L-3 to bring $1 billion deal; AK Steel gains ahead of earning

By Paul Deckelman and Paul A. Harris

New York, July 25 - With Sungard Data Systems Inc. already scheduled to price $1.25 billion of new bonds at mid-week, another blockbuster mega-deal emerged from the technology sector Monday as L-3 Communications Inc. announced plans to sell $1 billion of new high-yield bonds and $500 million of new convertible debt to fund its pending purchase of Titan Corp. Roadshow details also emerged on several other prospective deals, including Acco Brands Corp.'s 10-year note offering.

In the secondary arena, bonds of AK Steel Corp. were seen up about a point, ahead of the Middletown, Ohio-based specialty steelmaker's scheduled release Tuesday of its second-quarter results.

Also higher was Maytag Corp.'s bonds, after would-be suitor Whirlpool Corp. sweetened its takeover proposal by $1 a share and Maytag backed away - a little - from its previously skeptical stance about the offer from its larger rival.

Overall a high-yield source marked the market down an eighth of a point on Monday, as both Treasuries and the stock market slid during the opening session of the July 25 week, and crude oil prices notched up.

The source suggested that investors might be making room for the massive SunGard Data Systems, Inc. $1.25 billion bond deal - which some say will likely grow - scheduled to price on Wednesday.

"Activity was slow at best," the source commented in a late-Monday email message to Prospect News.

"But the SunGard deal seems to be heating up," the source added.

"The book is oversubscribed and doesn't close until 4 p.m. [ET] on Tuesday."

L-3 brings a billion

No issues priced Monday in the primary market, according to sources. However the forward calendar, maligned by some late last week as already slipping into its late-summer torpor, gathered some momentum with the beginning of the final week of July 2005.

L-3 Communications announced that it will hold an investor conference call at 12 p.m. ET Tuesday for its $1 billion offering of 10-year senior subordinated notes (Ba3/BB+/BB).

The New York City intelligence technology company's acquisition-related deal, led by Lehman Brothers and Banc of America Securities, is expected to price on Wednesday.

Also, as expected, Acco World Corp. stepped into the light on Monday.

Acco, a Lincolnshire, Ill.-based supplier of branded office products, announced that it will start a roadshow Wednesday for its $350 million offering of 10-year senior subordinated notes (B2/B).

Citigroup and Goldman Sachs & Co. are joint bookrunners for the deal, which is related to Fortune Brands Inc.'s spinoff of Acco, and the merger of Acco with General Binding Corp. to form a new entity called Acco Brands.

Finally Cardtronics, Inc., a Houston-based ATM machine operator, announced it will begin a roadshow Tuesday for its $150 million offering of eight-year senior subordinated notes (B-), via Banc of America Securities.

Proceeds will be used to repay bank debt.

A $2.5 billion week

Following last week's lackluster issuance, in which only three dollar-denominate tranches totaling $650 million priced, one market source suggested Monday that the final week of July could go $2.5 billion or better, given that the above-mentioned L-3 $1 billion deal is thrown into the mix with the already massive SunGard $1.25 billion.

Since shortly after it launched sources have told Prospect News that SunGard would like to raise more than $1.25 billion. Late last week a buy-side source said that $1.5 billion appears likely, and estimated that the deal could go as high as $2 billion.

The bookrunning team is comprised of Deutsche Bank Securities, JP Morgan, Citigroup, Goldman Sachs & Co., Morgan Stanley and Banc of America Securities.

The $11.3 billion SunGard LBO financing contains a $3 billion high yield bridge, with sources estimating that whatever SunGard does not raise with this pass at the junk market it will return for at a later date.

Bringing the week's planned issuance slightly closer to the $2.5 billion mark is FTI Consulting Inc.'s $175 million offer of eight-year senior notes (Ba2/B+), now on the road via Goldman Sachs & Co. and Banc of America Securities.

Pricing is expected on Thursday.

L-3 existing bonds around unchanged

The impending deal for L-3 didn't seem to have much impact on the company's existing bonds.

While a market source said that its 7 5/8% notes due 2012 and 5 7/8% notes due 2015 were each down nearly a point in the early going to bid levels around 106 and 96, respectively, by the end of the session, other traders said the bonds were essentially unchanged.

One saw the 7 5/8s up perhaps a quarter point from Friday's levels, closing at 106.5 bid, 107.5 offered, while the 5 7/8s were steady at 96 bid, 97 offered.

Another trader pronounced the bonds as "pretty much unchanged," with the 5 7/8s maybe half a point better at 96 bid, 97 offered, and the 7 5/8s unmoved at 105.5 bid, 106.5 offered.

AK Steel gains before earnings

AK Steel's 7¾% notes due 2012 were seen by a trader as having firmed to around 93.5 bid from prior levels around 91, one of the few features in what he termed an otherwise "extremely quiet market." AK is scheduled to report second-quarter results and hold a conference call Tuesday morning.

At another desk, a source saw those 73/4s up about a point on the day, at 92.5 bid, 93.5 offered, and saw the company's 7 7/8% notes due 2009 also a point better, at 95.5 bid, 96.5 offered.

Yet another trader saw the 73/4s at 93 bid, 93.5 offered, and opined that "this was the one that was being quoted the most," with relatively little action seen in the 7 7/8s, which he saw at 96.5 bid, 97 offered.

Another market source estimated the 73/4s at 93 bid, 95 offered, up 1½ points on the session.

Wall Street analysts are looking for the company to report earnings per share of anywhere between 34 cents and 40 cents, with the mean estimate around 38 cents.

Xerox little changed on results

Also on the earnings front, Xerox Corp. reported second-quarter results Monday, but the results were a mixed bag and the Stamford, Conn.-based copier and office machines giant's bonds were not much changed on the numbers.

A trader quoted the company's 7 5/8% notes due 2013 at 107.25 bid, 108 offered, up from earlier levels around 106 bid, 106.75.

"They were basically unchanged to maybe a touch lower," he said. "It looks like they opened lower, and came back to end near Friday's close - but not all the way back."

Another trader saw the bonds "pretty much unchanged, with the 7 1/8% notes due 2010 at 106 bid, 107 offered, the 6 7/8% notes due 2011 at 105 bid, 106 offered, and the 8% notes due 2027 at 103.75 bid, 104.75 offered.

A market source saw the 7 5/8s at 107.25, estimating that to be down nearly a point on the session.

Xerox's earnings for the second quarter ended June 30 more than doubled - to $408 million (40 cents per share), well up from $187 million ( 21 cents per share) a year ago, excluding preferred dividend payments - but they fell short of Wall Street's expectations. Excluding items such as a tax gain and restructuring charges, earnings from continuing operations were about $210 million (20 cents per share), while analysts were looking for 23 cents.

Xerox also forecast third-quarter earnings of 16 cents to 18 cents per share, or 17 cents to 19 cents per share excluding a restructuring charge - both well off analysts' expectations of 22 cents per share.

Xerox, however, does expect a strong second half, citing the impact of new products, and said it will meet its previously announced full-year net earnings guidance of $1.04 to $1.14 per share - but the company also said the earnings would likely come in at the low end of that range.

Maytag higher on better Whirlpool bid

Maytag's 5% notes due 2015 were seen having firmed smartly on the weekend news that Whirlpool had upped its cash-and-stock offer for the Newton, Iowa-based appliance maker by $1 per share to $18 - and that Maytag, while not fully embracing Whirlpool, seems a little less chilly and skeptical toward its offer - raising the possibility of a real deal that might trump the lower Ripplewood Holdings offer for Maytag that the company's board has already endorsed.

A trader saw Maytag's notes as "a touch stronger," at 92 bid, 93 offered, up from 90 bid, 92 offered at the opening Monday, and well up from 88 bid, 89 offered at Friday's close.

Another trader saw the bonds at a "kinda wide" 92 bid, 94 offered, up from prior levels in the upper 80s.

Whirlpool announced late Friday that it would up its offer to $18 from $17, and said it was making a "final request" that Maytag consider its bid. Maytag had earlier said that it could not determine whether the original offer might result in a superior deal to New York investment firm Ripplewood's - a key condition of Maytag's Ripplewood agreement that would let it talk to another potential suitor. Ripplewood - which would be owed a $40 million breakup fee if its deal with Maytag were not consummated - previously allowed Maytag to hold talks with a group fronted by Chinese appliance manufacturer Haier and backed by buyout shop Bain Capital, but that consortium last week withdrew its $16 per share offer just before due diligence would have been completed - leading some skeptics to surmise that Haier had uncovered something during the process that suddenly cooled its ardor for Maytag, and to speculate that the same might happen if Whirlpool is allowed to look at the books.

For the moment, though, Maytag is still playing somewhat hard to get. While it now acknowledges that the Whirlpool deal "may reasonably be expected" to result in a transaction superior to the Ripplewood deal - an important step if it is to, in fact, enter into negotiations with its larger Benton Harbor, Mich.-based rival - Maytag still refuses to go all the way, raising questions about whether Whirlpool was prepared to foot the cost of the $40 million breakup fee that would be owed to Ripplewood if the latter backs out because of Whirlpool, and questioning Whirlpool's assertions that the proposed combination of the largest U.S. appliance maker with the third-largest would be able to pass muster with federal anti-trust regulators.

Maytag further said that there were uncertainties as to the timing of completion of Whirlpool's proposal, the valuation of any stock consideration, Whirlpool's due diligence process and mechanisms to address regulatory risks.

It said that it wants to see some answers to these concerns before sharing "competitively sensitive" information with Whirlpool.

Even though Whirlpool, in announcing its improved offer, had termed it "final" and seemed to lay down a take-it-or-leave-it ultimatum in demanding a satisfactory answer from Maytag by Sunday evening, the company said Monday of Maytag's lukewarm response that "it behooves us to fully analyze" it.

Whirlpool also disclosed in its letter to Maytag chief executive officer Ralph Hake that it is willing to discuss "reasonable mechanisms" to address Maytag's concerns about antitrust issues, including paying a $40 million breakup fee for Maytag to sever the Ripplewood deal as well as a reverse breakup fee that would be payable to Maytag should the Whirlpool deal fall through.

Delta falls

Out of the distressed debt market came word that Delta Air Lines Inc.'s bonds were lower, - particularly the 7.70% notes due 2005 - after the troubled Atlanta-based carrier's CEO, Gerald Grinstein, warned on Monday that Delta was in dire need of federal pension reform in order to avoid bankruptcy - but also said that even with a pension fix from Congress, Delta's road is still rocky and uncertain, due to sky-high fuel prices.

A trader saw the 7.70s swoon to 75 bid, 77 offered from prior levels at 83 bid, 85 offered. At another shop, a trader saw a slightly less drastic fall, to 75 bid, 77 offered from about 80 bid on Friday.

Delta's other bonds were also lower, although since they are all trading at much lower levels and don't have as far to fall, none were down as much as the '05s.

"The 7.70s are the only ones really getting hit," a trader said. "It's a matter of compression. If people think they're going into bankruptcy, those bonds are going to fall to around the same levels in the 20s and the 30s its other bonds are trading at."

He saw the company's 10% notes due 2008 drop to 31 bid, 33 offered from 35 bid, 37 offered, while its 7.90% notes due 2009 dipped to 28 bid, 30 offered from 30 bid, 32 offered previously. Delta's 8.30% notes due 2029 ended at 23 bid, 24 offered, down from 24 bid, 26 offered.

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