New MarkWest bonds hold gains; Linens 'n Things, Univision gain on day; Radio One off on acquisition

By Paul Deckelman and Paul A. Harris

New York, April 11 - MarkWest Energy Partners LP's bonds - which priced at a slight discount to par on Thursday and then shot up in initial aftermarket dealings - were seen continuing to hold those gains against the backdrop of Friday's generally softer junk bond market.

Among the more established issues, 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.

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.

Windstream Corp.'s bonds were easier, even though Standard &Poor's raised its outlook on the Little Rock, Ark.-based telecommunications company's bonds to "stable" from "negative" previously.

Radio One Inc.'s bonds were off, a trader citing the news of an acquisition by the communications company.

The primary market was meanwhile quiet, as participants relished the success of Thursday's upsized MarkWest deal and speculated whether it was a harbinger of reviving strength in the new-deal arena.

Market indicators mostly lower

A senior high yield syndicate official marked the broad market ¼ to ½ point lower on Friday.

A trader saw the widely followed CDX index of junk bond performance down ½ point Friday at 93½ bid, 94 offered. Meanwhile, the KDP High Yield Daily Index retreated by 11 basis points to 74.28 while its yield widened by 3 bps to 9.60%.

In the broader market, advancing issues trailed decliners by a small margin for a third straight day. Overall activity, reflected in dollar volumes, dropped by about one third from Thursday's levels.

A trader called the session "a quiet day." He opined that "the market is in flux between the huge inflows seen yesterday" - sources said AMG Data Services of Arcata, Calif., reported $716 million more came into weekly-reporting high yield mutual funds than left them in the week ended Wednesday, the biggest such cash infusion in many, many months - "and the disappointing equity markets and earnings releases." Stocks fell badly on Friday, driven lower by General Electric Co.'s lower-than-anticipated quarterly earnings. The bellwether Dow Jones Industrial Average, of which GE is a key component - it is, in fact, the last surviving company of the original 12 issues that made up the Dow when the index first began publishing back in 1896 - lost 256.56 points, or 2.04%, to end at 12,325.42. Broader equity indexes like the Nasdaq and the S&P 500 followed suit.

With those conflicting factors at play, he said that "there is very selective trading happening. There's no widespread theme, per se."

New MarkWests hold their own

The trader saw MarkWest Energy's new 8¾% notes due 2018 trading at 101.25 bid, 101.75 offered, well up from 99.183 at the $400 million issue's pricing on Thursday, and up a bit and tighter from its initial secondary market level later Thursday of 101 bid, 102 offered.

"Considering the market - the overall tone - that has held in very nicely," he said.

Another trader saw the bonds at the same 101 bid, 102 offered level at which they had traded Thursday after having been freed for aftermarket dealings.

Windstream off despite S&P boost

Perhaps the most actively traded issue of the session was Windstream's 8 5/8% notes due 2016, which were seen off nearly a point, at just over par bid.

That retreat came despite bullish words from S&P, which upped its outlook on the company to "stable" from "negative" previously.

The ratings agency, in raising its assessment and affirming Windstream's BB+ corporate credit status, cited the company's ability to offset a revenue decline in its voice business.

S&P analyst Susan Madison wrote that the upward revision reflects Windstream's "success in mitigating revenue losses related to its declining voice business with growth in internet and data revenues," and also took note of its success in cutting costs.

However, noted analyst David Novosel of the Gimme Credit investment research service - who also rates the credit as "stable" - Windstream's revenue growth "will be constrained by continued access line losses stemming from wireless substitution and increased cable competition."

Novosel also cautioned investors that while the company's free cash flow is "solid ... we think it will primarily be used for share repurchases or acquisitions" rather than to pay down debt.

Linens up amid bankruptcy talk

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."

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 weak

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.

Univision continues rebound

Univision Communications' 7.85% notes due 2011 - which had plunged as low as 83 bid on Tuesday on 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.

On Tuesday, the Los Angeles-based Spanish-language media company drew down $700 million under its $750 million revolver, planning to use up to $250 million to pay down its $500 million second-lien asset sale bridge loan that slated to come due next March 29.

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.

That action shocked market participants, who saw it as a signal that the company might be in a liquidity jam, although the bonds and its bank debt both eventually recovered.

Radio One lower on acquisition

Also in the media sphere, trader saw the 8 7/8% notes due 2011 of Washington, D.C.-based broadcaster Radio One down a point at 85 bid, 86 offered, citing the news that the company will acquire a New York-based social networking company, Community Connect Inc.

The transaction is valued at about $38 million.

Dole bonds bouncing back

Elsewhere, a trader saw Dole Foods Co.'s 8¾% notes due 2013 up 2 points on the session at 78 bid, 79 offered. Those bonds were coming back after having been driven lower earlier in the week on speculation that the Westlake, Calif.-based fruit and vegetable producer faced the possibility of defaulting on $350 million of bonds coming due next year.

There were media stories suggesting that Dole might have to follow the lead of Univision and drawn down its credit line to meet the obligation and avoid default, or that the privately held company's controlling shareholder, octogenarian billionaire David Murdock, might have to give the company an emergency cash infusion. However, this was followed by the news later in the week that the company was selling some of its land holdings in Hawaii and California to raise the necessary capital.

A five-deal week

Reviewing primary action, five U.S. issuers, each pricing a single tranche of notes, raised $1.189 billion of proceeds during the week to Friday.

In terms of deal volume, the five-deal April 7 through April 11 week was the biggest so far in 2008.

Apart from the LBO backlog, it was the second biggest week in terms of proceeds raised, behind the March 24 week which saw slightly less than $1.33 billion in three tranches.

All the week's deals were quickly shopped.

Thursday saw MarkWest Energy Partners, LP price an upsized $400 million issue of 8¾% 10-year senior notes (B2/B) at 99.183 to yield 8 7/8%, at the tight end of the 9% area price talk.

JP Morgan, RBC Capital Markets and Wachovia Securities were joint bookrunners for the week's only deal to be in the market for more than a day; MarkWest launched Tuesday and had a brief Wednesday-Thursday roadshow.

All the rest of the week's deals were a.m.-to-p.m. drive-bys.

On Wednesday Southern Star Central Corp. priced a $50 million add-on to its 6¾% senior notes due March 1, 2016 (expected ratings Ba2/BB+) at 92.128 to yield 8 1/8%.

An informed source said that the deal went well, and that the additional notes basically went to existing investors.

Lehman Brothers ran the books.

Three issuers priced single tranches on Monday, rendering it the biggest day thus far in 2008 in terms of number of deals.

Videotron Ltd. priced an upsized $455 million issue of 9 1/8% 10-year senior notes (Ba2/BB-) at 98.432 to yield 9 3/8%.

The yield was printed on top of price talk.

Banc of America Securities, LLC, Citigroup, RBC Capital Markets and Scotia Capital were joint bookrunners for the issue which was upsized from $350 million, and which generated $447.9 million of proceeds.

Also on Monday Nielsen Finance LLC and Nielsen Finance Co. priced a $220 million add-on to their 10% senior notes due Aug. 1, 2014 (Caa1/B-) at 99.50, via J.P. Morgan.

And PolyOne Corp. priced an upsized $80 million add-on to its 8 7/8% senior notes due May 1, 2012 at 99.75 to yield 8.947%.

The reoffer price came at the midpoint of the 99.50 to 100.00 price talk.

Morgan Stanley ran the books for the issue, which was upsized from $50 million, and which generated $79.8 million of proceeds.

Combined, the three Monday drive-by issuers raised $746.6 million of proceeds.

Through the window

On Friday morning, a high yield syndicate official noted that the market was a point lower.

This source, as well as other sell-siders, was upbeat about the past week's burst of issuance.

One banker said "A window of opportunity came open, and people took advantage. There was cash to put to work and bond prices had been firming."

However this official was reticent to declare the high-yield market reopened.

All of the week's issuers had something going for them, the source said. Either they were higher-rated names from sectors which are seen as recession proof, or, as in the case of Nielsen, they were issuers familiar to the market.

Going forward, the official added, these types of issuers will periodically be able to access the new issue market.

Gradually, the source said, names from beyond this familiar middle range may test the market; however that won't necessarily happen quickly.

Later in the day another banker from a different high yield syndicate desk said that the primary market definitely felt better during the past week, and added that the five deals that priced received good executions.

On a new issue discount basis, the week's deals ranged between 35 bps and 80 bps, the banker said, whereas in the past month or two there have been deals that have come with discounts of 100 bps-plus.

"Right now the sell-side is feeling like the discount should be between 25 and 50 bps," the source added.

"That's an improvement.

"It hasn't been so long ago that the idea of a 'new issue discount' was irrelevant: you could have offered a 200 bps concession and nobody would have cared."

The overhang

Heading into the April 7 week, sources had been expecting between $1 billion and $2.5 billion of the Alltel Communications Inc./Alltel Communications Finance, Inc. $5.2 billion of senior unsecured cash-pay notes to hit the market at a significant discount.

Various sources reported hearing prices between 83 and 85.

However as the week wore on there were no reports of the hung-up Alltel bonds having moved.

One sell-side source who has been tracking the LBO backlog said that a couple of weeks ago when the banks began doing price discovery the levels at which the accounts started to care sounded great because they were probably a point or two healthier than had been the case in previous conversations.

Then as the market firmed up over the past week or two the bankers likely got in less of a hurry to sell at those prices.

The sell-sider, who is spotting the bond portion of the backlog at between $60 billion and $70 billion, said that the market appears to be coming around to the view that the backlog is not that big of a deal anymore.

"It's still relevant, but it's fading," the source contended, adding that once the combined bank and bond backlog is reduced to around $150 billion - "which won't be long now" - it will no longer represent the kind of massive technical impediment that it had been during the winter.

"There seems to be a lot more selling of that risk going on right now than people are aware of," the sell-sider added.

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