Barry Callebaut prices; Hilton bonds mixed on Blackstone buyout; funds see $223 million outflow

By Paul Deckelman and Andrea Heisinger

New York, July 5 - It was back to work Thursday in the high yield market - more or less - following a relatively rare mid-week holiday which had seen an abbreviated session Tuesday and a full market shutdown on Wednesday. Primary activity was restrained, with only one deal seen having priced - a euro-denominated offering for Barry Callebaut Services NV.

Terms on another anticipated deal, for High Arctic Energy Services Trust - had not emerged by the time trading wrapped up for the day.

And Cardtronics Inc. was hitting the road to market an add-on deal to potential investors.

In the secondary market, Hilton Hotels Corp. was seen gyrating around and ending pretty much mixed - although the company's most actively traded issue was seen having firmed smartly, despite two out of the three major ratings agencies announcing downgrades to its almost high-grade ratings, and the third saying it was considering doing likewise.

Movie Gallery Inc.'s bonds continued to fall for a third straight session, although the decline was not nearly as dramatic a swoon as the 60-point-plus nosedive those bonds took over the previous two sessions. Sector peer Blockbuster Inc.'s bonds were also a few points lower.

And Dura Automotive Systems Inc.'s bonds were better, probably given a boost by the company's asset-sale news.

Elsewhere, trading was seen fairly quiet, with many participants having not straggled back in to work yet after the July 4th holiday break.

Funds see fourth big outflow

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 Tuesday $222.8 million more exited those weekly-reporting funds than came into them.

It was the fourth third sizable outflow in as many weeks, following the $438.6 million outflow seen the week before, 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 quartet of big hemorrhages followed eight straight weeks of inflows, according to a Prospect News analysis of the AMG figures.

Those big outflows collectively have chopped over $1.563 billion off of the total net inflow for the year, reducing it to just $14.1 million, according to the Prospect News analysis.

Inflows have still been seen in 19 weeks out of the 27 since the start of the year, versus just eight weekly outflows - although the inflows have been relatively small in most of those weeks, and the outflows, as noted, are sizable.

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. After that came the current downturn.

Among funds which report on a monthly, rather than a weekly basis, a net outflow of $241.7 million was seen in the week ended Tuesday. However, the year-to-date fund-flow totals for the monthly reporters remains solidly positive, at $4.643 billion, although that's down from $4.884 billion a week earlier. The consolidated year-to-date net inflow figure, counting both weekly-only and monthly-only reporters, stands at $4.657 billion.

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.

Barry Callebaut deal prices

On a quiet day in the high yield primary market, terms emerged on Barry Callebaut Services' pricing of €350 million in 10-year senior fixed-rate notes (Ba1/BB+). The deal came at a spread of Treasuries plus 125 basis points.

The 6% notes were sold at a dollar price of 99.005 to yield 6.136%. There was no official price talk prior to the deal for the Zurich-based cocoa and chocolate company.

The issuance of the notes was one of the "milestones in our commitment to align our funding structure with our operational needs," Victor Balli, chief financial officer of Barry Callebaut, said in a press release.

Goldman Sachs & Co., ABN Amro and BNP Paribas were joint bookrunners.

High Arctic waiting in the wings

The Barry Callebaut pricing left just one other deal on the forward calendar for possible pricing on Friday - High Arctic Energy Services Trust.

There was some talk that the Red Deer, Alta., specialized oilfield equipment and services provider's $130 million offering of five-year fixed-rate bonds might come Thursday, but it had not been seen by the time trading finished.

Pre-deal market price talk on the notes envisions a yield in the 10¼% to 10½% area. Two Norwegian Banks, SEB Merchant Banking and Swedbank, are running the books.

Cardtronics hits the road

Also in the primary Thursday, Cardtronics Inc. announced it will begin a road show Monday for a $125 million add-on to its $200 million of 9¼% eight-year senior subordinated notes (Caa1/B-) issued in 2005.

Banc of America Securities LLC is running the books for the transaction, which will be sold under Rule 144A and Regulation S.

Cardtronics is a Houston-based company operating the largest network of ATMs in the United States and is a leading ATM operator in the United Kingdom as well.

Hilton seen mixed on buyout

Hilton Hotels' bonds were seen gyrating around, essentially mixed, as the market digested the news announced late Tuesday that Blackstone Group LP will acquire the giant Beverly Hills, Calif.-based hotel operator for some $20 billion, plus the assumption of around $7 billion of Hilton debt.

Hilton's 7 5/8% notes due 2012, the company's most active issue, had previously been seen trading last week around the 103 level; on Thursday, though, they were bouncing all around between 99.5 and 107.625, before moving to the high end of that range by the close.

The company's 7.20% notes due 2009 were quoted around the par area, off more than 2 points on the session, while its 7½% notes due 2017 were seen having fallen as low as the mid 90s, more than 5 points down, although the latter issue was only lightly traded.

A trader who saw the 7 5/8s jumping all over the place opined that "this was in large part because people originally thought that the deal would mean more debt for the company, so the bonds went down. But as they read through the [sale agreement] documents, they began to think that the company might take the bonds out - although there's been no official word on that yet."

But he noted that the five-year credit default swaps contract linked to Hilton debt was trading at a bid spread of about 250 basis points over comparable Treasuries and an offered spread of about 240 bps over - about 100 bps wider than where those contracts had traded before the news was announced - a sign of market wariness about the deal.

And that unease was matched by the three major ratings agencies, all of which weighed in on the negative side. Standard & Poor's downgraded Hilton's corporate credit rating to BB- from BB+, while Fitch Ratings dropped Hilton to B from BB+. Moody's Investors Service said that it would consider a downgrade from Hilton's current Ba1 senior rating.

In dropping Hilton's ratings by two notches, S&P said that the move reflects "the expectation that a transaction will be completed and represents the highest outcome that it deems appropriate given its review of the preliminary information that is available regarding the Blackstone deal."

While bondholders and the ratings agencies were leery of the prospect of a mostly debt-funded buyout, shareholders were ecstatic, taking the company's New York Stock Exchange-traded shares up $9.34 (25.91%), to $45.39. Volume of 104.7 million shares was about 25 times the usual daily turnover, making Hilton the most heavily traded Big Board issue.

Bonds of other hotel operators were seen mixed in the wake of the Hilton news, apparently because there was no huge sentiment that this would be the start of a merger and acquisition wave - or if it does put other hotel companies into play there are doubts as to whether it would benefit bondholders. While Felcor Lodging LP's 8½% notes due 2011 were seen up ¾ point at 105.25, and Host Marriott LP's 6¾% notes due 2016 were ½ point better at 98.25, Starwood Hotels' 7 7/8% notes due 2012 were down ½ point at 104.

Hexion better on Huntsman bid

Also in the M&A sphere, Hexion Specialty Chemicals Inc.'s 9¾% notes due 2014 were quoted up more than 4 points at 108.25 bid. That followed the news that Hexion, which is owned by Apollo Management LP, has offered to buy Huntsman Corp. for $27.25 per share cash, or about $6.05 billion.

That bid tops a previous offer from Dutch chemical maker Basell Holdings to buy Huntsman for $25.25 per share, or about $5.6 billion.

Dura up on asset-sale news

In another merger-and-acquisition related development, a trader saw Dura Automotive Systems' 8 5/8% senior notes due 2012 "up a little - although it's tough to say that things are up on so little volume. I wouldn't make a big thing of it - it was just a couple of quotes," which pegged the bonds at 67.5 bid, 68.5 offered, up 1½ points, he estimated.

Another source, however, had seen several large-block trades above 68 - up a good 4 or 5 points from prior levels, although later in the day, there was some smaller-sized trading going on back in a 64ish context.

The activity followed the announcement by the bankrupt Rochester Hills, Mich.-based automotive components company that it had agreed to sell its Atwood Mobile Products Inc. division, which makes systems and components for recreational vehicles and mobile homes, for $160.2 million. The buyer is Atwood Acquisition LLC, an affiliate of private equity firm Insight Equity.

The sale must be approved by the U.S. Bankruptcy Court in Wilmington, Del., which is overseeing Dura's restructuring. It is subject to auction should competing bids emerge.

The sale of Atwood, which Dura acquired in 1999, is seen as a key step in the company's efforts to focus on its core automotive systems business, as it restructures in hopes of coming out of Chapter 11 - which it entered last year - by this year's fourth quarter.

Movie Gallery moves lower still

Probably the most actively traded bonds of the session were also in the distressed realm, as Movie Gallery Inc.'s bonds continued to erode on Thursday, although nowhere nearly as dramatically as they had on Monday and Tuesday, after the Dothan, Ala.-based Number-Two U.S. video rental chain operator admitted that it had failed to meet some of its debt covenant requirements for the quarter ended July 1 and had entered talks with its lenders to seek remedies.

After having plummeted down into the mid 20s from levels near 70 at the beginning of the week, the company's 11% notes due 2012 were being quoted in the 22 area, down about 3 to 3½ points on the day, depending on whom you spoke to.

Trading activity was heavy, with many of the trades in blocks of $1 million or more - in fact, Movie Gallery was seen as the only issue "that had real volume" in the words of one trader.

Movie Gallery's larger rival, Blockbuster - affected by many of the same industry dynamics - was also down for a second straight session, although its fall has been considerably less severe than Movie Gallery's.

The Dallas-based video rental industry leader's 9% notes due 2012, which had been trading in the mid-90s before Movie Gallery's bad news, were seen down another 2 to 3 points on Thursday to about 89.5 bid, 90.5 offered.

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