Idearc prices 10-year mega-deal; Wolverine gyrates on possible pre-packaged Chapter 11

By Paul Deckelman and Paul A. Harris

New York, Nov. 1 - Idearc Inc. was heard to have successfully priced some $2.85 billion of new 10-year bonds on Wednesday - and those bonds were well received and traded up solidly when they were freed for secondary dealings, traders said.

Primary market sources also heard that Neenah Foundry Co. downsized its upcoming bond deal and restructured it into a sole tranche of fixed-rate paper, rather than keeping it as a two-part offering of seven-and 10-year fixed- and floating-rate notes. Price talk emerged on the deal.

In the secondary market, Wolverine Tube Inc.'s bonds gyrated around at lower levels, after the Huntsville, Ala.-based maker of piping and other tubular metal products said its restructuring plans could include filing for bankruptcy protection if a consent and exchange offer to holders of those senior notes is not approved.

Bonds of a company already in Chapter 11, Calpine Corp., were meantime higher, along with a jump in its penny stock shares, although nobody seemed to know what has been pushing them up.

Movie Gallery Inc.'s bonds were solidly higher after the Dothan, Ala.-based video rental store chain operator made the scheduled interest payment on those bonds, and said that it was okay, liquidity- and covenant-wise, through the end of the year.

Shortly before the close a source from a hedge fund said that the CDX 100 was three-sixteenths higher on the day in spite of the fact that the equity markets were lower on the session. The reason, the source added, was that Treasuries had rallied.

The source said that the 10-year government paper was three-eighths higher, hence high yield underperformed Treasuries on Wednesday.

But November got off to a rip-roaring start in the high-yield primary market.

Three issuers priced four tranches of dollar-denominated bonds for a total of $5.032 billion, making Wednesday the second biggest day of 2006 to date.

Shortly after the pricing of the session's biggest deal, Idearc's $2.85 billion in a single 10-year tranche, a high yield investor told Prospect News that the fact that the deal had gone well gave the entire market a boost.

That single tranche, incidentally, is likely the biggest junk tranche ever to clear the market, according to one sell-side source.

Idearc sells record tranche

Idearc, a new public company formed by the spin-off of Verizon Communications Inc.'s directories businesses, priced a $2.85 billion issue of 10-year senior notes (B2/B+) at par to yield 8%.

The deal priced at the tight end of the 8% to 8¼% price talk, and an investor who played Idearc said that it had gone very well, and marked the new 8% notes due 2014 at 101.625 bid, 101.875 offered, going out.

This investor added that the buzz held that the Idearc book closed with $12 billion of orders.

JP Morgan and Bear Stearns & Co. had the books for the deal, proceeds from which will be used to finance the spin off, primarily by making a cash distribution to Verizon Communications.

At $2.85 billion, the single Idearc tranche is the biggest ever to clear the junk market, according to one sell-side official whose records go back to 1996.

The source added that Idearc's $2.85 billion tops NRG Energy Inc.'s $2.4 billion tranche of 7 3/8% senior notes due Feb. 1, 2016, which priced on Jan. 26, 2006.

Sabine Pass downsizes

Also pricing a mega-deal during the Wednesday session was Sabine Pass LNG LP, a wholly owned subsidiary of Houston-based Cheniere Energy Inc.

The company priced a downsized $2.032 billion two-part offering of senior secured first-lien notes (expected Ba3/confirmed BB): $550 million of seven-year notes at par to yield 7¼%, 12.5 basis points beyond the wide end of the 7% area price talk, and $1.482 billion of 10-year notes at par to yield 7½%, 25 basis points beyond the wide end of the 7 1/8% area price talk.

Credit Suisse had the books for the deal which was downsized from $2.15 billion.

MediMedia tight to talk

Finally, MediMedia USA Inc. priced a $150 million issue of eight-year senior subordinated notes (Caa1/CCC+) at par to yield 11 3/8% on Wednesday.

The yield came at the tight end of the 11½% area price talk.

Goldman Sachs & Co. ran the books for the debt refinancing related to an acquisition.

A source close to the deal said that there had been big demand for the paper from the Chatham, N.J.-based specialty health care communications company, and added that the deal was significantly oversubscribed.

This source added that right now the new issue market is exceptionally price sensitive, and added that when the price is right the accounts seem to show up with plenty of cash.

Second biggest day of 2006

At $5.032 billion of dollar-denominated issuance, Wednesday was the second biggest day in the 2006 primary market by dollar amount. The only bigger session was Thursday Oct. 5, which saw $5.208 billion price in seven tranches.

Included in that session were three dollar-denominated tranches from NXP BV and NXP Funding LLC, formerly Philips Semiconductor, totaling $3.811 billion, and $900 million in two tranches from Peabody Energy Corp.

That $5.208 billion October session was reckoned to be one of the biggest, if not the biggest-ever day for dollar-amount of issuance the junk new issue market has ever seen.

Neenah downsizes

Neenah Foundry Co. has downsized to $225 million from $300 million its offering of 10-year senior secured notes (B2/B).

The notes, which were talked Wednesday at 9% to 9¼%, are expected to price on Thursday.

Meanwhile Neenah abandoned a proposed tranche of seven-year floating-rate notes.

Credit Suisse and Banc of America Securities are joint bookrunners, with Credit Suisse on the left.

Gateway launches

News of one roadshow start was heard on Wednesday.

Gateway Telecommunications plc will make investor presentations for its $100 million offering of seven-year senior secured notes on Thursday and Friday in London and early next week in Paris.

Citigroup has the books for the deal from the telecom which is based in London and Johannesburg, South Africa.

Proceeds will be used to repay debt and fund a dividend.

New Idearc bonds trade up

When the new Idearc 8% notes due 2016 were freed for secondary dealings, a trader said, they shot right up to 101 bid from their par issue price, as it was "a strong deal." The bonds were seen finishing around 101.5 bid, 102 offered.

At another desk, traders saw the new bonds at 101.625 bid, 101.875 offered.

Also among newly priced issues, Huntsman International LLC's dollar-denominated 7 7/8% notes due 2014, which priced at par on Tuesday, along with a companion issue of euro-denominated seven-year notes, "were doing well," a trader said, quoting them at 100.5 bid, 100.75 offered.

"You still have a lot of money, chasing very few bonds."

Wolverine batted around

Among the established issues, Wolverine Tube's 10½% notes due 2009 were seen having fallen sharply after the company warned that it might consider a pre-packaged Chapter 11 filing if its exchange offer and consent solicitation to the holders of those bonds is not completed.

A trader saw those bonds fall as low as 83 bid, or a 4½ point intraday drop, before the bonds came back from their lows to close down about 2½ points at 85 bid, 86.5 offered.

The company's less frequently traded 7 3/8% notes were seen 2 points easier at 82.75 bids, 83.75 offered.

"They tanked," another trader said of the Wolverine bonds, "but then they came a long way back."

He saw the 101/2s fall to about 82 bid, from 85 previously, but then firm from those lows to close down about a point on the day at 84 bid, 85 offered.

Meantime, he said, the company's New York Stock Exchange-traded shares "got hammered," plummeting $1.72 (59.93%) to $1.15. Volume of 7.4 million shares was more than 22 times the usual turnover in the name.

Wolverine said in a filing with the Securities and Exchange Commission that a pre-packaged Chapter 11 filing to facilitate its restructuring plan would be under consideration if some conditions to its planned exchange offer and consent solicitation are not met. Its S-4 registration statement for the exchange offer and consent bid also included a solicitation for a pre-packaged Chapter 11 plan.

It said the pre-packaged plan would provide "substantially the same consideration" to the senior noteholders as the exchange offer and consent solicitation.

The company stressed in its statement that "we are still continuing to explore a range of alternatives, and no decision has been made on which course of action the company will ultimately take."

It also said that its liquidity is "sufficient" to sustain its operations in the near- to mid-term.

Movie Gallery gains on payment

Also making a similar claim on Wednesday was Movie Gallery, which said it would be in compliance with its covenants and have adequate liquidity through year's end.

More importantly, the company made the scheduled $17.9 million Nov. 1 interest payment on its 11% notes due 2012. Those bonds had been up about 2 points on the session on Tuesday, and essentially matched that in Wednesday's dealings, rising to about 64 bid, 66 offered - up 2 points on the session, and 4 points over the last two sessions.

The company statement allowed that while there was no guarantee about that its results might be or how successful it might be in completing sales of non-core assets, Movie Gallery believes that cash on hand, cash from operations, cash from non-core asset sales and available borrowings under its revolving credit facility "will be sufficient to operate the business, satisfy working capital and capital expenditure requirements, and meet the company's foreseeable liquidity requirements, including remaining in compliance with the financial covenants contained in the credit facility and debt service for the remainder of fiscal 2006."

Calpine bonds up

Elsewhere, Calpine's bonds "were stronger," a trader said, quoting the bankrupt San Jose, Calif.-based power producer's 8½% notes due 2011 "up a point yesterday [Tuesday] and maybe 2 points the day before, and up another point" to 1½ points in Wednesday's action.

Calpine was "moving," another trader said, seeing its 7¾% notes due 2009 at 74.5 bid, 76.5 offered, up 1½ points on the session, and its convertible issues "all up 3 or 4 points," depending on their maturities. He saw the 8½% notes due 2008 issued by the company's Calpine Canada Energy Finance II unit move up to 67 bid, 69 offered, a gain of 3 points.

Calpine's Pink Sheets-traded shares meanwhile were up a dime, or 33.90%, to 39.5 cents, on volume of 14.4 million, about six times the usual activity level.

There was no fresh news out about the company, and no startling new developments in its ongoing reorganization case before the U.S. Bankruptcy Court for the Southern District of New York that might explain the push upward.

"Obviously, something is going on - but we don't know what," the trader said "the bonds continue to move up."

One explanation heard in some quarters is the recent talk in the market that Calpine might reinstate its second-lien bank loan paper and resume making current payments on it. Such speculation gave the bank debt a firm boost last week, helping it run up to around a 109-110 context.

In theory, this is good for the bonds, and even for the stock, since it dramatically reduces the pool of claims against the company, making a larger recovery more likely for unsecured creditors, like the bondholders.

That also opens the door to the idea of providing some compensation to the shareholders, who normally - though not always - get completely wiped out in a corporate bankruptcy. While reinstating the second-lien paper does not guarantee full recovery for the unsecured creditors, it does make it more of a feasible possibility.

Cenveo up as Banta bid ends

Cenveo Corp.'s 7 5/8% notes due 2013 were seen up around a point at 96.5 bid after the Stamford, Conn.-based commercial printer threw in the towel and gave up its takeover efforts against rival printer Banta Corp., which had rebuffed the former Mail-Well Corp.'s overtures, going back to around mid-summer.

Even though Cenveo raised its initial $46 per share bid to the $50 level, Banta continued to say "no," with Cenveo announcing Wednesday that it would withdraw its bid altogether. That cleared the way for Banta to accept a takeover offer from R.R. Donnelley Corp. of $1.3 billion - higher than Cenveo's final $1.2 billion try.

A trader - noting that the Cenveo bonds had fallen when it first announced plans to make a run at Banta - said that news that there will be no such acquisition deal helped the bonds, since it was assumed that Cenveo would likely have to issue debt to fund the takeover.

Jo-Ann, Remington continue climb

A trader saw Jo-Ann Stores Inc.'s 7½% notes due 2012 "up every day" lately, having risen to present levels around 90 bid, 91 offered from the lower 80s not long ago.

He also said that the Hudson, Ohio-based fabric and crafts retailer's shares has recently been "on a roll," suggesting that the recent decision by retailing giant Wal-Mart Stores to stop selling similar merchandise could only help its smaller competitor.

He also saw Remington Arms Co. Inc.'s 10½% notes due 2011 recently going great guns, pushing up to levels as high as 97 late last week. While those bonds have since come off that peak, finishing at 95.5 bid, 96.5 offered Wednesday, a retreat he ascribed to profit-taking, they were still well up from levels around 89 bid, 90 offered "just a couple of weeks ago."

He cited market speculation that the Madison, N.C.-based firearms company might enter into a strategic transaction with sector peer Smith & Wesson some time soon.

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