Newly priced issues dominate quiet pre-holiday trading; Dura continues rise

By Paul Deckelman and Paul A. Harris

New York, May 25 - Friday's pre-Memorial Day trading was over almost as soon as it had begun, market participants said, with desks at many shops "closed by around 10:15 [ET]," as one trader who actually stuck around into the afternoon put it.

Another trader concurred that most of the people he normally talked to "have been on extended leave since about 10 [a.m.]"

But during that limited run of activity, there was a fair amount of transactions in the newly priced bonds of such companies as Fountainbleau Las Vegas Holdings LLC/Fountainbleau Las Vegas Capital Corp., and Claire's Stores Inc.

The former deal was one of those which had priced in a frothy, more than $1 billion session on Thursday; by contrast, Friday's primary was extremely quiet, in line with the rest of the market, although participants heard that First Data Corp. will bring a whopping $8 billion of new bonds and $16 billion of new bank debt to largely fund its pending $26 billion buyout by Kohlberg Kravis Roberts & Co.

And they also heard that Algoma Steel Inc. will be starting a roadshow after the holiday break for its $450 million of new notes.

A capital markets source said that the broad market was flat on Friday, ahead of the three-day Memorial Day weekend.

Fountainbleau bonds firmer

Among the newly priced bonds, a trader said, "we traded some of the Fountainbleaus," seeing the new 10¼ second mortgage notes due 2015 at 102.75 bid, 103 offered, up around ¼ point from the levels to which they had jumped on Thursday after pricing at par.

"There were plenty of buyers around," he said, "but most guys were trying to buy them on the bid side or below."

Another trader also saw the Las Vegas-based gaming and lodging company's new bonds at those levels - but a third said he saw "nothing doing" in them.

Away from that, the first trader said, "there was really no sense of a market at all. There was virtually nothing going on."

Claire's bonds a bit lower

One of the traders saw the new Claire's Stores bonds lower on the day, quoting the 9¼% notes due 2015 at 98.75 bid, 99.25 offered, while the 9 5/8% toggle notes due 2015 were at 97.75 bid, 98.25 offered, and the 10½% subordinated notes due 2017 were also at 97.75 bid, 98.25 offered.

All three tranches had priced at par on Wednesday and then proceeded to move down about a point after that, and eased further in Friday's lightly traded, abbreviated session.

However, one of the other traders said that while "the Claires got banged around pretty good [Thursday], opening at 99 bid, 99.25 offered and closing down a point from there," he had not seen anything doing in them on Friday.

"It seems like the market took a little break."

He said when the Bon-Ton Stores Inc. quarterly numbers came out on Thursday, "people were a little bit nervous that retailers' next quarters could be a little on the soft side as well," although he added that "they're really different businesses, and I don't know if you can extrapolate one to the other."

Claire's Stores, based in Pembroke Pines, Fla. is a niche retailer specializing in value-priced costume jewelry and accessories - leading one trader to wonder "what does a costume jewelry outfit need with nearly $1 billion?" referring to the $935 million proceeds from Wednesday's deal - while York, Pa.-based Bon-Ton is a more conventional marketer of fashion apparel and accessories for women, men, and children, as well as footwear, cosmetics, home furnishings, intimate apparel, and juniors' apparel.

"If the economy was really slowing, I could see" making comparison between the two retailers, the trader said, "but they just trashed this thing [the new Claire's deal].

"I think a lot of people were just pissed that it came at tighter levels. A bunch of hedge funds were in the mix, and some guys just exited. But to buy this thing at a 9-and coupon, and then just to blow it out, down 2 points the next day, seems preposterous. I think some dealers maybe set shorts on it, or whatever, and that really is what pushed it lower."

However, he added "you have to credit the underwriters - they were really hanging in there, buying all the bonds that were offered. So we'll have to see what happens."

Meantime, a source saw the Bon-Ton 10¼% notes due 2014, which on Thursday had fallen in response to the company's numbers, as having moved up to regain those losses. That source pegged the bonds trading in the 105-106 area, up from Thursday's levels in a 104-105 context.

At another desk, however, those bonds were quoted at 105.5 - actually down 1¼ points.

The Bon-Ton bonds had fallen to those latter levels after the company on Thursday posted a first-quarter loss of $29.3 million ($1.78 per share) - almost triple the year-earlier red ink of $10.8 million (66 cents per share), and considerably wider as well than Wall Street's consensus expectation of a per-share loss of around $1.09.

Hovnanian heartened by house-sale numbers

Elsewhere, a trader saw the bonds of Red Bank, N.J. -based homebuilder K. Hovnanian Enterprises Inc. somewhat better, apparently reacting to favorable new-home sales data.

He quoted Hovnanian's 6 3/8% notes due 2014 as having advanced to 93.5 bid, up 1½ points, although he saw the company's 8% notes due 2012 completely untraded on the day and thus, hanging in at 100.25.

The bonds may have gotten a lift from data from Washington indicating that new-home sales surged in April by the biggest amount in 14 years -although the downside of that is that the sales surge was helped along by a sharp 11.1% drop in prices as builders slashed pricetags on the new houses in an effort to move their huge overhang of unsold homes.

The Commerce Department reported that sales of new single-family homes jumped by 16.2% in April to a seasonally adjusted annual rate of 981,000 units.

Economists had only been expecting a meager 0.2% sales gain.

Mrs. Fields off highs

A source saw Mrs. Fields Brands' 9% notes due 2011 as having retreated to 83 bid from prior levels around 85, while the Salt Lake City, Utah-based cookie and cake producer's 11½% notes due 2011 retreated to 89 bid from 91.5.

However, another source estimated the latter bond was several points higher, and unchanged on the day.

Mrs. Fields on Thursday reported first quarterly numbers, which saw income from operations rise 68% from a year earlier, or $1 million, which helped to boost those bonds in dealings on Wednesday, and Thursday from prior levels around 83 for the 9s and 92 for the 111/2s, in anticipation of the results and the company conference call.

However, the results were a mixed bag - a possible catalyst for the post-call retreat - since the company had what its chief executive officer, Steven Russo, called a disappointing "continued downward trend" in the net total of its retail stores, a problem which he said it will have to address with its franchisees.

Dura rights talk continues boost

From the distressed-debt-desks, Dura Automotive Systems Inc.'s bonds were called up a little on "follow through," after having risen smartly during the week - multiple-point gains in several sessions - on speculation that the bankrupt Rochester Hills, Mich.-based automotive parts manufacturer would soon increase its capital by mounting a rights offering, the details of which are awaited by the equity and debt markets.

"Folks are wanting to buy before they come back next week," a trader said.

He quoted the company's 9% subordinated notes due 2009 at 12.25 bid, 12.75 offered, and the 8 5/8% senior notes due 2012 at 50.5 bid, 51.5 offered.

A second trader saw Dura's 8 5/8s doing "some trading" in an otherwise deadly dull market at around 50-51, right where they had been.

Yet another trader quoted those bonds at 50.5, up ¼ point, but said that the 9s had pushed as high as 12.25 bid after closing Thursday at 10, but then came off that peak level end at 11.625 around noon ET, when the market essentially shut down ahead of the holiday.

Movie Gallery on the move

Also in distressed-land, a trader saw Movie Gallery Inc.'s 11% notes due 2012 as having "moved a little today" to around the 87.5 bid area, which he called up ½ point, after the credit had firmed smartly on Thursday by some 3 points on market rumors regarding a possible debt-for-equity exchange by the troubled Dothan, Ala.-based Number-Two U.S. video rental chain operator.

"Decent size has traded in that name all week long," he said, saying "they bounced up to that level on [expectations] that the bonds might be tended for. A week ago, they were trading at what, 78?"

Overall, a trader said, "there was not much to report," while another characterized the activity level as "dead."

Another trader agreed that the secondary market was pretty much unchanged, with the CDX index steady at 100 9/16 bid, 100 11/16 offered.

Week ends at $4.45 billion

With no issues pricing on Friday, primary market issuance for the May 20 to May 25 week came to slightly more than $4.45 billion in 13 tranches, the lowest weekly amount of issuance since the April 24 to April 27 week, which saw slightly more than $4.24 billion in an even dozen tranches.

At Friday's close, year-to-date issuance was just above $82.4 billion, 52% ahead of the $54.2 billion which had priced by the April 25 close in the record-setting year of 2006.

In terms of deal volume, the 216 dollar-denominated tranches which have priced thus far in 2007 represent a 35% increase in year-over-year volume. In 2006, by the May 25 close, 160 tranches had been priced.

Algoma to start roadshow

Most sell-side sources reported that there was no primary market news during Friday's session.

However, a market source told Prospect News that Algoma Steel will begin a roadshow during the post-Memorial Day week for its $450 million offering of senior unsecured notes.

UBS Investment Bank will lead the acquisition financing deal.

The Sault Ste. Marie, Ont.-based steel producer will also put in place an $850 million credit facility.

Near-empty calendar

The post-Memorial Day week gets underway with only one Rule 144A deal in the market.

Tristan Oil Ltd. plans to do a $120 million add-on to its 10½% senior secured notes due Jan 1, 2012 (existing ratings B2/B+), with pricing expected during the week of June 4 following a consent solicitation.

Jefferies & Co. is the bookrunner.

The notes are guaranteed on a senior secured basis by Kazakh affiliates Kazpolmunay LLP (KPM) and Tolkynneftegaz LLP (TNG).

Indeed sources tell Prospect News that Tristan is primarily a Kazakh energy play.

However one U.S. high yield syndicate source asserted that where there is an energy play to be made - especially one with a 10½% coupon - you can bet there will be some high yield players not too far off.

A spike in drive-bys

One high yield official who was sweeping up the bits after Friday's close told Prospect News that it likely will not take the primary market long to get back up to speed at the conclusion of the Memorial Day holiday.

This source added that the market will continue to see a fair volume of drive-by deals.

According to Prospect News data, 17 of the month's 52 tranches that were priced by the May 25 close, or approximately 37%, were quickly shopped.

That's a spike in drive-by activity.

In the months leading up to May, February saw the greatest percentage of quickly shopped deals, at 24%.

In March drive-bys made up 21% of the deal volume. In April they represented 12%. And in January, 10%.

The syndicate official who spoke late Friday also looks for an uptick in sponsor-led transactions when the junk new issue market gets cranking on Tuesday.

Stephanie N. Rotondo contributed to this report.

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