Toys "R" Us gains on smaller loss; Bally slide continues; NXP mega-deal coming

By Paul Deckelman and Paul A. Harris

New York, Sept. 13- Toys "R" Us Inc.'s bonds were better Wednesday as the Wayne, N.J.-based specialty retailer reported a sharply reduced fiscal second-quarter loss versus year-earlier results, which it attributed to stronger sales at its lucrative Babies "R" Us division.

On the downside, Bally Total Fitness Holding Corp.'s bonds continued to retreat for a third straight session, as investors continued to react to the Chicago-based fitness center chain's warning that it may have credit troubles ahead.

Also seen heading lower were the bonds of Dura Automotive Systems Inc. - even as a Lehman Brothers research report predicted that the struggling Rochester Hills, Mich.-based automotive components maker will likely file for bankruptcy in the not too distant future.

Sources from the sell-side marked the broad junk market higher on Wednesday.

One high yield syndicate official said that the market opened with a very strong tone, softened slightly later in the day, but overall ended higher by a quarter of a point to half a point.

Although no issues were priced in the primary market there was news on deals amounting to well over $5 billion equivalent expected to price by the end of the week.

And word surfaced of a truly gigantic offering for NXP - the former Philips Semiconductor - was seen on the horizon and likely to be launched early next week. Sources said the multi-tranche deal tips the scales at €4.5 billion.

That dwarfs a trio of deals - each pretty big in its own right - on which price talk emerged on Wednesday.

Talking the deals

Lyondell Chemical Co. issued price talk on its $1.775 billion two-tranche offering of senior unsecured notes (B1/B+/BB-), which is expected to be the week's largest transaction.

The Houston chemical company talked its tranche of eight-year notes at 8% area, and its tranche of 10-year notes at 25 basis points behind the eight-year notes.

Tranche sizes remain to be determined.

JP Morgan, Banc of America Securities, Citigroup and Morgan Stanley are joint bookrunners for the debt refinancing, some of it related to Lyondell's acquisition of Citgo Petroleum Corp.'s 41.25% interest in Lyondell-Citgo Refining LP.

The second largest dollar-denominated deal is Berry Plastics Holding Corp.'s $750 million two-tranche offering of eight-year second-priority senior secured notes (B2/CCC+).

The Evansville, Ind., plastic packaging products manufacturer talked its fixed rate notes at a yield in the 9% area and its floating-rate notes at Libor plus 400 basis points area.

Deutsche Bank Securities, Credit Suisse, Citigroup, JP Morgan are joint bookrunners for the acquisition financing.

Tranche sizes for the Lyondell and Berry Plastics offerings remain to be determined. Both prospective issuers are expected to price their bonds on Friday.

Impress tweaks, talks €1 billion

Price talk was given Wednesday on Impress Holdings BV (Impress Metals)'s restructured €1 billion offering of notes.

The Deventer, Netherlands-based metal packaging company is in the market with €730 million equivalent of seven-year senior secured floating-rate notes (B1).

The euro-denominated notes were talked at a spread in the 312.5 basis points area. Talk on a dollar-denominated tranche is expected to be announced on Thursday afternoon. However the talk on the dollar-denominated floating-rate notes is expected to come in the context of the talk on the euro tranche, according to a source.

Call protection on the seven-year floating-rate notes has been extended to one year, after which the notes may be called at 102, then at 101 after two years. The floating-rate notes were formerly in the market with only six months of call protection.

Meanwhile the company talked its €270 million tranche of eight-year senior subordinated notes (B3) at 9% to 9¼%.

The fixed-rate notes become callable in three years at par plus the full coupon.

JP Morgan has the books for the debt refinancing, some of it related to the acquisition of the European aerosol and food can operations of U.S. Can.

That deal is also expected to price Friday.

Agile talks $350 million

In a deal that some sources are scoring as "emerging markets," although the Rule 144A/Regulation S notes have been marketed in the United States this week, Agile Property Holdings Ltd. talked its $350 million offering of seven-year senior notes (Ba3/BB) at a yield in the 9¼% area on Wednesday.

Morgan Stanley and HSBC are joint bookrunners for the deal from the Hong Kong-based developer and manager of property in the People's Republic of China and the British Virgin Islands.

NXP mega-deal heard imminent

Dutch chip-maker NXP, formerly Philips Semiconductor, is expected to launch an approximately €4.5 billion multi-tranche deal early next week.

The sizes, maturities and structures of the tranches have not yet been announced, however issuance is expected to come in both dollar- and euro-denominated notes.

Morgan Stanley will lead the deal, proceeds from which will fund the acquisition of an 80.1% stake in the company recently acquired by Kohlberg Kravis Roberts & Co. with Bain Capital, Silver Lake Partners, Apax and AlpInvest Partners.

McLeodUSA hits the road

McLeodUSA Inc. started a roadshow on Wednesday for its $110 million offering of five-year senior second secured notes (B3/B-), via Jefferies & Co.

The Hiawatha, Iowa-based telecom will use the proceeds to repay bank debt, cash collateralize certain existing letters of credit and for general corporate purposes.

Not crowded yet

No price talk was heard Wednesday on Seagate Technology HDD Holdings (Cayman)'s $1.25 billion of senior unsecured notes in three tranches (Ba1/BB+).

The deal, which was announced Tuesday, is being marketed on a two-day roadshow in New York and Boston, and includes three-year floating-rate notes, five-year fixed-rate notes and 10-year fixed-rate notes.

An informed source said that terms could be heard as early as late Thursday, however Friday is a better bet.

Morgan Stanley, JP Morgan and Goldman Sachs are leading the debt refinancing and general corporate purposes deal from the hard disk drive manufacturer based in Scotts Valley, Calif.

One high yield syndicate source said late Wednesday that although the present forward calendar has built to over $5 billion equivalent, the issuance volume is not likely to trigger a sell off in the secondary market that might be caused by investors making room in their portfolios for new bonds.

The source, who added that in addition to the above-mentioned NPX deal other large offerings are expected to be announced next week, commented that back ups in junk tend to happen when there are multiple weeks of large issuance volume.

With a raft of big LBO deals said to be waiting in the wings, nobody is ruling out that contingency as fall 2006 begins to deepen.

Toys up as red ink down

Back on the secondary side, a trader saw Toys "R" Us' 7 7/8% notes due 2013 unchanged at 80.25 bid, 80.75 offered, but also saw the company's 7 5/8% notes due 2011 up ¾ point at 84.25 bid, 85 offered.

A market source at another desk saw the 7 7/8s up 1½ points at 81.5 bid.

Another source pegged the 7 7/8s and its 7 5/8% notes due 2011 each up a point on the bid side, at 81 and 84.5, respectively. The source saw the Toys' 7 3/8% notes due 2018 up more than a point at 73 bid, while its 8¾% notes due 2021 were also a point ahead on the day at 83.625 bid.

The rise in the bonds coincided with better quarterly numbers from the big toy store chain, which went private a year ago when it was acquired by a buyout group that included Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co. and Vornado Realty Trust.

The company reported a net loss of $110 million in the fiscal quarter ended July 29, down from $359 million a year ago.

It attributed its better performance to higher sales at Babies "R" Us, a separate division that sells toys, clothing and other products especially aimed at babies, rather than at older children, in a network of stand-alone stores separate from its traditional - and far less profitable - toy stores.

The company also cited a rise in overseas sales as a contributing factor.

Toys "R" Us said in its 10-Q financial report to the Securities and Exchange Commission that it had long-term debt of $6.429 billion as of the end of the quarter, up from $5.540 billion at the beginning of the fiscal year on Jan. 29, and up as well from $6.105 billion a year earlier.

Bally bashing continues

Bally bonds continued to weaken, dragged downward for a third straight session in the wake of weaker-than-expected quarterly numbers it posted late Monday - as well as the company's stark warning that it could have major debt problems next year.

A trader saw Bally's 10½% notes due 2011 down 1¼ point at 95.75 bid, 96.25 offered, although he saw the company's 9 7/8% notes due 2007 pretty much unchanged at 84.5 bid, 85.5 offered, with most of the slippage from recent highs seen on Tuesday.

A trader in distressed debt said that Bally - heretofore of little interest to him - was now on his radar screen due to its warnings of a possible default. He estimated the 101/2s at 96.25 bid, 97.25 offered, and its 9 7/8s at 83.5 bid, 84 offered.

Those 101/2s had begun the week around 98 bid, 99 offered, while its 9 7/8s started the week at 88 bid, 89 offered.

The 9 7/8s were by far the more active of the two issues, traders said.

Bally's bonds started slipping in late trading Monday and continued sliding on Tuesday - and now again on Wednesday - after the gym operator, in its 10-Q for the latest period, warned that it was now classifying all $171.4 million of its outstanding term loan and revolver debt on the balance sheet as of June 30 as current maturities, since it might have to repay its credit facility by next April 15 - a year ahead of schedule - if it is unable to refinance the 9 7/8s, which are scheduled to mature in October 2007, by that April 15 deadline.

Bally said that such a failure to refinance the bonds would trigger the credit facility's early termination provision - and added that without an agreement by the lenders to extend the maturity of the credit agreement or Bally's being able to refinance that credit line "the company will have insufficient liquidity to operate its business and be unable to satisfy the credit agreement obligations when due in April, 2007."

In the event that did occur, Bally said that the holders of its two series of bonds could accelerate those debts, "and the company would not be able to satisfy those obligations."

Bally reiterated that it is "actively evaluating various alternatives" to address its outstanding debt.

Dura drops amid Chapter 11 talk

Among the automotive names, "there's been a lot of interest today in Dura," a trader said, "especially its 8 5/8s," quoting that 2012 senior bond down 4½ points on the day at 66.75 bid, 67.5 offered, while its battered 9% subordinated notes due 2009 lost 1½ points to 12 bid, 13 offered.

Another trader also saw those 9s fall to a 12-13 context from 14 bid, 15 offered previously, while its 8 5/8s lost 3 points on the day to 67 bid, 68 offered from 70 bid, 72 offered.

A market source at another shop saw the 9s dip to 12 from 14.375 previously, while the 8 5/8s ended at 67.5, down from 70.75.

Market participants were trying to digest a Lehman Brothers research note which predicted that Dura might soon join sector peers Delphi Corp., Dana Corp., Tower Automotive Inc. and Collins & Aikman Corp. in Chapter 11.

"We expect Dura to file for bankruptcy in the next few months and believe that no additional coupon payments will be made," Lehman debt analysts Sarah Thompson and Marc Aylett wrote. Dura is scheduled to pay the coupon on the 8 5/8% notes on Oct. 15 and then again on April 15 next year, and on Nov. 1 and again next May 1 on the 9s.

A decision by Dura to forgo the coupon payments would be "a positive for senior note holders, because no additional value would be distributed to subordinated note holders through coupon payments," the analysts added.

But they also warned that Lehman has become "increasingly concerned that the ultimate value of Dura may be lower than we originally expected because the bankruptcy process may become more drawn out, which we believe would erode value in the underlying business."

Dura recently announced that it had retained Miller Buckfire & Co., a well-known turnaround firm, to advise it on reducing or restructuring its debt.

The net effect of all this, the first trader said was "obviously, there were a lot of sellers in the 8 5/8s." He who also noted that Dura said that it would defer the upcoming dividend payment on its 7½% convertible preferred securities.

Visteon better on bidding report

Elsewhere among the auto names, Visteon Corp.'s 8¼% notes due 2010 were up ½ point at 101 bid, 101.75 offered, while its 7% notes due 2014 were ¾ point better at 94.75 bid, 95.5 offered.

The trader cited a DebtWire report indicating that French auto parts maker Valeo SA and India's Tata Group "have become two of the leading bidders in the second round of bidding" for the Van Buren Township, Mich.-based parts maker, formerly a unit of Ford Motor Co. "These two seem to be in the forefront." The report said that Visteon had approached the two companies about their offers after second-round bids were submitted to the company.

Ford board eyes job cuts

The trader also saw Ford's 7.45% notes due 2031 down ½ point at 79.5 bid, 80 offered, while the Number-Two domestic carmaker's Ford Motor Credit Co. finance unit's 7% notes due 2013 were down ¼ point at 93.5 bid, 94 offered.

The Dearborn, Mich.-based company's board began a two-day meeting Wednesday at which it was expected to discuss possible additional further job cuts and plant closings, on top of those already slated under Ford's previously announced "Way Forward" turnaround plan, which calls for the closing of 14 facilities and the elimination of 30,000 jobs by 2012.

Ford released no information about the outcome of the first day's session.

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