Ply Gem, Iron Mountain, Scientific Games price; Trump eases; GMAC little moved on Cerberus confusion

By Paul Deckelman and Paul A. Harris

New York, June 2 - Ply Gem Industries, Inc., Iron Mountain Inc. and Scientific Games International Inc. were heard by high yield syndicate sources to have brought drive-by deals to market on Monday. After the new PlyGem bonds priced, they were seen hovering around their issue price, while no aftermarket dealings were seen in either of the other two new issues.

Also in the new-deal arena, Cenveo Inc. was heard to be getting ready to hit the road on Tuesday to market a new issue of eight-year notes.

Back among the established names, the existing bonds of Ply Gem and Iron Mountain were seen lower ahead of those companies' respective new deals.

Among the bonds which were big movers last week, traders noted a softening in Trump Entertainment Resorts Holdings LP's bonds, which had firmed smartly on the news that the Atlantic City, N.J.-based gaming operator had sold one of its three hotel-casino complexes in the seaside New Jersey city.

Traders saw Standard Pacific Corp.'s bonds continuing the firming trend that began when the company announced a major equity investment. While there was still a fair amount of activity in Sprint Nextel Corp.'s various debt issues, the activity pace slackened off markedly from last week's level.

There was conflicting news out on GMAC LLC, with the Financial Times reporting that Cerberus Capital Management had sold a big chunk of its 51% stake in the Detroit-based automotive and and mortgage financing company, only to have Cerberus later deny the story. GMAC's bonds, meantime, and those of its wholly owned Residential Capital LLC mortgage lending subsidiary were seen little moved by all the tumult.

A source from a high yield mutual fund, speaking after the Monday close, said that cash bonds fell ¼ to ½ point on Monday, but added that the decline in junk was nowhere near as drastic the sell off in stocks.

All three major U.S. equity indexes sustained losses in excess of 1%. The Dow Jones Industrial Average fell 134.5 points to close at 12,503.82.

Against this turbulent backdrop, however, the high-yield primary market has been busy. And sources advise Prospect News that unless declines become more severe the new issue market will continue to see business this week.

A trio of issuers, each one bringing a single tranche of notes, appeared Monday in what has become the customary fashion of spring 2008: drive-by style.

The three raised a combined total of just under $1.2 billion of proceeds.

Two priced their deals in the middle of price talk, while the third came at the wide end.

Reverse inquiry drives Ply Gem

Ply Gem Industries, Inc. priced a $700 million issue of 11¾% five-year senior secured notes (B1/B) at 99.072 to yield 12%, on top of the price talk.

An informed source told Prospect News that the deal, which was driven by reverse inquiry, went very well, and added that the order book was quickly oversubscribed.

Credit Suisse and UBS Securities were joint bookrunners for the debt refinancing deal.

A source from a high yield mutual fund told Prospect News that the Ply Gem reverse inquiry was strong.

Shortly after the terms emerged this source spotted the new 11¾% paper due 2013 at 99 bid, 99 3/8 offered.

"It looks like a fair amount actually traded," the buy-sider added.

"There was a fairly big 'flipper' component. There was $500 million-plus of reverse inquiry, and some of the people that reversed overstated what they wanted, and were fully allocated.

"There was $1.1 billion to $1.2 billion of orders, so there was no trouble flipping them, which is why it's holding at issue price, instead of down a few points."

The buy-sider said that two recent transactions, Hovnanian Enterprises, Inc.'s 11½% five-year senior secured second-lien notes, which priced at 99.064 to yield 11¾% in a $600 million deal on May 16, and Nortek, Inc.'s 10% five-year first-lien senior secured notes which priced at 98.957 to yield 10¼% in a $750 million issue on May 13, bore significant similarities to the Ply Gem deal.

"Hovnanian and Nortek traded up a little," the buy-sider said.

"Hovnanian had the same type of yield characteristics, and traded up 3 points the first day.

"But Ply Gem is holding in at the issue price."

Iron Mountain prices $300 million

Meanwhile on Monday, Iron Mountain Inc. priced a $300 million issue of 12-year senior subordinated notes (B2/B+) at par to yield 8%, on the wide end of the 7¾% to 8% price talk.

JP Morgan, Barclays Capital, Lehman Brothers and RBS Greenwich Capital ran the books for the debt refinancing and general corporate purposes deal.

The buy-sider commented that Iron Mountain "came tight."

"They aren't going to do any more acquisitions," the source added.

"Their business is cash flow positive but they always seem to consume capital."

Scientific Games, club style

Monday also saw Scientific Games International Inc. price a $200 million issue of eight-year senior subordinated notes (Ba3/BB-) at par to yield 7 7/8%, in the middle of the 7¾% to 8% price talk.

JP Morgan, Banc of America Securities LLC and UBS Securities were joint bookrunners for the debt refinancing and general corporate purposes deal from the New York supplier of technology-based products, systems and services to gaming markets.

The source from the high yield mutual funds said that Scientific Games was a club-style deal.

"A small group of people love it, and will hold it forever," the buy-sider remarked, spotting the new notes at par and ¾ bid in the aftermarket.

Busy, but not really busy

Sources advised Prospect News that the new issue market is apt to remain busy for the remainder of the week.

The buy-sider said that Masonite International Corp. is looking to term out bank debt, and is likely to bring a bond deal via Deutsche Bank.

"They have a covenant problem," the source added.

"They saw Ply Gem get a deal done today. And they saw Nortek and Hovnanian get deals done recently.

"The windows open. You have to take it while you can."

As it happens, Masonite's term loan traded up Monday because loan investors are banking on an amendment being necessary in the near-term.

The term loan was quoted at 92 bid, 93 offered. By comparison, on Wednesday one trader was quoting the paper at 90 bid, 92 offered and a second trader was quoting it at 91 bid, 92 offered.

For the latest 12 months ended March 31, Masonite's adjusted EBITDA declined by 8.9% to $290.9 million from $319.4 million for the 12 months ended Dec. 31.

The company's net debt to trailing 12 months adjusted EBITDA ratio was 6.71 times at March 31, compared to 6.00 times at Dec. 31, and the covenant maximum is 7.00 times - meaning it is pretty close to running into compliance trouble, a market source explained.

In addition, the company's cash interest coverage ratio was 1.76 times at March 31, compared to 1.91 times at Dec. 31, and the covenant minimum is 1.65 times, so it is pretty close to non-compliance here as well, the market source continued.

"They're possibly going to break covenants and will need an amendment," the source said.

"The economy isn't going to get any better for them in the next six months. On average, for an amendment, pricing increases 200 basis points and lenders get a 50 bps fee," the source remarked, adding that investors are probably buying into the term loan now so as to capitalize on the potential for extra pricing, which is the why the loan traded higher Thursday.

Elsewhere on Monday a senior high yield syndicate official conceded that, trailing Monday's burst of issuance, the market "feels" busy.

However, this official added, if you compare recent activity to that of early 2007, the picture changes.

"This year's busiest weeks have been $4 billion weeks, in round numbers," the official said.

"That's not really so busy. We've been surprised that it hasn't been busier, given the fact that issuers were shut of the market for six months."

However having said it, this source also professed visibility on possible primary market activity for the days immediately ahead.

New PlyGems hover around issue; existing notes easier

When the new Ply Gem 11¾% notes due 2013 were freed for secondary dealings, a trader saw the new bonds trading around 98.75 bid, 99 offered, and opined that although there were "better sellers around, the managers [i.e. the underwriters] are out there supporting it, right around issue." He noted its "big coupon" at 113/4s and suggested "that's not one to be short [in]."

Another trader also quoted the new Ply Gem issue around 98.75-99.25, although he said he had not seen any actual trades.

He said the company's existing 9% notes due 2012 were lower by around a point in round-lot trading, moving within a range of 67.75-68.75 before going out at 68 bid. Another market source who also saw the bonds trading around 68 said they were probably among the more active issues on a generally sleepy day - a session that another trader characterized as "a little blah."

Neither the new Iron Mountain senior subordinated notes due 2020 nor the new Scientific Games 7 7/8% notes due 2016 were seen in Monday's aftermarket.

One of the traders said that as was the case with the existing Ply Gem bonds, the outstanding Iron Mountain paper was a little easier, "of course in response to the new issue - it's just a realignment." He saw the company's 7¾% notes due 2015 trading around 101.25 bid, 101.75 offered, down from the102 level where the bonds had previously traded, although he said that it was "not much of a drop, really - down about ½ a point."

Market indicators point lower

Away from new deal activity, a trader said the widely followed CDX junk bond performance index was down ½ point, quoting it at 96½ bid, 97 offered. The KDP High Yield Daily Index meantime fell 17 bps to 75.49, while its yield widened by 4 bps to 9.34%.

In the broader market, advancing issues trailed decliners by nearly a five-to-four margin. Activity, represented by dollar volume levels, fell nearly 32% from Friday's levels.

A trader said that "despite the weakness in equities" - the bellwether Dow Jones Industrial Average fell 134.50 points, or 1.06%, to 12,503.82, while broader indexes were also weaker, on lackluster economic data and investor worries about the financial sector - "and the brow-beating by the news people on CNBC, it really didn't affect the high yield market much."

Noting that three new deals had been announced for the day and that Ply Gem had by that time gotten done - the other two would follow a little later - "things were sort of OK." He noted that while the market was quiet, which has mostly to do with the fact that there was some calendar around, the market was reasonably well bid.

At this shop, he said, "we saw a bunch of bid lists and pretty good participation across the board."

The trader said that "it felt like the market wanted to go down at the open, but the market kind of hung in really well. I was really surprised - I was thinking that things would continue lower, but they did not."

Cerberus news fails to dent GMAC

The trader noted, for instance, the headlines about Cerberus' alleged sale of "significantly" more than half of its controlling stake in GMAC, and in Chrysler LLC as well. Against that backdrop, he said that he "really didn't see much" activity or movement in the credit. "You'd think that they would be down - but not really. The stuff is kind of unchanged. It's kind of surprising."

He said that he "did not see much action in the autos at all - if anything, they were better bids, maybe at slightly lower levels, but there were better bids out there."

Another trader also expressed some amazement that while there was "big news, [there was] not a lot of big action" in GMAC's bonds in response to the Cerberus story.

"I was surprised," he said. "I did not see a lot of trading." He quoted GMAC's benchmark 8% bonds due 2031 at 74 bid, 75 offered, "down maybe a little bit, maybe a half point - but there were not a lot of trades." He said that activity in GMAC was "no big deal. I did not see activity in the GMAC global issues."

A market source saw the GMAC 8s up about 3/8 point at just below 75. But another source saw those bonds down 1½ points to 74, while GMAC's 6 7/8% notes due 2012 lost a point to 79.5 bid.

A trader saw GMAC's wholly owned Residential Capital bonds like its 6½% notes due 2013 remaining around 49 bid, 50 offered, little changed on the news reports involving its parent. "With news going on about GMAC, you'd think [there would be a lot of trading in ResCap]." He called the day's activity "no great shakes - not much trading at all today."

One factor behind the lack of activity may have been confusion over just what had or had not taken place. The Financial Times reported that Cerberus, a New York-based private equity firm, had sold considerably more than half of its 51% stake in GMAC and its 80.1% holding in carmaker Chrysler to a group of some 90 investors.

But Cerberus said Monday afternoon that it "has not reduced or made any changes to its equity stakes in GMAC or Chrysler since the closing of either transaction," adding that "Cerberus continues to have voting control over both investments."

The Cerberus statement noted: "It is common knowledge, and has been widely reported, that Cerberus made these investments side-by-side with its co-investors at the time of closing." Among the co-investors who were part of the Cerberus-led syndicate that bought a 51% stake in GMAC from General Motors Corp. in 2005 for about $13 billion were Aozora Bank of Japan, Avenue Capital, Cyrus Capital Partners, Franklin Templeton Investments and Oak Hill Advisors. Cerberus, beyond acknowledging that there were some co-investors who bought stakes in the deal at that time, has never given any kind of detail on just what percentage of GMAC the other investors had bought or what they paid for it.

Also in the autosphere, GM's 8 3/8% bonds due 2033 were seen by a trader down a point at 67.75 bid, 68.75 offered, while domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were 1½ points lower at 67.5 bid. 68.5 offered.

Sprint Nextel calms down

Sprint Nextel's bonds and those of its Sprint Capital Corp. subsidiary - which were seen heavily traded last week, particularly on Friday - were again trading around on Monday, albeit at more relaxed activity levels. A market source saw the latter company's 8 7/8% notes due 2012 as one of the more active issues on the day, although when all was said and done, it was up only a touch to levels just below 98. The parent's 7 3/8% notes due 2015 were seen up a point at 81.

A trader at another shop saw the 7 3/8s up ¼ to ½ point at 80.5 bid, 81 offered. The 7 5/8% notes due 2011 were "up ¼ to ½ point as well," at 97 bid, 97.5 offered. He saw the widely traded 6% notes due 2016 hanging in "pretty much unchanged" at 82.5 bid, 83 offered. While it was among the more active issues, its volume level was just a small fraction of Friday's busy trading.

Another market source suggested that the busy dealings seen in parent Sprint's bonds and in Sprint Capital's last week, particularly during Friday's session - several traders said there was little or no real news out about the credit - were most likely due to technical factors.

"It was a month-end and the bonds were transitioning from the IG indices to HY indices," the source said, in view of the fact that the Overland Park, Kan.-based wireless service provider's bonds are now rated as junk by two out of the three major ratings services, "so there was probably a lot of index-related - cash index - trading."

Sprint, which was formerly considered investment grade by all three agencies, began its descent to junk status back on Feb. 28, when Fitch Ratings downgraded the parent company's issuer default rating and senior unsecured notes to BB+ from BBB- and its short-term issuer default rating to B from F3 and commercial paper to B from F3, and put those ratings under scrutiny for a possible further downgrade. It also dropped Sprint Capital's issuer default rating and senior unsecured ratings, as well as those of the old Nextel Communications Inc. and several smaller wireless providers that Sprint absorbed, to BB+ from BBB-. Fitch said the downgrade reflected expectations that the company's financial metrics and operating results for 2008 will be "much worse than expected."

On May 1, Standard & Poor's lowered Sprint Nextel's corporate credit and senior unsecured ratings to BB from BBB- and similarly cut the ratings of its various subsidiaries, although the agency did remove the ratings from CreditWatch and called their outlook stable, meaning a further downgrade in the near future is less likely. S&P said the downgrade was based on its assessment that Sprint Nextel's business risk profile "no longer supports an investment-grade rating given its deteriorating operating performance and lack of visibility in the wireless business." The new ratings reflect declining revenue and margins due to the continued erosion of its subscriber base and high churn, as well as expectations for increased leverage over the next few years, the agency said.

With two out of the three agencies now calling Sprint Nextel junk, a number of high-grade accounts were forced to get out of the credit, and it was dropped from several leading investment-grade indexes, as the source noted.

For the moment, Sprint Nextel and its subsidiaries retain a foothold in high-grade territory with their Baa3 senior unsecured long-term debt and bank credit facility ratings from Moody's Investors Service - although that agency warned on May 16 that it was putting those ratings under review for possible downgrade. Moody's said the action reflects its concerns that the company's ability to restore the health of its operations and generate adequate levels of free cash flow "may be curbed by powerful competitive challenges and slowing subscriber growth."

Trump steps back

A trader saw Trump Entertainment Holdings' 8½% notes due 2015 at 65 bid, 66 offered, "a little easier" from where they had ended last week.

Another trader concurred, quoting the bonds as having gone as low as 65.5 bid before closing at 66 - which he said was still 1½ points down from late Friday levels.

Those bonds had shot up to the higher 60s from prior levels around 58-59 around mid-week in very active dealings on the news that the debt-laden, cash-hungry company had agreed to sell its Trump Marina hotel and casino for $316 million. Trump's chief executive officer, Mark Juliano, said that the company might use the money to reduce debt, further invest in its Atlantic City operations, or look for investment opportunities outside of Atlantic City.

Standard Pacific firming continues

Several traders reported continued firming in Irvine, Calif.-based homebuilder Standard Pacific's bonds, which had firmed smartly last week on the news that it would get a $530 million investment from the MatlinPatterson private equity firm.

One did see the company's bonds "pretty much unchanged" Monday following their big run-up last week. He saw the longer paper, like the 7% notes due 2015, steady at 81, while the 6 7/8% notes due 2011 were likewise unchanged at 89 bid, 91 offered, and described the credit as "a little boring."

But another trader said that the paper continued to firm for yet another day, seeing its 6½% notes coming due later this year at 99.5 bid, up maybe ½ point, while its 9½% notes due 2012 were "up maybe a point" at 79 bid, 80 offered.

The second trader meantime said he was "very surprised" by a rise in Beazer Homes USA Inc.'s 8 5/8% notes due 2011 which he saw around 91 bid, versus 89.5 bid in round-lot trading at the end of last week. "Without any specific credit news," he mused, "I was very surprised that a homebuilder, of all things, could be going up in a negative environment."

Also in that sector, Hovnanian Enterprises Inc.'s 6 3/8% notes due 2014 were seen down 1½ points at 69.

Vertis trading flat

A trader saw Vertis Communications Inc.'s bonds trading flat after the company said it would not make scheduled interest June 1 and June 15 interest payments. He saw its 9¾% notes due 2009 at 96.5 bid, 97.5 offered and its 10 7/8% notes due 2009 at 42 bid, 44 offered.

The Baltimore-based commercial printing company - which is merging with rival American Color Graphics said that it was skipping the interest payments to conserve cash, and that its lenders had agreed to forbear on taking any action to enforce their rights at least through the middle of next month.

Vertis and Brentwood, Tenn.-based American Color Graphics plan to merge via a prepackaged bankruptcy proceeding, in hopes of reducing their combined debt by nearly $1 billion. The companies said a majority of their senior note holders now have agreed to exchange their bonds for $550 million in new notes and a substantial ownership stake in the combined company.

Sara Rosenberg contributed to this report.

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