Advanced Medical Optics flies on Abbott bid; Landry's off as CEO withdraw deal; Fresenius shops dollar/euro deal

By Paul Deckelman and Paul A. Harris

New York, Jan. 12 - The high yield market, if not exactly continuing the rebound seen on Friday, at least managed to pretty much hold its own Monday in the face of yet another big equity market downturn. Among the credits seen hanging in were Elan Corp. plc's bonds - even though the Irish drugmaker's own chief executive officer on Friday shot down the market speculation that his company might be bought by pharmaceutical powerhouse Pfizer Inc.

On the other hand, the very real offer that another drug giant, Abbott Laboratories, is making for Advanced Medical Optics Inc. sent the latter company's bonds, as well as its shares, sharply higher in active dealings.

Elsewhere on the merger & acquisitions front, Landry's Restaurants Inc.'s bonds moved lower after that company announced that it had abandoned plans to go private, and will instead proceed with previously agreed upon plans to refinance $400 million of bonds.

Cablevision Systems Corp.'s recently priced bonds continue to hold at levels well above that at which those notes priced last week.

Meanwhile, a unit of Fresenius SE was heard by syndicate sources to be shopping around a $650 million dual-currency six-year offering.

Market indicators mixed

The widely followed CDX High Yield 11 index of junk bond performance, which had gained ¼ point on Friday, plunged 2¼ points Monday, a trader said, quoting it at 77 1/8 bid, 77 5/8 offered. However, the KDP High Yield Daily Index actually rose by 3 basis points to 55.86, while its yield tightened by 5 bps to 13.51%.

In the broader market, advancing issues led decliners by around a six-to-five margin. Overall market activity, reflected in dollar volumes, fell 13% from the pace seen in Friday's session.

A trader called Monday's session "sort of a blah day, sort of lackluster."

Another trader called the market "a little bit on the quiet side - but stuff was going on." While acknowledging that the stock market was taking its lumps on fears of bad corporate earnings and renewed investor angst about Citigroup Inc.'s ultimate fate - the bellwether Dow Jones Industrial Average lost 125.21 points, or 1.46%, to end at 8473.97, while the Nasdaq composite index was down 2.09% and the S&P 500 was off 2.26% -- he dismissed the latest equity rout as having little real relevance to junk. "That happens every day."

Yet another trader characterized the day as "very quiet. The trend is lower - but I just didn't see a lot of activity."

Big advance for Advanced Medical Optics

Easily the biggest gainer of the day was Advanced Medical Optics' 7½% notes due 2017, an issue which one trader said he "had not seen in a while." The bonds got a big boost on the news that the Santa Ana, Calif.-based developer of eye-care products and technology for Lasik eye surgery is to be acquired by Abbot Laboratories for $1.4 billion in a $22 per share deal. Including $1.4 billion of debt to be assumed - the company has several convertible issues out, as well as its $250 million of junk bonds - Abbott values the deal at $2.8 billion.

That sent Advanced Medical Optics' bonds flying; they had not been seen trading since just before Christmas, when they languished around 51.5 bid, the trader said, but on Monday they had more than doubled that, soaring to round-lot levels as high as 104 in busy large-block trading.

"Wow," he exclaimed, "that's a nice home run. People haven't had that feeling for a while."

Investors were just as enthusiastic over on the equity side of the fence, as Advanced Medical Optics' New York Stock Exchange-traded shares jumped as much as 145.9% at one point, before finally ending up $12.65, or 142.94%, at $21.50, versus Friday's close at $8.85. Volume of 79.2 million shares was more than 31 times the norm. The price Abbott is offering is about what the stock was trading at last August, before it lost more than half its value in the ensuing market meltdown.

Assuming the deal goes through, it would instantly turn Abbott - a major pharmaceutical and medical devices manufacturer, but one with no presence in vision care - into a substantial player in that potentially lucrative industry, since Advanced Medical Optics is currently the global industry leader in surgical devices for Lasik laser vision corrective procedures, ranks second in the cataract surgical device market and is Number-Three in contact lens care products.

Elan holds gains despite M&A cold water

In that same pharmaceutical sphere, traders saw Elan Corp.'s bonds continuing to hold the strong gains which they notched over the last two days of trading last week on speculation that giant drugmaker Pfizer might buy Elan - even though the latter company's own CEO threw cold water all over that buyout buzz when he explicitly denied that any kind of a deal was being negotiated, either with Pfizer or anybody else.

Kerry Martin's statement seemed to have little impact on Elan's bond-price level; little or no trading was seen Monday in its normally most actively traded issue, Elan Finance plc's 7¾% notes due 2011, leaving them around that same 79-80 context at which they had finished on Friday, which was up about 15 to 20 points from where they had been last Wednesday, before Elan investors got carried away by merger-mania. "They sort of stopped right there in the mid-to-upper 70s," a trader declared, calling them up perhaps a point further on the day.

Another trader saw no dealings at all in the 73/4s - but did see the company's floating-rate notes due 2011 at 72 bid, off only slightly from its Friday afternoon level of 72.5 on $6 million bonds traded. And he saw Elan's 8 7/8% notes due 2013 shoot up to 68 bid from 62 previously, though on just $2 million traded.

A market source at another desk noted that the 73/4s had been trading in the low 60s last Wednesday, then moved up to 71 on Thursday and approached the 80 mark on Friday, before pretty much stabilizing there. The source said that the floaters were trading at 58 a week ago, then had soared to 69 last Thursday and tacked on a few extra points Friday to finish around 72ish, ending off perhaps ½ point, in busy round-lot dealings. The source also saw the 8 78s as having moved up from 56 a week ago to the 62 level by the end of last week and then 68 on Monday, though on more limited dealings.

While denying that there are any plans afoot to sell the company, Martin did say on Friday that the company plans to raise as much as $500 million by licensing out its experimental cancer drugs. It plans to use some of the proceeds to reduce its $1.7 billion debt, of which some $1.15 billion is the bonds coming due in 2011 - the $850 million of 73/4s and $300 million of floaters. Some of the proceeds will also be used to fund the last stage of trials for Elan's experimental Alzheimer's therapy, bapineuzumab, which it is jointly developing with major drugmaker Wyeth.

While bondholders seemed to take Martin's denials of any planned sale transaction in stride, holders of its NYSE-traded American depositary receipts were less sanguine. Those shares dropped as much as 7.15% during the session before finally ending off 36 cents, or 4.29%, at $8.03. Volume of 3.3 million shares was about average.

Landry's a loser as buyout bid bombs

Outside of the healthcare realm, bondholders and shareholders alike expressed their dismay over the demise of a planned buyout of Landry's Restaurants by Tilman J. Fertitta, the Houston-based restaurant and gaming company's CEO.

A trader saw the company's 9½% notes due 2014 at around 94 bid, 95 offered, down from Friday's levels around 96.5 bid, 97 offered. However, he noted that "not a whole lot traded - but the paper was definitely offered."

At another desk, a trader said he had seen no round-lot dealings in the paper since it traded at 96 a week ago, although he did see over-the-counter trading in a range of 94 to 98, mostly at the lower end of that spectrum.

Fertitta, who already owns 39% of the company, offered last year to buy the remainder at $21 per share. However, on Monday, Landry's said the deal had been pulled due to a conflict with the Securities and Exchange Commission and its lenders about disclosing terms which the lenders - lead lenders, Jefferies Funding LLC, Jefferies & Co., Jefferies Finance LLC and Wells Fargo Foothill - had insisted were confidential.

The same lenders are also involved in the company's efforts to refinance the $3.5 million of 7½% bonds and its nearly $400 million of 9½% notes due 2014. The company said that if it were forced by the SEC to issue a proxy statement for the going-private transaction outlining deal terms - information which the lenders considered confidential - the lenders would consider such disclosure to be a violation of the terms of their agreement and would result in termination of their commitments for both the planned going-private transaction and for the bond refinancing,

Landry's indicated in a statement that the higher priority was to keep the refinancing effort on track - something it believed it could do only by sacrificing the going-private transaction. It expects to close the bond refinancing by the end of February.

Shareholders were dismayed by that turn of events; at one point during Monday's session, the company's NYSE-traded stock nosedived by as much as 46.3%, before finally ending down $4.19, or 33.93%, at $8.16. Volume of 1.5 million shares was 6.5 times the usual turnover.

New Cablevision bonds remain strong

Several traders said that Cablevision's new CSC Holdings Inc. 8½% notes due 2014 were trading at 93 bid, 94 offered on Monday - up a little from late-Friday bid levels around 92.5-92.75.

The Bethpage, N.Y.-based cable systems operator and sports team and arena owner's $750 million of new bonds priced on Thursday at 88.885, to yield 11.375%. After having been freed for secondary dealings, the bonds promptly moved up to around the 92 bid, 93 offered level later in that session. The opened a little lower on Friday around 90.5 bid, but by the end of that session had climbed back up to around the 92.5 area.

Cablevision's established bonds were meantime seen mixed, with its 7 7/8% notes due 2018 up 2 points at 85 bid, while its 8% notes due 2012 dropped 3 points to the 90 level.

Auto names parked in same lot

Among the automotive names, a trader said that General Motors Corp.'s benchmark 8 3/8% bonds due 2033 were "pretty much where they already had been," which he called "right around" 19 bid, 20 offered.

However, another trader put those bonds down 2 points on the day at 18 bid, 20 offered.

Yet another saw the bonds down a point at 20 bid, on $6 million traded.

Among shorter GM issues, he saw the 7.20% notes due 2011 unchanged at 30 bid, with $7 million changing hands.

Its 7 1/8% notes due 2013 were unchanged around the 23 mark.

A trader meantime said that GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were ½ point lower at 27 bid, 29 offered.

Another said that the bonds were up ¼ point to 28.75, though on limited trading of only about $4 million.

Ford Motor Credit Co.'s 7 3/8% notes coming due in late October were "the most active Ford issue," a trader said, estimating volume at $34 million. He saw the bonds down ¾ point at 88.5 bid, while seeing FMCC's 9¾% notes due 2010 up a point at 83 bid, on $15 million. And he saw Ford Credit's 12% notes due 2015 at 76, up a point on $10 million traded. Ford Credit's 7% notes due 2013 lost more than a point to end at 68, while its 7 3/8% notes due 2011 dropped more than 3 points to the 73 level.

Another market source meantime saw the 7 3/8s maturing in October actually down more than 3 points at the 89 level.

A trader said that GMAC LLC "was drifting lower, with not many trades." The Detroit-based automotive and mortgage lending company's 5 5/8% notes coming due on May 15 were down ½ point at 95.

A trader said that Residential Capital LLC's bonds "sort of held their levels" that they had reached during last week's advance, pegging the troubled Minneapolis-based mortgage lender's 8½% notes due 2010 at 71 bid, 73 offered; he noted that "a month ago they were trading in the 30s - in fact, right before Christmas, they were still in the 30s," but had since moved up on positive developments for corporate parent GMAC.

"They moved when the deal was announced" just before the end of the year to let GMAC officially become a banking company and access federal bank-bailout money, and had moved up to the 50s a week ago, pushing higher after GMAC said in an SEC filing last week that it regarded ResCap as a valuable part of its operations and would take whatever steps were feasible to help ResCap turn itself around.

Shopping center REIT Rouse Co.'s 8% notes due April 30 were seen by a market source up more than 3 points at 48 - even though Wachovia cut its 2008 and 2009 earnings estimate for Rouse corporate parent General Growth Properties.

Another trader saw those bonds at 46 - estimating a 400% yield - although that was still up almost 4 points from Friday's levels.

Bankrupt chemical names rise

From deep in distressed-debt territory, a trader said that Tronox Inc.'s Chapter 11 filing was "not from left field," with the market long expecting the Oklahoma City-based chemical maker to go bankrupt. That said, he saw its 9½% notes due 2012 at 15 bid, 16 offered, up from prior levels around 11.5, on "expectations they'll get DIP financing and the like."

Another trader said that he "didn't see a lot of trading," but did see some activity at 16.5 bid, 16.75 offered, which he called up 5 points on the day, but he said the big test would come "[Tuesday], to see if there's any follow-through."

A trader meantime saw Lyondell Chemical Co.'s bonds continuing to push higher, with its 10¼% notes due 2010 at 29.5 bid, 30.5 offered and its 9.80% notes due 2020 at 28 bid, 30 offered; both had traded around 11-12 before last week's bankruptcy filing.

Another trader called both of those bonds "sort of unchanged" at 30 bid, 32 offered, on "not a lot of trading."

He saw the bankrupt Houston-based chemical maker's 8.10% notes in the low to mid 20s. As for its subordinated paper, the company's 8 3/8% notes and its 7 5/8% notes at 11 bid, 13 offered. Prior to its Chapter 11 filing, the subordinated notes had traded in the low single-digits.

Elsewhere in distressed-land, a trader saw Nortel Networks Corp.'s bonds off on worries about whether the Canadian telecommunications equipment maker will be able to meet its upcoming coupon payment. He saw the company's floating-rate notes due 2011 at 23 bid, 25 offered, down from prior levels at 26 bid, 26.5 offered, citing "better sellers."

Another trader said that "a lot of Nortels traded," seeing the 10¾% notes due 2016 at 24 bid, 25 offered.

Yet another trader estimated volume in the 103/4s at $14 million, with the bonds down 1½ points from Friday to 25.5.

A trader said that Charter Communications Inc.'s bonds "seem actually active," with its 11% notes due 2015 off ½ point at 21 bid, on $13 million traded, and its 11¾% notes due 2014 at 4.75 bid, down from 5.5 last week, with $11 million traded.

On the upside, he said that the debt-laden St. Louis-based cable operator's 10¼% notes due 2010 were about ½ point better at 52.5 bid, on $9 million traded. Charter's 8% notes due 2012 meantime gained 3 points to 85 bid.

Fresenius starts roadshow

Meanwhile news continued to trickle out of the primary market as German pharmaceutical company Fresenius SE rolled out a $650 million bridge refinancing related to its acquisition of Illinois-based APP Pharmaceuticals, Inc.

Underwriters began roadshowing Fresenius US Finance II Inc.'s $650 million equivalent two-part offer of six-year senior bullet notes (Ba1/BB) on Monday.

The deal is expected to price on Thursday.

The Rule 144A for life notes are being offered in dollar-denominated and euro-denominated tranches, with sizes for each piece remaining to be determined.

JPMorgan, Deutsche Bank Securities, Credit Suisse and BNP Paribas are joint bookrunners for the dollar-denominated notes.

Deutsche Bank Securities, JP Morgan, Credit Suisse and BNP Paribas are joint bookrunners for the euro-denominated notes.

A long dry spell

Fresenius would represent the first euro-denominated issuance from a Europe- or U.S.-based company since Sept. 10, 2008, when FCE Bank, plc, a United Kingdom subsidiary of Ford Motor Credit Co., priced €400 million of 7 1/8% notes at 82 (B1/B+), a deal led by RBS.

More deals this week

Elsewhere sources are expecting more primary market business during the week ahead, as the high-yield buy-side is perceived to be flush with cash.

During the past three weeks the high-yield mutual funds have seen slightly more than $2.4 billion of inflows, according to AMG Data Services. That is the biggest three week period of inflows into the asset class since the three weeks that ended June 19, 2003, according to a market source.

Meanwhile the high-yield mutual funds which report to AMG on a monthly basis saw $1.075 billion of inflows during the most recent period.

Year-to-date aggregate flows, including both the weekly and monthly reporters, were just under $2.063 billion to last Wednesday's close.

In addition to the inflows reported by AMG, ongoing coupon payments continue to fatten the coffers of high-yield investors, sources say.

However, despite the evidence that it has cash which it needs to put to work, the buy-side is still at the wheel as far as the new issue market is concerned.

"A lot of people are focused on reverse-inquiry right now," a syndicate source said shortly after Monday's close.

"That's the art of the possible."

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