Spectrum Brands lifted on asset sale; Swift dips; Primus Telecom attracts attention

By Stephanie Rotondo

Portland, Ore., May 21 - News of an asset sale Wednesday pushed Spectrum Brands Inc.'s capital structure up, traders reported.

After the consumer products company announced that it had entered into a definitive agreement to sell its pet products business to Salton Inc., the corporate and bank debt gained 3 to 4 points by the end of the session. But while the news was seen as an overall positive move, some market watchers proceeded with caution.

Meanwhile, a trader said a board member's resignation prompted Swift Transportation Co. Inc.'s bonds to decline early on in trading. But the notes managed to recover their losses by the close of business. The company did not return calls seeking comment on Wednesday.

With no recent news out, traders are speculating that something is going on at Primus Telecommunications Group Inc. One trader opined that the company was looking to extend its shelf life though yet another exchange offer.

"Things got quiet in the afternoon as stocks melted down," one trader said of the day's events. Another trader enthused that the declining equity markets meant great things for distressed territory.

"I'm loving it," he said. "It is going to give back recent gains in the equities and credits and things are going to widen," he speculated.

Asset sale buoys Spectrum

Spectrum Brands announced an asset sale Wednesday, and the news sent the company's bonds up by as much as 3 points.

One trader quoted the 11% variable-rate notes due 2013 - now trading with a 12% coupon - at 87 bid, 88 offered and the 7 3/8% notes due 2015 at 70 bid, 71 offered, both up 3 points.

Another trader deemed Spectrum one of the "notable names" of the session. He said the 11% notes were "up a few points" to around 88 and the 7 3/8% notes in the low-70s.

At another desk, a trader saw the 7 3/8% notes at 70 bid, 71 offered.

Meanwhile, Spectrum's term loan B jumped up by a couple of points on news, as some bank debt will be repaid using proceeds from the sale of the company's global pet business.

The term loan B was quoted at 95¼ bid, 96¼ offered, up from 91¾ bid, 92¾ offered on Tuesday, a trader said.

On Wednesday morning, Spectrum announced it had inked a deal to sell United Pet Group to Salton Inc. for $692.5 million in cash, plus additional consideration in the form of $98 million of Spectrum's variable-rate toggle senior subordinated notes due 2013 and $124.5 million of Spectrum's senior subordinated notes due Feb. 1, 2015.

Proceeds from the sale will be used by Spectrum to repay a portion of its ABL credit facility borrowings and some other senior bank debt.

Spectrum said that it expects the transaction to decrease its total leverage ratio to about 7.8 on a pro forma basis from about 8.5 as of March 30, to lower its senior leverage ratio to about 4.0 on a pro forma basis from about 5.0 as of March 30, and to reduce annualized cash interest expense by about $70 million.

Following the announcement, Standard & Poor's said it placed Spectrum's CCC+ long-term corporate credit rating on CreditWatch with positive implications. However, Fitch Ratings affirmed its CCC issuer default rating on the company and called the outlook negative. Fitch said the rating reflected the company's high-leverage and thin coverage metrics on a pro-forma basis.

The transaction is expected to close by the end of August, subject to approval by Spectrum Brands' senior lenders, Hart-Scott-Rodino approval and other customary closing conditions. It is not contingent on any financing requirement.

In a separate news release, Salton said that it will fund the acquisition of Spectrum's pet business, which markets and manufactures pet supplies for fish, dogs, cats, birds and other small domestic animals, using a $325 million credit facility and equity provided by Harbinger Capital Partners, the controlling stockholder of Salton.

As part of the investment, Harbinger Capital Partners will contribute the Spectrum notes to Salton.

Goldman, Sachs & Co. is acting as Spectrum's financial adviser, and Credit Suisse and Centerview Partners LLC are acting as Salton's financial advisers.

While investors were reacting positively to the news, some market sources were a bit more cautious.

In an afternoon report, Gimme Credit LLC analyst Kim Noland warned that the asset sale could decrease the company's enterprise value.

"The company will be giving up over $90 million annual EBITDA and the remaining businesses operate in competitive segments and garner lower multiples, probably decreasing overall enterprise value," Noland wrote.

Spectrum Brands is an Atlanta-based consumer products company and a supplier of consumer batteries, lawn and garden care products, specialty pet supplies, shaving and grooming products, household insect control products, personal care products and portable lighting. Salton is a Miramar, Fla.-based marketer and distributor of small household appliances.

Swift bonds dip, recover

A trader said Swift Transportation's bonds initially traded lower during the session but managed to come back by the close of business. The trader attributed the gyration to news that a board member had resigned from his post.

The trader placed the 12½% notes due 2017 at 36 bid, 37 offered. Another trader quoted the bonds at 34 bid, 36 offered, while yet another saw the debt close at 36 bid, 37 offered.

The company did not immediately return phone calls seeking confirmation on the board departure.

Rising oil and gas prices, as well as the crisis caused by the housing slump and credit crunch, has weighed heavily on Swift, as well as the trucking sector as whole. As a private company, Swift's financials are not readily available to the public, but market sources have previously reported that the figures have not been stellar.

"Swift, retailers, anything related to oil is not the place to be," one trader said.

Swift Transportation is a Phoenix-based trucking company.

Primus looks to prolong life

Though there has been no news recently, market players are saying that something is going on at Primus Telecommunications.

"I'll tell you what's going on," a trader said, "They are trying to do what they always do and that is exchange the 5% notes due 2009 for the 14¼% notes due 2011 to extend their life expectancy past June 2009."

The trader added that the 8% notes due 2009 are also part of the exchange.

The trader saw the 14¼% notes end at 89 bid, 91 offered, adding that the 8% notes due 2014 were trading in the 40s.

Another trader said there were "just a few trades going on" in the name, calling the 3¾% notes due 2010 at 31 bid, 33 offered.

Primus Telecommunications is a McLean, Va.-based telecommunications provider.

Elsewhere in the communications arena, a trader said Level 3 Communications Inc.'s paper has been "very strong," placing the 12¼% notes due 2013 at 104.5 bid, 105 offered.

"Those have been much lower," he said. "So people are feeling very positive."

Charter Communications Inc.'s 10% subordinated notes due 2014 were called down 2 points to 59 bid, while its 8 3/8% senior notes due 2014 were unchanged at 98.5.

At another desk, Charter's CCH I Holdings' 9.92% notes due 2014 were up 1.5 points at 62 bid.

Shorts boosting Delphi

A trader said a short squeeze could be the reason for recent gains in Delphi Corp.'s debt. He said the automotive parts supplier's bonds "picked up some" during Wednesday trading, quoting the notes generically at 45 bid, 46 offered.

In the rest of the autosphere, the trader said Visteon Corp.'s bonds were "much quieter" after gaining as much as 5 points in the previous session in news of a debt exchange offer.

Another trader said Visteon's bonds backed off a little from the gains they notched on Tuesday. He saw its 8¼% notes due 2010, which had jumped 4 to 5 points Tuesday, off 1 point Wednesday at 95, and saw its 7% notes due 2014, the issue not involved in the exchange, down 1 point at 70.

In the financial sector, there was no change in Countrywide Financial Corp.'s bonds, a trader said, its 6¼% notes due 2016 still trading at 79 bid, 81 offered. He said that he "assumed" that Countrywide's 3¼% notes had matured and been redeemed at par Wednesday as scheduled "because if they hadn't, the crap would have been all over the place." Another trader concurred when asked if the bonds had been paid saying that shop "had not heard otherwise."

Sara Rosenberg and Paul Deckelman contributed to this article.

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