PHI, Basic Energy price upsized deals; Spectrum Brands continues retreat

By Paul Deckelman and Paul A. Harris

New York, April 7 - Spectrum Brands Inc.'s bonds - which got clobbered on Thursday - continued to head south on Friday, market participants said, in the wake of the Atlanta-based battery maker's lowered guidance, which in turn has raised red flags with the major credit rating agencies.

On the upside, Delphi Corp.'s bonds were seen better, as the bankruptcy court overseeing the Troy, Mich.-based automotive electronics manufacturer's restructuring gave its OK to the company's plan to offer buyouts to thousands of hourly employees as it tries to cut itself down to a more financially manageable size.

In the new deal arena, upsized offerings were heard to have priced for PHI Inc. and Basic Energy Services Inc. Out of Europe came word that Spanish gaming operator Grupo Codere had priced a euro-denominated add-on-deal - also upsized. Those pricings topped off a busy week on the primaryside, which included the pricing of scheduled calendar deals for issuers like AutoNation Inc., Hughes Network Systems LLC, MultiPlan Inc. and Burlington Coat Factory Warehouse Corp., as well as quickly-marketed "drive-by" deals for the likes of Level 3 Communications Inc. Owens & Minor Inc. and Technical Olympic USA Inc.

Still, Friday's primary market labored against a backdrop of weakness in both the stock and Treasury markets, and against the mere fact that players seemed ready - and then some - for the week to end.

"There was not much activity," one senior high-yield syndicate official commented.

Spotting the 10-year Treasury closing at 4.98%, the source added that on Friday Treasuries had been moving the wrong way for issuers and equities had been moving the wrong way for everybody.

Add to that the fact that it was a Friday, the source said, you were left with a blend of elements that made a less-than-ideal setting for the market.

During the session two dollar-denominated tranches were priced from two issuers, totaling $425 million. Both were upsized and both came in the middle of price talk.

Basic Energy, PHI terms

UBS Investment Bank led both of Friday's deals.

Basic Energy Services Inc. priced an upsized $225 million issue of 10-year senior notes (B1/B) at par to yield 7 1/8%, in the middle of the 7% to 7¼% price talk. The deal was increased from $200 million.

The Midland, Tex., well site services provider will use the proceeds to repay bank debt related to acquisitions and for general corporate purposes.

Elsewhere Lafayette, La.-based helicopter services provider PHI, Inc. priced an upsized $200 million issue of seven-year senior notes (B1/BB-) at par to yield 7 1/8%, again in the middle of the 7% to 7¼% price talk. The deal was expanded from $150 million originally.

Proceeds are slated to repay debt and fund a fleet expansion.

One source with knowledge of both deals said that they had been well oversubscribed, and added that both had seen good two-way activity in the afternoon.

The official added that with both issues there had been some concession to the sell-off in Treasuries. However, the source said, despite the weakness in government paper investors who had orders in the books for Basic Energy and PHI going into the Friday session remained in the deals.

The source had both issues trading 100.125 bid, 100.25 offered at the Friday close.

"With the backup in Treasuries nobody wanted to be long much of anything going into the weekend," the source commented.

A $4.44 billion week

Tallying the two dollar-denominated tranches that priced Friday, the week came to a close having seen $4.44 billion in 12 tranches, compared to $3.75 billion of dollar-denominated issuance in 10 tranches seen during the final week of March.

Friday's business took the year-to-date dollar-denominated issuance to just over $36 billion in 94 tranches, as 2006 issuance now tops that of 2005 by dollar-amount. At the April 7, 2005 close the market had seen $31.7 billion price in 123 dollar-denominated tranches.

Codere comes on top of talk

Spanish gaming firm Grupo Codere also upsized its deal, terms from which emerged before the New York market opened on Friday.

The company priced an upsized €165 million add-on to its existing 8¼% senior notes due June 15, 2015 (B2/B) at 106.25 to yield 7.12%. The offering was increased from the initial size of €150 million.

The deal priced on top of the 106.25 price talk.

Credit Suisse had the physical books, while Morgan Stanley was the joint bookrunner.

In addition Grupo Codere priced a €135 million Euribor plus 750 basis points PIK loan at par via bookrunner Credit Suisse. Proceeds from the loan will be used to realign the company's shareholder base.

An informed source said that the order books for both the bonds and the loan were four-times oversubscribed.

For the bonds, the order book contained a diverse investor base that included 70 accounts.

Speaking at mid-day from Europe, the source spotted the Codere notes trading at 106.75 bid, 107.25 offered.

Avis Budget adds a floater

Also on Friday, Cendant Car Rental Group (Avis Budget)'s $1 billion multi-tranche bond offering (Ba3/BB-) was restructured with the addition of a $250 million tranche of eight senior unsecured floating-rate notes.

Meanwhile the sizes of both of the fixed-rate senior unsecured notes tranches have been set at $375 million apiece. Those include eight-year notes, which will come with four years of call protection, and 10-year notes, which will come with five years of call protection.

Price talk is expected to emerge early in the week of April 10, with pricing to follow soon thereafter.

JP Morgan, Deutsche Bank Securities, Wachovia Securities, Banc of America Securities and Citigroup are joint bookrunners for the debt refinancing.

The week ahead

In addition to the Avis Budget deal the April 10 week's business is expected to include Burlington Coat Factory Warehouse Corp.'s downsized $375 million offering of eight year notes (expected ratings Caa1/CCC+).

Of the original $500 million two-part Burlington Coat Factory deal, $135 million was shifted to the company's term loan, which was upsized to $900 million from $775 million. A proposed $200 million tranche of subordinated notes was abandoned.

Terms on the deal, which is being led by Banc of America Securities, Bear Stearns and Wachovia Securities are expected on Monday.

Elsewhere Brigham Exploration Co. is expected to price a $125 million offering of eight-year notes (Caa1/B-) via Banc of America Securities and Credit Suisse.

And Packaging Dynamics Corp. is in the market with a $150 million offering of 10-year senior subordinated notes (B3/B-) via Deutsche Bank Securities and Jefferies & Co.

PHI, Basic steady in trading

When the new PHI 7 1/8% senior notes due 2013 were freed for secondary dealings, a trader saw them pretty much straddling their par issue price, at 99.5 bid, 100.25 offered, and saw Basic Energy's new 7 1/8% seniors due 2016 anchored at their issue price, at par bid, 100.5 offered.

Another trader also saw those Basic Energy Services bonds trade into a 100.125 bid, and finish at par bid, 100.25 offered, on "better sellers." He opined that the issue - which priced at just 217 basis points over the comparable Treasury issue, was just "too tight, for a single-B oil [services] company."

He also saw PHI's new bonds at 99.875 bid, 100.25 offered.

Among the issues which had priced on Thursday, he saw the Hughes Network Systems 9½% senior notes due 2014 - which had priced at par and then moved up to 101.25 bid, 101.75 offered in initial aftermarket dealings - continuing to firm during Friday's session, ending at 101.625 bid, 102.125 offered.

Also up smartly were MultiPlan's new 10 3/8% senior subordinated notes due 2016, which priced late Thursday at par but were unseen in secondary dealings that session. By the close Friday, the bonds had moved up to 101.25 bid, 101.75 offered, although he observed that "those bonds weren't really active." Southern Star Central Corp.'s new 6¾% senior notes due 2016 were at par bid, 100.25 offered on Friday, he said, up a bit from Thursday's pricing at 99.704.

Another trader saw that latter issue trading on a spread versus Treasuries basis at bid levels equivalent to 180 bps over and offered levels at 175 bps over - a tightening from their pricing spread of 190 bps off Treasuries.

He meantime observed the MultiPlan bonds at 101.625 bid, 102.125 offered, saw the Hughes bonds at 101.375 bid, 101.75 offered, and the new Transcontinental Gas Pipe Line 6.40% notes due 2016 at a tight 100.125 bid, 100.375 offered.

Spectrum keeps dropping

Back among the established issues, it was another rough day for investors on Spectrum Brands' bonds and shares. On Thursday, the former had fallen about seven or eight points while the latter were in absolute free fall, losing nearly 28% of their value after the company released sharply lowered guidance.

On Friday, the downside ride continued, with Spectrum's 8½% senior subordinated notes down another 1½ points on the session to 83.5 bid, 84.5 offered, while its 7 3/8% subs due 2015 were down two points at 79 bid, 80 offered, a trader said.

At another desk, a trader said there was "definitely a lot of volume" in Spectrum on Friday, with the 81/2s ending at 84 bid 85 offered and the 7 3/8s at 80 bid, 82 offered, which he estimated was down around two points for each issue.

The shares meanwhile lost another 51 cents (3.29%) to close at $15 on the nose on volume of 3.6 million - a substantially reduced activity level from Thursday's debacle, but still five times the usual daily handle.

Spectrum's troubles began on Thursday when the company - probably best-known for its Rayovac batteries and its Remington electric shavers, warned that it would record second-quarter earnings of between zero and five cents per share - well down from its own guidance, released at the beginning of the year, which had called for earnings of between 35 cents and 40 cents per share, excluding special items. The revised guidance was also well below Wall Street's average estimates for 37 cents per share of income. Spectrum also revised its sales projections down to around $625 million, well below analysts' expectations of $654 million of revenues.

It was the third time since last fall that Spectrum had revised its guidance lower in the face of sagging sales of its flagship battery line.

The ratings agencies are clearly concerned about the company's deteriorating revenue and earnings picture. On Friday, Moody's Investors Service put Spectrum's credit ratings, including the Caa1 rating on its $1.05 billion of outstanding bonds, its B2 corporate family rating and B1 bank debt rating, under review for a possible downgrade.

Moody's noted that the company is seeking an amendment to its bank credit agreement, since the lowered earnings expectations mean that its leverage ratio of debt versus earnings is likely to exceed the maximum permitted by the facility's covenants (6.6 times at March 31, 2006.

The ratings agency further said that while it had already anticipated ongoing earnings pressure and potential covenant violations when it downgraded Spectrum's ratings to their current levels back on Jan. 30, "the current action reflects our concerns regarding the success of the company's new marketing campaign in the competitive North American battery market, its ability to control rising costs, and its accelerating restructuring spending, which may materially alter Moody's prior expectations for a stabilization of 2H06 operating performance and for significant free cash flow and debt reduction in FY06."

The Moody's move followed Thursday's announcement by Standard & Poor's cutting Spectrum Brands' corporate credit rating one notch to B- and warning that "as a result of the revised guidance reflecting continued poor operating performance, the company will need to further amend its bank facility in order to maintain access to its $300 million revolver."

The company said on Thursday that it will begin talks with its lenders due to the expected results, but does not expect any problems with liquidity or cash generation.

Delphi gains on buyout plan OK

Elsewhere on Friday, Delphi's bonds "moved up nicely," a trader said, in apparent anticipation that the U.S. Bankruptcy Court for the Southern District of New York would approve the company's plan, unveiled last month, to offer buyouts of up to $35,000 to 13,000 hourly workers represented by the United Auto Workers union.

He saw Delphi's 6.55% notes due 2006 start the day at 63.5 bid, 64.5 offered and then move up to 65 bid, 66 offered at the end of the day.

Another trader saw those Delphi notes move as high as 66 bid, 67 offered from 63.25 bid, 64.25 offered previously, and saw its 7 1/8% notes due 2029 also up more than two points on the session, at those same levels.

Late in the day, the wires crackled with the news that as expected, the bankruptcy court judge, Robert D. Drain, had given Delphi the green light to proceed with its plan, which was announced in mid-March in conjunction with an effort by Delphi's former corporate parent, General Motors Corp., to also reduce its expenses by offering buyouts to many workers. Besides its own buyouts, GM is funding Delphi's buyout program, which could cost as much as $455 million, and will also accept transfers of up to 5,000 additional Delphi employees back to GM, which owned Delphi until the latter's 1999 spinoff.

Delphi could further reduce its 34,000-person hourly workforce if it negotiates similar buyout deals with several smaller unions that represent about one-third of the hourly workers.

GM is trying to help Delphi out to keep the labor situation there from deteriorating any further; Delphi is GM's single biggest parts supplier, and GM does not want its problem child's woes to disrupt the steady flow of parts GM needs to keep up its production schedule. Separately from the GM-funded buyout deal, Delphi - after having failed to reach agreement with GM and the UAW on a consensual agreement to bring down its heavy labor costs - filed motions with the court seeking permission to void its union contract and to also junk certain parts supply contracts with GM, which Delphi claims are not profitable.

GM dips

Despite the good news coming out of Delphi, a trader said that GM's own bonds and those of its General Motors Acceptance Corp. financing subsidiary were lower, with GM's 8 3/8% notes due 2033 half a point lower at 70.5 bid, 71.5 offered. He also saw GMAC's 8% notes due 2031 a point lower at 93 bid, 93.5 offered.

"Not much was going on in autos," the trader said. "The sector has calmed down a bit" after the volatile trading seen last month.

He saw GM rival Ford Motor Co.'s 7.45% notes due 2031 half a point lower at 72 bid, 72.5 offered, while its Ford Credit 7% notes due 2013 were ¼ point off the pace at 87.25 bid, 87.75 offered.

Hayes Lemmerz firm

The trader saw the 10½% notes due 2010 issued by Hayes Lemmerz International Inc. up half a point at 82.5 bid, 84 offered, while another trader called the notes "pretty much unchanged, maybe a little better," quoting them at 83 bid, 84 offered. The company said Friday that it has taken a series of actions aimed at strengthening its competitive position, improving profitability and increasing long-term value for the company's shareholders.

Hayes Lemmerz' Nasdaq-traded shares were sharply higher on the news of the restructuring, rising 34 cents (13.82%) to $2.80. Volume of 1.222 million was more than six times the norm.

The Northville, Mich.-based supplier of automobile and truck wheels, brakes, powertrain, suspension and other parts said that it will cut its wage and benefit costs and consolidate its components operations into an automotive components group.

Hayes Lemmerz said that it is reducing the base pay for its workers in the United States by up to 7.5%, cutting company president and chief executive officer Curtis J. Clawson's salary by 10% and slashing the compensation paid to its directors by 20%. Clawson makes a reported $1.54 million per year. The company will also temporarily suspend its contributions to employee 401(k) plans and is restructuring its short-term incentive compensation plans for hourly and salaried employees.

It is also consolidating its suspension components business unit and its automotive brake and powertrain components business unit, creating a new automotive components group. By streamlining its organizational structure this way, Hayes Lemmerz expects to reduce its corporate and business unit staffs by about 45 employees and reduce related costs.

The pay cuts and unit restructuring are the latest in a series of steps that Hayes Lemmerz has announced in an effort to improve its finances in the face of reduced orders from Detroit's Big Three, in line with the automakers' own production cutbacks, and the general problems of the automotive parts supply industry.

In January, it strategically realigned its wheel business, combining its North American and international wheel business units into one global wheel group, resulting in a reduction of over 15% of its domestic workforce in the just-completed first quarter.

Last month, Hayes Lemmerz announced that it will rationalize its aluminum wheel production operations in the United States by closing its manufacturing facility in Huntington, Ind., and shifting its remaining production to the company's other aluminum wheel facilities in North America. That closure, which is expected to be completed during the current second quarter, will affect about 185 employees.

Hayes Lemmerz said that it expects all of the restructuring actions, including the wage and benefit reductions, to generate annual cost savings of at least $35 million.

The company also announced at the end of March that its lenders had agreed to amend its $625 million senior secured credit facility to favorably modify certain financial covenants.

It said Friday that it will continue its focus this year on improving free cash flow and controlling capital expenditures, which are targeted at less than $100 million. It expects sales for 2006 to be about $2 billion, primarily due to reductions in North American order volumes. That is below average Wall Street estimates of about $2.3 billion of sales. Adjusted EBITDA and free cash flow are expected to improve from last year's levels.

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