KB Home issue rises on tender news; Metaldyne moves up on cash infusion; buyout buzz boosts Boyd

By Paul Deckelman and Paul A. Harris

New York, June 13 - It may have been Friday the 13th - but it was a lucky session for the holders of KB Home's 7¾% notes due 2010, which pushed upward by several points after the Los Angeles-based homebuilder announced plans to call those notes for redemption - a move which several traders said was puzzling to them.

And there was no triskiadekaphobia - the irrational fear of the number 13 - in evidence among Metaldyne Corp. bondholders, whose notes pushed upward on the news that the Plymouth, Mich.-based automotive components maker's Japanese corporate parent will provide it with a $30 million cash infusion.

Boyd Gaming Inc. bondholders, and shareholders, also believe that Lady Luck is with them; the Las Vegas-based casino operator's shares and bonds both rose on what's being called renewed takeover talk about the company.

The primary market, apparently worn out after Thursday session which saw new deals price for Targa Resources Inc. and Sotheby's, was quiet on Friday, but for the news that Telesat Canada plans to sell nearly $1 billion of notes in a two-part offering to refinance its bridge facility.

New deals trade near issue prices

A trader saw the Targa 8¼% notes due 2016, which priced on Thursday at par, trading "just under its issue price" at 99.5 bid, par offered.

However, he saw the new Sotheby 7¾% notes due 2015 at 99.25 bid, 99.75 offered, up from their Thursday issue price at 98.681.

Another trader said that he "was surprised" to see the new Targa bonds weaken, seeing the new paper get as low as 99.5 bid, par offered, although "they did rebound from their lows" to finish at 99.875 bid, 100.25 offered. He did not see the new Sotheby bonds trading around.

The first trader said that among other recently priced issues, Iron Mountain Inc. "hung in there." He saw the Boston-based document and record storage and disposal company's 8% notes due 2020, which priced at par on June 2, at 99.25 bid, 99.75 offered.

The new Cenveo Corp. 10½% notes due 2016, which priced at par on June 5, also "held in." at 100.5 bid, he said.

And Airgas International Ltd.'s new 10¼% notes due 2013, which had priced at 99.046 on June 12, were positively floating along at 101 bid, 101.75 offered.

On the other hand, Ply Gem Industries Inc.'s 11¾% notes due 2013, which priced at 99.072 on June 2, continued to flail around well below issue, at 95.75 bid, 96.5 offered, he said. A market source saw the Cary, N.C.-based building products maker's established 9% notes due 2012 down nearly a point at the 65 level.

Market indicators little changed

The widely followed CDX junk bond performance index was about unchanged on the day, a trader said, quoting it at 95 5/8 bid, 96 1/8 offered. The KDP High Yield Daily Index meantime rose 20 basis points to 75.07, while its yield rose by 2 bps to 9.47%.

In the broader market, advancing issues trailed decliners by a narrow margin. Activity, represented by dollar volume levels, fell about 27% from Thursday's levels.

"Not much was happening. It really sucked today," on trader commented.

Another asked "what's going on?" - and answered his own question: "nothing."

Yet another described the market as "very subdued and unfocused. Our market never really even opened," He said that "Metrodyne and KB [Home] traded - but that was about it."

KB issue climbs on call

The trader said that "the only big news" was that KB Home's 7¾% notes are being called, which sent those bonds up to 101.875 bid, 102 offered, their approximate takeout level, from prior levels at 98.375.

The trader said that he thought that the redemption offer was "just too unusual" for a homebuilder to offer to buy back all of those bonds above their face value at a time when the whole building industry is struggling to stay solvent - forget profitable - against a backdrop of a steep slide in new and used home sales, lower house prices, less consumer confidence and tighter credit conditions. He said that the could not see the logic of the company giving up "a valuable cushion of cash" to buy back those bonds well ahead of their maturity at a time when every dollar counts.

Another trader also expressed surprise at the planned bond buyback, particularly, as he pointed out when "they have $200 million of 8 5/8% notes coming due this December that will have to be redeemed. "I'm surprised that they would call the '10s. It is odd."

The first trader wondered what the motive might be for the company to take such an "unusual" step. In its announcement of the upcoming redemption, KB gave no explanation for the move.

Metaldyne motors up on cash infusion

Elsewhere, 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, Wynn Las Vegas' 6 5/8% notes due 2014 eased by nearly 1 point to 94. Isle of Capri Casino's 7% notes due 2014 fell back by ½ point to around 75. 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.

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.

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.

Telesat Canada to price Monday

No issues were priced during Friday's primary market session.

Telesat Canada is expected to price $910 million of high-yield notes (Caa1) on Monday, according to an informed source.

The bridge refinancing deal is comprised of $693 million of senior notes and $217 million of senior subordinated notes.

Morgan Stanley, UBS Investment Bank and JP Morgan are joint bookrunners. Scotia Capital and Jefferies & Co. are the co-managers.

Three more for the week ahead

Heading into the June 16 week the forward calendar is comparatively robust, at least by 2008 new issue market standards.

In addition to Telesat Canada, Lender Processing Services is expected to price its $400 million offering of eight-year senior notes (Ba2/BB+) on Monday or Tuesday.

No price talk was available as Prospect News went to press on Friday night.

JP Morgan, Banc of America Securities LLC and Wachovia Securities are joint bookrunners.

Proceeds will be used to help fund the spin off of the company.

Also Expedia Inc. is expected to price its $500 million offering of eight-year senior unsecured notes (Ba2/BB) on Thursday, via JP Morgan and Banc of America Securities.

And late Friday a high-yield syndicate official, not in the deal, professed the expectation that Rite Aid Corp. is likely to price its $425 million offering of senior secured second-lien notes (B3/B+) before the end of the week.

The Camp Hill, Pa., national drugstore chain is bringing the notes as part of the funding for a tender.

The deal has not officially launched, the source said. Nor have the bookrunners been identified.

However Rite Aid is also in the market with a $350 million bank loan, which is being led by Citigroup and Bank of America.

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