Metaldyne up on cash infusion; Claire's Stores continues slide; Rite Aid loan off as new deal looms

By Paul Deckelman and Sara Rosenberg

New York, June 13 - Metaldyne Corp.'s bonds were seen doing better Friday in relatively active trading, helped by the news that the Plymouth, Mich.-based automotive components company will be getting a big cash infusion from its corporate parent, Japan's Asahi Tec Corp.

Also on the upside, Boyd Gaming Inc.'s bonds, as well as its shares, were higher in apparent response to renewed - but as yet unconfirmed - takeover speculation surrounding the Las-Vegas-based casino operator.

On the downside, Claire's Stores Inc.'s bonds and its bank debt continued to retreat for a third straight day, investors still spooked by the disappointing quarterly results reported earlier in the week.

And Rite Aid Corp.'s term loan was easier, backing up on apparent supply concerns as the Camp Hill, Pa.-based drugstore chain was shopping a new bank deal around to potential investors.

Metaldyne motors up on cash infusion

Traders saw Metaldyne's bonds improved on the news that its corporate parent, Japan-based Asahi Tec, will invest some $30 million in its struggling U.S. subsidiary.

A trader saw its 10% senior notes due 2013 at 58 bid, 60 offered, which he called a 3 point gain on the session, while seeing its 11% subordinated notes due 2012 "still at" 31 bid, 33 offered.

However, at another desk, a trader said that "by far, the bond that was more active was the 11s, which he said were "all over the lot." He saw the issue open at 28 bid, which he said was "a little above the [Thursday] closing level and then trade up to 32, "so they were up like 5 points," although most of the trades, he said, took place at around 30.5. Late in the session, he said that the 11s were trading around a 31-32 range, although "they traded wide of that."

He said that "there really wasn't any trading in the 10s," noting that the Trace bond-tracking system showed a series of successive $500,000 trades in the morning, lifting the bonds from an opening level of 56.625 to 58.375. He opined that "it looks to me like the same 500 bonds [denominated at $1,000] changed hands today" over and over. He said that the bonds "hadn't been trading the last two days" and before that were in the high 50s, a 56-58 range, so he called them essentially unchanged. Later in the session, a smallish trade lifted the 10s to a closing level of 59.5.

Yet another trader said that the 11s were "up as much as 5 points" on the day to 33, but later lost 2 of those points, ending the day around 30-31.

At another desk, a trader said that the 11s had last previously traded in round lots down at 27 back on June 6, before moving up Friday to about 30.5 bid, 32 offered. The 10s, he said, traded between 56.5 and 58.5, up just a bit from their previous round-lot levels at 56.

Parent's plans for Metaldyne

The bonds rose as Asahi Tec, a Japanese industrial manufacturer which acquired Metaldyne in early 2007, announced that it would issue ¥3.2 billion of new shares - equivalent to about $30 million - via a third-party allotment and invest the proceeds in Metaldyne "as needed, in order to strengthen [the] financial base of Metaldyne and support restructuring efforts as [previously] announced in its 'Plan to Win', allow [the] pay down of financial debt, [and] help ensure compliance under the debt agreements in which Metaldyne is a borrower." The transaction is expected to take place in July.

On May 30, Asahi Tec said that Metaldyne "experienced solid performance" during the fiscal year ended March 31 in its European operations, "however, this was more than offset by soft automotive production volumes in North America and supplier resourcing matters affecting one of its U.S. operations."

Asahi Tec said that given the "difficult and uncertain North American market," Metaldyne had in January launched an "action-oriented strategy" dubbed "the Plan to Win." Under the plan, several "significant" restructuring steps were taken, including restructuring operating groups to better allow for tighter cost control, eliminating and significantly reducing certain corporate functions, reducing salaried headcount at Metaldyne's headquarters operations by more than 60 employees, while reducing another 310 salaried and hourly employees "to better adjust the cost base for overall softness in the North American economy."

The parent further noted that Metaldyne had accelerated and completed the closure of its North American Chassis Group manufacturing plants in Farmington Hills, Mich., and Greenville, N.C., and had closed the North American Chassis headquarters in Plymouth by consolidating it into an existing Metaldyne facility.

Asahi Tec said that while Metaldyne had already benefited from those cost-savings actions, "management continues to believe that the North American automotive market will continue to remain soft. Therefore, Metaldyne will accelerate taking additional steps to consolidate its manufacturing base in North America by rationalizing or divesting non-performing operations in North America. Asahi Tec will continue to assess opportunities to eliminate unnecessary costs in this challenging global market."

Boyd boosted by buyout buzz

Also on the upside, a trader said that Boyd Gaming's 6¾% notes due 2014 were up 3 points on the session to 83.5 bid, 85.5 offered, attributing the gain to "takeover rumors."

A market source saw those bonds firm to 82.688 in active trading, and pegged the casino company's 7 1/8% notes due 2016 up 1½ points at 78.25, while another source saw its 7¾% notes due 2012 also 1½ points higher, at 91.5.

Yet another trader saw the 73/4s at 91, which he called unchanged on the day but up about a point from where the bonds were 2 days earlier, saw the 6¾% paper at "a very tight spread" of 82.375 bid, 82.625 offered, which he said was up ½ a point on the day, and saw the 7 1/8s at 78.25, up 1½ points from prior levels of 76.25.

He noted that Boyd's New York Stock Exchange-traded shares were up $1.11 Friday, or 7.06%, to finish at $16.83 on heavier-than-usual volume of 2.3 million, "so it's a pretty good move." While there was no firm news out on Friday about the company, which operates casinos on its home turf in Nevada, as well as in Illinois, Louisiana, Mississippi, Indiana and New Jersey, he said that the FlyOnTheWall.com internet investment site had reported a day or so earlier that "Boyd options were active on unconfirmed renewed buyout chatter." On Thursday, CNBC also reported heavy buying of June and July call options on Boyd.

The trader said that he could see why such speculation would push the stock up, but cautioned that before bond investors get too carried away with all of the takeover talk, they should recall that "all buyouts are not necessarily good for bondholders" - particularly if a deal will be structured as a leveraged buyout that would load up the company being acquired with substantial additional debt.

Among other names in the hard-hit gaming sector, Harrah's Operating's 5¾% notes due 2017 lost a point to end around 55.

Claire's continues to ease

On the downside, Claire's Stores' bonds were off for a third straight session, as investors retreated in the face of disappointing earnings data released earlier in the week, but the pace of that retrenchment fell off sharply.

A trader said the company's bonds had been "busy the past two days, with the 101/2s [due 2017] particularly active," although the name "looked pretty light" on Friday with "just a few trades."

He saw its 9 5/8% notes due 2015 "seemed to be more active today than the 101/2s, which were the most active bond of the last two or three days." He saw "just a few trades in that 45.75-46.5 range" for the 101/2s, "not very many at all," while the 9¼% senior notes due 2015 were lightly traded around 59-59.25 bid.

A market source saw the 101/2s at 46 bid, down perhaps a point on the session and 2 points from where they had been earlier in the week

Another trader saw the 91/4s down 2 points at 58 bid, 60 offered.

In the bank-debt market, Claire's term loan gave up some more ground on Friday, traders said, with investors continuing to cite the first-quarter numbers as the impetus behind the negative momentum.

A trader quoted the term loan at 75 bid, 75½ offered, down from Thursday's levels of 75¼ bid, 76¼ offered, Wednesday's levels of 76¼ bid, 77 offered, and Tuesday's levels of 78 bid, 79 offered.

Late Tuesday night, the Pembroke Pines, Fla.-based specialty retailer of value-priced jewelry and accessories for girls and young women came out with first-quarter financials that showed net sales of $327 million, down 4% year-over-year.

Adjusted EBITDA for the quarter was $34.3 million, well down from $60.6 million in the 2007 first quarter.

And, cash used by operating activities was approximately $1.4 million, a reversal of the cash provided by operating activities of $20.3 million in the same period last year.

Rite Aid loan in retreat

Rite Aid's existing term loan traded down during market hours as people were still reacting to the company's decision to pile on some more term loan debt, according to a trader.

The term loan was quoted at 91¾ bid, 92¾ offered, down from 92 bid, 93 offered on Thursday and down also from 93 bid, 94 offered on Wednesday, the trader said.

On Thursday afternoon, Rite Aid held a conference call to launch a $350 million senior secured tranche 3 term loan (Ba3/BB-) due June 4, 2014 that is talked at Libor plus 225 basis points with a 3% Libor floor and an original issue discount of 94.

Citigroup and Bank of America are the lead banks on the deal, with Citigroup the left lead.

Proceeds will be used to help fund the previously announced tender offers and consent solicitations for its $360 million 8 1/8% senior secured notes due 2010, $200 million 7½% senior secured notes due 2015 and $150 million 9¼% senior notes due 2013.

The remaining purchase price is expected to be funded with a new series of senior secured notes due 2016 that, assuming all notes are tendered, will be sized at $425 million.

Back in the junk bond arena, Rite Aid's 9½% notes due 2017 were seen off nearly a full point at just above the 75 level, while its 8 5/78% notes due 2015 were off ½ point at 76.

Thornburg seen lower

A trader quoted Thornburg Mortgage Inc.'s 8% notes due 2013 some 3 points lower at 68 bid, 72 offered, "after [Thursday's] sloppy quarterly results."

The embattled Santa Fe, N.M. -based mortgage originator posted a loss of $3.31 billion for the most recent quarter, its fourth deficit in a row.

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