Refco up on prospect of bidding war for unit; Roundy's restructures upcoming deal

By Paul Deckelman and Paul A. Harris

New York, Oct. 21 - Refco, Inc.'s battered bonds jumped Friday as a second potential buyer for the stricken company's futures unit stepped forward with an offer.

Traders said that the secondary market was otherwise restrained, although they saw strength in the automotive sector, a carryover from Thursday, when the bonds of Dana Corp. rose on its plans to sell certain non-core businesses and continue streamlining the remaining operations. That strength was seen even though Dana itself came slightly off its highs seen at Thursday's close, although it did hang on to most of the handsome gains it had notched during that previous session.

Overall sources marked the high-yield market unchanged to slightly higher on Friday, adding that the market remains focused on automotive credits as well as on Refco.

A buy-side source said that the Friday session was pretty quiet.

"It was busier early in the week," the source commented, adding that the name that activity has tended to be concentrated on is General Motors Acceptance Corp.

"That has just gone through the roof," the buy-sider said.

The source added that the market may have traded up slightly on Friday, but on short covering rather than on buying.

"We've seen short covering on Friday afternoons for the past two or three weeks now," the buy-side source remarked.

"These guys don't want to go into the weekend with a negative position on the books, so they're covering everything they have done. And it has tended to help us in the afternoon."

In the primary arena, Nova Chemicals Corp announced plans to bring an offering of eight-year bonds to market; meantime, Roundy's Supermarkets Inc. was heard by syndicate sources to have done some tinkering with its upcoming bond issue, downsizing the offering by dropping one of its two tranches.

Back in the secondary sphere, Refco's 9% notes due 2012 were heard to have zoomed up to 58 bid, 60 offered from prior levels around 50 bid, 52 offered, a trader said.

Another, noting that the bonds "have been moving around pretty much every day - and it looks like they bounced up" on Friday, saw them going out at 59 bid, up from 50.75 previously.

The proximate cause for the big jump was the news that Interactive Brokers Group LLC has emerged as a possible buyer for Refco's regulated futures brokerage business, offering $790 million for the asset, which is not part of New York-based Refco's bankruptcy filing.

That bid is higher than the $768 million offer from an investment group led by J.C. Flowers & Co., which signed a memorandum of understanding with Refco just before the latter filed for Chapter 11 protection from its junk bond holders and other creditors on Oct. 17. That memorandum established that Flowers would buy the futures unit, although Refco retained the option to hang on to 20% of it.

The Interactive bid could render the Flowers offer little more than a stalking horse bid to establish a floor for whatever kind of auction might emerge for the unit.

But even though the second bid holds the prospect of setting off a bidding war that could draw still other potential buyers in - Refco competitor Calyon Securities is seen as a possible suitor, as was a Dubai-based investment group advised by Blackstone Group LP, according to market scuttlebutt and published reports - and that's all to the good, from a bondholder perspective, Refco itself appears uncomfortable with the idea of a protracted back-and-forth tug of war.

Refco on Friday asked the U.S. Bankruptcy Court for the Southern District of New York for quick approval of the J.C. Flowers offer, saying that time was of the essence.

"Given the fragility of the acquired business, the buyer's commitment to proceed with the sale requires that the sale be consummated quickly," Refco said in its filing. Refco noted in its submission that Flowers - whose bid is backed by private equity investors Silver Point Capital LP, MatlinPatterson Global Advisers LLC and Texas Pacific Group - has indicated that it must have a deal in place by Nov. 11, or else it will walk away from the deal - after first collecting a $21.5 million breakup fee.

Several traders latched onto the implied threat from Flowers to scuttle the deal if the deadline is not met, in explaining the rise. If it does so, one said, "that would open the door for others. It raises the potential for other bidders to get involved in the process."

To head off such a contingency, Refco petitioned bankruptcy judge Robert Drain to fast-track the bidding process, with Interactive and any other potential buyers to be required to submit their bids no later than Nov. 4, and bids to be in cash.

Drain has scheduled a hearing at his lower Manhattan courthouse for 10 a.m. ET on Monday, where he is expected to decide what kind of auction procedures - if there are any - will be followed.

Friday's jump in the bonds was the culmination of a roller-coaster week, that saw those bonds first shoot up to around 61 bid immediately after the bankruptcy filing, and then fall as low as around 30 by mid-week, as investors grew cautious and skeptical, waiting for the next unpleasant surprise from the company.

That week, in turn, capped off a whirlwind plunge into chaos for the big commodities trading company, following the revelations earlier in the month that the company carried a loan of over $400 million to then-chief executive officer Phillip Bennett, allegedly concealed from shareholders who bought into Refco's IPO this past summer. Bennett repaid the loan, but it did him no good - he was first placed on leave by the company, then unceremoniously dumped, and was finally indicted by federal prosecutors for alleged securities fraud, causing Refco's bonds to crash down to their current valuation from lofty levels well north of par before the whole scandal was brought to light.

Dana stays firm

Elsewhere, a trader said, "there was not tons of stuff going on. Actually, it was quite quiet."

Still, he saw "a little strength" among some of the automotive names, still benefiting from the four to five point rise seen in the bonds of Dana Corp. on Thursday, after the Toledo, Ohio-based automotive components company announced that it plans to restructure its operations, including the closing of some factories and the sale of non-core assets.

Dana's own bonds "were strong," the trader said, "although they may have given up a little bit" from Thursday's gains, while pretty much hanging onto most of them.

He saw the company's 6½% notes due 2009 at 87 bid, 88 offered, which he called "net-net, unchanged, or maybe off a little from [Thursday's] high at 87.5."

He also noted that the bonds had fallen back earlier in the day to as low as 85 bid, 86 offered, before recovering and moving up to around Thursday's levels.

"They bounced around," he said, and ended unchanged.

He also saw the company's 7% notes due 2029 half a point better at 74 bid, 75 offered.

At another desk, a source saw the Dana bonds a bit off Thursday's closing highs, but still well above where those bonds had traded before the news about the company's operational restructuring.

He saw the 2009 61/2s half a point worse, at 86.5, while the 6½% notes due 2008 were a quarter-point down at 90.25. The 10 1/8% notes due 2010 and the 5.85% notes due 2015 were each down about half a point, at 93.25 and 74.25, respectively.

The source also saw Delphi Corp.'s 6.55% notes due 2006 up ¾ point at 67, while its 6½% notes due 2009 were half a point better at 67.25. Other traders, however, said the Delphi bonds were pretty much steady around the 66-67 levels to which they had moved following the Troy, Mich.-based auto electronics manufacturer's Chapter 11 filing over the Columbus Day holiday weekend.

GM gains

In keeping with the generally better tone of the auto sector, Delphi's former parent, General Motors Corp., was also on the rise, with the giant car maker's benchmark 8 3/8% notes due 2033 motoring up to 77.25 bid from 75, while its 7 1/8% notes due 2013 were a point better at 82.

GM rival Ford Motor Co.'s flagship 7.45% notes due 2031 rose to 76 bid from 75.25 previously.

Bally higher

Away from the automotive names, a trader said that Bally Total Fitness Holding Corp.'s bonds were better, "on consent news," with the Chicago-based fitness center chain operator's 9 7/8% notes due 2007 strengthening to 92 bid, 93 offered from 90.5 bid, 91.5 offered, although he saw that its other issue, the 10½% notes due 2011 "just doesn't move," and remained at 101 bid, 101.5 offered.

He noted Bally's disclosure, contained in a Securities and Exchange Commission filing, that it entered into a consent, effective as of Oct. 17, relating to its existing term loan and revolving credit agreement with JPMorgan Chase Bank, the agent bank, and several other banks and other financial institutions. The consent permits Bally to enter into rights plan transactions.

Xerox unchanged

Xerox Corp.'s bonds were seen unchanged, even as the Stamford, Conn.-based copier and office machines giant reported a smaller third-quarter profit from a year ago and said that it had reduced debt by $3.3 billion over the past year (see related story elsewhere in this issue).

Xerox's 7.20% notes due 2006 were unchanged at 106 bid, 107 offered.

Under half a billion for the week

Meanwhile, although the primary market cranked out some information during the closing session of the Oct. 17 week no deals were priced.

Hence the primary market passed the week having seen only $435 million price in two dollar-denominated tranches: Targa Resources Inc.'s $250 million and Del Laboratories Inc.'s $185.

Hence the Oct. 17 week drew up slightly short of the previous week's anemic $460 million price in three tranches.

At Friday's close, year-to-date high-yield issuance stood slightly above $80 billion in 315 dollar-denominated tranches, $28 billion and change behind year-to-date at the Oct. 21, 2004 close of $108.4 billion in 438 tranches.

Two roadshow starts announced

Sell-side sources have advised Prospect News that the forward calendar - presently seen as "very light," according to one source - should start to grow, with a comparatively robust November in the offing.

It expanded by over $600 million on Friday.

The Chuckchansi Economic Development Authority will begin a roadshow on Monday for its $310 million two-part bond offering.

The Native American gaming company plans to sell $200 million of eight-year senior fixed-rate notes and $110 million of seven-year senior floating-rate notes.

Merrill Lynch & Co. has the books for the deal, proceeds from which will go to refinance debt, to fund expansion and for general corporate purposes.

And Nova Chemicals Corp. plans to price a $300 million offering of eight-year senior floating-rate notes (Ba2/BB+) in the middle part of the present week, following a brief roadshow.

Citigroup and JP Morgan are the bookrunners for the debt refinancing and general corporate purposes deal from the Pittsburgh-based producer of commodity plastics and chemicals.

The week ahead

In addition to Nova Chemicals, the week ahead figures to see two other issuers attempting to price junk bond offerings.

Milwaukee-based wholesale food distributor and supermarket operator Roundy's Inc. cut its high-yield bond offering to $175 million from $325 million on Friday.

Roundy's subsequently reduced by $150 million a proposed dividend payment to principal shareholder Willis Stein & Partners III, LP, which the bond proceeds will help to fund.

The company now plans to price a $175 million offering of seven-year senior floating-rate notes (B3/B-) early this week.

Bear Stearns & Co. and Goldman Sachs & Co. are bookrunners.

The dividend payment to Willis Stein was reduced by $150 million to $400 million from $550 million.

Elsewhere K-Sea Transportation Finance Corp. is expected to price its $150 million offering of seven-year senior unsecured notes (B2/B+) via Lehman Brothers.

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