Dana up on accord with unions, investor; High Arctic deal scrubbed

By Paul Deckelman and Andrea Heisinger

New York, July 6 - Dana Corp.'s bonds were mostly seen better, albeit in fairly restrained trading, as the bankrupt Toledo, Ohio-based automotive parts company announced separate agreements with its labor unions and with a big investor willing to take a 25% stake in the restructured company.

It was one of the few news developments seen on a day which some market participants said was even slower and more boring than Tuesday's abbreviated pre-holiday session had been.

At least that session had seen considerable volatile activity in the bonds of troubled video rental chain operator Movie Gallery Inc. While there was still some residual trading going on in the name Friday, the activity level was way down, and prices moved within a relatively narrow range, at least versus the gyrations seen earlier in the week.

And traders saw little or no movement in the bonds of Bally Total Fitness Holding Corp., even though the problem-plagued Chicago-based fitness club operator's stock zoomed on the news that a group of big shareholders had presented the company with an alternative reorganization proposal.

Another one bites the dust

In the primary arena, one market source called Friday "very quiet."

Not only were no deals priced, or even announced, for that matter, but the only one on new-dealers' radar screens was pulled, seeming to follow the trend seen in much of the week in the primary market; only two deals were actually done, both of them emerging markets offerings.

A $130 million five-year bond deal from High Arctic Energy Services Trust was expected to price - but instead it was pulled.

However, there was one major difference between the Red Deer, Alta.-based oilfield equipment and services provider's deal and those of Servicemaster Co. - which postponed a $1.15 billion offering of eight-year senior notes earlier in the week - as well as the previous week's no-shows: the $1.1 billion deal from U.S. Foodservice Inc. and smaller deals for Magnum Coal Co. and Catalyst Paper Corp. which also ended up getting spiked.

While the other four deals all had blamed "market conditions" for their bailouts, High Arctic gave a different reason - it decided instead to go to the bank loan market instead.

"I am confident that we have a stable financial platform that allows us to pursue our long-term international growth strategy," Jed Wood, president and chief executive officer of High Arctic said in a statement.

Price talk for the bond deal had been 10¼% to 10½%. It was to have been brought to market by joint bookrunners SEB Merchant Banking and Swedbank.

Widens lead over 2006

Despite the low volume for the week, totaling $0.26 billion, it was more than the same period of 2006, which saw zero.

For the year so far, 2007 has seen $108.50 billion in 280 deals, 57.5% ahead of the $68.91 billion in 201 deals for the comparable period of the record-setting year of 2006.

Slow secondary seen

Back among the established issues, a trader - when appraised of the fact that it didn't look like very much was going on - concurred "not much going on is right."

He called the session "the slowest day of the week - even worse than Tuesday," when the debt markets officially closed at 2 p.m. ET ahead of the July 4th holiday, but in actual practice were pretty empty by noon.

He held out the hope that the upcoming week might be a little busier, noting "we'll see what's doing with the calendar," even though the summer months are traditionally the deadest time of the year for high yield, other than the year-end holiday lull.

He saw the widely followed CDX index of junk bond performance down 5/16 on the session at 96 7/8 - 97.

The big, normally busily traded automotive benchmark names "went out where they opened, with General Motors Corp.'s 8 3/8 notes due 2033 at 90 bid, 90.5 offered and arch-rival Ford Motor Co.'s 7.45% notes due 2031 hanging in at 79.75 bid, 80.25 offered.

Dana deals boost some bonds

While those OEM names were little changed, there was some activity in one of their larger suppliers - Dana Corp., which announced cost-cutting agreements with its two major labor unions, and an investment deal with a private-equity firm that will create two trust funds to pay retiree health costs.

The news sent the company's most widely traded bonds, the 5.85% notes due 2015, up to 98.5 bid, a 2½ point gain on the session, while its 7% notes due 2028, which were also seen busily traded, rose about 2 points on the day to just above the 102 mark.

Some other, less-traded bonds were actually seen a bit lower, like the company's 9% notes due 2011, which finished just above 103 bid - a ½ point gain from its opening, but a nearly 5 point fall from where they had been the previous week, the last time there had been significant trading in them. Its 7% notes due 2029, which had spent most of the day up slightly, around the 102-102.5 level, moved back down to a 99 context, down a point or two, by day's end.

Dana, which hopes to come out of Chapter 11 by the end of the year, announced that it had reached agreements with the United Auto Workers and the United Steelworkers unions on cutting costs - savings Dana said it had to have if it were to successfully come out of bankruptcy. The unions agreed to a package of measures which would, among other things, preserve the wage levels for incumbent workers - but which would cut new workers' starting pay to $14 per hour.

Those cuts and other changes will save Dana more than $100 million annually.

As part of the deals, the unions agreed to manage the two trusts which Dana is setting up to fund the healthcare expenses for the UAW and USW retirees. Dana will fund the trusts with the proceeds of a $500 million investment from Centerbridge Capital Partners LP, a private-equity firm, which will be given debt convertible into a 25% stake in Dana. Centerbridge will also arrange an additional $250 million in funding from other investors.

Establishments of the trusts will help Dana remove some $1.1 billion of retiree healthcare obligations from its balance sheet - a key step in the company's fight to return to solvency.

The arrangement is conditioned upon approval by the members of the two unions who work for Dana, and upon Dana filing a plan of reorganization incorporating the trust set up and the Centerbridge investment with the U.S. Bankruptcy Court for the Southern District of New York, which is overseeing the restructuring, by Sept. 3. The court must sign off on any such agreements.

Bally unmoved by alternate plan

Elsewhere, there was big news out on Bally Total Fitness - but the company's bonds were essentially unchanged on the session, with investors apparently unfazed by the news that the troubled fitness club operator had received an alternative restructuring proposal from a group of shareholders, even as Bally continues to solicit consents to its own previously announced, management-organized restructuring agreement. That company plan has received the backing of the holders of 63% of its 10½% senior notes due 2011 and from the holders of more than 80% of its 9 7/8% senior subordinated notes slated to come due on Oct. 15.

The sub bonds were seen holding steady Friday around the 97 level at which they had previously traded earlier in the week, while the seniors edged up ¼ point to just above 108, though on largely restrained trading volume.

However, the holders of Bally's nearly worthless over-the-counter-traded penny stock - who would be completely frozen out under the official company plan - reacted with enthusiasm to news of the alternative, boosting the shares 36.5 cents (82.95%), to around 80 cents, on volume of 4.5 million shares, well above the average turnover of around 1 million shares per day.

Bally said in a statement that it had received the proposed alternate Chapter 11 reorganization plan from current shareholders Liberation Investments, LP, Liberation Investments, Ltd., Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund LP. The company said that it is in talks with those shareholders and, subject to the execution of confidentiality agreements, will provide due diligence access to the shareholders

Bally said that the shareholders have agreed to complete their due diligence by July 20, after which they could present a more definitive version of their plan to the Bally board of directors for its review and consideration.

Bally meantime continues to solicit the official consents to its own plan from its noteholders in a consent solicitation scheduled to expire on July 27. Bally announced in early June that most of the holders of both of its series of bonds had agreed to support the company's plan, which would be implemented via a pre-packaged Chapter 11 filing. Under the terms of that plan, holders would swap their 9 7/8% notes for the restructured company's stock and $150 million of new subordinated toggle notes paying 11½% interest. Those toggle bonds would pay a 13% coupon if Bally elects to pay its coupon in kind. Current shares would be cancelled under the plan.

Although Bally is by far the biggest player in the health-club industry, with some 375 locations in 26 U.S. states plus international operations, and over 3 million members, its operations in recent years have been anything but robust, with the company forced to dispose of underperforming non-core assets, and its long-time chairman pushed aside last year under pressure from unhappy shareholders.

Movie Gallery moves around

A source saw Movie Gallery's 11% notes due 2012 trading in a 24-25 context for most of the session, with some fairly sizable blocks of bonds traded. While there were some odd-lot trades that lifted the bonds as high as 27 bid, where they stayed for a while in the afternoon, by day's end they had come back down to 24.

That capped off a wild week for the troubled Dothan, Ala.-based Number-Two U.S. video chain operator, whose bonds had begun the week trading just under 70. Those notes plunged steeply on Monday and Tuesday after the company admitted that it was in violation of some of its debt covenants on its senior credit facility, said it was in talks with its lenders for possible covenant relief or forbearance, and said it would explore strategic alternatives, possibly including the sale of the company.

Movie Gallery's larger rival, Dallas-based industry leader Blockbuster Inc. is affected by many of the same video-rental industry dynamics - although Blockbuster has aggressively moved into new areas, such as on-line rentals services, where Movie Gallery so far has not. Blockbuster's 9% notes due 2012 fell into the high 80s from the mid 90s on sector sympathy over several sessions - but ended the week quoted just below 91, up about 1½ points on the day.

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