Pep Boys pop up on earnings; Penton Media, Isle of Capri price new deals

By Paul Deckelman and Paul A. Harris

New York, March 21 - The Pep Boys - Manny, Moe & Jack - lived up to their name in Thursday's high yield trading, firming smartly after the Philadelphia-based auto parts retailer reported strongly positive fiscal fourth-quarter earnings.

In primary market activity, Isle of Capri and Penton Media Inc. priced new deals, while American Seafoods Group hoped investors would take the bait on it planned $175 million bond offering.

American Seafoods is bringing $175 million of eight-year senior subordinated notes via Banc of America Securities, expected to price April 4. The Seattle, Wash.-based integrated seafood company will begin trolling for investors when the roadshow starts on Monday.

The net proceeds of the bond deal, along with $320 million drawn under the company's new $390 million senior credit facility, will be used to fund the recapitalization of American Seafood Group by Centre Partners Management, certain members of management and existing rollover investors, according to a syndicate source.

Terms emerged on two deals Thursday.

Isle of Capri Casinos, Inc. priced $200 million of 10-year senior subordinated notes (B2/B) at par to yield 9%. A syndicate official told Prospect News on Wednesday that official price talk on the offering was 8 5/8%-8 7/8%.

Dresdner Kleinwort Wasserstein, CIBC World Markets and Deutsche Banc Alex. Brown were joint bookrunners.

Also on Thursday Cleveland-based business-to-business media company Penton Media, Inc. priced $157.5 million of new senior secured notes due Oct. 1, 2007 (B3/B-). The 5.5-year notes, which are non-callable for 3.5 years, priced at 99.503 to yield 12%.

A syndicate source told Prospect News Tuesday that price talk on the deal was 12% area.

Credit Suisse First Boston was bookrunner on Penton.

The market anticipates hearing terms on two more deals as the March 18 winter-spring boundary week concludes.

Basking Ridge, N.J.-based voice and data networking service provider Avaya Inc., which spun off from Lucent in October 2000, figures to price $300 million of seven-year senior secured notes (Ba2/BB-) on Friday. Salomon Smith Barney and Credit Suisse First Boston are joint bookrunners. Price talk is 11¼%-11½%.

And Wolverine Tube, the Huntsville, Ala.-based manufacturer of copper tubes, is scheduled to price $115 million of seven-year senior notes (B1/BB-) via Credit Suisse First Boston and Wachovia Securities. Price talk is 10¾%-11%.

A secondary trader saw the new Penton Media bonds quoted as high as 101 bid, up from their 99.503 issue price, but he said activity in the credit was very limited.

Foamex Inc.'s new 10¾% senior secured notes due 2009, which priced on Wednesday at par and then firmed solidly to levels above 102 bid, continued to show strength, finishing at 102.25 bid/102.75 offered.

And Joy Global Inc.'s 8¾% senior subordinated notes due 2012, which priced last week at par, continued to hold in the 102.75 bid/103.25 offered region.

Among already existing issues, Pep Boys' bonds "got a little bit better" against the backdrop of a generally quiet market, a trader said, after the company beat analysts' expectations in the fiscal fourth quarter ended Feb. 2.

Its 7% notes due 2005 were seen a point better at 95.25 bid/96.25 offered, its 6.92% notes due 2006 were likewise a point better at 93.25 bid/94.25 offered, while its 2004 bonds improved to 95.5 bid/96.5 offered.

The company announced that net income for the quarter rose to $3.7 million (7 cents a share), nearly triple the year-earlier result of $1.3 million (3 cents a share). The latest results beat analysts' expectations of earnings of a nickel per share.

Even though revenue fell 7% to $508.2, down from $547.4 million a year ago, as same-store sales (i.e. sales in stores open at least a year) were stagnant from a year earlier, improved gross profit margins and lower expenses offset the sales decline.

Pep Boys shares were up 89 cents (5.43%) to $17.29 in New York Stock Exchange dealings, on volume of about 1.2 million, almost four times the usual turnover.

The trader also saw other retailers continuing to trade firm, albeit on a slow day, specifically citing names such as Dillard's Department Stores, Shopko, Gap Stores and apparel designer and marketer Tommy Hilfiger.

Troubled discount department store operator Kmart Corp.'s bonds continued to firm to bid levels in the 50-51 range, up about a point, now that the bankruptcy court has given its blessing to Kmart's exclusive marketing pacts with the likes of Martha Stewart, Jaclyn Smith, Kathy Ireland and Disney.

News that the U.S. Bankruptcy Court in Chicago had allowed the payment of $12.3 million to domestic diva Stewart and smaller sums to the other companies, ensuring that they will continue supplying Kmart exclusively helped push the bonds up several points on Wednesday, and the firming trend continued Thursday. Kmart had petitioned the court for the right to make the payments, mandated under pre-petition contracts, in order to avoid the loss of their prestigious lines of name-brand designer goods. Kmart had called keeping those high-profile licensors under contract essential to its efforts to restructure. The court had further favorable news for Kmart when it approved plans to close 283 of the chain's 2,114 stores (13% of its total) and lay off 22,000 employees, about 9% of the workforce - cuts analysts said were needed to bring its costs down to manageable levels. With the closing of the stores, Kmart will have an opportunity to get out from under burdensome leases, a contract cancellation allowed under the Bankruptcy Code.

While the company's unsecured debt remained firm around 50 bid, a trader saw its structured debt - secured with revenue from lease payments on some of Kmart's stores - continuing to trade in the lower 60s.

A trader saw Conseco Inc. bonds "coming back a bit" after they had dropped several points in Wednesday's dealings on bondholder wariness about the Carmel, Ind.-based insurer's plan to ask some of its debtholders to OK extended maturities for its bonds to help conserve cash. He quoted Conseco's 8 ½% notes due later this year at 83 bid/84 offered, up from prior levels as low as 79 bid/80 offered, although he allowed that there was "not a lot of activity" in the credit.

Elsewhere, the trader saw Calpine Corp. bonds and those of fellow independent power producer AES Corp. higher, with Calpine's 8½% notes due 201 up a 1.5 points at 81 bid/82 offered. Meantime, AES's 9½% notes were two points higher, at 80 bid/81 offered, with most of that movement, he said, coming "at the end of the day." Shares and debt of both companies, as well as such other independent power producers as Mirant Corp. and Reliant Resources Inc. have lately been firmer on speculation that the companies could benefit from any consolidation in the industry. Such takeover buzz got further impetus this week when British power producer International Power plc said it was prepared to use $1.4 billion in cash and credit to buy electricity generating assets put up for sale by the failed Enron Corp. and its U.S.-based peers; such asset sales were seen likely as the sector tries to recover from the double whammy of weak wholesale power prices and increased regulator and investor scrutiny of their balance sheets in the wake of the Enron fiasco.

McDermott International got some good news from a U.S. Bankruptcy Court judge in New Orleans, who rejected assertions by asbestos-claim plaintiffs that a 1998 transfer of certain assets to the company by its Babcock & Wilcox unit, now in Chapter 11, was fraudulent because McDermott allegedly knew B&W was insolvent at the time.

McDermott's 8¾% notes due 2023 were quoted up two to three points to 65 bid/70 offered, although a trader said McDermott is "not much of a name in high yield any more," following the redemption of most of its junk bonds last Friday, when its McDermott Inc. unit repaid the remaining $196.1 million of its 9 3/8% notes, along with $9.2 million of interest.

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