Buffets prices downsized, restructured deal; airline bonds keep flying; funds see $3 million inflow

By Paul Deckelman and Paul A. Harris

New York, Oct. 19- Buffets Inc. served up a reduced helping of new bonds Thursday, high yield syndicate sources said, as the Eagan, Minn.-based restaurant chain operator downsized its deal to get it priced, and also trimmed it down to one tranche.

Also pricing, without any modifications, was FelCor Lodging Trust Inc.'s quickly marketed offering of five-year floating-rate notes.

Traders saw those bonds, and several other recent entries, trading in the aftermarket not too far away from their respective issue prices.

Among the established issues, market participants saw the bonds of Buffets' Eagan neighbor, Northwest Airlines Corp., continuing to gain altitude, along with those of fellow bankrupt air carrier Delta Air Lines Inc., still riding the momentum from Wednesday's better-than-expected earnings from sector leader American Airlines as well as generally lower oil prices. The bonds of American's parent, AMR Corp., were also continuing to rise. However, some airline watchers pointed out that the OPEC nations moved to slow, or even stem the falling price of oil by agreeing to cut their output.

Bonds of the troubled automotive parts sector continued to push higher, led by Remy International Inc., which were on the rebound for a second straight session after Tuesday's big drop.

On the downside, Toys "R" Us Inc.'s bonds were seen having given up some of the solid gains that the Wayne, N.J.-based specialty retailer's paper had recently notched.

A high yield syndicate official said that the broad market was unchanged on the day, and added that activity in the secondary market was nearly non-existent.

Funds slightly positive

After trading had finished up for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $3.2 million more came into the funds than had left them.

That slight gain stood in contrast to the previous week, ended Wednesday, Oct. 11, during which outflows had totaled $62 million.

The latest week's inflow was only the second positive number in the past six weeks. During that stretch, $108 million more has flowed out of the funds than has come into them, according to a Prospect News analysis of the AMG statistics.

Despite that recent reversion to the generally negative trend that has held sway for most of the year, the past roughly two or three months have stood out as the exception, with inflows still seen in seven weeks out of the last 13 and net inflows in that period totaling $434.3 million, according to the Prospect News analysis. Inflows have also seen in nine weeks out of the past 16, for total net inflows of $531.1 million in that time, according to the analysis.

For funds that report to AMG on a weekly basis, the flows are now negative $3.16 billion for 2006.

However it is an entirely different story for the funds that report to AMG on a monthly basis. This group has seen $3.28 billion of year-to-date inflows.

Hence the year-to-date aggregate flows, which tally the numbers from both the weekly and the monthly reporting funds, ended the most recent week in the black at just under $122 million.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

Buffets downsizes, restructures

The primary market saw two tranches from two issuers price during the Thursday session for a total of $515 million of issuance.

Thursday's biggest issue in terms of dollar amount came in the form of a downsized, restructured deal from Minnesota-based restaurant company, Buffets, Inc.

Buffets priced a $300 million issue of 12½% senior unsecured notes (Caa1/CCC) in a single fixed-rate tranche at par.

The notes came on top of talk that had been upwardly revised to 12½% from earlier talk of 11¾% to 12%.

The deal was downsized by $30 million, with the company shifting that amount to the loan market.

Buffets also abandoned a planned issue of senior unsecured floating-rate notes. Prior to withdrawing the floating-rate notes the company revised price talk on that tranche to Libor plus 700 to 725 basis points from earlier talk of 650 to 675 basis points.

Credit Suisse, UBS Investment Bank and Goldman Sachs & Co. were joint bookrunners for the acquisition deal.

FelCor comes tight to talk

Meanwhile FelCor Lodging LP's $215 million offering of five-year senior secured floating-rate notes (Ba3/B+) seemed to enjoy a warmer reception from investors on Thursday.

The Merrill Lynch-led deal saw FelCor's bonds pricing at par to yield six-month Libor plus 187.5 basis points, at the tight end of the 187.5 to 200 basis points price talk.

An informed source said that the issue was oversubscribed and added that it had gone very well.

The issuer, a subsidiary of Irving, Tex.-based upscale lodging REIT, Felcor Lodging Trust Inc., will use the proceeds to repay debt.

Friday and beyond

Only one issue that has traveled the investor roadshow circuit remains to be priced before the Friday close.

Glass fiber manufacturer, AGY Holding Corp., is expected to price a $175 million offering of eight-year senior second lien notes (B2/B-), which it has talked at a yield in the 10¼% area.

UBS is leading that deal.

And with regard to the early part of the Oct. 23 week, a source told Prospect News that price talk is expected to surface on Friday for Michael's Stores, Inc.'s $1.075 billion two-part offering of high yield notes - an LBO financing.

The Irving, Tex.-based specialty retailer is offering $750 million of eight-year senior notes (B2/CCC) and $325 million of 10-year senior subordinated notes due 2016 (Caa1/CCC) via left bookrunner Deutsche Bank Securities

New bonds trade close to issue

When the new FelCor floating-rate notes were freed for secondary dealings, a trader saw them at par bid, 100.75 offered, little changed from their par issue price earlier in the session. Another trader quoted the new bonds at 100.375 bid, 100.625 offered, but allowed that he "didn't see much trading in them."

The Buffets bonds priced too late in the session for any kind of aftermarket activity, traders said.

Among the bonds which had priced during Wednesday's dealings, traders saw the new 9 3/8% senior notes due 2014 issued by Cricket Communications Inc. (Leap Wireless International Inc.) trading around 100.75 bid, 101.25 offered, up from their par issue price.

A trader saw Berry Plastics Corp.'s new 8¼% notes due 2016 at par bid, 100.5 offered, although at another desk, the bonds were seen a little tighter at 100.25 bid, 100.5 offered.

And a trader saw Southern Union Gas Co.'s new fixed-rate-to-floating-rate subordinated junior notes due 2066, which like most regulated utility issues are quoted on a spread versus Treasuries basis, as having tightened to 238 basis points bid side, 235 bps offered, from 240/238 in initial secondary dealings Wednesday. That spread, in turn, had tightened markedly from the 250 bps spread at which the bonds had priced earlier Wednesday.

Airlines still fly high

Back among the established issues, traders saw the bonds of such airlines as Northwest, Delta and AMR continuing to rise, with one of them quoting Northwest's 10% notes due 2009 having pushed as high as 61 bid, 62 offered, and its 9 7/8% notes at 62 bid, 63 offered, up from 58 on Wednesday.

At another desk, the bankrupt Number-Four domestic carrier's 7 7/8% notes due 2008 were seen up as much as 2½ points on the session at 62 bid.

A trader was meantime quoting bankrupt Atlanta-based Number-Three carrier Delta's 8.30% notes due 2029 up a point or more at around 35.

Fort Worth, Tex.-based airline industry leader AMR's 9% notes due 2012 were a point "stronger on the heels of better earnings" for the company, a trader said, seeing the bonds at 102.5 bid, 103.5 offered.

The bonds of all three had also risen on Wednesday, after AMR posted its second consecutive quarterly profit after some six years of big losses. The airline operator earned 45 cents per share, excluding special items, beating Wall Street's expectations of 42 cents a share ex-items.

Also heartening airline investors recently has been the trend of lower world crude oil prices, which could be an indication that jet fuel prices - a major portion of all airlines' cost structure - might also be trending lower in the future.

Since peaking around $78 per barrel in mid-summer, prices have declined more than 25%, with light sweet crude closing at $58.50 on the New York Mercantile Exchange Thursday, a gain of 85 cents on the day.

Whether prices will keep falling, or even steady around the present levels is anyone's guess, with the Organization of Petroleum Exporting Countries announcing that the12-member cartel had decided to cut output by 1.2 million barrels a day - a bigger cut than observers had expected - and remains open to further output reductions should prices fall again.

Autos take an upside ride

Automotive issues were mostly better, traders said, continuing the trend in effect since Tuesday, when the bonds of Dura Automotive Systems Inc. stabilized at the lower levels to which they had fallen, trading flat, or without their accrued interest, after the Rochester Hills, Mich.-based auto systems maker said it would not make the Oct. 15 coupon interest payment on those bonds.

After trading down to about the 28 bid level - actually even lower than that nominal level in real terms, since the bonds no longer trade with their accrued interest - the Dura 8 5/8% notes due 2012 have recovered, and were seen Thursday at 32, a trader said, "a little better," while the company's subordinated 9% notes due 2009 were also improved, up a point or so, he said, to 7.5 bid, 8.5 offered.

He meantime saw bankrupt parts supplier Dana Corp.'s 6½% notes due 2008 "holding in" around 72 bid, 73 offered, while bankrupt supplier Delphi Corp.'s 6.55% notes that were to have matured in June were around par bid, "where they've been."

Remy rebounds

The biggest comeback story in the sector over the last two sessions has been Remy International Inc. The Anderson, Ind.-based maker of Delco Remy automotive electrical and electronic parts had fallen sharply on Tuesday, possibly on fears, a trader said, that the company might be considering a bankruptcy filing, sparked by its hiring an investment bank - although that hire of the Rothschild bank was only in an advisory capacity, on asset allocation, as it turned out.

The subordinated bonds, which had plunged into the low 30s, came back on Wednesday to the high 30s, and a trader saw Remy's 9 3/8% notes due 2012 on Thursday at 39 bid, 41 offered and its 11% notes due 2009 at 42.5 bid, both bonds up about a point or two on the session, "so they were a little better."

Another trader saw the 9 3/8s get as good as 40 bid, 42 offered and the 11s rise to 41 bid, 43 offered, while the company's 8 5/8% senior notes due 2007 firm to 89 bid, 91 offered and its floating-rate seniors due 2009 at 96 bid, 98 offered, up about 1½ to 2 points on the day.

Starwood a star

Also on the rise over the past couple of sessions, a trader said, were Starwood Hotels and Resorts Worldwide Inc.'s bonds, which had eased earlier in the week on renewed market talk that the White Plains, N.Y.-based lodging giant could be a target for a private-equity-based leveraged buyout offer that would load its balance sheet up with additional debt.

Once such speculation faded, he said, the company's 7 3/8% notes due 2015 - which had dipped down as low as 99.5 bid, 100.5 offered earlier in the week - began to move back up, closing Thursday at 103.5 bid, 104.5 offered.

Taking profits in Toys

Moving in the opposite direction, however, were the bonds of Toys "R" Us, with investors apparently taking profits off recent gains in the Wayne, N.J.-based specialty retailer.

Its 7 3/8% notes due 2018 dropped to 75 bid, down from earlier highs around 78, while its 7 5/8% notes due 2011 were a point lower at 86.75 bid, a market source said.

The bonds had firmed in response to better investor feeling about the prospects for retailers heading into the important year-end holiday shopping season.

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