Lyondell leaps on buyout by Basell; Pogo also up on M&A; downsized Cardtronics prices

By Paul Deckelman and Paul A. Harris

New York, July 17- Lyondell Chemical Co.'s bonds were solidly higher Tuesday on the news that the Houston-based chemical manufacturer will be acquired by Dutch chemical maker Basell Holdings, BV for $12.72 billion.

Also on the merger and acquisition front, Pogo Producing Co.'s bonds sprang up about a point or two after the announcement that the independent oil and gas exploration and production operator will be acquired by Plains Exploration & Production Co.

There was continued talk in the financial markets that billionaire investor Warren E. Buffet might buy a stake in K. Hovnanian Enterprises Inc., but the Red Bank, N.J.-based homebuilder's bonds were little moved on that speculation.

In the distressed markets, Movie Gallery Inc.'s bonds were seen continuing to gain ground on top of two strong sessions on Friday and Monday, which had seen its 11% notes due 2012 jump about 14 points.

There was a little initial movement in Bally Total Fitness Holding Corp.'s bonds following the announcement that the Chicago-based fitness club operator's lenders had granted the company forbearance running through the end of the month.

A high yield portfolio manager who spoke to Prospect News late Tuesday said that the cash junk bond market was up 1 to 1½ points, but added that the cash loan market, as well as the CDX and the LCDX indexes were lower, with the indexes suffering the worst.

"The high yield is up off of its lows, and it's really pretty stable," the buysider asserted.

"If it went down much there would be people buying it," the source added, specifying that there is still cash to put to work in junk.

Meanwhile in the primary market, Cardtronics, Inc. priced a smaller than planned $100 million add-on to its 9¼% notes due 2013 at 97.00.

One source told Prospect News that the transaction is notable because - if for no other reason - Cardtronics is the first U.S. company to complete a junk bond transaction since June 29.

Cardtronics shrinks

Cardtronics priced a downsized $100 million add-on to its 9¼% senior subordinated notes due Aug. 1, 2013 (Caa1/B-) at 97.00 on Tuesday, resulting in a 9.916% yield.

There had been no official price talk.

Banc of America Securities LLC was the bookrunner for the deal, which was reduced from $125 million.

Proceeds will be used to partially finance the previously announced acquisition of the financial services business of 7-Eleven, Inc.

The original $200 million issue priced at 99.305 on Aug. 3, 2005 to yield 9 3/8%, so the Houston-based ATM operator saw its interest expense, relative to the original issue, shoot up by 54 basis points with Tuesday's transaction.

A sell-sider not in the deal but who none the less applauded the fact that it "got done," put it another way.

The existing 9¼% notes due 2013 had been trading at 101 bid, 101.50 offered in late June, the sell-sider said.

So indeed a couple of weeks can make a difference.

However, the source went on, all in all the Cardtronics transaction is a positive sign for a primary market that has more or less been dead in the water.

It is the first deal to be priced by a U.S.-based company since June 29 when National Mentor Holdings, Inc. and Metals USA Holdings priced deals, the source said.

Intergen talks $1.975 billion

Elsewhere Tuesday Intergen Group set price talk for it $1.975 billion equivalent multi-currency offering of senior secured notes (Ba3/BB-).

The Burlington, Mass., power generation company talked three tranches of 10-year notes as follows:

• Dollar-denominated notes are talked at 8½% area;

• Euro-denominated notes are talked at 8% area; and

• Sterling-denominated notes are talked at 9% area.

No price talk was given for an expected offering of floating-rate notes.

The Merrill Lynch-led deal is expected to price Thursday.

A high yield portfolio manager said that the 8½% area price talk on the dollar tranche is being viewed as "too rich" from the buy-side point of view, and added that there is believed to be substantial interest in the dollar-denominated Intergen bonds at 8¾%.

Buy-side at the wheel

The portfolio manager was not shy in asserting that presently in the leveraged markets the buy-side is calling the shots.

For the best recent example the portfolio manager pointed not to the bond market but to the leveraged loan market where Cerberus Capital Management is attempting to raise $20 billion in order to finance its acquisition of Chrysler Corp. LLC

The buysider said that pricing on the $10 billion first-lien Chrsyler Corp. tranche of the bank deal had backed up to Libor plus 375 basis points from 325 bps. The market is speculating that the loan will come at a discount of 98 to 99.

Meanwhile the $2 billion second-lien tranche pricing increased to Libor plus 700 bps from Libor plus 600 bps. The market speculating that this piece will come at a price of 97.

There is also $8 billion of bank debt for Chrysler Financial Services LLC.

"Everybody knows that they have to get it done," the investor said.

"You can practically name your price."

A brief hiatus

Acknowledging that the first half of July has been a dry season in the high yield primary, the portfolio manager said that the drought won't last forever.

"I keep getting all sorts of documents," the source said.

Lately there has been talk that First Data Corp. will shortly burst upon the scene with an expected $8 billion (!) of new high-yield bonds to help fund the LBO of the company by Kohlberg Kravis & Roberts, in a deal to be led by Citigroup.

The buy-sider acknowledged hearing the story, as well, but said that sources have been contending that First Data, as well as other big LBO financings that are in the pipeline, may be more likely to step into the light after Labor Day.

Cardtronics moves slightly higher

When the new Cardtronics 9¼% notes due 2013 were freed for secondary dealings, a trader - who noted that the new issue "is not fungible with the existing bonds - saw the new bonds at 97.5 bid, 98 offered, up about ½ point from their issue price at 97.

Lyondell buyout winning formula

The news that Basell Holdings will buy Lyondell sent the latter's stocks and bonds "up pretty good," a trader said, noting that the company will be taken over "by a stronger credit." The overall pricetag of the deal is $19 billion, including debt assumption.

He saw Lyondell's 8% notes due 2014 jump from 104.75 bid, 105.25 offered on Monday, to a Tuesday close at 108.875 bid, 109.375 offered.

Another trader said he saw the Lyondell bonds quoted up 5 points "before sellers came in across the board." Even with that interruption, he said, the bonds still ended up about 3 or 4 points on the session. While he saw a lot of quoting in the various Lyondell issues, he said that "not a whole lot traded."

However, another market source saw the Lyondell bonds as being among the most actively traded junk issues Tuesday, with the 6 7/8% notes due 2017 especially busily traded, gaining about 5 points on the day to about the 106 level.

The Lyondell 8¼% notes due 2016 were seen up more than 3 points on the day at around the 110.625 mark. Its 8¼% notes due 2016 were seen 4 points better, around 111.

Another trader did see a Lyondell issue which went down on the day, saying the usually little-traded 9.80% notes due 2020 were down 3 points to the 106-107 region.

"The bonds have different covenants [than the other Lyondell debt] and different leverage security, and it's not going to benefit the bondholders as much."

Lyondell's New York Stock Exchange-traded shares jumped $6.93 (17.27%) to $47.05 on the news. Volume of 52.8 million shares was more than 10 times the usual daily turnover.

While the bondholders were pleased with the deal, the ratings agencies were not nearly as thrilled, putting Lyondell's bonds and other debt under scrutiny for possible downgrades.

"We expect Basell to finance the purchase largely with debt, which will result in a very aggressive capital structure," Standard & Poor's said in a statement.

Pogo pushes upward

Also in the M&A area, Pogo Producing's bonds firmed smartly on the news that fellow energy E&P operator Plains Exploration & Production will acquire Houston-based Pogo in a $3.6 billion cash-and-stock funded transaction, but Plains' bonds went down on apparent market jitters over financing for the deal.

A trader saw the Pogo 6 5/8% notes due 2015 up 2½ points on the day at 100.5 bid, 101.5 offered.

However, he saw Plains Exploration's 7¾% notes due 2015 down 1¼ points at 97.5 bid, 99.5 offered.

Hovnanian steady despite Buffet talk

Persistent market scuttlebutt points to billionaire investment wizard Warren Buffet's Berkshire Hathaway supposedly deciding to take a stake in Hovnanian, boosting the latter's shares.

However, most bond traders said they didn't see much going on there. One quoted the company's bonds "mostly unchanged," with its 6% notes due 2010 actually down 1½ points at 92 bid, 93 offered, and its 8 5/8% notes due 2017 and 7¾% notes due 2013 both unchanged, at 93.5 bid, 94.5 offered, and at 86 respectively.

Bally gives up early forbearance gains

A trader saw Bally's 10½% notes due 2011 half a point better at 107.5 bid, 109.5 offered, and likewise saw the 9 7/8s at 95 bid, 97 offered, and declared that "there was no real change there."

Another trader saw the subordinated bonds lose a point, closing at 94 bid, 96 offered.

At another desk, a market source saw the Bally bonds gyrating around before ending lower, although trading was not very busy.

While the 101/2s got as good as around the 108 area intraday, up 2 points from Monday's finish, by the day's end, the bonds were being quoted at 105, actually down a point.

The 9 7/8s likewise were seen having firmed perhaps ½ point to around 93.5, before coming off that peak to finish actually down about 1 point or 1 1/8 point, around the 92 level.

Movie Gallery moves up again

A trader said that after two days of strong gains Friday and Monday, Movie Gallery's 11% notes due 2012 "stalled out," seeing the bonds having plateaued in the 37-38 area around where they had finished on Monday.

But another trader saw them having risen and tightened up a bit, going to 38 bid, 39 offered from prior levels at a somewhat wider 37 bid, 39 offered.

Another market source meantime saw the bonds gyrating around in pretty active dealings, bouncing around in a 6-point range between 34 on the low end and 40 on the high end, before coming to rest at around the 38 level, about a point above the opening and 1½ points up from Monday's finish.

Movie Gallery's Nasdaq-traded penny-stock shares meanwhile bounced around before ending the day unchanged at 62 cents.

Investment-oriented internet bulletin boards meantime buzzed with speculation centered around Movie Gallery. There was some mention that people had heard from "somewhere" that Movie Gallery's lenders would grant the troubled company debt covenant waivers or a forbearance agreement, or otherwise agree to not make additional trouble for Movie Gallery over its recently announced missed debt covenants.

There was also brisk debate over whether Movie Gallery might be a buyout candidate - perhaps by larger industry rival Blockbuster or by the up-and-coming new power in the movie rental industry, Netflix Inc.

While Movie Gallery stock bulls saw either as a possibility, the skeptics pointed out that rather than buy Movie Gallery - and run into the same kind of indigestion trouble Movie Gallery itself ran into when it swallowed up Hollywood Entertainment several years ago, not to mention possible antitrust problems - Blockbuster might just bide its time and wait for Movie Gallery to simply go bust and then go away, without spending a dime. They also said that on-line distributor Netflix would have no interest in acquiring a traditional brick-and-mortar operation, since its founders see the Movie Gallery business model as a dying dinosaur.

Movie Gallery fans responded that a combination with Blockbuster might not trigger anti-trust objections, since there are other outlets of obtaining movies, such as Netflix - some likened such a combination to satellite radio operators Sirius and XM merging in order to form one stronger company out of two weaker, money-losing entities - and said that Netflix might want a brick-and-mortar component as an adjunct, so people who get its movies in the mail can return them at a convenient location close to them and maybe buy or rent other movies while they are there, not to mention goodies like popcorn and expensive theater-sized boxes of candy - the way that customers of Blockbusters' new on-line operation, which now competes with Netflix, can.

Another possibility mentioned on the forums was Movie Gallery being acquired by private-equity investors, who would have the freedom to do what they have to turn a company around outside of the glare of shareholder and bondholder scrutiny under which public companies must operate. The Movie Gallery stock bears in turn opined that company co-founder, chairman and chief executive officer Joe Malugen - the company's largest shareholder - would be unlikely to willingly cede control of the company.

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