First Data mega-deal prices, Bausch & Lomb too; Movie Gallery off on Chapter 11; GM bounces around

By Paul Deckelman and Paul A. Harris

New York, Oct. 16 - First Data Corp. sold $2.2 billion of new eight-year notes Tuesday as part of an anticipated $9 billion multi-part bond financing to help fund the company's leveraged buyout by Kohlberg Kravis Roberts & Co. However, despite a fairly hefty coupon, the deal was priced at a deep discount. But once the deal was done, it was well received by secondary investors.

They also liked the restructured Bausch & Lomb Inc. eight-year deal - slightly downsized from the originally envisioned amount - which priced a bit under par, but which then firmed smartly in the aftermarket.

Among established issuer names, Movie Gallery Inc.'s long and painful slide into insolvency culminated with the announcement that the Dothan, Ala.-based Number-Two U.S. video chain operator had filed for Chapter 11 in order to carry out a pre-packaged reorganization plan already agreed to by the company's creditors. Its bonds were seen down several points on the not-unexpected news.

General Motors Corp. debt remained active and volatile, pushed upward and then downward again by conflicting influences, including Moody's Investors Services' upward revision in its outlook for the automotive giant, countered by Bear Stearns' considerably less sanguine estimation of GM's prospects, even with its new four-year labor contract now signed and ratified by the United Auto Workers union.

A sell-side source said that the high yield "cash market" was one-quarter to one-half of a point lower on Tuesday.

In the primary market underwriters continued to carve away at the massive risk overhang remaining from the summer's hung-up LBO financing deals.

First Data Corp. and Bausch & Lomb Inc. placed a combined total of $2.85 billion of notes.

Both transactions went well, sources said.

First Data prices $2.2 billion

Tuesday's biggest deal by far, First Data Corp.'s $2.2 billion tranche of 9 7/8% eight-year senior cash-pay notes (B3/B-/B-), priced at 94.796 to yield 10 7/8%.

The yield was printed at the wide end of the 10¾% area price talk.

Citigroup, Credit Suisse, Deutsche Bank Securities, HSBC Securities (USA), Lehman Brothers, Goldman Sachs & Co. and Merrill Lynch & Co. were the underwriters.

The cash-pay notes are part of the financing for Kohlberg Kravis Roberts & Co.'s LBO of First Data.

The total combined bond issuance backing the LBO was $9 billion, including $2.75 billion of senior PIK notes and $2.5 billion of senior subordinated notes.

Also, as the announced amount of cash-pay notes was $3.75 billion, Thursday's transaction leaves $1.55 billion of those securities still to be placed.

A hedge fund source said that the deal seemed to have gone well, and was trading well in the secondary.

The source also noted that the First Data deal took place against the backdrop of a high yield market that was "a little soft" on Tuesday.

Bausch & Lomb sells $650 million

Underwriters also priced Bausch & Lomb Inc.'s $650 million tranche of 9 7/8% eight-year senior cash-pay notes (Caa1/B-) at 99.75 to yield 9.92% on Tuesday.

The yield was printed below the mid-point of the 10% area price talk.

The notes were upsized from $400 million. However the overall size of the planned bond offering was downsized to $650 million from $750 million, with $100 million shifted to the bank loan.

The deal was also restructured: a $175 million tranche of eight-year senior toggle notes and a $175 million tranche of 10-year senior subordinated notes were withdrawn.

Banc of America Securities LLC was the left bookrunner for the LBO-related notes. Credit Suisse, Citigroup and JP Morgan are joint bookrunners.

The order book for the Bausch & Lomb cash-pay notes was the best that one informed source had seen since the market went into correction, early in the summer.

"Everyone played," the source commented, adding that it was a "great deal."

A little more nervous

One buy-side source whose firm was not involved in either of Tuesday's transactions suggested that the amount of supply coming into the primary market, more than $4 billion over the past week - all of it part of the risk overhang left on underwriters' balance sheets in the wake of the summer correction - may be making some people a little more nervous.

The buy-sider added that a further $4.5 billion of senior cash-pay notes which are part of the TXU Corp. LBO financing, expected to price late next week, is causing existing TXU bonds to "loosen a little."

"The pricing on that is starting to bring existing bonds out," the buy-sider said.

First Data, Bausch & Lomb move up

When the new First Data 9 7/8% notes due 2015 were freed for secondary dealings, "it performed well," a trader said, moving up to 96 bid, 96.375 offered from its 94.796 issue price. .

Another trader called First Data's new issue the "big news" of the day, quoting the bonds up a couple of points to close around 96. "A lot traded in early afternoon, now it's gone quiet," he said at the market's close. He said the deal "took everyone's attention away" from the rest of the market for a good portion of the trading day.

Meanwhile Bausch & Lomb's new 9 7/8% notes due 2015 "did pretty well," a trader said, pegging the new bonds at 102.5 bid, 103.5 offered, well up from their 99.75 issue price earlier. "It was a nice little move."

New deals encourage market - and Trump

The first trader said that the good aftermarket performance of the First Data mega-deal "kind of gave the market some encouragement going forward that these kind of [buyout-related] deals can get priced."

He said that "in a weird way, that gave Trump [Entertainment Resorts Inc.] kind of a bid, showing that there is still life on the LBO side." He said that there had been "long-term chatter about Trump being a potential [takeover or buyout target], and the good performance of LBO deals would "give that some legs."

He saw the Atlantic City gaming company's 8½% notes due 2015 "opening lower" around 87.5 bid, 88.5 offered, but then pushing up to 89 bid, "bucking the trend" of a generally heavier market. He reiterated that there had been "chatter" about possible acquisition of the company, particularly picking up on several news reports naming potential bidders earlier this month, and said that the good performance of First Data's deal - showing that the market will still buy deals connected with LBOs - "put that back on the table."

Movie Gallery off after filing

Movie Gallery's 11% notes due 2012, which had recently been trading in a 29-30 bid context, fell as low as 26.5, a market source indicated, before coming off those lows to trade around 28 bid for much of the session on Tuesday, following the news that the company had filed with the U.S. Bankruptcy Court in Richmond, Va., seeking protection from the holders of its $325 million of junk bonds and its other creditors. However, by day's end, the source saw the bonds having pushed back upward to around 29, off maybe ¼ point on the session.

Another trader quoted the bonds at 28 bid, 30 offered, which he said was down on the day. He also noted that with the company having filed for bankruptcy, the bonds are now trading flat, or without their accrued interest, with which they had been trading before. Loss of the accrued interest effectively cuts a bond's worth by several additional points beyond the movements in its nominal price.

The company said that the Chapter 11 filing will allow it to proceed with a restructuring plan which has already been approved by the holders of a majority of the 11% notes and a majority of its second-lien debt. Movie Gallery continues to negotiate with its first-lien debt holders on revising the terms of its proposed plan of reorganization, and hopes to reach an agreement shortly.

Under the terms of the plan, the 11% notes would be converted into equity of the reorganized company, as would other general unsecured claims as well as some $72 million of Movie Gallery's $175 million of outstanding second-lien debt. That $72 million of debt is held by Sopris Capital Advisors LLC, a private investment fund which has agreed to provide funding for the plan of reorganization, including a commitment to backstop a $50 million equity rights offering that would be made available to all eligible holders of the 11% notes.

Movie Gallery envisions its first-lien debt remaining in place under restructured terms to be agreed upon by the company, Sopris, and the first-lien debt holders, and likewise expects the remaining $103 million of second-lien debt held by parties other than Sopris to also remain outstanding, but with restructured terms. The current equity - which lost 7 cents, or fully 25% of its little remaining value in post-bankruptcy news trading Tuesday to finish at 21 cents per share, on volume of 5.1 million shares, triple the norm - will be cancelled, but holders of that stock could, under certain circumstances, receive some 2% of the reorganized company's new shares.

Besides Sopris funding the reorganization, Movie Gallery has also lined up $150 million of debtor-in-possession financing from Goldman Sachs to allow the company to continue operations during the bankruptcy proceedings.

Movie Gallery said that the proposed plan of reorganization would reduce its total debt burden by about $400 million, which it believes will "improve cash flow by significantly reducing ongoing interest expense."

Movie Gallery has been struggling with its debt burden ever since the Alabama-based company, then primarily a regional movie-rental chain store operator, acquired the considerably larger and more nationally oriented Hollywood Entertainment Corp. in 2005, an acquisition which cost Movie Gallery $1 billion. Movie Gallery has lagged considerably in both sales and earnings behind leader Blockbuster Inc. - still much larger than the combined Movie Gallery-Hollywood Video operation - and has also been hurt by the inroads which non-traditional movie-rental companies such as Netflix Inc. and Redbox LLC have made into the business of traditional brick-and-mortar chains like Movie Gallery/Hollywood and even Blockbuster as well.

GM in reverse

Elsewhere, GM's bonds - which had been riding in the fast upside line the last couple of sessions, powered by the good feelings growing out of resolution of its labor problems and the prospect of saving major money down the line as a result of the new contract - were seen heading in reverse Tuesday. Not even Moody's upping its assessment of the company's prospects to positive from negative could help.

There was negative commentary on the company's future from Bear Stearns, which cut its recommendation on GM stock to underperform, warning that the new health care trust the company is counting on to save it as much as $47 billion doesn't take effect until 2010. And Bear said that GM could face further reductions in its share of the North American vehicle market.

A trader saw its benchmark 8 3/8% notes due 2033 down 1¾ points at 92 bid, 92.5 offered, while another saw those bonds a point lower at that level.

Another market source saw an even bigger drop, estimating that at 92, the bonds were down about 4 points from the highs they had hit on Tuesday. GM's 7 1/8% notes due 2013 were down a full point, a market source said, at 94.5 bid.

With GM leading the overall way downward - its bonds were among the most widely traded Tuesday - a trader saw the widely followed CDX index of junk market performance down 7/16 point at 99 5/16-100 3/16. The KDP High Yield Daily Index was down 0.20 at 80.34, while its yield widened by 6 basis points to 7.77%. Declining issues led advancers by about a three-to-two margin.

© 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.