Travelport, Buffets planning big deals; hospital bonds' condition worsens

By Paul Deckelman and Paul A. Harris

New York, July 25 - The news that self-serve restaurant operator Buffets Inc. has agreed to acquire fellow buffet-style chain Ryan's Restaurant Group Inc. in a deal valued at some $876 million, including debt to be assumed or repaid, saw high yield primary market participants reaching for their plates Tuesday in anticipation of getting a piece of the upcoming senior subordinated bond issue that will at least partially fund that merger deal.

Also popping up on the new-dealers' itinerary during the session was a billion-dollar-plus, dual-currency mega-deal for Travelport, Cendant Corp.'s travel distribution services unit, now in the process of being sold to an affiliate of The Blackstone Group for $4.3 billion.

They also saw one issue price, a euro-denominated offering of seven-year second-lien notes from chemical manufacturer Treofan Germany GmbH.

Buffets' existing zero-coupon bonds were being quoted solidly higher, apparently on investor belief that those bonds may be refinanced in conjunction with the Ryan's Restaurant deal.

Other names moving to the upside included AK Steel Corp. and Level 3 Communications Inc., both of which reported favorable earnings results.

However, the bonds of hospital operators such as industry leader HCA Corp. and rival Tenet Healthcare Inc. continued to deteriorate on market dismay over HCA's coming $33 billion total valuation leveraged buyout deal, which will load the Nashville-based company with billions of dollars of additional debt.

Sell-side sources said that the broad market generally moved in tandem with equities on Tuesday - lower in the morning, but ticking up in the afternoon to end the day flat.

Treofan at wide end of talk

Meanwhile one euro-denominated issue priced in the primary market. And the forward calendar of deals in the market climbed to over $6 billion as it took aboard a massive new offering from the travel services sector.

Tuesday's single new issue was Treofan Germany GmbH & Co. KG's €170 million of seven-year second-lien notes (Caa1/CCC+) which priced at par to yield 11%.

The yield came on the wide end of the 10¾% to 11% price talk.

Citigroup, JP Morgan and Goldman Sachs & Co. were joint bookrunners for the debt refinancing deal from the German polypropylene film manufacturer.

Travelport brings $1.4 billion

Meanwhile the forward calendar ballooned during the Tuesday session as Chicago-based travel services company TDS Investor Corp. (Travelport) launched a $1.4 billion equivalent multi-tranche bond deal.

The company, whose brands include the online travel agency Orbitz, announced in June that it would be acquired by The Blackstone Group for approximately $4.3 billion in cash.

The bond deal, which will help fund that acquisition, includes $900 million equivalent of eight-year senior fixed-rate and floating-rate notes in dollar- and euro-denominated tranches.

In addition the company plans to sell $500 million equivalent of dollar- and euro-denominated 10-year senior subordinated notes.

The proportions of the dollar-euro splits remain to be determined.

Lehman Brothers, Credit Suisse, UBS Investment Bank, Citigroup and Deutsche Bank Securities are joint bookrunners.

Wednesday's deals

With three - and possibly four - deals poised to price during the Wednesday session, issuance could top $1.4 billion.

Expected to price are:

• Verso Paper Holdings/Verso Paper Inc.'s $900 million three-part deal featuring $600 million of eight-year second-lien senior secured paper (B1/B+) in a tranche of fixed-rate notes talked in the 9¼% area, and a tranche of floating-rate notes talked at Libor plus 400 basis points, as well as $300 million of 10-year senior subordinated notes (B3/B-) talked at the 11% area. Credit Suisse and Lehman Brothers are joint bookrunners;

• Phibro Animal Health Corp.'s $240 million of seven-year senior notes (B3/B-) via UBS Investment Bank, talked at a yield in the 10¾% area; and

• Shackleton RE Ltd.'s up to $75 million of 1.5-year floating-rate catastrophe notes (Ba3/BB), talked at Libor plus 800 basis points, led by Goldman Sachs.

Also thought to be a possible Wednesday transaction is MxEnergy Energy Holdings Inc.'s $200 million offering of five-year senior floating-rate notes (CCC+) via Deutsche Bank Securities and Morgan Stanley. No price talk had been heard on the deal as Prospect News went to press Tuesday evening.

Buffets gains on acquisition

The news of the coming acquisition by Buffets of Ryan's Restaurants, and the anticipated financing for the deal, helped to push levels for Buffets' existing bonds higher. A market source quoted its Buffets Holdings zero-coupon discount notes due 2010 at 84 bid, well up from prior levels at 77.5, while the parent company's 11¼% notes, also due 2010, firmed slightly to 104 bid.

AK Steel up on earnings

On the earnings front, a trader said that AK Steel's bonds rose on positive second-quarter numbers reported by the Middletown, Ohio-based specialty steels producer.

He saw its 7 7/8% notes due 2009 trade up to par bid, while its 7¾% notes due 2012 rose to 99, both up ½ point on the session.

Another trader saw the 7 7/8s up 3/8 point at 99.5 bid, par offered, while the 73/4s were at 98.75 bid, 99.75 offered, up ¾ point on the day.

AK, which produces stainless steel and other alloys for the automotive, appliance, building and other industries, said its second-quarter profit more than tripled from year-ago levels, which were affected by a large charge the company took because of state tax law changes.

AK earned $29.1 million (26 cents a share) for the quarter ended June 30, a substantial improvement from the $9 million (eight cents a share) it posted a year ago. Wall Street was only expecting about 22 cents a share of profit in the latest period. AK was helped by a rise in sales to $1.5 billion, versus $1.45 billion a year earlier.

However, it should be noted that the year-earlier results were unusually low because the company took a non-cash charge of $29.5 million (27 cents a share) for costs associated with state tax law changes. Without that charge, it would have shown net income in the 2005 second quarter of $38.5 million (35 cents a share). In fact, operating profit in the year-ago quarter was $74.2 million, better than the $63 million AK reported this time around.

Looking to bolster its revenues, the company separately announced plans Tuesday to increase prices for all hot-rolled and cold-rolled stainless steel sheet, strip, tubular quality and continuous mill plate products by about 6%, effective Aug. 6.

Level 3 mostly better after results

Elsewhere on the earnings front, a trader saw Level 3 Communications' 12¼% notes due 2013 up ¾ point, at 109.25 bid, 110 offered, although he also saw the Broomfield, Colo.-based fiber optic telecommunications network operator's 11½% notes due 2010 unchanged at 100.25 bid, 101.25 offered.

Another source saw the bonds about ¼ point higher on the bid side across the board, with the 121/4s at 108, the 111/2s at par, and the company's 11s due 2008 at 103.25.

Level 3's second-quarter net loss widened to $201 million (23 cents per share) versus $188 million (27 cents per share) a year ago, and the loss was somewhat larger than the 21 cents per share analysts had expected.

However, buoyed by recent acquisitions, such as its purchase of the former WilTel Communications' assets, Level 3's revenues jumped 71% in the quarter to $1.53 billion from $894 million last year. The company said communications revenue climbed to $819 million from $371 million in the 2005 period, and information services revenue rose to $695 million from $504 million for the same quarter last year.

Company executives also noted that while it posted a net loss, Level 3 had positive free cash flow.

Of particular interest to bondholders, Level 3 reported that as of the end of the second quarter on June 30, it had cash and marketable securities of approximately $2.2 billion, up from some $992 million at the end of the first quarter on March 31. On a pro forma basis, figuring in the redemption on July 13 of its remaining outstanding 9 1/8% senior notes due 2008 and 10½% senior discount notes, also due 2008, and the closing of the acquisition of TelCove, Inc. on Monday, the company had cash and marketable securities of approximately $1.1 billion as of June 30.

Earnings lift Mother's Work

Mother's Work Inc.'s 11¼% notes due 2010 were seen a little better on good fiscal third-quarter earnings and raised full-year guidance issued by the Philadelphia-based maternity wear retailer. Those notes, which had pretty much stayed in the 103 area on Monday, traded in a 104-105 context on Tuesday, and at one point reached an intraday high around 105.625 before retreating to a close around the 104 level.

The company showed net income of $8.8 million ($1.54 per share) in the third quarter ended June 30, up from its prior-year profit of $5.5 million ($1.03 per share), as revenues rose 7% to $163.9 million from $152.7 million a year earlier. Same-store sales - the key retailing industry economic metric, measuring the performance of stores open at least a year - rose 6.4% from a year ago in the most recent quarter, versus a year-ago decline of 1.9%.

The company raised its expectations for the full 2006 fiscal year that will end on Sept. 30 to between $1.41 to $1.64 per share after stock option expense, up from its previous projections of between $1.05 and $1.25 per share. Excluding the stock option expense, it projected earnings from $1.66 to $1.89 per share.

Station down on results

On the downside, Station Casinos Inc.'s bonds eased as the Las Vegas-based local gaming hall operator posted less-than-stellar second-quarter numbers and cut its outlook.

Its 6 7/8% notes due 2016 were seen down 1¾ points at 92.75 by a market source, although its other bonds, such as its 6% notes due 2012 and 6½% notes due 2014 were only off about a ¼ to ½ point, each around the 93 bid level.

Station - which runs Nevada casinos that cater mostly to local residents rather than high-rolling out-of-towners - said net income for the second quarter fell 34% to $26.8 million (44 cents per share) versus $40.6 million (58 cents per share) a year earlier, as costs of new development offset gains in revenue.

The company cut its 2006 third- and fourth-quarter per-share earnings guidance, and for 2007 it forecast earnings of $2.53 to $2.95 per share, down from its previously announced range of $2.65 per share to $3.05 per share.

Friendly drops ahead of earnings

A trader saw Friendly Ice Cream Corp.'s 8 3/8% notes having melted down to 83 bid, 84 offered from around 87-88 "just a few days ago. They just keep drifting lower and lower," in anticipation, he said, of the upcoming quarterly report by the Wilbraham, Mass.-based ice cream producer and restaurant operator.

"The earnings are expected in August - and they're already lowering their estimates."

Auto sector higher

However, also looking ahead, he saw "autos better by ½ point across the board," noting that sector bellwether General Motors Corp. is scheduled to report earnings on Wednesday.

GM's benchmark 8 3/8% notes due 2033 were up ½ point at 81.25 bid, 83.25 offered, another trader said, while its 7 1/8% notes due 2013 were up a point at 85.

HCA keeps falling

It was another tough day for holders of HCA Corp. bonds, which began sliding last week when The Wall Street Journal reported that the largest hospital operator in the United States was in talks with several private equity companies on a leveraged buyout transaction. Even the reports late last week that the talks had collapsed did not stem the selling - and the bonds nosedived anew on Monday when it was announced that a deal had indeed been struck over the weekend, valuing the company at $33 billion, including assumed or repaid outstanding debt.

On Tuesday, the bonds continued to erode.

"Accounts are mostly focusing" on that name and that sector, a trader said. "They don't know what the hell to do with hospital bonds. Most of the people that own it [HCA] were conferencing all day, trying to figure out what to do with its debt."

He saw its widely traded 6½% notes due 2016, which were trading around 90 bid a week ago before falling over several sessions to Monday's close around the 80-81 level, go down again to about 79.5 bid. "They just got crushed again," he said.

Another trader said the bonds did "weaken a little, but they seemed to settle down" without the volatility and heavy selling levels seen last week and on Monday. While he quoted the 61/2s at 79 bid, 79.75 offered, down a point on the day, and its 6¼% notes due 2013 at 81.5 bid, 82.5 offered, down 1½ points. He said there was "not much of the wackiness of the past few days."

Tenet, Triad off with HCA

The trader also saw the bonds of Tenet Healthcare continuing a slide that began Monday, apparently spurred by investor fears that Dallas-based Tenet might decide to follow HCA's lead and go private in a buyout - and load itself up with additional debt to do so.

He quoted Tenet's 9¼% notes due 2015 down about a 1 to 1¼ points at 93.75 bid, 94.5 offered, while its 9 7/8% notes due 2014 were down about ¾ point at 95.5 bid, 96.5 offered.

Another market source said that Tenet's 6 3/8% notes due 2011 were down 3 points at 85 bid.

The infection seems to have spread to others in the hospital sector as well, with Triad Hospitals' 7% notes due 2013 seen down ½ point at around the 97 level.

© 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.