Asset sale snag hurts Spectrum; Charter mixed as debt exchange ends; Rite Aid quiet, weaker

By Stephanie N. Rotondo

Portland, Ore., June 30 - As the quarter and month came to a close, the distressed bond market continued its recent rend and ended weaker overall.

One of the more notable names of the day was Spectrum Brands Inc. The consumer products producer announced Monday that it had reached an obstacle in the sale of its pet products business: Its lenders would not agree to it. As a result, the company debt structure lost about 2 points on the day.

Meanwhile, Charter Communications Inc. announced that it had completed its old-debt-for-new swap. But the exchange was seen by some market sources as immaterial, and the bonds closed unchanged to just softer.

In other tender offer news, Rite Aid Corp. priced its new issue, which will be given to noteholders in exchange for older debt. However, some players were surprised they did not see more activity in the name, especially the new issue. The pharmacy chain's bonds closed the day lower.

Still, with month-end pricing, the end of the second quarter and half the year already gone by, the market was decidedly quiet.

"I don't think people were doing much of anything," a trader said.

Also, with the Fourth of July coming on Friday, the holiday week did not help to invigorate the marketplace.

But another trader wondered if the next quarter would be better than the last two.

"Maybe guys will reevaluate now," he said.

"Guys are losing money," he said, speaking of the slowdown in the distressed sector. "Nobody does anything when they are losing money."

Combine an election year, a troubled economy and more rumors of trouble in the big names - buzz is Lehman Bros. will be "the next Bear Stearns" - and it is almost impossible to get things done, he said.

But, "when it does turn around, it is going to be good," he said. "When that is, I don't know."

Asset sale snag hurts Spectrum

Spectrum Brands' debt slipped during trading after the sale of its pet products business to Salton Inc. hit a snag.

A trader called the Rayovac battery maker's bonds down 2 points, its 7 3/8% notes due 2015 at 63 bid, 65 offered and its 11% notes due 2013 at 80 bid, 82 offered.

Another trader said the bonds came off of the day's lows but were still weaker on the day, with the 7 3/8% notes at 63 bid, 64 offered and the 11% notes at 81.5 bid, 82.5 offered. Yet another trader placed the 11% notes at around 82, 1.5 points to 2 points weaker.

Spectrum's term loan B also fell by a couple of points, according to a buyside source. The term loan B closed the day around 92 bid, 94 offered, compared to Friday's levels of 94½ bid, 95½ offered, the source said.

Spectrum announced Monday that it had failed to obtain the required consents from its senior lenders. However, despite this snag, Applica Pet Products, the acquisition subsidiary for United Pet Group and a wholly owned subsidiary of Salton, is still planning on holding a bank meeting on Tuesday to launch the $325 million credit facility (B1/BB) that is meant to fund the acquisition, a second market source remarked.

The consent of Spectrum Brands' lenders is a condition to the completion of the sale, but, even with the lack of lender support, Spectrum Brands said that the definitive purchase agreement continues in full force and effect, and that it intends to comply with its obligations in order to satisfy the conditions necessary to close the sale.

When asked what other options Spectrum may consider to get around the lender consent problem, a company spokesperson gave no further comment to Prospect News.

Spectrum plans to use proceeds from the sale to repay a portion of the borrowings outstanding under its ABL credit facility along with other senior bank debt.

Under the transaction agreement, Salton is purchasing the pet business for $692.5 million in cash, plus additional consideration in the form of $98 million of Spectrum's variable-rate toggle senior subordinated notes due 2013 and $124.5 million of Spectrum's senior subordinated notes due Feb. 1, 2015, in each case taking into account the principal amount and any accrued interest.

The upcoming Applica Pet credit facility that will fund the acquisition is being led by Credit Suisse and GE Capital and consists of a $25 million revolver and a $300 million term loan.

Other acquisition financing will come from equity provided by Harbinger Capital Partners, Salton's controlling stockholder.

United Pet Group, which markets and manufactures pet supplies for fish, dogs, cats, birds and other small domestic animals, will operate as a stand-alone business following the acquisition.

Spectrum Brands is an Atlanta-based manufacturer and marketer of consumer batteries, pet supplies, electric shaving and grooming, electric personal care and portable lighting products. Salton is a Miramar, Fla.-based marketer and distributor of small household appliances.

Among other consumer products companies, a trader said the rarely traded Ames True Temper 10% notes due 2012 traded down to 54 from the mid-60s just last week. He said he was not sure why the bonds lost so much but speculated it could be month-end related.

Charter mixed as debt exchange ends

A trader called Charter Communications' bonds unchanged to slightly weaker as the company said it completed its tender offer for $338 million in debt.

The trader pegged the 11% notes due 2015 at 74, adding that there was "not a lot going on" in the name.

Charter exchanged its 10¼% notes due 2010 for additional notes under its 10¼% notes due 2013 indenture. The company's goal with the tender was to extend maturities. Standard & Poor's called the debt swap immaterial, given the size of the cable provider's debt load. The agency maintained its B- corporate credit rating on the company, with a negative outlook.

Charter is a St. Louis-based cable and telecommunications provider.

Rite Aid weakens

Activity in Rite Aid was less than expected, even after the company priced its new issue.

"I didn't even notice the new issue," a trader said. "It was surprisingly quiet given that the new issue was supposed to come."

The new issue - part of a debt exchange - entered the market as an eight-year 10 3/8% note to yield 12¼% and was priced at a discount around 90.

Among the pharmacy chain's other issues, a trader called the debt weaker, with its 9½% notes due 2017 at 66 and its 7½% notes due 2017 at 80 bid, 81 offered.

Last week, the Camp Hill, Pa.-based company swung to a loss for the first quarter, attributed to expenses related to its Eckerd Brooks acquisition. That placed additional pressure on the company's bonds.

Retailers in general were seen softer during the session, as well. Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 fell 1 point to 80.5, while Bon-Ton Stores Inc.'s 10¼% notes due 2014 slipped to 66.

Delphi dips, URI gains

Delphi Corp.'s bonds remain weak, falling to 21 bid, 22 offered Monday, a trader said.

United Rentals' bonds were among the few issues to gain during the session, its 7% notes due 2014 up half a point to 78 bid.

Sara Rosenberg contributed to this article.

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