Bally firms on talk of stake sale; Penn Gaming plans bond sale

By Paul Deckelman and Paul A. Harris

New York, Jan. 7 -Bally Total Fitness Holding Corp.'s bonds strengthened Friday on market speculation that the Chicago-based fitness-club chain operator is in talks about selling as much as a 40% stake. On the downside was Tenet Healthcare Corp., as a trader cited the hospital operator being forced to cancel an outstanding credit agreement and enter into a smaller one following a recent lawsuit settlement.

On the primary side, sources continued to report a slight amount of weakness in the high-yield market on Friday, as no issues were priced.

Meanwhile roadshow information emerged on a quartet of prospective issuers. And Penn National Gaming Inc. was heard by syndicate sources to be shopping around a new bond deal, the proceeds of which would be used to help finance its pending purchase of Argosy Gaming Co.

"There's still plenty of cash"

One investment banker late Friday told Prospect News that although there was a slight amount of weakness throughout the Jan. 6 week in the secondary market, the primary market "is fine, if not completely bullish."

The calendar, the source added, contains well over $4.25 billion of deals that are in the market.

Meanwhile, the sell-sider said, there remains a lot of cash to be put to work in the high-yield asset class in spite of the $3.235 billion of net outflows from high-yield mutual funds for the year just ended.

"There is still money in the funds from redemptions, coupon payments and from the massive amount of cash that flowed into the funds in 2003," the official said.

"Also there are sources other than the mutual funds, such as hedge funds, that have been mandating cash for high yield.

"And that cash does not show up in the weekly and monthly high-yield mutual funds flows numbers."

Four for the road

Roadshows of varying lengths were staked out by a quartet of prospective junk bond issuers during the Friday session.

The briefest appears to be that of Pittsburgh-based nutritional supplements retail chain owner General Nutrition Centers Inc., which will present its $150 million offering of six-year non-call-three senior notes (B3/B-) to investors on Monday, and then price the deal on Tuesday.

Lehman Brothers has the books for the debt refinancing deal.

Meanwhile Ames True Temper, the Camp Hill, Pa.-based manufacturer and marketer of non-powered lawn and garden tools, plans to hoe a relatively short row as well.

The company will begin roadshowing its $150 million offering of seven-year non-call-two senior floating-rate notes (B) on Monday, and price the bonds during the early part of the same week.

Banc of America Securities and Credit Suisse First Boston will run the books for the debt refinancing deal.

A Monday start is also in the offing for Leslie's Poolmart, Inc.'s $170 million offering of eight-year senior non-call-four notes, with pricing expected early in the week of Jan. 17.

Banc of America Securities and Lehman Brothers are joint bookrunners for the recapitalization and refinancing deal from the Phoenix, Ariz.-based pool supplies retail chain company.

And on Tuesday Alliance Laundry Systems LLC will start a Jan. 11 through Jan. 19 roadshow for its $150 million offering of eight-year senior subordinated notes (B3/CCC+).

Pricing of the Lehman Brothers-led deal is expected on Thursday, Jan. 20.

The Ripon, Wis.-based designer, manufacturer and marketer of commercial laundry equipment will use the proceeds to fund an LBO and repay about $280 million of its debt.

No break from rate hikes, says Taylor

Throughout the Jan. 6 week sources in both the high yield and the emerging markets have been telling Prospect News that the cautionary inflation language gleaned from the minutes of the Dec. 14 Federal Reserve Federal Open Market Committee meeting released Tuesday might represent a turning point with respect to the rallies in those two markets.

Among other things, those minutes stated that "cost and price pressures were likely to become a clearer intermediate-term risk to sustained good economic performance."

Mike Taylor, high yield analyst from Bear Stearns & Co., told Prospect News on Friday that the Fed minutes should lay to rest any lingering expectations that the Fed might back off of the steady pace of rate hikes it began last summer.

"Previously the statements had been that the risks were balanced, whereas the minutes to that meeting revealed that the Fed is now more concerned about inflation," Taylor said.

"I think people are obviously taking that to heart, thinking that it could lead to either faster rate increases or at least consistent rate increases.

"You would think now there would be less likelihood of a pause in rate increases."

Penn National, Six Flags steady

Penn National Gaming's outstanding 11¼% notes due 2008 and 6 7/8% notes due 2011 were seen unchanged on news of the big deal, at 106.875 bid and 103.75 bid, 104.75 offered, respectively, while its 8¾% notes due 2012 were ¼ point better, at 97.25.

Meantime, Six Flags Inc.'s 9 5/8% notes due 2014 - which had fallen earlier in the week ahead of the news that the theme park operator would be bringing a new add-on tranche of those bonds to market Thursday-were being quoted Friday unchanged at 99.75 bid, par offered.

Bally higher

Back among established bonds, Bally's 10½% notes were seen by a trader as having fattened up on the buzz about the sale of a company stake to 103 bid, 104 offered by the close, from 100.5 bid, 101.5 offered Thursday, while its 9 7/8% notes due 2007 were seen having pushed as high as 91 bid, 93 offered, before going out offered at 91 with no bid; those bonds had been at 87.5 bid, 88.5 offered on Thursday. Another trader had the 101/2s finishing at 102 bid, 104 offered, while the 9 7/8s were closing at 90 bid, 90.5 offered.

Bally's New York Stock Exchange-traded shares were also on the rise in late trading, up 65 cents (16.84%) to finish at $4.51, on volume of 1.2 million, about four times the norm.

TheDeal.com was reporting Friday that Bally was in talks to sell as much as a 40% stake in the problem-plagued company, amid a broader move to divest assets.

Citing unidentified "sources close the situation," the internet news service said that Tennenbaum Capital Partners LLC, a Santa Monica, Calif.-based merchant bank - also a large Bally bondholder - and private equity firms Apollo Management LP and Texas Pacific Group were weighing purchasing 40% of Bally in a deal that could be valued at roughly $125 million. They added that Tennenbaum could seek to execute a debt-for-equity swap as part of the transaction.

The report quoted a Bally spokesman as saying the company would consider any acquisition or investment offers, while declining to specifically confirm these talks. Spokesmen for Tennenbaum, New York-based Apollo and Fort Worth- and San Francisco-based TPG declined to comment.

The Deal report went on to quote one source as saying Bally's board is close to hiring a financial adviser to help review its strategic options, with either Rothschild or Blackstone Group LP tipped to get the job. It said that sources were speculating that Marc D. Bassewitz - formerly a mergers and acquisitions partner in the Chicago office of Latham & Watkins LLP, hired in November as general counsel - had been brought in to help arrange such a deal.

The story quoted its sources as further saying that Bally is also considering selling its 17 Canadian health clubs, including seven Bally health clubs and 10 Sports Clubs of Canada, and U.S. health club franchise Crunch Fitness for a total of $100 million. Crunch operates 24 health clubs in New York, Boston, Los Angeles and other cities around the United States.

Tenet sinks on loan news

Elsewhere, a trader said that Tenet's bonds were lower in reaction to its credit facility news. He saw the Santa Monica, Calf.-based hospital operator's 7 3/8% notes due 2013 open at 95.5 bid, 96.5 offered, well down from Thursday's close at 97.25 bid, 98.25 offered. However, he said, as the day wore on the bonds bounced off their lows to only close less than a full point lower at 96.5 bid, 97.5 offered.

He saw the same activity pattern with the company's longer debt, such as its 8 7/8% notes due 2031, which had gone home Thursday at 85 bid, 86 offered; on Friday, they opened at 83.5 bid, 84.5 offered before improving slightly to 84 bid, 85 offered, still down a point on the session.

However, he said, Tenet's shorter-dated paper "was active, but was only down ¼ to ½ point on the day."

Tenet - which has had a slew of regulatory problems arising out of the activities at certain of its hospitals - said late Thursday in a filing with the Securities and Exchange Commission that it had canceled its outstanding $800 million undrawn credit line and had entered into a new, much smaller agreement. The new one-year credit facility allow administrative agent Banc of America Securities to issue standby letters of credit for up to $250 million.

Tenet was forced into the new deal after having breached a loan covenant via its $395 million settlement, announced at the end of last month, related to lawsuits arising out of alleged unnecessary cardiac procedures performed at a hospital it formerly owned in Redding, Calif. Some of the 750 patients involved in the settlement had claimed that among the needless procedures they had allegedly been subjected to was open-heart surgery.

While agreeing to the settlement to get the matter behind it, Tenet did not admit to any wrongdoing. Nonetheless, news reports cited market speculation that the company's bankers decided to limit their potential negative exposure to Tenet out of queasiness about the effects that other, similar legal problems could have on the company going forward. Tenet, however, said Friday that its relationship with its lenders was healthy.

Western Wireless pulls back a little

A trader said that Western Wireless Corp.'s bonds - which had jumped anywhere from six to eight points Thursday, depending on who was quoting them -were a little off those highs, but still "up four or five points from where they were previously." He quoted the Bellevue, Wash.- based rural cellular service provider's 9¼% notes due 2013 as having dipped back to 114.5 bid, 115.5 offered from Thursday's levels above 115, but called the retreat "not much." However, even if there was little price movement, he said, there had been a lot of activity, with "a ton of bonds - $30, $40 million - having traded."

Those Western Wireless bonds had zoomed on Thursday on the strength of speculation - which still had not been officially confirmed by Friday evening - that the company was negotiating its sale to rival rural cellular provider Alltel Corp., possibly for as much as $4 billion.

Such a deal, should it actually take place, would be seen as a possible harbinger of a wave of consolidation among some of the smaller players in the cellular industry following on the heels of Sprint Corp.'s pending acquisition of Nextel Communications Inc. as well as the planned acquisition of Sprint PCS affiliate AirGate PCS by another Sprint affiliate, Alamosa Holdings.

That boosted the bonds of such rural cellular operators as Rural Cellular Corp. and American Cellular Corp. by several points on Thursday, in sync with Western Wireless' gains. But there was no momentum seen on Friday, with a trader declaring that "the rural phone guys were pretty much unchanged" at the higher levels they had attained Thursday.

He saw American Cellular's 10% notes due 2011 hanging in at 87.5 bid, 88.5 offered, while the 10 7/8% notes issued by the company's corporate parent, Dobson Communications Corp., were likewise steady at 79 bid, 80 0ffered.

Another market source saw Western Wireless "down a bit," at 115, and also saw American Cellular's 10% notes and 9½% notes due 2009 each down half a point at 88 bid. He saw Rural Cellular's bonds down about half a point across the board, with its 8½% notes due 2012 at 106.25 bid, while its 11 3/8% notes due 2010 eased to 81.5

A&P near unchanged

Great Atlantic & Pacific Tea Co. Inc.'s bonds were rangebound Friday, after the Montvale, NJ.-based supermarket operator released fiscal third-quarter numbers that showed its net loss tripling to around $75 million from $25 million a year ago. However, company executives, while seeing little prospect for an upturn in consumer spending at their company's over 600 stores any time soon, were optimistic about certain performance initiatives they've launched and comfortable with the company's debt and liquidity picture (see related story elsewhere in this issue).

A trader said he saw A&P's bonds "improve a little," with its 7¾% notes due 2007 up half a point at 99 bid and its 9 1/8% notes due 2011 also up a half to 94 bid, 95 offered.

Another trader, though, saw the 9 1/8s as low as 92.5 bid, 93.5 offered, down about a half point from his shop's closing quotes Thursday, while its 73/4s were at 98.5 bid, 99.5 offered, flat to down ¼ point.

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