Charter sells upsized $895 million three-part deal; new bonds firm in secondary

By Paul Deckelman and Paul Harris

New York, Jan. 8 - Charter Communications brought a solidly upsized $895 million three-part deal to market Tuesday amid considerable investor demand for the St. Louis-based cable giant's new paper. When the bonds were freed for secondary dealings, they pushed above their issue levels.

Charter's $895 million (proceeds) offering was structured in three tranches - two add-ons and $450 million (face) of new zeros. The deal, via bookrunners Salomon Smith Barney, Banc of America Securities and J.P. Morgan, was upsized from $600 million.

Louis Rieke, manager of the Waddell & Reed High Yield Fund told Prospect News on Tuesday that she was interested in the bullet tranche of the new Charter deal, the add-on to its 9 5/8% notes due Nov. 15, 2009.

"We're really going to look at everything and see how it fits with the stuff that's already outstanding," said Rieke ahead of the pricing.

"Chances are I'll probably go for the non-call piece because that's structured for CDOs (collateralized debt obligations) or insurance companies, because they're bigger buyers, and you probably get more of a pop out of that."

The add-on in which Rieke expressed an interest emerged at $350 million (face), pricing at 99.301 to yield 9 ¾%.

The $300 million add-on to Charter's 10% callable notes due May 15, 2011 priced at 99.229 to yield 10 1/8%.

As for Charter's new zeros, the senior discount notes due Jan. 15, 2012 priced at 55.493, with a yield to maturity of 12 1/8%.

"From an execution standpoint it looks like very good execution on the cash-pays," said one sell-sider, not on the deal.

"They had to cheapen up the zeros a little bit to get some investor interest," this source added. "Zeros require a premium - always have, always will."

A syndicate source would only comment that the deal went well.

Tuesday's primary market also saw news of two upcoming new deals, from Coinmach Corp. and Interface Inc.

Atlanta-based floor covering company Interface Inc. will sell $175 million of eight-year notes with pricing scheduled for Friday. And Coinmach Corp. is bringing $400 million, also of eight-year notes.

In the secondary market Tuesday, "not a lot went on," a trader said. "It was pretty slow, except for the Charter deal pricing and then starting to trade."

He added that the new Charters "traded all right" once they had been freed.

Charter's new 10% senior notes due 2011, which had priced at 99.229, moved up to 99 7/8 bid/100 1/8 offered late in the day. Its new 9 5/8% senior notes due 2009, after pricing at 99.301, finished at par bid/100.25 offered, while its zero-coupon discount notes due 2012 closed at 57 bid/57.5 offered, well up from 55.493 at pricing.

The success of the new deal was also seen as a mild spur to Charter's existing paper, with its current 8¼% notes quoted up three-quarters of a point at 95.75 bid, its 10% notes due 2009 up a quarter point at 101.25 and its 10¾% paper having moved up to 104.25 from 103.5 previously.

Among other issuers who expect to be bringing new bonds to market soon, an observer said that there had been no real movement in Xerox Corp., debt. - despite the Stamford, Conn,-based copier and office machines giant's revelation Monday that the Securities and Exchange Commission's main accounting unit disagrees with the way Xerox accounts for certain lease transactions. Investor concern over SEC scrutiny of the company's accounting practices helped to knock Xerox off its investment-grade-rated perch and into junk bond land last year, when the company was forced to restate results for 1998, 1999 and 2000. It was not immediately known what impact, if any, the latest problem - disclosed in a regulatory filing Monday - might have on its planned $500 million offering of seven-year dollar- and euro-denominated bonds.

Elsewhere, investment-grade-rated container producer Temple-Inland Inc. announced that it was pulling the plug on its planned acquisition of junker Gaylord Container Corp., after the latter's bondholders failed to satisfy minimum participation conditions contained in Temple-Inland's tender offer for Gaylord's bond debt.

One market-watcher said he had seen no movement in Gaylord's bonds, with the 9 3/8% and 9¾% senior notes due 2007 at 85 bid and its 9 7/8% senior subordinated notes due 2008 at 37 bid. But late in the session, another desk reported having seen the latter bond quoted down 13 points, to 24 bid. A trader said Gaylord's bonds had been "offered all over the place" following the news, but he said he had seen no bids. "The right side was everywhere."

While the company's stockholders had tendered some 84% of their shares to Temple-Inland, well in excess of the two-thirds minimum threshold required for the merger deal, only about $112 face amount of Gaylord's bonds had been delivered, well under the 90% participation required.

A trader saw Conseco Inc. debt "better today, up three to four points from the lows of late last week," when the Carmel, Ind.-based insurer had been jolted by the sudden resignation of the head of its troubled Conseco Finance sub-prime consumer lending unit Bruce Crittenden, and a scathing assessment by Salomon Smith Barney analyst Colin Devine. That had caused Conseco debt to drop around three or four points, to levels ranging from around 80 bid for its 10½% notes to as low as 41 bid for its 10 7/8% notes.

The company fought back on Monday, when it released a letter from a senior executive aimed at refuting the points the Salomon analyst had made in his screed.

The Salomon slam against Conseco - in which Devine flatly declared its equities "offer little, if any value" due to "myriad credit-quality challenges" - "in many respects was completely in error and has little credibility at this point" with investors, according to the trader.

"The market just chopped apart what he was saying. Conseco had been very clear on the charges they would take and the size of them at the analyst meeting they had in New York," he said.

But another trader disagreed, estimating the Conseco paper "drifted a bit lower."

Lucent Technologies Inc. debt continued to firm in the wake of the news that former company executive Patricia Russo - who had left the troubled Murray Hill, N.J.-based telecommunications equipment maker last year during a management shakeup for a high post at Eastman Kodak - had been enticed back to Lucent to take the helm as chief executive.

Lucent's 2006 notes were quoted in the 87.5-88 bid area and its long-dated debentures hovered around 68-70, "both definitely better," a trader declared.

Also thought better was Kmart Corp. Bonds, which have been on the rebound since last Thursday, when debt market players apparently came to the conclusion that bankruptcy fears raised at mid-week last week by Prudential Securities analyst Wayne Hood were overblown and not likely to be realized any time soon. The Troy, Mich.-based discount retailing giant's bonds had initially fallen sharply along with its stock on Hood's bearish predictions, but have been firming since then.

Also on the rise in tandem with Kmart is the debt of Fleming Cos., the Dallas-based grocery wholesale distributor linked to Kmart via a long-term pact to supply grocery merchandise to Kmart's nearly 2,100 stores. That's a contract which stands to rise in value as Kmart continues to roll out more of its expanded "superstores" (right now it only has about 115), which widen the variety of things sold there to include traditional supermarket fare.

Fleming's 10½% notes closed at 97 and its 10 5/8% notes ended at 94, both up one point on the session and several points total since falling to below 90 bid last week in line with the initial Kmart drop.

News that failed Enron Corp. had received formal bids for a majority stake in its core energy trading arm from Citigroup Inc., UBS AG and BP Plc failed to move its battered bonds, which have been "pretty static in the low 20s," a distressed-debt trader declared. "There was no unusual activity" in the Houston-based energy trading company's paper, which began its slide to its current low levels from former levels around par in mid-October, and which sought Chapter 11 protection from its creditors in early December.

End

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