Euramax postpones deal; Centennial up as it eyes alternatives; Delphi dives again

By Paul Deckelman and Paul A. Harris

New York, Sept. 19 - Euramax International Inc. was heard by high-yield syndicate sources on Monday to have decided to postpone its planned offering of eight-year notes, citing the ubiquitous rationale of market conditions.

The primary side also got word of a gigantic three-part mega-deal totaling more than $2 billion to help fund the pending buyout of upscale Dallas-based retailer The Neiman Marcus Group Inc.; that offering is expected to price next week.

In the secondary market, the bonds of Neiman Marcus competitor Saks Inc. were little changed on news reports that it had rejected as inadequate an offer of about $1 billion from its Midwestern department store chains - despite a fall in the retailer's shares.

Bonds of Bally Total Fitness Holding Corp. were better, though, on the news that the star-crossed Chicago gym chain operator has agreed to sell its Crunch Fitness operation and put the proceeds toward debt reduction.

Also on the upside was Centennial Communications Corp., which has hired investment bankers to help the Wall, N.J.-based regional wireless service provider evaluate strategic alternatives, reportedly including the possible sale of the company.

On the downside, Delphi Corp.'s bonds continued to roll down the road to nowhere, losing further grounds as fears that Troy, Mich.-based automotive electronics manufacturer might soon file for bankruptcy intensified.

And fellow auto components maker Dana Corp. - whose bonds fell sharply last week after the company warned of likely lower earnings and the two major credit agencies that still considered it an investment-grade company decided to junk its ratings.

Overall sources assessed the high-yield bond market as off by a quarter point to half a point on Monday. Themes included risk reduction, with some lower-quality paper selling off by as much as a point, as well as weakness in the equity market and instability in the Treasury market.

"The tone sort of inflected Wednesday or Thursday of last week," said a buy-side source.

"We started to see some real softness for the first time since April or May."

Pointing to the new issue calendar, this source commented: "It's turning out to be a little bigger than people thought.

"Some of these deals that recently priced are not doing as well as people might have expected.

"I think there is a little hesitancy," the source added. "People are looking to see what the new issue market will bring before they spend all of their money."

The buy-side source said that last Friday's executions in the primary market, during which $1.3 billion-odd of business priced in seven tranches, may point to shifting sentiments on the part of investors.

Of Friday's seven tranches, six priced at discounts to par, five came wide of the price talk, one came at the wide end and only one, the Ba2/BB rated IKON Office Solutions $225 million 10-year deal, priced on top of talk.

The source noted that the IKON bonds were trading around par on Monday.

"The whole market is a little bit tough," the buy-sider remarked.

The big deals

Against this backdrop, the buy-sider said, the new issue market will turn its focus to some of the anticipated large transactions that have been known about since the beginning of summer.

Neiman Marcus for example, the source said.

News finally emerged Monday on Neiman Marcus Group Inc.'s $2.175 billion three-part deal to fund the leveraged buyout of the high-end apparel retailer by Texas Pacific Group and Warburg Pincus LLC.

The offer will include an $850 million tranche of eight-year senior secured notes, non-callable for four years (B+), a $750 million tranche of 10-year senior notes, non-callable for five years (B-), and a $575 million tranche of 10-year senior subordinated notes, non-callable for five years (B-).

Credit Suisse First Boston, Banc of America Securities, Deutsche Bank Securities and Goldman Sachs & Co. will be joint bookrunners.

Also in the "big deal" department, Gamestop Corp. issued price talk Monday on its two-part $950 million senior guaranteed notes offering (Ba3/B+).

The Grapevine, Tex., electronic game company talked its six-year floating-rate notes, which are non-callable for two years, at Libor plus 325 to 350 basis points.

Meanwhile Gamestop talked its seven-year fixed rate notes, which are non-callable for four years, at 7½% to 7¾%.

Tranche sizes remain to be determined. The acquisition deal is expected to price during the middle of the week via Citigroup, Banc of America Securities and Merrill Lynch & Co.

Calendar continues to build

Apart from news on the big deals, the forward calendar continued its buildup of medium-sized to relatively small offerings as the week of Sept. 19 got underway.

Denver-based Whiting Petroleum Corp. will begin a roadshow Tuesday for its $250 million offering of 8.5-year senior subordinated notes (confirmed B2/expected B-).

Merrill Lynch, JP Morgan and Lehman Brothers are joint bookrunners for the debt refinancing and acquisition funding deal.

Elsewhere Pittsburgh, Pa. electrical construction products company Wesco Distribution began a roadshow on Monday for its $150 million offering of 12-year senior subordinated notes (existing B2/confirmed B) via Goldman Sachs and Lehman Brothers.

Proceeds will be used to refinance debt.

And finally Middletown Rancheria Gaming Enterprises began a roadshow for its $50 million offering of seven-year senior unsecured notes via Jefferies & Co.

The gaming company, owned and operated by the Middletown Rancheria band of Pomo Indians, will use the proceeds to refinance debt and fund a renovation.

Centennial gains on review

Back in the secondary sphere, a market source saw Centennial Communications bonds mostly higher, after the company announced that it has hired Lehman Brothers and Evercore Partners as financial advisors to assist it in "evaluating a range of possible strategic and financial alternatives."

He saw Centennial's 8 1/8% notes due 2014 up 2½ points at 107.25, while its 10 1/8% notes due 2013 were a point better at 112.5. The company's 10¾% notes due 2008 were unchanged at 103.

At another desk, the 10 1/8s were seen at 113.5, which by their standards was a point higher, while its 8 1/8s were at 107, up 1½ points.

Centennial cautioned that it could give no assurances that it would actually "undertake any particular action as a result of such evaluation."

Over the weekend, The Wall Street Journal reported that the company has begun sounding out potential buyers. Citing unidentified sources "familiar with the matter," the paper said that such a sale could fetch as much as $1.5 billion. The Journal also said that Centennial could alternatively decide to split up its businesses and sell some or all of them individually. It further said that any deal is months away.

Centennial's Nasdaq-traded shares jumped $2.16 (17.68%) in Monday trading to end at $14.38, not too far below its 52-week high of $15.50. Volume was 779,000 shares, more than four times the usual turnover.

Bally up on division sale

Also on the upside Monday, Bally's bonds were showing strength on the news that the company will sell its non-core Crunch Fitness division, and several other gyms in the San Francisco area for a total of $45 million in cash, which will go to debt reduction.

A trader quoted the company's 9 7/8% notes due 2007 up a point at 91 bid, 93 offered. Its 10½% notes due 2011, though, were seen little changed from recent levels in the 102 area.

The clubs will be sold, for cash, to Marc Tascher, a leading entrepreneur and club industry veteran, in partnership with the private equity group of Angelo, Gordon & Co.

Bally said that the sale was part of its previously announced turnaround plan, which includes reduction of debt, as well as divestiture of non-core assets. Most of the net proceeds of the sale will be used to reduce the $175 million term loan component of Bally's senior secured credit facility.

Saks steady on no sale

Speculation that retailer Saks Inc. might soon be inking a deal to sell its "northern division" department stores was quickly dashed on Friday when the Birmingham, Ala.-based retailer was reported to have turned down an offer of about $1 billion from rival retailer Bon-Ton Stores Inc. That caused Saks' shares to dive by 9% in late trading Friday and to further retreat marginally on Monday.

However, bond traders saw little or no movement in the company's notes.

"They all look unchanged," one said, quoting Saks' 7 3/8% notes due 2019 at 99 bid, its 7½% notes due 2010 at 99.5 bid, its 8¼% notes due 2008 at 104.75 bid, and its 9 7.8% notes due 2011 at 109.5 bid.

Another trader saw the 81/4s at 105.25 bid, 106.25 offered, but said that appeared to be unchanged.

Women's Wear Daily, a fashion industry trade publication, reported Monday that Saks had been hoping to get $1.5 billion for the Midwest-based chains, which include Carson Pirie Scott, Younkers, Herbergers, Bergners and Boston Stores.

Unless Bon-Ton comes back with an improved offer or another buyer appears on the horizon, Saks might be forced to try to sell the chains individually, although it is uncertain whether it can get any more for those operations that way.

Delphi lower

On the downside, Delphi "was the name that took a hit," a trader said, "down at least a couple of points from the [opening] morning levels."

He saw Delphi's 6.55% notes due 2006 at 72 bid, 73 offered, "down maybe three points on the day," while its 6½% notes due 2009 and 6½% notes due 2013 were each down about two to three points on the session, at 66 bid, 68 offered and 65 bid, 67 offered, respectively.

The trader also saw Delphi's 7 1/8% notes due 2029 at 62 bid, 64 offered, also around two to three points lower.

The company's New York Stock Exchange-traded shares skidded another 49 cents (12.69%) to $3.37. Volume of 13.1 million shares was almost three times the norm.

The bonds, and the shares, have been getting clobbered over the past week, on market speculation that Delphi might be getting close to a Chapter 11 filing. The company is in talks with former corporate parent General Motors Corp., and the United Auto Workers union, on somehow lifting the burden of high-cost labor contracts that Delphi inherited when it was spun off by GM several years ago. Delphi has warned that unless such relief were to be forthcoming before Oct. 17, when the federal bankruptcy statutes are toughened up to make them less debtor-friendly, it will likely be forced into a filing.

Much of the financial community now seems to share the view that there's not much chance Delphi will be able to stay out of the courts.

In a research report released Monday, automotive analyst Joseph J. Farricielli of Imperial Capital LLC said that "given DPH CEO Steve Miller's statement that he would consider a Ch 11 if a deal was not reached with the UAW and GM, coupled with limited negotiating progress between all parties, we believe the odds of a filing are high."

In the event of a bankruptcy, the analyst believes that holders of the company's bank debt will likely be able to achieve a par recovery of their investment. He sees the recovery level for the unsecured bonds as somewhere in the 40% to 60% level - or 30-45% after a 2-year, 15% discounting. Holders of the company's trust preferred securities and common stock are likely to get nothing, Farricielli said.

A key factor in what kind of a recovery senior noteholders will experience is what level of the UAW contract benefits that Delphi is now obligated to pay will be assumed by GM in the event of a bankruptcy. While GM will have to take on the benefits for most of the 30,000 workers covered by its UAW contract whom it transferred to Delphi, the latter company agreed to indemnify GM against such costs. The exact level of benefits GM would assume and the exact indemnification Delphi would pay to its former corporate parent have not been disclosed.

The bottom line, Farricielli said is that "any obligation GM assumes as a result of the guarantee would be offset by the Delphi indemnification. While we realize there would still be a cost to GM in a bankruptcy scenario, that cost would then be at least partially offset by a corresponding general unsecured claim [by GM against Delphi] in the DPH bankruptcy. This arrangement appears to favor a bankruptcy filing by all parties involved: the UAW will not lose any benefits as a result of the GM guarantee, GM will have its exposure minimized as a result of the indemnification and Delphi will be able to restructure its operations."

Such an arrangement, he said, would not impact the holders of the company's bank debt, as "the GM claim would rank junior, and thus not impact recoveries." However, he cautioned, the GM claim "would be pari passu with all general unsecured claims [which includes the senior unsecured notes], increasing the size of that class by an estimated $10B and thus diluting the recoveries for the notes."

Right now, he said, the union "has yet to formally respond to the company's cost-cutting proposals and claims a response will not be made until the end of 9/05. The Detroit Free Press obtained a union delegate newsletter that quoted UAW VP Shoemaker stating 'There is no way that the UAW can agree to all of Delphi's demands and it may be better to let Delphi file for bankruptcy.'"

The analyst further noted that while in "ordinary circumstances, we would expect the union to cave in regarding the concessions. However, with the guarantee provided by GM covering union benefits for two more years, the UAW's motivation to concede is limited."

Dana decline continues

Apart from Delphi in what one trader called a "sloppy" auto supplier sector, Dana's bonds picked up where they left off last week after its earnings warning and subsequent ratings downgrade, and continued to head south.

The Southfield, Mich.-based automotive drive-train components maker's 7% notes due 2028 and 2029 were each down two points on the day, at 80 bid, with its 6½% notes due 2008 closed at 95 and its 5 7/8% notes due 2015 ended at 82.5 bid, each down a point on the day.

GM lower over Delphi worries

A trader said that the "greater fear of Chapter 11 [for Delphi] put pressure on GM," whose 8 3/8% notes due 2033 lost a point to 1¼ to end at 79.25 bid, 79.75 offered, while its GMAC financial arm's 8% notes due 2031 were 1¼ points lower on the day at 89.25 bid, 89.75 offered.

Ford Motor Co.'s 7.45% notes due 2031 ended at 79.5 bid, 80 offered, and Ford Motor Credit's 7% notes due 2013 closed at 93.5 bid, 94.25 offered, each down a point.

Paper and packaging weak

Outside of the autosphere, traders said, paper and packaging bonds were down, with Constar's 11% notes down one to two points at 67.5 bid, 68.5 offered and its floating-rate notes down a point at 91bid, 92 offered. Papermaker Tembec Inc.'s 8 5/8% notes due 2009 lost two points to 75 bid, 76 offered, while rival Bowater's 6½% notes due 2013 were a point down at 93.5 bid, 94.5 offered. Stone Container Corp.'s 8¼% notes due 2012 fell three points to 93 bid, 94 offered.

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