Linens pushes back up; Solo Cup, Pliant bonds seen lower; Univision bonds and loan firm

By Paul Deckelman

New York, April 11 - Linens 'n Things Inc.'s bonds - which had been seen in retreat on Thursday amid speculation that it might soon file a pre-packaged Chapter 11 case to facilitate its restructuring - moved back up on Friday, traders said, even as the Clifton, N.J.-based housewares retailer was reported to have hired a turnaround specialist firm to help weigh its options, which include a bankruptcy filing.

Solo Cup Co.'s bonds were lower, as were Pliant Corp.'s, a trader said, noting that both packaging companies were feeling the impact of higher raw materials costs.

Univision Communications Inc.'s bonds - which had been hammered down earlier in the week on news that the media company had drawn down most of its revolving credit line availability, continued to push back upward to around the levels they held before that news roiled the market. Its bank debt was likewise continuing to move back upward to more normal levels.

A trader quipped "everyone was paying attention to the Masters [televised pro golf tournament]" to explain the generally dull and depressed activity levels. "That and it being Friday afternoon."

Linens active, higher

But he did see a fair amount of action in Linens 'n Things, whose floating-rate notes due 2014 had edged downward on Thursday to levels around the 37-38 area as speculation mounted that the company might file for bankruptcy protection in order to carry out a reorganization plan already negotiated with its main debtholders.

On Friday, there was further news to fuel the fires, as Bloomberg reported that the company had hired the restructuring firm of Conway Del Genio Gries & Co. to weigh options, which could include bankruptcy. That report attributed its information to unidentified "people with knowledge of the agreement." The Wall Street Journal meantime said in its Friday editions that the company could file for Chapter 11 protection by Tuesday, when it is supposed to make a $15 million interest payment on its $650 million of bonds.

"This morning right out of the gate," the trader said, market players "tried to push the bonds down a little, but buyers just came out of the woodwork and pushed them all the way back up." He saw the bonds going home at 39 bid, 40 offered, "actually a little bit better than where they were yesterday."

Linens was one of the more actively traded bonds in a generally dull session - overall junk market volume, as reported by the Trace bond-tracking system, fell by fully one third on Friday from Thursday's levels.

"A lot of size traded," another trader opined, seeing the bonds gyrate between 35 bid and 40 bid, "and they were up a couple."

A third trader allowed that "as a matter of fact, quite a few [Linens] bonds traded - wow." He saw the bonds gyrating between 35 and 41 on the bid side, with the last round-lot trade that he saw at 40, in sharp contrast to Thursday's levels around 37 bid, 38 offered, "up a good 2 or 3 points" on the day.

Bloomberg said the company is seeking to negotiate with creditors including General Electric Capital Corp.

Linens 'n Things is controlled by the buyout firm Apollo Management LP, which bought the company two years ago for $28 per share, or $1.3 billion.

The bonds have recently been moving up from lows around the 30 area, and there has been some market speculation - reported in Thursday's editions of The New York Post - that Apollo has been buying up the bonds in order to have more of a voice in what is expected to be a coming restructuring, which could include a debt-for-equity swap.

There was no confirmation of any of the published reports Friday from Linens 'n Things or Apollo. One of the principals of Conway Del Genio confirmed that the company had been hired but declined to provide further details.

The New York-based turnaround specialist has played a role in a number of high-profile workout situations, including those of Adelphia Communications Corp. and Sharper Image Corp. - the latter, like Linens 'n Things a struggling specialty retailer. Sharper Image hired the firm's consultants a week before going into Chapter 11 in February.

Linens 'n Things - like larger competitor Bed, Bath & Beyond - has found a tough competitive environment with the decline of the housing market. Its sales fell 0.9% to $2.79 billion last year - with same-store sales, the retailing industry's key economic metric, sliding 3.4% - and it posted a $242.1 million loss for the year, according to a recent regulatory filing. Moody's Investors Service on Friday downgraded the retailer's credit ratings by a notch to Caa2, citing its problems doing business in the considerably softer environment for home goods recently.

"Moody's expects Linens 'n Things will be challenged to stem its current level of operating losses and free cash flow drain," the ratings agency warned, "thus placing further strain on the company's already weak liquidity position and increasing the probability of default."

Retailers slip

A trader said that given the continued soft economy, "retailers in general were softer," although Linens was the most notable. Other names he saw easing including Claire's Stores Inc., Bon-Ton Stores Inc. and Sally Beauty Co.

Oil prices hurt packaging firms

Elsewhere, a trader said that Solo Cup's 8½% notes due 2014 were down 1½ points on the day at 82.5 bid, 83.5 offered.

He saw no company-specific news out on the Highland Park, Ill.-based maker of paper and plastic cups, plates and disposable cutlery, but noted that sector peer Pliant Corp. - the Schaumberg, Ill.-based plastic packaging maker - was also down, its 11 1/8% notes due 2009 off a point at 77 bid, 78 offered.

Solo, he noted, "has been weaker over the last two sessions on raw materials costs," as petroleum prices remain sky-high, clinging to the $110 per barrel range - fully 77% above year-ago levels, owing to increased demand and the sliding value of the U.S. dollar.

"All of the packaging companies are getting hit," he said, since petroleum is the key ingredient in the manufacture of most plastics.

He saw Solo's bonds down 2 points on the week, while Pliant's notes fell 4 points in that time.

Another market source called the Solo bonds down 2 points on the day at 82 bid.

Univision continues rebound

Univision Communications' 7.85% notes due 2011 - which had plunged as low as 83 bid on Tuesday in response to news of the big revolver drawdown, only to then start gradually clawing their way back up - were seen having gained several points Friday, although mostly in small-piece trading. A market source saw the bonds going out at 93 bid, up from Thursday's close at around 89, although the only really sizable trade took place early in the session at that same 89 level.

In the bank-debt market, Univision's strip of institutional bank debt's upward momentum continued into the Friday session so that the paper is now basically back to where it was trading prior to when the company's drawdown news hit the market, according to traders.

The institutional debt was quoted by one trader at 78 bid, 78½ offered, and by a second trader at 78 1/8 bid, 78 5/8 offered, up from 77 bid, 78 offered on Thursday.

This past Monday the bank debt was quoted at 78 bid, 79 offered, and then on Tuesday it traded as low as 74 when people first heard that the company drew down nearly all of its revolving credit facility debt. By the end of the day Tuesday, the paper had rebounded to the 76 bid, 77 offered context and it has continued to inch its way higher every day since then.

Specifically, the Los Angeles-based Spanish-language media company drew down $700 million under its $750 million revolver, of which up to $250 million can be used to pay down its $500 million second-lien asset sale bridge loan that is due on March 29, 2009.

After giving effect to outstanding letters-of-credit, the company has approximately $18 million remaining available under the revolver.

According to the company, there is no immediate need for additional liquidity but, in light of current financial market conditions, the decision was made to make the revolver draw so as to get greater financial flexibility.

Univision also initiated a draw under its $450 million delayed-draw term loan for the remaining $250 million of funds available under the tranche, with the proceeds earmarked for the prepayment of senior notes that are due in October.

Market participants initially found the draw down unsettling as it brought up concerns over the company's credit strength in general since it operates in the media sector and is highly levered.

Homebuilder names mixed

Homebuilders were seen mixed, with a trader seeing Hovnanian Enterprises Inc.'s bonds mostly trading in a 68 bid, 70 context. He called that unchanged, noting in the late afternoon that "the last updated run I have on them is from 11 a.m. (ET) - so that should tell you" the low level of activity in the Red Bank, N.J.-based builder's issues.

He also saw Beazer Homes USA Inc.'s 6 7/8% notes due 2015 "a little better" at 75 bid, 77 offered, "but on not much activity."

He saw Standard Pacific Corp.'s 6¼% notes due 2014 unchanged at 72 bid, 74 offered, although at another desk, the Irvine, Calif.-based builder's 9¼% notes due 2012 were nearly a point better at the 63.5 bid range.

From deep in distressed territory, a trader reported that Rolling Meadows, Ill.-based builder Kimball Hill Inc.'s usually rarely seen 10½% notes due 2012 were down 3 full points - a full 30% of their little remaining value - falling to 7 bid, 9 offered. Those bonds had been trading near par a year ago, and after having fallen sharply since then, still managed to briefly spike into the upper 70s in late February, before falling back down again.

Kimball Hill said Friday that it has further extended the existing waiver agreement with its lender group - which had been scheduled to expire on Friday - through May 9, the latest in a series of such extensions. The company said that during the extension period, Kimball Hill "will continue active discussions with its lender group to formulate and implement a long-term solution to reposition the company in light of current challenges facing the homebuilding industry."

Sara Rosenberg contributed to this report.

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