Host Marriott, Dynegy lead drive-by parade; Maytag holders clean up as DOJ clears Whirlpool deal

By Paul Deckelman and Paul A. Harris

New York, March 29 - Host Marriott Corp. and Dynegy Inc. were just two of a bunch of new deals heard to have priced Wednesday - most of them quickly emerging drive-by offerings talked around the market in the morning and then pricing by the afternoon, sometimes in an upsized form. That was the certainly the case with Host Marriott's 10-year deal, and with Newfield Explorations Co.'s 10-year issue. Dynegy's deal, meantime, was not upsized, nor was the opportunistically offered Nevada Power Co. placement. The latter deal featured an unusual tenor for the junk market - 30 years.

There was also a pricing of one scheduled calendar item - Festival Fun Park's offering of eight-year notes. Elsewhere on the new-deal scene, price talk emerged on a restructured offering from French Lick Resorts & Casinos LLC Corp., which could price as soon as Thursday. And a roadshow is slated to begin Thursday for German issuer Vacuumschmelze's offering of 10-year euro-denominated notes.

In the secondary arena, Maytag Corp.'s bonds were better on the news that the Justice Department has found no antitrust grounds for opposing the Newton, Iowa-based appliance maker's planned acquisition by larger rival Whirlpool Corp., which will create the largest U.S. appliance maker in several categories.

Most of the action, however, was on the downside, in line with a generally softer tone in the overall junk market. Most of the notable bond price movements came out of the distressed portion of the junk market on negative news associated with such names as Delphi Corp. and Adelphia Communications Corp.

General Motors Corp.'s bonds, and those of its General Motors Acceptance Corp. were meantime lower, the market reacting to the giant carmaker's warning Tuesday that it is now "uncertain" whether it will be able to complete its hoped-for sale of a controlling interest in GMAC to a financially more stable buyer. The major ratings agencies were also perturbed at this latest setback for the GMAC deal.

Primary bursts into life

Was it a coincidence?

The day after the Fed bumped the interest rate by 25 basis points to 4.75% and left little doubt that it would return to do the same in seasons to come, the high-yield primary market hatched out of its dormancy to see the largest amount of issuance price in nearly nine weeks.

The market saw just under $2.5 billion of proceeds raised in five dollar-denominated tranches from five issuers.

And counting Wednesday's euro-denominated Unity Media €1.35 billion issue, global issuance came to $4.1 billion equivalent.

Either way - the $2.5 billion dollar-denominated total or the $4.1 billion equivalent of global issuance - Wednesday was the biggest day since Jan. 26, when $4.3 billion priced, including a massive transaction from NRG Energy.

Of the six Wednesday tranches, five were drive-bys. Two were upsized. Two came on the tight end of price talk. One came in the middle of talk and three came on the wide end of talk.

So was it a coincidence that this blast of supply appeared less than 24 hours after the Fed move? Syndicate sources say probably not.

Meanwhile one syndicate official told Prospect News that the massive volume of new supply may have taken a bit of a toll on the secondary market where prices tended to be stagnant to a little weaker. The source said that credits such as Level 3 Communications, which had been rallying in recent sessions, were slightly weaker on Wednesday.

Host Marriott upsized to $800 million

Host Marriott Corp. priced Wednesday's biggest deal, an upsized $800 million issue of series P senior notes due June 1, 2016 (Ba2/BB-) which came at par to yield 6¾%.

The drive-by issue, which was increased from $600 million, priced at the wide end of the 6 5/8% to 6¾% price talk.

Goldman Sachs & Co. and Banc of America Securities were joint bookrunners for the debt refinancing and general corporate purposes deal.

An informed source said that Host Marriott's transaction had been 1.5-times oversubscribed.

Dynegy drives by with $750 million

Next in terms of size came Dynegy Holdings Inc. The Houston power producer and marketer priced a quick-to-market $750 million issue of 10-year senior unsecured bullet notes (B2/B-) at par to yield 8 3/8%, on the wide end of the 8¼% area price talk.

Credit Suisse and Citigroup were joint bookrunners for the debt refinancing.

Newfield Exploration upsizes

Also topping half a billion dollars, Wednesday, was Houston-based Newfield Exploration Company, which priced an upsized $550 million issue of 10-year senior subordinated notes (Ba3/BB-) at par to yield 6 5/8%

Morgan Stanley had the books for the drive-by which came at the wide end of the 6½% to 6 5/8% price talk.

The debt refinancing and general corporate purposes deal was upsized from $500 million.

An informed source told Prospect News that although the Newfield deal was a little slow to get off of the ground it ended up being two-times oversubscribed - hence the upsizing.

Nevada Power off high-grade desk

Continuing, Nevada Power Co. priced a $250 million issue of 6.65% 30-year general and refunding mortgage notes (Ba1/BB/BB+) at 99.846 to yield 6.662% in a quick-to-market transaction on Wednesday.

The notes priced at a 170 basis points spread to Treasuries off the investment-grade syndicate desk, on the tight end of the Treasuries plus 170 to 175 basis points price talk.

Lehman Brothers and Wachovia Securities were joint bookrunners for the debt refinancing from the Las Vegas-based regulated public utility.

An informed source, pointing out that Nevada Power Co. came tight to talk, characterized it as a solid deal.

One from the road

Wednesday's smallest transaction, Festival Fun Park LLC's $150 million issue of eight-year senior notes (B2/B), was the only one that came after having done a spin on the investor roadshow circuit.

The notes priced at par to yield 10 7/8%, in the middle of the 10¾% to 11% price talk.

JP Morgan ran the books for the acquisition deal.

Unity Media's €1.35 billion

Also pricing was German cable TV company Unity Media's €1.35 billion issue of seven-year senior secured floating-rate notes (B3/B), which came at par to yield three-month Euribor plus 287.5 basis points.

The yield was at the tight end of the three-month Euribor plus 300 basis points area price talk.

The company abandoned a contemplated dollar-denominated tranche, sources added.

Citigroup, Deutsche Bank Securities and Goldman Sachs & Co. led the debt refinancing deal.

Unity Media was formed by the 2005 merger of Iesy Hessen GmbH & Co. and ISH NRW GmbH.

Were they waiting for the Fed?

Prospect News quizzed two syndicate sources well after the Wednesday close as to whether it was a coincidence that the primary market's biggest day in nearly nine weeks came on the heels of Wednesday's FOMC meeting, which saw the Fed raise the overnight rate by 25 basis points to 4.75%.

Both were inclined to think that it was no coincidence.

One source pointed out that on Tuesday the Fed pretty much did what it was expected to do.

This official also pointed out that for the past two weeks junk prices in the secondary market have been strong.

"A lot of people were gearing up to go, and they wanted to have the FOMC meeting behind them, just to make sure that the market would still be in good shape," the source said.

"These drive-bys were planned accordingly."

A whole lot of cash

This official, spotting the 10-year Treasury closing with a yield of 4.80% on Wednesday, also commented that two of the day's new deals came at spreads to Treasuries of less than 200 basis points: Nevada Power at 170 bps and Newfield Exploration at 182 bps.

"That says a lot," the official commented.

Noting that the Treasury curve appears to be moving upwards, the sell-sider remarked that at least two of Wednesday's drive-bys - Host Marriott and Newfield Exploration - saw more than a billion dollars of demand.

"It's a testament to the kind of market we're in," the official stated.

The source went on to comment that the Newfield order book contained high quality accounts run by wily investors.

"The conclusion that I draw is that there is just a lot of cash in the market that, contractually, has to be put to work in these assets."

Noting that up until Wednesday new issue supply had been slim, with the forward calendar only beginning to pick up recently, the source said that people have been clipping coupons, and added that there is a lot of hedge fund money and institutional money flowing towards junk.

Also, the source said, with credits like Newfield or Host Marriott, investors "do not feel like there is a ton of downside.

"That's why they blow out," the official asserted. "You can have $2.5 billion price in a day and not even cause a hiccup.

"There are umpteen $10 billion and $20 billion funds out there that play in these deals.

"It's pretty astounding."

And two for the road

One source said that Wednesday's burst of issuance was likely an anomaly, but added that the forward calendar now will start to build.

Two prospective issuers announced roadshow starts during the session.

A roadshow started Wednesday for Hughes Network Systems LLC's $375 million offering of eight-year senior notes (B1/B-), a debt refinancing and general corporate purposes deal via Bear Stearns & Co. and Morgan Stanley.

And Vac Finanzierungs GmbH, a financing unit of German-based global magnetic materials manufacturer, Vacuumschmelze, will begin a brief roadshow on Thursday for its €130 million offering of 10-year senior secured notes (B3/CCC+) via Citigroup.

Festival up in trading

When the new Festival Fun Park 10 7/8% senior notes due 2014 broke into the secondary, a trader saw those bonds start out at 101 bid, 101.5 offered, well up from their par issue price. At the end of the session, another trader saw them holding that same higher level.

The trader also saw Dynegy's new 8 3/8% notes due 2016 straddling their par issue price, at 99.75 bid, 100.25 offered, while the Houston-based energy operator's existing bonds were easier - at least those issues while will not be included in the tender offer that will be funded with the proceeds from the sale of the new bonds. Dynegy's outstanding 8¾% notes due 2012 were ¾ point lower at 104.5 bid, 105.5 offered.

Another trader saw a tighter straddle on the new Dynegys, at 99.875 bid, 100.125 offered.

Standard & Poor's announced during the session that it was upgrading the ratings on the company's Dynegy Holdings Inc. senior unsecured debt by one notch to B- from CCC+ previously, citing the company's reduced amount of secured financing. S&P said that secured financing had placed the unsecured debtholders at a disadvantage and caused a greater separation between the company's ratings. It noted that Dynegy will use proceeds from an asset sale to cut debt.

The big deal of the day, Host Marriot Corp.'s upsized offering of 6¾% notes due 2016, priced too late in the session for any kind of aftermarket activity. Traders also did not see any secondary action going on in Newfield Exploration's 6 5/8% senior subordinated notes due 2016 nor in Nevada Power's 6.65% bonds due 2036.

A trader sighted Hanover Compressor Co.'s 7½% senior notes due 2013, which priced Monday at par, trading on Wednesday at 100.375 bid, 100.625 offered.

Maytag jumps on merger OK

Back among the established issues, a trader saw Maytag's 5% notes due 2015 having zoomed to 92.5 bid, 93.25 offered from prior levels around 86.5 - a gain of nearly six points.

However, a trader at another desk saw no such jump, saying that at that shop the bonds had actually being quoted at about 88 bid, then went up to 89 bid, 90 offered - a total gain of a point on the day.

Maytag shareholders, meantime, saw the company's New York Stock Exchange-traded shares screaming, ending the session up $4.23 (27.69%) to $21.81 on volume of 14.9 million - nearly 15 times the norm.

Those shares boomed and the bonds pushed upward on the news that the Justice Department had cleared Maytag's pending $1.79 billion acquisition by Benton Harbor, Mich.-based Whirlpool Corp. The DOJ said that the merger would not hurt competition nor harm the interests of consumers - even though the Whirlpool/Maytag combination will produce 70% of the clothes washing machines and dryers produced in the United States and half of the dishwashers.

The government said that the existence of other large appliance makers such as Kenmore - the store brand of retailing giant Sears Holding Corp. - General Electric Co. and Electrolux AB's Frigidaire brand, as well as LG and Samsung, will keep Whirlpool/Maytag from running away with the appliance industry, and will give major retailers alternatives should Whirlpool/Maytag up prices.

Besides the $21 per share that it will pay for Maytag, Whirpool is also assuming $977 million of Maytag debt, including the company's bonds, bringing the total value of the deal to around $2.7 billion. Whirlpool and Maytag executives said the transaction could close on Monday.

Adelphia plunges on sale fears

While Maytag's debt and stock rose as the company jumped the last possible hurdle on its way to successfully completing its merger transaction, a problem that could in theory derail Adelphia's pending takeover by Time Warner and Comcast Communications walloped the bankrupt Greenwood Village, Colo.-based cable operator's bonds.

A trader said that its 10¼% notes due 2006 fell to 58 bid, 60 offered and its 10¼% notes due 2011 were at 62 bid, 64 offered, both down four points on the session.

Another trader saw the latter bonds at 63.75 bid, 64.75 offered, which he said was a loss of 1¾ points on the day.

Yet another trader called those same bonds three points lower at 63.5 bid, 64.5 offered on the possibility that "their deal could fall apart."

A market source saw Adelphia's 9 7/8% notes due 2007 two points lower on the day at 60 bid.

According to a Securities and Exchange Commission filing, Time Warner and Comcast sent Adelphia a letter last week alleging that Adelphia's implementation of a system by which eligible basic subscribers can be tracked materially breaches the terms of the agreement by the two companies to purchase Adelphia's assets for around $17 billion, since it does not include certain marketing promotions. Any such breach in the agreements could legally allow Time Warner and Comcast to terminate the purchase.

On Monday, Adelphia responded, denying that the actions constitute a breach of the purchase agreements - but at the same time, agreeing to incorporate a method of tracking such marketing promotions as part of its subscriber tracking system.

Delphi down on strike worries

Elsewhere, Tuesday's late news that the United Auto Workers had rejected Delphi's latest proposal for cutting its labor costs - thus increasing the possibility of a potentially ruinous strike against the bankrupt Troy, Mich.-based automotive electronics manufacturer - knocked Delphi's bonds down three points across the board, a trader said, quoting the company's 6½% notes due 2009 at 62.5 bid, 63.5 offered.

At another desk, a trader saw Delphi's 6.55% notes due 2006 at 63 bid, 64 offered, down three points, while its 7 1/8% notes due 2029 were 3¾ points off the pace at 62.25 bid, 63.25 offered.

Delphi, which sought Chapter 11 protection from its junk bond holders and other creditors last October, has long insisted that it must bring down its ruinously high labor costs, produced by a contract structure it inherited when it was spun off by former corporate parent GM in 1999, if it is to survive in an increasingly unprofitable automotive parts industry.

It had proposed a gradual drop in the cash wage component of the compensation it pays its 34,000 unionized hourly workers to around $16 from the present $27 per hour average figure - a reduction that the UAW called "unacceptable."

The union's rejection of Delphi's plan brings a strike scenario one step closer. Delphi has said that if there is no framework for cutting its labor costs in place by the end of the day on Thursday, it will go into the U.S. Bankruptcy Court for the Southern District of New York on Friday and ask the judge overseeing its restructuring for the authority to unilaterally spike its contacts with the UAW and two other unions and impose a new, less costly labor cost structure. The unions have said they will strike in that case.

Such a strike might also play havoc with Delphi's single largest customer, its former corporate parent, GM, which depends heavily on a steady flow of parts from Delphi - its single biggest supplier - to keep its production going.

GM also lower

The combination of a worsening labor situation at Delphi having the potential for burning GM, as well as investor angst over Tuesday's admission by the company in an SEC filing that it is now uncertain whether the sale of a majority stake in GMAC will go through, helped to push GM's benchmark 8 3/8% notes due 2031 a point lower, a trader said, quoting those bonds at 73 bid, 74 offered, while seeing GMAC's 8% notes due 2031 two points down at 91 bid, 92 offered. He saw GMAC's other, less well-traded issues down about a point, with its 6¾% notes due 2014 at 88 bid, 89 offered, and its 6 7/8% notes due 2011 at 90 bid, 91 offered.

Another trader saw the GM 8 3/8s at 73 bid, 73.5 offered and the GMAC 8s at 91.25 bid, 91.75 offered, each down 1½ points.

Moody's Investors Service Moody's cut GM's senior unsecured debt one notch to B3, with a negative outlook, meaning another cut is possible over the next 12 to 18 months. It cited GM's revelations that that accounting restatements may affect access to a $5.6 billion standby credit facility. GMAC's ratings are unaffected.

Standard & Poor's meantime said it was scrutinizing GM's ratings, including its long-term B rating, for a possible downgrade.

Lear rises on new loan, sale

S&P also said Wednesday that it was cutting Southfield, Mich.-based interior components maker Lear Corp.'s bond ratings a whopping five notches, citing its concerns about the sharp deterioration in Lear's 2005 operating performance, as well as the ratings agency's expectations that Lear's earnings and cash flow generation for the next few years will remain below what was previously expected.

But that bad news was offset by the news that Lear had lined up $800 million of new funding, alleviating investor concerns about an immediate liquidity crunch. Lear also said that it was suspending the quarter dividend that it pays out on its shares. It further said that it would transfer most of its European interiors operations to its new joint venture with financier Wilbur Ross in return for a 34% stake in the joint venture.

"There was a lot of conflicting news," a trader said, quoting Lear's 8.11% notes due 2009 at 92 bid, 92.5 offered, up 1½ points. However, he saw its 5¾% notes due 2014 at 80.75 bid, 81.25 offered, down half a point.

A trader at another desk quoted the 8.11s up a point on the day, also at 92 bid, 93 offered.

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