Vertis, American Color boosted by merger news; Primus bonds buoyed on successful exchange

By Stephanie N. Rotondo

Portland, Ore., May 23 - As the market prepared for an early close Friday, traders reported a decidedly weaker trading session in the distressed arena.

"It's obviously a holiday day," said one trader. "Retailers, everything is softer with the general market."

Bucking that trend was Vertis Inc. paper. The company announced that it had inked a merger agreement with American Color Graphics, whose bonds were also trading up on the day. Along with the merger agreement came a restructuring plan, in which virtually all of each company's debt would be exchanged for new debt, as well as new equity in the combined company.

Meanwhile, Primus Telecommunications Group Inc. announced it had exchanged over $60 million in debt, a move aimed at extending maturities and - according to some market sources - life expectancy. The news of the successful transaction boosted the company's bonds by at least 1 point during the session.

The bond market was scheduled to be closed Monday in observance of Memorial Day.

Vertis, American Color boosted by merger news

News that Vertis and American Color Graphics had come to terms on a merger deal sent Vertis' paper up as much as 2 points.

One trader saw Vertis' 9¾% notes due 2009 around 94, while another trader pegged the issue at 94 bid, 96 offered.

Several traders, however, said they did not see anything in American Color's 10% notes due 2010. But according to Trace, those bonds gained about 5 points to the 34 level.

The merger comes along with a restructuring plan aimed at improving the companies' balance sheets, as well expand their positioning in North America, Vertis and American Color said in their announcement.

The release stated that both companies had entered into agreements with their respective bondholders. Under the terms of the agreement, debtholders can exchange their notes for $550 million in new bonds, as well as "substantially all of the new equity in the combined company." The agreement will effectively reduce overall debt by $725 million. The companies plan to further restructure by filing prepackaged Chapter 11 plans.

"The plan, which includes the merger, the note exchanges and new financing will strengthen the company's finances and enable Vertis to better compete in today's challenging environment," said Mike DuBose, chairman and chief executive officer of Vertis, in the release.

This is not the first time the companies have mulled the idea of a merger. A letter of intent to merge was initially inked in July 2007, only to fall apart in October.

"It will get done," one trader opined of the renewed deal.

On Wednesday, Vertis reported its first-quarter financials, which showed an 8.2% decrease in revenue to $303.7 million compared to revenue of $330.7 million for the first quarter of 2007. Net loss widened to $41 million, versus a net loss of $25.2 million the previous year.

Vertis is a Baltimore, Md.-based provider of print advertising and direct marketing solutions. American Color Graphics is a Brentwood, Tenn.-based printing company.

Primus bonds gain on exchange offer

Late Thursday, Primus Telecommunications announced that it had reduced its debt by $63.2 million through a private exchange.

As a result, traders reported the bonds gained at least a point during the session. One trader quoted the 8% notes due 2014 at 39 bid, up from 37 bid, 38 offered previously.

"They were bid better on the back of some exchanges," he said.

Another trader called the 2014 paper "up a point or 2 from yesterday" at 39 bid, 41 offered.

Under the exchange, holders of the 12¾% notes due 2009, the 3¾% convertible notes due 2010, the 5% convertible notes due 2010 and the 8% notes due 2014 were exchanged for $67.1 million principal amount under the existing debenture of 14¼% notes due 2011.

Primus follows the lead of such companies as Residential Capital LLC and Six Flags Inc., both of which have completed similar exchange offers to extend maturities and avoid default. Earlier in the week, a trader told Prospect News that Primus was looking to "extend its life expectancy past June 2009."

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

Broad market weaker

Tronox Worldwide LLC saw its 9½% notes due 2012 fall to 79 from 86, a trader said. The decline comes after the company's announcement late Thursday that it expects to see higher costs in the second quarter and plans to cut its US salaried workforce by about 13%.

Delphi Corp.'s bonds have seen recent gains, which one trader previously speculated was caused by short covering. However, during Friday trading, the bonds fell a couple points to around 45.

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