Winn-Dixie wows with gain to 91; Houghton Mifflin firms on buyout; Revlon better on rights offering

By Ronda Fears

Memphis, Nov. 29 - Winn-Dixie Stores Inc. again wowed the distressed bond market as the Florida grocery chain's bonds skyrocketed to 91/91.5 on Wednesday from 77/80 in tandem with the stock, which shot up over 16%.

Heavy buying in the stock this week has sparked the surge in the bonds, as bondholders will get an equity distribution of 54.5 million of the company's 150 million authorized shares in its bankruptcy distribution. Winn-Dixie noteholders are getting 62.69 shares of new stock per $1,000 claim, for a recovery of 95.6%.

"Everyone is wanting some of this now. I think in the back of everyone's mind is the Kmart story," said a buyside market source.

"We start with trying to get the bonds and that's getting more difficult, I guess because people are more willing to hang to them now. Then you go to the stock."

Traders on the equity side of the equation, however, suggested that the stock may get easier to get hold as offers emerge to take profits in light of the spike. Indeed, the stock pulled back by 3% in after-hours action Wednesday to $13.73, after rocketing up by $2.03, or 16.75%, to $14.15 in the regular session. Some 3.39 million shares changed hands, versus 2.3 million traded Tuesday and the running average of 892,550.

Still, traders said the thinking was very positive on this trade.

"This is one of the most interesting stories in the marketplace right now," said an equity trader.

"What with private equity buyout news, you could see where there would be rampant speculation of some big PE firm snapping up a company like Winn-Dixie coming out of bankruptcy where they erased all the bond debt."

Winn-Dixie winds of change

Sources have said that one line of thinking among the buyers of Winn-Dixie paper is that it could be a real estate play, on the assumption that the company's properties are valuable. But a trader Wednesday said it is not a real estate play in such a traditional sense, but rather a change in the Winn-Dixie business model.

"Some have talked about the properties being worth something but I don't see it that way around. They lease most of their stores," a distressed bond trader said.

"I think the buyer is thinking he can change the real estate into something different."

Since going into bankruptcy, Winn-Dixie has closed 326 stores, aiming to exit bankruptcy with 587 units in its core market areas in the Southeast United States. The company filed bankruptcy in February 2005, in part blaming tough competition from the likes of Wal-Mart Stores Inc., which has in recent weeks said it would cut grocery prices by as much as 20%.

Questioned further, the trader, who orchestrated the bulk of the trades in Winn-Dixie bonds Wednesday, said something along changing the business model for the company to more closely mirror Wal-Mart, or say a Costco Wholesale Corp., was not a stretch.

Thus, the buysider said the parallel to a Kmart Corp. situation might not be so far-fetched.

Kmart came out of bankruptcy and the stock shot through the roof, propelled even further by the merger with Sears Holdings Corp. Sears' shares shot up Wednesday to $172.25. Eddie S. Lampert, founder of the Greenwich, Conn., hedge fund ESL Investments Inc., gained control of Kmart in 2002 and took over the helm of the bankrupt discount retailer, and within 18 months of exiting bankruptcy launched the 2004 buyout of the department store chain Sears, in which he also owned a hefty equity stake.

Delta bonds spike, ease back

On news of a date for the meeting between Delta Air Lines Inc., US Airways Group, Inc. and Delta's unsecured creditors committee, the bonds of Delta spiked up and then eased back at the end of the day to about where they started, according to one distressed bond trader.

"It was a classic inverted V if you look at how the bonds traded today," he said. "The spike was driven by the news of the meeting with US Airways."

He said the Delta 8.30% bonds due 2029 traded up to 61.5 but dropped back by the end of the day to 59. Another trader described the 8.30s as firming 2 points on the day to 59 bid, 60 offered.

Traders said the rise in Delta was largely fueled by the US Airways news because otherwise, airline paper would likely be weaker on the huge spike in oil Wednesday. Oil futures climbed $1.47 to settle at $62.46 a barrel on the New York Mercantile Exchange.

Earlier in the week, news surfaced of a meeting with Delta and bondholders at which US Airways will pitch its $8.6 billion unsolicited offer for the Atlanta-based No.3 domestic carrier. But the specific time was not known. According to chatter circulating Wednesday, the meeting will take place Thursday.

Tempe, Ariz.-based US Airways aired its bid Nov. 15 but Delta has been against the merger and said it will present a stand-alone reorganization plan by next month.

Northwest Airlines Corp. also continues to tag along with the Delta party but a buyside source said it was a matter of hedging as players were short selling Northwest stock, which dropped 3% Wednesday to $3.57. A bond trader said that the notes were better by a point across the board, pegging the 8 7/8% notes due 2006 gaining to 84 bid, 86 offered. Another trader though saw the 8 7/8s up 3 points on the session at 85 bid, 86 offered.

Houghton Mifflin firms on buyout

Houghton Mifflin Co. bonds traded up as much as 3 to 4 points Wednesday on news of Houghton Mifflin Riverdeep Group plc's $3.4 billion takeover of the company, including the assumption of $1.61 billion of Houghton Mifflin debt and concurrent tender for the bulk of those bonds.

"We thought it was going to be slightly negative, but the bonds are higher on the news," said one trader.

Credit rating agencies saw it negatively, too, with Moody's Investors Service putting virtually the entire range of Mifflin's credit structure under review for possible downgrade as a result of the news.

Holding company HM Publishing Corp.'s discount notes due 2012 traded up 3 to 4 points to 95/95.25 versus a recent level of 91, the trader said. He pegged the Houghton Mifflin 8¼% notes due 2011 and 9 7/8% notes due 2013 both up about 1 point with 825s at 104.25 and the 9 7/8s at 109.25.

Boston-based publishing house Houghton Mifflin has agreed to a nearly $3.4 billion buyout offer, which includes the assumption of $1.61 billion of debt, from a group led by Irish publisher Riverdeep educational publishing executive Barry O'Callaghan.

Under the deal, announced Wednesday, the buyers are paying $1.75 billion in cash for Houghton. In addition, some Houghton managers and employees are rolling over $40 million in stock into shares of the new company, which is being called HM Rivergroup.

Houghton is currently owned by affiliates of private investment firms Thomas H. Lee Partners, Bain Capital Partners, Blackstone Group and management. At the same time, HM Rivergroup will also acquire Riverdeep Holdings Ltd., a U.S. publisher of branded interactive educational and personal publishing products, which is controlled by O'Callaghan.

The Riverdeep transaction is valued at $1.2 billion, including the assumption of Riverdeep's 9¼% notes due 2011.

On completion of the deals, O'Callaghan and the management group will own roughly 50% of Houghton Mifflin Riverdeep, while former shareholders of Riverdeep other than O'Callaghan will own about 15%. The remaining 35% will be owned by new investors. Houghton Mifflin Riverdeep said the combined company will generate annual revenue of about $1.43 billion.

Revlon bonds better on news

Revlon Inc. bonds were better by about a point Wednesday on news that the company plans to launch a $100 million equity offering largely backstopped by majority owner Ronald Perelman, and refinance its existing bank debt along with the redemption of its $50 million issue of 7 5/8% notes due 2008.

"This is welcome news," said distressed bond trader. "It's a sign that Ron Perelman is still committed to the future of Revlon, that this company hasn't been written off."

Revlon's 9½% notes due 2011 traded up a point to 94 from 93 on Tuesday, he said, and the 8 5/8% notes due 2008 also were better by about a point to 98. The stock market particularly liked the deal, with the stock moving up 6% on the day.

As part of the restructuring effort, Revlon is scheduled to launch a new $1 billion credit facility Thursday. Revlon Consumer Products Corp. is refinancing its existing $800 million term loan with a new five-year $840 million term loan facility and expects to amend an existing $160 million multi-currency revolving credit facility with an extension of its maturity by five years.

The moves follow a massive shake-up in September, which included naming a new chief executive officer, discontinuing a new line of cosmetics for mature women and cutting more jobs. The company described the current move as a step toward improving cash flow and strengthening its balance sheet and capital structure.

Revlon said it would launch the $100 million rights offering in December. It will allow holders to buy additional class A common stock, with a distribution slated by the close of business on Dec. 11 at a price determined by an independent analysis. Some sort of equity offering had been planned for some time but was deferred as Revlon worked on revitalizing its brands.

MacAndrews & Forbes, Revlon's parent company owned by financier Perelman, agreed to buy its pro rata share of the $100 million of class A common stock covered by the rights offering. MacAndrews & Forbes will also buy any remaining class A shares offered but not purchased so that the gross proceeds of the rights offering total $75 million.

Ziff Davis trades sideways

Ziff-Davis Media, Inc.'s bonds did not see much action and the paper traded sideways Wednesday on a downgrade by Moody's, as market sources said more players were interested in the company's preferred stock.

The Ziff-Davis floaters due 2012 traded Wednesday at 95.5, pat with the recent market for the bonds, and traders said only a handful of the bonds caught a bid.

"We are really interested in the preferreds," said one market source. "Those are difficult to find."

Ziff-Davis has some $971 million of preferreds in five separate series outstanding but little, if any, in circulation.

Moody's cut the $205 million floater to Caa1 from B3, noting that the company could face a near-term default on its debt obligations, absent a waiver from bondholders.

In addition, Moody's said it considers a sale of assets or a restructuring of Ziff Davis' balance sheet could result in compromised recovery to the debtholders, especially to holders of its $152 million unrated compounding notes, which require 12% cash interest payments starting February 2007, and the parent Ziff-Davis Holdings, Inc.'s $971 million of unrated mandatorily redeemable preferred stock.

At the end of September, the company reported cash of $11 million, down from the $34 million posted at year-end 2005.

New York-based Ziff-Davis, a magazine publisher targeting the technology and video game markets, has been exploring strategic alternatives, including the possible sale of some or all of assets. In addition, the company cautions that uncertain refinancing and asset sales prospects raise doubt about its ability to continue as a going concern.

Sea Containers rises to 69

Sea Containers Ltd.'s bonds also didn't see much action Wednesday but a distressed bond trader said speculation in reports from Finland of a possible sale of its SuperSeaCat ferry operator unit would be a positive event.

Another trader pegged the Sea Containers 12½% notes due 2009 up a little better than a point to 69, although he said he did not know if that had anything to do with any asset sale speculation. He quoted the 10¾% notes due 2006 at 66.

In a Finnish publication on Wednesday, there was a report that Sea Containers' SuperSeaCat would be a good fit for the Finland ferry group Viking Line. The newspaper report cited an unnamed source that asserted Bermuda-based maritime group could easily sell its Finnish fast ferry business, SuperSeaCat.

Sea Containers has already sold Finnish ferry business Silja Line for €450 million.

Sea Container's filed for Chapter 11 last month after failing to redeem the $115 million of 10¾% when they came due.

Remy on a roll

In the automotive arena, Remy International Inc.'s bonds were seen up 4 points on the day, a trader said - although there was no news seen out on the company.

"It was just pushed up by better buyers," he said, quoting the parts-maker's 8 5/8% notes due 2007 at 81 bid, 82 offered.

Another trader quoted Remy's bonds up anywhere from 1 to 3 points, with the 8 5/8s up 3 points to 79 bid, 81 offered, its 9 3/8% notes due 2012 up 2 points at 29 bid, 31 offered, and its 11% notes due 2009 a point better at 32 bid, 34 offered.

Among other troubled auto names, a trader saw "nothing doing, all the same," in the bonds of Dana Corp., Delphi Corp., and Dura Automotive Systems Inc.

He did, however, see Tower Automotive Inc.'s 12% notes due 2013 up 2 points at 18 bid, 20 offered. The New York bankruptcy judge overseeing the Novi, Mich.-based vehicle frames maker's reorganization saw fit to grant its request for an extension of the time period during which Tower alone can file a proposed plan of reorganization and solicit approvals from its various creditors.

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