R.H. Donnelley prices $2 billion-plus mega-deal; GM bonds off after CEO's presentation

By Paul Deckelman

New York, Jan. 13 - R.H. Donnelley Corp. brought a massive three-part offering of more than $2 billion of senior notes and discount notes to market Friday to close out a busy week for the high yield primary sector, activity that was in sharp contrast to the prior week, when no deals were seen having priced.

Also pricing was another big deal - though this one was denominated in euros - for Fresenius AG, which sold €1 billion of seven- and 10-year notes.

In a mostly quiet secondary market - where trading hours were abbreviated heading into the three-day holiday weekend ahead of Monday's Martin Luther King Jr. Day federal holiday market closure - General Motors Corp. bonds and those of GM's financial arm, General Motors Acceptance Corp., were seen heading lower, after a presentation by the beleaguered automotive giant's chief executive officer apparently failed to convince the financial community that GM is nearing its goal of selling a majority stake in GMAC. Other automotive bonds - which have suddenly gone cold after a red-hot first week of the year - were also seen mostly lower.

The Donnelley deal, traders said, seemed to be the main focus of almost everyone who actually came in to work Friday, which saw a 2 p.m. ET close ahead of the holiday weekend.

The Cary, N.C.-based -based Yellow Pages publisher and directional media company sold 10-year senior notes and seven-year discount notes having a total face value of $2.235 billion, although combined proceeds from the offering add up to slightly more than $2.142 billion.

It priced $1.21 billion of 8 7/8% senior notes due Jan. 15, 2016, at par, right in the middle of pre-deal market price talk suggesting a yield of between 8¾% and 9%.

There were also two tranches of 6 7/8% senior discount notes due Jan. 15, 2013, carrying identical terms, which priced at 90. 981 to yield 8 5/8%, in the middle of price talk of 8½% to 8¾%.

Donnelley took the unusual course of splitting the discount notes portion of the deal into two parts despite their identical terms due to the different uses it plans for the proceeds.

Proceeds from smaller tranche ($365 million face amount, $332.08 million proceeds) will be used to help fund the repurchase of all of the company's outstanding shares of convertible preferred stock while the proceeds from the larger tranche ($660 million face amount, $600.474 million proceeds) will be combined with those from the sale of the 10-year notes and used to help fund the cash portion of the company's pending $4.2 billion cash-and-stock acquisition of rival phone directory publisher Dex Media Inc., as well as for general corporate purposes.

The deal was brought to market by underwriters led by joint bookrunners JP Morgan, Bear Stearns & Co. and Credit Suisse.

Credit Suisse was also in the thick of the day's other big deal, keeping the physical books for Fresenius' billion-euro two part deal. Joint bookrunning manager Morgan Stanley and joint lead manager Dresdner Kleinwort Wasserstein also played a role at bringing in the deal.

Fresenius sold €500 million of 5% senior notes due 2013, which priced at 99.541 to yield 5.078%. The notes priced right at the revised price talk of a spread of 181.5 basis points over mid-swaps, which had been tightened from the previous guidance of 187.5 bps to 200 bps over swaps.

The company also sold €500 million of 5½% senior notes due 2016, which priced at 99.314 to yield 5.59%, or 219 basis points over mid-swaps, in line with talk that the 10 years would price 37.5 bps behind the seven years.

Fresenius, a Bad Homburg, Germany-based integrated provider of kidney dialysis products and services, plans to use the deal proceeds to fund its acquisition of Helios Kliniken GmbH, to fund its tender for its €300 million 7¾% notes due 2009 and for general corporate purposes.

Apart from the deals that actually priced - which brought the week's total junk issuance from eight issuers to $3.835 billion and €1 billion - two more deals were heard about to hit the road for marketing campaigns.

Ineos, CRC start marketing

British petrochemical company Ineos Group Holdings plc will begin a roadshow Monday in London for a huge deal - €3.105 billion equivalent in dollar- and euro-denominated senior notes.

The four-tranche deal will first be marketed in Europe and will then come to the United States for a roadshow beginning Jan. 23.

Merrill Lynch, Barclays Capital and Morgan Stanley will be joint book runners on the offering, the proceeds of which will be used to partly fund Ineos' purchase of a subsidiary of British Petroleum, as well as to refinance existing debt.

Also hitting the road on Tuesday will be CRC Health Corp., a Cupertino, Calif.-based owner and operator of residential and outpatient addiction treatment facilities, which will be promoting its $220 million offering of 10-year senior notes.

That offering is expected to price on Jan. 25 via joint bookrunners JP Morgan, Merrill Lynch, Citigroup and Credit Suisse.

Proceeds will be used to repay debt in connection with the acquisition of the company by Bain Capital from North Castle Partners.

And high yield syndicate sources said that DRS Technologies Inc., a Parsippany, N.J.-based provider of technology products and services to defense, government intelligence and commercial customers, is expected to price its $575 million two-part offering of notes late in the week via bookrunner Bear Stearns.

The company is offering a $325 million tranche of 10-year senior notes and a $250 million tranche of 12-year senior subordinated notes. It plans to use the deal proceeds to help fund the acquisition of Engineered Support Systems Inc., a St. Louis-based diversified supplier of integrated military electronics, support equipment and technical services.

Donnelley up in trading

When the new R.H. Donnelley bonds were freed for secondary market dealings, they were well-received.

A trader saw the new 6 7/8% senior discount notes due 2013 having pushed up to 92.25 bid, 92.75 offered from their issue price of 90.981, while the new 8 7/8% senior notes due 2016, which priced at par, had firmed to 101.375 bid, 101.875 offered.

"There really wasn't a lot going on," another trader said. "Most people were focusing on the Donnelley deal. It was a pretty quiet day."

Among other new issues which had made their debut during the week, he saw Quebecor Media Inc.'s 7¾% notes due 2016 continuing to shine, holding to the 101.625 bid, 101.75 offered level to which the Canadian communications company's new bonds had risen shortly after pricing at par on Wednesday.

"They were a couple of times oversubscribed, and shot right up out of the gate," he said.

The only other recent issue he had seen was Westlake Chemical Corp.'s 6 5/8% notes due 2016, which priced last Tuesday at 99.674. The bonds were not much better on Friday, he noted, at 99.875 bid, 100.25 offered.

The first trader said that in general, the recent new issues were not much changed over the past session or so, with the Westlake bonds at 99.745 bid, 100.25 offered, and Quebecor at 101.5 bid, 102. He also saw Allis Chalmers Energy Inc.'s new 9% notes due 2014, which priced late Thursday at par, unchanged at par bid, 101 offered.

Meantime, Nevada Power Co.'s 5.95% notes due 2016 at 100.25 bid, 101.25 offered, up from their 99.741 price earlier in the week. Inergy LP's 8¼% notes due 2016 were steady at 100.5 bid, 101.25 offered, up somewhat from their par issue price. Amerigas Partners LP's 7 1/8% notes due 2016, which had also priced at par, languished slightly below their par issue price at 99.5 bid, 100.5 offered.

GM dips after presentation

Back among existing issues not impacted by new-deal considerations, GM's bonds were lower, a trader said, after CEO Rick Wagoner spoke to analysts in Detroit, trying to sell them on the efficacy of the world's largest carmaker's turnaround efforts, including its plans for the GMAC sale.

"People were looking for a little more conviction as to what's going to happen with the selling of the GMAC stake - and I don't think he gave it," the trader said.

"It didn't sound like he had any language in his comments that indicated that a deal would be made - in fact, he used the word 'possible,' which doesn't bode well for people [looking for definitive word on a GMAC stake sale], and even if he didn't say anything, I think we still would have been down on the day because people were looking for a little bit more positive tone."

He saw the GM benchmark 8 3/8% notes due 2033 at 68.5 bid, 69.5 offered, down 1½ points on the session, while the GMAC 8% notes due 2031, which had traded at 101 bid, 102 offered before Wagoner's remarks, headed down to around 99.5 bid, par offered, down 1½ to two points on the day.

In a research note, an analyst said that GM and GMAC combined to pull the overall junk market down a point to 1½ points, with the selling coming mostly from "levered accounts and dealers who were spooked by the comments [from Wagoner and other GM executives who spoke] about 'contingency plans' and being 'prepared to operate with or without a GMAC sale'."

The analyst said the market was probably not expecting the GM boss to use that forum to announce an actual sale of a 51% stake in GMAC, but "it was expecting to hear that the process is farther along then it appeared."

The analyst further said that "the next two weeks should be very choppy with the volatility in the parts space and heading into earnings."

GM drags down other auto names

GM's lackluster showing helped push the automotive names in general down, a trader said, with Ford Motor Co.'s 7.45% notes due 2031 down half a point at 69.5 bid, 70.5 offered, while its Ford Motor Credit Co. financial arm's 7% notes due 2013 also down a half point at 87.75 bid, 88.75 offered.

Among the parts makers, American Axle & Manufacturing, whose 5¼% bonds due 2014 retreated Thursday after the company released softer guidance for 2006, was down another half point, to 80 bid, 81 offered.

Metaldyne Corp. - whose bonds had firmed handsomely earlier in the week after the Plymouth, Mich.-based metal stamping company announced plans to sell a division for $126 million in cash and stock - was likewise easier, with its 10% notes due 2013 off ¾ point to 92.25 bid, 93.25 offered. Its 11% notes due 2012, which had seen the bulk of the appreciation initially, and then took the brunt of the fall as the whole auto sector soured during the week, were unchanged at 81.5 bid, 82.5 offered.

Dana Corp.'s 5.85% notes due 2015 were ¾ point lower at 71 bid, 72 offered, while ArvinMeritor Inc.'s 8¾% notes were off a point at 95 bid, 96 offered.

Lucent off on guidance

Outside of the autos, traders saw Lucent Technologies Inc.'s 6.45% notes due 2029 about a point lower in light trading to 84.5 bid, 85.5 offered, after the Murray Hill, N.J. -based telecommunications equipment maker lowered its fiscal 2006 revenue guidance; while it previously had expected a percentage increase over the previous year in the mid-single digits, Lucent is now expecting revenues to be flat versus 2005, or at best up on a percentage basis in the low single-digits.

Albertson's slips on sale talk

A trader said that there seemed to be some movement in the bonds -for the moment still-precariously investment-grade - of supermarket giant Albertson's Inc., after the New York Post reported that the Boise, Idaho-based company's on-again, off-again efforts to sell itself may be on again. Previously, talks with a buyout group led by Cerberus Capital ended with no deal reached - which sent the company's bonds solidly higher on investor relief that a possible debt-fueled leveraged buyout of the company would not be taking place.

He saw Albertson's 8% notes due 2031 down half a point at 96.25 bid, 97.25 offered, "about 10 bps wider on the news that they're going back and forth" on whether the company will be sold or not.

"The thought is that if there is a new deal in the works," it would be bad for bondholders "because they would be dumping debt ahead of the unsecured bonds."

He noted that the bonds had "rallied huge" in December when the Cerberus-led LBO deal fell through, "but now they're widening out on the possibility that there's a deal in the works again."

The Post story, however, was vague, attributing its information that the company is planning to restart the talks to unidentified sources, and citing "rumors" that a group of disgruntled shareholders, mostly hedge funds - have been pressuring management to restart the sale talks by "threatening to wage a proxy fight to oust board members at the company's annual meeting."

The trader did allow that the story "is not confirmed, so they [the bonds] are not getting hammered. They're only down a little bit."

The Post was reporting that the shareholders were trying to get management to ink a deal along the lines of the arrangement being talked about in December, where shareholders would be bought out at $26 per share, or about $9.6 billion total, and the buyers would assume about $6.1 billion of existing Albertson's debt to bring the value of the deal to about $15.7 billion total.

High yield retailing analyst Bob Lupo of BB&T Capital Markets in Red Bank, N.J., said that such a deal would knock the company's current Baa3/BBB- credit ratings way down. "It looks like a low-B credit, like 6.9 times levered, based upon the numbers bandied about in the press."

While he said that Albertson's, the second-largest pure supermarket operator in the United States behind Kroger Co., "has some great assets and some great pieces of that business, I figure they're going to be sold as separate businesses over time, and meanwhile you're going to have a lot of operating uncertainty, and a lot of leverage, a lot of secured debt ahead of you, and a lot of maneuverings for the secured debt to get closer to the assets than the holding company debt is, just like Toys "R" Us did it with their Delaware subsidiary." The analyst envisioned the holding company debt widening out to more than 500 basis points on any such deal.

The bottom line is that should there be a buyout deal for Albertson's that would stuff a big bag of new secured debt above the bonds, "it'll go to a low B."

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