A&P bonds battered after poor numbers, CEO change; autos up again; market awaits Vantage deal

By Paul Deckelman

New York, July 23 - Bonds and shares of Great Atlantic & Pacific Tea Co., Inc. slid on Friday after the operator of the iconic A&P supermarket chain delivered a big bagful of bad news to investors when it reported fiscal first-quarter results and an abrupt leadership change.

Traders said that A&P was probably the dominant feature in an otherwise featureless market, although they said that overall, most things had a pretty firm tone across the board - a strength borne out by examination of major statistical measures of market performance.

Among the gainers in the market were the auto names, with General Motors Corp.'s bonds seen continuing to firm on the news that the carmaker will acquire an auto finance arm, improving its competitive position. GM domestic arch-rival Ford Motor Co. meantime basked in the warm afterglow of good quarterly numbers.

Primary activity dwindled, after a busy week which saw, among other things, quickly shopped and opportunistically timed mega-deals from Calpine Corp. and from Wynn Resorts, Ltd.

In Friday's dealings, price talk emerged on Vantage Drilling Co.'s upcoming $960 million offering of five-year secured notes, and British electronics retailer DSG International plc was heard to have priced a £150 million offering of five-year notes.

A&P: Assaulted & Pounded

Several traders said about the only major secondary activity on Friday was a sharp fall in the bonds of Great Atlantic & Pacific Tea - operator of A&P supermarkets as well as the PathMark and Waldbaum's store chains, mostly in the U.S. Northeast. Those bonds, along with the Montvale, N.J.-based retailer's shares, took a tumble after the company reported poor fiscal first-quarter numbers and announced that its chief executive officer, Ron Marshall, was being replaced after just six months on the job.

A&P also said it would take steps to raise capital and augment its liquidity ahead of the maturity next year of its $165 million of outstanding 5 1/8% convertible notes due 2011.

"The big action today was A&P," said a trader, who noted that the bonds "pretty much tanked" after the company's conference call which its executives held following release of the numbers.

Another trader agreed: "A&P was the whole day. The stock got crushed and all of that stuff [on the bond side] moved down."

He saw the company's senior secured notes due 2015 fall "into the low 60s" from prior levels around 83 bid, 85 offered, while seeing the 5 1/8s drop to a 63-64 context from previous levels around 94 bid 95 offered, and the company's 6¾% convertible notes due 2012 at 50 bid. "We traded that, for a fact, [Thursday] at 71¾ bid, 72 offered."

At the end of the day, he said, "hedge funds were coming in like piranhas."

The first trader meantime said that the 5 1/8% notes had traded around a 95 bid level on Thursday and for the last couple of weeks before that. But on Friday they were falling to a wide 70-80 context "when the news was breaking" in the morning. Then, he said, "a 70 bid was hit," which drove the bonds down to an equally wide 60-70 neighborhood. After that, he said, bids traded as high as 65-66. But the last trade he saw was around the 63 bid level.

He saw the 63/4s trading on Thursday in the mid-70s before going out at 72 bid, but then opening Friday's dealings trading into a 70 bid. Then they were offered at 61, and "then they just started marching their way down." He last saw them on Friday afternoon bid around 45.

"Someone's not going home today in a good mood," he suggested.

The trader meantime saw the 11 3/8% opening Friday at 66 bid, 67 offered, before finally going home in a 63-65 context; earlier in the week, he had seen those junk bonds around 82 bid.

"So it was a bloodbath today for A&P." He said that apart from the supermarket operator's paper, there was "not a heck of a lot going on. Most of the activity and interest today seemed to be in GAP"

A&P's New York Stock Exchange-traded shares meantime swooned to $2.61 their lowest point in more than 25 years - down $1.32 on the day, or 33.59%. Volume of 7.9 million shares was more than 10 times the norm.

$123 million loss

The bonds and shares got crushed as A&P reported a net loss of $122.6 million, or $4.83 per share, in the fiscal first-quarter ended June 19, on revenue of $2.54 billion. That compares unfavorably all around to its year-ago results - a net loss of $65.2 million, or $3.64 per share, on sales of $2.79 billion.

Wall Street meantime was shocked out of its socks, since analysts had been only expecting a loss of about 70 cents per share on revenue of $2.6 billion.

In addition to the poor results, A&P also announced an abrupt leadership change, with Sam Martin, up until now the chief operating officer at OfficeMax, taking over as president and chief executive officer. He replaces Ron Marshall - who had only been hired as president and CEO at the end of January. Marshall was cryptically described in the A&P press release announcing Martin's hiring as having "left the company."

While Martin has considerable retail food store experience - before OfficeMax, he had been chief operating officer for Wild Oats Markets, Inc. through the company's acquisition by Whole Foods, and he has experience as well in senior management roles at ShopKo Stores Inc. and Fred Meyer - so did Marshall, who in the past had been the CEO at grocery wholesaler Nash Finch as well as the chief financial officer at A&P division PathMark.

The second trader noted that company executives said on the conference call that they were "planning an asset sale and they would work with the banks" to augment their liquidity. He said A&P has ample funds available to take care of the maturing 5 1/8% notes next year, but also warned that "they're bleeding cash."

Global Cash hurt by Harrah's move

Another downsider seen as the week was coming to an end was Global Cash Access LLC's 8¾% senior subordinated notes due 2012.

A trader quoted those bonds down around 98 bid, 98¼ offered, whereas normally "they're always around par."

He said that the bonds had slid from those usual levels after the Las Vegas-based provider of various cash-access services, such as ATM machines, to patrons of casinos across the United States disclosed that a major customer, Harrah's Entertainment Corp., had not elected to renew its contact with Global Cash Access.

"They [Harrah's] are a really big customer, and now that they've lost the HET contract, the bonds are down in active trading."

GM, Ford cruise higher

A trader said that General Motors' benchmark 8 3/8% bonds due 2033 - which had firmed about 1½ to 2 points on Thursday on the news that that carmaker was bolstering its competitive position by acquiring an auto-financing unit, AmeriCredit Corp., in a $3.5 billion deal - added on another 1½ points on Friday to finish the session at 35½ bid, 36½ offered.

He saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 up a point on the day at 96½ bid, 97½ offered. Ford's bonds and shares took an upside ride after the Number-Two U.S. car manufacturer reported that it made $2.6 billion from April through June, its fifth straight quarterly profit.

Ford - which reported record losses in 2008, versus a 2009 profit - now predicts it will end 2011 with more cash than debt.

Market indicators stay strong

A trader saw the CDX North American HY Series 14 index gain ½ point on Friday to end at 97¼ bid, 97¾ offered. That followed a gain of 5/8 point on Thursday. The index thus closes out the week well up from 96 bid, 96¼ offered at the close of trading the previous Friday, July 16.

The KDP High Yield Daily index meantime was up by 9 bps on Friday to 72.09, after having risen by 18 bps on Thursday. Its yield came in by 3 bps for a second consecutive session to end at 8.21%. The index thus finishes the week up from 71.59% and 8.36%.

Advancing issues led decliners for a 15th consecutive session on Friday, although their margin narrowed to about six to five from the seven-to-five ratio seen Thursday.

Overall activity, represented by dollar-volume levels, swooned by about 58% Friday, after having risen solidly on Thursday.

A trader, reflecting that fall-off in activity, said that "not much was going on" during the session.

Another said that apart from the activity in the A&P bonds, "it was an otherwise uneventful day, and the rest of the high-yield market was pretty firm across the board."

He noted yet another strong cash net inflow into high yield mutual; funds - the $700 million money infusion followed by a week earlier an even bigger $1.2 billion - so "technically, the market is in pretty good shape." The continued flow of cash into the weekly-reporting funds is seen as a reliable barometer for overall junk market liquidity trends, and is cited as a key factor in both the strong secondary market and the surprisingly brisk pace of high yield new deals .

Primary slows down

After the heavy activity of the past few days, including the pricing of billion-dollar-plus offerings for Calpine and Wynn Resorts bringing the week's total to some $8.634 billion , according to data compiled by Prospect News, the primary market, both foreign and domestic, took a breather on Friday.

The day's sole new pricing came from the United Kingdom, where DSG International plc priced £150 million of five-year fixed-rate guaranteed notes to yield 9%. The notes priced at the tight end of pre-deal market price talk envisioning a yield between 9% and 9¼%.

The bonds came to market after a brief roadshow in Europe which began Monday and wrapped up by Wednesday, according to the sources.

Barclays Capital, BNP Paribas, Citigroup, HSBC and Royal Bank of Scotland were the joint book runners for the Regulation S offering

DSG a Hemel Hempstead, England-based electronics retailer, planned to use the new-deal proceeds to fund a tender offer for up to £140 million of the company's £300 million of outstanding 6 1/8% notes due 2012.

Vantage deal awaited

The domestic high yield primary side was meantime pretty much inactive on Friday, other than price talk emerging on a near billion-dollar offering.

Vantage Drilling's $960 million offering of five-year senior secured first-lien notes is expected to price late Monday to yield around 13%, junk market syndicate sources said on Friday.

The order books on the Rule 144A/Regulation S offering, which is being sold with registration rights, are scheduled to close Monday morning at 10 a.m. ET, with pricing anticipated after the market close that day.

The price talk also envisions the notes coming to market at a discount to par of around 3½ to 4 points.

The notes will come to market via joint bookrunners Jefferies & Co. and Deutsche Bank Securities Inc.

Vantage, a Houston-based energy drilling company, plans to use the deal proceeds, along with the proceeds from a concurrent offering of its ordinary shares, to fund the remaining construction payments for the Platinum Explorer, a 7deepwater drilling vessel as well as refinancing certain of its outstanding debt, including the $135 million of 13 ½% senior secured notes issued last December by wholly-owned Vantage subsidiary P2021 Rig Co. and its existing credit facility, as well as for general corporate purposes..

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