CIT gyrates before talks fail; Gannett up on earnings, Rite Aid gains; Freedom Group prices

By Paul Deckelman and Paul A. Harris

New York, July 15 - CIT Group Inc. was once again the center of Junkbondland on Wednesday, dominating the most-actives list for a fifth straight session in volatile trading amid speculation - which later turned out to be far off the mark - that Washington would assist the troubled commercial lender, which announced well after almost all trading had wrapped up that its talks with the government had ended and further federal support was highly unlikely in the near term. Before that, the bonds had come off their early highs, and some had already moved lower on the day.

Elsewhere, Gannett Co. Inc.'s bonds were solidly better after the newspaper company reported unexpectedly strong second-quarter earnings. Also better following earnings was Levi Strauss & Co.'s paper, despite the latter company's wider loss.

In fact, most junk issues, apart from CIT, were seen stronger, in tandem with a powerful stock market surge, including such "barometer" bonds as Community Health Systems Inc., First Data Corp. and Aramark Corp. One of the busiest non-CIT names was Rite Aid Corp., whose bonds also rose.

In the primary sphere, Freedom Group, Inc. priced a $200 million issue of secured notes, although that six-year deal came too late in the session for any secondary dealings.

Also on the new-deal scene, NewPage Corp. announced plans to raise $595 million of gross proceeds through the sale of new five-year senior secured notes, as part of a series of transactions aimed at increasing the

Miamisburg, Ohio-based paper maker's operating flexibility and reduce its indebtedness, also including amending its credit facility and tendering for outstanding debt.

A trio of prospective issuers were meantime heard by syndicate sources to be hitting the road to market their offerings to potential investors - New York City drugstore kingpin Duane Reade Inc., and casino operators MTR Gaming Group Inc. and Peninsula Gaming, LLC - the first two starting their roadshows on Thursday, and Peninsula starting next Monday

Freedom Group: tight and rich

Only one issue priced in the primary market.

However the junk bond syndicates ramped up their activity levels.

Freedom Group priced a $200 million issue of 10¼% six-year senior secured notes (B1/B+) at 97.827 to yield 10¾% on Wednesday.

The yield came at the tight end of the 10¾% to 11% yield talk. The issue price printed rich to discount talk of approximately 3 points.

Banc of America Securities LLC, Deutsche Bank Securities Inc. and Wells Fargo Securities were joint bookrunners.

Proceeds will be used to repay existing debt, including refinancing parent Remington's 10½% senior notes due 2011.

Peninsula Gaming two-parter

Meanwhile Peninsula Gaming announced it will start a roadshow on Monday for a $530 million two-part high-yield notes offering, according to an informed source.

The Dubuque, Iowa-based gaming firm plans to sell $215 million of six-year senior secured notes, which come with three years of call protection, and $315 million of eight-year senior unsecured notes which come with four years of call protection.

The roadshow is scheduled to wrap up on July 29.

Jefferies & Co. is the left bookrunner. Wells Fargo Securities is joint bookrunner.

Proceeds will be used to fund the acquisition of the Amelia Belle Casino, located near Morgan City, La.

Two-piece offer from Duane Reade

Also kicking off a two-part deal on Wednesday was Duane Reade.

The New York City-based drugstore company will begin a roadshow on Thursday for a $325 million two-part offering of high-yield notes.

Duane Reade plans to sell $215 million of six-year senior secured notes (B3/B-), and $110 million of seven-year senior subordinated notes (Caa2/CCC).

Pricing is expected early next week.

Goldman Sachs & Co. is the left-lead bookrunner. Banc of America Securities/Merrill Lynch is joint bookrunner.

Proceeds will be used to help fund the tender for $210 million of the company's Libor plus 450 basis points senior secured floating-rate notes due 2010 and $195 million of its 9¾% senior subordinated notes due 2011.

In addition to the notes proceeds, the tender is being financed with $125 million of preferred equity from Oak Hill Capital Partners, LP.

Proceeds from the new notes will also be used to repay the company's asset backed loan.

A better price point

Eying the Duane Reade and Peninsula Gaming two-part deals late Wednesday, a banker reflected that the structures hearken back to days of yore (2007 and before) when financings typically included a bank loan and junk.

If the market was healthy you priced the senior piece first (the bank loan, back in the day), and used it, as opposed to existing bonds, to create a price point for pricing the junior piece.

In good markets the new senior tranche will come with a rate more favorable to the issuer than that indicated by its existing securities, the source explained.

With respect to Duane Reade and Peninsula Gaming, since there is no bank deal, the idea is to price the secured tranche first, and use the pricing the get the issuer a break on the junior tranches' rate, relative to rates implied by the outstandings.

MTR to sell $250 million

Elsewhere Wednesday MTR Gaming Group will begin a roadshow on Thursday for its $250 million offering of five-year senior secured notes (expected ratings B2/B).

The deal is expected to price during the middle part of next week.

Goldman Sachs & Co. is the left lead bookrunner. Deutsche Bank Securities is joint bookrunner.

Proceeds, together with cash on hand, will be used to fund the tender for the company's outstanding 9¾% senior secured notes due 2010.

NewPage via Goldman

NewPage Corp. announced in a Wednesday press release that intends to raise $595 million of proceeds with an offering of five-year senior secured notes.

Goldman Sachs & Co. is expected to lead the deal, according to an informed source.

The timing of the notes offer remains to be determined, the source said.

NewPage will use the proceeds to fund a tender offer launched on Wednesday.

The early deadline for the tender is July 28.

The company is also seeking to amend its credit agreement.

Goldman Sachs is the arranger for the amendments.

Citigroup is the dealer manager for the tender, along with Banc of America Securities LLC, Credit Suisse Securities and Goldman Sachs. Barclays Capital Inc. is acting as co-manager for the offers.

New Freedom Group paper not seen

The new Freedom Group 10¼% senior secured notes due 2015 priced too late in the session for any meaningful aftermarket activity.

The existing 10½% notes due 2011 of Freedom Group unit Remington Arms Co. Inc. were meanwhile seen around the par bid level, in busy odd-lot trading. For a time, the bonds were quoted as good as the 101 level, before falling back to end at par - the price, plus accrued interest, at which the Madison, N.C.-based firearms manufacturer plans to redeem the $200 million of bonds on Aug. 7.

Recent Yonkers, Atlas deals firmer

Traders saw recently priced issues from Yonkers Racing Corp. and Atlas Energy Operating Co. LLC/Atlas Energy Finance Corp. trading at firmer levels.

A trader said that Yonkers 11 3/8% senior secured notes due 2016 were trading at 99½ bid, par offered, "up a bit" from the 98¾ level at which the bonds had traded on Tuesday. They were solidly firmer than the 97.095 at which the Yonkers, N.Y.-based racetrack and slot-machine gaming parlor operator had priced the $225 million issue on Monday to yield 12%.

And a trader said that Atlas Energy's 12 1/8%notes due 2017 were trading at 99 bid, 99½ offered, up from 98¾ bid, 99¼ offered on Tuesday, and also well up from the 98.116 level at which the Moon Township., Pa.-based oil and gas exploration and production company had priced its $200 million of bonds - upsized from the originally planned $150 million - on Monday to yield 12½%.

New Discover trades busily

A junk trader said that Discover Financial Services Inc.'s new 10¼% notes due 2019 were very actively traded on Wednesday, calling the Riverwoods, Ill.-based credit-card company's $400 million of bonds the second-busiest issue of the day, with $43 million traded, and seeing them at 100¼ bid, up from Tuesday's par level, which was same level at which they had priced on Friday. However, noting that the issue is split-rated, at Ba1/BBB-/BBB, and has attracted interest from both high-grade players looking for yield and junk investors wanting quality, he was unable to say how much of that busy trading volume came from which camp.

Market indicators point higher

Back among the established issues, the CDX Series 12 High Yield index - which had gained about 1/8 point on Tuesday, jumped by 1¼ points Wednesday to 85¼ bid, 85½ offered, a trader said.

The KDP High Yield Daily Index, which had eased 4 bps on Tuesday, rose by 35 bps on Wednesday to end at 62.76, while its yield tightened by 12 bps to 10.52%.

In the broader market, advancing issues - which had broken out of a six-session losing streak on Tuesday - padded their margin on Wednesday, leading by a nearly two-to-one ratio.

Overall market activity, measured by dollar-volume totals, rose by about 3% from Tuesday's level.

While CIT Group was definitely still the main noisemaker in the market on Wednesday, a trader said it was "definitely a more tempered day today," with features other than just CIT.

For instance, he noted the upside in several widely watched market "barometer issues," such as Franklin, Tenn.-based hospital operator Community Health Systems Inc.'s 8 7/8% notes due 2015, which pushed up to 99 bid from 98¼ on Tuesday, although "only" on $3 million traded, he said.

He saw "a lot of volatility in Greenwood Village, Colo.-based financial transaction processor First Data's 9 7/8% notes due 2015, which jumped to 69¾ bid from 68 previously, adding that the volume was $8 million, "which on a [CIT-dominated] day like today, is pretty decent."

Philadelphia-based food-service operator and uniform provider Aramark's 8½% notes due 2015 were up a point at 97 bid. "By these barometers, you'd think high yield was running," he said - and apart from CIT, it pretty much was, with a number of other issues also posting good gains.

The trader saw "a big move" in AK Steel Holding Corp.'s 7¾% notes due 2012, which moved up to 97 bid from 96¼ previously. About $5 million of the West Chester, Ohio-based specialty steelmaker's bonds traded.

He also saw Rye, N.Y.-based consumer products company Jarden Corp.'s 7½% notes due 2017 up 1 point at 90½ bid, on $12 million of turnover.

CIT circulates before announcing talks' end

But, as another trader pointed out, clearly, "our main focus was CIT," although he added that "it wasn't as active as the last couple of days."

Still, the New York-based commercial lender was easily the most active name, with some of its literally several hundred assorted issues showing very heavy volume, as has been the case in each of the last five sessions.

For instance, a trader said that the busiest junk issue of the day was CIT's floating-rate notes coming due on Aug. 17. He saw the bonds retreat to 81½ bid from Tuesday's level at 84, on turnover of some $82 million.

Another trader noted that the floaters had opened up 2 points on the day around 86 bid, 87 offered, "and then as the rumors caught on" - buzz that the Federal Reserve, the Federal Deposit Insurance Corp., and/or the Treasury would step in to somehow help the troubled company bolster its balance sheet, as they had done previously for other financial names - the bonds pushed up to around the 91 area, before falling back to settle in around 87-88, "or maybe even lower."

In fact, said a market source at another desk, the bonds had come off their midday lows around 81 to climb back up to the 86ish level by around 3 p.m. ET - when suddenly, all trading in CIT shares was halted, pending news.

"Everyone has to wait, to find out the news," a trader said at that time - "hurry up and wait." At the time, he was seeing the bonds ending around unchanged, at Tuesday's 84ish level, after having taken "a wild ride," gyrating between the low 80s and 91. When no positive news was quickly forthcoming, the bonds began to gradually shrink, like a balloon losing its air, until a market source saw them dipping as low as 79.5 bid by the end of the day.

As it turned out, those who had sold the bonds, figuring that the absence of a quick announcement of a government bailout after the stock halt was an ominous sign, proved to be prescient. CIT issued a terse announcement at 6 p.m. ET - long after the stock market had closed and just about all bond trading had ended - saying that the company "has been advised that there is no appreciable likelihood of additional government support being provided over the near term.

"The Company's Board of Directors and management, in consultation with its advisors, are evaluating alternatives. "

CIT's 4 1/8% notes maturing Nov. 3, which had previously moved up to 82½ bid from Tuesday's 761/2, a trader said, on $30 million traded, tumbled to a close of 78 bid.

CIT - which provides loans to thousands of mostly small- and mid-sized business customers, had been in talks for days with regulators from the three agencies, hoping to get a green light to issue FDIC-backed debt under the Temporary Liquidity Guarantee Program, as many other banks and other financial companies have done - including such CIT competitors as General Electric Capital Corp. When that wasn't happening, other ideas floated about were a temporary loan to CIT, or allowing it to up its borrowings from the Fed's discount window.

But in the end, Washington - which had already given over $2 billion in assistance to CIT earlier in the year -- decided that the company's financial situation was too far gone to justify putting more taxpayer money at risk. Nor was CIT considered intrinsically vital to the nation's financial structure, as, say, a Citigroup Inc. might be.

CIT executives now go back to the drawing board. There has been speculation in the financial media all week that a refusal by the government to offer more aid could ultimately push the 101-year-old company into Chapter 11.

Gannett gains on good numbers

Elsewhere, McLean, Va.-based Gannett Co., the publisher of USA Today and other newspapers, had some big news of its own on Wednesday - and that led to a big gain in its bonds.

Bucking expectations that the ongoing economic downturn would play further havoc with its ad revenues and earnings, as has been the case at many other media companies such as the bankrupt Tribune Co., Gannett reported that while revenues for the fiscal second quarter ended June 28 fell 18% to $1.41 billion, it swung back into the black with earnings of $70.5 million, or 30 cents a share. That was a sharp rebound from its year-earlier red ink of $2.29 billion, or $10.03 a share.

Excluding unusual items, Gannett earned 46 cents a share - down from the year-ago adjusted profit of $1.04 a share, but considerably better than Wall Street's expectations of adjusted earnings around 35 or 36 cents a share.

That profit boost pushed the company's 6 3/8% notes due 2012 up to 77 bid from Tuesday's 721/2, although volume was a light $2 million. "Wow!" one trader exclaimed.

Levi shrugs off loss

Also higher in the wake of earnings news was San Francisco-based apparel company Levi Strauss, whose 9¾% notes due 2015 moved up to 97 3/8 bid from 96½ previously, while its 8 7/8% notes due 2016 were 2 point gainers to 95¾ bid.

Another market source saw the 93/4s up more than a point at 97½ bid.

The bonds firmed despite the company's report Tuesday of a fiscal second-quarter net loss of $4.1 million, versus a $701,000 profit a year earlier.

Rite Aid rallies

A trader said that Rite Aid Corp.'s bonds were "trading sideways, unchanged," with its 9 3/8% notes due 2015 "trading down at the end of the day" to finish at bid levels around 65¼ to 651/2.

However, he did see its 10 3/8% notes due 2016 at 90 bid, 91 offered, "so they might have been up a point" from the 89-90 level around which "most of their volume [Tuesday] was closer to."

However, another trader said that Rite Aid was "showing some strength today - there were better buyers out there, right out of the chute."

He said "there are still buyers" for unsecured paper like its 7.70% bonds due 2027, which he saw in the 41-42 area, while its guaranteed paper, like the 8 5/8% and the 9 3/8% notes, both due 2015, "all in that 65-66 area, about a point stronger."

He saw "not much activity" in the second-lien secured paper, like the 10 3/8% notes due 2016 and 7½% notes due 2017. "The guaranteed paper, -- that's the one that was the most active," he said, like the 9½% notes due 2017 and the 9 3/8s. "They showed about a point of strength in the early morning."

A trader said the 9 3/8s firmed to 65¾ bid from 64½ on Tuesday, on $15 million.

He also saw the 9½% notes due 2017 a point better at 65½ on $12 million, while the Camp Hill, Pa.-based drugstore chain operator's 10 3/8s were 1½ points better at 903/4, on $12 million.

"So they definitely did better," he said, "and they did it on volume. I haven't seen three of their issues trade over $10 million each and be up a point in a while."

There was no fresh news about the company seen out that might explain the heightened activity in its paper.

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