Realogy, Preem, Pegasus deals price; Remington up on buyout; funds see $130 million inflow

By Paul Deckelman and Paul A. Harris

New York, April 5 - Realogy Corp. priced more than $3 billion of new paper Thursday - easily the largest mega-deal to hit the junk market in quite a while. The new bonds were seen having firmed a little from their respective issue prices, all of which were at a discount to par.

Also on the primary scene, Preem Petroleum's financial arm, Preem Finans AB, was heard by syndicate sources to have priced an upsized two-part deal consisting of dollar- and euro-denominated tranches.

Pegasus Solutions, Inc., meantime, priced a downsized offering of new eight-year notes.

In the secondary market - largely becalmed before Friday's highly abbreviated pre-holiday session - the bonds of Madison, N.C. weapons manufacturer Remington Arms Co., Inc. were seen to have shot right up out of the gate on the news that the company has agreed to be bought by Cerberus Capital Management LP in a deal valued at $370 million, including debt assumption.

Also on the upside were the recently battered bonds of Technical Olympic USA Inc., although there seemed to be no fresh news out on the Hollywood, Fla.-based homebuilder, which may have to absorb the debt of its troubled Transeastern Homes joint venture.

On the downside, Mrs. Fields Famous Brands' 11½% notes due 2011 were seen having moved lower in busy trading on an otherwise very un-busy day, losing 1½ points in the wake of the Salt Lake, City, Utah-based processed food company's quarterly conference call.

Second big weekly inflow

And as activity was trailing off for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $129.5 million more came into those weekly-reporting funds than left them.

It was the second consecutive large weekly inflow, following the $115 million infusion seen in the previous week.

The two relatively sizable inflows had followed a choppy four-week period which saw a series of relatively small inflows and outflows, none exceeding $25 million.

The inflow extends the year-to-date gains among funds which report to AMG on a weekly basis to $1.080 billion.

Meanwhile, funds that report to AMG on a monthly basis reported inflows of $433 million for the most recent period, extending year-to-date flows in that sector to $2.792 billion.

Hence year-to-date aggregate flows, tallying both the weekly and monthly reporting funds, were $3.872 billion at the Wednesday close.

The fund-flow figures exclude distributions.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

Realogy downsizes, restructures

The high yield primary market saw three issuers raise $3.537 billion and €355 million of proceeds with a combined total of six tranches on Thursday.

Thursday's biggest deal was Realogy's downsized, restructured $3.125 billion three-part high-yield notes transaction.

JP Morgan, Credit Suisse, Bear Stearns & Co. and Citigroup were joint bookrunners for the LBO deal that faced formidable investor pushback according to sources on both the buy-side and the sell-side.

The Parsippany, N.J., real estate franchisor priced $2.25 billion of seven-year senior notes (Caa1/B-) in two tranches. A proposed floating-rate notes tranche was abandoned.

The senior notes issues included $1.7 billion of 10½% fixed-rate notes which priced at 98.786 to yield 10¾%. The notes priced on top of price talk that had been raised to 10¼% from 10%.

Realogy also priced $550 million of 11% toggle notes at 98.805 to yield 11¼%, on top of price talk that had been raised from the 10 7/8% area. The coupon on the toggle notes increases to 11¾% should the issuer elect to pay in kind as opposed to cash.

In addition to the senior notes Realogy priced a downsized $875 million tranche of 12 3/8% eight-year senior subordinated notes (Caa2/B-) at 98.146 to yield 12¾%, on top of price talk that had been raised to 11¾% from 11½%.

In addition to the downsizing and restructuring, the deal also underwent extensive covenant changes, according to market sources who said that debt covenants and restricted payments covenants were tightened.

Sources told Prospect News that the deal came under pressure because of continued negative headline news in the homebuilding and real estate sectors.

The chief worry was that the bonds would not hold onto their value. Hence, as the Thursday session got underway, players widely anticipated that the bonds would be priced at significant discounts.

Preem upsizes

Stockholm, Sweden-based Coral Finans AB (Preem Petroleum) upsized its three-year split-coupon senior floating-rate notes transaction to $826 million equivalent, and priced the non-rated two-part deal at par on Friday.

The company priced a $350 million tranche with a cash-pay coupon of three-month Libor plus 150 basis points and a PIK coupon of three-month Libor plus 350 basis points.

The dollar-denominated notes had been talked with a cash-pay coupon of Libor plus 150 basis points and a PIK coupon of Libor plus 350 to 375 basis points.

In addition the company priced a €355 million tranche with a cash-pay coupon of three-month Euribor plus 150 basis points and a PIK coupon of three-month Euribor plus 350 basis points.

The euro-denominated notes had been talked with a cash-pay coupon of Euribor plus 150 basis points and a PIK coupon of Euribor plus 350 to 375 basis points.

Deutsche Bank Securities ran the books for the dividend-funding deal.

Call protection on both tranches was extended to two years from 1.75 years. After two years the notes become callable at par.

Pegasus Solutions prices $105 million

Finally on Thursday Dallas-based hotel technology provider Pegasus Solutions priced a downsized $105 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 10½%.

The yield was printed on top of the price talk.

The issue amount came at the high end of the revised $100 million to $105 million range. However the deal size had earlier been decreased from the initially proposed $120 million amount.

Jefferies & Co. was the bookrunner for the debt refinancing, dividend-funding and general corporate purposes deal.

Slim calendar

The post-Easter week will get underway with only two offerings on the new issue calendar.

KAR Holdings, Inc. expects to price its $1.1 billion three-part notes offer.

The Westchester, Ill., automotive specialty salvage services provider plans to issue $600 million in tranches of eight-year senior fixed- and floating-rate notes (B3/CCC), and $500 million of 10-year senior subordinated notes (Caa1/CCC).

Bear Stearns, UBS, Goldman Sachs and Deutsche Bank Securities are joint bookrunners for the LBO deal.

And United Surgical Partners International, Inc. expects to complete its $480 million two-part notes offering.

The company is offering $240 million of 10-year senior subordinated notes and $240 million of 10-year senior subordinated toggle notes.

Citigroup, Lehman Brothers, UBS Investment Bank and Bear Stearns are joint bookrunners for that LBO transaction.

An informed source told Prospect News on Friday that the United Surgical Partners deal is pro-formaed at 8¾% to 9%, and is going well.

Realogy bonds move up

When the big new Realogy deal was freed for secondary dealings, a trader saw the company's 10½% senior notes due 2014 firm to 99.5 bid, par offered, from their 98.786 issue price.

He also saw Realogy's 11% senior toggle notes due 2014 at 99.125 bid, 99.625 offered, up from 98.805, while its 12 3/8% senior subordinated notes due 2015 improved to 99.625 bid, 100.125 offered, versus their 98.146 issue price.

Preem bonds firm on break

A trader saw Preem Petroleum's new dollar-denominated three-year bonds having firmed to 100.5 bid from their par issue price earlier in the day.

A trader at another shop saw the bonds a little better than that, at 100.75 bid, 101.25 offered.

Pegasus doesn't fly

The new Pegasus Solutions 10½% senior notes due 2015, a trader said, were "not going anyplace" after they were freed for aftermarket action; he saw the bonds offered at 100.25, versus their par issue price.

Another trader said he had not seen the new issue at all, commenting that at $105 million, "it was such a small deal" that probably slipped under the radar at many shops.

Bull's eye for Remington

Back among the established issues, a trader said, the big news on an otherwise largely newsless day, "obviously," was the announcement that Cerberus Capital Management had agreed to acquire Remington Arms for $118 million, plus the assumption of $252 million of the latter's debt.

Market participants saw Remington's 10½% senior notes due 2011 hotter than a pistol, jumping 4 to 5 points in busy trading. The bonds "were up pretty significantly," one said, seeing them advance to 102.5 bid, 103.5 offered from prior levels at 97.5 bid, while another trader saw them up 5½ points on the session at 103 bid, 103.5 offered.

The first trader saw the bonds go home at 103.625 bid, up from 97 bid, 98 offered pre-news.

He said that even though his shop has been "closely following this credit forever," even having one of their analysts specifically track it, "I think this deal was kind of a surprise."

He said that rather than expecting the voracious New York-based private equity firm to shoot in out of left field and snap up Remington, the general assumption had been that "the company would continue to improve its earnings, and maybe be an IPO candidate in another six months to a year. So to us, this was a surprise."

Iron Mountain improves

The trader said that another "name that's getting stronger" of late has been Iron Mountain Inc., the Boston-based records and document storage company.

"It may just be trading" in a relatively thin market, as there had been no announcements, he said, but the company's bonds were up about half a point across the board, with the 6 5/8% notes due 2016 at 96.75 bid, 97.25 offered, while its 7¾% notes due 2015 were at 102.375 bid, 102.75 offered, both up ½ point, while its new 7½% notes due 2017, which priced just last month, were at 101.5, "which is up across the board."

As to what was pushing the bonds upward, he said he didn't know if it was just "a firmer market, or somebody putting out a report, or what."

Another market source saw the 6 5/8s at 97.5 and the 73/4s at 102.75.

Sea Containers sails along

And the trader said that Sea Containers Ltd.'s bonds "have rebounded smartly," up about 2 points this week off its recent lows, although he had seen no particular news out on the bankrupt Bermuda-based maritime and railroad transportation company that might explain that rebound.

He saw Sea Containers' 10¾% notes, which were to have matured in 2006, at 85.5 bid, 86.5 offered, up a point on the week, and its 10½% notes due 2007 at 83.5 bid, 84.5 offered, up "at least" 1 to 2 points on the week and ½ point in Thursday's session.

He suggested that perhaps, "people are re-evaluating some of the assets, and think they may be worth more than [other] people think they are."

Technical Olympic gets better

A trader saw Technical Olympic's 10 3/8% notes due 2012 up 4 points on the day at 76.5-77.5, one of the few features he saw on a mostly dead day.

When asked a reason for the move, he observed that the company's "stock was up, but I think they're both playing off each other today. There was nothing really of newsworthiness that I saw that would indicate that they would go higher" - that is, he added, "unless somebody knows something that I don't."

At mid-day, a market source at another desk had pegged the company's 9% senior notes due 2010 at 93.5 bid, 94.5 offered, while the subordinated 10 3/8s came in at 76.5 bid. Come the close of business, a distressed trader called the senior notes "up a little" at 94.

"I would have called then 92-93 yesterday," he said.

But it was the 10 3/8s that garnered major gains: the bonds jumped up 3.5 points, according to the trader, to close at 77.

"There's been a lot of activity in them," the source said.

The upside ride came despite bad news on the ratings front, with Fitch Ratings downgrading the notes Thursday, due to "continued challenging market conditions," as well as the potential that the company would incur at least some of its troubled Transeastern joint venture's $625 million of debt.

Technical Olympic admitted last fall that it had paid top dollar to acquire its half of the joint venture in the summer of 2005, when the Florida housing market in which Transeastern operates was at its peak - only to see that market deteriorate quickly afterwards, with Transeastern only able to sell about one third of the more than 4,000 homes it had projected being able to sell. Various possible reorganization scenarios for Transeastern have been making the rounds of the junk and distressed markets' grapevine for a number of months.

Fitch said it cut Technical Olympic's senior unsecured notes to CCC+/RR5 from B and its senior subordinated debt to CCC-/RR6 from CCC+.

The Fitch downgrade comes just days after Moody's Investors Service announced it was considering lowering its rating on the distressed company. Moody's looked to poor quarterly figures and the expectation that the company will have to amend its credit agreements as the basis for its decision.

Moody's ranks Technical Olympic's senior debt B3 and its senior subordinated debt Caa1.

Mrs. Field's falls

On the downside, Mrs. Fields' 11½% notes due 2011 were seen down some 1¾ points on the day, to 83.25. The issue was one of the more heavily traded names of the day.

At various times during the day, the bonds were quoted as low as 77.5 and as high as 87, before settling in at their closing levels, down from Wednesday's finish at 85.

Company executives held their regular quarterly conference call with investors and analysts on Thursday.

Stephanie N. Rotondo contributed to this report.

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