Cablevision bonds dive on Dolan buyout plan; Goodyear, Qwest price drive-bys

By Paul Deckelman and Paul A. Harris

New York, June 20 - Cablevision Systems Corp. bonds were sharply lower Monday even as the stock boomed on the news that its majority owners, the founding Dolan family, has proposed taking the Bethpage, N.Y.-based cable operator private in a $7.9 billion leveraged buyout transaction that would sharply increase the company's debt levels - which prompted the major credit agencies to threaten to downgrade its ratings.

Overall sources marked high yield unchanged on the day, but up as much as a point from Monday morning's lows.

In primary market activity, Goodyear Tire & Rubber Co. rolled in with a big drive-by offering of 10-year notes, and Qwest Communications International Inc. also was heard to have priced a quickly appearing deal - its second add-on offering of 7½% senior notes due 2014 this month. Dollar Financial Corp. also checked in with a smaller opportunistically priced add-on deal.

A trio of drive-bys

Monday's session saw $630 million face amount of bonds price in three tranches.

And all three issuers used the drive-through windows of the investment banks, bringing their deals without roadshows.

Goodyear Tire & Rubber Co. priced a $400 million issue of 10-year senior notes (B3/B-) at par on Monday to yield 9%, right on top of price talk.

One source said that the deal was a blowout.

Citigroup, BNP Paribas, Credit Suisse First Boston, Goldman Sachs & Co. and JP Morgan were joint bookrunners for the debt refinancing and general corporate purposes deal from the Akron, Ohio tire company.

From tires to telecommunications, it was Qwest Communications International making its second pass this month.

As with the deal it priced earlier in June, on Monday Qwest tapped its 7½% senior notes due Feb. 15, 2014, series B - this time to the tune of $200 million face amount.

The notes priced at 92.25, resulting in a yield of 8.802%.

The sale, via Merrill Lynch and Deutsche Bank Securities, generated $184.5 million of proceeds, which the Denver, Colo., telecommunications company will use to refinance debt and for general corporate purposes.

A syndicate source told Prospect News that the new deal is an add-on to the $600 million add-on the company priced on June 8, 2005. Those two issues, now totaling a face amount of $800 million, are fully fungible.

However neither of the add-on issues are fungible with the original notes that priced at 98.2753 on Jan. 30, 2004 to yield 7¾%.

Finally on Monday Dollar Financial Corp. priced a $30 million add-on to its 9¾% senior notes due Nov. 15, 2011 (B3/B) at 102.0, resulting in a 9.041% yield.

Credit Suisse First Boston ran the books for the debt refinancing deal from the Berwyn, Pa. franchisor of check cashing stores.

The announcements

Deals emerged or came off of the sidelines during the Monday session, which saw a trio of prospective issuers step forward and announce roadshow starts.

Neff Corp., a Miami, Fla.-based construction and industrial equipment rental company, will begin a roadshow Tuesday for $245 million of seven-year senior secured second-lien notes.

Credit Suisse First Boston will run the books for the LBO deal.

The roadshow started Monday for Compression Polymers Holdings LLC's $215 million two-part offering which is also an LBO financing.

The company is selling $150 million of senior fixed-rate notes due 2013, which are non-callable for four years (B2/B-) and $65 million of senior floating-rate notes due 2012, which non-callable for two years (B2/B+).

Wachovia Securities will run the books for the deal from the Moosic, Pa., manufacturer of engineered extruded plastic sheet products used primarily as replacements for wood and metal.

Finally from Europe, Georgica plc, the U.K.-based holding company for snooker and bowling leisure brands Rileys and Tenpin, will begin a roadshow Tuesday in London for its £60 million offering of seven-year senior secured second-lien floating-rate notes.

The Royal Bank of Scotland has the books for the debt refinancing deal.

Cablevision plunges

Secondary market traders said they hadn't seen the new Qwest notes, and the Goodyear offering came way too late in the session for any aftermarket action.

At any rate, their attention was pretty much monopolized by the steep fall in Cablevision's bonds in response to the buyout offer by company patriarch Charles Dolan and his son James, who seem to have reconciled after their bitter boardroom feud earlier this year over whether or not to dump Cablevision's money-losing VOOM satellite programming operations. While Cablevision shares went on a tear, the bondholders were tearing their hair out and voting with their feet.

A trader declared that the company's CSC Holdings Inc. 7 7/8% debentures due 2018 were the big losers on the day, "down a lot" to 98.5 bid, 100.5 offered from pre-news levels around 106.625 bid, 107.725 offered, and he also saw the 7 5/8% 2018 debentures drop to 97 bid, 99 offered, well down from Friday's 104.625 bid, 105.125 offered, "a mighty big drop."

The trader also saw CSC's 7 5/8% senior notes due 2011 at 99 bid, par offered, down from 105 bid, 106 offered, and its Cablevision Systems floating-rate notes due 2009 at 101.5 bid, 102.5 offered, down from 104.75 bid, 105.75 offered.

At another desk, a market source estimated that the CSC Holdings paper was mostly down anywhere from three to five points, with the 7 5/8% notes due 2011 falling to 100.25 bid from 105 and the 2018 7 5/8s dipping to par from 104.5. He also saw the CSC 8 1/8% notes due 2009 go down to 102.5 from 105.75, its 6¾% notes due 2012 end at 96.5 bid, down from 101, and its 10½% notes due 2016 with a relatively smaller loss, down a point at 108.5.

He saw the parent Cablevision 8% notes due 2012 lose four points on the day to end at 101, while the 2009 floaters were about two points lower, he said, at 102.5

The bonds of Cablevision's Rainbow National Services subsidiary also eased, although nowhere near as much as the parent's bonds, its 8¾% notes due 2012 off three-quarters of a point at 109.25 and its 10 3/8% notes due 2014 off 1¾ points at 113.

Yet another market source pegged the CSC 8 1/8s four points lower at 102.5.

While the bonds were fizzling, the company's New York Stock Exchange shares were sizzling, jumping $5.13 (19.09%) to an even $32, on volume of 35.4 million shares, second most active on the Big Board and nearly 20 times the normal turnover.

Under the terms of the proposed deal announced Monday morning, The Dolan Family Group, which already has 71% of the voting control of the company, is offering to take the cable operator and sports team owner private in a cash-and stock transaction valued at $33.50 per share, a 25% premium over the mid-20s level at which the shares had previously been trading. Shareholders would receive $21 in cash for each of their shares, as well as $12.50 per share of stock in Cablevision's subsidiary, Rainbow Media Holdings, which would be spun off in the transaction. That spin-off would leave Cablevision focused on its core broadband businesses

Cablevision serves some three million cable customers in the New York metropolitan area market, the nation's largest, and is also expanding into providing traditional telephone service and internet access. Post buyout, it would be 100% owned by the Dolan family should the deal go though; chairman and company founder Charles Dolan would retain his current position.

James Dolan, who is currently the company's chief executive officer, would hand that post over to Tom Rutledge, though he would remain a Cablevision director, and would become the CEO of Rainbow Media, which would be 20% owned by the Dolans and 80% owned by shareholders. Cablevision would fold all of its other operations into Rainbow - its national AMC, IFC and WE networks, its fuse music-video network, regional sports networks and News 12 suburban local news channels, the remaining VOOM assets, its ownership of New York's Radio City Music Hall and Madison Square Garden, as well as the New York Knicks and Rangers franchises that play at the Garden and theater operator Clearview Cinemas.

Dolan Family Group said that the cash portion of the deal payable to the public stockholders - estimated at approximately $4.952 billion - would be financed through Merrill Lynch & Co. and Banc of America Securities LLC. Besides that cash component, the Dolans also envision refinancing Cablevision's existing credit facility, bringing the amount of total funds necessary to consummate the transaction to some $6.8 billion.

The Dolans on Monday released some projections about what the capital structure of the slimmed-down and taken-private Cablevision would look like in the fourth quarter, pro-forma for completion of the deal.

It would have $2.311 billion of new bank debt at the operating subsidiary level and $4.25 billion of new notes at the parent holding company level, on top of the $5.944 billion of existing operating company notes issued by Cablevision Systems and CSC Holdings. There would also be some $4 million of capital leases, bringing the total debt load up to $12.508 billion. With no sizable cash position as an offset, at least initially, net debt would also total $12.508 billion.

The company envisions no incremental debt at Rainbow Media as a result of the transaction.

Negative ratings reaction

The major ratings services all echoed the displeasure shown by bondholders in assessing the latest development, with Moody's Investors Service, Standard & Poor's and Fitch Ratings all putting Cablevision's ratings under review for a likely downgrade.

S&P, which put Cablevision's BB corporate credit and that of its Rainbow Media Enterprises unit on CreditWatch with negative implications, said that its action "reflects the fact that pro forma for the Dolan family group proposal, pro forma debt to EBITDA for 2005 would be approximately 9.6x, compared with our prior expectation [i.e. before the deal was proposed] that it could fall to the mid-5x area because of ongoing cable cash flow growth."

S&P also cautioned that even with no additional debt going to Rainbow Media Holdings, which will encompass the present Rainbow Media Enterprises, the latter's $1.4 billion of current debt that will presumably go along with the spin off will result in "a highly aggressive financial profile for Rainbow Media Holdings with a debt to EBITDA in the 12x area, based on annualized EBITDA for the first quarter of 2005."

Moody's warned that under the proposed transactions, the company's credit metrics "would deteriorate meaningfully."

Saks up on tender

Elsewhere, the news that Saks Inc. will tender for $658 million of its bond debt (see related story elsewhere in this issue) sent the Birmingham, Ala.-based department store chain operator's bonds higher, although traders said that those bonds had already moved up even before Monday, on expectations that such a tender was forthcoming.

A trader who subscribed to the latter theory saw the three issues being tendered for - Saks' 7½% notes due 2010, its 7% notes due 2013 and its 7 3/8% notes due 2019 - all at 99 bid, par offered, while on Friday, those bonds had been at 97.5 bid 98.5 offered for the 71/2s, at 96 bid, 98 offered for the 7s and 95 bid, 97 offered for the 7 3/8s.

He noted that "a week or so ago," the 7½% notes at been at 96.5 bid, 98.5 offered; the 7% notes had been at 91 bid, 93 offered, and the 7 3/8% notes were down at 89 bid, 91 offered.

Holders, he said "were anticipating" some kind of takeout offer, and "the bonds moved up in that anticipation."

Another trader quoted the 7 3/8% notes as having risen to 99.25 on Monday from 94 bid, 95 offered on Friday, "up four or five points on the day," and also saw an issue not being tendered for, the Saks 8¼% notes due 2008, a little better at 105.25 bid, 106.25 offered, up from 104.75 bid, 105.25 on Friday.

A market source saw another Saks issue that is not being tendered for - the company's 9 7/8% notes due 2011 - half a point better at 107.5.

Mueller lower on acquisition

The source also saw a retreat in the bonds of Mueller Group, an affiliate of Mueller Water Products Inc., which agreed to be acquired by Walter Industries Inc. for $860 million of cash and the assumption by Walter of $1.05 billion of Mueller debt.

Even with the promised assumption, the bonds of the Decatur, Ill.-based maker of valves and other water and gas-line flow devices were quoted lower, its 10% notes due 2012 seen at 104.5 bid, well off recent levels around 109, and its floating-rate notes due 2011 half a point lower at 101.25.

General Motors Corp.'s 8 3/8% notes due 2033 were seen up ¼ point at 83.75 bid, 84.75 offered.

Overall, a trader said, the market "was maybe off a teenie [bit], with the indexes being off a teenie. Some things were up, some things were down - and situational stuff, like CVC, got hit hard."

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