Boise Cascade up on asset-sale news; Bon-Ton leads retailers down, despite sales rise; Baseline slates deal

By Paul Deckelman and Paul A. Harris

New York, Sept. 7 - Boise Cascade LLC's bonds were seen up solidly Friday, as the Idaho-based forest products company announced plans to sell its paper, packaging and newsprint division for $1.63 billion and use much of the proceeds from the deal for debt paydown.

On the downside, retailers' bonds were seen lower, particularly Bon-Ton Stores Inc. - even though the York, Pa.-based company announced slightly better than expected same-store sales numbers from August, a key economic metric in the retailing industry.

Homebuilders' bonds continued to decline, in the wake of more negative economic data. But while names like Tousa Inc. - the company formerly known as Technical Olympic - were getting whacked around, Beazer Homes USA Inc.'s bonds were seen generally unchanged to just a bit lower, despite the news that trustees for some of its bonds had severed notices of default on the struggling Atlanta-based homebuilder.

In the primary market, Baseline Oil & Gas Corp. was heard by syndicate sources to be planning to launch a new offering of secured junk bonds, along with convertible notes.

Boise boost from asset sale

Boise Cascade's bonds were seen by a trader to be up smartly on the company's asset sale news.

He pegged its 7 1/8% notes due 2014 at 97 bid, 99 offered, up 4 points on the session.

A source at another desk saw those bonds even better at just under 98.25, well up from 92.5 at the opening, on fairly active dealings. The company's other bond issues were little moved.

Boise Cascade announced that it will sell its paper division for about $1.63 billion to Aldabra 2 Acquisition, a New York-based special-purpose acquisition corporation formed in February by private equity investors Nathan Leight and Jason Weiss of New York-based Terrapin Partners.

Aldabra agreed to pay $1.34 billion in cash and the rest in shares to take over the unit, which will leave Boise Cascade as a wood products and building materials company.

Aldabra is buying Boise White Paper, LLC, its paper business, Boise Packaging & Newsprint, LLC, its packaging business, and Boise Cascade Transportation Holdings Corp.

Aldabra will fund the acquisition using some $392 million of net proceeds from Aldabra's trust, about $946 million in new debt to be raised in conjunction with the transaction, and approximately $325 million of new Aldabra shares that will be issued to Boise Cascade, which will kick in $38 million in cash.

Boise Cascade said that it "will utilize a substantial portion" of the cash proceeds it receives to repay existing debt.

Bon-Ton off despite better numbers

Elsewhere, traders saw Bon-Ton Stores' 10¼% notes due 2014 lower, even though the retailer said that combined same-store sales for its Bon-Ton and Carson's store chains rose 1.3% in August, led by strength in children's apparel, women's sportswear and furniture.

Analysts were expecting that sales at those stores open at least a year would show about a 1% rise.

While Carson's same-store sales increased 1.8%, the flagship Bon-Ton division posted a considerably more modest 0.3% gain for the four weeks ended Sept. 1. The company said August sales met expectations, with strong gains seen across multiple categories including cosmetics, shoes, clothes and furniture.

A trader said that "all of the retailers were weaker across the board," adding that they were "up on Thursday, but gave it back [Friday]," as investors apparently speculated that continued negative economic news, including an unexpected drop in non-farm payroll employment in August reported on Friday, bodes ill for companies which depend upon the confidence and willingness to spend money on the part of people walking into their stores.

On Friday, U.S. non-farm payrolls were reported to have shrunk by 4,000 jobs in August - when analysts, on average, were looking for a gain of about 100,000 jobs.

The trader saw Bon-Ton's bonds down 2 points at 93 bid, 94 offered. At another desk, a source saw the bonds down as much as 2¾ points at 93 bid. It was the most actively traded issue.

The first trader also saw retailer Burlington Coat Factory Inc.'s 11 1/8% notes due 2014 also down 2 points, and also at 93 bid, 94 offered. And he said that gift retailer Brookstone's 12% notes due 2012 were off 1½ points at 96.5 bid, 97.5 offered.

Homebuilders slide continues

The troubled homebuilder industry continued to get hammered, with Tousa's Technical Olympic bonds seen leading the way downwards, despite a lack of fresh news about the Hollywood, Fla.-based homebuilder.

A trader saw its 8¼% notes down 3 points at 64.5-65.5, even as another trader saw the company's 10 3/8% notes due 2012 "hit pretty hard," down 8 points at 29.5-30.5.

At one desk, those notes were seen down as much as 9½ points to the 29 bid level.

Other homebuilders did not do much better.

A trader saw Hovnanian Enterprises Inc.'s 8 5/8% notes due 2017 down 1 point at 79 bid, 81 offered, while the Red Bank. N.J.-based residential builder's 6 3/8% notes due 2014 down 1 point at 76.5.

The trader saw WCI Communities Inc. 9 1/8% notes due 2012 down 1 point at 80 bid, 82 offered.

However, traders saw Beazer Homes USA "unchanged on news" - widely expected - that the company had received notices of default from its bond trustees; the bonds "were up and down a point, but ended unchanged," one said.

The Bonita Springs, Fla.-based company's 8 5/8% notes due 2011 ended at 78.5 bid, 80.5 offered.

Another trader saw the bonds at 78 bid, 80 offered.

Closely related to the housing downturn, mortgage companies continued to decline.

Thornburg Mortgage Inc.'s 8% notes due 2013 were quoted down 1½ points at 85.5 bid, 87.5 offered. Another trader also saw the Santa Fe, N.M.-based mortgage operator's bonds down 1½ points at 85 bid, 87 offered.

Fremont General Corp.'s 7 7/8% notes due 2009 were seen down 1 point to 87-89.

XM bonds give back some gains

XM Satellite Radio Holdings Inc.'s 9¾% notes due 2014 were seen down 1 point at 97.5 bid, 98.5 offered, giving back some of the several-point gain which the Washington-based satellite radio broadcaster had notched Thursday on the news that an analyst said that the federal government is now more likely to okay the proposed merger of XM and its only real competitor, Sirius Satellite Radio.

Another source had them down 2 points at 98.

'Deer in the headlights.'

Overall, a trader said that "not a lot was happening - it was so annoying." He said that "there really wasn't much activity in any thing - the market was like a deer caught in the headlights." He saw the widely followed CDX junk bond performance index down ¼ point at 943/4-95. He said that while the dollar prices were not bad, the big rally in Treasuries caused spreads to widen out accordingly.

Among other indexes, the KDP High Yield Daily Index retreated 0.13 to 78.52, while its average yield widened 4 bps to 8.28%.

Baseline plans deal

A high yield syndicate official said that the broad market was lower in Friday trading, and noted that stock prices were also lower on the day, with the Dow Jones Industrial Average dropping approximately 250 points.

Meanwhile the primary market finally sprang back to life during the closing day of the four-session post-Labor Day week.

Baseline Oil & Gas began a roadshow for its $110 million offering of five-year senior secured notes - a deal that is expected to price during the Sept. 17 to Sept. 21 week via Jefferies & Co.

Baseline is also in the market with a concurrent offering of senior subordinated convertible notes.

The San Antonio-based independent oil and gas exploration and development company will use the proceeds to acquire certain oil and natural gas assets from DSX Energy Limited, LLP and related parties, refinance debt and for general corporate purposes.

In an Aug. 15 press release, the company stated its intention to do the secured notes and convertibles in order to fund the purchase, and added that its ability to close the acquisition is contingent upon Baseline's ability to raise sufficient capital and the failure to do so could result in DSX terminating the agreement and retaining the earnest money deposit.

One sell-sider, not in the deal, observed that this would seem to indicate that the bond and convert deals that hit the road on Friday did so on a "best efforts" basis, rather than as part of a committed financing backstopped by bridge loans.

Jefferies again

Some sources contend that the last U.S.-based issuer to raise cash in the primary market was Vector Group Ltd.

On Aug. 8 the tobacco company priced an upsized $165 million issue of non-rated eight-year senior secured notes, also via Jefferies.

Although since then three issuers raised money via Rule 144A/Regulation S junk bond placements, all three, sources argue, were predominantly offshore deals.

On Aug. 9 CEVA Group, plc priced a $400 million issue of 10% seven-year senior second-lien notes to help fund its acquisition of logistics and supply chain management company, EGL Inc.

On Aug. 20 SABIC Innovative Plastics Holding BV priced $1.5 billion issue of 9½% eight-year senior unsecured notes (B1/B+). The preponderance of the issue was placed with institutional investors in the Middle East.

And on Aug. 29 Mexico's Maxcom Telecomunicaciones, SA de CV priced a $25 million add-on to its 11% senior notes due Dec. 15, 2014 (B3/B).

Hence, sources say, barring any quick-to-market business in the interim, the Jefferies-led Baseline deal could be the first out-and-out onshore issue to be successfully placed since the Jefferies-led Vector deal a month ago.

However sell-side sources have not seemed inclined to rule out quick-to-market issuance in the interim.

Some profess astonishment that no such issuance has yet emerged post-Labor Day.

Talking to the accounts

Syndicate sources told Prospect News on Friday that private meetings with buy-side accounts attempting to get "big ticket" players into deals - a process which is said to have been underway in the bank loan market since before Labor Day - is also taking place in the junk bond market.

Meanwhile on Friday, although Baseline was the only company to actually launch a deal, a high yield syndicate official told Prospect News that ECI Telecom Ltd., an Israel-based provider of networking infrastructure, may be bringing bonds to help fund the LBO of the company by Swarth Group, an investment vehicle controlled by Shaul Shani, and Ashmore Investment Management Ltd..

ECI is in the loan market with an $805 million credit facility led by Credit Suisse, also backing the $1.2 billion acquisition.

The bank meeting is set for Tuesday.

Goose egg

The four-session post-Labor Day week came to a close having seen no issues priced in the high yield primary market, leaving the year-to-date issuance total right where it was one week ago: $113.39 billion in 293 dollar-denominated tranches.

The post-holiday week's goose egg notwithstanding, 2007 totals still remained far ahead, on a year-over-year basis, of new issuance in the record-setting year of 2006, which, at the Sept. 7 close, had seen $84.83 billion in 246 tranches.

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