Revlon bonds gyrate on earnings warning; VNU mega-deal details emerge

By Paul Deckelman and Paul A. Harris

New York, July 10 - Revlon Consumer Products Corp.'s bonds moved up and down Monday in what was - for mid-summer, anyway - relatively volatile trading, spurred by the New York-based cosmetics company's earnings warning. However, at the end of the day, those bonds were mostly seen little changed.

Radiologix Inc.'s bonds - which had zoomed on Friday in line with a big stock surge on news the Dallas-based medical diagnostic imaging company is to be acquired - were seen continuing to move up Monday, though nowhere near as dramatically.

From out of a generally quiet primary market came word that Dutch market research company VNU NV had outlined the details of its planned $1.67 billion equivalent offering of dollar- and euro-denominated notes, expected to launch this week. Another European issuer doing a dual currency deal, NTL Cable plc, was heard to have set plans for the roadshow for its upcoming offering. Back among the domestic issuers, El Paso Corp. announced plans for a half-billion of new five-year senior notes, while Mobile Storage Group Inc. was heard getting ready to hit the road to market an issue of eight-year notes.

Back among the secondary names, Revlon "was quoted around a lot," said a trader, who saw the company's bonds end up on the day from their opening levels. He saw the 8 5/8% notes due 2008 finish at 92 bid, 93 offered, up from opening levels around 90 bid, while its 9½% notes due 2011 closed at 86 bid, 87 offered, up from around 85 at the opening.

"The bonds didn't care about the news" of expected greater losses in the second quarter versus a year ago due to weakness in a key new product the company has been heavily promoting, he declared.

Another trader pronounced Revlon's bonds as "basically unchanged," with the 8 5/8s at around 92 bid, 93 offered, steady relative to where they had gone home on Friday though off their day's lows at 90-91. He saw the 91/2s get as low as 84 bid, 85 offered, "right after the news [of the earnings warning] but before their conference call," but come off those lows to finish at 86.5 bid, 87.5 offered, down half a point, after the call with analysts to explain the company's projections.

A market source at another desk said earlier in the day that the 8 5/8s were off about 2½ points at 91 bid, but by the day's end, he said that it had recovered a point of that to end at 92, down 1½ points.

Another source said that while the 8 5/8s had spent most of Friday around the 93 area, late that session there was a move upward to around 96.5. He thus saw those bonds fall nearly 5 points intra-day to 91.75 bid before recovering to end at 92.5 bid, which he called still a 3 point loss.

Revlon said that for the second quarter it anticipates adjusted EBITDA of negative $30 million versus positive adjusted EBITDA of $24 million in the second quarter of 2005, chiefly due to a negative impact on earnings of approximately $40 million related to the company's new Vital Radiance line of color cosmetics aimed at women over 50.

Its operating loss in the second quarter is expected to be about $55 million versus essentially break-even operating results in the second quarter of 2005, while the company's net loss is expected to grow to $95 million from its $36 million of year-earlier red ink.

Net sales in the second quarter are expected to be about even with year earlier sales despite an anticipated 8% rise in gross sales, as that gain will be largely offset by some $20 million of estimated returns by stores of Vital Radiance products. About half of those returns are due to space reductions at certain large-format retail customers, with the balance due to anticipated modifications to the brand offering related to the introduction of new products in 2007, Revlon said in its announcement.

For 2006 as a whole, Revlon expects net sales growth in the mid-single digit range. Adjusted EBITDA for the year is expected to be approximately even with or somewhat below the 2005 level of $167 million, with the second half of 2006 expected to be up considerably versus a year ago, when the company was saddled with some $55 million in start-up costs, including $44 million of returns and allowances on its re-launched Almay cosmetics line and the initial launch late last year of Vital Radiance.

Looking ahead to 2007, Revlon did not offer specific guidance - but indicated that results next year will likely benefit from what it called "significant revenue-generating actions" the company plans in order to grow the Revlon brand across the categories in which it competes, as well as what it hopes will be a "substantially improved" financial profile of Vital Radiance in 2007, once the new brand gains some traction.

Revlon also said that it is continuing to assess various alternatives to strengthen its capital structure and improve its financial flexibility, including among other things, a possible amendment to its current bank credit agreement to add $75 million to the term loan portion. Bank debt market sources indicated to Prospect News that such a term loan add-on could launch as early as Wednesday.

Revlon also said that it plans to issue $75 million of equity later this year or early next year, as previously announced, and plans to use the proceeds of the equity issuance for debt reduction.

Imaging names better

Apart from Revlon, "it was very quiet," a trader said, "just like your typical summer Monday." There was, he said, "not a lot going on. The market had a decent tone to it, kind of firm."

He saw some additional upside movement in the bonds of Radiologix and those of such sector peers as Alliance Imaging Inc., MedQuest Inc. and InSight Health Services Corp., which had also risen on Friday on the prospects of sector consolidation in the wake of the news that Radiologix has agreed to be acquired by Primedex Health Systems Inc. in a cash-and-stock transaction valued at $208 million, including net debt assumption.

That news had shot the Radiologix 10½% notes due 2008 up about 11 points on Friday to the 101 bid, 102 area, and the trader saw that upside ride continuing Monday, boosting the bonds further to 102.25 bid, 102.5 offered, possibly due to short-covering, or to expectation that its $160 million of bonds will be taken out.

"They're inching their way up to that call price," said another trader, who also saw the bonds up a point to the mid 102-range. Those bonds, which were sold in December 2001, are currently callable at a price of 105.25, which will decline to 103.5 on Dec. 15.

The first trader saw some upside movement in the bonds of Radiologix's competitors, pegging Lake Forest, Calif.-based InSight's 9 7/8% notes due 2011 at 47 bid, which he called up a point from 46 bid, 48 offered on Friday, when the bonds rose about 3 points on the session - after having been up as much as 5 or 6 points earlier and then surrendering much of their gains. He saw the company's floating-rate notes around 89.5 bid, 90.5 offered.

He saw Anaheim, Calif.-based Alliance Imaging's 7¼% notes due 2012, which had moved up about two points on Friday, at 91.5 bid, 92.5 offered Monday, and saw Alpharetta, Ga.-based MedQuest's 11 7/8% notes due 2012 at 93.5 bid, 94.5 offered. "It seems like they were firmer," he opined.

However, the second trader, while seeing the rise in Radiologix, called "the rest [of the imaging sector] moderately weaker." He saw the InSight 9 7/8s down ½ point at 45.5 bid, 46.5 offered, while Alliance Imaging and MedQuest were each a point lower at 90.5 bid, 91.5 offered, and 93.5 bid, 94.5 offered.

Yet another trader agreed that the Radiologix bonds were up a point, around 102.25 bid, 103 offered, but said that Alliance's bonds were unchanged, MedQuest's were down half a point, Insight's 7¼% notes due 2012 were down a full point, at 90 bid, 92 offered, and its 9 7/8s were two points lower at 45.5 bid, 46.5 offered.

Levi easier ahead of earnings

A trader said that Levi Strauss & Co.'s 9¾% notes due 2015 were a point lower at 98.5 bid, 99.5 offered, calling them "weaker ahead of numbers tomorrow [Tuesday]." Those bonds were already a bit easier on last week's announcement that the venerable San Francisco-based blue jeans maker's chief executive officer, Phillip A. Marineau - credited with spearheading Levi's turnaround over the past several years - will step down from his leadership post late in the year.

And he said that there was "nothing really new" with General Motors Corp., quoting the Detroit giant's benchmark 8 3/8% notes due 2033 as having opened up a point at 80.75 bid, 81.75 offered, perhaps still coasting on the momentum generated last week when GM's board voted to engage in talks on possibly joining the existing alliance between French automaker Renault SA and its 44%-owned affiliate, Japanese car manufacturer Nissan Motor Co. However, by the end of the day, he said, the bonds had backed down to 80 bid, 81 offered, "basically unchanged."

VNU unveils $1.67 billion deal

No issues were priced in Monday's primary market session, during which prospective European issuers dominated the news.

Netherlands-based market research company VNU NV took the wraps off of its $1.67 billion equivalent of proposed junk bonds on Monday.

Planning to sell both dollar- and euro-denominations, the company is offering eight-year senior notes and 10-year senior subordinated notes.

Deutsche Bank Securities, JP Morgan, Citigroup, ABN Amro and ING are joint bookrunners for the acquisition financing, according to a market source who added that the deal could launch as early as Tuesday.

NTL Cable launches £300 million

NTL Cable, which operates out of England, plans to start a roadshow on Wednesday for £300 million equivalent of 10-year senior notes in dollar and sterling tranches.

JP Morgan, Deutsche Bank, Goldman Sachs & Co. and The Royal Bank of Scotland are joint bookrunners for the bridge refinancing deal related to NTL's reverse acquisition of Telewest, which closed in March.

El Paso to price $500 million

On the U.S. side, Houston-based gas company El Paso announced plans to price a $500 million issue of five-year non-callable performance-linked trust certificates (B2) on Wednesday, a bank debt refinancing via Deutsche Bank Securities.

And Burbank, Calif., storage units company Mobile Services U.S., in conjunction with Mobile Storage Group Inc., will begin a roadshow on Wednesday for its $160 million offering of eight-year senior notes, an acquisition financing via Lehman Brothers.

Investors dealing the cards

On Monday a capital markets sell-side source who focuses on both bonds and bank loans admitted spending much more time lately on term loans than on bond deals than had been the case six to nine months ago.

The situation has "totally flip-flopped in the last six months," the source said adding that debt financing has presently become a "totally term loan-dominated market."

The source recounted that much of the junk market's recent volume has come in the form of mega-deals to refinance bridge loans incurred in acquisitions - deals such as Windstream Corp.'s $2.546 billion, Nortel Networks Ltd.'s $2 billion and Intelsat/PanAmSat's $2.9 billion.

Those were forced to market, the source said, adding that such bridge loan refunding deals will continue to come.

However, the capital market source said, it will likely take a sustained rally in junk - two weeks or more - before issuers attempt to do opportunistic financings in the high-yield bond market.

The source said that right now pricings are much more efficient in the term loan market, where spreads are still tight enough to be an attractive source of capital for borrowers, even though they have widened somewhat, and where, because of high short term rates, term loans have been an attractive place for investors.

"It's a much more even playing field than junk bonds, where investors are really dealing the cards right now," the capital markets sell-side source asserted.

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