Allis-Chalmers upsizes; Aramark deal to produce much debt; Friendly, Remy up on earnings

By Paul Deckelman and Paul A. Harris

New York, Aug. 8 - Allis-Chalmers Energy Inc. was heard to have slightly upsized its add-on offering to its existing series of notes. But junk bond syndicate sources on Tuesday spent more time talking about bigger deals to come - from Constellation Brands Inc.'s quickly shopped half-billion dollars worth of new bonds, seen likely to price Wednesday, to the anticipated big bond offering which will be part of the $8.3 billion of new debt financing for the coming leveraged buyout of Aramark Corp. The latter issuer is currently rated at the bottom of the investment-grade scale - but is expected to be dropped to junk status.

Elsewhere in the primary market, price talk emerged on Reichhold Industries' eight-year note issue, which is expected to price late in the day on Wednesday, and on BCM Ireland Finance Ltd./eircom Group plc's euro-denominated 10-year bond issue, which hit the road on Monday and is generally not expected to price this week.

In the secondary market, Friendly Ice Cream Co. was one of a number of companies reporting quarterly earnings Tuesday, and the Wilbraham, Mass.-based ice cream producer and restaurant chain operator's bonds got a solid boost from its good numbers. The same was also true of Duane Reade Inc. and Remy International Inc. Going in the opposite direction on decent numbers but lower guidance was United Rentals Inc.

Charter Communications Inc.'s bonds were seen mixed post-numbers.

A buy-side source saw little change in the market trailing Tuesday's announcement by the Federal Reserve's policy-making Federal Open Market Committee that the benchmark short-term interest rate, for the time being, is to remain unchanged at 5¼%.

Noting that it is the first FOMC meeting in over two years that has not produced a rate increase, and that between the announcement and Tuesday's market close the Dow Jones Industrial Average fell "40-odd points," the source said that the implications of the Fed "hold" for the high-yield market are uncertain.

"It all depends upon what happens going forward," the buy-sider said.

"Everyone had anticipated this. The market rallied pretty hard into it over the past couple of weeks."

The buy-sider said that if the Fed does not increase rates any further, and the U.S. economy stays its present course, a "pretty good rally" in high quality junk could ensue, especially if rates start to go down.

If, on the other hand, the Fed resumes its 25 basis points rate hikes, junk is liable to sell off.

Meanwhile a capital markets sell-side source said that Treasuries were "totally unchanged" in the wake of the FOMC announcement.

"What the Fed did was as much in line with expectations as you could have possibly have gotten," the source added.

"They still make it sound as though they are contemplating future rate increases.

"If anything it could be slightly disappointing for the market because they make it sound as though it's a pause rather than the end."

Allis-Chalmers upsizes add-on

Meanwhile the primary market continued to pay out news in mean amounts during the Tuesday session.

Houston-based oilfield services provider Allis-Chalmers Energy priced an upsized $95 million add-on to its 9% senior notes due Jan. 15, 2014 (B3/B-) at par, bringing the deal in at the wide end of the 100.00 to 100.50 price talk. It was increased from $80 million.

RBC Capital Markets was the bookrunner.

The company sold 3.0 million shares in a concurrent equity offering.

Proceeds will be used to help fund the acquisition of DLS Drilling, Logistics & Services Corp., repay existing debt and for general corporate purposes.

The original $160 million issue priced at par on Jan. 12, 2006.

Constellation to chug through

Constellation Brands announced that it plans to do a $500 million offering of 10-year senior unsecured notes (existing ratings Ba2/BB) in a Wednesday drive-by.

A buy-side source said that the deal is pro formaed at Treasuries plus 250 basis points, and added that the Fairport, N.Y.-based beverage company should have no difficulty whatsoever getting the debt refinancing deal done.

Citigroup and JP Morgan are joint bookrunners.

Talking the deals

Talk was heard on a pair of offerings expected to price during the middle of the week.

Reichhold Industries talked its $195 million offering of eight-year senior notes (B2/BB-) at 8¾% to 9%.

Banc of America Securities LLC and Wachovia Securities are bookrunners for the debt refinancing and dividend funding deal which is expected to price on Wednesday.

Elsewhere, BCM Ireland Finance Ltd. (eircom Group plc) has talked its €350 million offering of 10-year senior floating-rate notes (B) at Euribor plus 500 to 525 basis points.

The acquisition financing from the Irish telecommunications company, coming to market via Credit Suisse, Deutsche Bank Securities, JP Morgan, Barclays Capital and Dresdner Kleinwort, is expected to price on Thursday.

Aramark announces $2.470 billion

Finally on Tuesday Philadelphia-based hot dog vendor Aramark detailed plans for $2.470 billion of high yield bonds that would include $770 million of senior subordinated notes and $1.7 billion of senior cash pay and/or senior PIK notes (with 50% of the principal having to come in the form of PIK notes) backing the $8.3 billion LBO of the company.

The financing also includes up to $4.605 billion in senior secured credit facilities led by Goldman Sachs and JP Morgan.

The LBO of the professional services company is expected to be completed by late 2006 or early 2007.

Friendly up on earnings

In the secondary arena, earnings probably played the biggest role in the day's bond price movements.

Despite its name, Friendly Ice Cream was hot on Tuesday, with a trader seeing the company's 8 3/8% notes due 2012 "up three or four points" to 86 bid, 87 offered after the company issued strong quarterly results. A market source at another desk called the bonds up 3 points at 86.5 bid, while another source saw them up a more conservative 2½ points at 85.75.

Friendly's American Stock Exchange-traded shares were up 51 cents (6.58%) to end at $8.26 on volume of 128,000, more than six times the usual turnover.

The company reported that second-quarter net income was $4.7 million (58 cents per share), nearly double its year-earlier net of $2.5 million (32 cents per share). Earnings increased even though revenues fell to $141.5 million, down $3.6 million from $145.1 million a year earlier.

Duane Reade higher

A trader saw Duane Reade's 9¾% notes due 2011 three points better at 87.5 bid, 88.5 offered and attributed the rise to the company's quarterly report.

Even though the New York-based drugstore chain operator's net loss doubled, to $21.1 million from $10.3 million a year ago, the company said this was in line with its expectations. It proclaimed some favorable operating metrics, including a 7.3% rise in front-end same-store sales, and it reiterated its previously announced full-year sales guidance, which envisions total store sales growth in the range of 1.5% to 2.5%, total same-store sales growth of 2.5% to 3.5%, and adjusted FIFO EBITDA, the company's preferred earnings metric, in the range of $60 to $65 million.

Remy rises after results

Another company whose bonds got a jump start Tuesday from its earnings was Anderson Ind.-based automotive starter and alternator manufacturer Remy International. Its 11% notes due 2009 were seen up as much as 4 points on the session at 65 bid, 67 offered, while its 8 5/8% senior notes due 2008 were up 1½ points at 94.5 bid, 95.5 offered.

Remy reported operating income of $12.9 million in the second quarter, compared with an operating loss of $3.1 million in the 2005 second quarter. Its net loss for the quarter decreased by $11.1 million to $10.3 million, versus a $21.4 million net loss reported in the corresponding period last year. Net sales for the second quarter set an all-time record, increasing by $59.8 million to $372.2 million, a 19.2% increase from $312.3 million reported in the corresponding period last year.

Charter little changed on day

Charter Communications bonds showed some volatility before ending pretty much unchanged, traders said.

One trader saw the bonds "pretty active," quoting the company's "go go" issue, the 8 3/8% notes due 2014 off ¼ point at 100.75 bid, 101.25 offered, while seeing its 8 5/8% notes due 2009 down ½ point at 83.5 bid. 85.5 offered.

Another trader, however saw Charter bonds firm about ½ point, its 8¾% notes due 2013 ending at 99.5 bid, par offered and its 11 1/8% notes due 2014 at 66 bid, 68 offered.

Yet another trader saw the St. Louis-based cable operator's bonds "up a bit" in the early going, "starting strong" but then "giving back those gains" to finish mostly unchanged. Charter's 8 5/8% notes due 2009 got as good as 84.5 bid, 85.5 offered, before falling back to end unchanged at 83.5 bid, 84.5 offered.

Charter's 10% notes due 2011 were seen having gotten as good as 71 bid in the early going - but by the day's end, the trader said, they had fallen back to 68 bid, 69 offered, pretty much unchanged.

Charter reported a wider second-quarter loss from a year ago, - but said that it was continuing to execute on its stated strategic priorities, one of which involves continuing what company president and chief executive officer Neil Smit said was "our opportunistic approach to improve liquidity, extend [debt] maturities and de-leverage the balance sheet" (see related story elsewhere in this issue).

United Rentals lower on guidance

A company reporting earnings which moved to the downside was United Rentals, whose 7% notes were seen down a point, at 90 bid, 91 offered.

The Greenwich, Conn.-based industrial equipment rental company's quarterly results were actually fairly good, with net income up 12% to $56 million (51 cents per share) versus $50 million (48 cents per share) during the same period last year. But much to the dismay of bond investors and, especially, equity investors - its New York Stock Exchange -traded shares plunged 18.30% - the company lowered its full-year guidance to a range of $2.15 to $2.25 per share from the previous forecast of $2.17 to $2.27 per share.

Rent-A-Center down

Two other rentals companies - albeit the kind which rent furniture and appliances to consumers - were making news Tuesday, with the announcement that Rent-A-Center Inc. will acquire smaller rival Rent-Way Inc.

The news sent Rent-A-Center's 7½% notes due 2010 down a point to 98.25 bid, 99.25 offered.

A trader meantime said that while he had heard that Rent-Way's 11 7/8% notes due 2010 "were being quoted up 10 points, but I didn't see any trades in it at all." Another trader saw the bonds steady at around the 103 level they have recently occupied, and the Nasdaq Trace bond reporting system indicated that no actual trades were reported all day.

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