Bally firmer as reforms proposed; Abitibi-Consolidated shops two-part deal

By Paul Deckelman and Paul A. Harris

New York, June 7 - Bally Total Fitness Holding Corp. bonds and shares were seen muscling upward Tuesday, possibly in response to the news that a sizable institutional stockholder plans to submit corporate governance reform proposals for shareholder consideration at the Chicago-based fitness club operator's annual meeting next month. Also on the upside was Atlanta-based mattress-maker Simmons Co. after its corporate parent filed for an initial public stock offering

In the primary market, no issues were seen by players to have priced by quitting time; however, price talk emerged on offerings from Iasis Healthcare LLC/Iasis Capital Corp. and Cadmus Communications Corp., while Abitibi-Consolidated of Canada, Inc. was heard by syndicate sources to be getting ready to bring a quickly marketed two-part deal to market on Wednesday.

Bally Total Fitness's 9 7/8% notes due 2007 were being quoted at 83 bid, up some 3½ points on the session; at the same time, the company's New York Stock Exchange-traded shares were jumping 48 cents (10.30%) to $5.14 per share on volume of 1.64 million, about three times the norm. At one point in the session, the stock, which had closed at $4.66 on Monday, got as good as $5.45 before coming off that peak level.

Liberation Investments Group LLC, controlled by investor Emanuel Pearlman, holds 5.81% of Bally's shares. It said on Tuesday that two funds that it controls - Liberation Investments LP and Liberation Investments Ltd. - plan to introduce the shareholder governance measures at the July 29 annual meeting.

Liberation wants to separate the offices of chief executive officer and chairman of the board, which are currently both held by Paul Toback, who is also the company's president.

It also wants to remove the company's anti-takeover stockholder rights plan, end staggered terms for the board of directors and establish a mandatory retirement age of 75 for board members.

The moves to overhaul Bally's governing structure come at a time when Bally is facing a Securities and Exchange Commission probe of its accounting practices and has been named as a defendant in a number of recently filed class-action lawsuits alleging that it misled investors.

The suits charge that ever since April 28 - when Bally abruptly announced the immediate resignation of then-chief financial officer John W. Dwyer and said the SEC was investigating a recent results restatement - the company's shares have tumbled about 17% on heavy volume; in that time, the company's bonds have also struggled, with the 9 7/8s having dropped to around 80 bid from prior levels around 86.

The Bally bonds have been gyrating around after having been shaken in early March - when the 9 7/8s fell as low as around 70 bid - on investor angst over whether the company was procrastinating on reporting its quarterly numbers because it was about to announce a bad news bombshell at that time. Those particular fears proved to be groundless, as it turned out - but it was just a few weeks later that the company did report Dwyer's abrupt resignation and the SEC scrutiny.

Simmons adds 2 points

Elsewhere, Simmons Co.'s 7 7/8% notes due 2014 were seen up two points at 101 bid, after indirect corporate parent THL Holding filed an S-1 registration statement for an initial public offering with the SEC.

THL did not say how many shares would be sold, or at what price range, nor was any breakdown provided about what percentage of the shares might be sold by the company itself and what by selling shareholders.

However, the IPO statement was seen as a potential positive for the bonds. The company has $200 million of the notes out and an equity clawback provision allows it to use any kind of equity proceeds to redeem up to 40% of the bonds, or up to $80 million principal amount, at 107.875.

Rite Aid better

Also on the upside, Rite Aid Corp. bonds were seen a bit firmer; the Camp Hill, Pa.-based drugstore chain operator reported that same-store sales at stores open at least a year - the key measure of performance in the retailing industry - were up 4.8% in May versus year-earlier levels.

A market watcher saw Rite-Aid's 6 7/8% notes due 2013 up a point at 90 bid, while its 6 1/8% notes due 2009 were half a point better at 93 and most of the company's other issues, such as its 6% notes due 2005 and 12¼% notes due 2006, were a quarter point better; the 6s ended at 99.5, while the 121/4s finished at 114 bid.

"There wasn't much going on," a trader said of the session. "But some stuff did feel better."

Calpine, Level 3 move higher

He saw Calpine Corp.'s 8½% notes due 2008 having pushed up to 63 bid from 62.5 previously, while the San Jose, Calif.-based independent power generator's 8¼% notes due 2005 were a full point better at 91 bid.

Likewise, he said, Level 3 Communications Inc.'s 9 1/8% notes due 2008 firmed to 83 bid, 84 offered, up from 82 previously, although he saw the Broomfield, Colo.-based fiber optic telecommunications network operator's 11% notes due 2008 unchanged at 87.5 bid.

Mandalay holds steady

Mandalay Resort Group's bonds, which had fallen back Monday in the wake of the unsolicited $7.65 billion acquisition offer the Las Vegas-based gaming operator had received from cross-town rival MGM Mirage, seemed to steady on Tuesday; an observer said that "for everyone that was down half a point, one was up half a point," with the company's 6 3/8% notes due 2011 half a point ahead at 97.5 bid, while its 7% notes due 2036 were half a point lower at 103. Its 9 3/8% notes due 2010 were a quarter point better at 110.75, while its 9½% notes due 2008 were unchanged at 112.

Late Tuesday, well after the markets had closed for the day, MGM Mirage announced that it had extended its deadline for Mandalay to reply to its merger proposal to Friday night from the original deadline of 8 p.m. Tuesday. Mandalay shareholders meanwhile brought the company's share price down to $69.70 from their Monday close at $70.23, getting closer to the $68 price that MGM Mirage had laid out.

Primary quiet

No issues priced during Tuesday's session, with some sources attributing the hushed tone of the primary market to the abbreviated week: the bond market will close Friday in commemoration of the death of former U.S. president Ronald Reagan.

However details surfaced Tuesday on $2.004 billion of business on this week's calendar.

And talk surfaced on big deals in the wings.

Expecting some mega-deals

"The market looked a little better today," observed one sell-side official shortly after Tuesday's close.

"I saw some secondary levels up an eighth to a quarter of a point.

"There has not been a lot of primary market activity. Things are somewhat slower than expected because of the day of mourning Friday."

However this source went on to say that although the early part of the June 7 week has been quiet, there could be some comparatively massive name waiting in the wings.

"Except for the Celanese deal [$1.244 billion equivalent priced on June 3], we had not been hearing talk about big deals for a few weeks," the source said, adding that the information about pending mega-deals was gleaned from "conversations with underwriters."

"I would not be surprised to see some of them before the Fourth of July," the source added.

Another sell-sider claimed to know of one such deal, and went on to specify that the company in question would emerge from the "technology sector" with a $1 billion-plus transaction that would likely price before the end of June.

However when pressed by Prospect News this official declined to specify a name.

Junk a defensive play?

This same investment banker went on to insist that, if the junk market presently seems to be adrift in the horse latitudes, fresh winds may be just off the bow.

"The high yield moves in tandem with the equity market," said the source, alluding to continued strength in the stock market over recent sessions.

"And I think liquidity is coming back to high yield," the official added.

"At the end of last year there was nothing to be had in the primary market. The supply was tight and the spread was ridiculously tight.

"Now deals are going to price at more reasonable levels than was the case at the beginning of the year - by 75 to 100 basis points compared to deals that priced in January, February and March of this year.

"The triple-hook deals seem to have been priced out right now. And the default rate has touched a new low and is continuing to trend down.

"If you take everything into account high yield remains a relatively defensive play."

Abitibi plans $350 million

Although no new roadshow starts were announced during the session, Abitibi-Consolidated of Canada, Inc. expects to price a quick-to-market $350 million of seven-year notes in fixed- and floating-rate tranches (Ba2/BB) late during Wednesday's session.

Citigroup and Banc of America Securities are joint bookrunners for the debt refinancing deal from the Montreal-based manufacturer of newsprint, paper and other forest products.

No roadshow for Abitibi, and no price talk either, according to an informed source who spoke to Prospect News about the deal late Tuesday.

Price talk, the source said, can be expected sometime Wednesday morning.

Talk on Stater, Cadmus, Iasis

Stater Bros. Holdings Inc., the Colton, Calif.-based supermarket chain which is in the market with the week's biggest deal, a $685 million two-tranche offering (B1/BB-), put out price talk Tuesday.

Price talk is 8 1/8%-8 3/8% on its proposed $525 million of eight-year senior notes.

Meanwhile, price talk is three-month Libor plus 350-375 basis points on the $160 million of six-year senior floating-rate notes.

Both tranches are expected to price Wednesday afternoon via Banc of America Securities.

Meanwhile price talk is 8 3/8%-8½% on Cadmus Communications' upcoming $125 million of 10-year senior subordinated notes (B2/B), expected to price late Wednesday via Wachovia Securities and Banc of America Securities.

And price talk of 8½%-8 5/8% emerged Tuesday on Iasis Healthcare LLC/Iasis Capital Corp.'s $475 million of 10-year senior subordinated notes (B3/B-), expected to price on Thursday via Banc of America Securities, Citigroup, Goldman Sachs & Co., Merrill Lynch & Co. and Lehman Brothers.

Greenspan fails to jolt bond markets

Fed Chairman Alan Greenspan's Tuesday statement that "the FOMC is prepared to do what is required to fulfill our obligations to achieve the maintenance of price stability so as to ensure maximum sustainable economic growth" was being interpreted in the capital markets to mean that the central bank could move more aggressively than previously expected to increase short-term interest rates, according to market sources.

However late in Tuesday's session a sell-side official told Prospect News that the bond market did not seem to have reacted negatively to the news.

"One of our Treasury traders said that the recent numbers raise more questions about what the Fed is going to do in three months, more than what it will do at the end of this month," the sell-side official added.

"You still also have on the same day [as the Fed meeting, June 30], the Iraq hand over. We could have things moving in lots of different directions.

"It could be a very interesting end of the month."

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