Belden CDT prices; WCI up on Icahn offer; sub-prime problems roil market

By Paul Deckelman and Paul A. Harris

New York, March 13 - Belden CDT Inc. was heard by high yield syndicate sources to have priced a $150 million offering of 10-year notes on Tuesday. The new deal moved up modestly when it was freed for aftermarket trading.

Among established secondary market issues, WCI Communities Inc. bonds moved up, helped by the news that billionaire investor Carl Icahn will be launching a tender offer to acquire the 85.4% of the Bonita Springs, Fla.-based homebuilder that he does not already own.

Other home builder bonds, however, such as Technical Olympic Corp. and K. Hovnanian Enterprises, were seen on the downside, hurt by the continued turmoil in the sub-prime lending sector

Overall, against a backdrop of falling stock prices, with the Dow Jones Industrial Average down nearly 2% on Tuesday, sources marked junk lower.

A source from a hedge fund, who commented that the drop in stock prices is likely a continuation of the global stock sell off that got underway in late February, had the CDX 100 closing Tuesday at 101.625 bid, 101.75 offered after having closed Monday at 103.0 bid, 103.125 offered.

Belden at the tight end

Meanwhile the Tuesday primary market session saw terms emerge on a single issue.

St. Louis-based Belden CDT Inc. priced a $350 million issue of 10-year senior subordinated notes (Ba2/BB-) at par to yield 7%, on the tight end of the 7% to 7¼% price talk.

Wachovia Securities ran the books for the acquisition and general corporate purposes deal.

The company designs, manufactures and markets high-speed electronic cables, connectivity products and related items.

A source close to the deal said that it went well.

Taking note of Belden's four-B credit ratings, the source added that demand remains strong for higher quality paper, and asserted that on the buy-side there is still plenty of cash to put to work for the right deal.

Junk a relative outperformer

A high yield mutual fund portfolio manager, meanwhile, said that the new par-pricing Belden bonds traded up to 100.50 bid, 101.0 offered.

This investor also noted that late Tuesday the books were closing on the massive, restructured $6 billion three-part offering of senior notes (B2/B+) from Freeport McMoRan Copper & Gold Inc. - a deal that is expected to price on Wednesday.

On Monday the Phoenix-based mining company talked its tranche of eight-year fixed-rate notes at 8% area, its tranche of 10-year fixed-rate notes to price 12.5 basis points to 25 basis points behind the eight-year notes, and added a tranche of eight-year floating-rate notes which it talked at Libor plus 300 to 350 basis points.

JP Morgan and Merill Lynch & Co. are joint bookrunners for the acquisition financing which, according to market sources, will break the issuance record set late last year when Firestone Acquisition Corp. (Freescale Semiconductor Inc.) completed its $5.95 billion bond sale.

The portfolio manager said that with equities down and bonds off a little on Tuesday, it might take some of the froth out of the Freeport deal.

"But it's a good company and a big liquid deal," the investor asserted. "It should do pretty well.

"Maybe they will price it in the middle or on the cheap end of price talk."

The buy-sider went on to say that sources were marking junk down ¼ point to as much as a whole point on Tuesday.

However, the investor said, against the backdrop of a 2% percent decline in stock prices, even if junk did end the session a point lower it would represent a relatively strong performance.

The other megadeals

Meanwhile no hard news surfaced Tuesday on TRW Automotive Holdings Corp.'s $1.5 billion equivalent three-part offering of notes (Ba3//BB-).

The quick-to-market deal was announced on Monday, and some sources had been looking for terms to emerge on Tuesday.

The Livonia, Mich., parts supplier to the automotive industry has talked a $675 million tranche of seven-year senior notes at a yield in the 6 7/8% area and a €250 million tranche of seven-year senior notes at the 6 3/8% area.

The company also talked a $500 million tranche of 10-year senior notes at the 7 1/8% area.

Lehman Brothers, Banc of America Securities, Deutsche Bank Securities, Goldman Sachs & Co. and Merrill Lynch & Co. are joint bookrunners for the debt refinancing.

Also in the market with a megadeal expected to price before the end of the week is Hawker Beechcraft Corp., with a $1.2 billion four-part offering of notes (B-) via Goldman Sachs & Co., Credit Suisse, Citigroup and Lehman Brothers.

Belden rises in trading

When the new Belden CDT 7% senior subordinated notes due 2017 were freed for secondary dealings, a trader - who said the deal had been "well over-subscribed" - saw the new bonds at 100.5 bid, 101 offered.

He said that he had not seen any actual trading in the Street in the new issue. He said "a lot of accounts got cut back" in their allocations of the new bonds. "A lot of people said 'I'm not going to chase it here - but if it gets down to issue [price], I'll buy it. So there seems to be buyers in the wings - unless the market falls apart [Wednesday]."

The trader also saw Asbury Automotive Group Inc.'s new 7 5/8% notes due 2017 quoted at 100.25 bid, 101 offered, up a bit from their par issue price on Monday. But he said that at $150 million it was "a small issue, and didn't trade."

Meantime, Smurfit-Stone Container Corp.'s new 8% senior notes due 2017, which priced at par on Monday and which were then seen little changed on the day, were struggling Tuesday. "They were weaker off the bat," the trader said, quoting them going home at 99.25 bid, 99.75 offered.

At another desk, a trader saw the new Asburys at 100.375 bid, 100.75 offered, while the Smurfit-Stone bonds were at 99.25 bid, 99.5 offered.

"All about the stock market"

"It was all about the stock market today," the first trader said in assessing the day's events in the junk secondary arena, "the whole thing with the sub-prime lenders."

He said that generally, "anything that wasn't related to sub-prime, like housing, was off ½ point, maybe a point in spots."

He estimated that "the derivatives market," where CDS contracts trade, "was probably leading the way, with more selling there, because I did not see people [in the cash junk bond market] saying 'we have to sell this, or sell that.'" He added "as a matter of fact, there were some bid [wanted] lists out, and we got some pretty good bids on it."

He noted that "the last time the [junk] market had a healthy drop in the equities market, guys were hitting bids in the high-yield market, and they were shorting paper - and when the selling didn't materialize, they were out there trying to cover shorts in a hectic fashion as well." Right now, he continued "we're kind of lagging the rest of the world for the time being. I haven't heard any rumors of money coming out of the market and forcing any sales. With a few exceptions, it was pretty quiet. We'll see how it opens [Wednesday]."

WCI gains on Icahn bid

A trader saw WCI Communities 9 1/8% notes "trading up" on Carl Icahn's $22 per share offer to take the company private for about $1 billion. He saw those bonds trading as high as par during the session before going home at 98, up a point on the day.

Icahn, who increased his stake in the company in January, said in February that he and nine others would seek seats on WCI's board. He said he wanted to hold talks with the company on unlocking greater shareholder value.

Hovnanian, Technical Olympic move lower

But while WCI Communities' bonds were enjoying the attention they were getting from investors on the Icahn news, elsewhere in the sector, things were not so rosy, as the market eyed the continuing near-collapse of the sub-prime lending sector, and its fallout on such housing names as Hovnanian and Technical Olympic.

Red Bank, NJ-based Hovnanian by some estimates does as much as one-fifth of its business with sub-prime borrowers. Investor worry about such exposure was the likely catalyst behind the 2¼ point fall of its 6 3/8% notes due 2014, which eased to 91.5 bid.

Technical Olympic tumbles

Technical Olympic USA's bonds were batted around on Tuesday, particularly as Moody's Investors Service lowered the Hollywood, Fla.-based homebuilder's ratings, citing the challenging environment it will face this year.

Those bonds had already been weakening over the past few sessions, and continued on that downward path Tuesday. A market source saw its 7½% notes due 2015 at 79.5 bid, down about 2 points from where they had finished on Monday, in fairly active size trading, while its 9% notes due 2010 were down about a point net-net on the day at 99.5, although at one point they were quoted as low as 96.

The company's 10 3/8% notes due 2012 were seen having gyrated between 89.5 bid and 91, before going out at the latter level, the source indicated.

However, a trader said that the bonds finished around 89.25, "about where they where when they closed [Monday] night." Also steady were its 7½% notes due 2011, at 84 bid.

Technical Olympic is seen as vulnerable to the crisis affecting lenders who write mortgages for borrowers whose credit is less-than-sterling, since the Hollywood, Fla.-based company builds homes in the $200,000-300,000 range - relatively cheap by today's standards in most market - and, a trader said Monday, "that's where the subprime problems are coming."

Technical Olympic is seen as vulnerable to the crisis affecting lenders who write mortgages for borrowers whose credit is less than sterling, since the company builds homes in the $200,000-$300,000 range - relatively cheap by today's standards in most market - and, a trader said Monday, "that's where the sub-prime problems are coming."

Sub-prime borrowers constitute a relatively small portion of the people who take out mortgages and buy homes in the United States - but they function as sort of a canary in mineshaft, since problems with this group of borrowers, such as rising foreclosure rates (new data show these surged in last year's fourth quarter), show up at the first signs of economic sluggishness and may be a harbinger of problems for the larger mortgage and housing industries. Those in turn are viewed as key contributors to the overall health of the economy.

Troubles in the sector caused stocks to slide on Tuesday on news that New Century Financial Corp., the most troubled name in the group, and such other lenders as Accredited Home Lenders Holding Co. and GMAC's residential unit are facing financial problems.

Against that backdrop, Moody's lowered Technical Olympic's ratings Tuesday, dropping its corporate family rating to B2 from B1, its senior unsecured notes to B3 from B2, and its senior sub debt to Caa1 from B3, all with a negative outlook.

The agency said that the downgrades were triggered by "the challenging covenant compliance environment that TOA faces in 2007, even absent additional debt from a possible settlement with the lenders of its Transeastern joint venture."

Moody's cited what it called the "increasing likelihood" that TOA will take on additional debt as a result of a possible resolution of the Transeastern issue, as well as a land supply that exceeds seven years; and difficult market conditions exacerbated by the company's heavy Florida concentration.

Moody's expects that the company's earnings will continue to decline in 2007, even after excluding land impairment and option abandonment charges. This will put "continued pressure on related credit metrics, particularly interest coverage, gross margins, and return on assets. In addition, adjusted debt leverage, already somewhat aggressive, is likely to rise as a result of a possible conclusion of the difficulties at Transeastern - a troubling development at this stage of the homebuilding cycle," Moody's concluded.

Fremont General pushed lower

Another name in the troubled sub-prime sector, Fremont General, was seen lower, with a trader quoting its 7 7/8% notes due 2009 down 2 points on the session at 87.375 bid.

At another desk, the Santa Monica, Calif.-based financial services company's bonds were seen down a point at 88 bid on top of a 2 point drop on Monday.

Although Fremont is not as badly off as New Century, which seems to have emerged as the reluctant poster child for the industry's implosion, its shares have lost have their value this year and were down another 8% on Tuesday. A trader noted that the bonds had fallen into the upper 80s from levels late last week around 91, "and in around mid-February they still were at par."

The company said last week that it had received expressions of interest in its troubled sub-prime unit from as many as a half-dozen potential buyers.

Carmakers in breakdown lane

The troubles of the sub-prime business, and of mortgage lenders generally, are also raising red flags for other credit-dependent economic sectors, such as automobiles, since for most people, a car is the second-largest purchase that they make - and finance with borrowed money - after their homes.

And when an automotive financier also is involved in sub-prime mortgage lending it's a double whammy.

That's the case with GMAC, which is not only the largest automotive lender in the nation, but also plays a sizable role in sub-prime, through its Residential Capital Corp.

That relationship has made bondholders nervous - GMAC debt was among the most actively traded on Tuesday, moving to the downside.

A distressed-bond trader saw its bonds "down a couple of points," with its 8% notes due 2031 two points lower at 109 bid, 110 offered, and its 6¾% notes due 2014 and 6 7/8% notes due 2011 each down a point, at 99 bid, par offered and par bid, 101 offered, respectively.

He also saw parent GM's benchmark 8 3/8% notes due 2033 falling 2 points to 91 bid, 92 offered.

Another source saw the GMAC 8s down a point at 110 bid - after dipping as low as 107 during the session - while the 6 7/8s were down 1¼ point at 100.5 bid.

GM - which delayed the scheduled March 1 release of its fourth-quarter numbers - is expected to announce them on Wednesday, and has indicated that it will post its first quarterly profit in two years.

GMAC also said on Tuesday that GM would give it a $1 billion infusion by the end of the first quarter to help the lender shore up its balance sheet under the terms of last year's spin off of 51% of the company to an investment group led by Cerberus Capital Management.

GMAC further cautioned that its results would likely be affected by "continuing pressures in the U.S. mortgage sector."

GM's problems carried over and dragged Ford's bonds lower Tuesday, even though Ford - which has enough problems of its own already - lacks the exposure to the sub-prime mortgage industry that GM at least indirectly has.

Ford's 7.45% notes due 2011 were seen by one market source to have fallen as much as 5 points on the day to 77.75 bid. At another desk, though, a trader saw the Ford bonds starting the day from a lower level and ending down 1½ points at 77 bid, 77.5 offered.

Ford Motor Credit Co.'s 7 3/8% notes due 2011 were down about a point at 98.

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