A&P up as it shops Canadian unit; Dimon sells downsized two-parter

By Paul Deckelman and Paul A. Harris

New York, May 10 - With much of the high-yield secondary market following stocks lower amid uncertainty generated by rumors of hedge funds in trouble, The Great Atlantic & Pacific Tea Co. Inc. was a standout performer, its bonds popping up as the Montvale, N.J.-based supermarket chain operator announced encouraging fiscal fourth-quarter and full-year results, and unveiled plans to seek "strategic transactions" for its profitable Canadian operation - and to divest its underperforming Midwest operations.

Overall, "risk aversion" remained the watch word, sources said.

Better quality names fared relatively well as the lower credits continued to get pounded, one source added.

And trailing an approximately 1% fall in the Dow Jones Industrial Average, the junk market gave up a further quarter of a point at the Tuesday close on headline news that Visteon would delay its first-quarter financial report, one source said, insisting that this news would not go down well among junk investors.

Meanwhile evidence persisted that new issues remain a tough sell, as Alliance One International, Inc., the entity that will emerge from the merger of leaf tobacco dealers Dimon, Inc. and Standard Commercial Corp, priced a $415 million deal that had been getting kicked around the primary market for over a month - delayed, downsized, restructured but ultimately done.

"We've been looking at a lot of the new deals," disclosed one buy-side source who spoke on background Tuesday.

"Right now you're being paid to take them."

When Prospect News followed by asking this source to comment about the present liquidity picture of the high-yield asset class, the investor replied that it did not seem possible that it could not get much worse.

"If it's a $125 million deal you can price it," the source observed. "You can get one big investor to take down the bulk of it. Then you only have to sell $50 million to $75 million.

"So in a lot of ways it still makes sense for a small company to come."

Alliance One gets it done

For Alliance One International the journey to pricing a junk bond deal that it first announced on April 7 must have seemed somewhat akin to an excursion across the high yield River Styx.

Nevertheless the leaf tobacco dealer rolled up terms Tuesday on two tranches totaling $415 million, with Wachovia Securities and Deutsche Bank Securities at the helm.

The company priced a $315 million issue of seven-year senior unsecured notes (expected ratings B2/B) at par to yield 11%, on the wide end of the 10¾% to 11% price talk. The issue was downsized from $325 million.

Alliance One International also priced $100 million proceeds of 7.5-year senior subordinated notes (expected ratings B3/B) at 90.00, resulting in a 15.015% yield to maturity. No official price talk had been issued for the subordinated notes.

To briefly recap Alliance One postponed a $650 million offering on April 19, citing market conditions, and returned with a downsized, restructured $450 million offering on April 25, electing to go to the bank loan market to raise the $200 million difference.

Late Monday the company downsized the deal further to $425 million from $450 million. At pricing the combined two-part issue was downsized by a further $10 million to $415 million proceeds.

GSI downsizes, widens talk

The junk deal from central Illinois hog producer GSI Group Inc. also showed signs on Tuesday that prospective issuers aren't eating nearly as high on the high yield hog as had been the case a mere eight weeks ago.

The company downsized to $110 million from $125 million its offering of eight-year senior unsecured notes (B3/B-).

Meanwhile GSI revised the price talk to the 11½% area from 10¾% to 11%, according to a market source.

The Lehman Brothers-led debt refinancing deal is expected to price on Wednesday.

Seneca launches $200 million add-on

One new roadshow start was heard during Tuesday's rugged primary market session.

Seneca Gaming Corp. will run a roadshow from Thursday, May 12 through Tuesday, May 17 for a $200 million add-on to its 7¼% senior notes due May 1, 2012 (existing ratings B2/BB-).

Merrill Lynch & Co. and Banc of America Securities will be joint bookrunners debt refinancing, construction-funding and general corporate purposes deal from the New York-based gaming company.

A&P gains

A&P "was up a couple of points," a trader said, quoting the company's 7¾% notes due 2007 a point better at 103 bid, 104 offered, while its 9 1/8% notes due 2011 were seen 1½ points better at 103.75 bid, 104.75 offered.

The trader said that there was "a lot of activity" in the supermarket company's bonds, in the wake of its favorable results - and news of the planned asset sales.

A&P, a fixture in many American communities since 1858, announced a far-reaching restructuring plan on Tuesday that will explore "strategic transactions" involving its profitable Canadian unit - widely interpreted by the market as an intention to sell it - and will also seek to unload its struggling Michigan and Ohio operations. The company will focus its efforts on its core markets in the U.S. Northeast - and is expected to use a sizable chunk of its anticipated proceeds from the transactions to reduce debt (see related story elsewhere in this issue).

A&P at the same time announced that it had cut its net loss to $5.7 million (15 cents per share) in the latest quarter - a substantial improvement from $59.9 million ($1.56 per share) in the year-earlier period. Company chief executive officer Christian W.E. Haub proclaimed that the quarter's performance was "one of the best in the last three years," during which A&P has struggled to transform and restructure itself in the highly competitive, low-margin supermarket industry, and a sure sign that A&P's U.S. business was turning around.

Another trader saw the 9 1/8% notes up about two points on the session at 104 bid, 106 offered, while the 73/4s were a point better at 103 bid, 105 offered.

A&P's New York Stock Exchange-traded shares rang up a gain of $4.28 (23.43%), to end at $22.55. Volume of 6.1 million shares was over 12 times the usual turnover.

Hedge fund rumors hurt

A trader said that A&P had been "the only bonds that were really going contrary" to the generally negative trend Tuesday, sparked by what he called "the hedge fund debacle."

Rumors made the rounds of Wall Street that a number of hedge funds that had shorted General Motors Corp. stock and had bought the auto giant's bonds had been stunned and badly hurt last week when the shares jumped on the news that billionaire investor Kirk Kerkorian had made a bid for an additional 5% of GM, which sent the shares up, while the bonds had retreated after Standard & Poor's lowered its ratings to junk.

"Too many people were leaning the wrong way on that one," another trader said, in assessing the rumored hedge fund mess.

There were even rumors that some funds might face liquidation because of their losses. That helped push the Dow Jones Industrial Average down 103.23 (0.99%) to 10,281.11, while the S&P 500 index lost 12.62 (1.07%) to 1,166.22, and the Nasdaq composite index fell 16.90 (0.85%) to 1,962.77.

On the bond side of the fence, the first trader said, "the hedge fund news was very nervous. People started having a flight to quality," as Treasuries rose and the 10-year T-note's yield narrowed eight basis points to 4.21%.

"The only things that really did well here were good quality stuff that [trades on] spreads off Treasuries."

Constellation recovering

One such name he mentioned was Constellation Brands Inc. He saw the Fairport, N.Y.-based wine producer's bonds, which had formerly traded as high as 107 several week ago when the company reported "great earnings" - only to fall to as low as the 101-102 area after Constellation said that it was considering making a bid with Brown-Foreman Corp. for Allied Domecq, which is in the process of being gobbled up by French spirits giant Pernod Ricard for $14 billion.

That speculation caused the Constellation bonds to "get hammered", he said - but nothing has come of that since, and he saw those bonds creep back up to 102 on Monday and to 103.25 bid, 104.5 offered Tuesday.

AK Steel down on demand worries

Otherwise, though, the trader saw things mostly on the downside. Worries about possibly softening demand for steel, he said, pushed AK Steel Corp.'s bonds down a point, with its 7 ¾% bonds easing to 89 and its 7 7/8% notes dipping to 93 bid, 93.5 offered.

"So there was a lot of nervousness today, with the exception of Great A&P he said.

Delta drops

The nervousness was particularly evident in the bonds of Delta Air Lines Inc., which were seen down anywhere from two to five points, after the Atlanta-based air carrier warned in a regulatory filing that it will record a substantial loss for the rest of the year.

Delta further cautioned investors that it will need to file for bankruptcy if its cash reserves fall too low or if its lenders seek immediate payment of its debt obligations.

A trader saw Delta's benchmark 7.70% notes due 2005 drop to 78 bid, 80 offered, down from 80 bid, 81 offered previously, while its 8.30% notes due 2029 were three points down at 23 bid, 25 offered.

Another trader said the '29s "were not as active" as the company's other issues, quoting them off four points on the session at 23 bid, 24 offered. The trader pegged the 7.70s at 77 bid, 79 offered, down three points on the day, while the 7.90% notes due 2009 were four points lower at 29.5 bid, 30.5 offered.

Delta's NYSE-traded shares plunged 33 cents (10%) to $2.97, on volume of 6.9 million shares, more than double the usual.

El Paso, Emmis lower

Back among other names reporting earnings Monday after the close or on Tuesday, a trader saw El Paso Corp.'s bonds "off a little," its 7% notes due 2011 "down a point or so" to 93 bid, 94 offered.

Radio broadcaster Emmis Communications, which also announced plans to explore strategic alternatives for its television assets, was lower, its 6 7/8% notes due 2012 seen at 97 bid, 98 offered, off 1½ points.

From the small-town wireless sector, Dobson Communications Corp.'s 8 7/8% notes dipped two points to 82 bid, 83 offered, while Rural Cellular's 9¾% notes dipped to 89 bid, 90 offered, from 91.5 bid, 92.5 offered.

But Chiquita Brands' 7¼% notes due 2014 were seen a point better at 93 bid, 94 offered.

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