Refco romps as multiple bidders emerge; Unisys, Tenet lower; K-Sea deal KO'd

By Paul Deckelman and Paul A. Harris

New York, Oct. 24 - Refco Inc.'s bonds soared for a second straight session Monday, as expressions of interest in the troubled financial services company's valuable futures unit came from as many as half a dozen potential buyers - although the original bidder on that asset announced late in the day that it was walking away from what has now become too expensive a bidding process.

Elsewhere, the bonds of Unisys Corp. and Tenet Healthcare Corp. were both seen markedly lower on unfavorable news - a Washington Post report that Unisys had overbilled the government on a $1 billion an airport security technology contract and Tenet's announcement that it plans to spend "hundreds of millions of dollars" to restore its heavily damaged facilities in the New Orleans area, where it is the largest private hospital operator.

Sources variously marked the high-yield market flat to slightly lower on Monday.

One sell-side official, however, had junk marked down a quarter-point to a half-point, commenting that the strength seen Monday in the equity market, with the Dow Jones Industrial Average advancing more than 1.65% on the day, did not provide any lift for junk, which is often said to be closely correlated with the stock market.

Lately the stock market and high-yield seem to have "decoupled," the official commented.

Meanwhile the primary market passed another quiet day on Monday, with the session's only issuance coming in the form of a euro-denominated deal from General Motors Acceptance Corp.

However three companies came with deals that will launch Tuesday or Wednesday.

K-Sea Transportation Finance Corp.'s planned offering of seven-year notes was heard by syndicate sources to have been scuttled, with the New York-based maritime transportation operator citing unfavorable market conditions as the reason for the deal's postponement.

GMAC plays to mostly high-grade buyers

Although it came with below-investment-grade credit ratings the GMAC euro-denominated deal that priced on Monday did not generate much interest among junk players, sources said.

GMAC International Finance BV priced a €300 million issue of 4 3/8% two-year fixed-rate notes (Ba1/BB) at 99.882 resulting in a 180 basis points spread to mid-swaps, at the tight end of the mid-swaps plus 180 to 195 basis points price talk.

BNP Paribas and The Royal Bank of Scotland ran the books.

On Monday afternoon sources told Prospect News that, credit ratings notwithstanding, GMAC appeared to have been mostly a high-grade play.

One source commented that the high-yield accounts tend not to have much two-year paper in their portfolios.

Three for the road

As sources had predicted throughout last week, the new issue market began to grow as the final full week of October 2005 got underway.

Three roadshow starts were heard.

Tulsa, Okla.-based service provider to the petroleum industry, SemGroup, LP, in conjunction with SemGroup Finance Corp., will begin a roadshow Wednesday for a $250 million offering of 10-year senior notes.

Banc of America Securities has the books for the debt refinancing deal.

Elsewhere The Little Traverse Bay Bands of Odawa Indians will begin a roadshow on Tuesday for its $195 million offering of eight-year senior notes (B3), also via Banc of America Securities.

Proceeds will be used to fund costs associated with the issuer's new gaming facility, to refinance its existing gaming business debt and to fund a reserve covering four interest payments on the new bonds.

The lodging and gaming firm is based in Petoskey, Mich.

And Vitamin Shoppe Industries Inc. will start a roadshow on Tuesday for its $165 million offering of seven-year second-priority senior secured floating-rate notes (B2/B+).

Bear Stearns & Co., BNP Paribas and Banc of America Securities are joint bookrunners for the debt refinancing from the North Bergen, N.J., marketer of vitamins, vitamin supplements, and nutritional products.

K-Sea postpones

K-Sea Transportation Partners LP postponed its $150 million offering of seven-year senior notes (B2/B+) due to market conditions, according a press release issued by the company on Monday.

Lehman Brothers was the bookrunner.

According to a high-yield syndicate official, K-Sea's withdrawn offering of seven-year notes is the fourth tranche to be postponed since the market began selling off in early October.

Chinese conglomerate Fosun International Ltd. pulled its $350 million offering of seven-year notes on Oct. 13.

Targa Resources dropped a $100 million offering of eight-year floating-rate notes, shifting that amount to its credit facility, on Oct. 17 (Targa did, however, succeed in placing a $250 million issue of eight-year senior notes).

And last week Roundy's Supermarkets dropped a $150 million tranche of eight-year senior subordinated notes, although the company remains in the market with a $175 million offering of seven-year senior floating-rate notes (B3/B-) which are expected to price this week.

Refco higher

Back in the secondary market, Refco roared and soared as a veritable cornucopia of would-be buyers for the futures unit came out of the woodwork, and the bankruptcy court overseeing the company's reorganization established bidding procedures.

The company's 9% notes due 2012 "really jumped up," a market source said, quoting those bonds as having zoomed up to 70.75 bid from Friday's closing levels around 59 bid.

A trader at another desk saw those bonds get as good as 70 bid, 72 offered, well up from 58 bid, 60 offered Friday, and said that trading had been very active. Another trader saw a 10-point jump, to 71.5 bid, 72 offered, while another saw "a solid 10-point lift" to the bonds, which he quoted a little lower than the others, at 68 bid, 70 offered.

Refco "was probably the only big mover on the day," the latter trader said. "I really don't think much else of importance happened."

Besides the positive buzz generated by the growing roster of companies looking to buy part or all of Refco, the trader also pointed out that "it's a new bankruptcy situation, with a lot of people involved in trying to get in, or out, or whatever, so you've got a lot of action, just like you did with Delphi, with Delta, the first couple of days or so, a lot of action going on."

Refco, which maintains huge commodities and futures trading units, filed for bankruptcy on Oct. 17, driven into Chapter 11 by the exploding scandal, revealed a week earlier, that revolved around a bad $430 million loan hidden deep in the balance sheet, allegedly disguised so as not to interfere with the company's initial public offering this past summer. Although then chairman and chief executive officer Phillip R. Bennett repaid the loan, he was ousted from his executive positions, and indicted by federal prosecutors for alleged securities fraud.

The cascade of bad news hammered the company's bonds down over the course of several sessions to as low as around 30 bid, well down from levels as high as 108, before the scandal came to light, but the bonds had bounced off that low after it reached a tentative agreement to sell its futures trading unit to a buyout group led by former Goldman Sachs & Co. banker Christopher Flowers for $768 million, plus a 2.8% breakup fee. Refco management had sought quick court approval for the deal - but things became more complicated last week when Interactive Brokers, an options trading and brokerage firm, trumped the Flowers offer with its own $791 million bid, which included no breakup fee. The prospect of a bidding war for the unit drove the bonds as high as 60, about double their prior lows.

Over the weekend, more potential buyers were being talked about in news reports and some of them stepped forward at a Monday hearing before the U.S. Bankruptcy Court for the Southern District of New York, in Manhattan.

By late Monday, the roster of potential acquirers, besides Flowers and Interactive Brokers, included Dubai Investment Group LLC, acting in concert with California supermarket tycoon Ron Burkle's Yucaipa Cos. LLC, through DIGL Inc.; futures brokerage firm Man Financial; Marathon Asset Management LLC; Apollo Capital Management LLC.; as well as Merrill Lynch & Co., acting in concert with Warburg Pincus LLC and Susquehanna.

The Dubai Investment Group/Yucaipa bid reportedly totaled $828 million, with no breakup fee. Interactive Brokers in response upped its own bid from $791 million to $858 million. The sizes of the other prospective bids were not immediately publicized - but whatever they were, J.C. Flowers on Monday afternoon withdrew its bid, following judge Robert Drain's efforts to get Flowers to drastically scale back its break-up fee.

According to Refco lawyers, an auction for the futures unit will take place on Nov. 9, with bids due five days before that, and a hearing on the sale will be held the day after the auction.

Auto names led higher by GM

Elsewhere, traders saw the automotive sector names mostly better, taking their cues from GM, which in turn fed off the recent strength in GMAC bonds spurred by GM's announced plans to sell a majority stake in the financing unit to a buyer who could get it back to investment-grade status.

Those plans helped to boost GMAC's 8% notes due 2031, which were seen up anywhere from five to six points in Friday's dealings, before coming off those highs Monday and ending at 107.5 bid, 108.5 offered.

"They tried pushing even higher [Monday] but pulled back and were off a point on the day," said a trader, "but are still up 4½ to five points in the last two days."

That, in turn, helped to buoy the GM bonds, he said. The auto giant's benchmark 8 3/8% notes due 2033 "rallied a little, but then pulled back from their peaks at the end of the day," to go home at 79 bid, 80 offered, up a point on the session. Given the late pullback from the highs, "it was certainly not a huge rally, but was a little bit stronger, trying to catch up to the move that GMAC put on on Friday."

He saw the auto supplier names propped up by the new GMAC/GM strength. Bankrupt former GM unit Delphi Corp.'s bonds were at 67 bid, 68 offered, holding on to last week's gains, while Dana Corp.'s 7% notes due 2009 "had the most movement" and were up two points on the day at 76 bid, 77 offered.

Another trader saw Dura Operating Corp.'s 9% notes due 2009 at 66.5 bid, 67.5 offered, while its 8 5/8% notes were at 87 bid, 88 offered, each up a point to 11/2.

And he saw Metaldyne Corp.'s bonds "up two or three points," with its 10% senior notes due 2013 at 92.5 bid, 93.5 offered, and its 11% subordinated notes due 2012 at 74.5 bid, 75.5 offered.

Land O'Lakes up on earnings

Apart from the autos, he saw Land O'Lakes Inc.'s bonds "a little better post-numbers and [third quarter] conference call," with the Arden Hills, Minn.-based dairy products processor's 7.45% notes due 2029 at 91.25 bid, 92.25 offered, its 9% notes due 2010 at 110 bid, 111 offered, and its 8¾% notes due 2011 - the subject of a separately announced Dutch auction tender offer - at 105.75 bid 106.75 offered, "all up about a point or so."

Tenet down

On the downside, Tenet Healthcare's bonds "got hit," a market source said, quoting the Dallas-based hospital operator's 6 3/8% notes due 2011 and 6½% notes due 2012 each dropping to 89 bid from 90.5 bid. The company's 9 7/8% notes due 2014 dipped to 99.75 bid, from 101, while its 6 7/8% notes due 2031 retreated to 77.5 bid from 79.

Tenet unveiled plans to invest "hundreds of millions of dollars" in a new regional health network for the New Orleans area where two of its central hospital campuses, Memorial Medical Center and Lindy Boggs Medical Center, were severely damaged by Hurricane Katrina and remain closed indefinitely.

Unisys sinks

Also lower were the bonds of Unisys, after the Washington Post reported that the Blue Bell, Pa.-based technology solutions company had overbilled the government while doing work on airport security technology post-9/11. It said federal auditors were probing alleged irregularities. The paper said that in some cases, Unisys paid employees less than half of the $131 an hour for as much as 171,000 hours of labor that the company billed the feds.

"That paper really got smacked," a trader said, although he did note that "toward the end of the day, the paper started to bounce a little bit," though still ending lower on the day, with the 8% notes due 2012 at 86.5 bid, down from 91.25, its 6 7/8% notes due 2010 also at 86.5, down from 91.5, and the 7 7/8% notes due 2008 at 98.5, down from 98.25.

Late in the day, the company acknowledged in a statement that it "believes most of the issues are being addressed, to the initial satisfaction of our customer, the Transportation Security Administration," and saying the amount of revenue involved was only a very small percentage of the total worth of the contract.

"I suspect it's going to bounce more tomorrow," the trader continued. "If there are some irregularities with the contract, it's a billion-dollar contract. Even if you cut it in half and haircut it, "it would not a major financial effect on the company."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.