Toys "R" Us continues to ease; Terphane prices small deal

By Paul Deckelman and Paul A. Harris

New York, March 28 - Toys "R" Us Inc. bonds were on the slide for a second consecutive session Monday, following the Wayne, N.J.-based toy retailer's efforts last week to rein in rampant market speculation that it will tender for its outstanding bonds as part of its pending buyout by a Kohlberg Kravis Roberts & Co.-led investment syndicate.

A number of other names were also seen lower, including Pathmark Stores Inc., whose bonds had shot up Thursday on news of a $150 million equity infusion into the Carteret, N.J.-based supermarket operator.

On the upside, Calpine Corp. bonds were higher, although there was no reason why immediately apparent.

Quiet pervaded the primary market during the opening session of the March 28 week, trailing the three-day holiday weekend.

Terphane Holding Corp. priced a $30 million add-on - a dividend-funding deal that produced a rate substantially lower than that of the original issue.

And White Birch Paper Co. put its $400 million bond deal in the blender and hit "puree." What came out was a substantially transformed two-part deal. Again.

Decreased appetite for risk

Prominent among the topics of conversation on Monday was last week's nearly $1.5 billion outflow from high-yield mutual funds, which, according to one source, now moves the year-to-date funds flow total (based on weekly reporting funds) to negative $3.66 billion.

"The strategists are saying that there is still cash on the sidelines," a sell-side source said Monday. But you look at those numbers and say 'Wait a minute...'

"Year-to-date in 2004, at this time, you had had outflows," the source added. "But you still had a very strong new issue market.

"What appears certain, however, is that there has been a reduction in risk appetite."

The sell-sider also said that although deals continue to get done in the primary market they seem to be pricing at wider levels. In some cases the deals price at the wide end, or wide of, price talk, while in other instances the talk that comes out seems to reflect new pricing dynamics afoot in the primary.

Terphane taps 121/2s on top of talk

The session's only issue came from Terphane Holding Corp., which priced a $30 million add-on to its 12½% senior secured notes due June 15, 2009 (existing B3/confirmed CCC+) at 98.50 on Monday to yield 12.959%.

The add-on, led by Jefferies & Co., came right on top of the 98.50 area price talk.

The original $46.5 million issue priced at 94.719 on May 27, 2004 to yield 14%. Those notes were sold as part of an overall $53 million transaction that also included $6.5 million of senior secured floating rate notes that priced at par to yield six month Libor plus 970 basis points.

The polyester film manufacturer will use the proceeds to fund a dividend.

A secondary market trader said that the Terphane deal was "so small that there was no secondary trading" in it.

New structure on White Birch

Meanwhile Monday a new structure emerged on White Birch Paper Co.'s $400 million offering of high-yield notes in two tranches (B2/B).

The company plans to sell $250 million of seven-year non-call-two first-lien floating-rate notes, which are talked at three-month Libor plus 325 to 350 basis points.

Previously the company had been marketing $150 million of seven-year non-call-two senior secured floating-rate notes that were talked at three-month Libor plus 450 basis points area - a tranche which had itself been restructured from an initial offering of senior unsecured notes.

The company now also plans to sell $150 million of 10-year non-call-five second-lien fixed rate notes, which are talked at 10¾% area.

Previously the fixed-rate notes had a senior secured structure and had been talked at 9% area - a tranche that had also been restructured from an initial offering of senior unsecured notes.

The bonds could price as early as Tuesday, according to the source who added that precise timing remains to be determined.

Credit Suisse First Boston has the books.

Toys "R" Us continues lower

Back among the established issues, things were pretty quiet, a trader said, as "a lot of people were not back yet" after a three-day holiday weekend that saw a full market shutdown on Good Friday after an abbreviated session the previous day. "There was a lot of apathy."

Among the few real movers, Toys "R" Us continued the retreat seen on Thursday, when its bonds gave up much of the gains they had notched the previous session, when market denizens took the language contained in a routine Securities and Exchange Commission filing to mean that the company would probably tender for its several series of outstanding bonds - and took the bonds up as a result.

A trader said "there was some activity" in Toys "R" Us, as "I know some people were trying to get involved there."

He saw the company's 7 7/8% notes due 2013 - which had risen about five points on Wednesday to 96.5, only to give back three of those points on Thursday to end at 93.5 - down another point Monday to 92.5 bid, 93.5 offered.

He also saw its 7 3/8% notes due 2018, which on Thursday had dropped to 88.25 bid from 92.5 on Wednesday, dipping still further on Monday to 86 bid, 87 offered. Its 8¾% notes due 2021 lost two points to 91 bid, 92 offered on top of their loss of nearly four points on Thursday, and its 7 5/8% notes due 2011 went from 98 bid to 96.25 bid, 97.25 offered Monday, following Thursday's decline to 98 from 99.25. Each series of bonds had risen about five or six points on Wednesday.

At another desk, the 7 7/8s were seen down 1¼ points on the day at 93 bid.

The bonds had shot up on Wednesday after Toys - the object of a pending $6.6 billion takeover - said that it might tender for those bonds and for its 6 7/8% notes due 2006 in connection with the coming KKR-led leveraged buyout.

Noting the feeding frenzy, the company late Wednesday put out a clarification - too late to affect Wednesday's trading but a sure depressant for Thursday's. In that clarification, it stressed that it "currently has no plans to make a tender offer for any of its outstanding debt securities, and such a tender would come only at the specific request of Global Toys Acquisition, LLC [the official name for the KKR syndicate, which also includes Bain Capital LLC and Vornado Realty Trust LP]." Toys "R" Us also said it had received no such request from its would-be buyers so far, did not know whether one would be forthcoming.

Pathmark gives up some gains

Another retailing name whose bonds had recently risen smartly - Pathmark Stores - was lower Monday, its 8¾% notes due 2012 seen having come down to 98.5 bid, 99.5 offered from levels as high as 99.75 on Thursday.

The Pathmark bonds had risen sharply to near-par levels from the low-to-mid 90s previously after its announcement that Yucaipa Cos., a privately held investment company controlled by billionaire supermarket tycoon Ron Burkle, will invest $150 million in the company in return for a 40% stake and an option to buy more stock down the line. Such a second investment could trigger the change-of-control provision in the bonds' indentures, company officials acknowledged on a Monday conference call during which they discussed the Yucaipa investment (see related story elsewhere in this issue).

Collins & Aikman also down

Collins & Aikman Products Co.'s bonds - which had been one of the big gainers Thursday, pushed upward by speculation the automotive components maker might be in the process of lining up some new bank financing - gave up some of those gains Monday.

A trader saw its 10¾% senior notes due 2011 down a point at 82 bid, 84 offered, while its 12 7/8% subordinated notes due 2012 was likewise down a point at 46 bid, 48 offered.

Another source - who saw the latter bonds having started higher - saw them down several points on the session to 47.

However, several other traders said that they had not seen very much activity in the Troy, Mich.-based automotive supplier.

Dura down on Moody's cut

In that same sector, a trader saw Dura Automotive Systems Inc.'s bonds down 1½ points across the board after Moody's Investors Service lowered its rating on the Rochester Hills, Mich.-based steering systems maker's debt to B3 from B2 previously, citing its recent negative earnings guidance. Moody's thus followed the lead of Standard & Poor's which had likewise cut Dura's corporate credit rating a notch to B from B+.

The trader quoted the company's Dura Operating Corp. 9% notes due 2009 at 80 bid, 82 offered, and its 8 5/8% notes at 91.5 bid, 93.5 offered.

Xerox lower

Also on the downside Monday, a trader said that he had seen Xerox Corp. bonds trading down, although he could not explain why, and there was no negative news apparent about the Stamford, Conn.-based copier and office machines giant Monday.

Even so, Xerox's 6 7/8% notes due 2011 dipped to 102.25 bid from 104.5 previously, while its 7 5/8% notes due 2013 moved down to 104.75 bid from 107.75.

Calpine gains

On the upside, Calpine's 8 5/8% notes due 2010 were seen up a point at 70.75, while its Calpine Canada 8½% notes due 2008 were also up a point at 72.5. Calpine's 8¾% notes due 2007were seen having risen more than a point to 82 bid. However, no new positive news was immediately seen out on the San Jose, Calif.-based power generating company.

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