Hollywood bonds up on tender offer prospects; Rayovac, Mercer, Edgen line up roadshows

By Paul Deckelman and Paul A. Harris

New York, Jan. 12 - Hollywood Entertainment Corp. bonds were seen up about three to four points Wednesday, given a boost by revelations that the Wilsonville, Ore.-based video chain will tender for those bonds as part of the company's planned acquisition by smaller rival Movie Gallery Inc.

That company, meantime, said that it will issue $475 million of new bonds, and line up a $720 million bank credit facility, to finance the approximately $850 million acquisition of Hollywood, the Number-Two U.S. video chain.

Describing the high-yield market as "flat" and "treading water," sources reported no new issues having priced during the mid-week session, although there were deal announcements made and roadshow dates set.

"The primary market seems to be rolling right along," one investment banker told Prospect News after the close. "Even with weakness in the secondary market there are a lot of issuers who are teed up and ready to go.

"Given the market tone right now, investors have slightly more leverage to push back on price and to push back on covenants," the source added.

"All else being equal they have a little bit of extra clout, which they did not have at the end of last year."

Another sell-side source, who said that the market Wednesday was "treading water," asserted that the primary market remains open in spite of the recent weakness in the secondary market.

"Whereas we were seeing bonds price at the tight end of price talk to the middle of price talk at the end of last year, now we seem to be seeing them come in the middle of talk to the wide end of talk," the official said.

"I think that's the big difference in the new issue market so far."

Three for the road

A trio of prospective issuers unveiled roadshow plans during Wednesday's session.

The roadshow starts Tuesday for Rayovac Corp.'s $500 million of 10-year non-call-five senior subordinated notes (B3), which are expected to price late in the week of Jan. 24.

Banc of America Securities, Citigroup and Merrill Lynch & Co. are joint bookrunners for the acquisition deal that has Atlanta-based battery-maker Rayovac acquiring United Industries, a St. Louis-based maker of consumer products for lawn and garden care and household insect control.

Meanwhile Mercer International, the Seattle-based pulp producer, will begin a roadshow late in the Feb. 17 week for $300 million of eight-year senior notes (single B ratings anticipated), which are expected to price in early February.

RBC Capital Markets and Credit Suisse First Boston are joint bookrunners for the acquisition/debt refinancing deal.

And, closer at hand, Edgen Corp. will begin a roadshow Thursday for its $105 million of six-year non-call-three senior secured notes (expected B3/confirmed B-), which are expected to price on Jan. 25 or Jan. 26 via Jefferies & Co.

The Baton Rouge, La.-based supplier of specialty steel pipe and components to the oil and gas industries will use the proceeds to fund an acquisition.

Cincinnati Bell, Energy Transfer announce deals

A few details were heard Wednesday on new issues from Cincinnati Bell inc. and Energy Transfer Partners.

Cincinnati Bell plans to sell $350 million of senior unsecured high-yield bonds and to put in place a new $250 million revolver upon the successful completion of a consent solicitation that it began on Jan. 11.

The company is soliciting holders of its 7¼% senior subordinated notes due 2013 to amend a bond indenture to allow the refinancing.

Banc of America Securities and Credit Suisse First Boston are the agents for the solicitation which expires Jan. 21.

And Energy Transfer Partners announced in a Tuesday press release that it intends to sell $550 million of unsecured senior notes and obtain a new $700 million revolver, with proceeds going to refinance substantially all outstanding debt under the existing secured credit facilities of La Grange Acquisition, LP.

Warner Chilcott talk

Price talk of 8¾% area emerged Wednesday on Warner Chilcott Corp.'s $600 million of 10-year non-call-five senior subordinated notes (Caa1/CCC+), which are expected to price on Thursday afternoon via Credit Suisse First Boston, Deutsche Bank Securities and JP Morgan.

Warner Chilcott downsized its bond offering to $600 million from $750 million on Tuesday, shifting $150 million to its credit facility, increasing the bank financing to $1.79 billion.

Also expected to price Thursday is City Telecom (H.K.) Ltd.'s upsized $125 million offering of 10-year senior notes (Ba3/BB-), via Citigroup.

The deal, which has been marketed to high yield accounts in the United States as well as in Asia, has already been increased from $110 million and could upsize further, according to an emerging markets trader.

Westar Energy does five-B $250 million

Although no junk bonds priced Wednesday, sources did mention that Westar Energy completed a five-B transaction for $250 million of bonds in two parts (Ba1/BBB-/BBB-).

The company sold $125 million of 5.15% notes due Jan. 1, 2017 at 99.764 to yield 5.177%, 93 basis points over Treasuries, and $125 million of 5.95% bonds due Jan. 1, 2030 at 99.079 to yield 6.017%, 123 basis points over Treasuries.

Citigroup and Lehman Brothers ran the books.

R.H. Donnelley steady

The new R.H. Donnelley 6 7/8% senior notes due 2013 were being quoted at par bid, 100.5 offered, little changed from Tuesday's par issue price. The Cary, N.C.-based telephone directory publisher's already outstanding 8 7/8% notes due 2010 were seen up a point at 111.5 bid. Its 10 7/8% notes due 2012 hovered around 118.

Hollywood bonds gain

Hollywood Entertainment's 9 5/8% notes due 2011 were seen having pushed up to around the 111 mark, up three to four points on the session, depending on who you were quoting, with one trader citing the possibility that those bonds would be taken out as part of the deal to sell the company to the smaller, Dothan, Ala.-based movie rental chain Movie Gallery.

According to a filing with the Securities and Exchange Commission in connection with the deal, Hollywood plans to make a tender offer to buy the $225 million principal amount of outstanding notes. Any notes remaining outstanding after completion of the tender offer would then be bought by the company in a change-of-control offer (see related story elsewhere in this issue).

However, not everyone in the financial markets is convinced that Movie Gallery's $13.25 per share offer will necessarily bring the curtain down on the takeover speculation that has surrounded Hollywood ever since the company announced a going-private buyout transaction last spring involving chairman Mark Wattles and Los Angeles-based buyout operator Leonard Green & Partners.

That original deal was later abandoned in favor of a smaller offer for Hollywood - which caused the video rental industry's top player, Blockbuster Inc., to come in with its own $11.50 per share offer for its nearest competitor - an offer which Hollywood never seriously responded to, prompting Blockbuster to threaten the Oregon company with a possible hostile takeover.

Even though Hollywood has agreed to the Movie Gallery offer, Blockbuster's chief executive, John Antioco, was quoted this week as saying his company still "would love" to buy Hollywood, and said that Blockbuster will decide "in a short period of time" what to do regarding its own bid for Hollywood. While Antioco held out the possibility that Blockbuster might raise its bid, he also warned that it would not "pay more than we believe the company is worth."

Antioco said that a merger between the top two companies would make much more sense than the Hollywood-Movie Gallery merger, since much greater synergies could be realized. Hollywood and Blockbuster compete head-to-head in many markets, raising the possibility of eliminating overlapping stores, while few such synergies would be available in a merger with Movie Gallery, a largely southeastern regional player that does not have extensive overlaps with Hollywood like Blockbuster does.

Also convinced that a Blockbuster-Hollywood merger makes good sense is billionaire investors Carl Icahn, who is currently the largest shareholder in each company and has publicly said he would like to see them merge.

On the other hand, critics of the Blockbuster move point out that putting the two top video chains together could produce anti-trust problem as was the case once before when such a deal was floated back in the late 1990s.

Amkor rebounds

Elsewhere, Amkor Technology Inc., whose bonds fell on Tuesday amid tech-sector nervousness about an earnings warning from chip maker Advanced Micro Devices, was seen bouncing back on Wednesday, given a boost by industry leader Intel Corp.'s better than expected fourth quarter results, which had been released Tuesday.

The West Chester, Pa.-based semiconductor packaging and testing company's 7¾% notes due 2013 were seen by a trader as having bounced as high as 90 bid, 91 offered from Tuesday's late levels at 88.5 bid, 89.5 offered before coming off the high and ending up half a point on the session at 89 bid, 90 offered.

At another desk, those notes were seen having risen as high as 90.5 - and then having stayed there, up a point-and-a-half on the session.

Unisys recovers some losses

Another tech name on the rebound was Unisys Corp., whose bonds had fallen several points Tuesday on the Blue Bell, Pa.-based information technology solutions provider's unexpected earnings warning. Unisys - which had previously predicted fourth-quarter earnings of 27 cents to 31 cents a share - said Monday that it would report a loss of 7 cents to 10 cents a share for the three months ended Dec. 31, citing problems with some of its outsourcing deals.

However, on Wednesday, the company's 6 7/8% notes due 2010 were seen having gotten back at least a point of Tuesday's multi-point loss, moving up to 103.5 bid, 104.5 offered. But a trader reminded everyone of the fact that those bonds "were up around 105-106, where they were before their pre-announcement" of expected earnings.

Level 3 loses

Level 3 Communications Inc.'s bonds didn't seem to get much of a boost from the Broomfield, Colo.-based telecom company's early-morning announcement that it would cut between 500 and 600 jobs in a bid to reap annual savings of $60 million to $70 million (see related story elsewhere in this issue).

"They were definitely lower [Tuesday] and continued weak [Wednesday], a trader said, quoting the company's benchmark 9 1/8% notes due 2008 offered in the Street at 83.5, and bid around 82 later in the day, well down from recent levels in the mid-upper 80s.

Another trader said the bond were "under pressure" despite the headcount reduction news and an upbeat presentation at the Citigroup/Smith Barney media, entertainment and telecom conference in Phoenix. Even with those potential positives, he said, the notes were at 82 bid, 83 offered - down a point on the session and down four on the week.

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