Valassis gains on results; Revlon up as loss shrinks; Omnicare hit by U.S. probe news; Guitar Center delays

By Paul Deckelman and Paul A. Harris

New York, Nov. 6 - Valassis Communications Inc.'s bonds were up sharply in busy trading Tuesday, in line with a jump in the Livonia, Mich.-based advertising insert company's shares, following the release of better than expected third-quarter results.

Revlon Consumer Products Corp.'s bonds were also seen better after its parent company, Revlon Inc., reported a narrower loss for the quarter than a year ago.

On the downside, Omnicare Inc.'s bonds were lower, in line with its shares, on the news that the Justice Department is seeking information on possible efforts by the company to allegedly steer patients to Medicare prescription-drug plans - this on top of an earlier, and still ongoing federal probe.

In the primary market, Guitar Center, Inc. was heard by high yield syndicate sources to have postponed its upcoming offering.

However, Terex Corp. will be bringing a half-billion-dollar two-part offering of subordinated notes to market, probably late Wednesday or Thursday, the sources said.

Meanwhile no issues were priced in the primary market, where two mega-deals - one from Alltel Communications, the other from United Rentals Inc. - are in position to price during the latter half of this week.

Terex launches $500 million

On Tuesday afternoon Terex launched a $500 million two-part offering of senior subordinated notes (expected Ba3/confirmed B+).

The debt refinancing deal, which is being led by left bookrunner Credit Suisse, is expected to price late Wednesday or early Thursday. Citigroup and UBS Investment Bank are joint bookrunners.

The offering is being made in tranches of eight-year notes, which come with four years of call protection, and 10-year notes, which come with five years of call protection.

Guitar Center postpones bonds

Elsewhere Guitar Center postponed its $750 million two-part offering of high-yield notes which are part of the financing for the LBO of the company.

The company was offering $375 million of eight-year senior cash-pay notes (Caa1/CCC) and $375 million of eight-year senior PIK notes (Caa2/CCC) via JP Morgan.

A market source told Prospect News that there is a possibility that the bond portion of the financing could resurface in the form of a fixed-rate loan.

Conceding that a fixed-rate loan is a novel structure, the source said that there was concern among the accounts that investors could short the deal too easily if it came as a bond.

Also on Tuesday there were rumors that Ace Cash Express Inc. had postponed a $45 million add-on to its 10¼% senior notes due Oct. 1, 2014 (existing ratings Caa1/B-) via Bear Stearns.

However late Tuesday an informed source told Prospect News that the deal had not been officially postponed.

Alltel to bring $2 billion to $3 billion

In the primary market, much of the focus has been commandeered by a pair of mega-deals which are expected to price before Friday's close.

The biggest of the two is from Alltel, which is in the market with a to-be-determined portion of an overall $5.2 billion of cash-pay unsecured debt that remains on underwriters' books as the result of the crunch in the credit markets.

On Tuesday a high yield portfolio manager said that Alltel is expected to attempt to sell between $2 billion and $3 billion before the end of the week.

"If there is a book for more the underwriters will sell more," the investor contended.

"They're not going push it because if they do whatever they have left on their books will go down since they will have to mark it to market.

"This is a game of trying to maintain all of the capital that the banks can possibly maintain."

The investor added that it is in everyone's interest that whatever portion of the $5.2 billion is place trades up in the secondary.

Citigroup, Goldman Sachs, Barclays and RBS Securities are leading the Alltel bond deal.

The financing also include ups to $2.5 billion of senior unsecured PIK debt, which is not being marketed at present, sources say.

The cash position

The portfolio manager also said that presently the cash position of the buy-side is good across the board, with accounts eager to put it to work.

"You have new issues," the investor said. "But at the same time there is considerable coupon flow from existing securities."

This source estimates that the present cash position among the accounts is high, at around 10%.

"If you are not chasing all possible new issuance, cash is building," the investor said.

"And after while, if it gets too high it is very difficult to work it down.

"At that point you are just buying anything."

Valassis zooms on good numbers

Back among the established issues, the big winner of the day was probably Valassis, which produces newspaper advertising inserts. Its 8¼% notes due 2015 were seen having risen as much as 7½ points on the session in active trading, finishing just below 90 bid.

That climb came in tandem with a jump of some $2.23, or 20.96%, in its New York Stock Exchange-traded shares, which ended the day at $12.87. Volume of 5.3 million shares was more than five times the norm.

The bonds and shares headed northward after the company reported strong third-quarter gains, helped by its acquisition in March of direct-mail marketer ADVO Inc.

Valassis said that its quarterly net income more than doubled to $16.4 million, or 34 cents per share, from $6.6 million, or 14 cents per share, in the year-ago period. Revenue also more than doubled to $607.2 million, from $248.9 million last year.

Those results easily beat the expectations of Wall Street, which had projected earnings in the 20 to 22 cents per share region, on revenues of about $580 million.

Besides reporting better numbers for the quarter just past, Valassis executives said on a conference call with investors and analysts after release of the numbers that the company expects to "meet or exceed" its previously announced guidance of $241 million of adjusted EBITDA. They also predicted "profitable revenue growth" in the second half of 2008.

Revlon up as loss goes down

Another company reporting results, with favorable effects on its bonds, was Revlon, which said that it had cut its third-quarter loss versus a year ago on higher sales.

A trader saw the New York-based cosmetics maker's 9½% notes due 2011 up a point at 94.25 bid, 95.25 offered, citing the better numbers. At another shop, a market source quoted Revlon's 8 5/8% notes due 2008 up 1½ points on the session at 99.5

Revlon - under the control of its chairman and majority owner, billionaire New York financier Ronald O. Perelman - lost $10.4 million, or 2 cents per share, in the latest quarter - a dramatic improvement over the $100.5 million of red ink, or 24 cents a share, that it posted a year a year ago. It was also a smaller loss than the 8 cents per share that analysts on average were looking for.

Revlon's revenues, meantime, rose 11% to $339.7 million from $305.9 million a year ago. Wall Street had been expecting about $315 million of sales.

On their conference call, Revlon executives touted the efficacy of restructuring actions the company took last year and earlier this year, when it cut hundreds of jobs and cancelled its relatively new - but unprofitable - line of cosmetics for older women.

Thanks to those belt-tightening measures, the executives said that based on its third-quarter performance and their expectations for the current fourth, they anticipate Revlon exceeding its previously announced target of $210 million of adjusted EBITDA for the full year.

Lear up on better numbers

Lear Corp.'s 8¾% notes due 2016 were seen up 1 point at 95.5 bid, 96.5 offered as the Southfield, Mich.-based automotive components maker posted better third-quarter results and raised its full-year earnings expectations.

Another market participant quoted the company's 5¾% notes due 2014 half a point better at 85.5.

Lear - which has so far managed to avoid being forced into bankruptcy as so many other large auto parts suppliers have been - had net income of $41 million, or 52 cents per share, a solid turnaround from its year-ago net loss of $74 million, or $1.10 per share.

It also raised its earnings expectations for 2007, citing lower production risk and improved operating performance.

Tenet up on reduced loss

Also on the earnings front, Dallas-based hospital operator Tenet Healthcare Corp.'s bonds and shares looked like they were in better condition after the company reported narrower quarterly losses and reaffirmed its previous guidance.

A trader saw Tenet's 6 7/8% notes due 2011 up a point on the day to around the 89 level. At another desk, a source called its 9 7/8% notes due 2014 better than 2 point winners at 91.5 bid.

Tenet's NYSE-traded shares meantime skyrocketed some 72 cents, or 22.29%, to $3.95. Volume of 36 million shares was triple the usual daily handle.

Tenet improved after the company announced that it had lost $59 million, or 12 cents per share, in the third quarter, narrower than a loss of $89 million, or 19 cents per share, a year earlier. Executives said the company was making progress in controlling costs and reducing bad-debt expenses from uninsured patients who don't pay their bills.

Ainsworth off despite reduced loss

On the other hand, a trader saw Ainsworth Lumber Co. Ltd.'s 7¼% notes due 2012 lose 1 point to 67.5 bid, 68.5 offered, even though the Vancouver, B.C.-based forest products producer showed a reduced quarterly loss of C$37.2 million or C$2.54 per share, compared to a net loss of C$ 77.5 million or C$5.29 per share in the year-ago period.

Omnicare off as feds seek information

Away from earnings-driven movements, a trader saw Omnicare's 6 7/8% notes due 2015 fall 2 points to 92.5 bid, 94.5 offered, and blamed investor fears that federal authorities are looking into some of the company's Medicare practices - this separately from another investigation which has been going on for some time. The company's shares eased nearly 7%.

Those concerns were stoked by a news report saying that the Justice Department issued a subpoena in September seeking the documents, according to a court filing arising from a case pitting the big Kentucky-based nursing home pharmacy company against giant health insurer UnitedHealth Group Inc. The latter, in defending itself in a lawsuit filed by Omnicare in Illinois, disclosed last week that on Sept. 24 it received a subpoena from the Justice Department seeking information about Omnicare "under its authority to investigate health-care fraud offenses."

The filing indicated that this was separate and distinct from DoJ's earlier request for information related to Omnicare's alleged steering of Medicare beneficiaries and its rebate arrangements with prescription drug manufacturers.

Morgan Stanley analyst David Veal, in a note Tuesday, cited the Justice Department inquiries revealed via the UnitedHealth lawsuit, saying that the filings "reveal the existence of what appears to be not one...but two distinct criminal inquiries into the company's business practices," and predicting "another challenging year" for Omnicare in 2008.

Indexes seen better

Overall, declining issues led advancers by about a five-to-four margin.

However, a trader saw the widely followed CDX index of junk bond performance up 5/16 point at 96 7/8 bid, 97 1/8 offered. Among market barometers, the KDP High Yield Daily Index firmed by 0.02 to finish at 79.36, while its yield tightened by 1 basis point to 8.13%.

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