Echostar brings $1 billion, Xerox prices add-on; B/E Aerospace up on planned bond buyback

By Paul Deckelman and Paul A. Harris

New York, Sept. 20 - Echostar DBS Corp. and Xerox Corp. kicked off a new week of primary market activity Monday in a big way, with a pair of opportunistic deals for the two companies, which are among the best known and most liquid junk bond issuers. Echostar's offering was a $1 billion drive-by that priced late in the session, while Xerox brought a $250 million add-on to an existing bond series under its shelf registration.

In the secondary market, B/E Aerospace Inc.'s bonds were up solidly after the Wellington, Fla.-based maker of aircraft cabin components announced plans to sell up to 13.5 million shares and then use the proceeds to take out some or all of its existing 9½% notes due 2008.

There was also considerable activity in MCI Inc., on news reports indicating that the Ashburn, Va.-based long-distance telecommunications company - successor to the old WorldCom Inc. - was looking for a buyer, and anticipating proceeds from such a sale of more than $6 billion.

$1.25 billion in quick sales

The high-yield market saw $1.250 billion price in two surprise issues during the opening session of the Sept. 20 week, as drive-by action took hold in a market that is revving its engines, according to sources.

One investment banker late Monday even suggested that given the present circumstances issuers may even be grappling with the temptation to be aggressive with investors with regard to the interest rates that they will pay.

Earlier in the session another sell-side source insisted that the present high-yield primary market is just about everything an issuer could want.

"The 10-year note is now trading at 4.08%," the source said on Monday morning.

"You can't get much better than that. Anyone who expects the 10-year note to drop below four is a little too aggressive, I think.

"Right now if you come, you should come to the 10-year market." the source added. "And you should come right now.

"You might end up paying a little more spread on the absolute coupon-basis. But it doesn't matter. Do it now."

EchoStar does $1 billion drive-by

The market saw $1.250 billion price during Monday's session, in two tranches from two issuers, both marketed via Monday investor conference calls and priced before dark.

EchoStar DBS Corp. priced a quick-to-market $1 billion of 6 5/8% 10-year senior notes (expected Ba3/confirmed BB-) at 99.102 to yield 6¾%, on the wide end of the 6 5/8%-6¾% price talk.

Credit Suisse First Boston and Banc of America Securities ran the books for the debt refinancing deal from the direct broadcast satellite TV service company from Littleton, Colo.

Also in quick-to-market action on Monday, Xerox Corp. priced a $250 million add-on to its 6 7/8% senior notes due Aug. 15, 2011 (Ba2/B+) at 104.25 to yield 6.108%.

The Citigroup and JP Morgan-led deal came at the rich end of its price talk 104-104.25, allowing Xerox to walk away an interest rate that is 76 basis points better than the one printed on the original notes that it sold in a $500 million issue on Aug. 5.

And more drive-bys for Tuesday

The quick-to-market action didn't stop with EchoStar and Xerox. Two more issuers marketed offerings via Monday conference calls and expect to price their deals on Tuesday.

Crystal US Holdings 3 LLC, the parent company of German industrial chemical company Celanese, plans to sell $513 million proceeds of 10-year non-call-five senior discount notes (B-) in two tranches on Tuesday.

The Banc of America Securities-led dividend funding deal is comprised of $100 million proceeds of series A notes, with price talk at 9¾%-10%. The notes will contain a three-year 35% equity clawback at their accreted value plus the coupon

In addition the company plans to sell $413 million proceeds of series B notes, with price talk of 10¼%-10½%. The series B notes will contain a 35% equity clawback, the same as series A, or a clawback for the entire tranche for the first three years at their accreted value plus the coupon.

Elsewhere price talk is 6¾% area on Frontier Oil Corp.'s quick-to-market offering of $150 million of seven-year senior notes (B2/B+), also expected to price on Tuesday.

Bear Stearns & Co. is the bookrunner for the debt refinancing deal from the Houston-based refinery operator.

One source close to the Frontier Oil deal said that 6¾% price talk for the B2/B+ deal is aggressive.

"The Treasury market is moving in the right direction," the source added. "But in the grand scheme of things it's really a question of whether people want to own 6 handle paper that is single-B rated.

"It's one thing to buy EchoStar, which is Ba3/BB- at a 6 handle [6 5/8% to yield 6¾%]," added that source.

Loehmann dresses for the road

One roadshow start was heard during the session.

The roadshow started Monday for Loehmann Capital Corp.'s $110 million of seven-year senior secured notes in two parts. Jefferies & Co. has the books on the deal, which is expected to price on Sept. 30.

The company, a Bronx, N.Y.-based upscale specialty retailer for women, will offer fixed-rate and floating-rate notes, with tranches sizes to be determined.

And finally, Prospect News learned that Cooper Standard Automotive has plans to sell $400 million of bonds to help the fund the LBO of the company by an entity formed by The Cypress Group and Goldman Sachs Capital Partners.

The $1.165 billion is expected to close in the fourth quarter.

Deutsche Bank, Lehman Brothers, Goldman Sachs & Co. and UBS Investment Bank will be the joint bookrunners for the deal from the Novi, Mich.-based manufacturer of automotive fluid handling, body sealing, and vibration control systems.

Xerox steady in trading

The Echostar deal priced too late in the session for aftermarket trading.

Xerox's new add-on 6 3/8% senior notes due 2011, which priced at 104.25, were seen anchored to that spot when they were finally freed for secondary dealings, at 104.25 bid, 104.5 offered.

A trader saw the new Vanguard Health bonds which priced Friday as having moved on up in Monday's dealings.

"The bonds were better offered on Friday, but better bid [Monday] morning," he said, quoting the Nashville, Tenn.-based healthcare facilities operator's new zero-coupon senior discount notes due 2015 as having moved up to 59 bid, 59.5 offered from Friday's issue price at 57.713. Meanwhile, its 9% notes due 2014, which priced at par, firmed to 101.75 bid, 102.25 offered.

"The market feels firm once again, and stuff is trading better," he said, in explaining the rise in the Vanguard bonds.

Celanese bonds dip

He also said that Celanese AG's recently priced 9 5/8% senior notes and 10 3/8% subordinated notes were lower, after the German-based chemicals manufacturer announced that it was doing a $500 million dividend deal. He pegged both issues, which had been sold in June, as trading down to about the 107 bid level from prior levels around 108 bid, 108.75 offered.

"They [sponsor Blackstone group] are taking a lot of equity out of the company after six months of operating" he said, between the $500 million dividend deal and a prior $250 million preferred deal. "That could raise a lot of questions on the conference call, and the people [investors] are not pleased - but they have the ability to do it, so they're doing it."

He said there "seems to be good buyers" in that 106.5-107.5 context.

B/E takes off

Back among the established issues, B/E Aerospace's bonds were heading skyward on the news that the company will sell 13.5 million shares - plus an additional 2.025 million share greenshoe option to be granted to the underwriters - and will use the anticipated $130 to $150 million proceeds (based on current prices for the shares, which closed Monday at $10.32), plus $50 million cash on hand, to take out some or all of the company's 9½% notes.

Those notes were seen by a market source as having pushed up to 105.125 bid from 102.25 previously. He also saw B/E's 8½% notes due 2010 improve to 109.5 bid from 108; its 8 7/8% notes due 2011 go to 100.5 bid from 98.75; and its 8% notes due 2008 finish at par up from 98.25.

Rogers falls on Microcell acquisition

On the downside, Rogers Wireless Communications Inc.'s bonds were lower, after the Canadian-based telecom operator said that it would acquire rival Canadian cell-phone carrier Microcell Telecommunications Inc. for US$1.04 billion.

It was the second billion dollar-plus acquisition in as many weeks for Rogers, which last week said that it would buy back the 34% stake of its shares currently held by AT&T Wireless for US$1.33 billion.

That earlier deal sent the company's bonds lower - especially after several ratings agencies warned about the debt and leverage consequences - and the latest deal likewise was a drag on the bonds.

The company's 6 3/8% notes due 2014 were quoted "down a couple of points," a trader said, pegging its 6 3/8% notes due 2014 one point lower at 91.5 bid, 92.5 offered, and its 9 5/8% notes down 1½ points at 111.5 bid, 112.5 offered.

MCI bonds gain

Also on the telecom front, the news that MCI is apparently shopping itself around was seen by several traders as having pushed the company's bonds up.

One quoted the 5.908% notes due 2007 at 99 bid, the 8.688% notes due 2009 at 96 bid, and the 7.735% notes due 2014 at 94 bid, which he called "up a little," about a quarter to a half point, in "active trading, on pretty good size." But he said that the bonds "are not going to go up a lot," with the short notes practically at par already.

Another trader saw the 10-years at 94.75 bid, 94.875 offered, up half a point.

"We couldn't give those bonds away on Friday," he said, noting that they now were "definitely" trading up.

Another trader, however, saw those MCI bonds actually off from their prior levels, with the three-year off half a point at 99.5 bid, the five-year also down a half at 96.25 bid and the 10-year maybe a quarter-point down at 94 bid, 94.5 offered.

"My sense was there was better sellers [Monday]. We saw two or three different sellers."

It was his theory that the sellers were coming out because the $6 billion target valuation the news reports put on the company was "much less than they originally thought," quoting an $8 billion figure from earlier in the year.

Not only is the company's valuation now less than it had been before, he said, but "their cash flow is going down" amid tough competition in the long-distance market, which has seen long-distance service priced like an increasingly cheap commodity as more players, including resellers and formerly restricted regional Bell operating companies get into the business.

He noted that when MCI emerged from bankruptcy earlier in the year, its shares were trading at $25 - and it now trades at $17, "so selling the company for $6 billion means investors will take a significant hit" versus its former valuation.

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