UPC prices upsized euro deal; Bally bonds bounce on war of the words

By Paul Deckelman and Paul A. Harris

New York, July 22 - UPC Holding BV took advantage of brisk investor demand for its nine-year euro-denominated issue to upsize it by two-thirds when it priced Friday, high-yield syndicate sources said. They also heard price talk emerging on SunGard Data Systems Inc.'s two-part mega-deal, which is expected to price around the middle of the upcoming week.

In the secondary arena, traders to the man described the day as dull, boring and uneventful - about what you would expect on a steamy mid-summer Friday. They saw a little bit of activity in the bonds of Bally Total Fitness Holding Corp. as the war of words between the underperforming Chicago-based fitness club chain operator and the chairman of its largest shareholder escalated, sparked by the investor's call for the replacement of Bally's chief executive officer, Paul A. Toback.

Elsewhere, there wasn't much doing, including in the notes of Maytag Corp., following the Newton, Iowa-based appliance maker's apparent brush-off of would-be suitor Whirlpool Corp. in favor of the offer it previously endorsed, from a group led by Ripplewood Holdings.

Near the close of a "very quiet" Friday session in the high-yield bond bazaar one source was marking the market up as much as a quarter of a point.

Another source commented that "with something of a bid out there" the junk market continues to grind higher and tighter in spite of the continued "flat-to-negative" news on the funds flows front. On Thursday, according to sources, AMG Data Services reported outflows of $53 million from high-yield mutual funds for the week to July 20.

Meanwhile, the source said, during the same period equities saw inflows of $1.57 billion, investment-grade bond funds saw inflows of $342 million, U.S. Treasury funds saw inflows of $263 million, international funds saw inflows of $1.3 billion, and money market funds saw inflows of $13.64 billion.

Among individual names, a trader said Bally Total Fitness notes were moving around, with an exchange of what he called "some really fun letters" between the company and Emanuel R. Pearlman, the chief executive officer of Liberation Investment Group LLC, which holds 12.2% of Bally's shares.

"You should check those out," he counseled, "they're getting a little personal there."

He saw Bally's 10½% senior notes due 2011 as having firmed to 101.25 bid, 102.25 offered from prior levels around 100.5 bid, 101.5 offered. "They're hanging in there," he said.

He meantime saw the company's 9 7/8% subordinated notes due 2007 as retreating to around 88 bid, from 89.

He said that those bonds "had been at 89 [the previous] week - then they announced they would be late" in filing their earnings reports with the Securities and Exchange Commission, and the bonds fell about 1½ points, before coming back up to 89, where they stood on Thursday.

Another trader, though, said there had been "not a lot of movement" in the Bally bonds despite the kerfuffle over whether Toback should be replaced. He saw the 9 7/8s up half a point at 88.5 bid, 89.5 offered, and saw the 101/2s unchanged at 101 bid 102 offered, "pretty uneventful."

A market source at another desk saw the 9 7/8s having pushed as high as 90 bid, up nearly a full point.

The Bally brouhaha began around mid-week, when Liberation - which has long criticized current management - fired off a missive to the company in the wake of Bally's recent statement saying it would not be able to file its quarterly reports on time and indicating that it would seek another extension from its bondholders.

Liberation said it was "surprised and disappointed" when the company last week said it would miss the July 31 deadline to submit financial reports for the years 2002 to 2004; the non-filing technically represents a default on certain debt.

It said that it was obvious that the company "desperately" needs new leadership to rebuild investor confidence.

"In our estimation, last week's announcements are further evidence that Bally's management team continues to flounder in its efforts to set the company on a path to maximize shareholder value," Liberation said in a statement. "As a result, we believe the capital markets have now lost any and all confidence in current management."

Liberation urged Bally's board to launch a search for a new chief executive officer to replace Toback, who has held the role for the past two and a half years.

"The leadership of any company has to be accountable for a company's performance, and the leadership of this company must now stand up and take responsibility for the performance of Bally," Liberation said.

It also requested that Pearlman be elected as a Bally director, "in order to give credibility to the board's commitment to effect change at the company."

Bally's response was not long in coming, nor was it particularly diplomatic. The board said it stood behind Toback and would not seek a replacement for him and also rejected Liberation's demand that Pearlman be seated on the board.

"Given your past involvement with the company as a financial advisor to former Bally CEO Lee Hillman during the years that we are now in the process of restating, we are surprised by your lack of understanding of the time and resources required to remedy the accounting so we can resume normal reporting," the company sniped.

Then, it alleged that "[d]uring your role as an advisor to the company, Bally paid you millions in fees and the stock price, during 2002 alone, fell from a high in the mid 20s to a low of 6. You had years of opportunity to contribute to making Bally a successful company. Instead, you and your colleagues rewarded Bally shareholders with unprecedented levels of new debt and expensive acquisitions, without an operating plan or a capital market plan to increase shareholder value.

"Our shareholders have already experienced your approach to creating value, and we think your historical actions - and the millions of dollars your ideas have cost the company and shareholders to date - speak for themselves," Bally said.

On Friday, Liberation fired back, claiming that it was "astounded" by the tone of Bally's letter. "[W]e were shocked by the unprofessional tone your letter assumed by launching a personal attack on a representative of one of the company's largest shareholders."

"It also denounced the final paragraph of Bally's letter as having been "laced with innuendo and factual misstatements."

If further acidly observed that "for two of the years for which you are restating financials Mr. Toback served as the CEO of the company and personally signed and certified those financial statements under Sarbanes-Oxley." Liberation requested "the opportunity to present our case to the independent board so that you may fully understand our reasoning and hope we can move forward in a more productive, professional manner."

Maytag steady as board ponders

Board maneuverings were also taking place at another high-yield issuer, the recently junked Maytag Corp., which agreed to be bought for $14 per share cash by a group led by Ripplewood Holdings - only to have Whirlpool Corp. make a $17 per share cash and stock offer for the company.

Maytag's board said Thursday night that it was "unable to determine" that Whirlpool Corp.'s proposal, announced on July 17, "may reasonably be expected to lead to a financially superior transaction that is reasonably capable of being completed."

Maytag stated that such a determination was a prerequisite under its existing merger agreement with the Ripplewood-led group for Maytag to furnish information to Whirlpool or have discussions and negotiations with it. Maytag stated that it will continue to evaluate the Whirlpool proposal.

Whirlpool on Friday said its bid was superior to Ripplewood's which is slated to be voted on next month.

A trader saw Maytag's 5% notes due 2015 at 88 bid, 89 offering, unchanged on the day.

Steel higher

The steel sector was "still strong," a trader said, quoting AK Steel's bonds up a point on the day but up three on the week, with its 7 7/8% notes due 2009 at 95.25 bid, 95.75 offered. He saw Ryerson Tull's 8¼% notes due 2011 at 92 bid, 93 offered, up 1 point on the day and four on the week.

It's a summer Friday

During the final session of the July 18 week, the new issue market produced a paucity of news, which one official on a high-yield syndicate desk chalked up to the fact that it was a mid-summer Friday.

One issue priced, as UPC Holding BV (Liberty Global Inc.) upsized to €500 million its issue of senior notes due Jan. 15, 2014, and priced them at par to yield 7¾%, on top of price talk.

Credit Suisse First Boston and JP Morgan were the bookrunners for the deal from the Denver-based owner of interests in broadband distribution and content companies that operate outside the continental United States.

The deal upsized from €300 million.

Less than $1 billion on the week

With no dollar-denominated deals pricing Friday, the week of July 18 came to a close having seen only $650 million priced in three dollar-denominate tranches. That trails the previous week's much more impressive $2 billion in 10 tranches.

At Friday's close the market had seen $55.15 billion of year-to-date issuance in 224 dollar-denominated tranches. At the same point in 2004 the junk market had turned out $83.47 billion of issuance in 341 tranches.

SunGard issues talk, upsizing expected

With little activity in the primary market Friday sources began to look to the week ahead.

SunGard Data Systems Inc. issued price talk on its $1.25 billion two-tranche offering of eight-year senior unsecured notes (B3/B-).

The fixed-rate note is talked at the 9¼% area and the floating-rate notes are talked at Libor plus 450 to 475 basis points.

Books close on Tuesday with pricing expected on Wednesday.

Deutsche Bank Securities, JP Morgan, Citigroup, Goldman Sachs & Co., Morgan Stanley and Banc of America Securities are bookrunners for the massive LBO deal.

A buy-side source said Friday that SunGard is expected to end up issuing more than $1.25 billion this week, when all is said and done.

"They say it could be as much as $2 billion, but I think they are probably going to settle in around $1.5 billion," the source said.

"And the maximum that they will do on the floater is going to be $300 million to $350 million.

"The books on the loan are supposed to close today," the source added. "They're going to do $4 billion priced at [Libor plus] 275. They're still trying to tidy up the sterling and euro pieces - they carved small portions of those out of the term loan."

A quiet week ahead?

The buy-side source also suggested that high summer may be upon the high-yield market, meaning that primary market activity could hit a lull starting at the present and lasting through the long August pull to Labor Day.

In addition to SunGard, the only dollar-denominated deal in the market as business expected to be priced during the final week of July is FTI Consulting Inc.'s $175 million offering of eight-year senior notes (Ba2/B+) via Goldman Sachs & Co. and Banc of America Securities.

The deal, which is currently on the road, is expected to price on Thursday.

Ashtead, Digicel firm at higher levels

Meanwhile among dollar-denominated issues which priced Thursday, a trader saw Ashtead Holdings plc's new 8 5/8% notes due 2015 - which priced Thursday at par and then shot up to levels around 103 bid - at 102.75 bid, 103.5 offered Friday.

And they observed Digicel Ltd.'s new 9¼% notes due 2012 bouncing around between 102 and 103 bid. Those bonds had priced Thursday at par and then firmed smartly to just below 103.

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