Donnelley up on numbers, exchange; Idearc rises more; Trump gyrates on bad earnings, Yankee Candle too

By Paul Deckelman and Sara Rosenberg

New York, May 8 - R.H. Donnelley Corp.'s bonds - which have been rising over the past few sessions in line with a better showing by rival and sector peer Idearc Inc.'s paper - took the lead on Thursday, jumping between 4 and 6 points in apparent investor response to what the Cary, N.C.-based telephone directory publisher touted as "solid" quarterly numbers, as well as an exchange offer for those bonds which the company unveiled at the same time it reported its results. Bonds of Donnelley-owned Dex Media Inc. were also several points higher, and Idearc - which released its own generally better numbers on Tuesday - also continued on the upside.

Trump Entertainment Resorts Inc.'s bonds were seen gyrating around at mostly lower levels after the Atlantic City, N.J.-based gaming company reported a wider quarterly loss, although the bonds managed to firm from their day's lows to end only off a little.

WCI Communities Inc. bonds continued to slide, down for a second consecutive session after the troubled homebuilder released poor numbers and said it was looking for alternative ways to deal with its debt obligations.

In the bank debt market, Yankee Candle Co. Inc.'s term loan fell more than a point on weak earnings.

Market participants meanwhile saw Delphi Corp.'s new debtor-in-possession loan bouncing around, first trading higher before coming down from those peak levels.

Donnelley dominates on numbers, offer

R.H. Donnelley's bonds and shares rose after the company released what seemed to be fairly positive quarterly results and announced its debt-exchange offer, part of a larger plan to actually cut its debt. A trader called the name "certainly one of the more notable ones on the day," seeing its bonds up about 3 to 5 points across the board.

He said that while the earnings released in the morning were "good," the bonds' rise was motivated by a combination of the results and news of the exchange offer, "but obviously, the exchange offer was really a lot of it."

Its several series of 6 7/8% notes due 2013 rose as high as the 69 level on Thursday from Wednesday's closing levels around 63, a market source said, with a number of large-block trades, although the bonds were seen coming off that peak to end in a 67-68 context, still up a good 4 or 5 points.

Its 8 7/8% notes due 2016 mirrored that rise, going to around 70.5 bid from Wednesday's close at 66 before easing slightly to end at around 69.5.

A trader at another desk saw its 8 7/8% notes due 2017 likewise up more than 3 points on the session, going home at 67.25 bid, 68.25 offered.

The Donnelley bonds, said another trader, were "quite active." He saw the '16s move up to 70, up nearly 6 points from the last round-lot trading levels Wednesday at 64.5, adding "that's a nice move."

Donnelley's New York Stock Exchange-traded shares meantime jumped by $1.82, or 28.527%, to $8.20, on volume of 13.1 million shares, more than four times the norm.

Also up were the bonds of Englewood, Colo.-based Dex Media, which Donnelley acquired in 2005. Its 8% notes due 2013 were up more than 4 points on the day at one stage at 81.5 bid. However, they too came down from the early peak level to end at 80, up some 3 points on the session.

The company's Dex Media East bonds were seen among the most busily traded credits of the day, with a trader seeing its 9 7/8% notes due 2013, which got as good as 97.5 bid, finally closing about a point below that, but still up nearly 3 points from Wednesday's close at 93.75. And he saw the Dex East 8½% notes due 2010 go as high as 100.75 bid, up from 98.875 previously. Those bonds finished Thursday at 99.875.

Donnelley announced on Thursday that it was beginning an offer to exchange new 11¾% senior notes due 2015 for $700 million principal amount of its existing bonds - three series of its 6 7/8% notes due 2013, plus its 8 7/8% notes due 2016 and its 8 7/8% notes due 2017.

The company currently has an estimated total principal amount of approximately $3.53 billion of those five series of "old" bonds outstanding, and will accept notes for the exchange offer on a pro-rated basis should the amount of a particular series of bonds tendered exceed the maximum exchange amount for that series that the company has set. Donnelley is offering participating noteholders between $652.50 and $675 principal amount of the new bonds in exchange for $1,000 principal amount of their old bonds, plus the standard 3 cents on the dollar additional payment for early participation in the offer, bringing total compensation being offered to between 68.25 and 70.5 cents on the dollar. It set an early participation deadline of 5 p.m. ET on May 21, with the overall offer scheduled to expire at midnight ET on June 6 (see related story elsewhere in this issue).

The debt-for-debt exchange is one of several measures dealing with its total $9.951 billion of debt that Donnelley unveiled on Thursday; it also announced its intention to refinance the credit facility of its Dex Media West LLC subsidiary and to amend its own credit agreement to provide additional covenant flexibility as well as extend the maturity date of the revolving credit facility (see related story elsewhere in this issue).

The company's chairman and chief executive officer, David C. Swanson, said in a statement releasing the financial results that the measures would reduce near-term mandatory debt repayments, extend the company's maturity profile and reduce debt levels. "These actions provide us with greater flexibility to navigate through this business cycle and manage the business for sustainable growth when a better climate returns," Swanson declared.

Calls results 'solid'

The company characterized its first-quarter financial results as "solid." Although it posted a yawning net loss of $1.623 billion, or $23.60 per share, versus year-ago net earnings of $16 million, or a diluted 22 cents per share, it pointed out that the huge deficit was as a result of a $2.5 billion non-cash, pre-tax goodwill impairment charge that it took to reflect the recent decline in the market value of its debt and equity securities; excluding the effect of goodwill impairment recorded in the quarter, net income would have been $15 million, or 22 cents per share. That beat Wall Street expectations of ex-items earnings in the 15 to 17 cent per share area.

Donnelley emphasized the fact that its net revenues of $674.7 million were up 2% from year-ago sales of $661.3 million. The company had adjusted EBITDA of $357 million and its adjusted EBITDA margin was 52.9%. Adjusted free cash flow in the quarter was $92 million based on cash flow from operations of $100 million.

Swanson said that the company "generated strong revenues in the quarter driven by the pull through of ad sales from the prior year, lower claims and allowances and the addition of Business.com. This resulted in solid EBITDA in the quarter. Ad sales, a leading indicator of revenues, reflected weak economic conditions in our markets as we expected." The company affirmed previously issued full-year 2008 guidance that it had issued in February, including full-year revenue projections of $2.6 to $2.7 billion. "We are aggressively managing costs in response to this operating environment," Swanson added.

Analyst Dave Novosel of the Gimme Credit investment research service noted that the first-quarter results "handily beat consensus estimates," with revenue up 2% while margins rose 110 bps. He said that the positive market reaction on both the equity side and the bond side "is symbolic of how low expectations had gotten."

Even so, he had a generally positive assessment of the company, which he rates as "improving." In a research note Thursday, he wrote: "Given its meaningful free cash flow we still believe the company has ample opportunity to reduce leverage," and said that the announced note exchange offer "will provide more financial flexibility for R.H. Donnelley at a time when some are questioning its future."

Idearc improvement continues

While the R.H. Donnelley and Dex Media bonds were the pace-setters for the day, their Dallas-based competitor Idearc's 8% notes due 2016, weren't doing too badly either. Those bonds have been up solidly this week following unexpectedly good first-quarter results released on Tuesday, and they continued along in that same vein on Thursday.

A trader pegged the notes 2 points higher, with a round lot seen at 70 bid, while another called them "maybe up another ½ point" to current levels, leaving the bond "pretty much sitting at 70."

However, at another desk, the bonds were seen having been actively traded during the session but having really not gone anywhere, finishing at 72.5, unchanged from the smallish final odd-lot trade seen late Wednesday.

While the bonds continued to gain - or at least did not lose their prior gains - the company's NYSE-traded shares, up solidly the past two sessions following the quarterly results, were surrendering some of those gains, finishing down 34 cents, or 6.73%, at $4.71. Volume of 11.9 million shares was more than three times the usual turnover.

Trump hits a bump

Elsewhere, Trump Entertainment Resorts' 8½% notes due 2015 were "heavily traded," a trader said, "but it was a sideways move." He saw the bonds trade as low as 60 bid after the company's numbers came out, but saw a round lot trading back up around 61.75 late in the day, although he said the final, smaller trades were around the 62.5 offered area, which he called up ½ point.

At another desk, a trader said the bonds were "pretty active" and closing at 62, off from about 62.25 on Wednesday. He saw the day's low around 61. "Although they got hit initially," he said, "they rebounded nicely to end almost unchanged."

"Trump traded down as much as 1 to 1½ points," another trader agreed, "but they closed at 62, down just a little."

The bonds took their early dive after the company - which operates three hotel-casino resorts in Atlantic City, but which has been in the process of beating the bushes for potential buyers for some or all of its operations there - reported a wider quarterly loss, citing the general economic weakness that has hit the whole casino industry pretty hard since the economic downturn began last summer. It suffered a first quarter net loss of $18.6 million, or 59 cents per share - more than double its year-earlier red ink of $8.1 million, or 26 cents per share.

WCI continues getting whacked

A trader saw troubled Bonita Springs, Fla.-based homebuilder WCI Communities bonds go lower for a second consecutive day. He said that its 10¼% notes were off 4 points at 43 bid, citing reports that "they don't have the cash to pay off their convertibles."

At another desk, its 9 1/8% notes due 2012, which on Wednesday had fallen 4 points to 48.5 - careened downward to 44 on Thursday, especially after Raymond James Securities put out a research note warning that the company could face the risk of bankruptcy due to its deteriorating liquidity position, potential revaluations of deferred tax assets and likely losses through 2009.

Raymond James analyst Paul Puryear said in the report that the builder's liquidity position continues to erode, and stood at only $110 million in March. He said that the company's lenders were appraising the value of assets secured under the borrowing base of its credit facility, with many of the property values of those assets "likely to come back below current book value," by management's own admission.

Were that to happen, the analyst cautioned, borrowing base availability could be reduced still further - which could trigger mandatory prepayments on some of its $1.7 billion of outstanding debt.

On Wednesday, the builder of luxury homes and high-rise condos posted a first-quarter net loss of $84.1 million, or $2 a share, versus a year-earlier loss of $15.8 million, or 38 cents a share.

It also announced the hiring of the Lazard investment bank to find "creative solutions" to satisfy its noteholders in light of cash limitations

Yankee Candle off on numbers

In the bank debt market, a trader said that Yankee Candle Co.'s earnings were "kind of bad" - causing the South Deerfield, Mass.-based premium scented candle company's term loan to trade off by more than a point.

Going home, the term loan was quoted at 90 bid, 91 offered, down from 91½ bid, 92½ offered, the trader said.

For the quarter, Yankee Candle reported total revenue of $140.9 million, a 1.5% decrease from the prior year quarter.

The company said that the decrease in total revenue was primarily driven by decreased sales to existing domestic wholesale customers who continue to be cautious regarding their inventory positions and decreased comparable store sales in its retail business, offset in part by revenue generated in new stores, increased revenue in European operations and increased revenue attributable to the consumer direct business.

Net loss for the quarter was $7.9 million compared with a net loss of $22.6 million in the first quarter of 2007.

EBITDA for the quarter was $21.5 million compared to negative $10.1 million for the prior year, and adjusted EBITDA for the quarter was $24 million, or 17% of sales, compared to $29.1 million, or 20.4% of sales for the prior year.

"The weakening macroeconomic environment that we experienced in Q4 2007 continued to negatively impact our business in the first quarter of 2008. Both retail and wholesale performed below our internal projections, and similar to other retailers and consumer-facing companies, we were adversely impacted by overall mall traffic, a tightening of open to buy inventory dollars within our wholesale channel, commodity inflationary pressures and reduced consumer spending," said Craig Rydin, chairman and chief executive officer, in a news release.

Delphi DIP loan gyrates around

Delphi Corp.'s debtor-in-possession second-lien term loan was all over the place during its second day of trading, as levels moved higher and then cam back in before the close, according to a trader.

The $2.75 billion second-lien term loan C ended the day at 99 bid, 99½ offered, down from Wednesday's breaking levels of 99¼ bid, 99¾ offered, the trader said. However, during the session, levels did reach a high of 99½ bid, par offered.

The bankrupt Troy, Mich.-based automotive electronic manufacturer's second-lien loan is priced at Libor plus 525 bps with a 3.25% Libor floor. Lenders got a 200 bps amendment fee with this tranche.

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