Atlantic Express prices, Tenneco plans deal; Wilsons trades lower

By Paul Deckelman and Paul A. Harris

New York, April 16 - Atlantic Express Transportation Corp. was heard by high yield syndicate sources to have priced a relatively small two-part offering consisting of fixed- and floating-rate notes, although the pace of activity was seen considerably slowed from Thursday when half a dozen new deals - one for a cool $1 billion - put the equivalent of more than $1.5 billion into the hands of investors. Of perhaps more interest to primary market denizens - and secondary players as well - was Tenneco Automotive Inc.'s announcement that it plans to sell $400 million of new debt in a Rule 144A placement and then use those proceeds and those of an upcoming stock offering to buy back $500 million of existing high-coupon debt that becomes callable in October.

Those existing bonds were not much changed on the news, since they were heard trading at or near the anticipated call level already. Elsewhere in the secondary market, Wilsons The Leather Experts Inc.'s bonds, and especially, its shares, were pushed down on the news that the Minneapolis-based apparel retailer had to ask its lenders for - and receive - default waivers and covenant changes. The company is also still trying to line up $35 million in new equity investment and said it would delay filing its 10-K annual report with the Securities and Exchange Commission until April 30.

Another topic of conversation during a generally sleepy session was Lubrizol Corp.'s planned acquisition of Noveon International Inc., although market sources saw little movement in the latter's bonds and Standard & Poor's move cutting Lubrizol's debt ratings to junk came way too late in the session to affect trading in its bonds.

A quiet Friday session in the primary market saw one transaction completed, as Atlantic Express Transportation Corp. priced a $155 million notes and warrants deal.

Meanwhile Diane Keefe, portfolio manager of the Pax World High Yield Fund, confided during a conversation with Prospect News that the week of April 19 had been a tough one in junk land.

"Tuesday, the first day that the stock markets and Treasuries traded off really sharply, high yield kind of hung in there," said Keefe.

"But Wednesday high yield traded off a lot. And Thursday it was still somewhat on the weak side.

"It's challenging because the high quality companies trade off of the Treasury curve. And if rates are going up they can't tighten forever. So you have to consider cash, and reinvest in higher yields as they come along.

"But I'm not convinced that we've seen the last of a weak economy. A Fed governor was quoted Friday in the Wall Street Journal as saying he thought inflation was going to be under control for quite a while. I think he was telegraphing that the bad news on unemployment isn't quite over, even though everybody on Wall Street this week is jumping up and down."

As with most of the market sources who spoke to Prospect News throughout the week of April 19, Keefe said that declining prices in both equities and Treasuries caused a negative impact pretty much all along the high-yield credit spectrum.

However, she specified, lower rated junk seems to be faring slightly better at present than the double-B bonds.

"The Lehman Brothers High Vol index has been trading off less than the Lehman index for the higher quality paper," she said. "If you have a 9% coupon it's insulated more than a 7% coupon."

Characterizing the present circumstances in the U.S. economy as "uncertain," Keefe expressed the belief that junk investors would continue to be in the market, but would not necessarily demonstrate the craving for new paper that was seen in early 2004.

"Basically I think that real high-yield investors are selectively buying stuff, as the hedge funds try to position themselves," she said.

"This is a period of uncertainty. We don't know whether the numbers that have recently been coming out really mean that inflation is beginning to rekindle on the consumer products side or if there is really widespread pricing power taking hold in the economy.

"Right now the stream of numbers that are coming in suggest there is may be some justification for raising rates.

"But there was justification six months ago, in terms of the pressure on the dollar. But the administration had a policy of letting the dollar float. And it seems to have worked out because the dollar versus the euro is back down to around $1.19 per euro, whereas it had been around $1.29."

Atlantic Express completes units deal

Friday's sole transaction came from Staten Island, N.Y.-based school bus service operator Atlantic Express Transportation Corp. which sold $155 million of units comprised of four-year senior secured notes (B3/B) with warrants to purchase common shares of stock in the company.

The transaction came in two tranches: $115 million of fixed-rate notes, which priced at par to yield 12%, and $10 million of floating-rate notes, which priced at par to yield six-month Libor plus 920 basis points.

The fixed-rate notes had been talked at 12% with warrants. No price talk was available on the floating-rate tranche, according to an informed source.

Jefferies & Co. ran the books on the deal, proceeds from which will be used to repay debt associated with the company's bankruptcy reorganization and for general corporate purposes.

According to one market source the Atlantic Express Transportation deal had originally been announced on March 15, with pricing expected on March 26. However the roadshow was postponed while auditors reviewed the company's prospectus.

Talk on Charter's $1.5 billion

Price talk emerged Friday on Charter Communications Operating LLC/Capital Corp.'s upcoming offering of $1.5 billion of senior secured second lien notes in two tranches (B-), which are expected to price on Tuesday.

Talk is 8 1/8% area on the eight-year bullets. Meanwhile talk is 8 3/8% area on the 10-year non-call-five notes.

JP Morgan, Banc of America Securities, Citigroup and Credit Suisse First Boston are joint bookrunners on the massive debt refinancing deal from the St. Louis-based cable television and communications services provider.

Also heard during the session was price talk of 9¾%-10% on Curative Health Services, Inc.'s $185 million of seven-year senior notes (B3/B-), which are expected to price Tuesday morning via UBS Investment Bank.

Portfolio manager Keefe, whose Pax World High Yield Fund submits companies to social issues screens, said that she was having a look at the deal from the Hauppauge, N.Y.-based specialty pharmacy services and specialty healthcare services provider.

"My analyst went to the roadshow and was not really that impressed because they have to take out the preferred by 2005, which is kind of a pressure on short-term liquidity," Keefe commented, adding that she and her team were continuing to weigh their decision on the deal.

Finally on Friday Tenneco Automotive announced in a press release that it plans to sell $400 million of senior subordinated notes via Rule 144A.

The company also is planning to issue approximately $150 million of common stock via JP Morgan and Citigroup. No timing or structural details on the notes were not disclosed in the press release and the company did not return a Friday telephone call from Prospect News.

Midwest firmer in trading

A trader said that the Atlantic Express deal came too late in the session for any aftermarket activity.

Among other recently priced names, he said that Midwest Generation LLC's new 8¾% second priority senior secured notes due 2034 firmed a bit from both their par issue price Thursday and the 100.25 bid-level seen when the $1 billion of new bonds were freed later that session; he saw them going home Friday at 100.75 bid, 101 offered.

Extendicare Health Services Inc.'s new 6 7/8% senior subordinated notes due 2014 were meantime heard unchanged at 98 bid, 98.5 offered, although that is still up from their Thursday issue price at 97.5.

Unisys, Xerox drop

Back among the established issues, there was "not much to report," the trader said.

One feature he did see was some weakness in the bonds of Xerox Corp. and those of Unisys Corp.

The latter, a Blue Bell, Pa.-based information technology services and solutions provider, on Thursday reported that its first-quarter earnings slid to $28.9 million (nine cents per share), a 25% drop from year-earlier earnings of $38.5 million (12 cents per share), although the latest quarterly results were in line with Wall Street's expectations. The company put the blame for the decline on increased pension costs, which it said outweighed gains from its core technology services and hardware businesses.

Unisys' 6 7/8% notes due 2010 closed down half a point at 108 bid, 108.5 offered.

At the same time, the trader said, Stamford, Conn.-based copier and office machines giant Xerox's 7 1/8% notes due 2010 likewise lost a half, at 104.25 bid, 104.75 offered. On Friday, S& P affirmed the company's credit ratings - corporate credit and senior secured debt at BB- and senior unsecured at B+, but a negative outlook was continued across the board.

Noveon unchanged

The trader said that news of the Lubrizol-Noveon deal "certainly is good for Noveon," but said "you never see" the Cleveland-based specialty chemicals producer's bonds trade.

A market source quoted those 11% notes due 2011 unchanged at 114.

Lubrizol, a Wickliffe, Ohio-based chemicals maker, will pay $1.84 billion for Noveon - half of it in cash and the remainder in debt assumption.

That prospect does not sit well with the ratings agencies; S&P dropped Lubrizol's corporate credit and senior unsecured debt ratings a whopping six notches, to BB+, from prior levels at A+, and said it might lower them still further. The ratings agency expresssed concern that after the acquisition, Lubrizol will have a much higher debt-to-EBITDA ratio than before.

"The transaction results in a material reliance on leverage in the company's capital structure that is no longer consistent with management's history of conservative financial policies," S&P analyst Franco DiMartino warned in the downgrade message.

Moody's Investors Service decided to let Lubrizol keep its A2 rating, for now, but warned that it too might downgrade the company. Moody's, S&P and Fitch ratings all indicated that they might upgrade Noveon's single-B level ratings when it is absorbed into the more financially solid Lubrizol.

Lubrizol's 5 7/8% notes due 2008 were quoted at 108.98 - actually up slightly from prior levels at 108.676, although those levels don't take into account the S&P downgrade to junk, which came well after the market had wrapped up trading for the day. Its 7¼% notes due 2025 were likewise quoted above 115, but trading hadn't been seen for a while in that issue, a source said.

Wilsons lower

News that Wilsons Leather will delay its 10-K and has had to seek covenant default waivers from its lenders caused the leather coat retailer's 11¼% notes scheduled to come due on Aug. 15 to fall two or three points, a trader said, although he cautioned that this was against a backdrop of an overall pretty quiet market, and further noted that with only $48 million of the bonds still outstanding, "the issue is very illiquid."

He saw the Wilsons bonds having recently fallen to 97.125 bid from previous levels around 99, and saw them "down again" Friday, in reaction to the news, going home quoted at 95. At another desk, though, they were quoted unchanged at 96.875.

Wilsons' Nasdaq-traded shares meantime got pummeled, dropping $1.16 (33.14%) to $2.34 on volume of 3.5 million, more than 10 times the usual turnover.

Wilsons said that it entered into an agreement to amend its revolving credit facility, to waive defaults under previous EBITDA covenants, reset financial covenants for future time periods and remove the April 15 deadline to amend, refund, renew, extend or refinance the 11¼% notes.

Because the negotiations had not been completed before April 15, the date it was supposed to file its 10-K, Wilsons said it would file a notification of late filing with the SEC, planning on filing the report by April 30.

Wilsons further said that it remains in talks with potential equity investors, hoping to get $35 million in new cash.

The company added that if a definitive agreement is executed, Wilsons Leather's auditors will not be required to include in their report a warning about the company's ability to continue as a going concern.

Delta falls further

Also on the downside, Delta Air Lines Inc.'s bonds continued to lose altitude, a trader said, completing a rough week that saw the Atlanta-based carrier post a sizable first-quarter loss amid continued inability to get its pilots to make sizable wage concessions, and then saw its chief financial officer, M. Michele Burns, plan to leave the company at month's end, the second senior executive to depart in as many months. The trader saw Delta's 8.30% notes due 2029 drop to 51.5 bid, 52.5 offered from Thursday's levels at 54 bid, 55 offered.

AK Steel Corp.'s bonds were "fairly well bid for," a trader said, seeing the Middletown, Ohio-based steelmaker's 7 5/8% notes at 95 bid, up half a point, and its 7¾% notes at 92.5 bid, 92.75 offered..

Another trader saw the company's 7 7/8% notes due 2009 at 94 bid, 95 offered, up half a point, after the company announced plans to further cut debt by using a portion of its recent asset sale proceeds to take out about $62 million of bonds scheduled to mature in December.

Auto companies better

Tenneco Automotive's 11 5/8% notes due 2009 were being quoted Friday around the 108.5-109 area, the level at which they are likely to be taken out should the company call the bonds when they become callable on Oct. 15, but essentially unchanged on the session. A trader said this was nothing new - that for a while, the bonds have been "already trading to the call anyway."

The Lake Forest, Ill,-based auto parts maker - which announced plans for a $150 million stock sale and a $400 million bond issue - had indicated during a presentation last month at a Lehman Brothers conference that it would seriously consider taking out the bonds, once they became callable.

"It's not going to go much above [current levels], because it's already trading as a yield-to-call piece," he said.

The trader saw "all of those [junk-issuing automotive] companies" showing strength, no doubt encouraged by signs of a strengthening economy, which can only benefit auto sales and related economic areas.

Among the recent gainers, he said, were Goodyear Tire & Rubber Co., Collins & Aikman Products Co. and Mark IV.

The latter's 7½% notes due 2007 were seen having moved up to 94 bid from prior levels at 92.875, while Collins & Aikman's 10¾% senior notes were at 104 bid and its subordinated 11½% notes were at par, both up half a point on the session,

Goodyear "was leveling off, but they had a strong week," as the Akron, Ohio-based tire manufacturer announced the conclusion of an internal accounting probe and smaller-than-feared earnings revisions.

On Friday, he said, Goodyear's 8½% notes due 2007 were at 98 bid and its 7.857% notes due 2011 were at 86.5, both half a point better.

"The whole sector," he declared, "was definitely stronger."

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