Level 3 bonds up on exchange offer news; Omnicare prices, talk emerges on Hertz deal

By Paul Deckelman and Paul A. Harris

New York, Dec. 12 - Level 3 Communications Inc. bonds were seen up several points Monday on the news that the Broomfield, Colo.-based telecommunications company plans to exchange cash and new notes for up to $1.23 billion of existing 2008 bonds in order to extend its debt maturities.

Elsewhere, traders saw a slight easing - but nothing too worrisome - in bonds of General Motors Corp. and its General Motors Acceptance Corp. financial unit following the not-unexpected downgrading of GM's debt ratings by Standard & Poor's.

Overall sources marked the broad high-yield market unchanged on Monday.

One sell-sider commented that the primary market, which is attempting to grind its way through over $8 billion of potential issuance in the run-up to the holidays, is hogging almost all of investors' attention at present.

Among those deals, OmniCare Inc. was heard to have successfully priced a $750 million two-part offering. Meantime, price talk was heard on several upcoming issues, notably Hertz Corp.'s gigantic two part issue, which will bring nearly $3 billion to market.

Omnicare prices $750 million

Omnicare, a Covington, Ky., provider of pharmaceutical care for the elderly, sold $750 million of senior subordinated notes (Ba3/BB+) in two tranches.

The company priced a $225 million tranche of eight-year notes at par to yield 6¾%, on top of price talk.

Omnicare also priced a $525 million issue of 10-year notes at par to yield 6 7/8%, on the tight end of the 7% area price talk.

Lehman Brothers, JP Morgan and SunTrust Robinson Humphrey were joint bookrunners for the issue which the company sold in order to refinance debt incurred in its acquisitions, including NeighborCare, and to help repurchase $375 million of its 8 1/8% senior subordinated notes due 2011.

A big week takes shape in the primary

Most of the approximately $8 billion of pre-holiday business is expected to price this week.

News emerged Monday on deals that are expected to be completed by the Thursday close.

The biggest of those was Hertz Corp.

Hertz issued price talk Monday on its approximately $2.80 billion of high-yield bonds in three tranches which are expected to price on Thursday.

The Park Ridge, N.J., vehicle rental company talked $1.950 billion of eight-year senior notes (B1/B/BB-) at a yield in the 9% area. Meanwhile its €225 million tranche of eight-year senior notes (also B1/B/BB-) is talked at the 8% area.

A buy-side source said that the German 10-year Bund was trading at a yield approximately 100 basis points lower than the U.S. Treasury on Monday afternoon, explaining the 100 basis points difference in the talk on the dollar and euro pieces of the Hertz senior notes tranches.

Hertz is also in the market with $600 million senior of 10-year senior subordinated notes (B3/B/B+), which are talked at the 10¾% area.

The same buy-sider said that the subordinated notes had been pro formaed at 11% to 11¼%, and added that since the talk has come in at 10¾% the deal is obviously going better than anticipated.

Deutsche Bank Securities, Lehman Brothers, JP Morgan, Goldman Sachs & Co. and Merrill Lynch & Co. are joint bookrunners for the massive leveraged buyout deal.

Centennial with a drive-by

Centennial Communications Corp. plans to price $550 million of seven-year senior notes (Caa2/CCC) in fixed- and floating-rate tranches on Wednesday without having taken the deal on an investor roadshow.

The Wall, N.J.-based provider of regional wireless and integrated communications services is talking a $200 million fixed-rate tranche at a yield in the 10% area, while its floating-rate notes are talked at Libor plus 550 basis points.

Credit Suisse First Boston has the books for the dividend funding and debt refinancing deal.

Coming to the end of the road

Meanwhile talk surfaced on a handful of deals that are winding up their investor roadshows:

• Block Communications Inc. talked its $150 million offering of 10-year senior notes at 8¼% to 8 3/8%. The Banc of America Securities and Deutsche Bank Securities-led deal is expected to price Tuesday;

• Kimball Hill Inc. talked its $200 million offering of seven-year senior subordinated notes (B) at 10½% to 10¾%, with pricing expected on Wednesday via JP Morgan and Harris Nesbitt;

• Skilled Healthcare Group Inc. talked its $200 million of eight-year senior subordinated notes via Credit Suisse First Boston and JP Morgan at the 11% area, with pricing expected on Wednesday morning;

• Price talk is 10% to 10¼% on VeraSun Energy Corp.'s $200 million offering of seven-year senior secured notes (B3/B-) via Lehman and Morgan Stanley, with pricing expected on Wednesday; and

• Pipe Acquisition Finance PLC (Murray International Metals Ltd.) is talking its $125 million of five-year senior secured floating-rate notes at the six-month Libor plus 625 basis points area. The Jefferies-led deal is expected to price Tuesday.

Level 3 gains on exchange

Level 3 Communications bonds were "up quite a bit," a trader observed, quoting the company's benchmark 9 1/8% notes due 2008 as having risen to 92.75 bid, 93.75 offered from Friday's levels around 88.25 bid, 89.25 offered, while its 11% notes due 2008 had pushed up to 93.25 bid, with no offers, from 89 bid, 90 offered previously. However, he saw the company's 10½% notes due 2008 pretty much unchanged at 88.5 bid, 90.5 offered.

Another trader saw the 9 1/8s get as good as 94 bid, 96 offered, up from 90 bid, 92 offered previously, but then come off that high to close at 93 bid, 94 offered.

Yet another trader pronounced the bonds as "firmer, all up about two points," with the 11s at 93.5 bid, 94.5 offered, the company's 10¾% notes due 2008 at 89 bid, 90 offered, and its 6% subordinated discount notes due 2009 and 2010 at 63.

A market source at another desk saw the 9 1/8s initially up as high as 94, a better than four point rise, but said that by the end of the day, the issue had given up most of those gains to end at 91.5 bid, up two points.

Level 3 said it would exchange any and all of its 9 1/8s, 11s and 101/2s for cash and a maximum of $1.23 billion aggregate principal amount of its new 11½% senior notes due 2010.

GM trades, slips a little

Outside of Level 3, there was activity in GM and GMAC after Standard & Poor's downgrade of the struggling automotive giant, even though, as one trader put it, "I can't believe that it was a surprise to anybody.

"The bonds really didn't do much" in response to the downgrade, "maybe down a half. Maybe some issues are actually up a little bit. It was kind of like a non-event."

He pegged GM's benchmark issue, the 8 3/8% notes due 2033 at 72, down from opening levels around 73.5 bid, "so that was down a point or two." He added that "it was not like they were down five, six seven points on that stuff. The market likely pretty much priced it in."

He further noted that "late in the day, there was talk from an S&P analyst that maybe at some point [down the road], six months or so, maybe they'll have to file if they can't get their union problems taken care of. That came from an S&P analyst late in the day, so maybe that put some low pressure on [the GM and GMAC issues]."

S&P dropped GM's corporate credit rating to B from BB- previously, noting that the downgrade reflected "GM's ability to turn around the performance of its North American automotive operations."

The ratings agency further warned that "if recent trends persist, GM could ultimately need to restructure its obligations (including its debt and contractual obligations), despite its currently substantial liquidity and management's statements that it has no intention of filing for bankruptcy."

A trader at another shop saw GM's 8 3/8s at 72 bid, 73 offered, down 1½ points, while a shorter issue, the 7 1/8% notes due 2013, was "only down 1/8" at 73.875. He saw the GMAC benchmark issue, the 8% notes due 2031, "not down as much," only off half a point at 98.5 bid, 99 offered.

That GMAC issue "was like a roller-coaster," yet another trader opined, seeing the bonds move up from their Friday closing levels around 98 bid, par offered, to as high as 101 bid, 102 offered, before coming off that peak to close at 97 bid, 98 offered, down a point on the day.

He also saw the GMAC 6¾% notes due 2014 advance to 63 bid, 64 offered, up about a point from Friday's close, but then go "way back down" to a Monday close at 90 bid, 92 offered.

Another market source initially saw GM's 7 1/8s and GMAC's 6 7/8% notes due 2012 each up a point, at 75 bid and 92 bid, respectively, before giving up those gains later on to close unchanged. The early rise was probably due to a carryover of Friday's upside momentum, which was linked to a Wall Street Journal story that day indicating that GM was seeing "strong or robust interest" from potential buyer for a majority stake in the currently wholly owned GMAC.

GM is undertaking the transaction in order to help GMAC lower its borrowing costs, since the unit's now-junk ratings would be lifted to be in line with the presumably investment-grade ratings of its prospective new majority owner. The deal would also help GM's cash flows - currently dented by its sagging North American car and truck sales - by bringing in as much as $10 billion to $15 billion, according to most estimates.

The story had boosted both GM and GMAC solidly in Friday's trading.

Ford also lower

With the GM bonds headed back down on Monday, a trader said that GM arch-rival Ford Motor Co.'s benchmark 7.45% notes due 2031 were down half a point on sector sympathy to 72.5 bid, 73.5 offered, while Ford Motor Credit Corp.'s 7% notes due 2013 were a quarter-point lower at 88.75 bid, 89.5 offered.

Domtar steady despite Moody's cut

Outside of the automotive area, a trader noted that Domtar Inc. had been downgraded two notches by Moody's Investors Service. He saw the Montreal-based forest products company's bonds, however, pretty much unchanged. He pegged the 7 7/8% notes due 2011 "pretty much unchanged" at 94.5 bid, 95.5 offered, while its 7 1/8% notes due 2015 traded up at 87 and were left at 86.75 bid, 87.75 offered, "pretty much unchanged and pretty much a non-event."

Moody's cited cost pressures in the company's uncoated wood-free paper business, declining demand, the negative impact of the strong Canadian dollar, and the higher input costs, such as raw materials and energy, in dropping Domtar's corporate credit rating to B1 from Ba2.

Overall, "the market is going to be flush with new issues in the next week to week and a half, a lot coming to market," trying to get their deals done before the market goes into its end-of-year holiday hibernation, and that's likely to put the existing bonds on the back burner, a trader said.

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