Alltel zooms on reported Verizon deal, Rite Aid tender issues jump; Airgas new deal to pay down revolver

By Paul Deckelman and Paul A. Harris

New York, June 4 - News reports that Alltel Corp. was in talks to be acquired by larger rival Verizon Wireless sent the Little Rock, Ark.-based telecommunications company's bonds soaring on Wednesday, with traders quoting them up anywhere from 10 to 15 points. There was also brisk activity seen in Sprint Capital Corp. bonds, which ended slightly higher.

The other big gainer on the day was Rite Aid Corp. - though the gains were pretty much limited to the three issues that the Camp Hill, Pa.-based drugstore chain operator announced that it would take out via a tender offer.

Elsewhere, Residential Capital LLC's bonds were seen a little better, helped by the news that the troubled mortgage company had completed its exchange offer aimed at taking out a big chunk of its bond debt, and the companion announcement by corporate parent GMAC LLC that the two companies had completed financing transactions totaling some $60 billion aimed at countering ResCap's much-publicized liquidity problems, while giving its parent adequate capital for its own operations. However, GMAC's bonds were seen not much changed.

On the downside, Lear Corp.'s bonds were lower after the Southfield, Mich.-based automotive interior component manufacturer lowered its full-year earnings outlook, in line with declining sales by Detroit's Big Three, Lear's core customer base.

Quiet primary

The primary market continued to pay out news in mean amounts on Wednesday.

Airgas, Inc. will host an investor call at 11 a.m. ET on Thursday for a $350 million offering of 10-year senior subordinated notes (Ba2/BB+), which the Radnor, Pa.-based gas distributing company expects to price before the Thursday close.

Banc of America Securities, Goldman Sachs and JP Morgan are joint bookrunners for the debt refinancing deal.

Proceeds will be used to pay revolving credit facility debt.

Meanwhile Cenveo Corp. set price talk for its $175 million offering of eight-year senior unsecured notes (expected B2/confirmed BB-) at 10½% to 10¾%.

That deal is also expected to price Thursday.

Lehman Brothers has the books for the bridge refinancing related to the Stamford, Conn.-based commercial printing company's acquisition of Commercial Envelope Manufacturing Inc.

A high yield syndicate official said that presently the primary market is very situation-specific.

"There are still some guys who need to come," the official said.

"But people seem to be taking a pause right now due to weakness in the secondary market."

A big flip

Elsewhere the markets buzzed with reports that Verizon Wireless is in talks to acquire Alltel Corp. in a deal estimated at $27 billion.

One source reminded that Prospect News High Yield Daily primary market desk that Little Rock, Ark.-based Alltel, was taken private late last year in a $27.5 billion deal led by private equity firms TPG Capital and GS Capital Partners.

Debt financing for that transaction included $7.7 billion of senior notes in cash-pay and PIK toggle tranches, and $14 billion of bank debt.

Market sources consider at least a portion of that debt financing to be part of the LBO backlog, $100 billion to $150 billion of which the underwriters are believed to continue to labor beneath.

Citigroup, Goldman Sachs, Barclays Capital and RBS Greenwich Capital were leads on the Alltel bonds.

Existing Airgas, Cenveo bonds little changed

A trader said that the news that Airgas will be doing a deal had little or no impact on the company's existing 6¼% notes due 2014, which "don't trade much." He said the bonds had recently been seen around par and "they trade pretty tight.

"If you can find offers, they trade - but they just don't come out very often. People sock 'em away and keep 'em."

He noted that the company's bonds are rated BB+, "so that's just a good deal; if you can get bonds, there are buyers."

He meantime saw Cenveo's existing 7 7/8% notes due 2013 - issued back when the company was known as Mail Well Corp. - "not much changed since they announced" that the company was doing a deal, trading around an 86-88 context.

New Ply Gems, Iron Mountains slip a little

A trader saw the new Ply Gem Industries, Inc. 11¾% secured notes due 2012, which priced at 99.072 on Monday, and which then hung around that issue price on Tuesday, "a littler softer" at 98.25 bid, 98.625 offered. A second trader called the Cary, N.C.-based building products manufacturer's new bonds 98.125 bid, 98.625 offered, while a third had them at 98.25 bid, 99 offered.

One of the traders saw the new Iron Mountain Inc. 8% senior subordinated notes due 2020, which priced at par on Monday and then held around that level Tuesday, straddling it on Wednesday at 99.75 bid, 100.25 offered. Two other traders saw the Boston-based document storage and disposal company's new bonds slightly easier at 99.5 bid, par offered.

A trader quoted the new Scientific Games International Inc. 7 7/8% senior subordinated notes due 2016, which also priced at par on Monday but then pushed as high as a 100.375-100.625 range, a little lower, at 99.75 bid, 100.5 offered. However, another trader pegged the bonds higher, at 100.75 bid, 101 offered.

Market indicators continue retreat

Back among the established issues, a trader said, the widely followed CDX junk bond performance index was unchanged at the level to which it had fallen on Tuesday, quoting it at 96¼ bid, 96¾ offered. The KDP High Yield Daily Index meantime fell 14 bps to 75.23, while its yield widened by 5 bps to 9.42%.

In the broader market, advancing issues trailed decliners by a slight margin. Activity, represented by dollar volume levels, rose nearly 13% from Tuesday's levels.

A trader saw "an easier tone today, that's for sure."

Alltel is all right

But not for Alltel's bonds, which moved up dramatically after CNBC and The Wall Street Journal separately reported - and other news outlets then repeated - that Verizon Wireless is in talks to acquire Alltel for around $27 billion.

A trader saw Alltel's 7% notes due 2012 get as high as 100.25 bid, with the last round-lot sale at 99; on Tuesday, they were "consistently" in an 88.25-88.5 context.

He saw the 7% notes due 2016 push up to 95.75 bid from about 79.5 on Tuesday, while its longer dated issue, the 7 7/8% bonds due 2032, jumped to 91 on Wednesday from 73.25 on Monday.

Another trader likewise saw Alltel's 6.80% bonds due 2029 up 15 points on the day at 82 bid, 84 offered.

A market source marked the 7% notes due 2012 up some 10½ points on the day at 99, in heavy trading.

The first trader said that he was "surprised that [Alltel's paper] is not even higher, being that Verizon is an investment-grade credit," and Alltel's own ratings are likely to be raised by the major ratings agencies to match Verizon's once the deal is completed.

"Of course, it's not a done deal." he allowed, "and we don't know the specifics of what Verizon plans on doing with this debt - but 95 for Verizon on a piece of paper seems cheap."

The combination of Verizon Wireless, currently the second-largest U.S. cellular phone operator, with Alltel, should the deal go though, would create the largest U.S. cellular phone company, serving some 80 million subscribers. It would vault runner-up operator Verizon ahead of its for-now larger rival, the industry-leading AT&T/Cingular, which has about 71 million customers. Individually, Verizon serves about 67 million subscribers, while Alltel - currently Number Five, behind Sprint Nextel and T-Mobile - has about 13.2 million customers concentrated in the South and the Midwest.

If such a deal occurs, it would be the second acquisition of Alltel within a year; the formerly public company was taken private last fall in a roughly $25 billion debt-funded buyout by a syndicate led by TPG Capital and GS Capital Partners.

Verizon could realize annual savings of as much as $1 billion by purchasing Alltel, analysts believe, since it currently pays roaming charges totaling in the hundreds of millions of dollars for placing calls on Alltel's 35-state network.

The Department of Justice and the Federal Communications Commission would need to approve any merger.

Sprint bonds remain active

Sprint Nextel, a sector peer of both Verizon and Alltel, remained an object of interest in the junk market Wednesday, with several series of its bonds seen as very actively traded.

A market source saw the Overland Park, Kan., wireless provider's Sprint Capital Corp. financing arm's 6 7/8% bonds due 2028 up 1½ points at 81.5 bid.

Another source saw those bonds up about a point at 81, while its 7 5/8% notes due 2011 were ½ point better at 98, both in very busy dealings. The parent company's 6% bonds due 2016 were seen having nudged up slightly to 83.25, also on very brisk volume.

Rite Aid tender a remedy for bonds

Elsewhere, three issues of Rite Aid's bonds traded solidly higher after the Number-Three U.S. pharmacy chain announced that it would tender for them - the 8 1/8% senior secured notes due 2010, the 9¼% senior notes due 2013, and the 7½% senior secured notes due 2015.

A trader said that it was "just one of those things where the ones that [are being tendered for] traded right up to the tender [price]," although in the case of the 71/2s, they pushed up from around the 95 mark pre-news to about 109. That issue is the lone one of the three for which Rite Aid did not announce a firm price, saying instead that the price would be determined later on, based on a fixed spread over the yield of a designated reference security on the pricing date. He estimated that would work out to a price around 112, and suggested that the bonds were hanging back just a little because "there's a little bit of risk. They don't trade right up to the tender on something like that. It's close - but they have to get the financing to get it all together, so depending on what deal it is, they'll trade 2 to 3 points off the tender, which is what these did."

Another trader speculated that the take-out price for those bonds would be around 110, and quoted them trading up 15 points on the day to 107.

The first trader saw the 8 1/8% notes due 2010 trading up to 102, about where they are scheduled to be taken out. He said the bonds only rose "a couple of points" because they were already trading around par. He also saw the 9¼% bonds trading at 99, just below the par total consideration announced for the tender.

Another trader noted that the 91/4s - which he saw at 99.75 bid, par offered in round-lot trading - had been trading "just two days ago" around 84.5 bid, "so that that's a good 15 or 16 point gain."

But Rite Aid's strength seemed to all be concentrated in the three issues that are being taken out. A market source saw the company's 8 5/8% notes due 2015, which are not being taken out in the tender offer, down 2½ points on the day to end at 76.5.

ResCap rises on exchange, funding completion

Residential Capital's bonds were quoted a little higher - but not overly much - as the troubled Minneapolis-based mortgage provider announced the expiration of its previously announced tender offer and exchange offers for $14 billion face amount of its outstanding bonds, and, along with corporate parent GMAC, also announced the completion of a series of financing transactions aimed at solidifying the balance sheets of the two companies.

A trader saw ResCap's 6½% notes due 2013 up a point to 48 bid. Another trader saw ResCap's 8 5/8% notes due 2010 firm a little to 89.5 bid, 90.5 offered and its 9 5/8% notes due 2015 at 59 bid, 60.25 offered.

But he saw corporate parent GMAC's 8% bonds due 2031 unchanged around 74 bid, 75 offered. Another trader saw the GMACs at that level but called them up ½ point.

Another trader saw its ResCap's 6 1/8% notes coming due later this year offered at 92.5, which he called up ¼ to ½ on the day.

But another trader, while seeing those bonds up 1½ points on the session, had them going home at 88 bid, 90.5 offered.

ResCap announced that holders of some $2.6 billion principal amount of bonds scheduled to mature this year and next, or 80% of the total outstanding, had tendered their notes under the offers, which had been extended by nine hours to Wednesday morning from Tuesday night and which expired when the new deadline was reached. Some of the 2008 bonds are being purchased for cash; the rest, plus the 2009 bonds, will be exchanged for new notes due 2010. It also said that about $6 billion in notes due between 2010 and 2015, or about 63% of the outstanding amount, were tendered and will be exchanged for new debt due in 2015

ResCap plans to issue about $5.7 billion total principal amount of the two new series of bonds, which will carry a higher coupon than the bonds they are replacing, in exchange for the longer maturities.

The debt exchange - which cut the principal amount of ResCap's outstanding bonds by around $3 billion - was one of a number of financing transactions the beleaguered company has undertaken in order to try to bounce back from the credit crunch and restore its financial health.

ResCap and GMAC jointly announced Wednesday that they had completed a more than $60 billion refinancing and funding package for the two companies. That package includes the tender offer and debt exchange, as well as several transactions totaling nearly $3 billion announced Tuesday by GMAC and its 51% owner, Cerberus Capital, which are aimed at bolstering ResCap's liquidity. GMAC and ResCap also either obtained new credit lines or renegotiated the terms existing loans with their more than 50 domestic and international lenders. GMAC obtained a new $11.4 billion secured, three-year revolving credit facility, and a renewed a $10 billion, one-year commercial paper back-up facility, while ResCap extended "substantially all" of its $11.65 billion of bilateral bank facilities and obtained a new $2.5 billion whole loan repurchase facility.

Lear bonds lower on lowered expectations

Bonds of GMAC's 49% owner, General Motors Corp., were seen pretty much unchanged on the session, GM's 8 3/8% benchmark bonds due 2033 steady at 67 bid, 68.5 offered, a trader said.

But component supplier Lear's 5¾% notes due 2014 were down 2 points on the session at 80 bid. The company said Wednesday that it expects its 2008 sales to total about $15.3 billion - down from its previous projection made in late April of $15.5 billion, and slightly below Wall Street's consensus expectations of about $15.35 billion for the year.

Lear - citing the slowdown that continues to choke the domestic automotive industry as well as higher costs for steel and other raw materials - also cut its forecast for core operating earnings to a range of $600 million to $640 million, down from its previous forecast of operating earnings between $660 million and $700 million.

Also seen lower was American Axle & Manufacturing Holdings Inc., one of the auto parts suppliers likely to be hurt by GM's move, announced Tuesday, to sharply cut its production of pickup trucks and sport-utility vehicles in response to weak sales.

A market source saw American Axle's 7 7/8% notes due 2017 a little below 82, down more than a point on the session.

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