Spectrum, Bon-Ton, GMAC trade lower; Cablevision up as buyout jeopardized; USIS price talk emerges

By Paul Deckelman and Paul A. Harris

New York, Oct. 17 - In a generally easier market Wednesday, Spectrum Brands Inc.'s bonds gyrated around at lower levels in heavy trading after the Atlanta-based consumer products company announced a delay in a previously announced asset sale, citing the current weak credit market environment.

Bon-Ton Stores Inc.'s bonds picked up Wednesday where they left off late Tuesday, moving lower in fairly busy trading in response to the company announcement near the end of Tuesday's session that it would fail to meet its previously announced earnings targets for the year.

GMAC LLC and its Residential Capital LLC unit's bonds were trading lower after Standard & Poor's put them on watch for a possible downgrade, which would take the last vestige of ResCap's former investment-grade status away with it.

On the upside, Cablevision Systems Corp.'s bonds firmed, as the Bethpage, N.Y.-based cable system operator and sports team and arena owner's biggest institutional shareholder weighed in against a plan by the company's founding Dolan family to take it private, contending that the non-Dolan shareholders aren't being treated fairly.

Sources saw the broad high yield market softer throughout the Wednesday session, and noted that junk has eased through each of the first three sessions of the present week.

A high yield syndicate official said that junk was taking its lumps from the National Retail Federation's forecast that consumers, wary of a slowing U.S. economy, could slow the pace of spending this holiday season to the most anemic rate of increase seen in the past four years.

"High yield has picked up a lot in the past month," the syndicate official added.

"It's probably not surprising to see some retreating."

In the primary sphere, things were quiet, with no new deals seen having priced by the close. Price talk emerged on US Investigations Services Inc.'s upcoming eight-year note issue.

Spectrum off on asset-sale delay

Spectrum Brands bonds were the most heavily traded name on Wednesday, a market source said. The source saw the company's 11¼% notes due 2013 bouncing around at lower levels after the company announced it would delay a previously announced asset-sale transaction due to unsettled credit market conditions.

The bonds opened down 4 points at 86.5, pushed as high as 88, fell as low as 82, and finally ended at 85.5 down 4½ points on the day.

Its 7 3/8% notes due 2015 opened 2 points lower at 73, gyrated around at between about 70 and 78, but ended at that same 73, down a deuce on the day.

Trading in both issues was very active.

Another trader saw the 111/4s ending at 87 bid, after getting as low as 85.

He saw the 7 3/8s start the day around 73.75 bid, 74.75 offered, get down to 72, and then come back to 73 bid, 74 offered.

He said the bonds "bounced at the end of the day - but they're definitely softer."

Spectrum's New York Stock Exchange-traded shares, meantime, slid more than 19% in the early going before finally stabilizing down 79 cents, or 16.29%, to $4.06, on volume of 7.6 million shares, more than seven times the usual activity level.

The bonds and shares slid after Spectrum announced early Wednesday that it is postponing its previously announced strategic asset sale process due to recent challenging conditions in the credit markets.

The company - which makes the well-known Remington line of electric shavers and personal grooming items and Rayovac batteries, as well as portable lighting, lawn and garden products, household insect control, personal care products and specialty pet supplies - said in August that it would sell "an attractive strategic asset" other than its home and garden division, but gave no specific details at that time. Analysts speculated that Spectrum might be looking to sell the pet supply business.

Spectrum followed that news with an announcement last month that it would sell its Canadian home and garden business to a company formed RoyCap Merchant Banking Group, a Toronto-based investment firm, and Clarke Inc. and use the proceeds to pay down debt, although financial terms of that prospective deal weren't disclosed. Spectrum said that Canadian transaction continues to move forward.

Its chief executive officer, Kent Hussey, reiterated in the company announcement that Spectrum is "still committed to reducing outstanding indebtedness and leverage through the sale of assets. We believe that postponing the auction process until such time as the credit markets improve will allow us to achieve a full and fair valuation of these assets."

The company announcement also noted that Spectrum - which on Oct. 1 put in place a $225 million asset-based revolving credit facility - said that credit line would provide sufficient liquidity to operate its business on an ongoing basis.

Bon-Ton continues slide

Bon Ton Stores' 10¼% notes due 2014 were bouncing around at mostly lower levels for the first part of the session, continuing the slide seen in Tuesday's late trading.

A market source said they opened around 92.5, about the same level at which they had closed on Tuesday. The bonds swung between highs around 93.5 and lows just under 90, before closing just under 92. A flurry that took the bonds back up to around 93 proved to be short-lived. Trading volume was said to be fairly active.

A trader at another desk saw the whole retail sector "getting beat up," with Bon-Ton's bonds down as much as 4 points before getting a "bounce at the end of the day" to finish down 3 points at 91 bid, 92 offered.

On Tuesday, those bonds had traded in a 96-98 context for much of the session, before cascading down to about the 92 level late in the day after the York, Pa.-based retailer warned that it would not meet its earlier projections for full-year earnings.

Bon Ton's NYSE-traded shares initially tumbled more than 12% Wednesday to a low of $18.30, as equity holders reacted to the earnings warning, which was released after the close of stock trading Tuesday. After bottoming during the morning, the shares bounced a little, to move back up to a closing level of $19.13, still down $1.76, or 8.43%. Volume of 1.7 million shares was more than triple the average daily turnover.

Bon-Ton, which operates 279 stores throughout the Northeast and Midwest under the Bon-Ton, Bergner's, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger's, Younkers and Parisian nameplates, said late Tuesday that based on year-to-date third quarter results, it does not expect to achieve its previously stated full year fiscal 2007 earnings guidance. It had previously projected earnings of $2.75 to $2.90 per share for the year, although Wall Street thought that prediction a tad optimistic, with analysts on average looking for about $2.45 per share of profit.

In announcing the anticipated earnings miss, the company's chief financial officer, Keith Plowman, observed that "the continued general softness in the retail environment will lead to intensified promotional activity throughout the remainder of the year, pressuring both sales and margins." Bon-Ton plans to update investors on its third-quarter conference call on Nov. 29.

GMAC, ResCap off on ratings warning

Also on the downside, GMAC's 8% notes due 2031 were seen having come down as much as nearly 4 points, depending on whom you spoke to, to the 94 area. Meantime, its wholly owned Residential Capital unit's bonds were also lower, with ResCap's 6½% notes due 2013 dipping to around 79 bid from prior levels around 83, while its 6 3/8% notes due 2010 were pegged at 80 bid, also down from 83.

Those bonds eased as S&P said it might cut GMAC's ratings, currently at BB+, and ResCap's, now at BBB- , citing the continuing troubles of the mortgage industry in which ResCap operates. ResCap said Wednesday it will eliminate 3,000 jobs, or one-quarter of its work force, to cope with the U.S. housing downturn.

Such a cut would dump ResCap squarely into junkbond land; the GMAC unit is currently rated Ba1 by Moody's Investors Service and BB+ by Fitch Ratings.

Cablevision gains as buyout falters

On the upside, Cablevision's CSC Holdings Inc. bonds were seen better, as the proposed buyout deal which would see members of the company's controlling Dolan family take it private appeared to unravel.

Its 8% notes due 2012 were seen up almost 1½ points at just under 99 late in the session, versus their 97.5 finish Tuesday and at several points during the session pushed a point or two above par before coming off those peaks, to still hold at higher levels on the day. Its 7 7/8% notes due 2018 ended 1½ points higher at 99.5.

Meanwhile, Cablevision stock eased, as the company's largest institutional investor, ClearBridge Advisors, which owns a 14% stake, came out against the plan being pushed by chairman Charles Dolan and his son James, the company's president and CEO, to buy out ClearBridge and the other non-Dolan holders for $36.26 per share, in a deal valued at $10.6 billion. ClearBridge said the offer is inadequate. Several other large institutional holders have also voiced opposition.

Overall, a trader saw the widely followed CDX index of junk market performance down 11/16 point, at 991/4-991/2. The KDP High Yield Daily Index was down 0.20 at 80.14, while its yield widened by 7 bps to 7.84%. Declining issues and advancers were about evenly matched, though.

First Data, Bausch rise, ease

Well after the close a syndicate official also said that the market was a little softer, and remarked that bonds priced Tuesday by First Data Corp. and Bausch & Lomb Inc. gave back some of their initial gains during the Wednesday session.

The official spotted the new First Data 9 7/8% senior notes due 2015, which priced at 94.796 in a $2.2 billion tranche on Tuesday, at 95½ bid at the Wednesday close.

Meanwhile the par-pricing Bausch & Lomb 9 7/8% notes due 2015, which priced in a $650 million tranche on Tuesday, also went out Wednesday above the issue price, at 101 5/8 bid.

USIS price talk

No issues were priced during the mid-week primary market session.

However, underwriters set price talk for US Investigations Services, Inc. (USIS)'s $440 million two-part offering of high yield notes.

A $250 million tranche of eight-year senior notes (Caa1/CCC+) is talked at 11% to 11¼%.

Meanwhile a $190 million tranche of 10-year senior subordinated notes (Caa2/CCC+) is talked at 12½% to 12¾%.

The LBO deal, via Lehman Brothers and Banc of America Securities, is expected to price on Friday.

First Data, TXU: the buzz

Apart from the pending USIS deal the market buzzed Wednesday with discussion of the recently completed First Data deal and the massive TXU Corp. $4.5 billion cash-pay notes offer that is now on the road.

An investment banker, who spotted the new First Data 9 7/8% senior notes due 2015 at 95¾ bid at noontime Wednesday, remarked that the First Data deal was helped by the recent junk market rally, as the notes, which priced Tuesday with a yield of 10 7/8%, had initially been marketed at 11¼% to 11½%.

The banker added that the underwriters were heard to have cut back allocations to certain accounts in hopes it would help the notes to trade well.

This source added that market-watchers are expecting another portion of the remaining $1.55 billion of cash-pay notes-and perhaps a portion of the $2.75 billion of senior PIK toggle notes - to surface sooner than later.

The source suggested that the First Data underwriters may be attempting to recreate last week's successful placement of $1.1 billion of the Allison Transmission Inc. overhang, which cleared the entire bond portion of the hung bridge loan.

To recap that deal, last Thursday underwriters priced $550 million of Allison Transmission cash-pay notes due 2015 at par to yield 11%. Then in a Friday drive-by they priced a $550 million tranche of toggle notes due 2015 at par to yield 11 ¼%.

Later Wednesday another sell-side source sounded less certain that underwriters would be able to replicate the Allison trade.

"Allison had good timing. There wasn't anything major in the market when they did the deal. So they lucked out a little."

Also, this source added, in the interim the junk market has sold off a little.

Still another sell-sider, this one speaking after the Wednesday close, professed the expectation that underwriters would probably be back with some more of the First Data cash-pay notes, and maybe even some toggle notes.

However, the source added, it is likely that they will wait to do so until the massive TXU deal plays out.

The $4.5 billion TXU LBO deal, now on the road, is expected to price late next week.

Energy Futures Holdings is offering $2.0 billion of 10-year notes (B3/CCC+), led by Morgan Stanley.

In addition, Texas Competitive Electric Holdings is offering $2.5 billion of eight-year notes (B3/CCC), led by Goldman Sachs.

Overhang now below $300 billion

Sources also told Prospect News on Wednesday that there is a developing consensus in the leverage markets that the estimated $330 million-plus of risk overhang left on underwriters' balance sheets, resulting from unplaced bond and unsyndicated loans, is now well below $300 billion.

One investment banker said that particularly in the leveraged loan market underwriters have had a lot of success syndicating that overhang. The source reckoned that that leveraged loan backlog is now approximately $160 billion.

That general direction is also being seen in the bond market, the source said, but added that the reduction has not taken place in the bond market to the same degree given that loans are customarily priced before the bonds.

However, the source said, the backlog in the bond market is nicely inside of $100 billion, and heading quickly toward $75 billion.

"There has been some success at working through the calendar," the investment banker added.

"It's obviously still a big calendar. But particularly in the loan market a lot of it has been digested."

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