Junk gyrates with stock rebound; Nasdaq spikes deal; Brookstone up on numbers; Quebecor gets bounce

By Paul Deckelman and Paul A. Harris

New York, Feb. 20 - Junk market names got clobbered early on, traders said Wednesday - but managed to firm off their lows, helped by a sharp rebound in equities, which also saw early weakness but which began climbing around midday, ending higher on the session. Although some participants were still reported playing hooky, more people were in on Wednesday than had been around Tuesday, when the market reopened after its three-day holiday break, and activity levels were seen better.

Among the major gainers, Brookstone Inc.'s bonds were seen solidly higher after the Merrimack, N.H.-based specialty retailer posted what a trader called "strong numbers."

Quebecor World Inc.'s bonds were very active, to the upside, on technical factors following Tuesday's credit-default swap auction and on talk of possible asset sales.

On the downside, U.S. Concrete Inc.'s bonds fell on the company's bearish guidance. AbitibiBowater Inc.'s bonds - already under pressure, along with the rest of the forest-product sector - were down notably Wednesday after the Montreal-based company announced that it was delaying release of its fourth-quarter and full-year results about a week, to Feb. 28.

A high yield syndicate official said that the CDX index was up slightly on Wednesday but added that the tone of the cash market remained negative.

Throughout Wednesday sources advised Prospect News that the CDX index had closed Tuesday at an all-time low, driven down, particularly, by Canadian pulp and paper company Abitibi-Consolidated and by yellow pages directories publisher Idearc Inc.

"Those names hit the index pretty hard because they were down disproportionately," a syndicate official said.

In the primary market, the Nasdaq Stock Market Inc. withdrew its planned $425 million bond offering, figuring to instead raise the money it needs to buy several other financial exchanges on the convertibles market.

Fading bid

A sell-side source who tracks both high yield bonds and leveraged loans told Prospect News on Wednesday that the bid has completely fallen away from the bond market since the beginning of the week.

"The loan market is actually in a little better shape," the sell-sider said.

"The bid has kind of come back, and we are actually seeing some flows into that market, with buyers stepping up.

"But the flip-side is that the high yield is actually trading off."

The source recounted that for the fortnight leading up to the present week the bid on the high yield side appeared to be stabilizing.

However most recently buying interest has fallen away and things have traded down again, the official said.

Rock-Tenn downsizes

Wednesday's only primary market news had negative connotations for the junk bond market, with two companies shifting their financings either partially or totally away from high yield.

Rock-Tenn Co. downsized the bond portion of its acquisition financing to $200 million from $400 million, while upsizing the pro rata portion of its credit facility by $200 million, market sources told Prospect News on Wednesday.

One source said that the notes, which had been expected to launch in mid-February, are now being replaced, at least temporarily, by a $200 million bridge loan arranged by Wachovia Bank, Bank of America and SunTrust Bank.

The credit facility, meanwhile, has been upsized to $1.2 billion from $1 billion, with the increase going to the pro rata portion of the bank deal.

The facility now is comprised of a $550 million Libor plus 250 basis points term loan A, upsized from $350 million. The pro rata portion also includes a $450 million Libor plus 250 basis points revolver.

The bank deal also includes a $200 million term loan B talked at an all-in yield of Libor plus 300 basis points.

Proceeds will be used to fund the acquisition of Southern Container Corp., to refinance the company's existing credit facilities and provide in excess of $200 million of undrawn capacity.

Elsewhere Nasdaq Stock Market Inc. has withdrawn from the market its downsized $425 million offering of senior notes, electing instead to raise the cash in the convertibles market.

JP Morgan and Bank of America Securities were leading the bond offer which was earlier downsized from $675 million.

The same investment banks are the underwriters of the convertibles offering.

Market indicators are mixed

A trader said that the widely-followed CDX index of junk market performance gained ½ point on the day Wednesday, ending at 88 bid, 88½ offered. On the other hand, the KDP High Yield Daily Index lost 0.14 as it moved down to 73.80, while its yield widened by 4 basis points to 9.70%.

In the broader market, declining issues led advancers by a five-to-four margin. Overall activity, reflected in dollar volumes, rose by 19% from Tuesday's levels.

"We were rockin' and rollin' this morning lower," a trader said . "It looked like it was gonna fall out of bed. In general, it was for sale - on any improvement, bids got hit."

Another trader said that "it definitely felt like more people were back than [Tuesday]," adding that while "it was still not full-staffed out there, you could definitely feel that there was a tone in the market."

He said that junk "opened up softer, about ½ point lower, but at some point around midday when stocks ran for the moon, we followed."

Even though "there were people back" following the lengthy holiday weekend, "with short-staffed desks, you saw bigger swings." While high yield "opened up [Wednesday] probably lower than it should have," but then "we probably over-reacted the other way a little, just with liquidity being fairly light and markets fairly thin." What that meant, he continued, was that "you have a $1 million, $2 million bond trade in the Street, [and that] would move the whole market, while on other days, it would be a non-event."

Waiting for earnings parade

"All in all," he added, "it was a decent day. The market had a good tone. We're hopeful of high yield credits reporting [Thursday] from the energy space like Aventine Renewable Energy Inc., Forest Oil Corp. and Williams Cos. Inc. as well as such non-energy names like Trump [Entertainment Resorts Inc.] and MGM [Mirage] expected also. Probably it will be busy in those kind of names."

He said he had not seen any unusual movements in any of the credits he had named.

"A lot of those kind of bets would have been placed last week, when there was more liquidity. If people had a feeling, they didn't want to wait till Friday, [Tuesday] and today for fear that the liquidity wouldn't be there. So I really didn't see any movements today, ahead of earnings."

Brookstone big gainer on numbers

A trader saw Brookstone's 12% notes due 2012 up 4 points on the session - he termed it "one of the day's big winners" - finishing up at 92.5 bid, 94.5 offered. He said the bonds had been given a boost by the "strong" fiscal fourth-quarter and full-year numbers which the retailer reported on Wednesday.

Those results were good enough that the market essentially ignored Wednesday's somber news that Brookstone competitor Sharper Image Corp. - which also sells the kind of unusual, pricey gadgets and gift items as Brookstone and which would seem to be affected by similar industry dynamics - had been forced to file for Chapter 11 reorganization, citing liquidity concerns.

Despite the fact that both companies sell mostly the same kind of high-end health and fitness, home and office, outdoor living, and travel and auto gizmos - examples range from desk accessories to fitness equipment, golf gear, barware, unusual clothing items and home audio equipment - there were no such problems at Brookstone.

For the 13-week period ended Dec. 29 of last year, Brookstone reported total net sales of $288.5 million, a 12.6 % increase from the comparable 13-week period of 2006. The 314-store chain's same-store sales - the key retailing industry metric, gauging revenues from stores open at least one year - increased 5.2% versus the comparable 13-week period in 2006.

Brookstone reported income from continuing operations of $64.6 million in the latest quarter, up from $60.8 million for the comparable year-earlier period.

On a full-year basis, Brookstone said that for the 52-week period ended Dec. 29 it had income from continuing operations of $39.9 million, up from $30.6 million in fiscal 2006, on net sales of $562.8 million, a 9.9% increase from a year earlier. Same-store sales increased 5% from 2006 levels.

Quebecor helped by asset-sale talk, technicals

Elsewhere, Quebecor World's 4 7/8% notes coming due later this year and its 6 1/8% notes due 2013 were seen up 3 points at 44 bid, 45 offered, although a trader said its longer paper, like the 9¾% notes due 2015 and 8 3/8% notes due 2016 were off a point at 48 bid, 50 offered.

Another trader who saw the bonds at 44 bid, 45 offered, up 3 points, ascribed the move to technical factors after Tuesday's CDS auction, which set a price of 41.25, the anticipated recovery on that debt. Many CDS contracts require physical delivery of bonds in order for the contract to be paid off - a factor which boosts buying activity in such securities.

Trading in the company's bonds, particularly the shorter-dated paper, was very brisk.

The bonds were also seen having gotten a boost on news reports that rival commercial printer Transcontinental Inc. could be interested in acquiring Quebecor's Latin American operations.

"Anybody that would offer a good platform for us to continue growth, whether through acquisition or partnership would be looked at," incoming Transcontinental chief executive Francois Olivier said during a news conference ahead of the annual shareholders meeting.

Abibtibi off as numbers delayed

A trader saw AbitibiBowater's bonds fall sharply but then bounce off those lows to come most of the way back and end only moderately lower.

He saw the company's 5¼% notes fall as low as 81 bid from 87 bid, 90 offered previously, but rally back to end "off the bottom a little" at 85 bid, 86 offered. Likewise, the 6.95% notes slated to come due on April 1 dropped from levels around 90 to as low as 86 bid, before ending at 88 bid, 90 offered, while its longer-term 8.85% bonds nosedived to 47 bid, 49 offered from 53 bid, 55 offered, before ending at 50 bid, 52 offered.

Abitibi "was active," another trader said. "It was kind of a very wide-quoted market. They were sloshin' around."

He noted the company's early-morning announcement that it will reschedule the release of its financial results for the fourth quarter and full year ended Dec. 31 and the associated conference call until next Thursday, Feb. 28. The company cited last year's merger between what was then Bowater Inc. and Abitibi-Consolidated Inc. as a complicating factor in getting its results together by Wednesday, the deadline by which it had intended to report.

"The bonds kind of pushed lower to start," the trader said, "but I did see some buyers come in late in the day, bottom-fishers, after [the bonds] knee-jerked in the morning."

U.S. Concrete goes lower

A trader saw U.S. Concrete's 8¾% notes due 2014 down 2 points at 81 bid, 83 offered, citing lowered guidance which the Houston-based cement company released on Wednesday. It expects to report a fourth-quarter loss from continuing operations of $2.00 to $2.03 a share after a non-cash charge of $2.03 a share to reduce the carrying value of goodwill.

Excluding the charge, the company earned what it said was 1 cent to 3 cents a share from continuing operations in the fourth quarter - well below the roughly dime per share Wall Street expects.

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