Pilgrim's Pride takes a ride; Capmark unfazed on news; Neiman debt better; Clear Channel firms

By Stephanie N. Rotondo and Paul Deckelman

Portland, Ore., Sept. 3 - The day's biggest mover Thursday was by far Pilgrim's Pride Corp., which gained as much as 10 points on news it could be acquired.

A Wall Street Journal report indicated that a Brazilian meatpacking company was interested n the bankrupt chicken processor. And one analyst believes that the combination would make sense.

Meanwhile, Capmark Financial Group Inc.'s bonds were largely unchanged on news the company had signed an asset put agreement with a new subsidiary of Berkshire Hathaway Inc. However, the company's bank debt posted some gains following the news.

Neiman Marcus Group Inc. released its August sales figures during the day's session. The better-than-expected numbers gave the Dallas-based retailer's debt a boost, traders reported.

In other news, Clear Channel Communications Inc.'s notes shook off a rating change from Moody's Investors Service. The bonds continued to climb, which traders said had been the credit's modus operandi of late.

Market players remarked that the day was "pretty uneventful," given that the next day is the last trading day before the Labor Day holiday. Though technically there is not an early close Friday, many traders are not planning to be at their desks all day, if at all.

Pilgrim's Pride takes a ride

Pilgrim's Pride's bonds were sharply higher on the day, in active trading, on news reports indicating that Brazilian meatpacking giant JBS S.A. might acquire the bankrupt U.S. chicken processor.

The Wall Street Journal, quoting unidentified sources "close to the matter," reported that JBS "is set to announce as soon as next week" the purchase of Pilgrim's Pride out of bankruptcy for about $2.5 billion. The paper said that the deal was "in the final stages of negotiation Wednesday" and cautioned that it still "could fall apart."

A trader saw the company's 7 5/8% notes due 2015 going out at 105 1/8 bid, up from par on Wednesday, with $11 million traded, while its 8 3/8% senior subordinated notes due 2017 ended at 104, well up from a prior round-lot level of 92.75 on Tuesday, on $10 million of volume.

A market source at another shop noted that the 7 5/8s had jumped as high as 108 bid before coming off that peak to end in a 105ish context, while the 8 3/8s got as good as 107 right at the opening, before going home at 101, up around 10 points on the session, although on a round-lot basis, the bonds were up about 11 or 12 points.

Analyst Aqeel A. Merchant at Knight Libertas LLC in Greenwich, Conn., declared that the Pilgrim's Pride bonds "went through the roof" on the news, although they have come down a little from their initial high points.

He noted that, according to a Wall Street Journal article about the possible merger, "what is going to get paid is $1.2 billion in secured debt and $1 billion in unsecured debt and accrued interest" - the company has $400 million of the 7 5/8s outstanding and $250 million of the 8 3/8s - "so trading levels for both the unsecured tranches now reflect some of the interest accrued since May 2008, discounted for deal risk."

Merchant, who follows the food, beverage and restaurant industries for Knight Libertas, noted that although news of an impending deal between the two companies "has not been circulating around" - the surprise factor produced the big run-up in Pilgrim's Pride bonds when it hit the pages of Thursday's Journal - neither was it a complete shock. For instance, the Journal story itself pointed out that JBS "for years has been on a global acquisition binge, designed to make it the biggest" player in the industry.

"So it's not out of the ordinary that this company would make a move for [Pilgrim's Pride], the analyst said.

He also noted that there had also been other recent rumblings in the financial press speculating that the bankrupt Pilgrim's Pride might be an acquisition target of either JBS or of its larger domestic rival Tyson Foods Inc.

However, Merchant explained, JBS emerged as a more likely suitor because "it would have been a little more difficult for Tyson to make a move for it, given that Tyson controls so much of the chicken market already, that it would have been an antitrust issue" with U.S. regulators. He estimated that Tyson and Pilgrim's Pride each control more than 20% of the U.S. chicken market, making any such combination likely to raise government red flags.

"That's not the case with JBS," he continued, since the latter company - while certainly no stranger to the U.S. meat processing market, through its ownership of Swift & Co. - "has no presence in the poultry industry," making it "a more likely candidate" to buy a major U.S. chicken concern than Tyson.

He noted further that JBS' U.S. entity filed an S-1 stock registration statement in July with the Securities and Exchange Commission, "so they could use the proceeds [from such an offering] to make an acquisition." He said that the $2.5 billion price mentioned in the Journal account "sounds reasonable - and the offer could even be north of that."

The Journal further said that given the huge run-up in the company's bonds from their depths late last year, when the Pittsburg, Texas-based company filed for Chapter 11 - the senior notes hit a nadir of 17 in November and the subs languished as low as one cent on the dollar at one point in December - some of the "big winners (or investors who at the very least will break even)" would include OakTree Capital Management, Calamos Advisors and Kornitzer Capital Management, which hold a mix of senior and junior unsecured bonds, totaling about $1 billion.

Capmark mostly unfazed

Capmark Financial Group's bonds were unchanged to lower just one day after posting a quarterly loss and announcing it had entered into an asset put agreement with a new venture of Berkshire Hathaway Inc. and Leucadia National Corp.

A trader said the bonds were down a point, seeing the floating-rate notes due 2010 at 22 bid, and the 7 7/8% notes due 2012 at 19 bid, 20 offered.

Another market source deemed the debt unchanged at 19 bid, 20 offered across the board.

However, Capmark's bank debt did trade up on the news.

The company's unsecured term loan was quoted at 20¼ bid, 21¼ offered, up from 19 5/8 bid, 20 5/8 offered on Wednesday, and its roll-up loan was quoted at 72 bid, 73½ offered, down from 74 bid, 75 offered, a trader said.

Late Wednesday, Capmark said it inked a deal with Berkadia III LLC, in which the company has the option to sell its North American servicing and mortgage banking business and all related assets to Berkadia. Capmark paid Berkadia $40 million for the put option.

Under the terms of the agreement, once the put is exercised, the assets will be sold for about $490 million. If the sale occurs outside of bankruptcy, then Capmark will receive $375 million in cash, a $40 million holdback held by Berkadia for indemnity claims and a $75 million note.

However, if the sale occurs and Capmark is in bankruptcy, then the price will include $415 million in cash and the $75 million note.

Also on Wednesday, the Horsham, Pa.-based financial services company reported a second-quarter loss of nearly $1.6 billion. The company said it expects the FDIC to require it to bolster its liquidity and capital.

Capmark noted that it was reviewing its restructuring options, which include a potential bankruptcy filing.

Neiman sales, debt better

Neiman Marcus Group's capital structure ended moderately stronger after the company reported better-than-expected August sales results.

A trader called the bonds "a little bit better," quoting the debt generically at 75 bid, 76 offered. Another source saw the 10 3/8% notes due 2015 improving by about half a point at 75.75 bid.

Neiman's term loan was also stronger on Thursday. The term loan was quoted by some traders at 82½ bid, 83½ offered and by others as high as 83 bid, 84 offered. By comparison, on Wednesday, the loan was seen at 82 bid, 83 offered.

For the four weeks ended Aug. 29, the company's total revenues were $241 million, down 15.3% from $285 million in the comparable period last year.

Comparable revenues for the month were $237 million, down 16.6% from $284 million in August 2008.

And, in August comparable revenues in the specialty retail stores segment, which includes Neiman Marcus Stores and Bergdorf Goodman, decreased 19.6% from the prior year.

The company said that the merchandise categories in the specialty retail stores segment that performed the strongest were ladies' shoes, precious jewelry, beauty and couture apparel.

Neiman Marcus is a Dallas-based high-end specialty retailer.

Among other retailers, Bon-Ton Department Stores Inc.'s 10¼% notes due 2014 were seen climbing up to around 63, according to a trader.

Clear Channel shakes off rating changes

Clear Channel Communications' notes remained on their upward path Thursday, despite a rating amendment from Moody's Investors Service.

"They have been moving up recently," a trader said, though he noted the debt was "quiet today."

The trader called the 11% notes due 2016 "up slightly" at 25.75.

At another desk, the bonds were seen unchanged to higher, the 5½% notes due 2014 at 34 bid, 35 offered and the 11% notes due 2016 at 25.5 bid, 26 offered.

Another source remarked that the name has seen "better buyers" of late.

Moody's changed its probability-of-default rating on the radio firm to Caa3/LD from Caa3. The agency cited the company's recent completion a tender offer, which Moody's deemed as a distressed exchange.

The outlook remains negative.

Clear Channel reduced its debt by $412 million, though it paid only $149 million to do so. While this was beneficial to the bottom line, it might also hurt the company's covenant ratios.

"Clear Channel's ratings and negative outlook continue to reflect Moody's expectation that the company will likely need to restructure its balance sheet, either due to a violation of its senior secured leverage covenant over the next several quarters, or within the next few years as the company faces material maturities of debt with insufficient liquidity to meet them and to much leverage to attract refinancing capital," stated Neil Begley, Moody's senior vice president, in a statement.

"Therefore, Moody's continues to believe that the company's capital structure is unsustainable."

Earlier in the week, Standard & Poor's also cut its rating on Clear Channel. The rating was lowered to SD from CC.

Sara Rosenberg contributed to this article.

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