Allison pricing seen Thursday; new AES bonds move up; Fremont jumps

By Paul Deckelman and Paul A. Harris

New York, Oct. 10 - New-deal players had some upcoming issues to look forward to as Allison Transmission Inc. set talk on its planned eight-year offering, which is expected to price during Thursday's session, while Indiana Downs was seen getting ready to hit the road to market a two-part issue.

In the secondary market, AES Corp.'s new 10-year bonds were seen having firmed solidly in aftermarket dealings, while its eight-year notes were up somewhat less than that.

Among the established issues, Fremont General Corp.'s bonds jumped several points on the session, in line with a rise in the problem-plagued mortgage lender's shares, on news that an investment group has taken a stake in the company.

Elsewhere, Biomet Inc.'s three tranches of recently sold 10-year bonds were seen having improved solidly - if gradually - from the anemic levels at which at least two of those issues traded after their pricing late last month.

A market source, speaking on Wednesday morning, told Prospect News that the tone of the junk market remains positive, and added that junk was mostly unchanged, early in the midweek session, with better buyers and few sellers.

Meanwhile no U.S. issuers priced bonds during the Wednesday primary market session. However Mexico's KUO, SAB de CV priced $200 million 9¾% 10-year notes (/BB-/BB-) at 99.217 to yield 9 7/8%, in a Rule 144A/Regulation S transaction.

The yield was printed at the tight end of the 10% area price talk.

Citigroup and Credit Suisse ran the books for the debt refinancing deal.

Allison for Thursday

Allison Transmission is expected to price $550 million of eight-year cash-pay senior notes (Caa1/B-) on Thursday.

An informed source told Prospect News late Wednesday that there is no official price talk.

However market sources told Prospect News on Wednesday that the notes are expected to price at par to yield 11%.

A money manager from a high yield mutual fund said that as of Tuesday the order book for the Allison Transmission notes was a little over the deal size.

Citigroup, Lehman Brothers and Merrill Lynch & Co. are joint bookrunners for the notes.

The cash-pay notes are part of the overall $1.1 billion of bond financing backing the acquisition of the company by The Carlyle Group and Onex Corp. from General Motors Corp.

The bond financing also includes toggle notes, which are not in the market at the present time.

Allison Transmission is a Speedway, Ind., designer and manufacturer of automatic transmissions.

Indiana Downs starts roadshow

Indianapolis Downs, LLC, in conjunction with Indiana Downs Capital Corp., began a roadshow on Wednesday for a $495 million two-part offering of notes.

The Shelbyville, Ind., racetrack, off-track betting and gaming company is offering $345 of million five-year senior secured notes and $50 million of six-year senior subordinated secured PIK notes.

The roadshow is set to conclude on Oct. 19.

Jefferies & Co. is the bookrunner.

Credit ratings remain to be determined.

Proceeds will be used to pay the first installment of a gaming license fee, as well as to repay debt and build a gaming facility.

Elsewhere, in conversations with sources on both the buy-side and the sell-side, pertaining to what is actually in the market, a buy-sider said that Bear Stearns is "quietly marketing" Catalina Marketing Corp.'s $490 million of high yield notes (Caa1), which will likely be priced before the end of October.

Proceeds will be used to help fund the acquisition of the St. Petersburg, Fla., provider of promotional marketing services by Hellman & Friedman Capital Partners VI.

Also on Wednesday, sources from both the buy-side and the sell-side continued to profess the expectation that underwriters will attempt next week to place as much of the First Data Corp. $3.75 billion of cash-pay notes as possible.

Those notes are part of its hung-up LBO funding.

Altogether the bond portion of the financing comes to $9 billion. In addition to the cash-pay senior notes it includes $2.75 billion of PIK notes and $2.5 billion of senior subordinated notes.

AES higher

In the secondary market, a trader saw the new AES 8% notes due 2017 having moved up to 101 bid, 101.25 offered from their par issue price late Tuesday. He saw the Arlington, Va.-based independent global power producer's 7¾% notes due 2015 at 100.375 bid, 100.625 offered, also versus a par issue price.

The AES deal "performed well," another trader said, pegging the 10-years around 101. He said that it was "very active." Meantime, he said, the market "didn't see as much of" the eight-years, which are considerably less liquid than their new 10-year cousins - $500 million of the eight-years, $1.5 billion of the 10-years. He saw the former bonds at 100.125 bid, 100.5 offered.

At another shop, a trader quoted the 8s at 101.375 and the 73/4s at 100.375, and noted that "a lot of people are focusing on new issues right now."

Yet another trader, however, did not see very much movement in either new-deal tranche, locating the 8s only at 100.25 bid, 100.75 offered, and the 73/4s at par bid, 100.25 offered.

One of the traders said that apart from dealings in the new AES issues, "there wasn't a whole lot else trading. There was a lot of noise, a lot of quotes, but not a lot of trading."

Overall, he saw the widely followed CDX junk bond performance index up perhaps 1/8 point at 1001/4-100 3/8, although another trader located it closer to par.

The KDP High Yield Daily Index blipped up 0.02 to 80.36, while its yield was steady at 7.75%.

Fremont pushes upward

Fremont General's 7 7/8% notes due 2009 were seen having moved up 3 points to 95 bid, even as its shares jumped by as much as 21% intraday on the news that an investor group had taken a sizable stake in the company. Those shares ended up 62 cents, or 16.49%, at $4.38. Volume of 5.7 million shares was almost double the usual turnover.

The bonds and shares rose on news that the investor group, which includes Harbert Management Corp. and Harbinger Capital Partners Master Fund I Ltd., had said in a Tuesday filing with the Securities and Exchange Commission that it has a 9% stake in the troubled Santa Barbara, Calif.-based financial services company.

Fremont's bonds have recently been trading in a lower-90s context, but slid down to the mid-80s on the Sept. 26 announcement that another investor group, this one led by billionaire former California thrift executive Gerald J. Ford, was looking to get out of a previous commitment to invest $80 million in Fremont, and take control of the company. After that downside blip, though they had gradually moved back into the lower 90s.

The bonds had begun the year trading above par, but fell into the 90s in May after federal banking regulators forced Fremont to discontinue its residential subprime lending activities.

Biomet gets a bounce

A trader saw Biomet's recently-priced bonds trading at sharply higher levels than they had held in the immediate aftermath of the Sept. 21 pricing of the nearly $2.35 billion three-part mega-deal.

The Warsaw, Ind.-based orthopedic devices manufacturer's new 10% senior cash-pay notes were seen at 104 bid, 105 offered, its 10 3/8% senior pay-in-kind toggle notes at 101.25 bid, and its 11 5/8% senior subordinated notes at 102.5 bid, 102.35 offered.

Another source, while also seeing the bonds improved from their initial post-pricing levels, was more conservative in assessing their upward movement, seeing the 10s at 102 bid, 102.75 offered, the 10 3/8s at 98.375 bid, 99.125 offered, and the 11 5/8s at 99.875 bid, 100.625 offered.

All three tranches had priced at par - but while the 10% notes had pretty much hung in just below par when they were freed for secondary dealings, the PIK notes initially traded as low as the 96 area, while the 11 5/8% subs were not that much better, in a 97-98 context.

According to Advantage Data Inc. the three series of bonds lingered around those initial trading levels until Oct. 2 - and then began to gradually push up to the levels seen on Wednesday.

Advantage Data market analyst Eric Rasmussen said that while he had seen "no direct news regarding the company itself," that might explain the sudden rise since then, it stands to reason that the two tranches that initially traded sharply below par "are below the [10% note] in terms of a hierarchy of repayment in case of default. Investors in the secondary market may have looked at the PIK notes and senior subordinated notes and said 'No thanks' because of the risk that still comes with being that far down on the repayment totem pole."

He said that while the credit markets had improved since the Federal Reserve cut rates last month, there still was "definitely a lot of uncertainty that remained. That may have been the reasoning for the sharp decline when they initially hit the secondary market."

The analyst also pointed out that Biomet was also forced to pay a fine to the U.S. government "for providing kickbacks to doctors who used their products. The fines were considered manageable - but still, when a company issues new debt and then gets hit with a fine by the U.S. government, no investor is going to like that."

So why would those initially battered bonds move back up now?

Rasmussen opined that the move back up "looks to be happening as fears of a recession subside, the credit crunch seems to be easing a bit, and people look at the product that this company is producing" - orthopedic devices such as replacement knees and other joints.

"There seems to be a bit more money flowing through the high-yield corporate bond market

and investors are showing a little less aversion to risk, which tends to filter to all sectors. Biomet also is in a sector not hard hit by the subprime crisis, which makes those notes a bit more attractive. The outlook for the company is also promising, with the baby boomer generation approaching retirement. I hate to say it, but as people get older, their bones and joints become more fragile and sometimes need replacements. The next 20 years could be pretty strong in this industry."

Savvy private investors apparently think so as well - Biomet was recently taken private in buyout valued at $11.4 billion by a group that includes affiliates of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG.

Gaming names a bit lower

A trader saw Trump Entertainment Resorts Inc.'s 8½% notes due 2015 down a point at 84.5 bid, 85.5 offered. Another said the bonds, which had traded at 85 bid, 86 offered earlier in the session, were "wrapped around" 85 by day's end.

He also saw Atlantic City Tropicana casino operator Wimar Operating's 9 5/8% notes due 2014 easier at 78.5 bid, 79.5 offered, and blamed the downturn on disappointing "win" numbers reported for September by the Atlantic City casinos. Winnings among the city's 11 casinos were collectively off 10.6% from year-earlier levels.

In that same sector, a trader said that there was little movement in gaming giant MGM's bonds, its 7 ½% notes due 2016 stuck at 100.5 bid, 101 offered, investors apparently unfazed by the company's announcement that it plans spend up to $5 billion to create the biggest casino resort complex in the seaside New Jersey city.

But while the cash bonds may not have moved, another source said credit-default swaps on the company's paper bought by investors to hedge against the possibility of a default event rose by 11 basis points to 182 basis points.

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