Michaels Stores slates $1.4 billion offering; Sea Containers gains

By Paul Deckelman and Paul A. Harris

New York, Aug. 16 - Michael's Stores Inc. was heard getting ready to be lining up a $1.4 billion mega-offering of bonds for pricing in September, a deal that would help fund the leveraged buyout of the Irving, Tex.-based art supply stores. It was the only real news to come out of Wednesday's otherwise quiet new-deal arena.

In the secondary market, the news that Sea Containers Ltd. plans to present a restructuring proposal to its creditors sometime in the next few weeks helped to push the troubled Bermuda-based maritime and railroad transportation company's bonds - particularly the close-in issues -up by several points.

Elsewhere, Dura Automotive Systems Inc.'s subordinated bonds continued to lose ground for yet another session - their third straight decline - as the market continues to evaluate the news that the struggling Rochester Hills, Mich.-based automotive components company plans a debt restructuring and has hired a turnaround specialist to help it evaluate ways of cleaning up its balance sheet.

Ainsworth Lumber Co. Ltd.'s bonds were lower after the Vancouver, B.C.-based forest products company outlined its latest financials with analysts on a conference call; the company's adjusted EBITDA plunged sharply during the second quarter from year-earlier levels.

A trader saw its 7¼% notes due 2012 at 75 bid, 77 offered, off as much as 2 points, although he reported that its 6¾% notes due 2014 were unchanged at 73 bid, 75 offered.

A market source at a different shop saw the 63/4s down about ½ point at 73.75 bid.

The company's chief financial officer and executive vice president acknowledged that lumber prices remain very weak, and the strong Canadian dollar continues to hurt sales in the United States and other export markets. However, they said that the company has more than adequate liquidity that will enable it to ride out any prolonged downturn in the sector, including an undrawn C$100 million asset-backed loan and the capacity to borrow additional funds, if need be (see related story elsewhere in this issue).

Simmons up on earnings

Also reporting earnings was Simmons Co., whose Simmons Bedding 7 7/8% notes due 2014 jumped to 96.25 bid from prior levels around 94 bid, 95 offered, while its zero-coupon notes due 2014 advanced to 69.75, a gain of 2 points on the day. The Atlanta-based mattress maker posted net income of $2.1 million on $241.2 million in sales for the quarter, a solid improvement from net income of $1.1 million on $208 million in sales in the second quarter of 2005.

The company said that net income for the second quarter was negatively impacted by $6 million in pre-tax expenses from the May refinancing of Simmons Bedding's bank credit agreement.

In the first six months of the year, Simmons had net income of $8.5 million on $447.1 million in sales, compared with a net loss of $1.1 million on $413.6 million in sales for the same period of 2005.

Sea Containers rises

Sea Containers' 7 7/8% notes due 2008 were seen pushing up to 92 bid from 90 7/8, while a trader at another desk saw its nearest maturity, the 10¾% notes slated to come due on Oct. 15, as the biggest winners, with a 3 point gain to 93 bid, 94 offered. "That was the most active, since it's due in two months," the trader said, while also seeing the 7 7/8s better by 1½ points at 92 bid, 94 offered.

Sea Container's bonds apparently got a boost from the news that the company plans to issue a restructuring proposal to key creditors in the next few weeks.

Sea Containers said in a filing with the Securities and Exchange Commission that it has determined that its conglomerate is overly complex, costly and cash negative and its capital structure is unsustainable. Sea Containers said a formal restructuring is necessary to optimize the company's value (see related story elsewhere in this issue).

News of the company's intention of presenting a plan to its bondholders and other creditors was a welcome tonic to soothe the nerves of investors who were jolted by its warning several days ago that Sea Containers not pay the principal on the $115 million of maturing 10¾% notes unless it will be able to pay its other notes maturing in 2008, 2009 and 2012 and all other unsecured creditors in full when due, and still also retain sufficient working capital.

Dura down again

Dura Operating Corp.'s subordinated 9% notes due 2009 - which have been falling steadily since Monday on market buzz, later confirmed, that that the troubled vehicle components manufacturer had hired a restructuring firm, stoking investor worries about a possible bankruptcy filing soon - were seen down several additional points on Wednesday.

A trader said "the subs were down another couple of points," quoting those bonds at 17.5 bid, 18.5 offered, down 2 points, while another trader saw them drop as far as 16 before coming off that low to close at 17 bid, 19 offered, which he called down a point on the day.

However, the company's 8 5/8% senior notes due 2012 continue to hang in in the upper 70s, with investors apparently believing that they will be OK in the event of a restructuring - while the holders of the junior bonds harbor no such illusions.

Dura on Tuesday confirmed news reports indicating the hiring of turnaround specialist Miller Buckfire & Co. LLP. A spokesman for the company said on Tuesday that it would be "premature" to take the hiring of the turnaround firm as a signal of a possible bankruptcy filing down the road - even though it has been involved in a number of high-profile Chapter 11 situations of late, and said the company is in no danger of defaulting on any of its obligations.

He further indicated that Dura is only looking to restructure its financial obligations and that such a restructuring would not include its trade creditors.

Xerox up in trading

Among recently priced issues, traders saw Xerox Corp.'s new 6¾% notes due 2017 pushed up to 100.25 bid, 100.25 offered, "rallying up," one said, after the Stamford, Conn.-based copier king's new issue priced at 99.35 on Tuesday and then finished out the day heard offered at par.

Broadview Networks Holdings Inc.'s new 11 3/8% notes due 2012 were seen having firmed to 101.5 bid, 102 offered. The Rye Brook, N.Y.-based telecommunications company's issue priced at par on Tuesday, and then broke out to 101 bid in initial aftermarket dealings.

TDS Investor Corp.'s (Travelport) new floating-rate notes due 2014, which priced Friday at par as part of a huge five-tranche deal but which but which then had trouble even trading up to that issue price after it was freed for aftermarket activity, were seen a little higher on the session at 99.75 bid, par offered, while the Chicago-based travel services provider's fixed-rate notes were also seen higher at 100.75 bid.

Irish telecommunications provider eircom's new euro-denominated floating-rate notes due 2016, which priced last week and then moved up, were higher by ¼ point Wednesday at 103 bid, 103.25 offered.

A good underpinning

Overall sources marked junk higher on Wednesday.

A high yield investor said that although not a lot of trading had taken place everything was being quoted up.

With more than a week having passed since the Federal Reserve's policy-making Federal Open Market Committee broke its sustained regime of interest rate hikes, pausing at 5¼%, Prospect News asked the investor whether the pause - or halt, as some would have it - seemed to be having an impact on the high yield asset class.

"It helped Treasuries," the source said, adding that the few ensuing economic numbers, such as the consumer price index, the producer price index and housing starts, seem to be indicating that inflation has been dampened somewhat.

"The economy is in great shape," this investor asserted.

"If you couple that with the Fed putting rate hikes on hold - and some people are starting to assume the Fed is done now for the rest of the year - you have a terrific underpinning for high yield."

Prospect News asked if this investor was anticipating a junk rally during the remainder of 2006.

"There is a lot of good news," the source responded, but added that a big forward calendar is expected after Labor Day, which could cause the market to reprice.

Also, the investor added, if the Fed does resume its rate tightening, high yield could come under pressure because leveraged companies will see the cost of raising funds increase.

Eyes on September

Meanwhile, as Wednesday's ultra-quiet primary market session wound down, a sell-side source marked junk an eighth of a point to a quarter of a point higher on the session, with the market enjoying a better tone.

The source also said that on the week through Wednesday's close junk was up three-eighths of a point or better.

When Prospect News pressed this source to produce just a shred of pre-Labor Day primary market news the sell-sider turned out empty pockets.

Drive-by deals are a possibility, even before the close of this week, the source said, but did not have any names.

Having said that, this source as well as others who have spoken to Prospect News recently said that the market is naturally beginning to focus its attention on September, when the new issue market is expected to begin ramping up.

The sell-sider said that one deal expected to be September business is Michaels Stores Inc.'s approximately $1.4 billion of high-yield bonds, now believed to be coming in the form of a half and half transaction split between senior notes and senior subordinated notes.

Deutsche Bank Securities, JP Morgan and Banc of America Securities LLC will lead the Irving, Tex., specialty arts and crafts retailer's LBO deal, the source added.

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