even that it was expecting to file for Chapter 11. Calpine management on Monday did something it normally wouldn't do - its executives addressed the market rumors, denying any intention of filing for bankruptcy, and saying that the company was meeting all of its legal and financial obligations.

That seemed to quiet the junk market down on Tuesday, when the bonds were seen little changed from Monday's levels. But on Wednesday, they were sliding back down with a vengeance.

At the opening of the market, its benchmark 8½% notes due 2011 were at the same 52 bid, 54 offered level at which they had ended the previous session. But by the end of the day, those bonds had swooned to 48.5 bid, 49.5 offered. "It wasn't pretty," the trader said, with no small degree of understatement.

Calpine's 8¼% notes scheduled to come due this August were seen down three points to 87 bid, 89 offered.

Its shares meantime down 14 cents (7.29%) by day's end, dipping to $1.78, on volume of 23.1 million, nearly three times the usual level.

Visteon lower after earnings

On the earnings front, Visteon's 8¼% notes due 2013 were seen having lost three points after the company reported a first-quarter net loss of $188 million ($1.49 per share) - a sharp reversal of its year-earlier net income of $20 million (16 cents a share). On account of the big net loss, EBITDA fell to $37 million in the latest quarter from $219 million a year earlier.

On a conference call following the release of the notes, company executives noted that recently announced financial agreements between Visteon and its former corporate parent and still largest customer, Ford Motor Co., had a positive effect on the company's cash position; however, they also pointed out that Visteon is still in talks with Ford on a wide-ranging permanent restructuring - and that while that is still pending, they will have to take steps to refinance a revolving credit facility coming due in June on less-advantageous terms (see related story elsewhere in this issue).

Maytag mixed

Washing-machine maker Maytag's bonds were "all over the place today" at generally lower levels, after Moody's lowered the company's ratings to junk, completing its fall from investment-grade grace.

Maytag's 5% notes due 2015 - which had been inexorably sliding for several sessions ever since first Standard and Poor's and later Fitch cut it to junk - opened the session at 81 - but then traded as low as 77 bid, 78 offered, before ending around 79 bid, 80 offered.

A market source said most of the really lower quotes came from odd-lot trading in the afternoon, but he said there was no way to put an accurate level on it.

Earlier in the week, he said, the bonds had traded at 82 bid 83 offered, and were above 84 as recently as Friday.

Standard & Poor's, in its recent message downgrading Maytag to BB+ from BBB- previously, cited the appliance company's "weakened operating and financial performance and our expectation that the company will continue to struggle as it attempts to restore market share in its floor care and home appliance businesses."

It added that it expects that management "will remain challenged to improve profit margins in the near term, given highly competitive industry conditions, and high raw material and distribution costs amid industry volume growth, which is expected to be modest in 2005. "

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