Downsized Hanger Orthopedic deal prices; Avondale jumps on insurance settlement

By Paul Deckelman and Paul A. Harris

New York, May 23 - Hanger Orthopedic Group Inc. priced a downsized offering of eight-year senior notes Tuesday, junk bond syndicate sources said. Those bonds saw little activity in the aftermarket. Primaryside players did not have much else to report, as the new-deal arena seemed to fall into a torpor ahead of the upcoming Memorial Day holiday weekend. However, one piece of unfinished business remained, with Libbey Glass Inc.'s $400 million offering of eight-year notes seen pricing on Thursday to clear the week's forward calendar.

In the secondary market, Avondale Mills Inc.'s bonds were sharply higher, given a big boost by the news that the Monroe, Ga.-based textile manufacturer had received the second part of a big insurance settlement stemming from a massive and messy railroad accident last year that caused a toxic chemical spill near one of its plants - an accident which the company says it has yet to recover from.

Elsewhere, Jo-Ann Stores Inc.'s bonds were being quoted several points higher on takeover buzz, spurred by reports that the Hudson, Ohio-based specialty retailer had hired Lehman Brothers to help it evaluate strategic options, possibly including the sale of the whole company.

In the distressed-debt market, the bonds of Owens Corning and fellow asbestos-challenged issuers such as Armstrong World Industries Inc. and Federal-Mogul Corp. were seen better up on the session, with Owens Corning's notes up as much as three points, as the sector - whose bonds and shares have recently been getting whacked on profit taking off hefty earlier gains - seemed to have bounced back a little from their oversold condition.

Sources on both the buy-side and sell-side said that junk ended the Tuesday session unchanged to slightly lower, with a sell-sider stipulating that the broad market was an eighth of a point lower at most.

Another sell-sider said that high-yield was extremely quiet in the afternoon, but added that the market seemed to have an improved tone relative to recent sessions.

A buy-side side source, meanwhile, noted that the stock market had risen as much as 50 points in early trading but sold off by the close, ending in negative territory and taking junk with it.

Hanger prices downsized deal

Terms on one issue emerged during Tuesday's primary market session as Hanger Orthopedic priced its downsized $175 million issue of eight-year senior notes (B3/CCC+) at par to yield 10¼%, at the wide end of the 10% to 10¼% price talk.

Lehman Brothers and Citigroup were joint bookrunners for the Bethesda, Md.-based company's debt refinancing deal.

The issue was downsized from $190 million. The company will make up the amount of the downsizing from available cash.

An informed source said that given current market conditions the transaction went reasonably well, with good rollover demand as well as some new money, and added that all in all it had been a solid deal.

On Monday an investor told Prospect News that the order book had exceeded the original $190 million deal size. However, the source added, when Hanger Orthopedic first launched the offering, prior to the sell off in junk, the company was anticipating a yield in the area of 9½%, so that the eventual 10% to 10¼% price talk represented a significant increase in interest expense.

Forward calendar dwindles

In the aftermath of the downsized Hanger Orthopedic deal, the forward calendar of high-yield bond offerings that are thought to be in the market dwindled to $500 million.

Most of that is expected to price before the end of the week in the form of a single $400 million tranche of eight-year senior notes (B) from Libbey Glass.

JP Morgan and Bear Stearns are leading the acquisition financing and debt refinancing deal from the wholly owned subsidiary of glass tableware manufacturer Libbey Inc.

Price talk is expected on Wednesday, with terms to follow on Thursday.

NTL expected post-Memorial Day

As was true of the Monday session, sources on Tuesday advised Prospect News that the high-yield market figures to remain quiet right through the three-day Memorial Day weekend.

In the immediate aftermath of the holiday, NTL Cable plc, a subsidiary of London-based communications company, NTL Inc., is expected to launch $1 billion equivalent of new high-yield bonds in dollar-, euro- and sterling-denominated tranches.

The bond deal, which is part of the refinancing for the £1.8 billion bridge facility the company incurred in connection its reverse acquisition of Telewest Global Inc., is expected to be led by joint bookrunners JP Morgan, Deutsche Bank, Goldman Sachs and The Royal Bank of Scotland.

Hanger steady in trading

When the new Hanger Orthopedic 10¼% senior notes due 2014 were freed for secondary dealings, they really didn't go very far. A trader saw the new bonds, which had priced at par earlier in the session, closing out at par bid, 100.5 offered.

Another trader, who also saw those bonds there, saw the company's existing 10 3/8% senior notes due 2009 little changed at 105.25 bid, 106 offered, the level at which those bonds are expected to be taken out as part of the company's refinancing effort, which also includes the issuance of new bank debt and convertible perpetual preferred shares.

MTR higher

The trader meantime saw MTR Gaming Group Inc.'s new 9% senior subordinated notes due 2012 at 101.5 bid, 102.25 offered, which he called up from Monday's initial aftermarket levels at 101 bid, 102 offered, up from the par price at which the Chester, W.Va.-based gaming operator's bonds had priced earlier that session

Avondale soars

Back among the established issues, a trader said that Avondale Mills' 10¼% senior subordinated notes due 2011 had jumped to levels around 85.5 bid, 87.5 offered, way up from the 70 level at which they had opened trading Tuesday and up still further from levels around 64 bid at which the bonds had traded around the middle of last week, the last time they had been seen in the market before Tuesday's red-hot advance.

Another trader saw them up a more conservative nine or 10 points on the session at 79 bid, 81 offered, but had them beginning their sharp rise from a prior level in a 62-64 context last week.

Yet another trader who saw the bonds in the mid-80s characterized it as "at least a 10-point move." He said the company's senior bonds were meantime up three points in the high 90s, adding that "understandably, the subs are going to move more."

Those bonds zoomed on the news that the company had reached $215 million settlement with its insurance company stemming from the January 2005 train wreck in Graniteville, S.C., where the company has one of its plants. That accident, in which a Norfolk Southern train ran into parked rail cars, derailing them and releasing a toxic cloud of chlorine gas, ended up killing nine people and forcing the evacuation of the town, severely disrupting production at the Avondale plant.

Avondale was still citing the accident, more than a year later, as a major cause for its woes, along with unfavorable international trade conditions. On Monday, it said that it might close all of its factories, located in South Caroline, Georgia and Alabama, perhaps as early as July 25, as the company looks into restructuring or selling all of its operations.

Avondale said Tuesday that it has already been paid $115 million by Factory Mutual Insurance Co. in connection with the 2005 accident, and the remaining $100 million of the settlement was to be paid by Thursday.

"The money is unrestricted, so they can do whatever they want with it," one of the traders said, in explaining the bonds' sharp rise.

And there may be more money coming to the company further down the road. The company's chairman, G. Stephen Felker, said in a news release that it intends to pursue a lawsuit or seek a settlement against Norfolk Southern.

"We do not believe that the [insurance] settlement fully compensates us for the full value of the losses incurred as a result of the Norfolk Southern derailment," Felker declared Monday, in announcing the plans to possibly close all of the factories, which employ about 5,000 people.

His son, also named Stephen Felker, the company's manager of corporate development, said that while the company was "prepared to weather the storm of global competition . . . what we weren't prepared for was an event such as this derailment, which was completely beyond our control."

Jo-Anne rises on sale hopes

Another big gainer - though not quite so dramatically - was Jo-Anne Stores, whose 7½% notes due 2012 were seen at 96 bid, which a trader estimated was up four or five points. He cited "some speculation that they may sell themselves."

The bonds "rocketed up," another trader said, quoting them at similar levels and with similar-sized gains. He noted that the bonds have a change-of-control provision in their indenture in the event of a sale.

The bonds firmed smartly, along with the stock - which rose 64 cents, or 4.16%, to $16.01, almost all of that in the final hour of New York Stock Exchange trading. Volume of 837,000 shares was almost three times the norm.

The catalyst may have been a mention on CNBC that the company had hired Lehman to look into various strategic options, possibly including the sale of the company, which sells various crafts products. The commentator said that a private equity firm would be the most likely potential buyer.

Merger and acquisition interest in the sector has recently been whetted by a takeover battle between several rival buyout syndicates, which according to reports are interested in acquiring Irving, Tex.-based Michaels Stores Inc., a Jo-Ann Stores competitor.

Buckeye dips

Elsewhere, Buckeye Technologies Inc.'s 8½% notes due 2013 were seen down nearly two points on the session, at 98.75, although no fresh news was seen out on the Memphis, Tenn.-based producer of includes chemical cellulose, customized fibers, fluff pulp, and non-woven materials.

Asbestos names recover

In the distressed markets, the asbestos names - which have been getting clobbered over the last week, moving down from their recent hefty gains, were on the rebound, a bit. Bankrupt Toledo, Ohio-based insulation maker Owens Corning, whose 7½% bonds due 2018 had gotten as high as 123 bid earlier in the month before gradually withdrawing to lows around 107 Monday, were seen at 110 bid, 112 offered Tuesday.

A trader also saw the company's 7% notes due 2009 at 108 bid, 110 offered, also up three points on the day, while bankrupt Lancaster, Pa.-based floorcovering maker Armstrong's bonds were also three point gainers, back up to 81 bid, 83 offered. Bankrupt Southfield, Mich.-based automotive parts maker Federal Mogul, also an asbestos name, was two points better at 61 bid, 62 offered.

Overall, though a trader said that while the market general "started out firmer - I wouldn't say it was moving up, but it took the cue from equities and firmed and there were a few bids out there - it probably trailed off a little bit [later], because people just want to sell stocks."

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