Neiman Marcus deal sharply downsized; Delphi bonds fall on renewed bankruptcy buzz

By Paul Deckelman and Paul A. Harris

New York, Sept. 26 - The Neiman Marcus Group Inc.'s planned $2.175 billion offering of junk bonds, expected to come to market this week, was heard on Monday to have been radically downsized, and restructured from a three-tranche offering into a two-fer.

Little ease was seen shaking in the new-deal arena on Monday, with no pricings taking place; Hornbeck Offshore Services Inc., however, was heard to have begun a roadshow to market its planned add-on offering, while Activant Solutions Inc. was getting ready to sell a two-part bond offering.

In the secondary market, speculation that Delphi Corp. is likely to go bankrupt after all - temporarily at bay for a few sessions last week - returned with a vengeance Monday, spurred on by a Wall Street Journal story quoting the troubled Troy, Mich.-based automotive electronics manufacturer's chief executive officer as saying of the company that "we are out of money" and that he is seriously contemplating such a filing.

Elsewhere, Hurricane Rita's less-than-expected damage to the vital oil production facilities along the Texas Gulf Cost over the weekend initially pushed oil prices lower, causing the bonds of such oil-intensive industries as packaging and airlines to glide higher. Even though oil prices later firmed, those bonds seemed to hold on to most of their early gains.

Overall, sources variously marked high yield unchanged to slightly down.

One source said junk bonds had firmed early on dealer short covering as well as news that Hurricane Rita, the second major hurricane to hit the U.S. Gulf Coast in the space of a month, did less damage than initially had been feared, and far less damage than its late-August predecessor, deadly Hurricane Katrina.

However, the source added, high yield basically coughed up its morning gains during afternoon trading.

Meanwhile a source from a hedge fund spotted the CDX 100 at 99.625 bid, 99.75 offered, down an eighth, after the close.

Neiman Marcus dramatically downsizes

With no issues pricing Monday, the stage basically belonged to Dallas upscale retailer The Neiman Marcus Group Inc.

As the market wound down last week sources were pondering the fortunes of the upcoming LBO-funding mega-deal, as junk sold off by as much as a point during the week of Sept. 19 while new deals were coming downsized, restructured and were pricing wide of the price talk.

Those sources did not have to wait long.

With its bank loan seeing huge demand from the institutional loan market - more than $5 billion of commitments, one source said - Neiman Marcus took a chainsaw to its junk bond deal, downsizing it by $975 million to $1.20 billion from the original $2.175 billion. The company shifted that $975 million amount to its term loan B which increased to $1.975 billion from $1 billion. Talk on that loan flexed inward by 50 basis points to Libor plus 250 from plus 300.

Neiman Marcus completely lopped off its proposed $850 million tranche of eight-year senior secured notes.

Meanwhile the company downsized to $700 million from $750 million its tranche of 10-year senior notes (B2/B-), and talked the notes at the 8¾% area.

Neiman Marcus also downsized to $500 million from $575 million its tranche of 10-year senior subordinated notes (B3/B-), and talked them at the 10% area.

The books are expected to close mid-day on Wednesday, with pricing to follow.

Credit Suisse First Boston, Banc of America Securities, Deutsche Bank Securities and Goldman Sachs & Co. are the bookrunners.

The calendar buildup continues

Elsewhere on Monday, although market observers have taken to castigating the forward calendar with claims that it has grown too large relative to investor demand, two more prospective issuers nevertheless clambered aboard.

Activant Solutions, Inc. will begin a roadshow Wednesday for a $140 million add-on to its senior floating-rate notes due April 1, 2010 (B+).

Meanwhile, Activant Solutions Holdings is concurrently in the market with a $40 million offering of six-year floating-rate PIK notes (B-).

Deutsche Bank Securities and JP Morgan are the bookrunners for the Austin, Tex., software company's acquisition financing deal that will be showcased at the Deutsche Bank High Yield Conference.

Activant priced the original $120 million issue of the senior floating-rate notes due April 1, 2010 at par to yield Libor plus 600 basis points in late winter of the present year.

Elsewhere Hornbeck Offshore Services, Inc. began a roadshow Monday for a $75 million add-on to its 6 1/8% senior notes due Dec. 1, 2014, with pricing expected on Thursday.

Goldman Sachs & Co., Bear Stearns & Co. and Jefferies & Co. are joint bookrunners.

The Covington, La.-based petroleum products transportation company priced the original $225 million issue at par on Nov. 18, 2004.

Sitting on cash?

A buy-side told Prospect News late Monday that despite continued outflows from the high yield mutual funds - the most recent being a $329 million drain for the week to Sept. 21, bringing to $8.4 billion the amount of net outflows on the year - there seems to be money to put to work in the asset class.

"You get the feeling that people have cash," the investor said.

"It's just that right now people don't seem to be in a hurry to spend it."

LIN rises, Res-Care higher

While no new issues priced on Monday, bonds of several companies that successfully brought deals to market on Friday were seen trading around on Monday.

Maybe the best-performing of the group was LIN TV Inc.'s add-on to its outstanding 6 ½% notes due 2013, which priced on Friday at 92.238 and which then moved up to 93.5 bid, 94.5 offered on the break; a trader late Monday saw those bonds as having moved up further to 94.125 bid, 94.625 offered.

The trader also said that the new Res-Care Inc. 7 ¾% notes due 2013 "seemed to be fairly well received" in the after-market, pushing up to 100.25 bid, 100.5 offered from a 99.261 issue price on Friday.

The new School Specialty Inc. 10% notes due 2013, which priced at par on Friday and which then firmed slightly in initial aftermarket dealings to 100.25 bid, 101 offered, continued upward, a trader said, to end Monday at 101 bid, 101.5 offered.

However, Brookstone Inc.'s new 12% notes due 2013 actually eased slightly from Friday's 98.833 issue price, going home Monday at 98.75 bid, 99.25 offered.

Junk misses rally

Back among the established issues, a trader said that "honestly thought that we would be rallying pretty good" on the news that Hurricane Rita had caused "only" about $5 billion in damages - "if you can call that innocuous."

That $5 billion figure was considerably less than most worst-case scenarios had projected last week, as the storm, at the time a supercharged Category 5 monster, seemed to be headed straight for Houston, the nation's fourth-largest city and largest oil producing and chemical producing region. The storm weakened to a Category 3, and then gradually veered away from Houston to make landfall further east, around the Port Arthur area. While there was some damage to at least one refinery there, the bulk of the oil facilities seemed to be in fairly good shape. That helped stocks rally - even though oil prices climbed back up later in the session - but the bond trader said that the junk rally that might have been expected "was not to be. The tone of the market was generally apathetic."

While there were some gains among the oil-sensitive packaging names - the sector is heavily dependent on the cost of plastics, which are mostly derived from petroleum - as well as some of the airline names, more people seemed to be paying attention to Delphi's latest ups and downs, which these days seem composed mostly of downs.

Delphi heads back down

Last week, the company's bonds had first fallen on bankruptcy speculation, but then bounced toward the end of the week after Delphi announced in a Securities and Exchange Commission filing that it still had about $300 million left from its $1.8 billion bank credit line, and after CEO Robert "Steve" Miller seemed to downplay the importance of a bankruptcy filing, saying that he would prefer to work things out without getting the courts involved.

However, Miller was quoted in Monday's Wall Street Journal as saying that "I make a new judgment every morning . . . Do we have enough time?" - comments widely interpreted to mean that the turnaround expert has likely concluded that a bankruptcy might be the only choice the company has.

Delphi, the trader said "gave it all back" on the "wishy-washy story in the Journal" that seemed to undercut the more positive spin the company had put out last week.

He saw Delphi's 6.55% notes due 2006 dropping back to 72 bid, 73 offered from Friday levels around 75.5 bid, 76.5 offered, while its 7 1/8% notes due 2029 retreated to 62 bid, 63 offered from 64.5 bid, 65.5 offered previously.

At another desk, a market source pegged the 6.55s down 2½ points at 72.5 bid, and the 7 1/8s two points lower at 62.5. He also saw Delphi's 6½% notes due 2009 fall back to 67.5 bid from 69.75, and its 6½% notes due 2013 dip to 66.5 bid from 68.125 offered.

Adding fuel to the fires of bankruptcy speculation were comments by Deutsche Bank equity analyst Rod Lache, who said that he now thinks that there's about an equal chance that Delphi could file or could reach a bailout agreement with its unions and its former corporate parent, General Motors Corp. Previously, Lache had believed that Delphi, GM and the United Auto Workers union would reach some kind of agreement to keep the company out of Chapter 11. However, with few signs emerging from the three-way talks between the two companies and the UAW, he now rates that possibility a toss-up, at best.

"The primary reason for our change of thinking is that there may be a legitimate argument that GM and the UAW would be better off if Delphi files," Lache said in a research note.

Delphi, spun off from GM several years ago, was saddled with burdensome labor costs heavier than those paid by other automotive parts suppliers, and wants GM and the union to give it some relief, the way Ford Motor Co. and the union recently agreed to let Delphi rival Visteon Corp. get out from under some unprofitable high-labor-cost plants by transferring them back to Ford.

Delphi has set Oct. 17 - when bankruptcy law changes take effect rendering them less-friendly to debtor companies - as its informal deadline for an agreement.

Delphi shareholders as well as bondholders were dismayed by the latest developments. The New York Stock Exchange-traded shares plunged 47 cents (13.58%) on Monday to $2.99 on volume of 13.9 million, more than double the norm.

Dura down a little

But while Delphi was skidding lower, it didn't seem to be towing other auto sector names along for the ride. The trader saw Dura Automotive Systems Inc.'s bonds slightly lower, but "nothing dramatic, given the downgrade" of the Rochester Hills, Mich.-based automotive systems maker's credit ratings by Moody's Investors Service.

He quoted the company's Dura Operating 9% notes due 2009 at 70.5 bid, 71.5 offered, and its 8 5/8% notes due 2012 at 89.5 bid, 90.5 offered, both down half a point.

Moody's lowered Dura's corporate family rating to B3 from B2 earlier, while cutting its senior unsecured rating to Caa1 from B3 and its senior subordinated notes' rating to Caa2 from Caa1.

The agency cited weak operating results and free cash flow, high leverage and "continuing issues of customer concentration and an unfavorable product platform mix" in the midst of a "challenging" environment for the auto components industry.

Despite that bearish sounding language, another trader saw the 8 5/8s down only a quarter-point at 89.75, while the 9s were actually half a point higher at 70.5.

GM, Ford unchanged

Also in that auto sector, General Motors and Ford's flagship bonds - the GM 8 3/8% notes due 2033 and the Ford 7.45% notes due 2031 - were each seen essentially unchanged, both quoted at 79.5 bid, 80.5 offered.

Packaging holds steady

Apart from the autos, the first trader said that the packaging makers - who had firmed last week on a combination of investor optimism that petroleum prices, and thus, plastics prices, would be coming down, as well as some short covering, "didn't go higher," as oil prices turned northward late in the session, "but they didn't give back their gains either."

He saw Pliant Corp.'s 11 1/8% notes due 2009 at 87.5 bid, 88.5 offered and its 13% notes due 2010 at 54 bid, 55 offered, "maintaining its gains," while Stone Container Corp.'s 8¼% notes due 2012 were also unchanged, at 94.25 bid, 95.25 offered, and such paper and forest product names as Bowater and Tembec were unchanged to slightly higher. Bowater's 6½% notes due 2013 ended at 93.75 bid, 94.75 offered. Tembec's 8 5/8% notes due 2009 were half a point better at 71 bid, 72 offered.

At another desk, a source said that packaging maker Tekni-Plex Inc. - whose bonds fell last week after the Somerville, N.J. based company disclosed accounting irregularities which could require restatements of some results - was higher Monday, its 12¾% notes due 2010 two points better at 62, and its 10 7/8% notes due 2012 a quarter-point better at 106.25.

Delta, Northwest up

Also riding the wave of initially lower oil prices - even though that wave later receded - were bankrupt air carriers Delta Air Lines Inc. and Northwest Airlines Corp. The latter's bonds were seen up anywhere from two to three points across the board to around 27, while Delta's bonds were seen up about half a point to 17.5.

A trader cited short-covering as much as energy news, since light, sweet crude - after initially dropping as low as $62.65 per barrel on the New York Mercantile Exchange from Friday's $64.19 settlement price, due to a lack of significant hurricane damage, bounced back up to end $1.63 higher, settling at $65.82.

Gulf Coast casinos better

Rita's having inflicted no more real damage on the already damaged casinos along the Louisiana and Mississippi Gulf Coast was hailed by investors in gaming companies with exposure there.

Pinnacle Entertainment Corp.'s 8¾% notes due 2013 firmed to 102.75 bid from par and its 8¼% notes due 2012 improved to 99.5 bid from 98, a market observer said, while Isle of Capri Casinos' 7% notes due 2014 gained 1½ points to 96 bid. Harrah's Operating 7 7/8% notes coming due on Dec. 15 were unchanged at 100.75

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