Fresenius, VWR, Telcordia price; Catalyst, Foodservice deals spiked; Huntsman up on buyout

By Paul Deckelman and Paul A. Harris

New York, June 26 - Fresenius Medical Care & Co. KGaA priced a half-billion-dollar issue of new 10-year bonds Tuesday, although the new notes showed little real movement when they were freed for secondary dealings.

High yield syndicate sources also heard that Varietal Distribution Merger Sub Inc. (VWR International Inc.) and Telcordia Technologies, Inc. likewise priced issues of new bonds later in the session. But two other prospective issuers - U.S. Foodservice Inc. and Catalyst Paper Corp. - had postponed their respective deals, each citing "market conditions" as the rationale. Those postponements came even after strenuous efforts by the companies and their underwriters to save those deals - U.S. Foodservice by twice sharply downsizing what originally began as a $1.55 billion mega-deal down to less than half that size, while Catalyst restructured its offering, also to no avail.

Meanwhile, among the deals that were still on the forward calendar by day's end, Servicemaster Co. was also doing a little tinkering with its billion-dollar-plus deal, adding a tranche of cash-pay notes to the offering to make it more palatable for suddenly wary investors. National Mentor Holdings Inc. was heard getting ready to hit the road for a brief marketing effort for its 7-year toggle notes deal.

In the secondary, Huntsman Corp.'s bonds were seen up about 2 to 3 points on the news that the Salt Lake City, Utah-based chemicals giant has agreed to a $9.6 billion acquisition by Swiss chemical company Basell AF SCA, whose bonds were accordingly lower on the news.

Also lower were the bonds of another manufacturer in the sector, Lyondell Chemical Co., - since the planned acquisition of Huntsman makes it much less likely that Basell's parent will acquire Lyondell, a potential deal that has been making the rounds on the financial markets for some months.

Elsewhere, bonds of such homebuilders as Hovnanian Enterprises Inc. were seen lower amid continued weakness in that whole sector.

A high yield syndicate official said that the broad market had been up as much as an eighth of a point early Tuesday, but fell off as the stock market weakened in the afternoon.

Junk ended the day down ¼ point, according to the source.

In the primary market three issuers each priced single tranches of bonds, generating a combined total of slightly more than $1.7 billion.

However two prospective issuers pulled their deals.

VWR toggle notes

Sources have been telling Prospect News that deals are presently facing significant investor pushback, especially with respect to two factors: high leverage and PIK toggle structures.

With the buy-side now at the wheel, greater than nine times leverage may be going the way of the dodo, so the color goes.

And the toggle feature, which according to sources allows an issuer to up its own leverage, may also be headed to the dustbin.

In the face of this pushback, however, Varietal Distribution Merger Sub, Inc. (VWR) priced a $675 million issue of eight-year toggle notes (Caa1/CCC+) at par to yield 10¼% on Tuesday.

Two aspects of the deal perhaps bear mentioning.

The yield was printed 25 basis points beyond the wide end of the 9¾% to 10% price talk.

And the toggle coupon steps up by 100 basis points, to 11¼% from 10¼% if the issuer elects to PIK.

The typical toggle, over the past 18 months, has involved a 75 basis points coupon step-up.

Nevertheless, investor pushback with respect to the toggle feature notwithstanding, the deal got done.

Goldman Sachs, Banc of America Securities and JP Morgan were joint bookrunners for the merger-funding transaction.

Telcordia prices $555 million

Elsewhere Telcordia Technologies priced a $555 million offering of three-month Libor plus 375 basis points five-year first-lien senior secured floating-rate notes (B2/B) at 99.00 on Tuesday.

The price talk was Libor plus 350 to 375 basis points.

Credit Suisse and JP Morgan were joint bookrunners for the debt refinancing deal from the Piscataway, N.J., software and services provider to communications networks.

Fresenius finishes $500 million

Finally, even Tuesday's smallest deal hit the half-billion mark.

FMC Finance III SA (Fresenius Medical Care AG & Co. KgaA) priced a $500 million issue of 6 7/8% 10-year senior notes (Ba3/BB-) at 98.225 to yield 7 1/8%.

The yield was printed at the wide end of the 6 7/8% to 7 1/8% price talk.

Banc of America Securities LLC was the left bookrunner for the debt refinancing deal from the Bad Homburg, Germany, provider of dialysis products and services.

ServiceMaster restructures

ServiceMaster became the latest prospective issuer to restructure its junk bond offering.

On Tuesday the company made changes to its $1.15 billion offering of eight-year senior notes (B3/CCC+), dividing the deal into two $575 million tranches, one of cash-pay notes, the other of toggle notes.

Previously the company had been in the market with a single $1.15 billion tranche of eight-year notes.

Pricing is scheduled for Friday.

JP Morgan, Citigroup, Goldman Sachs & Co., Morgan Stanley and Banc of America Securities LLC are joint bookrunners for the LBO deal.

Price talk from PaeTec

PaeTec Holding Corp. set price talk for its $300 million offering of eight-year senior notes (Caa1/CCC+) at 9% to 9¼% on Tuesday.

The deal, which is being led by Merrill Lynch, Deutsche Bank Securities and Wachovia Securities, is expected to price on Wednesday afternoon.

Also expected to price Wednesday is the massive Community Health Systems Inc. restructured $3.365 billion offering of eight-year senior notes (B3/B-), talked Monday at 8¾% to 9%.

The Credit Suisse and Wachovia Securities-led acquisition financing deal was restructured earlier in the week when the Nashville operator of acute care hospitals withdrew proposed tranches of eight-year floating-rate notes and 10-year fixed-rate notes.

If priced at its currently proposed $3.365 billion size, it will be the biggest tranche to price in high yield since Freeport-McMoRan Copper & Gold Inc. priced $3.5 billion of 8 3/8% senior notes due 2017 in March.

One high yield syndicate official asserted, in a conversation with Prospect News, that the Freeport-McMoRan tranche was the biggest single tranche of junk to price in the history of the market.

Also expected to price Wednesday is Magnum Coal Co.'s $350 million offering of seven-year senior secured second-lien notes (B3/B-), via Lehman Brothers.

The deal was talked at 10¾% to 11% on Monday.

The 'P' word

Finally, as if anyone required additional evidence that the high-yield market has drifted into choppy waters, two prospective issuers pulled down their deals on Tuesday

U.S. Foodservice postponed its restructured $650 million offering of eight-year senior notes (Caa2/CCC) due to market conditions.

Deutsche Bank Securities, Citigroup, Goldman Sachs & Co., JP Morgan, Morgan Stanley and RBS Greenwich Capital were the underwriters.

Proceeds had been earmarked as partial funding for the leveraged buyout of the company by Clayton, Dubilier & Rice, Inc. and Kohlberg Kravis Roberts & Co. LP from Royal Ahold NV in a transaction valued at $7.1 billion.

Earlier the deal was downsized from $1.55 billion and restructured, with the Columbia, Md., foodservice distributor abandoning tranches of toggle notes and PIK for life notes.

In addition the company postponed its $3.365 billion credit facility.

And Catalyst Paper postponed its $200 million offering of 10-year senior notes (B2/B) citing adverse market conditions.

Earlier in the day, according to market sources the deal had been downsized to $150 million, and the tenor of the bonds reduced to eight years from 10 years.

Deutsche Bank Securities and Merrill Lynch & Co. were joint bookrunners.

Fresenius little changed after pricing

When the new Fresenius Medical Care 6 7/8% notes due 2017 were freed for secondary dealings, a trader saw them little changed from their 98.225 issue price, quoting the new bonds at 98.5, "practically around where they came."

The VWR and Telcordia Technologies deals hit the market too late for any appreciable aftermarket dealings.

The trader did see some more activity in Thomson Learning's new bonds - and he saw them continuing to soften up, with the Stamford Conn.-based educational publisher's 10½% senior notes due 2015 falling to 96 bid, 97.5 offered. - down from previous levels, and well down from the 98.724 level at which the bonds had priced on Friday. He also saw Thomson's zero-coupon/13¼% senior subordinated discount notes due 2015 at 74.5 bid, 75.5 offered - down from where they had been, and well down from their pricing level at 77.093.

The trader said that with the two postponed deals, "I don't think things are too perky."

Huntsman gains - but buyer does not

Back among the established issues, Huntsman's 7 7/8% notes due 2014 were quoted at about the 105.5 mark and its 7 3/8% notes due 2015 were at 104.75, both up solidly from Monday's levels around 102.

At another desk, a trader saw the '14s at 105 bid, 106 offered, up 2 points on the session, while the '15s were 3 point winners at 103.25 bid, 104.25 offered.

However, would-be acquirer Basell's 8 3/8% notes due 2015 were being quoted down 3 points on the day at 95.5 on the likelihood that it will incur more debt to swing the deal.

All three major ratings agencies said they were putting Huntsman under scrutiny for a possible downgrade, with Moody's Investors Service noting that "because this acquisition is assumed to be financed largely with debt, Huntsman's credit profile is likely be materially weaker than expected when Moody's upgraded the Huntsman corporate family rating to Ba3 in March. From a rating perspective, the potential for a weaker credit profile may override the strategic benefits of combining these two businesses until the incremental debt is reduced over time, in Moody's view." The agencies were also eyeing Basell for a possible downgrade.

Huntsman deal impacts Lyondell

While Huntsman's bonds were up on the prospect it will be bought out and its roughly $4 billion of outstanding debt assumed by the buyer, rival chemical maker Lyondell's bonds were moving lower - a trader noted that its 6 7/8% notes due 2017 were down about a point to 96 bid, 97 offered on the likelihood that "now there will be no takeover of Lyondell in the near future."

Another trader saw those bonds down 1 1/8 point to 97.125 offered.

Lyondell's bonds had recently gotten a boost on takeover speculation about the company. The likely buyer, according to the scuttlebutt, was Access Industries, controlled by billionaire investor Leonard Blavatnik.

According to recent regulatory filings, Access has a forward contract to buy 8.3% of Lyondell stock, or 21 million shares, from Occidental Petroleum Corp. for $674 million.

But Access is also the parent company of Basell, the company buying Huntsman, and some media reports said that it is now considerably less likely that Blavatnik will also buy Lyondell.

Homebuilders retreat

Elsewhere, a trader saw homebuilder bonds down pretty much across the board, attributing the retreat to overall sector weakness, especially with investment-grade homebuilder Lennar Corp. posting disappointing quarterly earnings on Tuesday.

He saw Hovnanian's 8 5/8% notes due 2017 and Standard Pacific Corp.'s 7% notes due 2015 both down a point on the day, at 95.5 bid, 96.5 offered and 89 bid, 90 offered, respectively.

He also saw Technical Olympic USA Inc.'s 10 3/8% notes due 2012 half a point lower at 75 bid, 76 offered.

Movie Gallery gyrates

A trader said that he saw Movie Gallery Inc.'s bonds "on a pretty good ride," although he was unaware of any new information out on the Dothan, Ala.-based Number-Two U.S. video rental chain operator. He saw the company's 11% notes due 2012 start the day trading "around 80ish" and then plunge 4 or 5 points in the early going to around the 75-76 bid area.

However, he said, "they backed up [i.e. came back up] 21/2" to end at 77.5 bid, 78.5 offered. "A lot of that traded," he said.

MagnaChip bonds active, easier

Elsewhere, he saw "some volume" in Magnachip Semiconductor Ltd.'s 8% notes due 2014 although he saw the Korean computer chip manufacturer's bonds end about unchanged at 75 bid, 77 offered.

At another shop, a trader saw those bonds down a point on "no news" at 75 bid, 76 offered.

Yet another source saw the bonds open around the same 75 level seen late Monday and then gradually drop 2 points in trading to just above 73. The source also saw the company's 6 7/8% notes due 2011 actually firm on the day to 89 bid, a pickup of about 2 points.

Among other names, a trader saw Calpine Corp.'s 8½% notes due 2011 down 2 points at 126.5 bid, 127.5 offered, but could not give an explanation for the retreat. He also saw Charter Communications' 11% notes due 2015 down a point at 103 bid, 104 offered, also against a "no news" backdrop.

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