Univision slates mega-deal; Rite Aid talks upcoming sale; Fedders falls, Levi lifted

By Paul Deckelman and Paul A. Harris

New York, Feb. 14- Univision Communications Inc. was heard by high yield market sources Wednesday to be getting ready to launch a $1.5 billion senior bond offering sometime before the end of this month. They also heard of another upcoming mega-deal, a $1.4 billion placement of eight-year PIK toggle notes for Digicel Ltd. Meanwhile, Readers Digest Association Inc. was getting ready to launch a $750 million 10-year offering. And pre-deal market price talk emerged on Rite Aid Corp.'s $800 million two-part offering, which is expected to price on Thursday - the last full trading session of this week.

Traders saw a generally firm secondary market, which took its cues from the stronger stock and Treasuries markets seen after Federal Reserve Chairman Ben Bernanke came to Capitol Hill bearing Valentine's Day gifts even nicer than candy and flowers - his assessment that the economy is expanding at a moderate pace, that interest rates are at a level that is "likely to foster sustainable economic growth and a gradual ebbing of core inflation," and that the depressed housing market shows signs of finally stabilizing.

While the overall market was firmer, participants cautioned that activity levels were substantially reduced as a vicious winter storm lashed New York and other Northeastern business centers - their first real taste of Old Man Winter's fury - causing many people to not come in at all, and others to make an early exit.

In addition, a buy-sider added, a dramatic sell-off in the ABX index of sub-prime mortgages asset-backed securities has sent a chill through the high-yield market.

Late in the session another source - this one from the sell-side - said that market appeared to be going out in good shape.

Among specific issues, probably the most widely watched bond price movement Wednesday came on the downside, as Fedders Corp. "went on a ride," in the words of one bond trader, falling for a second straight session on rumors that the Liberty Corner, N.J.-based maker of air conditioners and similar appliances was having liquidity problems and might not be able to make its scheduled March 1 bond coupon interest payment.

On the upside, Levi Strauss & Co.'s bonds - which had initially shown not much reaction to solidly positive quarterly earnings numbers released on Tuesday, finally did move up Wednesday, as the results left the San Francisco-based jeans maker's investors feeling anything but blue.

Winter in the primary

The recent dearth of primary market news continued Wednesday, with no issues pricing during the session.

Sources suggested that the relative quiet might be expected to pervade to the end of this holiday-abbreviated week, with the market poised for an early close on Friday ahead of the three-day Presidents Day weekend.

A senior high yield syndicate official also said that market activity may have been dampened somewhat by the winter weather which has taken hold in much of the northeastern United States, coming on top of the pending holiday weekend.

Rite-Aid talk

Rite Aid Corp. set price talk Wednesday for both tranches of its $800 million offering of notes.

The Camp Hill, Pa.-based drugstore chain talked a $300 million tranche of 10-year senior secured second-lien notes (B3/B+/BB-) at a yield in the 7½% area.

Meanwhile Rite-Aid talked a $500 million tranche of eight-year senior unsecured notes (Caa2/B-/CCC+) at the 8 5/8% area.

The Citigroup-led deal is expected to price on Thursday morning.

Digicel starts $1.4 billion

Elsewhere Digicel Group Ltd. began a roadshow on Wednesday for $1.4 billion of eight-year senior notes in two tranches.

The Caribbean wireless telecommunications network operator is offering $1 billion of cash-pay notes and $400 million of PIK toggle notes.

Citigroup and JP Morgan are joint bookrunners for the share repurchase and capital expenditures deal.

Digicel Group, which will be headquartered in Bermuda, generated some familiar discussion on Wednesday: is it junk or is it emerging markets?

One senior high yield syndicate source suggested that given the current lack of new issue supply from U.S.-domiciled issuers Digicel is more high yield now than might otherwise be the case.

The source said that presently there are too few deals in the primary market, and added that with prices on the rise investors no longer seem to be chasing the secondary market but are waiting to put cash to work in new issues.

LBO deals in view

Sources said on Wednesday that at least two sizable LBO transactions are expected to launch within days.

Reader's Digest Association Inc. will likely launch a $750 million offering of 10-year senior subordinated notes (B3/CCC+) during the next week.

JP Morgan, Citigroup, Merrill Lynch & Co. and RBC Greenwich Capital will lead the offering which is being made via financing unit, Doctor Acquisition Co.

Meanwhile Univision Communications Inc. is expected to launch a $1.54 billion offering of senior unsecured notes (B3) in the mid-to-late February time-frame.

Credit Suisse, Banc of America Securities LLC, Deutsche Bank Securities, Wachovia Securities, RBS Greenwich and Lehman Brothers will lead the deal.

An informed source said that the Univision deal is expected to involve cash-pay notes as well as some PIK toggle notes.

"Right now issuers are taking advantage of very good opportunities to reprice bank loans and take advantage of some new, aggressive structures that are out there in the bond market," the source added.

Junk strong

Back among the secondary names, a trader said that "the whole market was better across the board, more of the same jazz."

Certainly one factor was the overwhelmingly positive response to Fed boss Bernanke's soothing words, uttered on the first day of his two-day appearances before the House and Senate banking committees as mandated by the Humphrey-Hawkins Full Employment Act.

His non-inflationary rhetoric pushed stocks up, with the bellwether Dow Jones Industrial Average hitting a new intraday high of 12,756, before closing at 12,741.86, up 87.01 points on the day. The broader market indexes were also winners, with the Standard & Poor's 500 up 11.04 points to finish at 1,455.30, and the Nasdaq Composite ending the day up 28.50 points, at 2,488.38.

In the bond market, the 10-year U.S. Treasury note firmed 20/32 to end at 99 5/32, as the yield fell to 4.73%.

That translated to a better tone in junk, continuing the market's recent trend. Since the start of the year, major brokerage-house indexes measuring the market's performance, such as the Banc of America Securities High Yield Index, have been pushing steadily upward, giving junk far better returns than any other fixed-income category, observers say. The Banc of America index - which rose nearly 12% last year - was up an additional 2.11% so far in 2007, with just a month-and-a-half gone.

"Everything is clicking on all cylinders here," the trader continued. "Oil is coming in [crude for March delivery dipped $1.06 on the New York Mercantile Exchange, to $58 per barrel, on a smaller-than-expected drawdown in distillate stockpiles], commodities are lower, the economy is doing okay, unemployment is okay. The dollar is still struggling a bit against the euro. There's a lot of cash in the market. Treasuries are about where they were when we had this conversation two months ago - 4.75%. I think the bias is toward lower rates - not a whole lot, but lower."

Overall, he said, "the market is firm. New issues are coming. You hear some single-B companies coming, and the price talk is 7½% - a year ago, you would have an 8½% or a 9% handle. Things are coming on the tight side, but a lot of firms have a lot of cash."

The trader did say that the junk market's volume was "a little bit lower, because a lot of the players weren't in because of the weather, obviously," giving heightened significance to the market moves that did occur, "both to the downside and the upside."

Fedders gets no better

One such issue was Fedders - whose bonds had eased on Tuesday. In Wednesday's dealings, a trader said that Fedders' 9 7/8% notes due 2014 "started the day in the upper 60s, and hit lows in the upper 50s," before ending around 60 bid, 62 offered, which he said was down 9 points on the session.

A second trader said that the bonds were "the big loser of the day," dropping 8 points to close at 61 bid, 63 offered on refinancing concerns.

At yet another desk, a trader called Fedders "off quite a bit" in the early going, but said the paper had "snapped back pretty nicely" later on, initially falling from an opening price of 70 to as low as 56 in intraday trading, before coming off that nadir to end at 63 bid, "with a fair amount of people looking to buy."

He said that "there were rumors going around that one of the bankers on its bank facility that's up to get renewed and rolled over" was dropping out, "and that would put the March coupon payment in question." He said that some people "were thinking that all of the bankers were going to pull out of the facility, and then Fedders wouldn't have enough money to get by - which is kind of nonsensical."

For one thing, he said, "the bank facility isn't even that big; secondly, the one bank that pulled out was providing only $10 million second-lien and a hedge fund came in with a term sheet to put in $10 million."

He said there was also talk that the company was not going to be able to sell its IAQ industrial air quality business, "but I believe it's on track to be sold for between $50 million and $60 million." Further, he noted, "it's a $200 million [in annual revenue] company with $50 million EBITDA, and that almost covers the bonds. In fact, if the bondholders wanted to, they could put the company into bankruptcy - and the recovery value would be 20 or 25 points higher than where it is right now. So it's a lot of nonsense" that Fedders is in a money crunch.

The trader further pointed out that Fedders recently sold some Maryland assets, as well as a German distribution company. "So they're certainly doing all the right things."

The slide in the bonds Wednesday "was more on rumor than on substantial fact" - and as soon as the bonds fell, he said, "people just started buying a fair amount of paper."

Levis gets a lift

Elsewhere, Levi Strauss bonds were seen having gotten a lift from the company's earnings numbers, once market players had a day or so to digest that Tuesday announcement.

A market source pegged the company's 8 7/8% notes due 2016 at 107.5, calling that a nearly 3 point rise. Levi's 9¾% notes due 2015 were up ½ point at 110.25.

Levi on Tuesday announced that it had earned $95.7 million for the fiscal fourth quarter ended Nov. 28, more than doubling from net income of $43.6 million during the same time in 2005. Sales were $1.2 billion, up 4% from $1.16 billion in the prior year, although for the full-year sales dipped by another 1%, to $4.1 billion - the ninth time in the past 10 years that Levi has seen a year-over-year sales decline.

But despite the full-year sales fall, Levi earned $239 million, a 53% increase from $155.9 million in 2005. The company attributed the sharp profit increase to management's success in cutting production costs.

The company's new chief executive officer, John Anderson, who replaced longtime boss Phil Marineau in November, struck a positive note on Levi's conference call with investors and analysts, saying he was pleased with the results and expects to see progress through the year.

"I'm encouraged about our prospects for 2007," he declared to participants on the call.

Hines hurt by cancelled land deal

A trader saw Hines Horticulture Inc.'s 10¼% notes due 2011 "down a little bit, maybe a couple of points, after their 8-K," in which the Irvine, Calif.-based nursery operator told the Securities and Exchange Commission that its previously announced transaction to sell 79 acres of land in Florida to F&J Farms Inc. for about $7.2 million had been terminated at the request of the would-be buyer.

He saw the Hines 10¼% notes due 2011 down 4 points at 83 bid, 85 offered, off from prior levels in the high 80s.

Remy seems to regroup

In the automotive supplier sphere, a trader said that Remy International Inc.'s bonds "seemed like they were stable," after several sessions in which the Anderson, Inc.-based auto electrical systems maker's bonds had slid badly on investor concerns that Remy was burning through its cash faster than anticipated and was forced to draw down on its borrowing capacity more than originally planned.

After having fallen anywhere from 4 to 7 points on Tuesday, depending upon whom you were talking to, the Remy bonds, the trader said, had steadied and "might even be up just a little."

He saw the company's 8 5/8% notes slated to come due later this year hanging in at 78 bid, 79.5 offered, its floating-rate notes at 96.25 bid, 97.25 offered, and its two series of junior bonds up "maybe a point or two," its 9 3/8% notes due 2012 at 26 bid, 29 offered and its 11% notes due 2009 at 28 bid, 31 offered.

Iridium activity on court developments

Also in the distressed markets, a trader said that Iridium LLC's bonds jumped to 34 bid, 35 offered - but then retreated back down to around 28-30, "because of what was being said in the courtroom," where holders of the satellite telecommunications company's defaulted debt are suing electronics giant Motorola Inc. for more than $3 billion, contending that Motorola's actions and omissions contributed to Iridium's eventual slide into bankruptcy in the late 1990s.

"They did drop a good amount" from the day's peaks, the trader said.

Another trader said the bonds - its 10 7/8% notes, 11 1/8% notes, 13% notes and 14% notes, which all "trade on top of one another" - got as good as 35, before ending at 28.5 bid, 29.5 offered, down about 3 points on the day. "The statements [made in court] moved the bonds," the trader said, though there was no immediate word on what went on in court.

Iridium separately announced late Wednesday that announces that it had 175,000 subscribers worldwide as of Dec. 31, 2006. The new figure represents a 23.2% increase over last year's subscriber total of 142,000. Revenue for the full year 2006 was $212.4 million and EBITDA was $53.9 million. Fourth quarter 2006 revenue was $53.2 million and EBITDA was $14 million.

InSight in some trouble

Elsewhere, a trader saw Insight Health Services Holdings Corp.'s bonds down 5 points on "quarterly numbers that were not so hot," including a net loss of $55.7 million for the six months ended Dec. 31.

Its 9 7/8% notes due 2011 slid to a wide 24 bid, 28 offered on the development.

The Lake Forest, Calif.-based provider of diagnostic imaging services also said in a regulatory filing Wednesday that it has hired Lazard Frères & Co. LLC as its financial adviser to explore a refinancing or restructuring of its debt.

The company also warned in its 10-Q filing with the Securities and Exchange Commission about its ability to continue as a going concern.

It warned that if its net cash provided by operating activities declines further than anticipated, InSight may be unable to maintain a sufficient level of liquidity, which could cause it to default on its debt.

The company further said that it was evaluating a number of options, including a restructuring of some, or even all of its debt in a Chapter 11 scenario (see related story elsewhere in this issue).

MagnaChip recovers after downgrade

Traders saw MagnaChip Semiconductor Ltd's 8% notes due 2014 gyrating between 69 and 75 in brisk trading on Wednesday, before going home at 71 bid, off the peak levels but still up 2 points on the session.

That pretty much made up for the ground lost on Tuesday, when the bonds retreated a point or so in heavy trading after Standard & Poor's downgraded the Korean computer chip manufacturer's senior unsecured ratings a notch to B and lowered its senior subordinated notes one level to CCC+.

Market activity was expected to trail off during Thursday's session, especially later in the day, as some people try to get a jump on the President's Day holiday. The Bond Market Association is recommending a 2 p.m. ET close on Friday, and all financial markets in the United States will be closed for the legal holiday on Monday.

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