HealthSouth, Interline, Jacobs deals price; Georgia Gulf falls on debt-funded acquisition plans

By Paul Deckelman and Paul A. Harris

New York, June 9 - HealthSouth Corp. successfully priced a $1 billion two-part offering Friday, although high-yield syndicate sources said that the fixed-rate portion of the Birmingham, Ala.-based medical facilities operator's mega-deal had to price at a sizable discount to par to get the transaction done.

The primary market also saw an upsized offering of Interline Brands Inc. bonds price; that deal had been restructured into an eight-year issue from the original 10-year maturity. And Jacobs Entertainment Inc. also priced an offering of new eight-year notes, the syndicate sources said.

In the secondary arena, the new Jacobs notes were seen to have firmed smartly from their par issue price, while the Interline and HealthSouth deals, which priced later in the day, saw limited aftermarket activity and only small gains.

Among the established names, Georgia Gulf Corp.'s bonds and shares were seen sharply lower after the Atlanta-based chemical company announced plans to acquire Royal Group Technologies Ltd., a Canadian building-products maker, in a $1.54 billion deal, which will be funded with new debt.

Delphi Corp. bonds and those of its former corporate parent, General Motors Corp. were higher on the news that the bankrupt Troy, Mich.-based components supplier had reached agreement with the United Auto Workers union, which represents most of the downsizing company's hourly workers, and with GM, on an expanded buyout plan, which will be at least partly paid for by GM.

Also in the distressed markets, the bonds of Owens Corning were heard to have gyrated around at higher levels, as the bankrupt Toledo, Ohio-based insulation maker's bonds tried to rebound from the big declines seen over the previous two sessions, but the rally attempt ran out of steam and they bonds ended the session not far from where they had begun it. Likewise there was volatility in Armstrong World Industries Inc.'s bonds, which frequently move in tandem with sector peer Owens Corning.

And Friendly Ice Cream Corp.'s bonds melted on the heels of a lengthy Wall Street Journal article outlining how relations are anything but friendly between the Wilbraham, Mass.-based restaurant operator and ice cream maker's current management and its founder, who still retains a sizable chunk of its stock - and who is locked in a long-running legal battle against the people now running the company he helped to start during the Depression era.

A source from a hedge fund told Prospect News that high yield lagged the government market but the CDX 100 still moved up one-sixteenth on Friday to end at 100.125 bid, 100.25 offered.

Meanwhile in the primary market, five Rule 144A tranches were priced by four issuers generating $1.699 billion of proceeds.

HealthSouth prices mega-deal

Friday's largest transaction, HealthSouth's $1 billion two-part senior notes sale (B3/CCC+), was followed with keen interest, market sources said.

On Thursday when price talk on the 10-year fixed-rate notes tranche was released at the 10¾% area, a buy-side source recounted how the deal had been pro formaed in the mid-to-high 9% range and wondered aloud whether the company would want to price that paper possibly as high as 11%.

Friday produced an answer to that question: Yes.

The Birmingham, Ala.-based nationwide provider of outpatient surgery, diagnostic imaging and rehabilitative health care services priced a $625 million tranche of 10¾% 10-year fixed-rate notes at 98.505 to yield 11%, 12.5 basis points wide of the 10 ¾% area price talk. The sale of the fixed-rate notes generated $615.656 million of proceeds.

In addition HealthSouth priced a restructured $375 million tranche of eight-year floating-rate notes at par to yield six-month Libor plus 600 basis points, again 12.5 basis points wide of the Libor plus 575 basis points area price talk. Call protection on the floating-rate notes was increased to three years from two years.

The combined two-tranche sale generated $990.656 million of proceeds.

Merrill Lynch, JP Morgan and Citigroup were joint bookrunners for the debt refinancing and recapitalization deal.

Libbey completes restructured deal

Also pricing Friday was Libbey Glass Inc.'s $406 million two-parter: a Rule 144A tranche and a Regulation D private tranche.

In a Rule 144A deal, the Toledo, Ohio, glass tableware manufacturer priced a $306 million tranche of six-month Libor plus 700 basis points five-year senior secured second-lien floating-rate notes (B2/B) at 98.00 for a 756 basis points discount margin.

JP Morgan and Bear Stearns were bookrunners. BNY Securities was the co-manager.

Meanwhile in a Regulation D "private-private" transaction the company also priced a non-rated $100 million issue of 5.5-year third-lien subordinated PIK notes with warrants for 3% of the company.

No other details were released on the Regulation D issue, according to a market source.

The issue was restructured from single $400 million tranche of eight-year senior notes.

Proceeds, together with new senior secured credit facility, will be used to finance the purchase of the 51% equity interest that Libbey does not already own in its Mexican joint venture Crisa with Vitro SA de CV, to repay Libbey's existing senior secured credit facility, to redeem Libbey's outstanding senior notes, to repay the existing debt of Crisa, and to refinance the euro-denominated working capital line of credit of wholly owned subsidiary Libbey Europe BV.

Jacobs Entertainment comes at talk

Elsewhere Jacobs Entertainment priced a $210 million issue of eight-year senior notes (B3/B-) at par to yield 9¾%, on top of the price talk.

Credit Suisse and CIBC World Markets ran the books for the debt refinancing deal from the Golden, Colo.-based owner and operator of multiple gaming properties.

Interline upsizes

Finally, Friday's smallest deal was Interline Brands' upsized, restructured $200 million issue of 8 1/8% eight-year senior subordinated notes. The offering priced at 99.283 to yield 8¼%, at the tight end of the 8¼% to 8½% price talk.

The maturity was decreased by two years. The call protection was decreased by one year.

Lehman Brothers and JP Morgan were joint bookrunners for the deal, which was upsized from $175 million while the company's term loan was downsized by $25 million to $230 million.

Proceeds, along with proceeds from the credit facility, will be used to fund a tender for its $130 million 11½% senior subordinated notes due 2011, as well as to repay bank debt and fund the $127.5 million acquisition of American Sanitary Inc.

Week tops $2.5 billion

Considering the sell-off that has been underway in the junk market since late May, issuance totals for the first full week of June 2006 could have been worse.

Tallying Friday's Rule 144A deals, the market saw $2.608 billion price in 10 dollar-denominated tranches. That is a big step up from the four-session post-Memorial Day week which saw only $725 million price in two tranches.

At Friday's close the market had seen $58.324 in 172 dollar-denominated tranches. That puts 2006 more than $18 billion ahead of 2005, on a year-over-year basis. At the June 9, 2005 close, the market had seen $44.243 billion price.

However in terms of deal count, 2005, which saw 175 dollar-denominated tranches price by the June 9 close, holds a slight edge over 2006's 172 tranches.

Baker & Taylor launches

News of one roadshow start surfaced on Friday.

Baker & Taylor Inc. will start a roadshow on Monday for its $200 million offering of eight-year senior notes (B3) via Credit Suisse and Goldman Sachs.

The Charlotte, N.C., book and media specialty distribution company will use the proceeds to fund a leveraged buyout via sponsor Castle Harlan, Inc.

The week ahead

As the June 12 week gets under way, junk players will be tuned into the Intelsat Ltd./PanAmSat multi-tranche notes transaction that could total up to $3.5 billion.

PanAmSat Holding Corp. plans to sell a $725 million tranche of 10-year senior notes. PanAmSat Corp., the operating company, plans to sell $575 million of 10-year senior notes.

Deutsche Bank Securities, Citigroup, Credit Suisse, Lehman Brothers and Merrill Lynch & Co. are joint bookrunners for the PanAmSat tranches.

Meanwhile Intelsat (Bermuda) Ltd., the holding company, plans to sell $750 million of 10-year senior notes, which will be guaranteed by the operating company

Intelsat (Bermuda) Ltd. also plans to sell $1.16 billion of senior notes in two tranches that will not be guaranteed by the operating company. The non-guaranteed offerings will be comprised of a tranche of seven-year floating-rate notes and a tranche of 10-year notes, with tranche sizes remaining to be determined.

Deutsche Bank Securities, Citigroup, Credit Suisse and Lehman Brothers are joint bookrunners for the Intelsat tranches.

Proceeds, together with cash on hand, will be used to help fund the acquisition of PanAmSat Holding Corp. by Intelsat (Bermuda), Ltd., a subsidiary of Intelsat, Ltd.

The final structure depends upon the outcome of the tender offer for PanAmSat's 10 3/8% senior discount notes, with an accreted value of $296.6 million. If the tender offer is consummated then the PanAmSat Holding Corp. $725 million tranche of senior notes will be dropped, and the Intelsat (Bermuda) Ltd. two-tranche transaction, non-guaranteed by the operating company, will be upsized to $2.2 billion from $1.16 billion.

Late in the June 5 week a buy-side source said that the deal should go well, and added that the PanAmSat $725 million tranche, should it be transacted, would likely come around 8 ½%.

Also expected to price in the June 12 week is Pokagon Gaming Authority's $305 million offering of eight-year senior notes (B3/B), a project-funding deal via Banc of America Securities.

Jacobs up in trading

When the new Jacobs Entertainment 9¾% senior notes due 2014 were freed for secondary dealings, the bonds promptly moved up to levels around 101.25 bid, 101.5 offered, well up from their par issue price earlier in the session.

However, the same appreciation was not seen in either the new Interline Brands 8 1/8% notes due 2014 or the new HealthSouth fixed- and floating-rate notes. The latter issue priced just as trading was wrapping up, and both saw only limited after-market activity. A trader saw Interline's bonds bid at par, though with no offers seen, versus their 99.283 issue price.

And the trader saw HealthSouth's 10¾% notes due 2016 move up to 98.75 bid, 99.25 offered from a 98.505 issue price, while its eight-year floaters, which priced at par, firmed slightly to 100.25 bid, 100.75 offered.

Georgia Gulf drops

Back among the established issues, a trader said that Georgia Gulf Corp.'s 7 1/8% notes due 2013 "got mowed," falling three points on the day to 98 bid, 99 offered from prior levels around 101 bid, 102 offered on the news of the planned acquisition of Toronto-based Royal Group Technologies.

Another trader saw a less severe fall in the issue, to 99 bid, par offered, which he called down a point on the day. A third trader fell somewhere in the middle. While he saw the bonds dip down to 99 around midday from prior levels at 101 bid, 102 offered, it was his impression that the bonds came off those lows, to around par bid, 101 offered, "down just a point to 11/2."

Georgia Gulf's New York Stock Exchange-traded shares nosedived $4.26 (13.97%) to $26.23. Volume of 4.5 million shares was almost seven times the norm.

The company announced plans to acquire Royal Group for $11.74 per share, plus the assumption of $443.4 million of net debt, for a total valuation of $1.54 billion. It said that it has received a commitment for a $1.8 billion credit facility, with a portion of the credit line to be repaid later by issuing senior unsecured and/or subordinated notes.

The idea of such a large debt-financed acquisition caused Moody's Investors Service to warn that it was reviewing Georgia Gulf's ratings for a possible downgrade of more than one notch. The company's corporate family rating and that of its bank debt facility is currently Ba2, while its bonds are at Ba3.

The agency cautioned that "Royal has had numerous operational issues that have greatly reduced GAAP earnings and cash flow in two of the past three years. Additionally, there is ongoing litigation and investigations that were prompted by past actions by Royal's former CEO."

It said that its review "will also analyze the potential benefits from plant rationalizations, extracting operational synergies, and potential proceeds from asset sales, as well as the potential liabilities mentioned above. While Moody's believes that this is a strategic acquisition for Georgia Gulf, it entails significant integration risk due to the size of the potential acquisition and past operational issues at Royal."

Delphi strong

Elsewhere, the news that Delphi has reached agreement on an expanded buyout program covering all 22,000 of its UAW-represented hourly workers gave the company's bonds a boost, with a trader pegging Delphi's 6½% notes due 2009 at 86.25 bid, 87.25 offered.

Another trader said that Delphi's 6½% notes due 2013 were at 81.125 bid, 82.125 offered, "up a couple" from prior levels in the neighborhood of 79.25 bid, 80.25 offered.

A trader in distressed issues saw Delphi's 6.55% notes due 2006 at 86 bid, 87 offered, "up one to two points on the day."

Delphi said that Friday's agreement greatly expands the early retirement incentives announced by the company, the UAW and GM in March - and effectively means that all UAW-represented employees will be offered something if they want to leave the company, which is seeking to drastically reduce its labor costs as it reorganizes, by slashing the size of the workforce covered by costly labor pacts.

The agreement announced in March offered retirement incentives for workers with at least 27 years of service, totaling about 13,000 of its 33,000 total hourly workforce, and offered another 5000 workers an opportunity to return to GM, which owned Delphi until the latter's spin-off in 1999.

The new agreement - which actually was signed by the parties on Monday but which was not publicized till Friday - would offer lump-sum buyouts of $140,000 to workers with at least 10 years of service, while those with less than 10 years would receive $70,000 to leave the company and give up all benefits except for vested accrued pension benefits.

The previously announced buyout program gave covered employees until June 23 to decide whether to take the money and leave. No deadline has been announced yet under the expanded program, which is subject to approval by judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York, who is overseeing Delphi's reorganization.

While Delphi has pursued its negotiations with the UAW and GM, as well as parallel talks with other unions representing the other 11,000 of its hourly workers in hopes of obtaining similar agreements, it also went to court last month to seek permission to unilaterally abrogate its union contracts, which it says it can no longer afford, and replace them with a less costly pay structure. However, in view of the "significant progress" it has made in trying to bring its costs under control through the buyout packages, Delphi this past week asked the judge to postpone the next scheduled hearing on its motion, which he did, setting a new date of Aug. 11.

That delay was welcomed by GM, which depends heavily on Delphi as a parts supplier - it is in fact GM's single largest source of automotive electronic components and other parts. Delphi's efforts to win court approval for a unilateral junking of its current labor pacts before their scheduled 2007 expiration have raised the hackles of the UAW and the other unions. Even as they continued their talks with the company, they threatened that any move by Delphi to void the current contracts - even with the judge's approval - would lead to a strike. Such a development would be disastrous for GM, which needs a steady, uninterrupted flow of Delphi parts to maintain production as it seeks to turn its recently lagging fortunes around. To that end, GM, seeking to keep the peace between its problem child and the latter's unions, will offer its superior resources to help troubled Delphi pay for the potentially expensive buyouts, with each company paying an equal share, according to published reports.

GM also gains

Delphi's news was seen pushing GM's bonds up on Friday, with the carmaker's benchmark 8 3/8% notes due 2033 up ¾ point at 76.75 bid, while its shorter-term bonds did even better. GM's 6.85% notes due 2008 were seen up 1½ points at 91.5 bid, 92.5 offered. Its General Motors Acceptance Corp. financing unit's 8% notes due 2031 were up 3/8 point at 94.25 bid, 94.75 offered.

Owens Corning gyrates

Apart from the automotive names, Owens Corning's bonds were seen to have gone on a roller-coaster rise, with its 7½% notes due 2018 pushing as high as 104 bid, 105 offered, a trader said, well up on the day, before dropping back to end at 101 bid, 102 offered, actually down half a point on the session.

"Asbestos was extremely volatile," he said, adding that the bonds "had a little pop, but then gave it all back."

Owens Corning especially has seen wild gyration in the value of its bonds over the past several weeks. Those bonds - which had been trading below par about a month ago - zoomed to levels as high as 123 bid last month on the news that the company had reached agreement on a reorganization plan with its creditor groups, including claimants seeking damages due to their exposure to asbestos, formerly used in the production of Owens Corning insulation, However, after hitting those peaks, the bonds retreated at the end of May and early this month to levels around 110, mostly on profit-taking, until about the middle of the week, when they slid precipitously to around current levels.

That slide coincided with a Senate hearing on a proposed $140 billion national asbestos trust fund claims mechanism, to be funded by companies with asbestos exposure and their insurers. The fund would pay the claims filed against companies like Owens Corning, Armstrong, and several dozen other companies driven into bankruptcy by asbestos claims. But the bill setting it up has been stalled in the Senate since February, and critics of the scheme took the opportunity at Wednesday's hearings to further trash the idea, saying that the $140 billion would not be adequate to meet all claims - and that the taxpayers would then get dumped with the responsibility for paying for additional claims.

Armstrong's bonds were also moving around, traders said, but one declared that "we saw more of Owens Corning quoted. Guys were looking more for Owens Corning than for Armstrong." The bankrupt Lancaster, Pa.-based floorcovering manufacturer's bonds were seen little changed on the day, at 75.5 bid.

Another trader saw the company's 6½% notes that were to have come due last year as high as 77 bid, 78 offered earlier, before dropping back to 75 bid, 76 offered, up half a point on the day.

Friendly lower

Apart from the distressed names, the trader saw Friendly's 8 3/8% notes due 2012 down two points to 86 bid, 87 offered, citing the negative Wall Street Journal article, which tracked the continual skirmishing between 10% shareholder S. Priestly Blake, who along with his brother opened the first Friendly ice cream shop in Massachusetts in 1935 - then building the company into a major corporation before selling control of it in the 1970s - and current management, headed by chairman Donald M. Smith.

Priestly says current management was been profligate with company funds, citing such indulgences as Smith's corporate jet, and alleges other abuses in his lawsuit. The company says the expenses were justified and that the 91-year-old Blake is out of touch with the realities of running a company in the new century.

Finlay sinks on guidance

Also lower were the 8 3/8% notes due 2012 of Finlay Enterprises Inc., which one trader saw down as much as two points, around the 86.5 level, after the New York-based company - which sells jewelry at hundreds of leased counters in major department stores - revised its 2006 earnings guidance downward on Friday to reflect the recent loss of its licensing agreement with the Belk Inc. department store chain.

Warner Chilcott up on IPO

Warner Chilcott Holdings Co. Ltd.'s 8¾% notes due 2015 were seen up 1½ points on the bid side to 102, though with no offers seen, apparently given a big boost by the Bermuda-based pharmaceutical company's plans for a $1 billion initial public stock offering, outlined Friday in a filing with the Securities and Exchange Commission.

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