Bally eases as it seeks waiver extension; Scheider Moebel deal pulled, Quiksilver upsizes

By Paul Deckelman and Paul A. Harris

New York, July 13 - Bally Total Fitness Holding Corp. bonds were seen lower Wednesday, after the Chicago-based fitness center chain operator announced that it will not be able to file its financial reports by a July 31 deadline, and is seeking an extension of the default waiver from its bondholders.

UbiquiTel Inc.'s bonds were seen better, on news that the Conshohocken, Pa.-based affiliate of Sprint Corp. is suing Sprint and merger partner Nextel Communications Inc., claiming that their pending merger - which was approved by the shareholders of both companies on Wednesday - violates its contract with Sprint, by introducing competition into the markets where it sells Sprint's telecommunications services.

In the face of a sell-off in Treasuries, one senior high-yield syndicate official marked the junk market up on Wednesday.

"It feels pretty good," the source said, "and equities are helping."

The primary market, which saw only one deal price during the mid-week session - a $25 million add-on from Petro Stopping Centers - betrayed hints that investors are presently ready to shop, with deals upsizing and price talk tightening on business to be conducted before the end of the week.

But German furniture company Scheider Moebel GmbH was heard by syndicate sources to have pulled its planned euro-denominated bond issue, citing unfavorable interest rate conditions.

Petro Stopping with tap

The only issue to price Wednesday came from El Paso, Tex.-based truck stop owner-operator Petro Stopping Centers, which completed a $25 million tap of its 9% senior secured notes due Feb. 15, 2012 (B3/B-) at par, resulting in a yield of 8.997%.

Banc of America Securities ran the books for the acquisition deal.

The original $225 million issue priced at par on Jan. 30, 2004. The total issue size is now $250 million.

"Not too bad to be an issuer"

Most of the primary market news heard Wednesday bore upon business that is expected to be transacted Thursday or possibly Friday.

And much of that news, sources commented, seems to indicate that junk bond new issues are presently playing to considerable investor demand.

One such indication came in the form of an upsizing.

Huntington Beach, Calif., casual clothing producer Quiksilver Inc. upsized to $400 million from $350 million its offering of 10-year senior notes (B1/BB-) and talked it at the 7% area on Wednesday.

The JP Morgan-led deal is expected to price on Thursday.

Another indication that the order books are filling up came in the form of inwardly revised price talk on an acquisition deal from Central European Distribution Corp.

The company, which is headquartered in Bala Cynwyd, Pa., and Warsaw, Poland, tightened the talk on its €310 million offering of seven-year senior notes (B2/B-) to a range of 8% to 8¼% from the 8¼% area.

Pricing is expected to take place either Thursday or Friday via ING.

Another possible indication comes in the form of a quick-to-market deal from Houston-based oil and gas industry outfitter Grant Prideco, Inc.

The company will hold an investor conference call at 11 a.m. ET Thursday for its $175 million offering of 10-year senior notes (BB), with pricing expected later in the day.

Banc of American Securities, Citigroup and Deutsche Bank Securities are joint bookrunners for the debt refinancing deal.

Meanwhile, talk also emerged Wednesday on the two-part $500 million senior notes offer (Ba1/BB+) from Mylan Laboratories Inc.

And that talk turned out to be tighter than what at least one investor had been expecting.

The Canonsburg, Pa., pharmaceutical company talked its five-year bullet at the 5 7/8% area, and its 10-year non-call-five note at the 6 3/8% area.

Tranche sizes remain to be determined. Pricing is expected on Thursday via Merrill Lynch & Co.

Earlier in the week an investor, speaking on background, professed the expectation that the five-year bullet would come in the low 6% range, while the 10-year note would come in the mid-sixes.

Commenting on Wednesday's news about Quiksilver, CEDC, Grant Prideco and Mylan, one sell-side source, speaking well after the market closed, said: "It's not a bad time to be an issuer right now."

The $1.5 billion mark

Tallying everything that could price on Thursday the session's issuance would come in at $1.45 billion, so that any drive-by activity could push the total to or beyond the $1.5 billion mark.

In addition to the quartet of deals described above, talk emerged Wednesday on Clayton Williams Energy, Inc.'s $200 million offering of eight-year senior notes (B3/B-): a yield in the 7¾% area.

JP Morgan is leading the deal, which is expected to price Thursday afternoon.

Firm tone

Speaking after Wednesday's close one high-yield syndicate official said that the tone of the market is firm overall, with good improvement in the gaming sector.

"Sectors that traditionally perform when there is a stronger bid to the market continue to do so," the official remarked.

"We have not seen huge volumes on the secondary side, but I think a lot of people are waiting for some of these big LBO transactions."

The one big leveraged buyout deal that the source mentioned - and the one that a growing chorus of sources expect to show up in very short order - is the bond deal which is part of the $11.3 billion LBO of SunGard Data Systems Inc.

The financing includes a $3 billion bridge to high yield, and sources are anticipating that some or all of that amount could materialize as early as next week.

The bookrunners are expected to be Deutsche Bank Securities, JP Morgan, Citigroup, Goldman Sachs & Co. and Morgan Stanley.

Schieder Moebel to look elsewhere

Finally on Wednesday, Schieder Moebel Holding GmbH postponed its €145 million offering of seven-year senior subordinated notes (B3/B-), citing unfavorable rate indications.

The notes had been talked Tuesday at 10¼% to 10½%.

Citigroup and WestLB were joint bookrunners.

The Herford, Germany, furniture company will look to alternative sources in order to refinance its debt.

Bally mostly seen lower

Back in the secondary market, Bally's 10½% senior notes due 2011 were seen by a market source as having eased to 100.25 bid, from prior levels at 101, and its 9 7/8% subordinated notes due 2007 lost half a point to 87.5.

Another source saw the subordinated notes at 88 bid and called that down a point, while pegging the 101/2s at 100.5, down 1½ points on the session.

However, a trader at another shop suggested that the bonds had firmed from levels they held earlier, as the company coupled the news about its request for an extended waiver with a conference call during which Bally executives painted a hopeful picture about the company's operations, giving investors an advance peek at selected operating results. These included a 2% increase in new memberships sold over the first five months of the year versus year-earlier levels, an 8% increase in new members joining Bally, and a $17.2 million increase in free cash flow.

Back in December 2004, Bally sought, and got, a waiver good through July 31 on its reporting requirements after an audit committee investigation turned up numerous errors in past accounting. It now says that because of the complexity of the task at hand and the fact that there has been extensive turnover in the ranks of top management and a new auditor on board, KPMG LLP, it anticipates not having the financial statements for 2002-2004 done by July 31, and wants bondholders to give it until Oct. 31.

Bally's president and chief executive officer, Paul Toback, said that Bally has made "substantial progress" toward completing the audit despite the turnover and other issues, and is "close to completing" the process.

The positive financial data, combined with company assertions that the re-auditing process is almost over, combined to give the bonds a bit of a boost, the trader said. He quoted the 101/2s at 100.256 bid, 101.25 offered, up a half point on the day, while the 9 7/8s got as good as 90 bid, 91 offered.

However, another trader saw the 101/2s going out at par bid, 101 offered and the subordinated bonds "for sale" at a wide 86 bid 88 offered, "with no real bids."

AK Steel down as rumors end

Elsewhere, Tuesday's late flurry of takeover talk-dominated activity in AK Steel Holding Corp.'s bonds quickly faded as the rumored $13 per share buyout bid by industry giant United States Steel Corp. for its smaller Middletown, Ohio-based competitor never did materialize during the session.

A trader saw the company's 7¾% notes due 2012 half a point lower at 88 bid, 89 offered, while its 7 7/8% notes due 2009 were a point down at 93 bid, 94, after the latter bonds "ran up yesterday [Tuesday] to 94 bid, 95 offered from about two or three points below that level.

A market source at another desk saw the 2012s down a point from Tuesday's close, at 88.5 bid while the '09s were, in his estimation, unchanged at 94.25.

UbiquiTel up on suit

UbiquiTel's 9 7/8% notes due 2011 were being quoted ¾ point higher at 111.5 bid and its 14% notes due 2010 were a quarter-point better at 105.25.

The gain follows Tuesday's announcement that UbiquiTel - which sells Sprint PCS service to 413,000 customers in nine western and midwestern states, operating in markets Sprint deems too small for its direct participation - has filed a complaint with the Chancery Court in Delaware, where the company is incorporated, seeking to stop Sprint and Nextel from trying to sell cellular phone service in UbiquiTel's markets.

UbiquiTel is the second Sprint affiliate to allege in the courts that the Sprint/Nextel merger will violate its agreement with Sprint for non-competition in its exclusive markets, since Nextel - which previously has sold its own service in those same markets as a competitor, mostly through its Nextel Partners affiliate -will now be a part of the Overland Park, Kan., telecom giant Sprint.

Another affiliate, US Unwired Inc. of Lake Charles, La., filed a similar complaint as part of an ongoing lawsuit it had going against Sprint in the federal court there. Earlier in the week, Sprint announced that it plans to acquire US Unwired - a move widely seen by analysts as an effort to stymie that legal move by the Sprint affiliate.

There seemed to be no consensus among analysts quoted in news reports about the pending merger and the UbiquiTel complaint on whether Sprint might seek to dispose of this complaint the same way it got rid of US Unwired's, by rolling up the company, or whether it may simply result in Sprint making certain concessions to Ubiquitel.

Levi Strauss up again on earnings

Levi Strauss & Co. bonds were firmer for a second consecutive session, after the San Francisco-based apparel company reported strong earnings for the fiscal second quarter, with net income about four times what it had been a year earlier.

Levi's 9¾% notes due 2015, which were seen Tuesday having jumped about three points to the 103 area, on the results, were being quoted up about another point to a 104ish context. Its 12¼% notes due 2012, which were seen up anywhere from half a point to a point Tuesday, with bid levels around 111.5, were seen on Wednesday having moved up to about 112.25, while its floating-rate notes due 2012 advanced to a par bid Wednesday from 98.5 previously.

Levi reported Tuesday that, net income for the quarter increased to $27 million, well up from $6 million a year ago, even though sales were lower than year-earlier levels at $944 million to $959 million. The company said that the improvement was due primarily to a $66 million increase in operating income, partially offset by a $43 million loss on early retirement of debt related to refinancing activities and higher income taxes.

Operating income for the quarter increased 84% to $145 million, or 15% of net sales, versus $79 million, or 8% of net sales, for the same period of 2004.

InSight Health gains

Also on the upside, a market source was quoting InSight Health Services Corp.'s 9 5/8% notes due 2008 and 9 7/8% notes due 2011 as having firmed all the way up to 89 bid from prior levels in the lower 80s, although there seemed to be no fresh news out on the Lake Forest, Calif.-based provider of diagnostic imaging services.

aaiPharma jumps on auction

In the distressed debt precincts, aaiPharma Inc.'s bonds jumped on the news that privately held Xanodyne Pharmaceuticals Inc. emerged as the winning bidder in the court-approved auction held Monday for substantially all of the assets of the bankrupt Wilmington, N.C.-based drug maker's pharmaceuticals division.

A trader saw aaiPharma's 11½% notes due 2010 at 71 bid, 73 offered, which he estimated was at least 14 or 15 points over where those bonds had been trading pre-news.

At another desk, a market source saw the bonds close at 72, well up from previous levels in the 55 area.

Another trader, though, said that the company's bonds had actually been firming for "a couple of days," quoting them as having advanced to 63 bid on Tuesday from prior levels at 54 bid, 56 offered, perhaps on expectations that an announcement might be made Wednesday, and then having continued on upward in Wednesday's dealings to 72 bid, 74 offered post-news.

aaiPharma filed for Chapter 11 on May 10 after having struggled since early March 2004 with accounting problems stemming from improperly reported sales of two of its key products, the asthma medication Brethine and the painkiller Darvocet . The company was also beset by unusually brisk turnover among its senior executives.

It said that Xanodyne's $209.3 million cash bid - which is subject to approval by the court - was about $40 million higher than the company's original "stalking horse" offer which aaiPharma announced as part of its filing.

The U.S. Bankruptcy Court for the District of Delaware is scheduled to hold a hearing at which the sale is expected to be formally approved on July 18 in Wilmington, Del.

Besides purchasing the division, Xanodyne also committed to buy up to $30 million of services from aaiPharma's development services division over the next three years, subject to certain conditions.

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