Abitibi, FairPoint price deals, Harrah's trades; Clear Channel sizzles as LBO fizzles; Thornburg up again

By Paul Deckelman and Paul A. Harris

New York, March 26 - The high yield primary market - pretty much sleepwalking ever since Charter Communications Operating LLC priced an offering of six-year notes back on March 11, more than two weeks ago - came roaring back to life on Wednesday, pricing not one, or even two, but three deals - for Abitibi-Consolidated Co. of Canada, FairPoint Communications Inc. and Harrah's Entertainment Inc., the latter a selldown from the tranche of eight-year senior notes it sold in late January. As a sign of the times in the junk bond market, all needed coupons north of 10% for the deals to get done - two of them, in fact, were above 13%, and the FairPoint and Harrah's offerings priced well below par, boosting their respective yields even further.

The new Abitibi bonds were seen having firmed smartly when they were freed for secondary dealings. Meanwhile, the Montreal-based forest products company's existing bonds were all seen higher, as another piece of its $1.4 billion refinancing effort fell into place with the new bond deal.

Thornburg Mortgage Inc.'s success in getting one big investor on board with its $1.35 billion financing plan and investor confidence that it will be able to place the whole deal helped to push the Santa Fe, N.M.-based mortgage originator's bonds up solidly for a third straight session.

On the other hand, Clear Channel Communications Inc.'s bonds rose - although its shares tumbled - on signs that the San Antonio, Tex.-based broadcasting and billboard company's planned leveraged buyout deal is headed down the tubes, with the company and its would-be private-equity buyers dragging the suddenly-balky banks that committed to financing the LBO into court in an attempt to force them to live up to that promise.

A high yield syndicate official marked the broad market flat to slightly lower on Wednesday.

New notes from FairPoint

FairPoint Communications Inc. and Northern New England Spinco, Inc. priced a $551 million issue of 13 1/8% 10-year senior unsecured notes (B3/B+) at 97.873 to yield 13½% on Wednesday, according to an informed source.

The yield came well wide of the 11½% area price talk.

Banc of America Securities, LLC, Lehman Brothers and Morgan Stanley were joint bookrunners for the merger financing bond sale which generated approximately $540 million of proceeds.

A source close to the deal said that the new FairPoint notes played to a good book, and added that the notes were up ¼ point at the Wednesday close.

Abitibi completes deal

Elsewhere Abitibi-Consolidated Co. of Canada priced a slightly downsized $413 million issue of three-year senior secured notes (B1/B+) at par to yield 13¾% on Wednesday.

The yield was printed at the tight end of the 13¾% to 14% price talk.

Goldman Sachs & Co. and JP Morgan were the bookrunners for the debt restructuring deal that was downsized from $415 million.

A source close to the transaction commented that the deal went great, and played to an order book that was well oversubscribed.

A portfolio manager from a high yield mutual fund stayed on the sidelines for both the FairPoint and Abitibi trades.

However with respect to the Abitibi deal the buy-sider, noting that the par-pricing 13¾% notes due 2011 were trading at 102½ bid, 103½ offered at the Wednesday close, remarked that investors who got into the short paper that Abitibi was addressing with Wednesday's deal, the 5 1/8% notes due June 2008 and the 6.95% notes due April 2008 - both of which had been trading at substantial discounts - would have wound up in a win-win situation with the short paper and the new notes now all trading above par.

Harrah's sell-down

Elsewhere during the midweek session, the Harrah's Entertainment Inc. underwriter group sold down $1.45 billion of Harrah's 10¾% senior notes due Feb. 1, 2016 at a reoffer price of 84.00.

An informed source said that the deal had been driven by reverse inquiry.

The resulting yield was 14.19%.

The underwriter group was comprised of Citigroup, Banc of America Securities, Credit Suisse, Deutsche Bank Securities, JPMorgan and Merrill Lynch & Co.

The company will receive no proceeds from the transaction.

In late January underwriters priced approximately $4.9 billion of the notes at par.

While declining to specify an exact figure, the source told Prospect News that with Wednesday's transaction a "substantial amount" of that $4.9 billion has now been distributed.

On March 19 Standard & Poor's raised its rating on the notes to B+ from B-.

The rating from Moody's Investors Service remains at B3.

A pulse

The portfolio manager from a high yield mutual fund remarked that Wednesday's action demonstrates that the primary market is alive.

"It's name specific and it's price specific," the buy-sider added.

With respect to the Harrah's news, the investor sees it as a harbinger of things to come.

"Some of the big private equity shops have set up funds to buy the hung deals," the source said.

"The broker dealers have been unloading the bank debt, and they are now attempting to get the bonds off of their books."

Aside from the hung risk, this investor does not look for a parade of issuers to form in the immediate future - especially when they hear about yields such as FairPoint's 13½% and Abitibi's 13¾%.

Most potential issuers are battening down the hatches and living within their means right now, the investor said.

During the past fortnight this portfolio manager has maintained a wait-and-see macroeconomic outlook.

Some pundits point to the recent Bear Stearns meltdown as a possible place to mark the bottom of the market, the buy-sider noted.

"It could be," the source added. "But regardless this whole mess will likely drag on for a long time."

As if to underscore this assertion, just as the investor was finishing that sentence news hit the tape that Bain Capital and Thomas H. Lee Partners filed suit against a group of banks led by Citigroup to force them to finance the $19.5 billion acquisition of Clear Channel Communications, Inc.

"It doesn't look as though the mess in the credit markets is over with just yet," the buy-sider commented.

Meanwhile sources who spoke well after Wednesday's close were either marking the Clear Channel deal dead or all-but-dead.

New Abitibi bonds rise solidly

When the new Abitibi 13¾% senior secured notes due 2011 were freed for secondary activity, two separate traders saw them push up to 102.75 bid, 103.75 offered from their par issue price earlier in the session. A third saw them at 102.5 bid, 103 offered.

"I guess it's that huge coupon" that produced the outpouring of interest in the bonds, one trader said. "Everybody loves that coupon. If you're comfortable with the credit, how can you not be long this issue?"

He compared the conditions surrounding the bond sale to "a buyer's market, just like in real estate. You name the coupon at which you are comfortable taking on the risk, and most likely - not always, but most likely - that's where the issue will come."

He noted that "when you look at [Abitibi's] capital structure, a majority of the issues are single-digits, anywhere from 5¼% to 9s [on the Bowater side of the company]. It's quite a jump [to 13¾%] - but this is the situation they are in."

Traders did not see any aftermarket dealings in FairPoint's 13 1/8% notes due 2018.

Outstanding Abitibi bonds also firmer

While the new bonds were doing well, the outstanding Abitibi paper - particularly the $500 million of bonds coming due this year and next which will be taken out using some of the proceeds of the refinancing - was also again on the upside for yet another session.

A trader saw the 6.95% notes slated to come due on April 1 at par bid, 102 offered versus 93 bid, 97 offered on Tuesday, with quotes of 104 bid, 105 offered for guaranteed delivery, which, he said, "means nothing."

He also saw the 5¼% notes maturing June 20 at 97 bid, par offered.

Another trader saw the 6.95s at 99 bid, 101 offered, and 101 bid, 103 offered on a guaranteed delivery basis, while even the company's longest-dated issue, the 8.85% bonds due 2030, rose 3 points to 45 bid, 46 offered.

However, a market source at another desk saw a few late odd-lot trades driving the 6.95s down as far as the 94 neighborhood from previous levels around 103. The 51/4s hung in around the 101 region, though down from their day's highs at 103-104, while the 8.55% notes due 2010 rose more than a point to 58.5.

The old Bowater 9% notes due 2009 were meantime up 2 points to the 85 level.

Abitibi also announced the successful pricing Wednesday of another leg of its financing, a $400 million 364-day senior secured term loan with a coupon of Libor plus 800 bps, with a 3.5% Libor floor. The loan priced at 96.

Earlier in the week, it announced that Fairfax Financial Holdings Ltd. had agreed to buy $350 million of new convertible notes, the proceeds of which would be used to take out the $200 million of April 1 and $150 million of June 20 bonds.

Market indicators little changed

A trader saw the widely followed CDX index of junk market performance as ending essentially unchanged Wednesday at 90 1/8 bid, 90 3/8 offered. Meanwhile, the KDP High Yield Daily Index eased 0.02 to 73.37, while its yield was unchanged at 9.83%.

In the broader market, advancing issues topped decliners by a five-to-four margin. Overall activity, reflected in dollar volumes, rose by some 12% from Tuesday's levels.

A trader, when asked what was going on, succinctly replied "nothing," although that was not entirely true - while the indexes were pretty much steady and most issues rangebound, here and there were notable movers.

Clear Channel rises as buyout falls apart

One such name was Clear Channel Communications, with a trader seeing the company's 6¼% notes due 2011 up 5 points at 88 bid, 90 offered. "The equity dropped" - its New York Stock Exchange-traded shares plunged $5.64, or 17.32%, to end at $26.92, on four-times normal volume of 48.7 million - "and the bonds were up on the uncertainty of the deal."

He voiced with the general proposition that "people [in the junk market] were glad the deal fell apart," preventing the creation of another too heavily levered entity; a syndicate led by Thomas H. Lee Partners LP and Bain Capital Partners LLC is planning on funding its acquisition of the giant media company via a $19.525 billion bank credit facility and a $2.6 billion offering of new junk notes.

A market source at another desk saw Clear Channel's 6 7/8% notes due 2018 up more than 8 points to the 72 level, while its 6¼% notes due 2011 gained almost 4 points to 88 bid, both in busy trading.

A trader pointed out that "the first thing that happens when an LBO is announced is people buy the stock and sell the bonds. So it would make sense that the bonds would recover" on the news that the buyout deal is in big trouble.

He saw the 61/4s as Clear Channel's most active issue with the bonds "trading pretty consistently" in the 88.5-89 range, up about 3 points from recent levels and up even more from the last recent round-lot trade at 84.75. But the biggest mover he saw was Clear Channel's 5¾% notes due 2013, up about 7 points to 79.25 bid, 79.75 offered. "It's a natural reaction to the potential of the LBO falling through."

When the deal to take Clear Channel private was signed some 18 months ago, it had no trouble attracting a gaggle of big-name banks eager to participate in the financing, including Citigroup, Credit Suisse Group, Deutsche Bank AG, Morgan Stanley, Royal Bank of Scotland and Wachovia Corp. But that was then - and now is now, with the financial world caught in the unyielding grip of a credit crunch that has caused bankers to cast a wary eye on such big funding deals for below-investment-grade companies.

Following several days of news reports indicating that the banks were looking to back out of the originally envisioned financing deal - allegedly trying to convert the long-term funding promised in their commitment letter to a short-term loan instead - Clear Channel, Thomas H. Lee and Bain filed suit in New York and Texas on Wednesday, claiming that the lenders were trying to weasel out of the agreed-upon financing. They characterized the apparent change of heart as "lender's remorse" sparked by the current tough credit conditions and asked the courts to force the lenders to live up to the original arrangement. The banks named in the suit, meanwhile, released a statement in which they claimed that the offer they made was fully consistent with the previously announced loan commitment.

Satellite broadcasters back off

Also in the broadcasting world, XM Satellite Radio Holdings Inc.'s bonds and those of Sirius Satellite Radio Inc., were seen a little lower, backing down a bit from the strong gains they had notched over the previous two sessions on the news that the U.S. Justice Department found no reason to block the companies' proposed merger on anti-trust grounds.

A trader saw XM's 9¾% notes due 2014 at 97 bid, which he called down a little from Tuesday's late levels, while the company's floating-rate notes due 2013 were "more active than the 93/4s," ending at 96.5 bid, 97 offered. He saw Sirius' 9 5/8% notes due 2013 about ½ point down at 84.5 bid, 84.75 offered, and suggested that "maybe there was too much initial euphoria about the deal being approved [by the Justice Department]."

Another market source saw the XM 93/4s down a point at 96.5.

The deal - Sirius is proposing to buy out its larger, more-established rival in a $5 billion transaction - has generated opposition from consumer groups who fear that the combination will mean higher prices and fewer options for the subscribers of what are now two separate services. Old-line conventional terrestrial broadcasters have also lobbied against the deal. Final say-so on whether the merger can go through rests with the Federal Communications Commission.

Thornburg keeps climbing

Back on the upside, traders said that Thornburg Mortgage's 8% notes due 2013 continued to build on the string of strong gains seen all of this week, investors apparently convinced that the company will make good on its announced plan of selling $1.35 billion of new bonds via a private placement to meet lender demands that the company augment its capital. Thornburg said it had already placed $450 million of the 18% notes due 2015 with an investor, contingent on it being able to place the rest of the issue with other investors.

A trader saw the 8% bonds up 5 points at 60 bid, 65 offered. Another said that the bonds had traded as high as 64 on an odd-lot basis.

A market source pegged the bonds at 61 bid, up 4 points on the day.

Another saw them at 60 bid, 65 offered, up from 55 bid, 57 offered on Tuesday. He also saw sector peer Residential Capital LLC's 6½% notes due 2013 unchanged at 52 bid, 54 offered, while Countrywide Financial Corp.'s 3¼% notes coming due May 21 were unchanged at 98 bid, par offered, while its 6¼% notes due 2016 were also unchanged at 79 bid, 81 offered.

However, another market source saw ResCap's 8 7/8% notes due 2015 down 1½ points at 51.

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