Salton bonds jump on debt deal; Winn-Dixie rise rolls on for another session

By Paul Deckelman and Sara Rosenberg

New York, June 23 - Salton Inc.'s bonds were hotter than a burger sizzling on a George Foreman grill Thursday, with its shorter-dated issue leaping nearly 20 points on the news that the troubled Lake Forest, Ill.-based maker of those grills and other small appliances will exchange new second-lien notes, plus convertible preferred and common stock, for the company's existing bonds.

Elsewhere, bondholders continued to take Winn-Dixie Stores Corp. bonds up for a third consecutive session, all in the wake of the bankrupt Jacksonville, Fla.-based supermarket operator's plans, announced earlier in the week, to trim its store count by nearly one third and to eliminate over 20,000 jobs, to come down to a size the company revenues can support.

Salton was the story of the day, even though there wasn't all that much trading actually going on in the bonds, market participants said - since no one wants to sell the short-dated issues now that it looks like their holders will recover closer to 80 cents on the dollar in new debt and stock.

Salton announced plans to offer new second-lien notes due 2008, plus preferred shares and some common, to the holders of its 10¾% notes due 2005 - and said that the largest holder of those bonds, Angelo Gordon & Co. LP, has agreed to support the exchange offer (see related story elsewhere in this issue).

With Gordon holding some $41.3 million of the bonds, or about one-third of the total outstanding $125 million, that puts the company more than half way toward its goal of getting a positive response from the holders of $75 million face amount of the bonds.

"There was news out on them, and then they went up," a trader neatly summed the situation up. He quoted the 10¾% notes as having jumped to 69 bid, 71 offered from 50 bid, 52 offered before the news hit the tape at around 10 a.m. ET.

The trader also saw the Salton 12¼% notes due 2008 up a more modest seven points, to 48 bid, 49 offered.

Another trader, who saw the 2005 bonds in the upper 60s, well up from the low 50s, while the '08s were only up to 50 bid, 51 offered from the lower 40s, opined that the 103/4s "was the issue Salton needed to take care of, so that's the reason why [the deal] is s structured that way. So you would expect the biggest pop in that one."

The way the deal is structured, he said, "they're going to get the majority of the new bonds. If they all tender their notes, $85 million of the $110 million of second-lien debt goes to the short issue, so there's only about $25 million of the notes going to the other issue."

Salton plans to issue only $110 million total face value of the new notes, and will give the current bondholders less than par value for their bonds. Any of the new notes not given to the 10¾% bond holders will be given on a pro-rata basis to the holders of the 12¼% notes.

Despite some grumbling on internet investment bulletin board about the terms of the exchange offer, the trader said that in all probability, it will go through, since "Angelo Gordon is already on board with $41 million, so they only need another $35 million or so. If everyone tenders, you get 67.5 cents worth [on the dollar] of the new second-lien notes, you get 10 cents of the convertible preferred, and you get common, so you're getting something like 80 cents on the dollar for a bond that was trading at 50."

"It doesn't look like it's worth the risk to turn it down," he said.

With that kind of a sudden return to a reasonable recovery rate, he said, there wasn't much trading of the Salton bonds at all after the deal with Gordon was announced at around 10 a.m. ET, since nobody wanted to sell. He saw just a few trades, from earlier in the session, before the news had hit.

Another trader just exclaimed "wow!" when he saw how much the '05 bonds, scheduled to mature in December, had appreciated. He quoted them at 68 bid, 70 offered, up from 51 bid, 53 previously, and saw the 121/4s at 47 bid, 49 offered from 42 bid, 44 offered previously. The bonds, he said, are still trading flat, or without their accrued interest, since Salton had said earlier in the month that it would not pay the approximately $6 million in interest due June 15 on the 103/4s, but would continue to look for ways to refinance them.

And now, another market source said, "Leonhard [Dreimann, Salton's much-criticized chief executive officer] has pulled a rabbit out of the hat."

Winn-Dixie keeps climbing

Elsewhere, it was yet another day of upside for Winn-Dixie's 8 7/8% notes due 2008. Those bonds have risen steadily since the company unveiled plans earlier in the week to close 326 of its more than 900 stores, get out of a number of sizable markets in the southeastern United States where the venerable store chain has been an institution for literally decades. The company - forced into bankruptcy earlier this year - will also cut more than 22,000 jobs as part of its Chapter 11 reorganization plan.

A trader quoted the bonds as having pushed up to 60 bid, 62 offered from 58 bid, 60 offered at the opening. He has seen those bonds rise over the three-day stretch from about 52 bid to their current levels.

Another trader also quoted Winn-Dixie at 60 bid, 62 offered, a point better on the session but "nearly 10 points up on the week."

Another trader opined that the sharp climb in the bonds over the past three days was a sign that holders are relieved that the company "is finally doing something" by closing down its less productive stores. "They should have done it two years ago."

Winn-Dixie has lost market share in recent years to rivals such as super-retailer Wal-Mart as well as larger pure supermarket players like Publix, also Florida-based, which compete in many of Winn-Dixie's traditional markets.

As part of its turnaround, the company plans to cease operations in North and South Carolina, Virginia and Tennessee, and will meanwhile trim its business in its home base in Florida, as well as in Alabama, Mississippi, Louisiana and in Georgia, where it will exit the Atlanta market.

It will also exit a number of other long-time markets, including number of larger markets, among them Augusta and Savannah in Georgia, Charlotte, and Raleigh-Durham N.C., Chattanooga, Tenn., and Charleston, S.C., among others.

aaiPharma jumps

A trader saw the 11% notes due 2010 of aaiPharma Inc. as having firmed smartly to 53 bid, 55 offered from prior levels at 49 bid, 51 offered, although he saw no news out on the bankrupt Wilmington, N.C.-based pharmaceuticals company that might explain such a rise.

Separately, prosecutors said that the company's former chief operating officer, David Hurley, pled guilty Thursday to fraud conspiracy charges for his part in a scheme to inflate the company's sales results in 2003. Hurley had been charged with conspiracy to commit wire fraud, mail fraud and securities fraud and related charges. By agreeing to accept a plea deal in exchange for his cooperation with the government investigation, the ex-executive faces a maximum jail term of five years and a $250,000 fine - far less of a sentence than he was otherwise looking at.

Mirant loans dip

In the bank debt market, Mirant Corp.'s 2003 paper fell off by about half a point during some morning trading and ended up closing out the session at the lower levels, although no particular news was seen pushing the paper down, according to a trader.

The bankrupt Atlanta-based energy operator's debt was seen trading in a 75 bid, 75.5 offered context, down from a previous trading level of around 76, the trader added.

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