Global Crossing deal prices; Georgia Gulf up on buyout talk, Sally off

By Paul Deckelman, Paul A. Harris and Ronda Fears

New York, Dec. 20 - Global Crossing (UK) Finance plc was heard to have successfully priced a £52 million add-on offering of 11¾% notes due 2014 on Wednesday, the only new issue that came to market.

High yield syndicate sources meantime said that Rexnord Corp. is planning a $460 million bond sale - but that won't happen until the calendar page turns to 2007.

In the secondary market, where overall activity levels continued to dwindle heading for Friday's half-session and next Monday's holiday market closing, Georgia Gulf Corp. bonds were seen "up a couple of points," a trader said, as merger-and-acquisition speculation lifted both the bonds and the shares of the Atlanta-based chemical company.

Also on the M&A front, a takeover that didn't happen was seen, paradoxically, helping out Remington Arms Co. Inc., which had been the subject of much speculation that firearms manufacturer Smith & Wesson Holding Corp. had Remington in its sights for a possible acquisition; Smith & Wesson ended up instead buying another gun company, but one school of thought is that being thusly passed up is not necessarily a bad thing for Remington.

On the downside, Sally Beauty Holdings Inc.'s bonds were seen lower, falling in line with a stock slide triggered by the news that the Denton, Tex.-based beauty supplies distributor had lost most of its exclusive rights to distribute beauty care producer L'Oreal's professional products line - a loss that could cut into Sally's sales to the tune of over $100 million.

A high yield syndicate source said that activity was light on Wednesday, with a lot of traders and buy-siders already having checked out for and extended Christmas to New Year's holiday week.

"I don't think we're going to see anything else this year," the source remarked.

"I don't believe anyone will launch a deal on Thursday or Friday."

Global Crossing taps 11¾% notes

Only one issue priced during the Wednesday session.

Global Crossing (UK) Finance priced a £52 million add-on to its senior secured notes due Dec. 15, 2014 (B3/B-) at a significant premium to the existings.

The add-on paper priced at 109.25, resulting in a 9.67% yield to worst, in the middle of the 109.00 to 109.50 price talk.

ABN Amro ran the books for the acquisition deal from the London-based telecommunications services provider.

The original £105 million issue priced at 98.575 to yield 12% on Dec. 23, 2004 in a transaction that also saw the company price $200 million 10¾% notes due 2014.

Hence the Wednesday add-on transaction resulted in a reduction of 233 basis points in interest expenses for the company.

A source close to the deal said that it had gone very well, adding that given the overall issue size it is very much a buy-and-hold play.

The source added that a limited number of investors who were not holders of the original 11¾% notes due 2014 came in for the add-on deal, despite the risk of low allocations.

The quality of the book was very good, the source said, adding that it was comprised of approximately 75% long money accounts, and some hedge funds.

Aramark for early January

The Wednesday session came to a close with no deals on the forward calendar as "in the market" business.

However a roster for January is beginning to take shape.

Philadelphia-based professional food, hospitality and facility management services company, Aramark Corp., is expected to start a roadshow in early January for a $2.27 billion notes transaction that will involve senior and senior subordinated notes.

JP Morgan and Goldman Sachs & Co. will be joint bookrunners with JP Morgan on the left.

Proceeds will be used to fund the $8.3 billion LBO of the company by chairman and chief executive officer Joseph Neubauer together with funds managed by sponsors by Thomas H. Lee Partners LP, Warburg Pincus LLC, JPMorgan Partners, GS Capital Partners and CCMP Capital Advisors.

The financing initially contained $2.47 billion of bonds but was downsized to $2.27 billion, with the difference offset by a $200 million equity contribution.

Rexnord's $460 million acquisition deal

Elsewhere Rexnord, a Milwaukee-based power train manufacturer, is expected to bring $460 million of senior notes to the high yield market during January via Credit Suisse, Bank of America Securities and UBS Investment Bank.

The proceeds will be used to help fund the acquisition of Jacuzzi Brands, Inc.'s "Zurn" plumbing products business for $950 million.

One high yield syndicate official commented on Wednesday afternoon that the holiday closing of the market will be relatively short, beginning with Friday's early close and terminating on Tuesday, Jan. 2, as the market reopens.

This official expects the forward calendar to begin to build impressively from that point.

New Titans remain slightly higher

Secondary market traders said they had not seen the Global Crossing add-on deal trading in the aftermarket, owing both to its relatively small, illiquid size and its denomination in sterling, rather than dollars.

They did see Titan International Inc.'s new 8% notes due 2012, which priced on Tuesday at par, continuing to cling to levels slightly above issue, at 100.375 bid, 100.875 offered, a trader said, although another opined that the deal "broke [late Tuesday] around 100.75, and was trading right around there most of the day."

Meanwhile, the new Metals USA Holding Corp. floating-rate PIK toggle notes due 2012, which priced Tuesday at 96.5, straddled that level Wednesday, at 96.25 bid, 96.75 offered.

Beauty-care bonds trade ugly

There was not too much going on in the secondary sphere - one trader said the day's activity was mostly about "year-end cleaning up - spending some cash filling in some blanks before the books close for the end of the year, so there was a flurry of activity there, but it was very specific inquiries - not a broad, [put] a bunch of cash in and gotta spend it [situation]." He pronounced the market "pretty much unchanged, maybe a tad weaker in spots."

Against that backdrop, there was a fair amount of attention paid to a relatively recently priced issue which after an impressive run seems to have fallen on hard times - Sally Beauty's 9¼% senior notes due 2014 and 10½% senior subordinated notes due 2016.

The bonds - well oversubscribed - priced at par for each tranche back on Nov. 10, and proceeded to move up smartly in initial trading as investors liked the company's story - a spin-off from well-known beauty-care products company Alberto-Culver.

But on Wednesday, some of their luster had faded on the news that Sally had lost much of its exclusive rights to distribute the L'Oreal products to beauty salons through its Beauty Systems Group consultants, i.e. sales representatives. That could cut sales by as much as $110 million out of a projected $2 billion in total annual sales, just as the relatively new company tries to gain its footing.

Sally said that it hopes to make up for some of the lost revenue by such measures as marketing certain products that it had not been selling previously, and expanding its existing product lines in new territories.

A trader saw the company's 101/4s fall to 102.5 bid, 103 offered from 103.5 bid, 104 offered, while the 9¼% notes eased to 102.625 bid, 103.125 offered from prior levels at 103.625 bid, 104.125 offered.

Another trader described trading in the two Sally tranches as "very active," and said that a price of 102.5 bid, 103.5 offered, down 2 points on the day, "should cover both."

Sally Beauty's New York Stock Exchange-traded shares, meantime fell by as much as 19% in intraday trading on the news, before ending the session down $1.21 (13.07%), at $8.05. Volume of 11.5 million shares was more than six times the norm. Prudential Equity and Oppenheimer & Co. both cut their ratings on the company's shares on Wednesday in response to the news of the lost business.

Georgia Gulf gains on M&A buzz

Elsewhere, a trader called Georgia Gulf's bonds "up a couple of points," pushed higher by "a lot of rumors out there about Dow Chemical [Co.] buying Georgia Gulf."

The company's bonds, he said, were "very well bid - they lifted some offerings right out of the chute, and kept it kind of firm. Equity was up."

He saw the company's 9½% senior notes due 2014 at 98 bid, 99 offered, up from levels around 94.5 bid, 95.5 offered at the beginning of the week, and its 10¾% senior subordinated notes due 2016 at 97.5 bid, 98.5 offered, up from 94 bid, 95 offered, "so up a good 2 or 3 points in the last couple of days."

However, another trader saw the 103/4s unchanged at 94.5 bid, while the 91/2s were at 97.5 bid, 98.5 offered, up from 96.75, "so there was not really that much movement there." He said that "two days ago, [the levels were] the same. So there may be something going on - but it doesn't really show it in the price. They haven't moved in three days."

Georgia Gulf's NYSE-traded shares gained $1.01 (5.44%) in Wednesday's dealings to close at $19.58. Volume of 2.3 million shares was about triple the average daily turnover.

But while bond and stock investors seemed to like the idea of Dow buying Georgia Gulf, not everyone thinks that formula would work out for the two chemical companies. For instance, Merrill Lynch equity analyst Don Carson declared in a research note that Dow is a highly unlikely buyer of Georgia Gulf, and a potential deal between the two companies "makes little sense."

Carson flatly warned that "a purchase of Georgia Gulf, which is not only a commodity producer, but a highly leveraged turnaround story, would likely be very poorly received by Dow's investor base."

Remington seen better off without deal

While a deal between Georgia Gulf and Dow Chemical may or may not happen, another prospective takeover deal that some in the market had been looking for never did occur, and now looks like it won't - but the would-be acquired company might be better off, according to one view.

That would be Remington Arms Co., a Madison, N.C.-based maker of long guns, such as rifles and shotguns, for the military, law enforcement and civilian consumer markets.

A trader said that there had been a lot of rumors in the market that legendary handgun maker Smith & Wesson - which said it plans to re-enter the long-gun market - might acquire Remington, a leading player in that segment of the gun industry, and that speculation had helped to keep Remington's 10½% notes due 2011 well bid-for, in the mid-to-upper 90s for most of the past few months.

However, Smith & Wesson shot that scenario full of holes on Monday when it announced that it was instead acquiring Thompson/Center Arms, Inc., a 40-year old, privately held, New Hampshire-based maker of premium hunting firearms, for $102 million in cash.

"There are two trains of thought on this, the trader said, "one, that there would be more competition for Remington, since the company that was taken over competes with their line. But the second one was that the valuation that [Smith & Wesson] paid is pretty substantial," establishing a base level against which any potential future deal for Remington might be structured.

"I don't view this deal to be a threat to Remington," said analyst Bob Lupo of BB&T Capital in Red Bank, N.J., "since Remington is a leading player in that fragmented market," with a 32% share of the $350 million shotgun market and a 17% share of the $600 million hunting-rifle market. It sets an enterprise valuation-multiple bottom for Remington at 7.85 times" EBITDA.

And he said that "if Remington can get its act together and improve EBITDA this year by being aggressive on increasing prices, in my view, it should command a higher multiple than that."

Lupo said that "net-net, the bonds are higher [even after the Smith & Wesson news], which all curves to the view that perhaps Remington paper is a par piece of paper, which we have said for a while." The bonds were seen trading in a 97.5-98.5 context - up from around 95 at the start of the week, and from 91 about a week ago.

Ames better on numbers

A trader saw Ames True Temper Inc.'s 10% notes due 2012 up about 2 points on the session at 92 bid, 93 offered, citing better-than-expected fiscal fourth-quarter and full-year results for the Camp Hill, Pa.-based maker of non-powered lawn and garden tools.

It reported net sales for the 13-week fiscal fourth period ended Sept. 30 of $97.6 million, up 8.5% over $90 million a year earlier, while the company's net loss of $10.1 million was a considerable improvement over its year-earlier $127.9 million of red ink.

Casino names move in narrow range

Gaming company bonds were seen moving around in a narrow range, as investors reacted to decisions made by Pennsylvania gaming regulators, who approved several proposals for slot-machine gambling parlors around the Keystone State - but rejected several others.

Among the latter group was Trump Entertainment Resorts Inc., whose proposal for a Philadelphia-area slots parlor was turned down. A trader saw The Donald's 8½% notes due 2015 fall by a point when the news from Harrisburg was first announced, and then bounce off those lows to finish down ½ point at 99.5 bid, par offered.

Also lower after being nixed by the regulators were Pinnacle Entertainment Inc., whose 8¼% notes due 2012 lost ½ point to finish at 102.5, while Isle of Capri Casinos Inc.'s 7% notes due 2014 lost ¼ point to end at par.

However, Las Vegas Sands' plan to build a gigantic casino/hotel/ shopping and entertainment complex on the site of the old Bethlehem Steel Corp. works in Bethlehem, Pa., was approved. The company's 6 3/8% notes due 2015 were being quoted up a point at 97.5 bid, 98.5 offered, "but nothing really traded," a trader said.

A trader saw Harrah's Entertainment Inc.'s bonds firm a little from their early lows to end essentially unchanged from the levels they held prior to Tuesday's formal announcement that the Las Vegas-based gaming giant had agreed to a $17.1 billion buyout bid from private equity investors Texas Pacific Group and Apollo Capital Management. The bonds had fallen after the announcement as investors worried about likely adverse changes to the company's debt structure, since much of the purchase price stands to be raised by the issuance of new bonds.

The trader saw Harrah's 10-year bonds opening at 88 bid, 89 offered, "down a touch," before coming off those lows to finish at 88.5 bid, 89 offered. Its 5 5/8% notes due 2015 likewise moved up from their post-announcement lows to 84.75 bid, 85.75 offered.

Federal-Mogul firmer, Tower tumbles

In the distressed-debt market Wednesday, one large mover was Federal Mogul Corp., whose bonds were seen about 3 or 4 points higher. While there was no fresh news, traders suggested that investors were encouraged by the Southfield, Mich.-based auto parts maker's progress in emerging from Chapter 11 sometime soon.

Traders pegged Federal-Mogul paper in the 73 bid, 74 offered area, or perhaps a point or so higher, up from around 69.5 bid, 70.5 offered on Tuesday.

"They're getting close to resolving this whole mess," one trader said.

Federal-Mogul's bankruptcy, filed Oct. 1, 2001, has been mired and drawn out by a mound of asbestos claims, past and future. On Nov. 20, the company filed its fourth joint amended plan of reorganization, which incorporates new provisions for the settlement of claims filed against debtor affiliates in the United Kingdom.

The bankruptcy court hearing is scheduled for Feb. 2 on the new and latest plan. Objections are to be filed by Jan. 10.

In that same distressed auto-parts sector, Tower Automotive Inc. on Wednesday filed a restructuring term sheet and commitment letter in which three significant bondholders have agreed to underwrite a $250 million equity rights offering that will form the basis of a reorganization plan.

That sent the bonds of parent R.J. Tower Corp. lower by about 2 points to 16.5, traders said.

Strategic Value Partners, LLC, Wayzata Investment Partners LLC and Stark Investments, who collectively own in excess of $225 million of unsecured claims in the Tower Auto bankruptcy, have agreed to backstop a rights offering to unsecured creditors.

Outside of the autos, traders said Calpine Corp. paper was generally weaker Wednesday but said volume was light, as the bankrupt San Jose, Calif.-based power generating company marked its one-year anniversary in Chapter 11.

Apart from interest in particular names, a trader said, "there still seems to be some decent buy interest around the market - but it's really winding down."

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