Seminole Hard Rock, American Railcar slate deals; Remy continues slide

By Paul Deckelman, Paul A. Harris and Stephanie N. Rotondo

New York, Feb. 13 - Activity declined in both the high yield primary and secondary markets on Tuesday, participants said. No deals were heard to have priced in the primary, although the calendar grew with prospective offerings from Seminole Hard Rock Entertainment Inc. and American Railcar Industries Inc.

In the secondary realm, one trader said that taken together, Monday and Tuesday had been "a pretty boring two days" - and predicted that things would get even quieter, as the market winds down to the Presidents' Day Holiday weekend, which will see an abbreviated session in United States debt markets on Friday, and a full market shutdown on Monday.

Another market source noted the lack of real activity and commented that Federal Reserve chairman Ben Bernanke is scheduled to appear on Capitol Hill Wednesday and Thursday, when he will brief the two houses of Congress on the state of the economy, as mandated by the Humphrey-Hawkins Full Employment Act. Bernanke is expected to reiterate recent Fed positions - that the economy is continuing its moderate growth, that the central bank remains vigilant against a resurgence of inflation, but that there isn't a need, at least immediately, to raise interest rates, although that could change.

In what issues were moving around, there was some activity seen in Windstream Corp.'s new bond issue, which priced late Monday but broke into the aftermarket Tuesday, finding good support among investors. Among the established issues, problem-plagued Remy International Inc.'s bonds were big movers to the downside, continuing a slide brought on by investor fears that the company is burning through its cash too quickly. General Motors Corp. bonds were better, apparently helped by a bullish assessment of the company by Wall Street's own Big Bull, Merrill Lynch & Co.

A senior high yield syndicate official marked the broad market up 1/8 to ¼ point along with a strong equity market on Tuesday, and added that during the session junk had a good tone.

Meanwhile no issues were priced in the primary market, although the forward calendar continued to see a relatively modest build-out.

Seminole Hard Rock's $500 million

Seminole Hard Rock Entertainment launched a $500 million offering of first-priority senior secured notes (B1/BB) - a deal that is being led by Merrill Lynch and is expected to price in early March.

Proceeds will be used to help fund the Seminole Tribe of Florida's acquisition of Hard Rock International from The Rank Group.

American Railcar plans $250 million

Meanwhile American Railcar Industries will begin a roadshow on Thursday for its $250 million offering of seven-year senior unsecured notes.

UBS Investment Bank is the left bookrunner for the deal from the St. Charles, Mo., railroad car manufacturer.

Proceeds will be used for general corporate purposes including capital expenditures, strategic transactions and working capital.

Rite Aid for mid-week

At Tuesday's close, only one transaction was parked on the forward calendar as business expected to clear by the end of the week.

Rite Aid Corp. is marketing an $800 million two-part offering of notes with pricing expected on Wednesday or Thursday.

The Camp Hill, Pa.-based drugstore chain is in the market with a $300 million tranche of 10-year senior secured second-lien notes (B3/B+/BB-) and a $500 million tranche of eight-year senior notes (Caa2/B-/CCC+).

Citigroup has the books for the debt refinancing and general corporate purposes deal.

Rite-Aid is in the process of acquiring Canadian drug retailer Jean Coutu Group's U.S. operations, including the Brooks and Eckerd chains.

Windstream a winner

When the new Windstream 7% notes due 2019 were freed for secondary dealings, a trader saw the Little Rock, Ark.-based voice, broadband and entertainment services provider's new bonds having pushed up to 100.875 bid, 101.375 offered, while another saw the notes having gotten as good as 101 bid, 101.25 offered, up from their par issue price late Tuesday.

Remy retreat turns into a rout

Back among the established issues, there was more bloodletting in Remy International, which were on the slide for a third straight session Tuesday, pushed lower by the Anderson, Ind.-based automotive electrical systems manufacturer's disclosure last week that it was forced to draw down on its revolving credit line to a larger extent than originally planned - a sign, a trader said that "they're burning through their cash faster than anticipated."

He saw the company's bonds down about another 4 to 5 points on the session, with its 8 5/8% notes slated to come due later this year at 78 bid, 79 offered, its 11% notes due 2009 at 27 bid, 28 offered, and its 9 3/8% notes due 2012 at 23 bid, 25 offered.

At another desk, Remy's fall Tuesday was seen to be even worse, with a trader also pegging the senior bonds at 78 bid, 80 offered, which he called down 4 points, but seeing its 11s down a full 7 points at 26 bid, 28 offered, and its 9 3/8s six points lower at 25 bid, 26 offered.

Remy International is "continually hurting," a trader said, while another opined that as bad as the levels to which the bonds have slid are, particularly for the two junior issues, it could have been even worse, with only short covering saving the notes from losing more. "They probably would have been weaker," he said.

The latest declines come on top of a 1 or 2 point easing on Monday and a 3 point retreat on Friday when Remy said that it had completed the previously announced sale of its light and medium truck diesel engine and component remanufacturing business conducted by Franklin Power Products, Inc. and International Fuel Systems, Inc. to Caterpillar Inc, for total cash proceeds of $153.2 million, including $3.2 million of an estimated post-closing purchase price adjustment.

When it disclosed how the sale proceeds were used, Remy said it had used $95.4 million to pay down outstanding revolving credit borrowings under its senior credit facility - indicating that the facility had been drawn down by a greater amount than expected. Traders said the greater borrowings had spooked investors, taking the bonds lower.

GM gains on Merrill endorsement

Elsewhere, "the market in general felt a little better," a trader said, noting that the widely followed CDX index was up about 3/16 on the day, and auto sector bellwether General Motors was up solidly, with GM's benchmark 8 3/8% notes due 2033 up 1¼ points at 95.5 bid. The Detroit giant's 7 1/8% notes due 2013 were called ½ point better at 97.5.

The bonds were likely given a jump-start when Merrill Lynch upgraded its recommendation on the company's shares to a buy from a sell previously, citing its belief that the carmaker will use its liquidity and assets to continue to cut costs.

In a research note, Merrill auto analyst John Murphy pointed out that GM's pension fund is overfunded by $17 billion, while the company has about $31 billion of assets that can be monetized fairly easily, and would likely find the capital markets receptive should it require more liquidity.

"We increasingly believe that GM will leverage its liquidity and legacy assets, specifically in its pension [plan], to effect positive change," Murphy wrote in his note.

Comparing the auto industry leader to Number-Two domestic producer Ford Motor Co., Murphy continued that "we view GM's equity as more attractive than Ford's as the benefit of any concessions on retiree healthcare would be much greater for GM." He said that GM "is at a much better point in its product cycle and has a much richer surplus in its U.S. pension, both of which should lend near-term support for the stock."

It was the second brokerage-firm endorsement of GM in less than a week; last Friday, Deutsche Bank raised both Ford and GM to buy levels, citing the prospect that both auto giants might be able to negotiate solutions to their heavy healthcare cost burdens with their unions this year.

Murphy on Tuesday, however, meantime downgraded his recommendation on Ford's shares to neutral from a buy previously. But that didn't seem to make much of an impression on Ford bondholders, with its 7.45% notes due 2031 seen up ¼ point to 82.5 bid, 83 offered - probably towed higher by GM.

Lear left alone; Delphi dithers

Also in the autosphere, a trader saw little followthrough Tuesday to Monday's fall of several points in Lear Corp.'s bonds, which had been sparked by investor fears that billionaire buyer Carl Icahn might load the Southfield, Mich.-based auto components company's balance sheet down with lots of new debt to finance his announced acquisition of Lear.

After having fallen about 3 points on Monday, Lear's bonds on Tuesday showed "not much change," a trader said, as he quoted its 8½% notes due 2013 steady at 98 bid, 99 offered, its 8¾% notes due 2015 at 97 bid, 98 offered, and its 5¾% notes due 2014 at 86 bid, 87 offered.

Elsewhere among the component manufacturers, traders said there was not much movement in the bonds of Delphi Corp., despite there being no shortage of news about the bankrupt Troy, Mich.-based automotive components manufacturer and former GM subsidiary.

On Monday, the company's 6.55% notes due 2006 had firmed about 1½ points to 111.25 bid, 112.25 offered, in probable reaction to news reports indicating that billionaire industrialist Ira Rennert is in talks to buy its $1.3 billion vehicle interiors business.

However, on Tuesday traders said they did not see Delphi paper trading around - despite the news that Delphi had reported a fiscal third-quarter loss of $2 billion ($3.51 per share) - more than double its year-earlier red ink of $788 million ($1.40 per share). Delphi attributed much of the wider loss to the approximately $1 billion it spent on efforts to shrink its workforce through employee buyouts.

For the first nine months of its fiscal year, Delphi lost $4.6 billion - more than triple the year-earlier $1.5 billion nine-month loss.

Also not seeming to have much effect were news stories indicating the French automotive parts company Valeo SA is still looking at Delphi assets, as well as those of competitor Visteon Corp., but has no interest in buying either U.S. partsmaker whole.

Its executive chairman, Thierry Morin, declared that "we are not interested in buying one of the U.S. rivals in its entirety. But Visteon or Delphi could put assets on the market and we will look at that."

He added that he expects "a disintegration of Delphi one way or another. I think it will be split up into two to three new companies."

Visteon very steady

Visteon's bonds were meantime also unchanged, a trader said, its 8¼% notes hovering at 101 bid, 103 offered, its 7% notes due 2014 at 88 bid, 90 offered.

At another desk, a trader saw the company's paper up ¼ to ½ point, with the 81/4s at 102.5 bid, 103 offered, and the 7s at 88.25 bid, 88.75 offered.

The Van Buren Township, Mich.-based automotive parts producer announced Tuesday that chief financial officer James F. Palmer had resigned, effective March 9. Palmer is leaving Visteon to accept accepted an appointment as CFO of Los Angeles-based defense and technology company Northrop Grumman Corp. He will be replaced by William G. Quigley III, who will also retain his current post as chief accounting officer.

Levi little moved

Apart from the auto names, a trader said Levi Strauss & Co.'s bonds "traded like crap," with little movement seen, even though the San Francisco-based blue jeans company posted a solid profit in its fiscal fourth quarter.

He saw its 9¾% notes hanging in at 109 bid, 110 offered, while its 8 7/8% notes held steady at 106 bid, 107 offered.

Levi earned $95.7 million for the fiscal fourth quarter ended Nov. 28, more than doubling from net income of $43.6 million during the same time in 2005. Sales were $1.2 billion, up 4% from $1.16 billion in the prior year, although for the full-year sales dipped by 1% to $4.1 billion - the ninth time in the past 10 years that Levi has seen a year-over-year sales decline.

But despite the full-year sales fall, Levi earned $239 million, a 53% increase from $155.9 million in 2005. The company attributed the sharp profit increase to management's success in cutting production costs.

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