Star Gas really cooks on strategic recap plan; Omnicare deal hitting road, Capital Auto pulled

By Paul Deckelman and Paul A. Harris

New York, Dec. 5 - Star Gas Partners LP's bonds and its shares jumped Monday after the Stamford, Conn.-based home heating oil distributor announced a strategic recapitalization plan which will include a reduction in its outstanding bond debt of up to $100 million.

General Motors Acceptance Corp. bonds were meanwhile seen heading lower, as the news that another potential big bidder for a majority stake in GMAC is not interested apparently overshadowed the General Motors Corp. financing arm's announcement that it will sell some $20 billion of loans.

Overall sources marked the broad high-yield market unchanged to as much as a quarter of a point lower on Monday.

A buy-side source, speaking less than an hour before the close, remarked upon a sell-off in the stock market and added that high yield was unchanged in quiet trading.

At the close another source scored the market down an eighth of a point to a quarter of a point, also citing the decline in equities as well as a sell-off in Treasuries.

In the primary market, no deals were seen to have priced Monday, although information about a big upcoming deal from Omnicare, which hits the road Tuesday, made the rounds of primaryside players. Several other deals heard to be launching included Comstock Homebuilding, Stripes Convenience Stores, Skilled Healthcare and Block Communications. But Capital Automotive REIT was heard to have pulled its planned $500 million deal, and will instead raise the money in the bank loan market.

Star Gas "was the big winner [Monday], with the bonds up 17 or 18 points," a trader said.

"They were up big," a market source at another shop agreed, quoting the company's 10¼% notes due 2013 at 99.5 bid, well up from prior levels around 81, after the company announced that its board of directors approved a strategic recapitalization that - if approved by unitholders and completed - would result in a reduction in the outstanding amount of those 101/4s of between approximately $87 and $100 million.

The notes were heard to have pushed as high as 100.5 in morning trading, before falling back to their Monday closing levels.

The plan calls for Star to get $50 million of new equity financing, and to use that money along with some funds generated through operations to repurchase at least $60 million face amount of its senior notes and, at the partnership's option, up to $73.1 million of senior notes. In addition, some noteholders have agreed to convert another $26.9 million in face amount of the notes into common units at a conversion price of $2 per unit.

The company said that it has entered into agreements with the holders of about 94% in principal amount of its estimated $230 million of senior notes to participate (see full report elsewhere in this issue).

Star's New York Stock Exchange-traded shares zoomed 75 cents (56.82%) to $2.07, on volume of 3.6 million - some 13.5 times the usual turnover.

Elsewhere, there was "not a heck of a lot" going on other than Star Gas, a trader said.

GMAC sinks

GMAC's bonds fell across the board, with its benchmark 8% notes due 2031 retreating to 95 bid, 96 offered from prior levels at 98 bid, 99 offered, a trader said. He also quoted GMAC's 6¾% notes due 2014 and 6 7/8% notes due 2011 each down two points, at 89 bid, 90 offered.

At another desk, the 8s were quoted down two points on the session at 94.5 bid, 95.5 offered, while the 63/4s and 6 7/8s were each seen a point lower, at 88.75 bid, 89.75 offered, and 89.5 bid, 90.5 offered, respectively.

A trader attributed the slide in the GMAC bonds to the news that financial giant Wells Fargo said it was not in the market to buy a controlling stake in the GM financing unit. It was the second time in as many weeks that a major financial services company mentioned as a potential buyer for that GMAC stake has voluntarily taken itself out of consideration; last week, the chief financial officer of Bank of America, Alvaro de Molina, said that the banking behemoth was not interested in doing a "GMAC-type" acquisition.

Parent GM announced some weeks ago that it would be interested in shopping around a controlling stake in its now-wholly owned finance subsidiary, hoping that such a move would result in a restoration of GMAC's prized investment-grade debt rating - which was lost when GM's own ratings fell into junkbondland - which would lower the unit's financing costs. Such a sale would produce an estimated $15 billion of proceeds for GM, boosting the parent's liquidity position while it struggles to downsize itself and sell more vehicles.

The pullout by Wells Fargo overshadowed the news that GM will sell some $20 billion of auto loans to Scotia Capital.

Despite the latest sign that GM's plan to sell the GMAC stake is not proceeding as smoothly as the carmaker had hoped - reflected in a widening of credit default swap spreads on GMAC debt to some 500 basis points on Monday from prior levels around 485 bps earlier in the session, and, in a longer timeframe, from some 230 bps at the beginning of the year - there was "some divergence" Monday between GMAC's bonds and those of GM itself, with the latter's benchmark 8 3/8% notes due 2033 seen a point better at 68.5 bid, 69.5 offered, and its 7 1/8% notes due 2013 having moved up to 68.5 from 67.25.

Paxson sees profit taking

Away from GM, Paxson Communications Corp.'s bonds were seen unchanged to slightly lower, on some profit-taking in the wake of the strong run-up seen Friday in the West Palm Beach, Fla.-based television broadcasting company's bonds in response to the news that it will sell $1.13 billion of new debt to finance a takeout of the existing notes via a tender offer.

A market source saw Paxson's 10¾% notes due 2008 dip ¼ point to 105 bid, while its zero-coupon/12¼% notes due 2009 were marginally lower at 104.875. He saw the company's 6.90% notes due 2010 unchanged at 100.25.

Steel gains more

A trader saw AK Steel Corp.'s bonds "up another point," with the Middletown, Ohio-based specialty steelmaker's 7¾% notes due 2012 firming to 92 bid, 93 offered, while sector peer United States Steel Corp.'s 10¾% notes due 2008 were half a point better at 110.5 bid, 111.5 offered.

He cited continued buzz about possible steel sector consolidation, with such foreign steelmakers as Germany's ThyssenKrup AG and Luxembourg-based Arcelor SA rumored to be possibly interested acquirers.

Calpine mostly lower

Calpine Corp.'s bonds were seen as a mixed bag, as the New York Stock Exchange announced plans to delist the troubled San Jose, Calif.-based power generating company's shares - now deeply into sub-$1 penny stock territory - amid continued speculation that a bankruptcy filing is not far off. Meanwhile, the Delaware Court of Chancery issued the final offer in connection with its ruling last week that Calpine had to repay $313 million of improperly used asset-sale proceeds by Jan. 22, an order that Calpine said it will appeal.

Under terms of the order, signed Friday by court vice chancellor Leo Strine and released Monday, Calpine can use the money that it owes, until Jan. 22, to buy certain kinds of assets, like oil and gas production properties, or to repurchase outstanding first-lien debt. It cannot use the money to buy gas to fuel its plants. However, on Jan. 22, it must deposit whatever has not already been spent for those purposes, and use the money to launch a tender offer for its second-lien debt.

A trader saw some Calpine unsecured debt better on short-covering, with its 7¾% notes due 2009 moving up to 35 bid, 36 offered from 32 bid, 34 offered, while its 7 5/8% notes due 2006 improved to 38 bid from 36.

"Unsecured U.S. dollar-denominated debt was doing better, but its Canadian dollar debt was lackluster," he said. He saw Calpine's 8½% notes due 2008 down two points at 27 bid, 28 offered, while its 8½% notes due 2011 were off as much as three points at 22 bid, 23 offered.

A market source said "most" of Calpine's issues went down, while only "a few" went up. On the downside, he saw the secured debt, such as the 8.40% notes due 2012, down a point at 91; the 8¾% notes due 2013 a point down at 76; the 9 5/8% notes due 2014 at 78 bid, down from 80.25; and the 9 5/8% notes due 2014 a quarter-point lower at 102.25.

He also saw the unsecured 10½% notes due 2006 at 36 bid, down from 37.25, and the 8 5/8% notes due 2010 dropping to 23 bid from 25.5. On the upside, he saw the company's 7¾% notes due 2009 half a point better at 35.5, while the 8¾% notes due 2007 were unchanged at 35.

Calendar grows by $1.5 billion-plus

No issues were priced in the primary market. However throughout the early afternoon and into Monday evening a cavalcade of prospective junk issuers announced offerings that they intend to price before the market settles in for its year-end winter's nap.

A calendar that contained $6.9 billion of business thought to be in the market at the start of Monday's session closed the day with just north of $8.7 billion.

By the time activity had wrapped up, the market had heard of new deals from the following:

• Omnicare Inc.'s $750 million in two tranches (expected ratings Ba3/BB+). Lehman Brothers, JP Morgan and SunTrust Robinson Humphrey are joint bookrunners the debt refinancing deal from the Covington, Ky., provider of pharmaceutical care for the elderly;

• Kimball Hill, Inc., a Rolling Meadows, Ill.-based homebuilder, with a $200 million offering of seven-year senior subordinated notes via JP Morgan and Harris Nesbitt. The Chicago homebuilder will use the proceeds to repay debt;

• Skilled Healthcare Group Inc.'s $200 million of eight-year senior subordinated notes (Caa1/CCC+). Credit Suisse First Boston and JP Morgan are bookrunners for the acquisition financing from the Foothill Ranch, Calif., operator of nursing and assisted living homes;

• Eurofresh Inc., an Arizona-based greenhouse tomato producer, with $195 million in two parts via Banc of America Securities, divided into $170 million of five-year senior notes, and $25 million of nine-year senior subordinated discount notes, with proceeds to fund the recapitalization of the company;

• Stripes Acquisition/Susser Finance, a Houston convenience store company, with $170 million of eight-year senior notes via Banc of America Securities and Merrill Lynch. Proceeds will be used to partially fund the acquisition of Susser and to repay debt;

• Block Communications, Inc.'s $150 million offering of 10-year senior notes, led by Banc of America Securities and Deutsche Bank Securities. The Toledo, Ohio media company will use the proceeds to refinance debt; and

• Comstock Homebuilding Cos., Inc.'s $150 million of five-year senior subordinated notes (B3/B-). Friedman Billings Ramsey has the books for the general corporate purposes and for real estate development projects-funding deal from the Reston, Va.-based homebuilder.

A backdrop of mega-deals

Most if not all of the issues listed above are expected to price next week.

One sell-side source reminded Prospect News on Monday that those deals are being entered onto new issue calendars alongside a pair of mega-deals already known to be in the market as next week's business:

• Hertz Corp's $2.80 billion LBO deal, via Deutsche Bank Securities, Lehman Brothers, JP Morgan, Goldman Sachs & Co. and Merrill Lynch; and

• Paxson Communications Corp.'s $1.130 billion debt refinancing deal via Citigroup, Bear Stearns & Co., CIBC World Markets, Goldman Sachs and UBS Investment Bank.

Meanwhile sources remarked on Monday that although high yield rallied notably last week, the outperformers were the higher-rated credits, implying, they said, that investors appear to continue to have appetites for quality names.

The Asian deals

As to the present week's business, information circulated Monday on a trio of offerings from Asian-based companies that are said to be playing to both high-yield and emerging markets accounts.

Galaxy Entertainment Finance Co. Ltd., the owner of Macau's Galaxy Casino, issued price talk on its $500 million two-part senior notes offering (B1/B+). A tranche of seven-year fixed-rate notes, with four years of call protection, is talked at a yield in the 10% area. Meanwhile a tranche of five-year floating-rate notes, with three years of call protection, is talked at Libor plus 500 basis points area.

Elsewhere Thailand paper and pulp company Advance Agro PCL talked its $250 million seven-year bonds (B3) in the mid-11% range.

And Thailand telecommunications provider True Corp. PCL has talked its $225 million offering of seven-year senior notes at 9% area.

All three deals are expected to price before the Friday close.

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