Distressed names Winn-Dixie, Mirant dominate quiet pre-holiday trading; euro deals will hit the road

By Paul Deckelman and Paul A. Harris

New York, July 1 - With high-yield secondary market activity typically slow for the Friday before the Fourth of July, traders said movement in a couple of distressed names - Winn-Dixie Stores Inc. and Mirant Corp. - were about the only real features seen in an otherwise deadly dull session mostly taken up by clock-watching ahead of the 2 p.m. ET market close.

Overall, one market source marked high yield unchanged.

In the primary market, two euro-denominated deals were heard getting ready to take to the road next week for presentations to would-be investors - European issuers Cirsa Capital Luxembourg SA and Schieder Moebel Holding GmbH.

And the new issue market did see a bit of drive-by action as South African cellular company Cell C brought an upsized dollar-denominated deal to complement the euro deal that it completed two days previously.

On Friday the company priced an upsized $270 million of 10-year notes (Caa1/B-) at par to yield 11%. It was increased from $200million.

Readers will recall that on June 29 the company priced a €400 million issue of seven-year notes (BB-/B2) at par to yield 8 5/8%.

Citigroup had the books on both deals.

Cell C first stuck its toe into the frigid high-yield pool early in the spring, only to pull away until the market warmed up a bit, as it apparently has done.

A $3 billion week

The Cell C dollar-deal took the week's new high yield issuance to just over $3 billion in 13 dollar-denominated tranches, notably close to the previous week's $3.2 billion, also in 13 tranches.

At Friday's close, high-yield had seen just under $52.3 billion of dollar-denominated issuance price in 210 tranches so far this year. However even with a pair of back-to-back $3 billion weeks, the 2005 junk market continues to considerably lag that of 2004 which had seen nearly $77.25 billion price in 318 tranches by the July 1 close.

News from Europe

The preponderance of pipeline news Friday issued from Europe.

Schieder Moebel Holding GmbH will begin a roadshow in the upcoming week for its €145 million offering of seven-year senior subordinated notes via Citigroup and WestLB.

The Herford, Germany, furniture company will use the proceeds to repay debt.

Elsewhere Central European Distribution Corp. will begin a roadshow for €300 million of seven-year bonds on Wednesday.

ING has the books. Central European is a beverage company based in Bala Cynwyd, Pa., and Warsaw, Poland.

And Spanish gaming firm Cirsa Capital Luxembourg SA talked its €130 million offering of seven-year senior notes (B2/B) at 7¾% to 8% on Friday.

The Deutsche Bank Securities-led deal is expected to price in the week.

High yield too costly?

A buy-side source said Friday that rumors persist that potential issuers are increasingly demonstrating a preference for the bank loan market, and might be perceiving the junk market as too expensive since the March 2005 sell-off.

"There has not been a steady drum beat of issuance," the investor said. "The mood of the market seems fine. And returns have been solid and consistent for the past month and a half.

"Right now it seems like the sponsors are really reaching for that cheap bank loan money," the investor added. "Sponsors are starting to ask underwriters why they have to pay extra to do a high-yield deal.

"My answer is because you want a more balanced structure in the long run and so you should just accept the short-term disparity.

"But people may be thinking that once the high-yield bond market comes back they will refinance some of the bank debt."

Secondary quiet

Back in the secondary sphere, it was, as could be expected during an abbreviated pre-holiday session, "pretty slow, with nothing really going on," a trader said. "There were not too many markets [in individual issues]. Guys were heading for home early, and there weren't many inquiries."

"There was not much happening," another trader agreed. "It was a quiet, quiet day - we did a couple of trades, did some stuff here, but there was nothing of any consequence, other than the market giving back its [Thursday] rally on the Treasury side. It was really super-quiet. We don't see anything of major consequence. Runs came out in the morning - but there was no real trading activity," other than here and there, a name which perhaps had some news attached to it - and sometimes, not even then.

Toys slips on downgrade

For instance, the trader said, Toys "R" Us Inc.'s bonds were "off about a half [point], but no real trading there," on the news announced late Thursday that Standard & Poor's had lowered its corporate credit and senior unsecured debt ratings on the Wayne, N.J.-based toy and children's products retailer to B+ and B-, respectively, from BB previously, while keeping them on CreditWatch with negative implications; the ratings agency cited the substantial debt burden that the company will have as a result of its pending leveraged buyout by a consortium consisting of Kohlberg Kravis Roberts & Co., Bain Capital Partners LLC and Vornado Realty Trust.

The trader quoted its 7 3/8% notes due 2018 as having "hung in there" at 80 bid, 82 offered, "maybe off half to a point but still in the same general context" as previously, "just a little wider." He saw its 7 5/8% notes due 2011 at 91 bid, 92.5 offered, down a bit from 91.5 bid, 93 offered Thursday. "The bids are still there, but the offerings are coming in a little tighter."

At another desk, a market source saw the company's 7 7/8% notes due 2013 at 89, off perhaps ¾ to a full point.

Winn-Dixie higher on sale news

One name where there seemed to be some substantive movement on was Winn-Dixie, whose bonds perked up on the announcement by the bankrupt Jacksonville, Fla.-based supermarket operator that it had reached agreement to sell 79 of its stores, or about one-quarter of the 326 locations which it has slated for closing as part of its reorganization attempt.

A trader saw the company's real estate-backed pass-through through securities - its 7.803% notes and 8.181% notes - each several points higher, at 74 bid, 76 offered and 75 bid, 77 offered, respectively, while its unsecured 8 7/8% notes due 2008 had pushed up to 64 bid, 66 offered, "up from the high 50s" previously on the news.

"The story came out late in the [abbreviated] day," he said, but he noted that some market players likely knew that something was up and took the company's bonds higher.

Winn-Dixie's 8 7/8s had shot up solidly several weeks ago after the company on June 21 disclosed plans to close, and presumably sell, 326 of its 913 stores, mostly in the southeastern United States, and to eliminate more than 22,000 jobs, including about 500 headquarters positions in Jacksonville, Fla. That took the bonds up from about 50 bid into the lower 60s over the next few sessions, but those bonds "dropped back after that flurry - but now they're back up."

In a filing Friday with the with the U.S. Bankrupt Court for the Middle of District of Florida, the company said that it had found bidders who will continue to operate the 79 locations as grocery stores and who have agreed to hire Winn-Dixie associates - i.e. store employees - who otherwise faced the loss of their jobs. The would-be buyers represent stalking horse bids for those properties, totaling $38.7 million in potential proceeds for Winn-Dixie, assuming those bids are accepted. Other bidders could come forward with better offers on any one of the stores, a group of them or all of them prior to the auction for those properties, which is scheduled to be held on July 18-19.

Winn-Dixie will continue to market the remaining 247 stores to potential buyers.

Mirant rises

Elsewhere, another distressed name - Mirant - was also heard up several points, although traders cautioned that activity levels were restrained.

They said the Mirant bonds rose after the judge hearing the Atlanta-based power generating company's bankruptcy case on Thursday ordered Mirant and its advisors, the Blackstone Group, to re-evaluate the methods they have been using to determine the value of the company after equity holders complained that those methods severely undervalue the enterprise value of Mirant - perhaps by as much as $1.74 billion - thus impacting on the size of their likely recovery. Mirant said on Friday that it would comply with the judge's orders and modify its valuation procedures.

"The ruling could allow the equity investors to recoup some of their losses," a trader said, "and so the unsecured paper and the equity are up a lot."

He saw Mirant's defaulted 7.40% notes, which were to have come due last year, as having risen Friday morning to 83.75 bid, 84.75 offered, from 81 bid, 82 offered going home on Thursday. Its 7.90% notes due 2009 did even better, gaining three points to end at 85 bid, 86 offered, he said.

Another trader saw a more conservative rise, with the 7.40s going to 82 bid, 84 offered from 80.25 bid, 82.25 offered previously, and its 7.90s rising to 83.5 bid, 85.5 offered from 81 bid, 83 offered.

Yet another trader pegged the Mirant paper "up a couple of points, with the 7.90s at 84.5 bid, 85.5 offered, and the 7.40s at 82.5 bid, 84 offered.

Auto names mostly steady

In the recently volatile automotive sector, things were "status quo," a trader said, seeing little real activity in the bonds of troubled auto giants General Motors Corp. and Ford Motor Co., suppliers like Delphi Corp. or those of deeply troubled suppliers like bankrupt Troy, Mich.-based automotive interior components maker Collins & Aikman Corp., whose 10¾% senior notes due 2011 gyrated wildly at lower levels Thursday before coming off their lows to end at bid levels in about a 22-24 context.

"CKC was a big up-and-down name [Thursday]," he said, but on Friday, he saw "nothing at all."

Another trader quoted those Collins bonds at 22.5 bid, 23.5 offered, "off a little," while a third saw them perhaps a point lower at 21 bid, 23 offered.

Collins & Aikman's bonds had swooned sharply into the 20s from long-held levels in the lower 40s on market speculation - which later turned out to be on the money - that it faces financing problems as it tries to restructure itself, with its bank group having refused to cough up the remaining $150 million of the scheduled $300 million of debtor-in-possession financing. That forced Collins & Aikman to seek $30 million in emergency bridge funding from its customers - enough money to let it continue operations for the moment, but only enough to get it to about July 7. That's when the next bankruptcy hearing on financing is scheduled to be held in Detroit.

Collins & Aikman said that it is working "with all of our constituents" on developing a longer range financing plan that will give it sufficient liquidity while it attempts to restructure itself. One idea being floated around, sources said, was for the "lending customers" - principally, General Motors and Chrysler - to provide it with another $200 million on roughly the same terms the $30 million bridge loan carries.

The company's lenders have objected to making the $30 million of unsecured bridge funding an administrative priority claim - meaning it would rank ahead of debtors in order of repayment - and presumably would oppose any similar status for any further bridge funding. They contend essentially that that the customers are not part of the solution to the company's woes - they are a major part of the problem. On June 29, the company's unsecured creditors committee filed a motion seeking to force Collins & Aikman to immediately terminate any kind of unprofitable contracts with its customers, and to immediately move to close down any unproductive plants or other facilities.

Apart from Collins & Aikman, traders said there was little activity in other auto names either.

A trader saw GM's benchmark 8 3/8% notes due 2033 at 83.5 bid, 84 offered, having tightened about half a point from 83 bid, 84 offered previously, but with "no material change in the bid." He saw Ford's flagship 7.45% notes due 2013 "unchanged to a tad higher" at 82.75 bid, 83.75 offered.

Likewise, while he saw Dura Operating Corp.'s 8 5/8% notes "a tad weaker" at 89 bid, 90 offered, he saw Delphi's 2013 notes at 74 bid, 75 offered, its 2009 notes at 83 bid and its 2006 notes at 97 bid, 98 offered, "probably about where they've already been."

Another trader remarked that overall, "I'd say 75% of the Street was not even here. My brokers left between 10 and 11 o'clock [ET], and the majors were pretty much gone right after that." He said that a friend at one of the giant investment banks told him that everyone who was anyone was gone by noon, "so it was just a non-existent day."

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