Caribbean Restaurants prices, bonds 'put away'; GM off on downgrade; Intelsat gains on numbers

By Paul Deckelman

New York, Aug. 13 - Caribbean Restaurants, LLC, was heard by high yield syndicate sources to have successfully priced a $149 million offering of four-year senior secured second-lien notes on Wednesday - the sole feature in an otherwise quiet primary market.

Traders did not see any aftermarket dealings in the new bonds, surmising that the fat-couponed issue had been snapped up and "put away."

Among the established issues, General Motors Corp.'s bonds skidded lower after the giant carmaker's credit ratings were cut a notch to the psychologically significant Caa1 level for its corporate credit (Caa2 for the bonds) from B3 and Caa1, respectively, previously.

On the earnings front, Intelsat Ltd.'s bonds were gaining altitude after the Bermuda-based communications satellite operator reported second-quarter numbers, including record revenues.

Nortek Inc.'s bonds were also seen higher, as the building products maker managed to at least eke out a small profit in the latest quarter despite the sharp downturn in building activities, even though that gain was far smaller than a year earlier.

MagnaChip Semiconductor Ltd., which filed its quarterly report with the Securities and Exchange Commission on Wednesday, was several points better on the session.

Caribbean Restaurants prices wide, disappears

Caribbean Restaurants, a Catano, Puerto Rico-based company that is the exclusive Burger King franchisee in that U.S. commonwealth with some 174 outlets throughout the island, brought its bond issue to market via joint book-running managers Jefferies & Co, Inc. and Credit Suisse Securities (USA) LLC.

The notes carry a coupon of 14¼% and priced at 98 to yield 14.94%. That was well outside of price talk envisioning a coupon between 13% and 13¼% at a price of 98 to yield between 13.423% and 13.928%.

The Rule 144A/Regulation S offering without registration rights, comes with three years of call protection.

Proceeds from the bond deal will be used to refinance the company's term loan, which comes due on June 30, 2009.

Several hours after the deal had priced, secondary traders said they'd seen no sign of the new bonds. One said that it looked to him like the new deal "got put away pretty quickly. There was no flipping in this one."

Another trader noted that the $149 million deal was on the small side, relatively speaking and "with a coupon like that," it would only take "literally, a couple of accounts who are comfortable with the credit" to take the whole deal down. "You could easily allocate this deal to [no more than] three accounts, if the issuance came on the cheap side, and in the environment that we are in, I think everything has to come on the cheap side."

With the company pricing the bonds at a 2 point discount to par to fatten an already-hefty yield to nudge it up to almost 15%, "it's definitely a buyer's market. I'm sure the bond came wider, or cheaper, than its creditworthiness (Moody's Investors Service assigned a B3 rating to the deal, and Standard & Poor's gave it a single-B) and potentially, if a few large accounts were comfortable with the credit, it would easily be placed. So it is possible that very few accounts played, but in huge size, and then it's put away."

No Guitar notes heard or seen

One of the traders also said that he had seen "not one quote" on the new two-part deal from Guitar Center Inc., the terms of which surfaced on Tuesday.

Guitar Center, a Westlake, Village, Calif.-based musical instrument and recording equipment retailer, converted bridge loans used to fund its $2.1 billion leveraged buyout last fall by Bain Capital Partners LLC into $777 million of junk bonds, the latest in a series of such transactions by recently bought out firms. Market sources said that the company's LBO debt was converted into $375 million of 11½% senior cash-pay notes due 2015 and $402 million of 14.09% pay-in-kind notes due 2016. Both tranches priced at par, and were brought to market by bookrunner J.P. Morgan Chase & Co.

Market indicators move lower

Back among the established issues, a trader said Wednesday that the widely followed CDX index of junk bond performance edged down to about 92 9/16 bid, 92 12/16 offered. The KDP High Yield Daily Index meantime fell by 9 basis points to end at 70.49, while its yield rose by 1 bp to 10.56%.

In the broader market, advancing issues and decliners were evenly matched. Activity, represented by dollar volume, rose by 10% from the levels seen on Tuesday.

GM retreats after downgrade

A trader saw General Motors's benchmark 8 3/8% bonds due 2033 down 2 points to 52 bid following its ratings downgrade by Moody's, and although the Detroit-based carmaker's 49% owned GMAC LLC auto-finance arm was not included in the downgrade, he saw the latter's 8% bonds due 2031 also 2 points lower at 56.

Another called the GM benchmarks down 1½ points at 53 bid, 54 offered, while the GMAC bonds dropped a point to 55 bid, 57 offered.

He also saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 unchanged at 53.75 bid, 54.75 offered.

Yet another trader called the GM bonds 2 point losers at 53, while seeing the Ford long bonds down 1 5/8 points to 53.875 versus 55.5 at the close Tuesday.

A market source at another desk saw GM's paper as among the most actively traded credits on the day, with the '33s off 1 point at 53, GM's 7.20% notes due 2011 down about a point at 65.5 bid, and its 7 1/8% notes due 2013 actually up 1½ points at around the 60 level. GMAC's 5 5/8% notes due 2009 dipped by a deuce to around 90, and its 6 7/8% notes due 2012 lost 2 points to 62 bid.

However, another source quoted the GM '13s down more than a point at 57.5.

GM's New York Stock Exchange-traded shares meantime fell 84 cents, or 7.57%, to $10.26, although volume of 23.6 million shares was actually a little less than usual.

The bonds and shares were knocked down after Moody's cut its corporate family and probability-of-default ratings on GM by one notch to Caa1 from B3, while also lowering the unsecured bonds a notch to Caa2 from Caa1 previously. The company's outlook remains negative.

In cutting GM's ratings, the agency cited "the challenges the company will face in reestablishing a competitive position in the U.S. automotive market and generating positive operating cash flow in the face of: annual industry sales that could remain below 15 million units through 2009; the shift in consumer demand away from trucks and SUVs; the 18- to 24-month time frame necessary for GM to meaningfully expand its portfolio of mid and small vehicles; and the difficulties the company will encounter in establishing pricing power in the car and crossover segments."

Moody's acknowledged that GM's recently initiated operating plan - which envisions generating $10 billion in additional cash - and its asset-sale and capital-raising plans, which are targeting $5 billion in proceeds by year-end 2009, "will help to boost the company's liquidity position," which at the end of the second quarter in June consisted of $21 billion in cash and approximately $5 billion in committed U.S. credit facilities. However, Moody's warned, "achieving the planned level of savings and the additional capital inflows may be challenging, and the company will need to demonstrate solid progress in order to forestall any further pressure" on its ratings.

Intelsat up after earnings

Apart from the autosphere, traders saw Intelsat's bonds better in the wake of favorable earnings from the satellite communications operator.

One quoted its Intelsat (Bermuda) Ltd. 11¼% notes due 2017 up at least a point at 105.25 bid, 106.25 offered, while that subsidiary's 11½% notes due 2017 had firmed to 104.75 bid, 105.75 offered. Its Intelsat Subsidiary Holding Co., Ltd. 8½% notes due 2013 rose to 99.875 bid, 100.125 offered. Those bonds were part of the massive $7.086 billion multi-tranche offering that those Intelsat units brought to market in late June.

Another trader quoted the company's more established bonds also rising, with its 7 5/8% notes due 2012 up 2 points at 87.5 bid, 88.5 offered. Intelsat's 6½% notes due 2013 gained 1½ points to end at the 78 mark

Intelsat reported revenue of $584.9 million and a net loss of $82 million for the three months ended June 30, and reported EBITDA of $490.4 million. The revenue figure, which the company called a record, was up by $41.7 million, or 8%, from the year-earlier total of $543.2 million. The EBITDA figure, which represented 84% of revenue, reflected an increase of $79.5 million from $410.9 million, or 76% of revenue, a year earlier.

Intelsat did not offer a comparable net earnings or loss total from the previous year for comparison.

The company's chief executive officer, Dave McGlade, commented in the company's news release that Intelsat's second-quarter results "featured record revenues and continued strong operating performance. Our diverse customer base and global scale give us an outstanding competitive position.

"We continue to benefit from the communications infrastructure needs of global businesses, growing economies, mobile application providers and service providers entering newly deregulated markets. Our quarter-end backlog increased for the third quarter in a row to a record $8.5 billion, providing visibility - and continued stability - in our business."

Nortek up after results

Nortek's bonds were seen somewhat better after the Providence, R.I.-based maker of heating, ventilation and cooling components and equipment reported its financials - this despite a sharp net earnings decline versus a year-earlier profit and a substantial slide in most other performance measures. Company executives expressed satisfaction with the numbers in the face of difficult industry conditions, as well as hope that things would start to improve before long.

A trader pegged the bonds "up a couple of points," with its 8½% notes due 2014 at 57 bid versus 55 at Tuesday's close, while its 10% notes due 2013 rose to 91 bid, 93 offered from 89 bid, 90 offered previously.

A market source saw the bonds having actually opened down a point at the 57 mark, but having moved up from that low point to around 58.5 bid, calling them up ½ point on the session in moderately busy round-lot trading.

Another source pegged the bonds at 59, but called that a better than 3 point gain.

Nortek posted a fiscal second-quarter profit of $3.7 million - an 80.2% nosedive from the year-ago $18.7 million - but said that net sales managed to edge up by 0.43% to $647.1 million from $644 million previously, amid what in the company's chairman and chief executive officer, Richard. L. Bready, termed "continuingly difficult markets."

Nortek's corporate parent, NTK Holdings Inc., also headed by Bready, fell to a $43.5 million net loss in the quarter ended June 28, versus a $7.3 million year-earlier profit, and said that its operating earnings - essentially the same as Nortek's - dropped to $46.9 million from $64.7 million a year ago.

Bready said that all things considered, management was "pleased with Nortek second-quarter performance, as business conditions remained difficult in the company's core markets." He noted that "the mortgage crisis has driven housing starts down to a level of less than 1 million starts," a situation made even worse by the rising energy costs and falling consumer confidence.

"While we expect the difficult housing market will continue throughout 2008," the CEO added, Nortek "plans to maintain its leadership position in these difficult markets" and thanks to cost-cutting and debt and interest reduction efforts - the latest quarter included a $9.9 million one-time expense related to the refinancing of all outstanding senior secured debt - the company will remain poised for "improving home improvement and residential building markets."

MagnaChip bonds better

A trader saw Korean computer chip manufacturer MagnaChip Semiconductor's 8% notes due 2014 up 2 points at 32 bid, while its 6 7/8% notes due 2011 and floating-rate notes due 2011 jumped 5 points to 57 bid.

Another trader saw the floaters at 56, up from 55.25 bid last Friday, while the 6 7/8s gained 2 points from Friday's levels to 57.5 bid. He did not see any dealings in the 8% notes.

The company, which first reported its earnings for the fiscal second quarter ended June 29 last month, filed its quarterly report with the Securities and Exchange Commission, in which it elaborated on the results and said that its liquidity and capital positions are sufficient to meet its current needs.

The company reiterated that its revenue for the quarter was slightly better, at $194.7 million versus $194.1 million a year earlier in the second quarter of 2007. While its net loss widened out to $59.6 million from $45.3 million a year earlier, much of that was blamed on foreign exchange fluctuations. Operating loss meantime fell to $9.4 million during the second quarter, compared with an operating loss of $42.4 million in the prior year quarter.

The company said in the 10-K filing that "we anticipate that operating cash flow, together with available borrowing capacity under our senior secured credit facility, will be sufficient to meet our research and development and capital expenditures needs, to service requirements on our debt obligations and to fund our working capital needs for the foreseeable future."

As of June 29, it had total outstanding long-term debt of $750 million, and $36.5 million of cash and cash equivalents.

Uno bonds seen in the 40s

A trader saw Uno Restaurant Holdings Corp.'s 10% notes due 2011 at 45 bid, 50 offered, which he said was "maybe down a couple of points" from the bonds' close last Friday on the news that the company will skip Friday's coupon payment on the bonds and is in recapitalization talks with its lenders.

However, another trader also saw the bonds last at 45 "a couple of weeks ago," but did not see anything in them Wednesday, while yet another trader also saw nothing on Uno, which he called "very strange." While acknowledging that the 10s are a small, illiquid issue of some $142 million, he also pointed out that "being news-related, I'm actually shocked about [the lack of activity]." He said that the bonds had last traded on Aug. 1 at 49.5.

West Roxbury, Mass.-based Uno, which operates about 200 Italian-style Uno Chicago Grill casual dining restaurants, mostly in the Northeast, said late Tuesday that it would not make the $7.1 million interest payment due Friday on the bonds, instead invoking the standard 30-day grace period, which the company will use for negotiations with its debtholders. Uno told Prospect News that the company is in talks with bondholders on a recapitalization.

Sbarro's steady after steep fall

In that same sector, Uno rival Sbarro Inc.'s 10 3/8% notes due 2015 - which had tumbled about 10 points into the lower 70s over three sessions after the Melville, N.Y.-based Italian quick-serve restaurant chain served up poor quarterly numbers last Friday - were seen taking a breather Wednesday as investors tried to digest that rapid fall and figure out what to do next.

A trader saw the bonds untraded Wednesday, after having fallen 4 to 5 points on Tuesday to 73.5 bid. Another said that the bonds were at 73 bid, 74.5 offered, which he said was down 4 points from their prior close. And a third, saying the bonds "didn't trade today," said they were "now down in a 72-74 range."

A trader saw Landry's Restaurants Inc.'s 9 ½% notes due 2014 ease to par bid from 100.25 the previous session; he called it "surprising" that the Houston-based eatery operator's bonds "didn't get hit more." He explained that the whole sector "should probably be weaker" in the wake of the Uno missed-coupon news.

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