Dollar General leads deal parade; Movie Gallery, Beazer drop; funds see $439 million outflow

By Paul Deckelman and Paul A. Harris

New York, June 28 - Dollar General Corp. set terms on a $1.9 billion mega-deal Thursday, which had been restructured into a two-part offering from its original three-tranche configuration.

High yield syndicate sources also saw a two-tranche dollar- and euro- denominated 10-year offering brought by Varietal Distribution Merger Sub Inc. (VWR International Inc.), this on top of the company's single-tranche 8-year deal that priced earlier in the week. CanWest Mediaworks LP meantime came to market with a downsized offering of 10-year notes.

Also in the primary arena, Swiss issuer Barry Callebaut began shopping a euro-denominated 10-year issue around via a roadshow.

In the secondary market, the bonds of struggling Number-Two U.S. video rental chain operator Movie Gallery Inc. continued to lose ground, dragged lower by bad news from industry leader Blockbuster Inc., which said Thursday that industry-wide video rentals at traditional brick-and-mortar stores in the U.S. fell more than it expected this year - and the company plans a slate of store-closings as it attempts to boost its on-line rental business.

Beazer Homes USA Inc.'s bonds were lower, after the Atlanta-based homebuilder announced the firing of its chief accounting officer, who had allegedly attempted to destroy documents, even with a federal investigation of the company going on.

Solo Cup Co. was up in the wake of news of a $130 million sale and leaseback transaction, the proceeds of which will be used to cut debt.

Funds see third big outflow

And as activity was winding down for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $438.6 million more exited those weekly-reporting funds than came into them.

It was the third sizable outflow in as many weeks, following the $502.5 million outflow seen in the previous week, ended June 20, and the $399.6 million bleed seen the week before that, ended June 13. The trio of big hemorrhages followed eight straight weeks of inflows, according to a Prospect News analysis of the AMG figures.

The redemptions trim the year-to-date flows to a meager $236.9 million, among funds that report to AMG on a weekly basis.

However a much different picture emerges with respect to the funds that report on a monthly basis, which have seen $4.884 billion of inflows thus far in 2007.

Hence the year-to-date aggregate flows, which tally both the weekly and monthly reporting funds, are $5.121 billion.

Among weekly funds, inflows have still been seen in 19 weeks out of the 26 since the start of the year, although the inflows have been relatively small in most of those weeks, the Prospect News analysis shows.

Up until the latest losing streak, the fund-flow numbers seemed to have successfully regained the positive momentum they showed at the beginning of the year, when an aggregate total of $862 million came into the funds in the first two months, according to the Prospect News analysis. That stretch was then interrupted by a choppy four-week period in March, characterized by alternating weeks of outflows and inflows, none larger than $25 million. Over the next 11 weeks, though - through the week ended June 6 - with 10 inflows seen in that time, the funds had a net total infusion during that period of $786.9 million, according to the analysis.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

Tough primary market

By all accounts the high yield primary market remained rocky on Thursday, as three issuers combined to price four tranches, three of which were resized and restructured.

Dollar General prices $1.9 billion

Dollar General priced $1.9 billion of high yield notes on Thursday.

The Goodlettsville, Tenn.-based discount retailer merged proposed tranches of senior cash-pay notes and senior PIK toggle notes into a single $1.175 billion tranche of 10 5/8% senior cash-pay notes (Caa1/CCC+), which it priced at 98.027 to yield 11%.

The cash-pay notes priced on top of price talk that had been raised from the 10½% area.

Prior to restructuring the deal had been comprised of $625 million of cash-pay notes and $725 million PIK toggle notes.

Meanwhile Dollar General restructured the subordinated tranche, bringing the notes as 10-year senior subordinated PIK toggle notes whereas they had previously been in the market with 10-year senior subordinated cash-pay notes.

The subordinated PIK toggle notes (Caa2/CCC+) priced at par to yield 11 7/8%.

The original tranche of senior subordinated notes had been sized at $550 million, and talked at the 12% area.

Goldman Sachs & Co., Citigroup, Lehman Brothers and Wachovia Securities were joint bookrunners for the merger funding deal.

CanWest downsizes

CanWest MediaWorks LP priced a downsized, restructured $400 million issue of eight-year senior subordinated notes (B2/CCC+) at par to yield 9¼% on Thursday.

The issue, which was at $650 million Wednesday, priced at the wide end of the 9% to 9¼% price talk.

The maturity of the notes was decreased to eight years from 10 years, while call protection was decreased to four years from five years.

Citigroup and Scotia Capital ran the books.

Later a trader saw CanWest bonds trading at par 3/8 bid, par 5/8 offered.

Bemax prices $175 million

Australia's Bemax Resources Ltd. priced a $175 million issue of seven-year senior unsecured notes (Ba3/B+) at par to yield 9 3/8% on Thursday, via Morgan Stanley.

Proceeds will be used to fund capital expenditures.

The Brisbane-based company is engaged in mineral sands exploration, development and production.

Barry Callebaut starts marketing Friday

Switzerland's Barry Callebaut Services NV will start a roadshow on Friday in Europe for its €350 million offering of 10-year senior notes (Ba1/BB+).

Goldman Sachs, ABN Amro and BNP Paribas are joint bookrunners for the debt refinancing and general corporate purposes deal.

The prospective issuer is a Zurich-based cocoa and chocolate company.

CanWest trades up

When they were freed for secondary dealings, the new Can West 9¼% notes due 2017 were seen by a trader as having advanced to 100.375 bid, 100.75 offered, up from their par issue price earlier in the session, and up as well from their initial levels at par bid, 100.25 offered.

The trader saw the new VWR 10¾% notes due 2017 at 99.375 bid, 99.75 offered, down from prior levels at par.

The new Dollar General notes hit the market too late in the session for any kind of aftermarket dealings.

Community Healthcare still robust

Among issues which have recently priced, a trader saw Community Healthcare Systems Inc.'s $3 billion of new 8 7/8% senior notes due 2015 actively trading around. Those bonds had priced at 99.294 on Wednesday, and then proceeded to gain about a point in early aftermarket dealings Wednesday, to around the 100.25 level.

"They continued to do well" Thursday, a trader noted, quoting the Nashville-based hospital operator's paper at 101.25 bid, 101.5 offered.

Also seen more than holding their own were the new 9½% senior notes due 2015 from Paetec Holding Corp. The Fairport, N.Y.-based communications services provider's bonds had priced at par on Wednesday, and had firmed smartly to 101.5 bid, 102 offered, a trader said.

One exception to that generally positive trend was Thomson Learning, whose $1.6 billion of new bonds priced in two tranches, at a discount from par, last Friday - and then continued to lose ground.

A trader saw the company's zero-coupon senior subordinated discount bonds due 2015 at 75 bid, 75.25 offered, while its 10½% seniors due 2015 were at 96.75 bid, 97.25 offered.

Solo up on financing news

Elsewhere, traders saw Solo Cup's bonds up on news of the paper and plastic cup and dishware company's $130 million sale/leaseback transaction, the proceeds of which will go to cut bank debt.

One quoted Solo's 8½% notes due 2014 as having moved up to around 87.75 at the open, versus Wednesday's levels around 86 bid, 87 offered. Then the bonds got as good as 89 bid, before ending around 88 bid, 88.5 offered.

Another trader pronounced the bonds up "one or two points, on pretty good size" at 88.25 bid, 89.25 offered.

Highland Park, Ill.-based Solo said that the deal includes Solo Cup manufacturing plants in Dallas, Chicago, Urbana, Ill., Augusta, Ga., Conyers, Ga., and Federalsburg, Md. The company has entered into a 20-year lease with four five-year extension options for each facility. There will be no change in day-to-day operations at those facilities, or any other Solo Cup facilities.

Movie Gallery moves lower

Movie Gallery's bonds continued to fall on Thursday, in line with lower levels for industry leader Blockbuster, after the latter company released a gloomy assessment of how traditional brick-and-mortar movie rental stores were doing.

A trader said "an awful lot of Movie Gallery bonds traded, a good amount of value," with many of the trades being in sizable blocks. He saw the bonds - which on Wednesday had traded around a 70-71 context - fall as low as 65 bid, 66 offered, before coming off those lows to end at 68 bid, 69 offered, "still down on the day but off their bottom."

He saw the Blockbuster 9% notes due 2012 "down a couple too," at about 92.5 bid, 93.5 offered, versus Wednesday's close at 94.

Another trader saw the Blockbusters "holding to the low end" of Wednesday's range, at 93.5 bid, 94.5 offered, but said "Movie wasn't that lucky," falling into a 68-70 context for most of the day, with lows around 67.5 and highs around 71. "Most trades had a 68 handle all day," the trader said.

The bonds of the two companies had already fallen on Wednesday after Blockbuster had announced that it had reached a settlement of all litigation with rival video-rental operator Netflix Inc., which sued Blockbuster for patent infringement when the latter rolled out its competing on-line film rental business, claiming that Blockbuster had copied some of Netflix's proprietary features. Terms of the settlement were not released. Blockbuster also said that it was seeking amendments aimed at easing several covenants in its credit line.

Then on Thursday, Blockbuster said industrywide U.S. store rentals declined more than it expected this year, and announced plans to close 282 locations out of its 8,000 plus total outlets.

It said that in-store rentals of movies and TV programs had fallen some 13% from comparable levels a year ago - nearly double the 7.5% reduction which the Dallas-based company had previously predicted.

Beazer bulldozed on executive firing

The news that Beazer Homes had fired its chief accounting officer amid a regulatory inquiry into possible securities law violations sent the builder's bonds and shares lower. A trader saw Beazer's 6 7/8% notes due 2015 moved down to 85.5 bid, 86.5 offered, versus 86.25 bid late Wednesday. There were "not a lot of trades."

Another trader pegged its 8 3/8% notes due 2012 down a point at 94.5 bid, 95.5 offered.

Beazer said it terminated chief accounting officer Michael Rand for violating the company's ethics policies, this after Rand allegedly attempted to destroy documents. The flap comes at a time when the builder is the subject of a federal investigation into its mortgage origination practices.

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