Warner Chilcott prices smaller deal; auto names lower on GM warning; funds see $265 million outflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 13 - Warner Chilcott Corp. was heard by high-yield syndicate sources to have priced an offering of 10-year senior subordinated notes Thursday - but not without having first downsized the new deal from the originally planned $750 million. Also on the new-deal front, CMS Energy Corp. powered up a quickly shopped $100 million bond offering.

In secondary dealings, a traders saw Kraton Polymers LLC's bonds off several points. Automotive names were also lower, as one of the supplier sector's major customers, General Motors Corp., issued an earnings warning.

And after trading wrapped up for the last full session of this week, ahead of Friday's early pre-holiday close, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday $265 million more left the junk funds than came into them.

That more than offset the $138.7 million outflow seen in the previous week (ended Jan. 5), and resumed the losing trend that had prevailed ever since mid-November. In that time, outflows have been seen in seven weeks out of eight, totaling $838.796 million, according to a Prospect News analysis of the AMG figures.

So that this year, outflows and inflows have each been seen in one week - but net outflows total $126.3 million year-to-date, according to the analysis. Last year saw a total cumulative outflow of $3.26 billion, according to Prospect News's calculations.

The numbers measure only those funds that report on a weekly basis, and exclude distributions.

One sell-side source contended late Thursday that the negative $265 million flow did not amount to much.

"Set aside the fact that it is not a huge number," the source said, "these funds flow numbers just have not been telling us very much about how much cash is out there that needs to be put to work, because there is definitely still cash out there."

Overall the primary market produced a respectable amount of news during the Thursday session which saw $875 million of business priced in three trances - two of them drive-bys.

And the European high-yield market turned out a conspicuous amount of news as Irish containerboard company Jefferson Smurfit Group announced a €670 million equivalent offering that it expects to price in two tranches on Friday and British Energy plc showed up with a £550 million offering that it expects to price early next week.

Meanwhile the abbreviated Friday session - shortened because of the pending three-day weekend as the markets will close Monday to observe Dr. Martin Luther King, Jr. day - figures to be totally dominated by euro-denominated issuance.

Warner Chilcott prices on top of talk

The largest of Thursday's three completed deals came from U.K.-based branded pharmaceutical manufacturer and marketer, Warner Chilcott Corp. which priced $600 million of 10-year senior subordinated notes (Caa1/CCC+) at par to yield 8¾%, on top of the 8¾% area price talk.

Credit Suisse First Boston, Deutsche Bank Securities and JP Morgan ran the books for the acquisition financing.

When the new Warner Chilcott 8 ¾% senior subordinated notes due 2015 were freed for secondary dealings, several traders saw the new bonds having risen to 100.75 bid, 101.25 offered from their par issue price earlier in the session.

One sell-side source not involved with the Warner Chilcott transaction observed, while mulling the terms of the deal, that acquisition financings figure to increasingly be the driving force behind new issuance.

"In 2003 approximately two-thirds of the new issuance was driven by debt refinancing," the source said. "In 2004 about 50% was debt refinancing.

"We are looking for that percentage to continue to drop in 2005."

Drive-bys from LIN, CMS

Although Warner Chilcott, which had been marketed via an investor roadshow, was Thursday's biggest deal, two of the session's three transactions were drive-bys.

LIN Television priced a quick-to-market $175 million add-on to its 6½% notes due May 15, 2013 (existing ratings B1/B) at par resulting in a yield of 6½%, wide of the 6¼% area price talk.

JP Morgan and Deutsche Bank Securities ran the books for the debt refinancing deal from the Providence, R.I.-based TV station owner-operator.

The original $200 million issue priced at par on May 5, 2003.

And CMS Energy priced a quick-to-market $100 million issue of 6.3% seven-year senior notes (B1/B+) at 99.823 to yield 6.331%.

Citigroup and Deutsche Bank Securities ran the books for the debt refinancing deal from the integrated energy company which is headquartered in Dearborn, Mich.

European issuers with quick-to-market deals

Two European companies showed up Thursday with bond deals that are expected to be completed before the middle of the coming week.

Jefferson Smurfit Group plans to price two tranches of high-yield bonds on Friday.

Price talk is 7½% to 7¾% for JSG Funding plc's €370 million equivalent of 10-year non-call-five senior subordinated cash-pay notes (Caa1/B-), offered in dollars and euros. Proceeds will be used to refinance debt.

Meanwhile price talk is 11½% to 11¾% for JSG Holdings plc's €300 million of 10-year senior PIK notes (Caa2/B-), which will become callable after two years at 102, with the call premium declining annually thereafter to 101 and to par. Proceeds from the PIK notes will fund a distribution to shareholders.

Deutsche Bank Securities and Citigroup are joint bookrunners for the deal from the Dublin, Ireland-based integrated manufacturer of containerboard, corrugated containers and other paper-based products.

Elsewhere price talk is 7% pricing at par for British Energy Holdings' £550 million offering of senior notes due March 21, 2022 (Ba3), which is expected to price early next week via Citigroup.

The U.K. electricity producer will use the proceeds to facilitate its corporate restructuring.

A euro-denominated dominated Friday

In addition to the above-mentioned Jefferson Smurfit tranches, the only other business scheduled for Friday's abbreviated session is also euro-denominated.

Price talk is 7½% to 7¾% on Athens, Greece-headquartered Fage Dairy Industry SA's €120 million of 10-year non-call-five senior notes (B1/BB-), expected to price Friday morning in London via Citigroup.

And one for the road

Finally, one roadshow start was heard during the Thursday session.

Evansville, Ind. wheel-maker Accuride Corp. is preparing to run a Jan. 19 to Jan. 25 roadshow for its $225 million of 10-year senior subordinated notes (existing ratings Caa1/CCC+).

Lehman Brothers, Citigroup and UBS Investment Bank are bookrunners for the acquisition-related deal.

Kraton down

Back among the existing issues, a trader saw Kraton Polymers' 8 1/8% notes due 2014 as having fallen to 102 bid, 103 offered from prior levels around 105 bid, 106 offered.

However, he said he had seen no news out on the Houston-based chemical company that might explain the drop.

Auto names drop

Elsewhere, he said, automotive names were mostly spinning their wheels, after General Motors warned that it expects earnings this year to fall due to lower profits at its financial services unit and a $1 billion rise in health-care costs. The auto giant projected that 2005 per-share earnings would drop to between $4 and $5 a share, excluding any one-time items. Analysts on average are looking for GM's earnings this year to total $4.91 a share, down from an estimated $6.31 for 2004.

That helped to grease the skids under the junk automotive names, with the trader quoting Dura Automotive's 9% notes due 2009 as having come in to 96 bid, 97 offered from levels at the start of the year around par. At another desk, Dura's 9s were quoted down a point on the day at 96.25, while its 8 5/8% notes due 2012 were seen having dropped to 102.75 bid from 103 earlier.

Also in the automotive sphere, the trader saw Collins & Aikman Products Corp.'s 10¾% notes due 2011 having dipped half a point to 101.5 bid, 102.5 offered, while its 12 7/8% notes due 2012 were a point lower at 86.5 bid, 87.5 offered.

And he saw Dana Corp.'s 6½% notes due 2009 half a point lower at 104.25 bid, 105.25 offered. Another market source saw Dana's 7% notes due 20128 drop all the way to 98 from 100.5 bid, while its 6½% notes due 2008, like the 2009s, lost half a point, to 104.5.

Dana, a Toledo, Ohio-based maker of automotive components for the Big Three and other car manufacturers, said at an analysts' conference Thursday that while it anticipated a $500 million gain in sales this year and per-share earnings at least even, if not somewhat better than 2004's, it would keep a wary eye on escalating steel prices, which cut heavily into its 2004 results, to the tune of $70 million of costs, and which promise to add at least $30 million more to production costs this year (see related story elsewhere in this issue).

Among other auto-linked names, Goodyear Tire & Rubber's 7.857% notes due 2011 were half a point off at 101, although a source said that "other than that, nothing" in the Akron, Ohio-based tiremaker's bonds.

He saw TRW Automotive's 11% notes due 2013 a point lower at 119, although he also saw Tenneco Automotive's 10¼% notes due 2013 actually up a quarter point at 117.25.

Another vehicular name that was not lower, the trader said, was Tower Automotive, whose 12% notes due 2013 ended the day up half a point at 80 bid, 83 offered, although he observed that the company's bonds were well off their peak levels of the day at 81.5.

Weaker credits lose ground

Outside of the automotive sector, the trader said that "a lot of the really speculative names, the CCCs, are taking gas." Also in this category, he said, were the airlines, and Level 3 Communications Inc., whose bonds "have been coming in every day," despite a lack of fresh negative news about the Broomfield, Colo.-based telecommunications company.

He saw its benchmark 9 1/8% notes due 2008 at 79 bid, 81 offered, "down two points on the day - and down eight points on the week."

In general, the trader said, "there was a little activity in the morning, not much, and then it really got quiet, with stocks getting murdered and all. It was difficult for anybody to get momentum.

He also noted Friday's short day (a 2 p.m. ET close ahead of the Martin Luther King holiday weekend, which will shutter U.S. financial markets Monday).

Another trader characterized Thursday's session as "more of the same - just very lethargic trading. There were people doing a lot of paperwork, I believe, and watching stocks having a bad day - the worse day of the year so far."

GM's bad news helped to push the Dow Jones Industrial Average down 111.95 (1.05%) to 10,505.83. The Standard & Poor's 500 index lost 10.25, (0.86%) at 1,177.45, and the Nasdaq composite index fell 21.97 (1.05%) at 2,070.56.

The first trader said that the junk market in general "has been a little sloppy this week and thus far this year, so some of the buying enthusiasm that we had finished the [2004] year with has definitely dissipated."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.