Levi plans deal, Longview offering spiked; Elan up on Tysabri news

By Paul Deckelman and Paul A. Harris

New York, March 8 - Levi Strauss & Co. unveiled plans Wednesday to sell nearly half a billion dollars in new dollar- and euro-denominated bonds, with the intention of using the new-deal proceeds to pay some of the venerable San Francisco-based blue jeans maker's bank debt.

While Levi was coming onto the forward calendar, Longview Fibre Co. was just leaving, after having shelved its planned offering of 10-year notes and related transactions, including a stock issue and a tender offer for the company's existing bonds.

Meantime, price talk emerged on Level 3 Communications Inc.'s planned two-part offering of fixed- and floating-rate notes, which is expected to price during Thursday's session.

In the secondary arena, Elan Corp. plc's bonds were seen up several points on the news that a Food and Drug Administration advisory panel had unanimously recommended that its embattled Tysabri multiple sclerosis drug - pulled off pharmacy shelves last year - be returned to the marketplace as a treatment for relapsing forms of MS.

Dana Corp.'s bonds continued to firm in the wake of Friday's bankruptcy filing by the Toledo, Ohio-based automotive parts maker, with some observers speculating that anticipated activity in the credit default swaps market might be the catalyst for those gains.

On the downside, Movie Gallery Inc.'s bonds were swooning to new lows for a second consecutive session following an apparently grim meeting with its lenders Monday at which the company was forced to seek debt relief. With the company's stock price careening downward and Bear Stearns sharply cutting its share price target Wednesday and talking about a possible bankruptcy scenario, "it looks like the vultures are circling," a bond trader said.

At mid-day Wednesday, a high-yield syndicate official said that the market was a little weaker.

Well after the close a senior sell-side source merely said that the market had been quiet, and added that the secondary market was down on the week and down a little more on the day Wednesday.

No issues were priced in the primary market.

Levi brings two-part deal

San Francisco-based branded apparel company Levi Strauss & Co., a familiar name in the high-yield market, showed up with a $470 million equivalent two-part offering of notes (B3/B-/B).

The deal is comprised of a $350 million tranche of new 10-year senior notes and a €100 million add-on to the company's 8 5/8% senior notes due April 1, 2013 (the original €150 million issue price at par in March 2005).

The company will host an investor call Thursday and plans to price the deal on Friday morning.

Banc of America Securities and Citigroup have the books for the debt refinancing deal.

Level 3 talks two-parter

The only other deal expected to price before the Friday close is a $400 million offering of senior notes (Caa1/CCC-) from Level 3 Communications Inc.

On Wednesday the company talked a tranche of five-year floating-rate notes at Libor plus 700 to 725 basis points, while a tranche of seven-year fixed-rate notes was talked at 12 ¾% to 13%. Tranche sizes remain to be determined.

The acquisition deal is expected to price on Thursday via Merrill Lynch.

Longview Fibre logs off

In other primary market developments Longview Fibre Co. announced that it has postponed its proposed offerings of $150 million of 10-year senior unsecured notes and 10 million shares of common stock.

Goldman Sachs and Banc of America Securities were joint bookrunners for the notes.

On Tuesday Moody's placed Longview Fibre Co.'s Ba3 corporate family rating, Ba2 senior secured debt rating, B1 senior unsecured debt rating and B2 senior subordinated debt rating under review for possible downgrades. According to Moody's the action reflects the uncertainty associated with the $1.3 billion takeover bid for Longview offered by Obsidian Finance Group, LLC, and The Campbell Group, LLC.

Hearing reverse inquiry

A senior high-yield syndicate official told Prospect News that lately a lot of reverse inquiry from the buy-side has been heard, meaning that investors have expressed interest in bond deals that issuers have not even proposed.

"Clearly they have some money that they want to put to work," the official commented.

The sell-sider added that business in the new issue market is expected to start picking up next week.

"A lot of the financials have been stale because fiscal year reporters couldn't print a deal until they updated their numbers," the source said. "So basically those year-end numbers have just started coming out in the last week.

"As underwriters have been going through their due diligence last week and this week issuers will be set to hit the market next week."

With the present forward calendar tallying less than $1.5 billion, Prospect News quizzed the source to estimate how much volume might be expected when business in the primary market begins to pick up.

"It's not going to be the pop we would like to see," the official responded, adding that the pending new issue calendar of deals in the market could grow back to $3.5 billion or $4 billion per week by the end of March.

"Next week is going to be slightly less than that," the source said, adding that "a market like this is ripe for drive-by issuers with large deals."

The sell-sider specified that the primary especially seems open to frequent issuers from the utilities or health care or oil and gas sectors, some of which could easily tap it for $200 million-plus.

Levi dips, rebounds

Back in the secondary market, a trader saw Levi Strauss' 9¾% notes due 2015 "off a touch" initially on news of the upcoming bond deal, but said that once Moody's Investors Service affirmed the company's ratings, the bonds got back their early erosion to end pretty much unchanged at 106 bid, 107 offered.

The news that Longview Fibre will not be tendering for its 10% notes due 2009 - proceeds from the now-shelved 10-year bond sale were to have been used to help fund that debt buyback - had little impact on those outstanding bonds, which stayed around their recent 105-105.5 bid range.

Among new bond deals which did actually manage to get done over the past few sessions, a trader saw the new Ball Corp. 6 7/8% senior notes due 2018 having come off the small gains they notched Tuesday after pricing earlier that session at 99.799. He saw the new bonds straddling their issue price at 99.625 bid, 100.125 offered.

Serena Software's new 10 3/8% senior subordinated notes due 2016, which had firmed smartly after pricing at par on Tuesday, were hanging onto most of their gains, at 101.25 bid, 102.25 offered.

The trader saw Alliant Techsystems Inc.'s 6¾% senior subs due 2016, which priced Monday at par and then moved slightly higher, continuing to pretty much hold onto its gains, finishing at 100.375 bid, 100.875 offered, perhaps down a touch from 100.5 bid, 101 offered seen late Tuesday.

He saw Dave & Buster's Inc.'s new 11 ¼% senior notes due 2014 having come in a little to 100.5 bid, 101 offered, off from 101 bid, 101.5 offered on Tuesday. Those bonds had priced at par last Friday and then moved up more than a point in immediate aftermarket dealings.

And Bon-Ton Stores Inc.'s new 10¼% notes due 2014, which priced at par on Thursday but then began easing from that peak almost immediately, hitting a low on Tuesday of 97.5 bid, 98.5 offered, had firmed slightly on the bid side to 99.75 bid, 98.5 offered on Wednesday.

Elan higher on Tysabri backing

Among the established issues, Wednesday's slam dunk 12-0 recommendation by the FDA's Peripheral and Central Nervous System Drugs Advisory Committee that Elan and partner Biogen Idec Inc. once again be allowed to sell MS drug Tysabri was just what the doctor ordered for the Irish pharmaceutical company's bonds and shares.

A trader saw Elan's 7¼% notes due 2008 at 99.5 bid, 100.25 offered, which he called a three-point rise, while its 7¾% notes due 2011 were at 96.25 bid, 97 offered, which he saw as a four-point rise.

At another shop, a trader saw those same levels, but merely said that the bonds had rallied on the FDA news and were "up a couple of points, though off their highs."

Yet another trader also saw those same levels, but pegged the bonds up no more than ¾ point tops.

Elan's New York Stock Exchange-traded American Depositary Receipts jumped $3.11 (24.49%) to $15.81, on volume of 20.1 million, twice the usual turnover.

The FDA panel's recommendation is purely advisory, and the regulators are not bound by it - although the commission usually goes along with the suggestions. The endorsement represents a key victory in the nearly year-long efforts by Elan and by Cambridge, Mass.-based Biogen to put Tysabri back on the market. It was just a year ago that the two companies voluntarily withdrew the drug from pharmacy shelves, after it was linked to several deaths from progressive multifocal leukoencephalopathy, a rare severe neurological disorder that some Tysabri patients developed.

Since then, the FDA has been reviewing the data to ascertain the safety of the drug, and to determine whether the deaths were isolated fluke events possibly caused by other factors.

According to recent medical journal articles, data disclosed that some patients - about one in 1,000 - might be more susceptible to PML reactions to Tysabri than others - but that tests for the presence of the JC virus linked to PML might determine who could be more at risk. That would lay the basis for formulation of a risk management strategy by the manufacturers and the FDA, emphasizing clear warnings of the possibility of PML to doctors and patients, administration of the drug only at registered infusion centers, and vigilance by the doctors for any first signs of PML. Doctors would be instructed to immediately suspend treatment if a patient were to show PML symptoms and begin testing for PML and the virus that causes it.

Besides the manufacturers, many MS patients who were successfully using Tysabri to combat the progressive nerve disability have appealed to the FDA to allow Tysabri to once again be prescribed, contending that it gave them relief from the condition that they were unable to obtain from other medications.

The FDA is conducting an expedited priority review of Tysabri. Elan and Biogen are hoping the agency's deliberations are wrapped up by month's end.

Dana keeps rising

Elsewhere, Dana's bonds continued to firm, with a trader seeing its 6½% notes due 2008 up another 1½ points at 71 bid, 71.75 offered, its 5.85% notes due 2015 at 70 bid, 70.75 offered, a 1¼ point gain, and its 7% notes due 2028 at 71 bid, 71.75 offered, up 1¾ points.

And Dana's bonds might soon be pushed further upward because of the dynamics of the credit default swaps market, according to analysts at Bank of America Securities. In a research note, strategist Jeffrey Rosenberg wrote that "we look for a short squeeze in Dana."

He noted that the 5.85% notes - the company's "cheapest-to-deliver" issue - had moved up solidly since March 2, the day before Dana filed for Chapter 11, when those bonds were at 65 bid, 66 offered, and were up even more sharply since Feb. 28, when they were quoted at 61 bid, 62 offered.

Dana, the research note said, has only $2 billion of bonds (including some $450 million of the 5.85s) deliverable against CDS contracts.

In the volatile CDS market - where contract issuers sell protection against defaults in a company's debt - often to bondholders, though by no means only to them - it is not uncommon for contracts to be out totaling many times the outstanding face amount of a company's bonds. Functioning not unlike an insurance policy, the contracts pay the buyers - who all along have been making payments, similar to insurance premiums - at the bond's par value in the event of a default, once the buyers have delivered the bond to the contract sellers. While many of the contracts can be settled for cash in lieu of the actual delivery of bonds (the contract buyers get the difference between a settlement price determined by the major derivative industry companies and par) many of the contracts require the actual delivery of bonds within 30 days of the default. As that deadline approaches, this tends to push the price of the bonds upward.

By way of comparison, Rosenberg pointed out, Delphi Corp., which sought Chapter 11 protection in October, had about $2.15 billion of bonds that could be delivered against many more contracts - and the need for such bonds caused a short squeeze that zoomed them up to a peak level of 72 just before the CDS contracts settled from about 58 at the time of the filing.

It should be noted, however, that such a squeeze is invariably short-lived; immediately after the Delphi contracts settled and the need for bonds to fulfill them dissipated - thus removing a major factor that was propping up the bonds' price - Delphi retreated into the high 60s. The bonds have gradually come down since then, and now languish back in the upper 50s. Delphi's 6.55% notes due 2006 were at 58 bid, 59 offered Wednesday, and its 7 1/8% notes due 2029 were at 59 bid, 60 offered, both 1½ points higher on the day.

Not everyone necessarily agrees with the short-squeeze scenario. One trader, while seeing the bonds continuing to firm, opined that the CDS short-squeeze factor "was probably already priced in" to the bonds' prices.

And another trader noted that in the Delphi bankruptcy and that of Delta Air Lines Inc., most of the contracts were allowed to be settled in cash, taking away some of the upward propellant of the bonds, "and I'd bet that's exactly what will happen here - they'll allow you to settle in cash.

"I don't know if it's that [CDS scenario] or there are an awful lot of people who're taking a very hard look at this to try to evaluate it. They're just maybe thinking that there's value in this company.

"I'd be very surprised if the only reason [Delta's bonds have been going up] is because people are expecting a run-up because of the CDS," he concluded.

Separately, Fitch Ratings said it may downgrade its ratings its ratings on 17 collateralized debt obligation tranches due to their exposure to Dana debt. The agency said it will decide whether to downgrade the CDO tranches, which represent six separate transactions, once final valuations for Dana in each transaction become available.

Fitch's announcement follows similar advisories earlier in the week by Standard & Poor's and Moody's Investment Service.

Dura climbs

Also in the automotive area, a trader saw Dura Automotive Systems Inc.'s bonds "a little stronger as well, with its 9% notes due 2009 at 48.5 bid, 49.5 offered and its 8 5/8% notes due 2012 at 78.5 bid, 79.5 offered, both up a point.

ArvinMeritor steady

But he didn't see any movement in ArvinMeritor Inc.'s bonds, despite the news that the automotive systems maker will sell its North American Light Vehicle Aftermarket Exhaust business to International Muffler Co. for an undisclosed price.

Arvin Meritor's 6¾% notes due 2008 were at 101.5 bid, 102.5 offered and its 8¾% notes due 2012 were at 97.5 bid, 98.5 offered, "not up a hell of a lot," he said.

GM eases

A trader saw General Motors Corp.'s 8 3/8% notes due 2033, which had been on the rise over the past few sessions, off half a point Wednesday at 72 bid, 72.5 offered, while General Motors Acceptance Corp.'s 8% notes due 2031 were unchanged at 92 bid, 92.5 offered. Ford Motor Co.'s 7.45% notes due 2031 were half a point lower at 71.25 bid, 71.75 offered, while its Ford Motor Credit financial arm's 7% notes due 2013 were steady at 87.25 bid, 87.75 offered.

Six Flags weak after earnings

Outside of the automotive realm, traders saw the bonds of Six Flags Inc. a little softer after the Oklahoma City-based theme park operator reported a wider fourth-quarter loss from a year earlier. Its 9 5/8% notes due 2014 were seen down half a point at 100.25 bid, 101.25 offered, while its 9¾% notes were likewise softer at 101 bid, 102 offered, "down maybe a point over the past two days," a trader said.

Six Flags reported a fourth-quarter net loss of $144.5 ($1.55 per share) on revenues of $111.8 million, wider than the year-early quarterly loss of $115 million ($1.24 per share) on $105.4 million of revenues. The 2005 figures included a wider loss from discontinued operations of $22.4 million (24 cents per share) versus $3.5 million (four cents per share) in the 2004 fourth quarter. The October-through-December quarter, like the January-through March period, is traditionally the company's weakest seasonal time, with its parks in cold-weather markets, like Six Flags Great Adventure in Jackson N.J., closed altogether and even parks sited in warm-weather markets, like Six Flags Magic Mountain Los Angeles, operating on only a limited schedule.

For the full year, Six Flags reported a net loss of $132.9 million ($1.43 per share) on $1.09 billion of revenues, down from the 2004 loss of $486.8 million ($5.23 per share) on $1 billion of revenue. While the 2005 loss included the same loss from discontinued operations of $22 million (24 cents per share) seen in the fourth quarter, losses from discontinued operations in 2004 totaled $291 million ($3.13 per share).

Under the leadership of newly installed chairman Daniel Snyder - who seized control of Six Flags in November via a bitterly fought proxy battle with the help of other shareholders dismayed with the company's chronic underperformance during the previous Kieran Burke regime - the company reorganized its executive ranks. It also announced several initiatives aimed at boosting attendance, including scheduling a broader range of family-oriented in-park events and activities, including daily parades, fireworks and shows and making greater in-park promotional use of the Looney Tunes and DC comics Justice League superhero characters - Batman, for instance - that it licenses from Time Warner Inc.

The company's new management said that its key financial priorities over the next several years will be to drive free cash flow and reduce debt levels via asset sales and other means.

Six Flags is continuing with its previously announced plans to sell its Houston AstroWorld property as well as its Oklahoma City parks and is "in the process of assessing other potential opportunities to dispose of non-core assets, including underutilized real estate." It said that proceeds from these dispositions will go to reduce debt levels and provide the company with more financial flexibility.

Jean Coutu lower

A trader saw the 8½% notes of retailer Jean Coutu down a point in morning trading, before rebounding slightly to end half a point lower, at 92.5 bid, 93.5 offered. That half point loss came on top of a one-point retreat on Tuesday, spurred on, he said, by news that the company - which bought most of the Eckerd drugstore chain from J.C. Penney Corp. - was asking lenders to amend its credit facility.

Movie Gallery plunges

And from out of the distressed precincts, a similar request by Movie Gallery to its lenders has seen the Dothan, Ala.-based video chain rental operator's bonds "get crushed" over the last two sessions.

Its 11% notes due 2012, which were seen having fallen several points Tuesday to around the 60 bid level, swooned as low as a 56.5-57 bid context Wednesday.

Movie Gallery - struggling under over $1 billion of debt, mostly from its purchase last year of the larger Hollywood Video chain, and beset with declining revenues as store-rentals of movies decline throughout the industry - had a conference call Monday with lenders at which it sought covenant relief for this year.

Bear Stearns on Wednesday cut its stock price target to $1 from $3 previously, and mentioned the dreaded "B-word" in a research note, further spooking both debt and equity investors. "With no future cash flow generation in our forecasts," the brokerage company's investment note cautioned, "we believe that there may be no residual value for equity holders in a bankruptcy scenario."

Movie Gallery's already hard-hit Nasdaq-traded shares plummeted 64 cents (20.6%) Wednesday to close at $2.47.

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