Chemtura, New Enterprise, Tower close out record primary week; Blockbuster plunges on warning

By Paul Deckelman and Paul A. Harris

New York, Aug. 13 - Three more new deals priced on Friday, closing out the busiest-ever week in the junk bond primary market, as over $14 billion face amount of bonds issued by more than two dozen borrowers came clattering down the chute.

In Friday's action, Philadelphia-based chemical manufacturer Chemtura Corp. brought a $455 million issue of eight-year bonds to market.

Another Keystone State borrower, New Enterprise Stone & Lime Co., Inc. priced a $250 million issue of eight-year notes - although market observers noted that the deal came well outside of pre-deal market price talk.

Livonia, Mich.-based car parts company Tower Automotive Holdings USA LLC downsized its offering of seven-year senior secured notes before pricing.

The session also saw talk emerge on RAAM Global Energy Co., a Kentucky-based oil and gas operator that is expected to price its $200 million offering in the upcoming week.

In the secondary market, traders saw Dynegy Inc.'s bonds fall sharply on very heavy trading - even as the Houston-based power generator announced that it had agreed to be taken private by Blackstone Group, LP in a $4.7 billion deal, investors apparently upset by the lack of any change-of-control protection on those bonds.

Blockbuster Inc.'s bonds and shares were soundly beaten down after the embattled Dallas-based movie-rental company warned in a regulatory filing that it could eventually be forced to liquidate if things don't work out.- even though its bond holders gave the company more time to come up with a solution to its debt problems.

Overall secondary market activity was muted, centering on trading in new-deal bonds as well as a few special situations like Dynegy and Blockbuster.

Chemtura prepares for exit

The junk bond market's biggest week ever was capped by a Friday session that saw three issuers, each bringing a single tranche, raise $1.12 billion.

Chemtura Corp. priced a $455 million issue of 7 7/8% eight-year senior notes (B1//) at 99.269 to yield 8%.

The yield printed on top of the price talk.

Citigroup Global Markets Inc., Bank of America Merrill Lynch, Barclays Capital Inc., Wells Fargo Securities and Goldman Sachs & Co. were the joint bookrunners for the financing backing the company's exit from Chapter 11 bankruptcy.

Tower Automotive downsizes

Meanwhile, Tower Automotive Holdings USA, LLC and TA Holdings Finance, Inc. priced a downsized $430 million issue of 10 5/8% seven-year senior secured first-lien notes (B1/B) at 97.016 to yield 11¼%.

The yield printed at the wide end of the 11% to 11¼% price talk. The amount was decreased from $450 million.

J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and Goldman Sachs & Co. were the joint bookrunners for the debt refinancing deal.

New Enterprise Stone wide of talk

Also, New Enterprise Stone & Lime Co., Inc. priced a $250 million issue of eight-year senior notes (Caa1/B+) at par to yield 11%k, 112.5 bps beyond the wide end of the 9¾% area price talk.

Bank of America Merrill Lynch ran the books for the debt refinancing deal.

...and it came in August

With Friday's $1.12 billion into the tally, the Aug. 9 week goes into the record book.

The $15.4 billion that priced in 31 junk-rated dollar-denominated tranches now stands as the biggest week in the history of the high-yield primary. The previous record was the March 22, 2010 week with $12.3 billion in 21 tranches.

"What's truly amazing is that it came in August," one syndicate banker remarked, adding that the run up to Labor Day is typically a slack period for issuance.

August 2010 is different, however.

With more than half the month remaining to play out, August 2010 is already the biggest August ever in the history of junk.

The month to date has seen issuers raise a staggering $21.4 billion in 45 tranches.

It nearly doubles the previous August record, set in 2006, when issuers raised $11billion in 27 tranches.

At Friday's close, year-to-date issuance stood at $159.3 billion in 367 tranches.

That's just $2.5 billion shy of the all-time yearly issuance record of $161.8 billion, set in 2009, according to Prospect News data.

With four full months, and change, remaining to play out before the curtain comes down on 2010, it is already the third-biggest year for issuance in the history of the market, and almost certain to close that $2.5 billion gap soon, sources said on Friday.

The week ahead

How soon 2010 will enter the record book remained uncertain on Friday, however, according to market sources.

The Aug. 16 week will get underway with just $500 million on the active forward calendar.

RAAM Global Energy Co. plans to price a $200 million offering of five-year senior secured second-lien notes during the week ahead, according to an informed source.

The deal is talked at the 12½% area.

Global Hunter Securities has the books for the Rule 144A offering. Knight Libertas is the co-lead manager.

The Lexington, Ky.-based oil and gas company will use the proceeds to repay bank debt and for general corporate purposes.

The RAAM deal might have come during the past week, a source familiar with the matter said.

However, two developments - both centering on a deal which came on Wednesday, that from OPTI Canada Inc. - prompted the dealers to hold their guns.

To recap, OPTI Canada priced a combined $400 million two-part offering of first-lien senior secured notes. The Calgary, Alta.-based oil sands developer raised $99.51 million with the sale of $100 million of notes mirroring its 9% first-lien senior secured notes due Dec. 15, 2012 (B2/B). The non-fungible mirror notes priced at 99.51 to yield 9.228%. OPTI also raised $289.5 million with its $300 million issue of 9¾% three-year notes (B3/B), which priced at 96.5 to yield 11.162%.

The OPTI Canada deal absorbed the attention of analysts who might otherwise have focused on the RAAM deal, said a source close to the matter. Hence, it seemed prudent to wait with RAAM until OPTI cleared.

Also, the OPTI deal performed poorly in the secondary market, which sparked a re-think on RAAM.

The RAAM deal was originally conceived as a senior unsecured offering, but is now in the market as senior secured second-lien paper, the source said.

Apart from RAAM, there's Rock.

Rock Holdings, Inc., the parent of Quicken Loans and Title Source, marketed a $300 million offering of five-year senior secured notes on a roadshow that was scheduled to end last Monday.

In the interim, however, it has been radio silence on the dividend-funding and general corporate purposes deal which is being led by Credit Suisse and J.P. Morgan.

Apart from RAAM and Rock, primary market activity for the week ahead is expected to be much slower, sources said on Friday.

Six of Thursday's seven deals came at the wide end of price talk, while two of Friday's three deals priced either at the wide end or wide of price talk.

"For one thing, that tells you the market has been flooded with deals," a syndicate banker said shortly after Friday's close, and added that the week ahead is apt to look a lot more like a typical August week than did the history-making week past.

Chemtura, New Enterprise up slightly

Traders saw generally firm, if not necessarily spectacular market for most of the recent rash of new deals.

A trader saw the new Chemtura 7 7/8% notes due 2018 trading at 100¼ bid, 101½ offered - up about a point from the 99.269 level at which the company had priced its notes.

He also saw New Enterprise Stone & Lime's new 11% notes due 2018 at 100¼ bid, 100¾ offered versus their par pricing level.

The new Tower Automotive Holdings' 10 5/8% senior secured notes due 2017 priced too late in the session for any kind of aftermarket, several participants said.

Warner Chilcott does an early fade

A trader said that Warner Chilcott, plc's 7¾% notes due 2018 were doing a little trading Friday, although he said that "after an early morning flurry," trading in the Irish specialty pharmaceuticals company's new deal "kind of died out."

He saw those bonds, which had priced at par on Thursday, too late to make it to the aftermarket, trading as high as 100¾ bid.

After that, he said, trading faded, leaving the new bonds at 100 5/8 bid, 100 7/8 offered.

Another trader, however, quoted the Warner Chilcott bonds having firmed to 101¼ bid, 101¾ offered.

Thursday deals show firm tone

The trader also saw some upside in a number of deals which came to market on Thursday.

For instance, he said that Cott Beverages Inc.'s 8 1/8% notes due 2018 were holding steady around the 102 bid, 103 offered area, to which the Mississauga, Ont..-based private-label soft-drink bottler's $375 million deal had risen on Thursday after pricing at par.

And he saw Gentiva Health Services Inc.'s 11½% notes due 2018 at 101¾ bid, 102¾ offered.

That was off a little from the 102 bid, 103 offered area which those bonds had attained on Thursday.

The Atlanta-based home health-care company's upsized $325 million offering had earlier Thursday priced at par.

But another trader said the Gentiva bonds had been quoted Friday at 101½ bid, "and then that was it."

He also said that the Cott bonds traded at 102¼ bid, 102½ offered Friday and "then they just died."

The first trader said that other deals which had priced at par on Thursday - Cardtronics Inc.'s $200 million offering of 8¼% senior subordinated notes due 2018, and MultiPlan Inc.'s $675 million 9 7/8% notes due 2018 - were trading around at 100½ bid, 101 offered.

Will the window be closing?

A trader said that it appeared to him that everyone was trying to get their deals done now because "the last two weeks in August are traditionally the worst time to try and get a deal done," with many in the financial community, and particularly on the primary side of Junkbondland, electing to take that time off in order to get their final summer fun-in-the-sun in before the advent of fall right after Labor Day.

"There will be a couple more deals [in the upcoming] week, before the whole thing shuts down."

Although he doubts that any kind of dramatic political or regulatory event or economic happening will take place to sour people on junk bonds in the near term, he did counsel that "when the window is open - people just want to "get their deals priced."

Market indicators remain mostly soft

Away from the new-deal sector, a trader saw the CDX North American HY Series 14 index gain ½ point on Friday to 97¼ bid, 97½ offered, after having eased by 1/8 point on Thursday.

However the index finished below its close the previous Friday, Aug. 6, of 98 bid, 98½ offered.

The KDP High Yield Daily index meantime lost 5 basis points Friday to end at 71.81, after having declined by 14 bps on Thursday and having plunged a full 40 bps on Wednesday. Its yield edged up by 1 bp Thursday to 8.28%, after having risen by 4 bps Thursday and having ballooned out by 13 bps on Wednesday. The market measure ended the week down from 72.48 and wider than the yield of 8.08% the previous Friday.

The Merrill Lynch High Yield Master II index was down for a fourth straight session Friday, losing 0.04% on the day to bring its year-to-date return down to 8.259% from 8.302% on Thursday. The index was down further from the 9.085% recorded on Monday, its peak level for 2010 so far, and finished the week below the previous week's ending level of 8.928%.

For a third straight session, advancing issues trailed decliners Friday, although the margin of difference was just a couple of dozen issues out of nearly 1,300 tracked, versus the seven-to-five edge which the decliners had held over the previous two sessions.

Overall activity, represented by dollar-volume levels, fell by 25% Friday, after having been down 12% for the previous two sessions.

"It was a typical Friday in August," a trader said, with "not much going on" outside certain news-specific names.

Dynegy down on deal

One of those was Dynegy; traders saw the bonds of the Houston-based producer and seller of electric energy heading south following the news that the company is being acquired by Blackstone Group LP in a transaction valued at approximately $4.7 billion, including the assumption of existing debt - although what will happen to that debt at this point remains unclear.

Dynegy "really got beat up," said one trader, who saw the company's 7¾% notes due 2019 down 4 points on the session at 64 ½ bid, while its 8 3/8% notes due 2016 dropped to 76 ½ bid, down 2 ½ points on the session. "Those were two of the most active issues of the day," he said,.

Dynegy "really got beat up," said one trader, who saw the company's 7¾% notes due 2019 down 4 points on the session at 64½ bid, while its 8 3/8% notes due 2016 dropped to 76½ bid, down 2½ points on the session. "Those were two of the most active issues of the day," he said.

"A lot of Dynegy traded," a second trader agreed, pegging the 73/4s at 64¼ bid, 64½ offered, versus levels around 71 bid early in the day, before the market fully absorbed the impact of the news about the planned big leveraged buyout deal by Blackstone. He had seen those same bonds on Thursday at 68¼ bid, 68¾ offered, and said they opened Friday :"around a 691/2-70-71 range," before starting to come down as bondholders realized that their initially favorable take on the news might be mistaken.

Dynegy "went on a wild ride," yet another trader said, with "hundreds of millions traded today" across the company's capital structure. He saw the 73/4s fall 5 points to 64 bid, 65 offered, while its 7½% notes due 2015 dropped 2 points to 79 bid, 80 offered "on huge volume."

In explaining the drop in the company's bonds in such active dealings, one of the traders said that as he was reading the indentures of the various issues of Dynegy bonds, he could not find any change-of-control puts, which would normally obligate a buyer of the company, such as Blackstone, to agree to take those bonds out at a price of 101 at the option of the bondholders, well above where all of the Dynegy bonds have lately been trading.

"I was a little surprised to see that there was no change-of control-put," he said, no doubt mirroring the feelings of some bondholders who finally, if belatedly, read the fine print in their notes' indentures. Realization that there will be no buyback of the bonds at exalted levels might well have caused many bondholders to shed them.

The trader also suggested that, as is typical with leveraged buyouts where the acquirer only makes a limited equity commitment, "Blackstone is probably going to lever it up to buy it" - raising the possibility that an already weak balance sheet could see more debt piled on to fund the buyout. LBO deals have recently been making a bit of a comeback in the junk market versus their nearly nonexistent levels over the previous year or two, as witnessed by recent new-deals for companies like TransUnion LLC, Dave & Buster's, Inc., American Tire Distributors, Inc., Michael Foods Group, Inc.. and DynCorp International, Inc.

As disappointed as the bondholders might be with the deal, since Blackstone need only keep paying the coupons on the bonds rather than repurchasing them outright for cash, that's not a problem that worries holders of the company's bank debt. Traders in that market said Friday that Dynegy's strip of institutional debt gained some ground in trading on the Blackstone news. It was quoted by one at 98¾ bid, 99¼ offered, up from 95¾ bid, 96¾ offered, by a second trader at 99 bid, 99¾ offered, up from around the mid-90 context, and by a third trader at 98 7/8 bid, 99 1/8 offered, up from 96 bid, 97 offered.

Dynegy shareholders also loved the deal, even if the bondholders didn't, taking the company's NYSE-traded shares up $1.75, or a dizzying 62.95%, to end at $4.53, slightly above the level at which Blackstone is to buy Dynegy. Volume of 236 million shares was fully 59 times the usual turnover.

Under the terms of the agreement, Dynegy stockholders will receive $4.50 in cash per share, or a total of some $543 million. The transaction is expected to close by the end of 2010, subject to customary closing conditions, including approval by Dynegy stockholders and receipt of regulatory approvals.

As part of the deal, Dynegy will be selling four natural gas-fired assets currently in California and Maine to NRG Energy for approximately $1.36 billion in cash. The power plant deal is sale contingent on the completion of the leveraged buyout, while Blackstone's purchase of Dynegy is likewise conditioned on the concurrent closing of the NRG transaction.

However, closing on the buyout is not subject to any financing conditions, and a fund managed by Blackstone has committed to contribute all of the equity necessary to complete the deal.

. News reports said that the proceeds from the power-plant deal will go back to Dynegy's balance sheet, rather than going into Blackstone's corporate coffers.

Sbarro slides on second-quarter slippage

Elsewhere, Sbarro Inc.'s 10 3/8% notes due 2015 were quoted down by as much as 7 points on the day to end at 711/2, after the Melville, N.Y.-based operator of a chain of Italian-style quick-service restaurants reported lower second-quarter numbers.

In the fiscal second-quarter ended June 27, revenues totaled $76.1 million, down from $80.1 million a year earlier, blaming a decrease in comparable-unit sales of $4.5 million or 6.2% in its restaurants and lost sales from stores strategically closed of $1.4 million, partially offset by sales generated by new stores opened, remodeled or relocated in 2010 and 2009 of $1.9 million.

The company said EBITDA was $6.3 million for the quarter, versus $8.2 million a year earlier, primarily due to the decline in company-owned comparable-unit sales and an increase in commodity costs during the quarter, specifically cheese, partially offset by payroll and other cost savings initiatives.

Sbarro, which has scheduled a conference call next Thursday to discuss its results, said that as of the end of the quarter, it was in compliance with all of its financial covenants.

American General gyrations continue

Traders saw continued losses in American General Finance Corp.'s bonds, with a trader calling the New York-based consumer lender "active."

He quoted its 6.90% notes due 2017 at 78 bid, 79 offered. He called that 78 level "down another 3 points," on top of the retreat seen in those bonds on Wednesday and again Thursday.

A market source, who also saw the 6.90s as 3 point losers on the day at 78, called the company's 5.20% notes due 2011 down 2½ points at 93½ bid, on brisk trading.

And he saw its 5 5/8% notes due 2011 ending just above 96 bid, down about 3/8 point on the day.

Those bonds had slid badly on Wednesday - as much as 8 points for the 6.90s - and were down again on Thursday, in very heavy dealings, on the news that company parent American International Group Inc. had agreed to sell most of the money-losing unit to Fortress Investment Group LLC - and the speculation among the bondholders and some analysts that the new owner may try to restructure American General's $17 billion debt load on less-than-favorable terms for the company's bondholders.

Fitch Ratings, among others, cautioned that "new ownership and existing management may potentially seek to engage in some type of business reorganization, up to and including a restructuring of the firm's capital structure."

A trader, referring to the apparently highly unpopular Dynegy deal that moved that company's bonds lower on Friday, said that what AIG had done to American General Finance was "another deal that people don't seem to be happy with."

Blockbuster gets blasted

From the distressed-debt market, a trader said that Blockbuster's bonds "took a wild ride today," after the company reported a wider second-quarter loss and warned that it could eventually be forced into liquidation if efforts to refinance or restructure its debt do not succeed.

He saw its 11¾% senior secured notes due 2014 in a swoon to the tune of 12 points on the session, plummeting to 47 bid, 48 offered. He noted that those bonds had traded on Thursday around 60 bid, "so it was off a dozen points - Ouch!"

He also saw Blockbuster's subordinated 9% notes due 2012 as having "probably collapsed as well" down from the 5 bid, 6 offered context where they had recently languished.

Blockbuster "had a couple of million bonds trading" on an otherwise dull Friday, he said.

Another trader, who saw the Blockbuster 113/4s in the mid-50s on Thursday saw them trading Friday as wide as 45 bid, 49 offered, before coming in to around the 46¾ bid area around the day's end, calling that "down a good 5 or 6 points, or even more." He saw the 9s around 5 bid.

At another desk, a trader saw the 9s having dropped from 5 to 3 - a huge drop, percentage-wise - but saw "only small sizes trading."

He also saw the 113/4s trading at 48 bid, although there too, he saw a lot of small pieces trading. Earlier in the week, he said, the latter bonds hovered at 61 bid, 62 offered.

Blockbuster took it on the chin after the company warned in its 10-Q filing with the Securities and Exchange Commission that if its current efforts to restructure its debt, either within the courts or outside them, are not successful and if it cannot line up the debtor-in -possession financing it would need to operate while restructuring under Chapter 11 - and the company had previously raised the possibility of a Chapter 11 filing in order to reorganize - then it might instead have to liquidate under Chapter 7 of the Bankruptcy Code, disposing of its remaining assets and going out of business.

That would be a bitter end for a company which at one time held a dominant position in the movie rental business, way back in the days of clunky VHS tapes, before the rise of such pesky upstart competitors who grabbed the lead in renting the slimmer DVDs as Netflix and the ubiquitous RedBox rental kiosks operated by Coinstar Inc. Those more technologically adept rivals made obsolete Blockbuster's once far-flung network of full-line rental stores - now shrinking day by day under the onslaught of new closings.

Blockbuster's warning that it might eventually be forced to follow in the footsteps of its only real rival in the mortar-and-brick rental stores business, Movie Gallery/Hollywood Video - which went into bankruptcy for the second time in three years earlier this year and which has already shuttered most of its own stores and is in the process of liquidating the rest - overshadowed the company's relatively favorable news - that investors holding about 70% of its secured bonds agreed to give Blockbuster more time to try to get its financial house in order.

They agreed to extend until Sept. 30 a forbearance agreement under which they will not move to enforce their rights triggered when Blockbuster elected not to make a $42.4 million interest payment on the notes that was due July 2. At that time, the bondholders elected to give Blockbuster until this week to try to restructure its more than $1 billion of debt, and they have now given it additional breathing room. Blockbuster said it was in talks with noteholders as well as strategic parties to try to restructure its balance sheet and acquire additional capital.

Blockbuster also reported second-quarter results - numbers which showed the company's deterioration versus where it was a year ago, and which were worse than analysts were expecting.

In the quarter, its loss widened to $69 million, or 32 cents per share, from $37 million, or 21 cents a share, a year earlier. Wall Street had been expecting about a quarter per share of red ink. Revenue meantime fell to $788 million from $982 million, versus expectations of around $840 million in sales.

Blockbuster's shares - trading over- the-counter via the Pink Sheets since their de-listing some weeks ago by the New York Stock Exchange - were down a nickel, or 25%, to end at 14 cents per share. Volume of 11 million shares was more than twice the norm.

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