PNA jumps on its planned acquisition; Dollar General up on earnings; Lender Processing downsizes deal

By Paul Deckelman and Paul A. Harris

New York, June 17 - PNA Group Inc.'s bonds shot up in spectacular fashion on Tuesday, traders said, jumping some 20 points on the news that parent PNA Group Holding Corp. had agreed to be acquired by Reliance Steel & Aluminum Co. for $1.1 billion.

In that same metals sectors Aleris International Inc.'s bonds have recently been moving up in active trading despite a lack of fresh news about the Beechwood, Ohio-based aluminum producer. One of its issues was seen up some 3 points on the session Tuesday.

Dollar General Corp.'s bonds were seen solidly higher, after the discount retailer posted favorable quarterly results.

There was still more upside for Boyd Gaming Corp., with the Las Vegas-based casino company benefiting from continued takeover talk, although it's still just that - only talk.

Petrohawk Energy Corp.'s new add-on bonds, which priced on Monday, were seen tethered to their issue price. Visteon Corp.'s new bonds - issued as the result of the company's recent tender offer for a portion of its outstanding debt - retreated sharply from where they were a day earlier.

No issues were seen having priced on Tuesday, although high yield syndicate sources heard that Lender Processing Services Inc. downsized its upcoming eight-year issue, shifting some of the borrowing to its term loan, while restructuring the call features on what remained of the bond deal. Price talk emerged on the offering, which is expected to price on Thursday.

Market indicators edge upward

A trader said that the widely followed CDX junk bond performance index was up about 3/8 point on the session, quoting it at 96 3/8 bid, 96 ¾ offered. The KDP High Yield Daily Index meantime rose 5 basis points to 75.04, while its yield narrowed by 1 bp to 9.52%.

In the broader market, advancing issues led decliners by a narrow margin. Activity, represented by dollar volume levels, more than doubled from Monday's levels.

Traders like the tone

A trader said that while "it was hard to say the market had real direction," he acknowledged that "things definitely had a good tone at the open," helped by early rallies in stocks, which were heartened by the better-than-expected numbers posted by Goldman Sachs Group Inc., and Treasuries, which drew some strength from indications that the Federal Reserve is likely to not immediately raise interest rates at its upcoming policy meeting next week as an inflation-fighting measure.

While that early stock market strength did not last, "I really didn't see much softness, even with equities down 100 [points on the Dow Jones Industrial Average; the bellwether market measure ended down 108.78, or 0.89%, to 12,160.30, while broader market indexes also finished lower]. I would have expected things to soften up a little bit here [in junk] at the end of the day, but I really didn't see that. It seems people have the cash to put to put to work. If anything, it seems to me we have better buyers."

The better-than-expected quarterly numbers from Goldman Sachs, widely considered to be the strongest of the major banking and brokerage firms, in part because of its ability to navigate relatively unscathed the mortgage crisis that has wreaked havoc on the finances of so many of its competitors - Goldman actually correctly bet that mortgage-related debt would fall in value, benefiting handsomely from its short positions - as well as its savvy investments in commodities as prices skyrocketed, was a sign to Wall Street, he said, that "the world is safe" and the worst may be over, or at least coming to an end.

"We may have a little soft patch here, but the world is not going to blow up. So people are dipping a toe in the water."

Generally speaking, another trader said, "there was definitely a better tone [Tuesday] morning right out of the chute. There were accounts coming in looking for offerings, there were probably a three-to-one ratio of buyers to sellers. You had the equity market opening up higher and you had Treasuries higher."

Later in the day, he said, "equities turned around into negative territory, and you definitely saw our initial morning spark fizzle out - but I really didn't see anything getting hit, per se."

However, he allowed, junk "did lose some of the early morning luster that we had."

He is of the opinion that "the market wants to rally, but once some negative news comes out, everyone is sort of pulling back, rather than jumping in and getting caught long."

"Once those Goldman numbers came out things were pretty good," added a trader from a high yield mutual fund.

"It was a decidedly jubilant morning. After that the market kind of drifted with stocks for the rest of the day."

A senior high-yield syndicate official said: "It feels like the secondary is stabilizing.

"We're a bit better than we were at the end of last week and the beginning of this week."

PNA Group soars on sale of company

"It would have been nice to be long" PNA Group's 10¾% notes due 2016, a trader said, seeing them zoom a stunning 20 points Tuesday on the news that the Atlanta-based steel service center group's owner, Platinum Equity, had agreed to sell the unit for about $1.1 billion to Reliance Steel.

He saw the bonds trading actively in a range of 115 to 117, with the last round-lot trades at the latter figure - in sharp contrast to its previous closing levels at 97. "Up 20 points, baby!" he exclaimed.

The company's other issue, its zero-coupon bonds due 2013, were also seen having moved up by a like amount, to a quote of par bid from previous levels around 79.25, although the trader pointed out that the latter was just an odd-lot trade at least a month ago.

While the zeroes have been little-traded, the 103/4s were seen by a market source to have been among the most actively traded issues on the day, with over $14 million of the notes changing hands by mid-afternoon, putting it among the top three movers up to that point. It finished among the 10 most actively traded issues, the source said.

Los Angeles-based Reliance Steel, which processes and sells steel product to such diverse sectors of the economy as the aerospace, energy and construction industries, anticipates being able to finance the acquisition of PNA via its existing credit facility and by raising about $750 million by issuing new debt and equity securities.

It sees the acquisition of PNA - which processes and distributes primarily carbon steel plate, bar, structural and flat-rolled products - as likely to be immediately accretive to its earnings.

PNA, which was bought by Platinum Equity in 2006, operates through such subsidiaries as Delta Steel LP, Feralloy Corp., Infra-Metals Co. - as well as the oddly named Sugar Steel Corp.

The deal is expected to close in 60 days, pending regulatory approvals.

Aleris a busy mystery

In that same metals sector, traders have noticed a fair amount of activity over the last few sessions in the bonds of Aleris International - although there seems to be no fresh news out about the aluminum producer that would explain the sudden surge of investor interest.

On Friday, a trader said that the company's 10% notes due 2016 "have been moving around," quoting those bonds up a point at 76 bid, 78 offered, while seeing its 9% notes due 2014 around 82.5 bid, 84.5 offered on "very little movement."

He said that while Jefferies & Co. had put out a "buy" recommendation on the bonds last week, he didn't think that would generate "enough buzz" to cause busy trading in the bonds and wondered whether some other positive research had come out on it.

Another trader that session saw "lots of odd-lot activity" in the 10s in a range of 78-79 - as many as "10 pages" of relatively small odd-lot trades, in the 10 to 25 bond size, on the Trace bond-tracking system that day - and suggested that "this must be the bond of the week at some firm." While the 9s seemed anchored in an 81.5-82 context on several big-block transactions, "the 10s gained another point as retail buyers continued to buy this issue."

It was more of the same on Monday. The second trader noted that in that session there had been three full Trace pages of $10K to $20K trades in the 10% bonds, at prices ranging from 79 to 82.5, before the paper closed around 80.

"Someone is definitely pumping out these bonds, most likely with a research report," he declared, theorizing that "someone probably took down a round lot [of the bonds] and is pumping out these odd lots" to retail buyers, "such as high net-worth accounts that are buying these 10s and 20s [bond lots]."

In Tuesday's dealings, there was substantial price movement in the 9% bonds, with a market source seeing them jump from the 81 to 81.5 area at which they traded last week, to levels above 84 bid, with several round-lot trades at that substantially higher price. Meanwhile, there was still considerable small odd-lot activity in the 10% bonds, mostly around the 80 area, although there were a couple of bigger trades at prices as low as 77.25-77.5.

There were "still tons of odd-lots" trading, the second trader said, noting another three pages on Trace. He elaborated on his theory that "someone is buying [the 10s] at the round-lot price of 77.25 or 77.5, and then moving them up, selling them for points higher to their retail system or high net-worth division. It's a two-tier market."

Dollar General turns higher on numbers

Elsewhere, Dollar General's bonds were seen to have firmed smartly after the Goodlettsville, Tenn.-based store chain reported numbers for the fiscal first quarter ended May 2. A market source saw the company's 11 7/8% notes due 2017 at 95.75, and its 10 5/8% notes due 2015 at 100.25, both up 1¾ points in busy dealings.

Another trader said that the 10 5/8s were particularly active - well over $25 million had changed hands by mid-afternoon, far outpacing their nearest rivals - trading in a range between 99.5 and 101, and ending at 100.25, which he called 1¼ point rise.

The company reported its numbers as things were winding down late in the day on Monday.

While Dollar General's net income slid to $5.9 million from $34.9 million in the 2007 first quarter, company executives noted improvements in some other financial measures. EBITDA increased by $62.9 million in the 2008 quarter to $168.8 million, while adjusted EBITDA increased by $39.8 million, or 28%, versus year-ago levels.

Sales for the quarter were $2.40 billion, up from $2.28 billion in the first quarter of fiscal 2007. Same-store sales at outlets open at least one year - a key economic metric for the retailing industry - increased 5.4%, on top of a 2.4% same-store sales increase in the first quarter of 2007.

"We are pleased with Dollar General's operating and financial performance during the first quarter," the company's chief executive officer, Rick Dreiling, enthused.

Boyd gains continue

In the casino sector, a trader saw Boyd Gaming's 6¾% notes due 2014 up a point at 84.5 bid, 86.5 offered, and said that it was continued buyout speculation that has been pushing the bonds higher over the past several sessions. However, there still has been no concrete news of anyone having actually made an offer for the company, or even being in any kind of talks.

Another trader saw Boyd's 63/4s and its 7¾% notes due 2012 pretty much unchanged at 84 and 92.5, respectively, but did see Boyd's 7 1/8% notes due 2016 up ½ point at 80 bid, 80.5 offered. At another desk, a source had that latter bond up nearly a point at 80.5.

Elsewhere in the gaming arena, Harrah's Operating's 5¾% notes due 2017 were slightly better on the day but still languished around 55 bid. MGM Mirage's 6 5/8% notes due 2015 also edged up to the 83 bid level and its 6¾% notes due 2013 gained almost a point to just under 88.

Chiquita little changed despite clarification

Chiquita Brands International Inc.'s 8 7/8% notes due 2015 were up "maybe ¼ point" in round-lot trading to 90 bid, 92 offered, a trader said. Those bonds had fallen several points on Monday when the Cincinnati-based fruit and vegetable importer and processor warned of a "significant" upcoming loss. The company tried to make amends on Tuesday, issuing a clarification which sought to put the projection in perspective, saying the expected loss will be "roughly in line" with the loss of 66 cents a share it reported in the year-earlier period

Petrohawk hangs in, Visteon retreats

Among the new bonds which had priced on Monday, a trader saw Petrohawk Energy's 7 7/8% notes due 2015 at 98.75 bid, 99.25 offered, little changed from 98.75 price at which those $300 million of add-on notes had priced.

However, a trader saw Visteon's new 12¼% notes due 2016 at 88 bid, 89 offered, while another trader saw them even lower, at 86.75 bid, 87.75 offered. The notes emerged with a Monday trade date as part of the Van Buren Township, Mich.-based automotive components company's previously announced exchange offer for a portion of its 8¼% notes due 2010. They came at a greatly discounted 91.621 in order to yield 14½%. Visteon's existing 7% notes due 2014 were slightly lower on the day at the 64 bid level.

Lender Processing shifts to loan

The primary market produced only a slight amount of news.

Lender Processing Services downsized to $375 million from $400 million its offering of eight-year senior notes (Ba2/BB+), and set price talk at the 8¼% area.

The proceeds were shifted to the company's term loan B which was upsized to $510 million from $485 million.

Price talk on the term loan B is still Libor plus 275 bps to 300 bps, but, since the deal is going very well, investors are focusing on the tight end of that talk, according to a bank loan market source who added that the original issue discount on the term loan B is guided at 98.5.

The bond deal was also heard to be flourishing.

"It should go pretty well," said a buy-side source.

"It's a matter of getting your hands around the company, and it's a pretty decent company."

In a restructuring, Lender Processing extracted a concession with respect to call protection, decreasing it to three years from four years. The notes will become callable in three years at par plus three-fourths of the coupon.

JP Morgan, Banc of America Securities LLC and Wachovia Securities are joint bookrunners for the spin off deal.

CW Media to roll bridge

Elsewhere Tuesday sources said that underwriters will roll the CW Media Holdings Inc. high yield bridge into $310 million of seven-year PIK notes in a deal expected to price during the middle of next week.

Goldman Sachs & Co. has the books.

The bridge loan was put in place to help fund the acquisition of Alliance Atlantis Communications Inc. by CanWest Global Communications Corp. and GS Capital.

New issue premium normalizing

A senior high-yield syndicate official told Prospect News that lately new issue premiums are back in the ¼ to 3/8 point range.

"We had gotten down to 10 bps and lower in mid-May," the official said.

"Now we're back to normalized new issue premiums."

As evidence this source pointed to a pair of transactions which were priced last week.

Targa Resources Partners LP and Targa Resources Finance Corp. priced a $250 million issue of eight-year senior unsecured notes (B2/B) at par to yield 8¼%, at the wide end of the 8% to 8¼% price talk, the official recounted.

Also last week Sotheby's priced a $150 million issue of 7¾% seven-year senior notes (Ba3/BBB-) at 98.681 to yield 8%, 12.5 basis points beyond the wide end of the 7¾% area price talk, the source noted.

Another senior official from a different high yield syndicate more or less agreed.

"We saw things blow out dramatically much earlier this year, but more recently they tightened in.

"There were deals that came in the low sevens, and traded off a bit on the break.

"People then understood that when you price something that tight there is not much upside, and it created a psychological threshold."

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