Fremont General up on subprime loan sale; AmeriPath gains on Quest news

By Paul Deckelman and Paul A. Harris

New York, April 16 - Fremont General Corp.'s bonds and shares rose solidly Monday on the news that the Santa Monica, Calif.-based financial services company - barred by federal regulators from offering any more mortgages to potential borrowers with poor credit - announced plans to sell $2.9 billion of existing subprime loans to an unidentified buyer, and is in exclusive talks to also sell most of its residential lending operations and assets to that same buyer, essentially getting Fremont out of the suddenly faltering subprime loan industry.

Elsewhere, AmeriPath Inc.'s bonds were quoted 4 or 5 points higher - although traders didn't actually see many transactions - on the news that the Palm Beach Gardens, Fla.-based medical diagnostic testing company has agreed to be acquired by larger competitor Quest Diagnostics Inc. in a $2 billion deal, including debt assumption.

From out of the distressed-debt precincts came the word that Remy International Inc. - as widely expected - has chosen not to make the scheduled April 15 coupon interest payment on its 9 3/8% notes due 2012. The Anderson, Ind.-based automotive electrical systems manufacturer also entered into a forbearance agreement with its bondholders, effectively heading off for the moment any effort by those creditors to enforce their contractual rights.

In the primary market, price talk was heard on the upcoming deals for Energy Partners Ltd. and Cimarex Energy Co., but activity was otherwise muted.

Fremont flies on loan sale news

Fremont General's 7 7/8% notes due 2009, which closed on Friday at 92, opened Monday's dealings above 97, before coming off that peak in morning dealings to stabilize in a 96.5-97 context.

One trader saw even more movement, estimating that the bonds had "moved up pretty good" to the 97.25 bid level from around 90 bid, 91.5 offered level late Friday.

Equity investors were as enthused at the idea as bondholders were, with the company's New York Stock Exchange-traded shares jumping $1.83 (25.96%) to $8.88, on busy dealings of 13 million shares, more than triple the usual turnover.

The loans being sold - making up most of Fremont's remaining subprime loans - will result in a $100 million pretax loss to the company because the mortgages are being sold at a discount.

It's the second big sale of subprime mortgages in recent weeks by Fremont, which has been hurt by the rapid collapse of the market amid rising default rates, as cash-strapped poor-credit borrowers in a difficult economy find themselves in many cases unable to make escalating payments on adjustable-rate mortgages and other suddenly-risky loan vehicles.

Last month, Fremont announced plans to sell some $4 billion of subprime loans - a portfolio which does not include the mortgages covered by Monday's announcement. That earlier transaction will result in a $140 million pretax loss to the company.

Fremont said that the letter of intent signed by the mystery buyer could result in the sale of a Freemont unit that originates loans and another that provides mortgage services such as payment collection and foreclosure.

After the spit hit the fan for the subprime lending industry in mid-February and federal regulators cited Fremont's writing of risky mortgages to borrowers who clearly could not afford them, forcing its withdrawal from any further residential lending, Fremont's bonds - previously trading above par - dropped as low as the mid-80s by early March.

Fremont hired Credit Suisse to shop its residential mortgage business to potential buyers. It said the buyer who has agreed to take the latest batch of subprime loans and potentially the other residential operations prefers anonymity.

By withdrawing from the subprime market, Fremont sees itself instead concentrating on providing financing for commercial real estate. It said its main subsidiary has a $1.5 billion cushion of cash and short-term investments.

AmeriPath treads a higher path

Another significant mover, bond traders said, was AmeriPath's 10½% notes due 2013, which one trader said were "gonna be up substantially" on its merger and acquisition news. He quoted the bonds at 109 bid, 109.5 offered, which he called up 3 or 4 points on the day, but said that normally the issue "hardly trades."

Another trader said that the bonds had moved up to that 109 bid, 109.5 offered level from Friday's close at 107.75 bid, 108.25 offered.

Another trader echoed those levels, although he said that he had seen "only one" sizable trade on the day.

And another source, taking a contrarian view, said that while the bonds had indeed traded up smartly to the 108.5-109 level earlier in the day, they had declined on several smallish trades to around the 105 level, actually down on the day.

All this was in reaction to the news that Lyndhurst, N.J.-based Quest, the leading medical diagnostic testing company, will acquire AmeriPath for $1.2 billion, and assume $770 million of debt in connection with the deal.

Remington remains on target

Also in the M&A area, a trader said that Remington Arms' 10½% notes due 2011 - which shot up handsomely last week on the news that the Madison, N.C.-based rifle and shotgun maker is to be acquired - continued to gain.

He quoted them up another ¼ point on "good sized" trading to 103.375 bid, 103.75 offered.

He said that while the merger deal is definite, "there's still speculation" about what will happen to the bonds, "whether they will be taken out" by a tender at a premium to face value, as investors apparently believe.

"There's a change of control put at 101," he noted, "but nobody is going to put the bonds back to the company at that level with them trading above 103."

Little acquisition fizz for Cott bonds

On the other hand, the news that Cott Corp. confirmed that it was in possible merger talks with Cadbury Schweppes Ltd. had little or no impact on the Toronto-based soft-drink company's bonds.

Cott's 8% notes due 2011 hung in around the same 102 context they had held pre-news, although its NYSE-traded shares were up 83 cents (5.16%) to $16.93, on heavy volume of 2.4 million shares, six times the norm

Missed Remy payment no surprise

Remy International announced that it had entered into a forbearance agreement with a majority of its noteholders. Under the agreement, the company will not make a coupon payment - which came due over the weekend - on its 9 3/8% notes. A payment on its floating-rate notes also due over the weekend was made.

A distressed trader said the bonds "didn't trade much" on the news, adding that it was "kind of expected."

"It's not like a came out-of-the-blue," he said.

The trader called the notes unchanged, while a market source placed the 9 3/8% notes at 31, the 11% notes due 2009 - which, coincidentally, have a coupon payment due May 1 - at 30 and the 8 5/8% notes due 2007 at 90.5 - all essentially unchanged.

Another trader quoted both the 11s and the 9 3/8s as high as 34 bid, 36 offered, up from 31 previously, and said they were trading flat.

But another trader saw them flat at 30 bid, 32 offered, "pretty much where they were" previously. He saw the 8 5/8s up 2 points at 91.5-92.5, trading with accrued interest.

Rumors that the company would default on its coupon payment prompted losses in the bonds last week, but further buzz that a new deal had been inked with former corporate parent General Motors Corp. helped the notes regain those losses. Calls to the company to confirm the GM rumor went unreturned Monday.

The forbearance agreement is part of a wider aim on the company's part of recapitalize. The company announced earlier this month that it had entered into discussions with its noteholders on a plan to delever its balance sheet.

"We are very encouraged by the productive discussions we have had regarding a comprehensive recapitalization of our financial structure," president and chief executive officer John Weber said in the release. "I am pleased that our progress is reflected in the significantly high percentage of the holders of the senior subordinated notes and senior notes that have agreed to the forbearance."

Remy still has access to its revolving credit facility and, as of Friday, the company's liquidity position was $73 million, consisting of unrestricted cash and cash equivalents of $25 million and permitted availability under its revolving credit facility of $48 million.

Firm tone seen

Overall, a trader said, "the whole market had a pretty firm tone to it."

Another trader agreed, pegging the widely followed CDX high yield index at 100.25 bid, 100.375 offered, up about 3/8 on the session.

Among recently priced issues, the first trader saw United Surgical Partners International Inc.'s 9¼% toggle notes due 2017 at 101.75 bid, up ½ point on the day, while the Dallas-based surgical facilities operator's 8 7/8% senior subordinated notes due 2017 were also up a half, at 101.5 bid, 101.875 offered; both tranches priced at par last Wednesday.

Realogy Corp.'s 10½% senior notes due 2014 were at 99 bid, par offered, up from their pricing earlier in the month at 98.784. The Parsippany, N.J.-based real estate franchisor's 11% senior toggle notes due 2014 were at 98.5 bid, 99.5 offered, versus their 98.805 issue price, while its 12 3/8% senior subordinated notes due 2015, which had priced at 98.146, had firmed to 99.25 bid, 100.25 offered.

Primary damped

The primary market produced very little news on Monday, with at least one source blaming the dearth of information on the inclement weather which has struck the northeastern United States, including New York City.

A high yield syndicate official, speaking after the Monday close, said that weather notwithstanding, the market is in good shape, and added that with few exceptions new issues have been "flying out the door."

"Issuance is a little light," the source said, adding that the market has been mainly focused on big deals.

"Everything is happening in an orderly fashion," the source asserted. "When a big deal is out there it tends to be the only thing to look at, except for a few little deals around it."

The official added that the liquidity of the high yield asset class remains good, and added that the accounts are presently focused on the new issue market.

The big deal

True to this sell-side source's color, only one billion dollar-plus mega-deal is presently in the market.

Swiss petroleum refiner and market Petroplus Finance Ltd. is on the road with its $1.20 billion two-part offering of senior notes, which is expected to price next week.

The Morgan Stanley-led deal is comprised of tranches of eight-year notes and 10-year notes.

Proceeds will be used to fund the acquisition of the Coryton refinery and to refinance bank debt.

Talking the deals

Price talk surfaced Monday on two deals from the only U.S.-based issuers that are expected to bring deals this week.

Cimarex Energy Co. set talk for its $300 million offering of 10-year senior notes (B1/BB-) at 7% to 7¼%.

The deal, which is being led by JP Morgan and Lehman Brothers, is scheduled for Tuesday.

Elsewhere Energy Partners Ltd. set price talk for it $450 million two-part offering of senior unsecured notes (Caa1/B-).

The New Orleans-based independent oil and natural gas exploration and production company talked a $150 million tranche of six-year floating-rate notes at the Libor plus 500 basis points area.

In addition Energy Partners talked a $300 million tranche of seven-year fixed-rate notes at the 9¾% area.

Pricing is expected on Wednesday.

Banc of America Securities is the bookrunner.

Stephanie N. Rotondo contributed to this report

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