Freescale gains on buyout talk; Bally off on numbers, default warning

By Paul Deckelman and Paul A. Harris

New York, Sept. 11 - Freescale Semiconductor Inc.'s bonds and shares rose Monday on reports that the Austin, Tex.-based computer-chip maker was might be bought out - with not one, but two potential suitors showing interest.

On the other hand, Starwood Hotels & Resorts Worldwide Inc. - whose bonds slid on Friday, also on buyout speculation, since it was assumed that any such deal would load the lodging chain's balance sheet up with more debt - were better on Monday, as that buyout talk seemed to subside a little.

On the downside, Bally Total Fitness Holding Corp.'s bonds fell back, as the Chicago-based fitness chain released weaker-than-expected quarterly numbers late in the session, and warned that it could find itself in default on its debt early next year.

Well after Monday's close one high yield syndicate source said that the broad market had been fairly firm and active during the session.

On the new-deal front, primaryside players heard that Ace Cash Express Inc. is likely to hit the road next week to market its $175 million offering of eight-year notes.

Buyout buzz boosts Freescale

Back among the established issues, Freescale's bonds were seen pushing upward, propelled by a New York Times report that the semiconductor maker was being pursued by two separate suitor groups - one led by Texas Pacific Group and the Blackstone Group and the other led by Kohlberg Kravis Roberts, Silver Lake Partners and Bain Capital.

A trader said that there was "a lot of action" in the name, particularly in Freescale's 7 1/8% notes due 2014, which were "all over the map" in volatile trading.

He said the bonds opened morning trading around 101 bid, 102 offered, down 3 points from their Friday close. He said that the bonds moved down to the level at which investors expected them to be taken out in a standard change-of-control put in the event of a deal.

However, he added, "apparently, after people read [the Times story], it seemed to point to a better chance of a tender, so the bonds ended up jumping back up and closing at 105-106."

He also saw the company's 6 7/8% notes due 2011 open at 101 bid, 102 offered and go through "the same kind of gyrations," although he acknowledged that they "never went below that," since that was the assumed change-of-control takeout level, but rather pushed up to finish at 103.25 bid, 104.25 offered.

Another trader saw the 6 7/8s finishing up 1½ points on the session at 103 bid, 105 offered, while the 7 1/8s gained 2 points to close at 105.5 bid, 106.5 offered.

Freescale's New York Stock Exchange-traded shares meanwhile jumped $6.31 (20.52%) to close at $37.06. Volume of 38.1 million shares was about 16 times the norm.

The Times reported that the Texas Pacific/Blackstone group was close to a deal to acquire the company on Sunday evening - when the KKR-led consortium stepped in with a higher bid. It said that bids topped the $16 billion mark.

Freescale said Monday in response to the story that it is "in discussions with parties relating to a possible business transaction," adding the usual caveat that it could give no assurances that any transaction would result from the talks.

Freescale - the former Motorola Semiconductor Products Sector until its spin off by Motorola Inc. in 2004 - makes chips used in cellphones, cars and other applications. Former corporate parent Motorola remains among its big customers, along with rival electronics giant Sony Corp., along with carmakers General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Mercedes-Benz Group.

The Times reported that the KKR-Silver Lake-Bain Group - which was among the investors who recently took control of Philips Electronics' semiconductor group - seeks to merge Freescale with the Philips unit to gain economies of scale and other synergies.

Other tech names unchanged

A trader said that the Freescale movement seemed to have little or no impact on other high-tech names, with Sunnyvale, Calif.-based chipmaker Advanced Micro Devices Inc.'s 7¾% notes due 2012 "pretty much unchanged" at 100.75 bid, 101.75 offered.

And he saw Amkor Technology Inc.'s 9¼% notes due 2016 up perhaps ¼ point on the session and the Chandler, Ariz.-based semiconductor manufacturing services provider's 7¾% notes due 2013 unchanged at 92.75 bid, 93.75 offered.

Starwood bounces from lows

Elsewhere, one of the traders saw "a small dissipation" of the buyout speculation and "LBO fears" that had pushed Starwood's bonds as much as 3 or 4 points lower on Friday, and that brought the White Plains, N.Y.-based lodging chain's 7 7/8% notes due 2012 up 1½ points to end at 105 bid, 106 offered.

At another shop, a market source quoted those same bonds up a point at 106 bid.

The Starwood bonds had fallen Friday on unconfirmed market speculation that the company might be the subject of a leveraged buyout, or might embark on a debt-funded acquisition campaign, either of which would likely mean an expansion of its leverage, possibly endangering Starwood's recent elevation to investment grade by Moody's Investors Service and Standard & Poor's.

Bally off on numbers, debt warning

On the downside, a market source saw Bally's 9 7/8% notes due 2007 down more than 2 points on the session at 87.5 bid.

A trader at another desk pegged those bonds down a point at 87 bid 88 offered, and saw the company's 10½% notes due 2011 down ½ point at 97.75 bid, 98.75 offered.

He noted that Bally released its earnings data for the second quarter ended June 30 at around 4 p.m. ET - just as the stock market was closing, but still early enough for junk marketeers to get in some late transactions.

Bally swung to a loss of $733,000 (2 cents per share) from a year-ago profit of $1.6 million (5 cents per share). Revenue slipped 2% to $254.6 million from $259.6 million a year ago. The company attributed the declines to weaker membership and lower average selling prices.

Bally's interim chairman, Don R. Kornstein, who has headed the company since the recent forced resignation of embattled chief Paul A. Toback, said that Bally is "actively pursuing both short-term and long-term financing alternatives" that will enable the company to address its significant debt load and create financial flexibility for its operations.

However, it also delivered a warning on its liquidity and debt situation. Bally said that as of the end of the quarter, it had $30 million of borrowings and $14.1 million in letters of credit outstanding under its $100 million revolving credit facility, leaving availability at $55.9 million - but by the end of August, borrowings had increased to $48.5 million, with letters of credit outstanding unchanged at $14.1 million, reducing availability to $37.4 million.

It said that the increased revolver borrowing "reflects a combination of decreased cash collections of membership revenue, customary expense disbursements associated with the company's operations, capital expenditures and the July scheduled interest payment to holders of the company's 10½% senior notes due 2011."

It cautioned that making the upcoming interest payments due to holders of the 9 7/8 % notes in October and the 10½% notes in January "will further reduce liquidity."

Bally additionally noted that it has classified all $171.4 million of its outstanding term loan and revolver debt on the balance sheet as of June 30 as current maturities, citing the early termination provision that will be triggered if the 9 7/8% notes coming due next year have not been refinanced on or before April 15.

It warned that without an agreement by the lenders to extend the maturity of the credit agreement, or Bally's being able to refinance that credit line, "the company will have insufficient liquidity to operate its business and be unable to satisfy the credit agreement obligations when due in April 2007."

It further cautioned that should that occur, the holders of the two series of bonds could accelerate those debts "and the company would not be able to satisfy those obligations."

Bally reiterated that it is "actively evaluating various alternatives" to address its outstanding debt.

Hayes Lemmerz up on numbers

Hayes Lemmerz International Inc.'s 10½% notes due 2010 were seen by a trader up 4 points to 80.5 bid, 81.5 offered, while another trader saw the bonds of the Northville, Mich.-based maker of automotive wheels up 5 points to 82 bid, 83 offered on better-than-expected second-quarter numbers.

The company said it lost $26.9 million (70 cents per share) - well down from its year-earlier loss of $70.3 million, or $1.85 per share. Revenue grew 5% to $583.4 million from $556 million in the year-ago period. The company credited the gains to overseas expansion, and also noted gains it notched from the recent restructuring of its North American securitization program.

Also in the automotive sphere, Delphi Corp. bonds were better, with the bankrupt Troy, Mich.-based partsmaker's 6½% notes due 2009 up 2 points at 93 bid, 94 offered, and its 7 1/8% notes due 2029 up 2 points at 86 bid, 87 offered.

However, market participants said they saw no news that might explain the rise.

No new deals

Meanwhile the Monday session came and went as most have done in the primary market, dating back to mid-August: no issues were priced.

In fact the primary market produced hardly any news whatsoever.

Late Monday sources told Prospect News that Dallas-based check cashing and short-term consumer loans provider ACE Cash Express is expected to commence a roadshow next week for its $175 million offering of eight-year senior notes (B-).

Bear Stearns & Co. will have the books for the acquisition deal in which sponsor JLL Partners, Inc., will put up $178 million in equity.

The company is also putting in place a $400 million credit facility.

Also on Monday Standard & Poor's assigned its B- rating to ACE's senior notes and a B+ to the bank loan.

According to S&P, the ratings are based in part on the company's high leverage and low capital levels, as well as its reliance on third-party loan financiers in crucial markets.

A possible $3 billion week

Heading into the Labor Day break primary market sources said that a new issue calendar, which had emptied out in the run-up to the holiday, would start to build once market players were back in place.

One source said that given the announced deals which are expected to price late this week, and possible quick-to-market business that sources have been anticipating, issuance for the week could hit $3 billion.

"That would be a pretty good week," one high yield syndicate official asserted.

The source said that there are sizable deals in the market, referring to Lyondell Chemical Co.'s $1.775 billion, Berry Plastics' $750 million and Impress Metals €1 billion offering, all three of which are expected to price on Friday.

Nevertheless, source said, the post-Labor forward calendar has yet to build as dramatically as it was expected to do.

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