Rival bid boosts Doral; Fremont General up; Bally bonds up on buzz; Dura rebounds

By Stephanie N. Rotondo

Portland, Ore., June 4 - Doral Financial Corp. made headlines again as a second, unsolicited buyout bid was announced on Monday.

The new bid, proposed by FBOP Corp., will go up against a bid led by Bear Stearns. The new bid is offering shareholders more than double the price per share, as well as giving the company a line of credit.

The financial institution's structure climbed higher amid the news, with the bonds nearing par and the equity up almost 50% on the day.

News that Doral had a second bid also helped Fremont General Corp.'s bonds. The debt was also boosted by the news that fellow subprime mortgage lender Accredited Home Lenders Holding Co. had agreed to be sold to a private equity firm for $400 million.

After last week's announcement that it had developed a pre-packaged bankruptcy plan, Bally Total Fitness Holding Co. saw its bonds spike upward. This week, the notes are continuing to climb, but this time market buzz of a private equity buyout to pre-empt bankruptcy is what is fueling the gains.

Dura Automotive Systems Inc.'s debt rebounded slightly, after last week's losses edged out the company's previous run up on its bonds. Traders said they had heard nothing specific out on the distressed automotive parts maker but attributed to the gains to overall sector performance.

Rival bid boosts Doral

A rival buyout bid - deemed far superior by traders - helped Doral's bonds edge up closer to par, while its equity zoomed up almost 45%.

A trader quoted the Puerto Rico-based bank's floating-rate notes due July 20, 2007 up to 99. Another trader also saw the notes moving in that level, while another said he saw the bonds at 99.75, though he added that the debt did not move much.

On the equity side, the common stock was up 58 cents, or 44.62%, to $1.88. A trader said the preferred issues were also up across the board as much as 88 cents on the dollar, except for the 4¾% convertibles, which he said had not printed.

According to an 8-K filed with the Securities and Exchange Commission, the rival bid from FBOP Corp. - which is up against a group led by Bear Stearns - offers to buy an 80% stake in the struggling financial institution for $610 million - the same amount the Bear Stearns group offered for a 90% stake - as well as a $150 million line of credit. The bid also states that the privately held bank holding company will deposit funds into an escrow account to be used to pay off the floating-rate notes if the deal has not closed by the maturity date.

In a letter also filed with the SEC, FBOP calls its offer a "superior proposal" for several reasons, including a higher cash commitment and more than double the price per share - Bear Stearns' offer gave shareholders 63 cents per chare, while the FBOP bid will give $1.41. Shareholders will also get to keep more of the company, the letter said.

The deal is also not subject to financing contingencies. The Bear Stearns' group still had to raise $215 million as of the deal announcement date, May 16 - which, incidentally, the group announced it had received as the rival bid came out.

But Doral Holdings Delaware, LLC, the company formed by the Bear Stearns' group, said in a letter to Doral that there was more "upside" in their deal than the FBOP bid.

"We have committed in the securityholders agreement that ...we would not take the company private absent the consent of your shareholders or of independent directors," the letter said. "In contrast, the proposal you received from FBOP Corporation provides none of that upside and, apparently, none of those protections since the proposal letter makes no reference to FBOP being willing to enter into a securityholders agreement like ours."

The concern, the letter went on to say, is that shareholders would become minority holders of a subsidiary owned by a private company. The equity holders would then have "no prospect of realizing value for their shares either through a sale of the company or a broadened public market. Their only exit will be when FBOP decides to squeeze them out, in a transaction at a time and price of FBOP's choosing," the letter said.

But one analyst, who wished to remain anonymous, said he did not share that concern.

"Guys in this equity would not be concerned with that," he said.

While he believes the deal to be a "certainly superior bid," he also noted that it could fall through. For example, he explained, when Delphi Corp received a rival bid from Highland Capital Partners against Cerberus Capital Management and Appaloosa Management, the court threw the bid out as Cerberus/Appaloosa had already spent a considerable amount of time on the deal.

"But [the board] has a fiduciary duty to take a hard look at this," he said.

Traders across the board were excited about the deal as well.

"The new bid wins hands down," enthused one trader. "There isn't a way where the Bear Stearns group can match it and not volunteer their first bid [as] way low. The board of directors has to go with new bid - it takes away the risk of bond defaults, gives an additional credit line [and there is] no need to wait for FDIC approval of the bank holding company."

Another trader, however, is being more cautious.

"On the one had, it is subject to due diligence," he said. "[FBOP] may find something they don't like. On the other hand, they obviously think there is more value there."

Fremont General edges higher

The Doral news was part of a two-pronged catalyst for Fremont General's bonds, the second part being the news of a buyout of Accredited Home Lenders Holding Co.

Pre-news, a trader said the 7 7/8% notes due 2009 were around 99 bid, par offered; post news, he saw the notes move up to par bid, par ½ offered.

Another trader said the bonds, which had been "straddling par," were trading between par and par 1/2.

Accredited Home Lenders announced Monday that it had agreed to be acquired by private equity firm Lone Star for $400 million. The struggling subprime mortgage lender recently obtained a $230 million loan from hedge fund Farallon Capital Management LLC.

The second trader, however, was unsure whether either news story had anything to do with the slight gain.

"I suppose other favorable things in that sector will push it higher," he said. However, "it is just a matter of people getting comfortable with the credit.

"There is still some hair on it, but at the end of the day these bonds are going to be money good," he continued. As high as the notes are trading and the short maturity, that makes the debt an attractive yield, he said.

Bally bonds climb

Fitness operator Bally's is seeing its bonds continue to bulk up after last week's pre-packaged bankruptcy plan was revealed.

This week, however, fresh news - and fresh market buzz - is what seems to be moving the bonds.

A trader pegged the 8 7/8% notes due 2007 up 4 points to 98 bid, 99 offered. He also said the 10½% notes due 2011 were moving around 102, which he called up more than 6 points.

On the equity side, the stock climbed 31 cents, or a whopping 100%, to $0.62, as a rumor circulated that a private equity firm is considering buying the Chicago-based company before it files for bankruptcy. The market is speculating a price tag of $1.50 a share.

An unnamed analyst said he is not a fan of the company's pre-packed plan.

"It does nothing to deleverage the company," he said. "It doesn't seem like a constructive plan."

Another analyst - Kim Noland of Gimme Credit LLC - also expressed some concern about the plan as well as any potential buyout.

"A third party interested in purchasing Bally, however, would be relying on an operational turnaround that we think is subject to considerable execution risk because of the increasing competition that Bally faces from lower priced fitness clubs," she wrote, issuing a sell recommendation on both the senior and subordinated notes.

The company also announced Monday that it had closed on the $18 million sale of its Toronto facilities to Extreme Fitness, Inc. and GoodLife Fitness Centres Inc.

Dura notes rebound

A trader said Dura Automotive's bonds rebounded after last week's losses broke the company's run up.

The traded quoted the 8 5/8% notes due 2012 up 3 to 4 points at 54. Another trader slated the bonds at 54 bid, 55 offered, which he called up 3.5 points. He also saw the 9% notes due 2009 at13.5 bid, 14.5 offered.

The first trader said he had no explanation for the rebound, stating that the bonds have been volatile over recent weeks. The second trader also said he had not heard anything specific on the company but that it could be related to the performance of the automotive sector in general.

Elsewhere in the autosphere, Dana Corp.'s notes were also seen better. A trader pegged the 7% notes due 2029 at 94.5 bid, 95.5 offered and the 6½% notes due 2009 at 97 bid, 98 offered.

Broad market firms

Primus Telecommunications Group Inc.'s bonds were called "more active" by a trader, who saw the 8% notes due 2014 a point better at 71 bid, 72 offered.

The trader said the gain might be due to Friday's "pop" in the company's stock as well as talk of a pending asset sale.

InSight Health Services Corp.'s debt was "quoted a little bit more," the trader said. He saw the 9 7/8% notes due 2011 at 33.5 bid, 34.5 offered and the senior floating-rate notes due 2011 at 97 bid, 98 offered.

The trader said the company will likely exit bankruptcy in a month or so, assuming no one objects to the pre-packaged plan.

"It looks like there is enough people on board," he said. "It should go pretty soon."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.