Jean Coutu jumps as bond battle appears resolved; market becalmed ahead of Fed announcement

By Paul Deckelman and Paul A. Harris

New York, March 20 - Bonds of Jean Coutu Group Inc. were heard to have firmed smartly in Tuesday's dealings, given a boost by court action that appears to resolve the uncertainty over what would become of the Canadian-based drugstore retailer's subordinated 8½% notes in the wake of the sale of its Eckerd and Brooks drugstore chains in the United States to Rite Aid Corp.

Elsewhere, traders heard not that much going on, citing a sense of lassitude which overtook the market as participants looked ahead to the conclusion Wednesday of the two-day meeting of Federal Open Market Committee, the Federal Reserve Board's policy-making arm. All eyes and ears will be focused on the mid-afternoon announcement of whether the Fed governors will raise interest rates, lower them or, as is thought more likely - leave them alone.

The primary market was likewise stilled, with sources only hearing the price talk on Aventine Renewable Energy Holdings, Inc.'s upcoming issue of 10-year notes, and the talk on Sun Healthcare Inc.'s coming offering of eight-year subordinated notes.

Jean Coutu decision remedy for bonds

Back in the secondary market, Jean Coutu Group's 8½% notes were among the most actively traded junk bonds, jumping to 107.5 bid, 108.5 offered from prior levels at 104 bid, 105 offered.

There was no immediate official word - but a trader cited news reports that a judge overseeing the legal dispute between the company and its bondholders was likely to decide that Jean Coutu could not transfer those 8½% notes over to buyer Rite Aid's capital structure, as the two companies had originally intended.

When Rite Aid's purchase of the Eckerd and Brooks assets was unveiled last year, it was announced that Jean Coutu would no longer support the subordinated bonds; rather, they would be absorbed by Rite Aid. Jean Coutu holders objected, feeling that the deal legally triggered a bond repurchase by Jean Coutu.

The judicial decision "leads many to believe that they're going to take this paper out - so it's trading as if it will be tendered [for], not a change of control down at 101."

Lear both up and down on Icahn recommendation

Elsewhere, Lear Corp.'s bonds were seen mixed, after the Southville, Mich.-based automotive components maker urged its shareholders to accept a controversial $36 per share buyout offer from the company's biggest stockholder, billionaire investor Carl Icahn.

The company's 5¾% notes due 2014 were quoted nearly a point better at 85.25 bid. However, its 8¾% notes due 2016 dropped back by about 3/8 point to 95.125.

Icahn, who owns about 16% of Lear, is offering to pay a total of $2.8 billion to take the company private. Company management made its recommendation that shareholders back the deal in a preliminary proxy statement filed with the Securities and Exchange Commission. They will be asked to vote on the deal at the company's annual meeting, the date for which has not yet been announced.

Under terms of the buyout, the company's chief executive officer, Robert Rossiter, and other senior management figures would remain in their current jobs.

Including debt assumption, the deal is worth about $5.3 billion.

That's not enough, according to some dissident shareholders, including 10.1%-owner Richard Penza, the second-biggest shareholder after Icahn. He contends the Icahn offer undervalues the company, and is trying to organize opposition among other significant shareholders.

Some critics of the deal have also filed lawsuits against Icahn and management, and are seeking class-action status.

Burlington bonds again popular

A trader saw Burlington Coat Factory bonds moving around, noting that "once they got registered, it's more popular now."

He quoted the apparel retailer's 11 1/8% notes as "kind of hunkered in now" in the 102 bid, 103 area, after having recently "traded all over the place. It looks like people are interested again in buying that paper after it had dropped down from the 104-104.5 area."

Landry's Restaurant tries to recover

He also saw the 7½% notes of Landry's Restaurants Inc. trying to bounce back from recent lows. Those bonds - at 100.5 bid, 101 offered not so very long ago, traded all the way down to 96.5 bid, 97.5 offered two days ago - but had moved back up to a 98.5 bid, 99.5 offered context.

He cited the impact of the news earlier in the week that the Houston-based restaurant company, which is seeking to acquire sector peer Smith & Wollensky, upped its bid for the eatery chain, as well as another announcement, that Landry's would re-state some financial results.

Bombardier loses altitude as incidents mount

Bombardier Inc.'s bonds were seen lower on the session, as a second case of landing-gear failure in one of its aircraft has focused scrutiny on the Montreal-based transportation equipment company.

Bombardier's 6.30% notes due 2014 were down nearly a point at 95.5 bid, while its 6¾% notes due 2012 were down 5/8 point at 99.125.

Japanese authorities are investigating the safety of the company's aircraft in the wake of an accident last week in which an All Nippon Airways Bombardier DHC-8-Q400 plane was forced to slide on its nose to a safe landing after its front wheel failed to descend. On top of that, there was another incident Tuesday involving an Amakusa Airlines DHC-8-103 aircraft. However, after the landing gear failed to automatically deploy, the plane's pilot was able to release it manually, avoiding the kind of scary near-miss accident which occurred last week.

All Nippon and Japan Airlines have grounded their fleets of Bombardier turbojets in the wake of the two incidents, which are also being investigated by Japan's government.

Overall, a trader said, "the market was very, very quiet," ahead of Wednesday's wrap-up of the FOMC meeting, a trader said.

Among the big automotive benchmark issues, he saw General Motors Corp.'s 8 3/8% notes due 2033 down about 3/8 point to around the 90 area, while Ford Motor Co.'s 7.45% notes due 2031 were down 5/8 to around the mid-77 area.

"The market was very lethargic," he continued, "with not much volume.

He saw the widely followed CDX junk bond market index "actually up, with the rest of the market down," closing up 7/16 at 102 11/16-13/16.

Fedders better as deal closes

A trader quoted Fedders Corp.'s 9 7/8% notes due 2014 down 2 points at 55 bid, 56 offered - but another projected that the bonds would be "up pretty sharply" from the lows, back up to 57 bid, 58 offered in late trading, "even as we speak," citing the late-day announcement that the Liberty Corner, N.J.-based air quality products company had completed its previously announced $90 million secured financing deal with Goldman Sachs.

"The bonds were getting hammered due to uncertainty, but it looks like they're going to be up" on the financing news, he said. "Their coupon [which was due on March 1] has been in the grace period," he said, but now that they have the $90 million, they have the money to pay it by the end of the grace period. The question is "whether they're going to do it or not - and I believe they will," he said. "It looks like people are scrambling to buy bonds right now, even as we speak."

Technical Olympic keeps tumbling

The trader also saw Technical Olympic USA getting "whacked again," on top of the beating that its subordinated bonds took on Monday.

He saw its 10 3/8% notes due 2012 offered at 78.5 with no bid, observing "they really got hammered." The 76-77 range in which the bonds traded all day was "down 2, 3, 4 points. Pick a number. They're just down very heavy."

Another trader saw those bonds down 5 points on the day at 77 bid, 79 offered.

Another trader saw the bonds as low as 76, down from about 77.25 earlier, but said that it seemed they were only down 2 points or so on the session, while other participants had seen the bonds going home around 82 on Monday, meaning a 4 or 5 point drop Tuesday.

Meanwhile, the company's 9% senior notes due 2010, however, were seen about unchanged at 94 bid, 94.5 offered.

The bonds slid badly Monday and Tuesday after the Hollywood, Fla.-based homebuilder came out with poor quarterly numbers and a conference call which did not reassure investors.

KB Home clobbered

Another homebuilder, KB Home, was also quoted sharply lower, as the sector continues to struggle in the wake of the collapse of the subprime mortgage lending business under a rise of foreclosures, and the prospect that there might be no interest rate cuts anytime soon, as the Fed tries to hold inflation in check.

KB's 6¼% notes due 2015 were seen down 3 points to 90.25 bid in active trading, although no specific news was seen out about the company, traders said.

Talk on Pinnacle

No issues were priced in the primary market, however the stage was set for three mid-week transactions as issuers talked their respective deals on Tuesday.

Pinnacle Foods Finance LLC set the price talk for its $650 million two-tranche offering of notes (Caa2/CCC).

The Cherry Hill, N.J.-based branded food products company talked its $400 million tranche of eight-year senior notes at 9% to 9¼%, and its $250 million tranche of 10-year senior subordinated notes at 10½% to 10¾%.

The Lehman Brothers and Goldman Sachs-led LBO deal is expected to price on Wednesday afternoon.

A sell-side source, not in the deal, pointed to the subordinated notes which are talked 10½% to 10¾%, and commented that the Pinnacle sub tranche will be interesting because it is the first sizable one to come with a coupon expected to be north of 10% since Key Plastics Finance Corp. priced a $115 million issue of 11¾% six-year senior secured notes (B2/B) at 99.50 to yield 11.868% on Feb. 22.

The source added that General Nutrition Centers, Inc. priced a downsized $110 million issue of senior subordinated notes due 2015 (Caa1/CCC) at par to yield 10¾% in early March, but specified that GNC had been a "private deal."

The sell-sider also recounted that on Feb. 8 TerreStar Networks Inc. priced a $500 million issue of senior secured PIK notes due 2014 at par to yield 15%.

However, the official added, perhaps the best comparable to Pinnacle was Melville, N.Y.-based Italian restaurant company, Sbarro, Inc.'s $150 million issue of senior notes due 2015 (Caa1/CCC) which priced at par to yield 10 3/8% on Jan. 24.

Aventine, Sun Healthcare imminent

Also expected to price Wednesday afternoon is Aventine Renewable Energy Holdings, Inc.'s $300 million offering of 10-year senior notes (B3), which the Pekin, Ill., ethanol company talked Tuesday at a yield in the 10% area.

JP Morgan, Goldman Sachs & Co. and UBS Investment Bank are joint bookrunners for the capital expenditures financing.

Then on Thursday, Sun Healthcare Group Inc. is expected to price its $200 million offering of eight-year senior subordinated notes (B3/CCC+).

The Irvine, Calif., provider of long-term and post-acute care medical facilities and services set price talk for the notes at 9¼% to 9½% on Tuesday.

Credit Suisse, CIBC World Markets and UBS Investment Bank are joint bookrunners for the acquisition financing.

Looking for Realogy

Sell-side sources continue to advise Prospect News that Realogy Corp., the parent of Century 21 Real Estate LLC, is expected to launch its $3.65 billion high-yield notes transaction this week.

JP Morgan, Credit Suisse, Bear Stearns and Citigroup will be joint bookrunners.

The Parsippany, N.J., company is expected to offer $2 billion of senior unsecured notes, $750 million of senior unsecured PIK toggle notes and $900 million of senior subordinated notes.

Proceeds will be used to help fund the approximately $9 billion LBO by Apollo Management.

Primary retains vigor

A sell-side source told Prospect News on Tuesday that the equity markets have been choppy.

"They have rebounded but they haven't really rallied," the source said.

"Nevertheless executions in the high-yield bond market have been phenomenal," the official asserted.

The sell-sider recounted that last Friday Hawker Beechcraft Acquisition Co., LLC priced a $400 million tranche of senior fixed-rate notes due 2015 (B3/B-) at par to yield 8½%, 12.5 basis points inside of the 8¾% area price talk.

The tranche was part of an overall $1.1 billion high-yield notes transaction.

The sell-sider added that the 8½% notes have been seen trading in the secondary as high as 102.0 bid.

Aggressive pricing

The sell-sider went on to say that even when deals come wide of talk, as was the case with TRW Automotive Holdings Corp., which priced $1.46 billion equivalent of senior notes (Ba3/BB/BB-) in a quickly marketed three-part transaction last Wednesday, the executions tend to be noteworthy when taken in context.

To recap, the Livonia, Mich., parts supplier to the automotive industry priced a $500 million tranche of 7% eight-year notes at 98.654 to yield 7¼%. The tranche was downsized from $675 million. The yield came on top of price talk that had been increased from 6 7/8% area.

Meanwhile TRW priced an upsized €275 million tranche of 6 3/8% eight-year notes at 98.625 to yield 6 5/8%. The yield came at the tight end of the 6¾% area price talk, which had been increased from the 6 3/8% area.

In addition, TRW priced an upsized $600 million tranche of 7¼% 10-year notes at 98.27 to yield 7½%. The 10-year notes tranche was upsized from $500 million. It priced on top of the 7½% area price talk, which had been increased from the 7 1/8% area.

"TRW priced outside of the original talk," the sell-sider conceded during the Tuesday conversation.

"But if you look at the coupons they were refinancing - 9 3/8%, 10 1/8% and 11% - they refinanced at [coupons of] 6 3/8%, 7% and 7¼%.

"So compared to the notes that they refinanced it was still a very good deal.

"You can't really make the argument that the market is weak just because deals might be coming at the high end of price talk," the source asserted.

"They're at the high end because the underwriters are coming out very aggressively."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.