Quebecor rebounds from Thursday fall; Aventine up as energy bill gains; Muzak off on S&P concerns

By Paul Deckelman and Paul A. Harris

New York, Dec. 14 - Quebecor World Inc. - whose bonds fell anywhere from 4 to 6 points on Thursday after the company announced the failure of its effort to sell its European unit - were seen having bounced back Friday from the previous session's oversold levels.

Another notable gainer was Aventine Renewable Energy Holdings Inc., whose bonds firmed in line with a sizable gain by the Pekin, Ill.-based ethanol producer's stock following Senate passage of a bill favorable to the renewable energy industry/

On the downside, Muzak Holdings LLC's bonds hit some sour notes as Standard & Poor's voiced concern about the Fort Mill, S.C.-based recorded music provider's ability to meet its long-term debt obligations.

Little activity was meantime seen in the primary market.

A trader saw the widely followed CDX index of junk bond performance down ¼ point to 95 5/8 bid, 95 7/8 offered. The KDP High Yield Daily Index slipped by 0.03 to 78.03, while its yield widened by 1 basis point to 8.63%. In the broader market, declining issues led advancers by a nearly five to four margin. Market activity was down nearly 43% from Thursday's levels.

The trader opined that "it was a very dead day. Maybe people were getting out early ahead of the snowstorm" which was supposed to hit the New York area over the weekend.

Quebecor bounces back

A trader said that he had heard that Quebecor World's bonds "were rallying back" Friday after having taken a solid beating on Thursday on the news that the Montreal-based commercial printer's efforts to sell its European operation to Netherlands-based RSDB NV had ended in failure when the Dutch company's shareholders rejected the $341 million cash, stock and debt deal. That deal would have given Quebecor about $220 million in cash which it would have used to repay debt, plus a $51 million note and the rest in the form of 29.9% of the stock of the new company, Roto Smeets Quebecor, which would have been created via the merger of the Quebecor European entity and RSDB.

Quebecor's several series of bonds were being quoted down 4 to 6 points on Thursday in reaction to the demise of the deal - but on Friday the paper was coming back.

A market source saw Quebecor's 6 1/8% notes due 2013 up nearly 5 points on the day to levels just below 80 bid. Another source saw the bonds around the same level but said that it represented about a 3 point gain.

Tropicana bonds recover

Also seen on the comeback trail on Friday were the bonds of Tropicana Entertainment LLC, which had fallen on Thursday as investors showed their displeasure about a ruling from New Jersey state gaming authorities, lifting the casino license of the Fort Mitchell, Ky.-based gaming operator's Tropicana hotel/casino in Atlantic City and ordering the property sold.

A trader saw the company's 9 5/8% notes at 65 bid, 66 offered.

Another trader saw the bonds as "very active," opening at 63.5 bid, then climbing eventually to 65.25 bid, 65.5 offered, which he called up a point.

At another desk, the bonds were seen up 2 points on the day at 66 bid, 67 offered.

Aventine gains on Senate vote

Elsewhere, Aventine Renewable Energy Holding's 10% notes due 2012 were seen up nearly 2 points on the day to about the 93 bid level, in fairly busy trading. That rise went hand in hand with the $1.15 gain, or 11.18%, in its New York Stock Exchange-traded shares, which ended at $11.44 on volume of 1.9 million, about double the usual turnover.

The bonds and shares firmed after the Senate overwhelmingly passed a revised energy bill that increases by sixfold the amount of renewable fuels, like ethanol, which must be used for blending of products like gasoline, to 36 billion gallons a year by 2022.

Muzak off on ratings concerns

On the downside, Muzak's 10% notes due 2009 were seen having lost 2 points on the day to end at 93.5 bid, in fairly busy trading.

That retreat came in the wake of Thursday's announcement by Standard & Poor's that it had affirmed the company's credit ratings, including its CCC+ corporate credit rating, and had removed them from CreditWatch, where the ratings had been placed with positive implications back in April, when Muzak announced plans to merge with rival canned music provider DMX. That deal is still on, although it must first pass anti-trust scrutiny and a buyer for the combined company must be found.

However, S&P credit analyst Tulip Lim warned that the rating action was "based on our concern over approaching maturities of Muzak's long-term debt obligations."

The analyst said that while the contemplated transaction could improve Muzak's liquidity, resolve upcoming maturities - its term loan and senior subordinated notes mature Jan. 19, 2009 and March 15, 2009, respectively - and could improve the company's operating efficiency, "[s]till, we are concerned that unfavorable current market conditions will persist and will harm the prospects of completion of this transaction, even if Muzak receives [Justice Department] approval."

Lim said that Muzak's liquidity "is limited and will cover only its near-term needs. The very low speculative-grade rating also reflects the company's high leverage, the non-critical nature of its products, its lack of business diversity, and the threat of substitution from competitive alternatives."

S&P said that those factors are only "minimally offset" by the company's leading position in its niche market and by some recurring revenue from its five-year contracts.

Claire's stores continues slide

Also on the downside, Claire's Stores Inc.'s bonds slide for a third straight session, after the Pembroke Pines, Fla.-based specialty retailer released bad earnings numbers. The bonds had also declined the previous two sessions, traders said, in anticipation of disappointing numbers in a soft retail environment.

A trader called the Claire's Stores situation "the biggest story out there" Friday, with the market otherwise fairly quiet. "The numbers were out, and they were not so great."

He saw Claire's 10½% notes due 2017 "down right off the bat" from Thursday's closing levels at 58 bid, 60 offered, falling as low as 52 bid, 54 offered. After that, he said the bonds "came off their lows" to end at 54.

He saw the senior bonds at 69 bid, off 1 point.

Another trader saw the 9½% notes due 2015 at 70.5 bid, 71.5 offered, while the 9 5/8% notes due 2015 were at 66.5 bid, 67.5 offered. He saw the 101/2s ending at 55.5 bid, 56.5 offered.

Yet another trader quoted the 9 5/8s down 2 points at 66 bid, 68 offered.

For the third quarter, the company reported net sales of $357.4 million, a 2.8% increase over the third quarter of fiscal 2007. The increase was primarily attributable to the growth in the company's new store base, particularly in Europe, and foreign currency translation gains, offset by a slight decrease in same store sales.

The company reported that its third-quarter consolidated same-store sales declined 0.7%. In North America, same-store sales decreased 1% versus last year's third fiscal quarter, while European same-store sales were essentially flat with last year's third fiscal quarter, at negative 0.1%.

Also in the quarter, adjusted EBITDA was $60.5 million versus $68.5 million last year. Cash from operating activities was $24.4 million compared with $56.6 million last year, and capital expenditures were $23.8 million, against $30.1 million last year.

For the first nine months of fiscal 2008, net sales were $1.0635 billion, up 5.4% from $1.0087 billion in the comparable period last year. But first nine months of fiscal 2008 consolidated same-store sales decreased 0.4%, and adjusted EBITDA during the nine-month period was $185.5 million, down from $196.6 million in the first nine months of fiscal 2007.

One on the calendar

Friday's primary market produced no news.

As 2007's final full week of market activity gets underway there is only one deal on the new issue calendar.

Houston-based Helix Energy Solutions is marketing a $500 million two-part senior notes offering (B3/B+) via Banc of America Securities

The energy company plans to place tranches of fixed-rate notes due 2015 and floating-rate notes due 2014.

Pricing is expected early in the coming week and price talk is expected on Monday.

$720 million week

The Dec. 10 through Dec. 14 week saw two issuers raise a combined total of $720 million with three tranches of notes.

SPX Corp. priced a $500 million issue of senior notes due Dec. 15, 2014 at par to yield 7 5/8%, on top of the 7 5/8% area price talk.

Banc of America Securities and JP Morgan were joint bookrunners for the general corporate purposes deal which may include an acquisition financing.

Sources told Prospect News that the deal went well.

What's more, sources say, the SPX notes, which were rated Ba2 by Moody's and BB by Standard & Poor's, represent the kind of credit story for which the high yield market ought to remain open going forward, regardless of how the investment banks deal with an estimated $70 billion of hung high yield debt related to 2007's troubled LBO financings.

Meanwhile Legends Gaming (DiamondJacks Casinos) priced a restructured $220 million two-part high yield notes transaction.

Issuing entities Legends Gaming, LLC and Legend Finance Corp. priced a $160 million tranche of senior secured notes due Sept. 27, 2012 (B1/B+) at par to yield 12%. The yield came 1/8 point wide of the 11½% area price talk.

The same entities also priced a $60 million tranche of senior subordinated secured PIK notes due Dec. 27, 2012 (Caa1/CCC+) at par to yield 17%, one quarter of a point beyond the wide end of the 16½% to 16¾% price talk.

Jefferies & Co. led the debt refinancing, which initially came to market as a single $220 million tranche of senior secured notes due 2012.

A record in sight

Those three tranches of notes left year-to-date dollar-denominated high yield issuance at $155.5 billion at Friday's close.

That total is just $1.1 billion short of the $156.6 billion issuance total seen in the record-setting year of 2006, according to Prospect News data.

Assuming that the above-mentioned Helix Energy deal prices at the advertised size, $500 million, the 2007 total would pull to within $600 million of last year's record.

However none of the sources who spoke to Prospect News during the week to Friday admitted having visibility on any transaction that would take the 2007 market over the top.

Parsing a positive flow

Friday's conversations with sell-side sources, meanwhile, came with a tinge of gloom.

For example, the week ending Friday turned up some positive news on the funds flows front, with AMG Data Services reporting a $152.85 million inflow to the high yield mutual funds for the week to Dec. 12.

An attempt by Prospect News on Friday to use the inflow news in order to spark some exuberance from one high yield syndicate official, however, fell well short of the mark.

Those numbers represent a smaller portion of the market than they used to, the sell-sider maintained.

"And it was not a huge inflow," the source added, noting that the previous week's flows were flat.

And tracking backwards, the source said, the three preceding weekly flows were decisively negative: negative $471 million, negative $241 million and negative $632 million, respectively.

Stephanie N. Rotondo contributed to this report.

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