Radiologix bonds jump on company acquisition news; SNF prices euro add-on

By Paul Deckelman and Paul A. Harris

New York, July 7 - Radiologix Inc.'s bonds moved sharply higher on Friday on the news that the Dallas-based operator of stand-alone medical diagnostic imaging centers has agreed to be acquired by Primedex Health Systems Inc.

Bonds of Radiologix's sector peers, such as Alliance Imaging Inc., MedQuest Inc. and InSight Health Services Corp. were also better on the session, although InSight's in particular finished only modestly higher after having surrendered most of its early gains.

The imaging names were about the only real feature for most market participants, as the holiday-shortened week came to a close. Several traders said that many people had taken advantage of what was expected to be a slow week anyway to take vacation time, which cut into the overall level of market activity.

One trader, noting that equities were way down - stocks fell on a mixed jobs report and bearish guidance from market bellwethers 3M Co. and Advanced Micro Devices Inc. - said that only the absence of a lot of people to trade bonds lower kept the junk market from sliding along with stocks.

A high yield syndicate official marked the junk market unchanged on very light volume, Friday.

Against that kind of quietly somber background, primaryside activity remained limited. Penhall International Corp. was heard preparing to sell an issue of eight-year notes, which will likely be marketed to potential investors this coming week, and then price sometime the week after that. And French chemical manufacturer SNF Floerger - which priced an issue of euro-denominated seven-year notes at the end of June - came back into the market for an additional tap Friday.

Back among secondary names, Radiologix clearly led the way, with traders seeing the company's 10½% notes due 2008 jumping more than 11 points on the session in response to news that it has agreed to be acquired by Primedex.

"Those were up huge," a trader said, noting that the bonds had moved to a context of 101.5 bid, 102.5 offered from Thursday's close at 90. Activity was brisk, especially considering the market's overall relative quiet, with a number of trades in the million-dollar-plus range. At the end of the day, the bonds were lifted still further, going out around 102.125.

That sharp rise in the bonds paralleled an equally impressive jump in the company's Nasdaq-traded shares, which zoomed 87 cents (38.67%) to finish at $3.12. Volume of 2 million shares was some 37 times the usual turnover.

The company's securities shot skyward on the announcement that it had signed a definitive agreement with Los Angeles-based Primedex, which will acquire Radiologix in a cash-and-stock transaction valued at the time of announcement at approximately $208 million, including net debt.

Radiologix shareholders will receive in total 22,621,922 shares of Primedex common stock and $42.95 million in cash. Based upon the $1.75 closing price of Primedex common stock on July 6, the day before the acquisition deal was announced, each Radiologix shareholder would thus receive $1.84 in cash for each Radiologix share, plus one share of Primedex common stock, for a total value of $3.59 per share.

The companies said in their announcement that GE Healthcare Financial Services has provided a commitment for $405 million of senior debt financing, which includes a $45 million revolving credit facility for working capital and general corporate purposes that will be substantially undrawn and available to Primedex at the close of the transaction. The remaining $360 million will fund the cash purchase price of Radiologix and refinance substantially all the existing debt of Primedex and Radiologix, including the latter's $160 million of 10½% notes. Those bonds, which were sold in December 2001, are currently callable at a price of 105.25, which will decline to 103.5 on Dec. 15.

The transaction is expected to close somewhere in the current second half. It will create the largest owner and operator of fixed-site diagnostic imaging centers in the United States, with 132 locations, pro forma, including 80 centers in Primedex's home turf of California, 32 in Maryland, 12 in New York and 8 centers in other states, including Florida, Kansas, Colorado and Minnesota. Radiologix currently operates 70 centers and Primedex 62.

Other imaging names gain

The Radiologix news also gave a boost to the company's sector rivals - on the idea, a trader said that the deal could spark consolidation among those companies and other healthcare industry players in response.

A trader saw the biggest moves in InSight Health's 9 7/8% notes due 2011, which had been trading in the mid-40s, pre-news. Following the early-morning announcement of the Radiologix-Primedex deal, the InSight bonds "spiked right up" to levels around 52 bid at the outset, but then dropped back from those peaks to end at around 47.5.

Another trader saw those bonds closing at 47.5 bid, 49.5 offered, which he called a 4 point gain on the news, and saw the Lake Forest, Calif.-based imaging company's 7¼% notes due 2012 finishing at 91 bid, 93 offered, up two points on the session. Its 9 5/8% notes due 2008 were up only marginally at 43.75, although its 10.399% notes due 2011 advanced to 90.75 bid from 89.5.

MedQuest's 11 7/8% notes due 2012 hit a high of 95.5 bid, a trader said, before ending at 94 bid, 95 offered. That was still a 1 point gain for the Alpharetta, Ga.-based imaging company's bonds.

A trader saw Alliance Imaging's 7¼% notes due 2012 move up to 91.5 bid, 92 offered, versus 89.5 previously, where the bonds "had been for a while." At another desk, a trader quoted the Anaheim, Calif.-based imaging operator's bonds at a "nice and wide" 93 bid, 96 offered, which he called a 4½ point rise.

Market mostly quiet

Apart from the frenetic activity in the imaging sector bonds, things were still pretty much sedate elsewhere. But a trader said that volume- and activity-wise, "the market is still not quoted full-bore, but it is getting better, day by day," having improved from the deadly dull levels seen on Wednesday, when market players got back to work after the Independence Day holiday break. However, he acknowledged "it's still subdued, as a lot of people just took off this week."

Another trader similarly observed that "there really weren't a lot of people around. Stocks got crushed - and if more people had been in [the junk market], it would have been weaker" as well.

But with few people doing anything outside the rise of the imaging names, the traders said, the market pretty much held its own, little changed or up or down only within a narrow range for most credits.

Levi steady at lower levels

For instance, a trader said that he saw Levi Strauss & Co.'s 9¾% notes due 2015 unchanged at 99.375 bid, 99.625 offered, the same level to which those bonds had eased on Thursday on the news that the venerable San Francisco-based apparel maker's chief executive officer, Phillip A. Marineau - credited with spearheading Levi's turnaround over the past several years - will step down from his leadership post late in the year.

And traders saw little or no movement in the bonds of R.H. Donnelley Corp. on the news that one of the Cary, N.C.-based directory publisher's rivals, Verizon Communications Inc., had taken the first step towards possibly spinning off its own directory publishing business, in a filing with the Securities and Exchange Commission.

A trader saw Donnelley's 10 7/8% notes due 2012 unchanged at 109.5 bid, 110.5 offered, while its Dex Media 9 7/8% notes due 2009 were likewise unchanged at 105.75 bid, 106.5 offered. He did see the Dex 8½% notes due 2010 up ¾ point at 103.5 bid, 104.5 offered, but had no explanation for that atypical rise.

GM firm

General Motors Corp.'s bonds were seen little changed to up perhaps half a point, with the company's 8 3/8% notes due 2033 marginally better at 80.5 bid, 81.5 offered, and its 7 1/8% notes due 2013 up a ¼ point around 84. The giant automaker's General Motors Acceptance Corp. financing unit's 8% notes due 2031 were quoted up ¾ point at 96 bid, 96.5 offered, although its 6 7/8% notes due 2012 were up only ½ point at 95.

GM's board members voted Friday during a teleconference to pursue preliminary talks with French automaker Renault SA and Japanese car manufacturer Nissan Motor Co. on the possibility of a three-way alliance. Such a combination envisions GM joining the existing linkup between Renault and Nissan, with those carmakers buying about a 20% stake in the struggling American automotive giant. Renault and Nissan each already own sizable stakes in one another.

The board said that GM's chairman and chief executive officer, G. Richard "Rick" Wagoner, would manage GM's participation in the talks, including negotiations with his counterpart, Carlos Ghosn, who is the CEO of both Renault and Nissan. The two auto chieftains are expected to meet this coming Friday in Detroit. Wagoner said in a statement he would start talks "with an open mind - eager to hear their ideas of how an alliance between our companies might work to our mutual benefit".

That, however, is not good enough for the man who is the strongest proponent of a three-way alliance, billionaire investor Kirk Kerkorian, whose Tracinda Corp. investment vehicle owns 9.9% of GM's shares, making him the largest individual GM shareholder. Kerkorian first talked up the idea of an alliance in an SEC filing a week ago, saying that such a combination could help the financially troubled GM capture savings by sharing the costs of developing new products and buying components with its partners.

Kerkorian had wanted the board to appoint a committee with access to independent financial and legal advice to run the talks, rather than leaving them in the hands of the Wagoner-led management, and reiterated his stand on Friday. Kerkorian has been highly critical of management in the past for allegedly being slow to move to turn GM's sagging fortunes around, and some news reports indicate that the cantankerous tycoon may be using the would-be alliance with Renault and Nissan to gain leverage to force Wagoner out and replace him with Ghosn, who is widely credited with saving Nissan from insolvency several years ago.

However, Tracinda issued a statement describing the forthcoming meeting of Wagoner and Ghosen as "a good first step".

While the board said that it was open to looking at new options - and hence endorsed the idea of talks with Ghosen - it also asserted Friday that was vital that GM "stay focused" on its year-old turnaround plan, the centerpiece of Wagoner's program.

Primary sees 1 deal

Meanwhile the week in the primary market came to a close with no dollar-denominated issues pricing.

However terms did surface Friday on a €20 million add-on to French specialty chemical maker SNF Floerger's recently priced issue of 8¼% notes due 2013.

And news surfaced of a roadshow start by Penhall International.

SNF prices €20 million add on

SNF priced the post-July 4th week's only new issue of junk, a €20 million add-on to its 8¼% senior notes due June 15, 2013 (B3/B).

The tap was priced at 102.00 to yield 7.822%.

Calyon Securities ran the books for the Andrezieux, France, producer specialty chemicals.

The original €175 million issue priced at par on June 22.

Penhall to sell $175

Anaheim, Calif.-based construction equipment company Penhall International added its acquisition financing deal to a new issue calendar that has been growing at a very modest pace since the Independence Day break.

The company will begin a roadshow on Monday for a $175 million offering of eight-year second-lien notes via Deutsche Bank Securities and CIBC World Markets.

Post-Independence Day shutout

With no dollar-denominated issues pricing in the holiday-abbreviated week ending July 7 year-to-date, issuance remained at slightly more than $69.56 billion.

Nevertheless 2006 issuance remains well ahead of that seen at the July 7, 2005 close: $52.27 billion.

In terms of deal count, however, 2006, which has seen 199 dollar-denominated tranches price thus far, lags 2005 which had turned out 211 tranches by the July 7 close.

Calendar expected to build

Throughout the post-Independence Day week sources throughout the market told Prospect News that syndicate desks and trading floors were operating at half strength, as a lot of participants brokered the extended holiday weekend into a vacation of nearly 10 days.

Hence the week's low news volume in the primary market.

However the drought may be about to be broken.

In addition to the above-mentioned Penhall International deal three offerings could launch as early as next week.

Netherlands-based market research company VNU NV is expected to launch a $1.6 billion equivalent offering of notes in dollar and euro denominations.

The acquisition financing will be led by Deutsche Bank Securities and JP Morgan.

Meanwhile London-based NTL Cable plc is expected to launch a £600 million equivalent offering of senior notes in dollar and sterling tranches, with proceeds going to help take out a £1.8 billion bridge incurred in connection with NTL's reverse acquisition of Telewest.

JP Morgan, Deutsche Bank, Goldman Sachs & Co. and The Royal Bank of Scotland are in the deal.

And finally H&E Equipment Services is expected to launch a $250 million minimum offering of high yield notes as early as next week. Credit Suisse has the books for the debt refinancing from the Baton Rouge, La., heavy equipment manufacturing and services company.

What's in the market

The week beginning Monday figures to see a hodgepodge of issues price.

The biggest amount is expected to come from Rexnord Corp. which is marketing $840 million in two tranches: a $420 million tranche of eight-year senior notes (B3/CCC+) and a $420 million tranche of 10-year senior subordinated notes (Caa1/CCC+).

The deal, led by Credit Suisse, Merrill Lynch, Bear Stearns and Lehman Brothers, is expected to price late in the week of July 10 or early in the week of July 17.

Also in the market is Avis Finance Co. plc with a €200 million offering of unrated seven-year senior floating-rate notes.

The Regulation S offering, via Barclays Capital, The Royal Bank of Scotland, Dresdner Kleinwort and Societe Generale, wraps up its roadshow on Thursday.

And from Canada, Coalcorp Mining Inc. is expected to price its dollar-denominated units comprised of a $1,000 senior unsecured note maturing in five years and one day and 190 common share purchase warrants.

The size of the deal, which is being led by GMP Securities, remains to be determined. Terms are expected before the end of the week.

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