Bally Fitness bonds fall on probe news; Bear Creek restructures deal; funds see $107.3 million outflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 17 - Bonds of Bally Total Fitness Holding Corp. were seen lower after federal prosecutors requested information from the Chicago-based fitness club operator. On the upside, Levi Stauss & Co.'s bonds were better on positive fiscal fourth-quarter numbers.

Primary market dealings were seen pretty restrained, with no issues heard having priced. Bear Creek Corp. tinkered around with the tranche sizes on its planned two-part issue of fixed- and floating-rate notes.

And after trading had wrapped up in the last full session of the week, ahead of Friday's pre-Presidents' Day abbreviated session, market participants familiar with the week high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that $107.3 million more left the funds than came into them in the week ended Wednesday.

That broke a two-week string of net inflows, including the $287.24 million inflow seen in the week ended Feb. 9. During that stretch, $405.74 million more came into the junk funds than left them, according to a Prospect News analysis of the AMG numbers.

Outflows have now been seen in four weeks out of the seven since the start of the year. The year-to-date 2005 cumulative outflow rose to some $1.032 billion from $925 billion the week before, according to the Prospect News analysis. The figures exclude distributions and count only those funds that report on a weekly basis. The fund flow numbers are considered a measure of junk market liquidity trends.

In secondary dealings, Bally's bonds were in bad shape after the gym operator announced that it had received a request for information from the U.S. Attorney for the District of Columbia in connection with a criminal investigation being conducted by that office. Bally said it is fully cooperating with the investigation.

Bally's 10½% notes due 2011 were seen by one market source to have dropped back to 95 bid from prior levels at 98.5, while its 9 7/8% notes due 2007 were two points lower at 82.5.

At another desk, a trader saw the 101/2s at 97 bid, 99 offered and the 9 7/8s at 82 bid, 84 offered, but acknowledged that he "hadn't seen much" in the bonds in the way of activity.

"Some guys were showing them [the 9 7/8% bonds] higher this morning," he said, "but that was stupid. Some guys were quoting them [eighty] four-six, but I think they got a little lower from what I could see. I see a lot of offerings at [eighty] six, but I don't see any bids against that. Let's say 82-4/83-5 is mostly what I'm seeing across the day."

Bally noted that it had received the request for information from the D.C. prosecutors following the release last week of the findings of the investigation by the company's audit committee into Bally's accounting irregularities.

The committee probe found "multiple accounting errors in the company's financial statements and concluded that four former finance executives, including the company's former chief executive officer and former chief financial officer, engaged in improper conduct," Bally said in a statement released Thursday.

As a result, Bally announced that it would make no further severance payments to its former chief executive officer, Lee Hillman, who resigned in 2002, and to its former chief financial officer, John Dwyer, who quit last April. The company also terminated its controller, Ted Noncek, and its treasurer, Geoff Scheitlin.

Bally also said that it had received a shareholder demand that it "bring actions or seek other remedies against parties potentially responsible for the company's accounting errors." The company's board of directors "is currently evaluating the request."

Levi gains

Elsewhere Levi Strauss bonds were seen better after the San Francisco-based apparel maker reported positive numbers for the 2004 fiscal fourth quarter ended Nov. 28, including a considerably smaller net loss.

Levi's recently issued 9¾% notes due 2015 rose to 103.5 bid, 104.5 offered from prior levels at 101.75 bid, 102.25 offered, a trader said, while its 12¼% notes due 2012 pushed up to 111.75 bid, 112.75 offered from 110.75 bid, 111.25 offered. He saw no trading in the company's 11 5/8% notes due 2008, which were last quoted a day or two ago around 106 bid, 107 offered.

At another desk, a trader quoted Levis' 11 5/8s at 106.5, up from 106.375, while its 93/4s were at 102.75, up 1½ points on the day.

Levi had a net loss for the fourth quarter of $19 million - a considerable improvement from the $245 million net loss seen in the fourth quarter of 2003. The company also made progress in lowering its debt, cutting it by $151 million during the quarter (see related story elsewhere in this issue).

Nextel little moved on earnings

Also on the earnings front, Nextel Communications Inc., as expected, posted strong results for the fourth quarter and for 2004, although the Reston, Va.-based wireless telecommunications company's bonds didn't really go anywhere on those numbers.

"It was pretty much a non-event," a trader said, quoting Nextel's bonds unchanged to down a quarter point on the session.

At another desk, its 7 3/8% notes due 2015 dipped half a point to 110 and its 8 7/8% notes due 2013 went to 108.5 bid from 108.875.

Nextel reported net earnings of $468 million (41 cents a share), a 26% drop from the year-earlier $631 million (55 cents per share) of earnings, which the company attributed to a $232 million income tax provision in the latest fourth quarter - nearly $200 million more than its tax liability a year ago. However, even with that provision, the earnings beat Wall Street's consensus projection of 39 cents a share.

For the full year, Nextel's earnings doubled to $3 billion ($2.62 a share) from $1.45 billion ($1.34 a share) in 2003.

The company also reported strong gains for the quarter and the year in the number of its subscribers, and continued to make impressive progress cutting its debt load and lowering its interest costs (see related story elsewhere in this issue).

Primary quiet

An overall quiet took hold of the primary market on Thursday, the last full session in the run-up the extended Presidents Day weekend.

No issues priced but one new roadshow start was heard. Gerresheimer Glas will start early in the week to come with marketing for a €150 million offering.

Meanwhile sources reported that the secondary market was firmer Thursday.

Shortly before mid-day Diane Keefe, portfolio manager of the Pax World High Yield Fund, reported that the market was very firm, and that there was better buying across sectors.

A puzzling forward calendar

One sell-side official told Prospect News on Thursday that the meager new deal calendar, containing just $785 million and €150 million of business, seems to defy simple explanation.

"Today things were pretty slow," the investment banker said. "Even the equity market was pretty lackluster."

Asked if a high volume January and early February - when 2005 issuance led the 2004 pace - might have created some indigestion, the source was reluctant to assent.

"People might be taking a step back, but that would be driven by the buy-side," the official said.

"That doesn't explain why banks don't have anything lined up.

"A couple of deals have gotten pushed around a little bit, but nothing exceptional," the source added.

"There are some issuers who we have been talking to who want to access the market with a Rule 144A for life deal. People are a little shaken up by that."

When Prospect News followed by asking this investment banker to comment on recent market color heard from a variety of sell-side sources that the requirements of the Sarbanes-Oxley legislation are slowing down issuers, the official replied that it is plausible.

"Whoever didn't start putting together their prospectus a week ago is going to have a problem because you can't bring the red now with your September numbers. You have to have December numbers because on Feb. 15 the September numbers went stale.

"So you have to wait for your audits, and most people won't have those done by early March.

"I think we are going to see that at the end of every quarter. There is going to be a lag time."

Gerresheimer to the starting line

One roadshow start was heard Thursday.

Gerresheimer Glas plans to begin a roadshow early next week for its €150 million offering of 10-year senior notes, which are expected to price on Monday, Feb. 28.

JP Morgan and Credit Suisse First Boston will be joint bookrunners for the acquisition deal from the Düsseldorf, Germany-based glass and plastics packaging company.

Meanwhile Bear Creek Corp. (Harry and David) issued price talk Thursday on its restructured $245 million two-part offering (B3/B-).

The company has upsized to $175 million from $145 million its tranche of eight-year non-call-four senior notes, which are talked at 8¾% to 9%.

Meanwhile Bear Creek has downsized to $70 million from $100 million its tranche of seven-year senior floating-rate notes, and talked them at Libor plus 500 to 525 basis points. The floating-rate notes will become callable after two years at 102.

Both tranches are expected to price on Friday via UBS Investment Bank.

The Harry and David deal was the only business expected to price on Friday, as the Thursday session came to a close.

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