Travelport, Fortescue mega-deals price; Bally dives on CEO exit, end of effort to sell company

By Paul Deckelman and Paul A. Harris

New York, Aug. 11 - The high-yield primary market closed out the week with a bang, as two billion-dollar-plus deals priced - one of them, from FMG Finance Property (Fortescue Metals Group) - actually for twice that amount, and the other from TDS Investor Corp. (Travelport). Both big deals were multi-tranche offerings denominated in both dollars and euros - and secondary traders said that each did no better in the aftermarket than trading at, or even slightly below, the tranches' par issue price.

Kensington Group plc was meanwhile heard by syndicate sources to have priced a smallish add-on offering to its sterling-denominated 2015 notes.

The secondary market - which normally would have been avidly fixated on two deals of such great size - chose to pretty much ignore them, instead reacting to news out on a number of issues.

The biggest mover - and the biggest disaster - was Bally Total Fitness Holding Corp., whose bonds and shares looked like the proverbial 98-pound weakling on Friday, sliding badly after the troubled Chicago-based fitness center chain announced the ouster of embattled chairman and chief executive officer Paul A. Toback and said that its efforts to find a buyer or merger partner for the company had come to exactly zero.

Another downsider was Movie Gallery Inc., anointed by bond traders as Thursday's disaster du jour; the Dothan, Ala.-based video rental store chain operator's bonds fell about 7 or 8 points Friday on top of Thursday's 12-point slide, which was precipitated by the company's report of an unexpected quarterly loss.

On the upside, Intrawest Corp.'s bonds were solidly higher on the news that the Vancouver, B.C.-based operator of mountain resorts and golf courses has agreed to be bought out in a deal valued at $2.8 billion, including debt assumption.

Also heading higher were the 2009 through 2012 bonds of Charter Communications Inc. after the St. Louis-based cable system operator announced plans for a debt-for-debt exchange involving those notes, aimed at extending its maturities and lowering its overall debt burden.

A high yield syndicate official assessed the market as flat on Friday but added that junk was up ¼ to ½ point on the week.

Primary activity surges

Meanwhile a primary market that had seen only four tranches totaling slightly less than $1.1 billion of dollar-denominated issuance going into the Friday session burst to life on the final day of the Aug. 7 week.

Two issuers each brought multi-tranche transactions generating $2.550 billion of dollar-denominated issuance on Friday.

All told, those two issuers, FMG Finance Property Ltd. (Fortescue Metals Group) and TDS Investor Corp. (Travelport), combined to price $3.451 billion equivalent in nine tranches, including three euro-denominated pieces that totaled an even €700 million.

A third issuer, Kensington Group, made it an even 10 tranches on Friday by pricing a non-rated add-on that generated £49.76 million of proceeds.

Fortescue finishes five-parter

Australian iron ore producer, Fortescue Metals, brought an upsized $2.051 billion equivalent of first-lien senior secured notes (Ba3/BB-) in four tranches on Friday.

Included were:

• $250 million of five-year floating-rate notes which priced at par to yield Libor plus 400 basis points, on top of price talk;

• $320 million of seven-year fixed-rate notes which priced at par to yield 10%, on top of the 10% area price talk;

• €315 million of seven-year fixed-rate notes which priced at par to yield 9 5/8%, 12.5 basis points wide of the 9½% area price talk; and

• $1.080 billion of 10-year fixed-rate notes which priced at par to yield 10 5/8%, at the wide end of the 10½% area price talk.

Citigroup was the bookrunner for the railroad construction-funding deal.

The make-whole call for all four of the tranches was enhanced to Treasuries plus 50 basis points from 75 basis points.

The overall transaction was upsized from $1.9 billion equivalent.

Travelport prices $1.4 billion

The second mammoth transaction on Friday came from Chicago-based travel services company Travelport. The company sold $1.4 billion equivalent of high yield notes in five tranches:

• $150 million of eight-year senior floating-rate notes (B3/B-) at par to yield three-month Libor plus 462.5 basis points, at the wide end of the Libor plus 450 basis points area price talk and at the low end of the planned $150 million to $200 million offering range;

• €235 million of eight-year senior floating-rate notes (B3/B-) at par to yield three month Euribor plus 462.5 basis points, again at the wide end of the Euribor plus 450 basis points area talk;

• $450 million of eight-year senior fixed-rate notes (B3/B-) at par to yield 9?%, at the wide end of the 9¾% area price talk and at the high end of the planned $400 million to $450 million offering range;

• $300 million of 10-year senior subordinated notes (Caa1/B-) at par to yield 11?%, at the wide end of the 11¾% area price talk; and

• €160 million of 10-year senior subordinated notes (Caa1/B-) at par to yield 10?%, in the middle of the 10¾% to 11% price talk and upsized from €150 million.

Lehman Brothers, Credit Suisse, UBS Investment Bank, Citigroup and Deutsche Bank Securities were joint bookrunners for the acquisition financing.

Kensington taps 9% notes

Kensington Group plc priced an upsized £50 million add-on to its unrated 9% subordinated notes due Dec. 21, 2015 at 99.52 to yield 8.91% on Friday.

The notes priced at the equivalent of a 400 basis points spread to Libor, on top of the price talk.

Royal Bank of Scotland was the bookrunner for the general corporate purposes deal from the London-based residential mortgage business operator.

The add-on was upsized from £25 million.

The original £75 million priced in November 2005, at an equivalent spread to Libor of 450 basis points. Hence the company realized a 50 basis points savings with the add-on.

An informed source said that the deal was well received and added that demand surfaced during a non-deal roadshow last week.

The source added that the bookrunner went out with price talk on Wednesday, after which the book began to build quickly and the deal was ultimately upsized from £25 million based upon demand.

The order book contained a "good spread of quality names, some of which are new to the issue," the source added.

Week's issuance totals $3.63 billion

Tallying the even half dozen dollar-denominated tranches that priced on Friday, the week of Aug. 7 came to a close having seen slightly more than $3.63 billion of dollar-denominated issuance in 10 tranches.

That total, while not bad for the high yield market's August Dog Days, pales in comparison with the previous week's $6.25 billion in 13 dollar-denominated tranches - the biggest week since mid-December 2005.

Friday's business sent year-to-date junk issuance to just slightly over $84 billion, approximately $18.6 billion over the $65.4 billion that had priced by the Aug. 11, 2005 close.

The Fed move was priced in

With three full sessions having come and gone since the Federal Reserve Bank's policy-making Federal Open Market Committee halted - or "paused," as most sources maintain - a string of 17 consecutive 25 basis point hikes in short-term interest rates dating back to spring 2004, high yield sources said Friday that very little impact can be seen thus far in the junk asset class.

The post-pause mantra, heard with only slight variation from sources on both the buy-side and the sell-side, is that the move had already been priced into the market.

More important, sources say, is what happens next.

A sell-side official who watches both the junk and bank loan markets said Friday that while it is not clear what the FOMC will do next, it will likely begin telegraphing its next move over the course of the coming two or three weeks.

"One interesting piece of data I saw this week was that the 10-year Treasury yield was at 4.88% when the Fed made that first 25 basis points increase in 2004.

"And last week, after the 17th consecutive hike, the 10-year hit an intraday level of 4.88%.

"So trailing a 425 basis points increase in the short term rate the yield on the 10-year Treasury remained basically unchanged."

Given that economists have demonstrated that when the short-term rate, now 5.25%, is higher than the yields of longer-dated Treasuries - the inverted yield curve - a recession frequently follows, Prospect News asked this official what the current interest rate scenario portends for the junk market.

"If you look at this environment in a historical context it does not portend particularly well for high yield investors," the sell-sider responded.

Deeper into the Dog Days

With Friday's burst of issuance having cleared the market the forward calendar has dwindled down to less than $300 million.

Two prospective junk issuers remain in the market with deals that some sources expect to be priced before the end of the Aug. 14 week.

Broadview Networks Holdings Inc. is marketing $210 million of six-year senior secured notes (B-) in a debt refinancing and general corporate purposes deal.

And Indonesia-based PT Polyfin Canggih plans to sell $75 million of five-year senior secured notes with warrants for common shares, with proceeds to repay debt, fund working capital and for general corporate purposes.

Both deals are being led by Jefferies & Co.

Sell-side sources said Friday that there may be opportunities during the Aug. 14 week for familiar issuers to bring quick-to-market deals.

However the consensus seemed to build throughout the week that pre-Labor Day business in the new issue market may have all but come to a close.

Travelport, Fortescue around par

When the new Travelport bonds were freed for secondary dealings, a trader saw all of the dollar-denominated issues - the 9 7/8% senior notes due 2014, the 11 7/8% senior subordinated notes due 2016 and the eight-year senior floating-rate notes - "all trading around par [the issue price for each tranche], perhaps in a 99.75 bid, 100.25 offered context."

He likewise saw the new FMG senior secured dollar bonds - its floaters due 2011, its 10% notes due 2013 and 10 5/8% notes due 2016 - all trading around the par issue price as well.

Another trader saw the Travelport 9 7/8s initially quoted as high as 100.25 bid, 100.75 offered, but he saw the bonds come back in to offered levels around 99.875. He saw the 2014 floaters at 99.625 bid, 99.875, and the 11 7/8% 2016 bonds at 99.375 bid, 99.75 offered.

Bally plunges

Back among the established issues, Bally, a trader said "was the day's big disaster."

He saw the company's 9 7/8% notes due 2007, which on Thursday had finished quoted at 96 bid, 97 offered at his shop, plunge to midday levels as low as 86, before ending at 90 bid, 91 offered, down as much as 10 points intraday and 6 on the session. He also saw Bally's 10½% notes due 2011 ending down 5 points on the session at 98 bid, 99 offered.

At another desk, a market source saw the 9 7/8s down as much as 9 points earlier in the day, before ending down about half as much at 92.5 bid.

Yet another trader saw those bonds down 4 points at 92.5 bid, 93 offered, and saw the 101/2s also 4 points lower, at 99.5 bid 100.5 offered.

Bally announced that that Paul Toback's resignation was effective immediately, but did not comment further on his sudden departure, other than to say that Don R. Kornstein takes the reins as the company's interim chairman and Barry R. Elson had been named acting CEO while Bally looks for a permanent replacement.

Toback's resignation represents the culmination of a lengthy boardroom power struggle at the nation's largest fitness chain operator, which saw dissident investors unhappy with the company's underperformance try unsuccessfully to oust him at the company's annual shareholders' meeting. However, that failed effort apparently greased the skids under Toback, who spent nearly a decade in key positions at the company, which operates some 400 facilities in 29 states, as well as in Canada, Mexico, Korea, China and the Caribbean.

Earlier this year, Bally announced that it would try to find a buyer or merger partner for the company - but it said Friday that no offers had materialized, so it was switching to Plan B - the advisers hired to evaluate a potential sale or merger will now focus on other financing alternatives such as a recapitalization, a private placement or other corporate restructuring.

Besides announcing Toback's abrupt departure and the end of its efforts to sell itself, Bally also cut its 2006 outlook on lower-than-expected membership sales, but asserted that its cash flow and borrowing availability should be sufficient to meet its liquidity needs through next year's first quarter.

Bally further warned that it would have to delay filing its second-quarter report, although it said that it expects to meet the Sept. 11 reporting deadline set by its bondholders and senior bank lenders.

Bally's New York Stock Exchange-traded shares - which have lost more than half of their value since the start of the year - slid another $1.19 (30.13%) Friday to close at $2.76. Volume of 3.2 million shares was more than 6½ times the usual turnover.

Movie Gallery keeps dropping

Another big loser was Movie Gallery, whose 11% notes due 2012 fell to 61.5 bid, 63.5 offered, a trader said, from opening levels around 68, where the bonds had settled after Thursday's carnage. "They just kept going down," he marveled. "It was pretty ugly."

Another trader saw them ending even lower at about 60 bid, 61 offered, which he called down 7 points on the session, and down 20 points from the levels around 80 to which those bonds had risen on Wednesday, in anticipation of what marketeers thought would be strong numbers.

Instead, there was a shock ending in the last reel - Movie Gallery, far from showing the expected hefty profit gain, actually reported a wider net loss of $14.9 million (47 cents per diluted share) versus the year-earlier deficit of $12.2 million (39 cents per share).

Also causing investors to give the company poor reviews was the announcement Thursday that it had hired restructuring specialist Alvarez & Marsal, along with Merrill Lynch & Co., to advise Movie Gallery on how to improve its capital structure. That drastic step sparked worries about whether the company could continue to live up to the provisions of its bond indentures and credit facility covenants - even though the company said it liquidity was adequate and it expects to remain in compliance with all of its obligations for at least the remainder of the current 2006 fiscal year.

Debt investors aren't the only ones sitting on the edge of their seats and nervously gulping down handfuls of popcorn as they watch the latest turn of events with wide-eyed anxiety; Movie Gallery's Nasdaq-traded shares - which on Thursday lost more than half of their value on eight times their normal volume level - continued their freefall on Friday, falling another 47 cents (15.82%) to $2.50 on volume of 5.2 million shares, nearly double the average daily handle.

Hines drops

Elsewhere, Hines Horticulture Inc.'s 10¼% notes due 2011 withered on the vine after the Irvine, Calif.-based supplier of plants to retail nurseries plunged into the red in the latest quarter due to bad weather and poor market conditions.

A trader saw those bonds falling as low as 82.5 bid before coming off those lows to end at 85 - still well down from Thursday's close at 91.5.

Another trader saw the bonds starting out at 90 bid, 91 offered, then falling as low as 82 bid, 83 offered. "But then they came back a little," he said, to finish at 84 bid, 85 offered.

Hines lost $774,000 (4 cents per share) during the second quarter, a sharp deterioration from its year-earlier profit of $14.7 million (67 cents per share). Revenue dropped to $154.9 million from $176.9 million.

Hines' Nasdaq-traded shares nosedived 44 cents (17.60%) to $2.06, on volume of 70,000 shares, about three times more than usual.

GNC lower

A trader said that GNC Corp.'s 8½% notes due 2010 fell about 2 points on the session to 95 bid, 96 offered, after the company was first heard to have delayed Friday's scheduled initial public offering till next week, and later said that it had withdrawn the IPO altogether. The Pittsburgh-based vitamin and nutrition supplements retailer had aimed to sell 23.5 million shares at between $16 and $18 per share - but apparently balked when the market refused to value it above about $13 to $14.

SunCom dips

He also saw SunCom Wireless Holdings Inc. - the old Triton PCS -lower, quoting the Berwyn, Pa.-based wireless provider's 9 3/8% notes due 2011 at 68.5 bid, 69.5 offered, down 4 points on the session.

He chalked it up to increased competitive pressures on the company, which operates primarily in the Carolinas, Puerto Rico and the Virgin Islands.

"My guess is that all of these guys trying to buy [wireless] spectrum is making the asset value of Triton worth less than originally thought," he opined, while acknowledging that he had seen no specific negative news about the company.

Earlier in the week, news reports revealed that Russian businessman Evgeny Novitsky had taken 5.9% stake in SunCom, believing it to be undervalued and hoping to engage in discussions with management about possible changes in the capital structure and corporate governance.

Novitsky's Bacarella Holdings paid $5.5 million for 3.7 million shares over the last two months at prices ranging from $1.39 to $1.55 per share, according to an Aug. 7 filing with the Securities and Exchange Commission.

A company spokesperson said such an investment was not unusual and would not affect SunCom's operations.

Mobile Satellite gains

Also in the communications area, a trader at another shop saw Mobile Satellite Ventures' zero-coupon/14% notes due 2013 "moving steadily up," quoting the Reston, Va.-based satellite services provider's bonds at 59.5 bid, 60.5 offered, up a point on the session.

"They've been moving steadily up for the last several weeks," he said, noting that investors apparently believe the company is "well positioned" heading into future government auctions of satellite operation rights.

Intrawest jumps on buyout

Back on solid ground, Intrawest's 7½% notes due 2013 were seen up about 5 or 6 points on the news that the company had agreed to be acquired by private equity firm Fortress Investment Group LLC for about $1.81 billion cash. The deal also includes the assumption of $922 million of Intrawest debt, including those bonds.

A trader saw the notes quoted earlier in the week around 99.5 bid, 100.5 offered. The bonds opened Friday at 100.75 bid, 101.5 offered, he said, and had firmed to about 101.5 by mid morning. After that, "they were up pretty good" later in the session, going home around 105 bid, 106 offered.

A market source at another shop pegged the bonds up 5½ points on the day, at 105.5 bid.

Some Charter bonds gain, some lose

Charter Communications bonds that are included in the company's announced debt-for-debt offer (see related story elsewhere in this issue) were seen to have pushed up several points, a trader said, quoting one such issue, the 8 5/8% notes due 2009, as having moved up to 88 bid, 89 offered from prior levels at 84 bid, 85 offered.

But the senior bonds not included in the offer "didn't do so well," he said, seeing Charter's 11% notes due 2015 - outside of the 2009 through 2012 group of notes the company seeks to take out via the exchange - down 2 points on the session to end at 88 bid,. 89 offered.

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