Premcor gets a pop; Movie Gallery joins parade of wide-pricing deals; Calpine continues to flicker

By Paul A. Harris

St. Louis, April 25 - The final week of primary activity for April 2005, which had practically no form at all at the close of Friday's business, took shape somewhat on Monday as Movie Gallery, Inc. priced a restructured $325 million deal well wide of the price talk.

Meanwhile the Premcor Inc. bonds surged forward on news of a merger agreement that finds Valero Energy Corp. acquiring Premcor.

And Calpine Corp., notwithstanding Friday's claim from the company that rumors of its demise are unfounded, took a drastic dip during Monday's session before regaining at least half of the ground they by the time the market closed.

Restructured Movie Gallery comes wide

At Friday's close, sources told Prospect News that while the new issue calendar contained a substantial amount of business expected to price during the final week of April neither price talk nor precise timing were known for any of them.

Nevertheless one deal did price during Monday's session.

Movie Gallery, Inc. priced a restructured $325 million of seven-year non-call-three 11% fixed-rate senior notes (B2/B-) at 98.806 to yield 11¼%, 37.5 basis points wide of the 10¾% area price talk.

Wachovia Securities ran the books for the acquisition and debt refinancing deal from the Dothan, Ala.-based video rental chain.

The issue was restructured from a seven-year non-call-two fixed-rate note.

One high yield sell-side official said that the restructuring could be a reflection of investors' uncertainties regarding the direction in which the U.S. economy is headed.

The source said that whereas the buy-side has recently demonstrated a pronounced appetite for floating-rate paper, which was the original structure of the Movie Gallery deal, economic uncertainty may have caused that sentiment to shift in favor of fixed-rate notes.

"In light of what has happened in the Treasury market due to concerns about the economic outlook and corporate earnings and continued high energy prices, people have been driven to safe-haven investments," the official asserted.

"Right now people don't think the Fed is going to accelerate with regard to rate increases. At the most people are expecting the Fed to raise the rate by 25 basis points. The 50 basis points rate hike that people had been talking about seems to be out of the current assessment.

"And if bad news continues to come out on the U.S. economy the Fed might halt its tightening, and take a header."

A parade of wide-pricing deals

The sell-side source went on to say that the Movie Gallery transaction, coming well wide of the price talk, reflects the "rule" as opposed to the "exception" in the present primary market.

"Almost all of the deals that priced last week came at the wide end of price talk, or priced outside of price talk or had their price talk revised upward," the source said.

In particular, the source mentioned the Ziff Davis Media Inc.'s restructured $205 million of seven-year senior secured floating-rate notes (B3/CCC+) that priced on April 18 a rate of three-month Libor plus 600 basis points, relative to the Libor plus 500 to 525 basis points price talk.

"The market has certainly taken a defensive posture with regard to credit risk," the source added.

"Last week S&P downgraded Eastman Kodak and Maytag [to junk]. That continues to add to the pressure weighing on the high-yield market."

"In the new issue market the pace is becoming a little more steady, but it has gradually turned into a buyer's market."

With regard to the newly priced Movie Gallery 11 % notes due 2012, a trader told Prospect News that late Monday there were no bids, but "a couple of offers."

Premcor gets a pop

Meanwhile, news that Valero and Premcor Inc. have come to a merger agreement for Valero to acquire Premcor in an $8 billion transaction gave a dramatic boost to Premcor's existing bonds.

According to information released Monday by Valero and Premcor, the merger is expected to result in Valero adding four refineries and 790,000 barrels per day of capacity to its system, making it the largest refiner in North America.

One trader spotted Premcor's 6 3/8% notes due 2014 at 106.50 bid and its 7½% bonds due 2015 at 108.50 bid, both "up four or five points."

Another market source had Premcor 6 7/8% notes due 2011 spotted at 105.25 bid, up from 100.75 at the start of the session.

Meanwhile a capital markets source said that the financing for the merger figures to produce new issuance in both the bond and bank markets.

"It depends upon how many people tender for cash, versus taking the stock, as to how large the deal is going to be," the source said. "You get 0.9 shares or cash. So the absolute size of the deal, on a cash basis, isn't really known yet.

"But it should be an interesting one."

Borden-Resolution merger a plus for Resolution holders

Elsewhere another merger announced Monday created a buzz in the market.

Borden Chemical, Inc. and Resolution Performance Products LLC announced plans to merge, together with Resolution Specialty Materials LLC, to form the world's largest producer of thermosetting resins.

All three companies are owned by affiliates of Apollo Management, LP.

The new company will be named Hexion Specialty Chemicals, Inc.

A buy-side source who spoke to Prospect News on background simply commented that: "A Resolution bondholder has to view this as positive because now we're part of a larger public company. We sort of knew it was going to happen and it's what we were hoping for."

This source also speculated that Resolution would likely attempt to take out its 13½% notes which become callable on Nov. 15, 2005.

A light trading day

Meanwhile in what one trader characterized as "a light trading day," recent energy issues were seen generally unchanged in the wake of the Premor-Valero news.

One market source spotted Whiting Petroleum Corp.'s recently issued 7¼% notes due 2013 (B2/B-) at 99.25 bid, unchanged. The company priced $220 million in mid-April.

Also unchanged were KCS Energy, Inc.'s 7 1/8% senior notes due 2012 (B3/B-). The company priced a $100 million add-on to the issue at 100.625 in early April. The market source spotted the notes on Monday at 99.00 bid.

And a more recently tapped issue, AmeriGas Partners LP/AP Eagle Finance Corp.'s 8 7/8% senior notes due 2011 (B2/BB-) were unchanged at 109.375. That was the price at which the company completed a $28 million add-on on May 21.

Calpine continues to flicker

The existing notes of troubled San Jose, Calif., power producer Calpine continued to languish on Monday.

Last Friday, amid news that its securities had been taking a beating throughout the week, and further rumors that it was exploring options with regard to a possible bankruptcy filing, Calpine issued a press release addressing what it called "false market rumors" that had created trading pressure on the company's securities.

"While it is not Calpine's policy to respond to market rumors, we feel compelled to comment today to assure the marketplace that these rumors are false," the company stated in the Friday release.

"Calpine remains in compliance with its corporate and project indentures. Further, the company assures the market that it has no plans to file for bankruptcy," the Friday release added.

However the company's assertions failed to produce any positive impact on Monday, according to bond traders.

"Calpine was off about 10 points earlier, but came back about five points, and ended down five on the day," one trader said.

"It's just the same news about bankruptcies and so forth, although I believe it's all unfounded."

Another trader spotted the Calpine 8½% notes due 2008 at 55 bid, 57 offered, and its 8½% notes due 2010 at 54 bid, 55 offered, both softer on the day.

Meanwhile another capital markets source attributed some of the continued selling in Calpine to concerns about its power trading business. Earning are expected on May 5.

Hawaiian Telcom, Triad talked

In the wake of the Movie Gallery transaction, talk and timing emerged on two Goldman Sachs-led deals during the Monday session.

Hawaiian Telcom Communications, Inc. issued price talk for its $550 million thee-tranche offering of high-yield notes (B-), which is expected to price on Tuesday.

The company is talking its tranche of eight-year non-call-two senior floating-rate notes at six-month Libor plus 475 to 500 basis points.

Meanwhile its eight-year non-call-four senior fixed-rate notes are talked at 9% to 9¼%.

The company is also selling 10-year non-call-five senior subordinated notes, which are talked at 150 basis points behind the senior fixed-rate notes.

Elsewhere Triad Acquisition Corp. is talking its $200 million of eight-year non-call-four senior notes at 10¼% to 10½%.

That deal is also expected to price on Tuesday.

Alliance One downsizes

Finally, a capital markets source said that Alliance One International Inc. is expected to re-launch a downsized, restructured $450 million two-part offering of senior notes late in the present week or early in the week of May 2, via Wachovia Securities and Deutsche Bank Securities.

The deal, which backs the merger of Dimon Inc. and Standard Commercial Corp. into Alliance One International, was postponed due to market conditions on April 19.

The Danville, Va., leaf tobacco company is expected to return with eight-year non-call-four senior fixed-rate notes and seven-year non-call-two senior floating-rate notes (B2/B+), with tranche sizes remaining to be determined.

The company dropped a proposed $250 million offering of senior subordinated notes.

Meanwhile Alliance One International upsized and restructured its new $700 million credit facility on Monday, adding a $200 million term loan B, and upsizing the pro-rata portion of the credit facility to $500 million from $450 million. The credit facility was upsized from $450 million.

"They were going to do some senior subs, but couldn't get them done or decided not to pay the coupon," the source commented.

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