Rare Restaurant prices $100 million; Edison Mission Energy talks $2.7 billion; junk lags rally in Treasuries

By Paul A. Harris

St. Louis, April 30 - The Monday session in the junk bond market passed quietly, according to sources.

A buy-sider said that Treasuries were up a point, and added that people were scrambling to figure out whether or not the move represents a flight to quality.

Spread-sensitive paper benefited from the move in Treasuries, the source said. However beyond the quality end, the broad high-yield market did not appear to be keeping pace.

Meanwhile in the primary, Rare Restaurant Group, LLC/RRG Finance Corp. priced $100 million of seven-year paper on the tight end of price talk while Edison Mission Energy set price talk on its $2.7 billion three-parter.

Mastro's gets done

The sole new issue to price on Monday came from Rare Restaurant Group, LLC/RRG Finance Corp., which will be renamed Mastro's Restaurants, LLC.

The California-based restaurant concern priced a $100 million issue of seven-year senior secured notes (Caa1/CCC+) at par to yield 9¼%, on the tight end of the 9¼% to 9½% price talk.

Jefferies & Co. ran the books for the acquisition deal.

Edison Mission firms plans

Meanwhile new details, including price talk, circulated on Edison Mission Energy's $2.7 billion three-part offering of senior notes (expected ratings B1/BB-).

The company is offering 10-year notes, with price talk at the 7% area, 12-year notes, talked an eighth to a quarter behind the 10-year notes, and 20-year notes talked at the 7 5/8% area.

Tranche sizes remain to be determined.

Pricing is expected on Tuesday.

Citigroup, Credit Suisse, Deutsche Bank Securities, Goldman Sachs & Co., JP Morgan, Lehman Brothers and Merrill Lynch & Co. are joint bookrunners for the debt refinancing and dividend funding deal from the Rosemead, Calif.-based electric power generator.

A buy-side source said that the company seemed to be taking a dim view of issuing 20-year paper, and might reduce the tenor of the long tranche to 15 years.

However later an informed source from the sell-side said that initially Edison Mission Energy was looking to do either 15- or 20-years, and added that based on feedback, the 20-year maturity works better than a 15-year maturity.

Freescale, tech see softness

In the secondary market a trader told Prospect News that although there were no changes on Monday some of the bonds in the technology sector appeared to be under pressure for a variety of reasons.

"There is not an urgency to sell anything or to spend cash," the trader remarked.

"If anything looks weaker it's some of the tech stuff because they're coming out with weaker numbers and promising a better second half at the same time the market is worrying about the second half overall."

The trader recounted that last week Freescale Semiconductor came out with "disappointing numbers," specifying that first quarter 2007 sales came in at $1.36 billion, compared to $1.53 billion in the first quarter of 2006.

The Austin, Texas-based semiconductor company commented that net sales were negatively impacted by declines in the company's wireless and mobile solutions segments.

Coming into last week's earnings report Freescale's bonds were "sort of creeping up," the trader said.

However since that time the paper has been off.

The trader said that the Freescale 10 1/8% notes due 2016 have been the most active.

"A lot of people own it, in part because the coupon is high," the source added, specifying that this particular issue has been down 1¼ to 1½ points.

"There might be people out there shorting into the general sense that there is softness in the semiconductor sector," the trader added.

The trader also said that Sanmina-SCI Corp.'s bonds have seen "a fair amount of trading" on the heels of the company's report last week that it is facing a second-quarter net loss of $26.1 million due in large part to a higher than anticipated decline in demand from the communications and high-end computing markets.

The trader saw the company's bonds trading into a 97.75 bid, which has been the context of the market for the past week.

Home (builders) improvement

Elsewhere, another secondary market source saw improvement in the existing paper of two credits from the sluggish home builders sector.

Despite the $43.1 million net loss that it reported last week, Beazer Homes USA Inc.' 8 1/8% notes due 2016 finished at 98.50 bid, 99.50 offered on Monday, up ½ point, the source said.

Meanwhile, the source added, on the heels of Moody's downgrading Hovnanian Enterprises Inc.'s debt to Ba2 from Ba1, the company's 7½% notes due 2016 finished Monday at 95.50 bid, 96.50 offered, also up ½ point.

These moves were typical of the sector, with the home builders overall slightly stronger as the week got underway, relative to last week's close, the source commented.

On the road

Although the above-mentioned Mastro's deal was the only one to price during the primary market session, the new deal calendar, which according to sources has lately captured the spotlight, continued to build.

Noranda Aluminum Holdings Corp. will start a roadshow on Tuesday for its $510 million offering of eight-year senior unsecured floating-rate toggle notes (B3/B-), via Merrill Lynch.

Elsewhere Deluxe Corp. will begin a roadshow on Wednesday for its $200 million offering of eight-year senior notes (existing Ba2/confirmed BB-), in a deal being led by JP Morgan and Wachovia Securities.

Atlantic Express upsizes

Meanwhile Atlantic Express Transportation Corp. upsized to $185 million from $165 million its offering of five-year senior secured floating-rate notes (Caa2/CCC+), and set price talk at six-month Libor plus 725 to 750 basis points with a reoffer price of 98.00 to 98.50.

The Jefferies-led deal is expected to price on Tuesday.

Recent issues largely unchanged

Asked about the trading levels of recently priced junk bonds, secondary market sources were unable to report much change from last week.

"The market felt a little softer today on a lack of activity, but only in the sense that no one is attempting to lift an offering that's not there," a trader commented.

For example, Mobile Mini Inc.'s new 6 7/8% senior notes due 2015 (B1/BB-), which priced a week ago in a $150 million issue at 99.548 to yield 6.95%, were seen Monday at par bid, "which is a little premium above where they came, but virtually unchanged on the day," the trader said.

Meanwhile the new Clarke American Corp. 9½% senior notes due 2015 closed Monday at 100.75 bid, 101.75 offered, after having gone out Friday at 101 bid. And the Clarke American three-month Libor plus 475 basis points senior notes due 2015 closed Monday at 99.75 bid, 100.25 offered, whereas Friday they were at 100.375 bid, 100.50 offered.

The trader marked them off by ¼ point.

And Mariner Energy, Inc.'s new 8% senior notes (B3/B-), which priced last Wednesday in a $300 million issue, were at 101 bid, 101.25 offered, up about 3/8 from Friday, according to the trader.

However the OSI Restaurant Partners, LLC (Outback Steakhouse) 9 5/8% senior notes due 2015 (Caa1/B-), which priced at par last Thursday, went out Monday trading around 103 bid, unchanged according to the trader.

Another source had those same bonds closing 102.75 bid, 103.25 offered on Monday.

Flight from bankruptcy

Finally, news that Delta Air Lines Inc. exited from bankruptcy on Monday, following an eventful restructuring that saw the carrier fending off a hostile takeover, as well as cutting jobs and eliminating unprofitable routes, created some lift in the company's distressed bonds.

One trader spotted the 8.3% bonds due 2029 trading at 52.75 bid, 53.25 offered, Monday afternoon, up 1.50 to 1.75.

Later in the day a secondary market source said that Delta's bonds are being traded in for equity, and added that for every million bonds the bondholders are getting 24,500 shares.

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