DRS prices upsized two-parter; Select Medical falls on expected Medicare cuts

By Paul Deckelman and Paul A. Harris

New York, Jan. 20 - DRS Technologies Inc. priced an upsized two-part offering of 10- and 12-year notes late in the session Friday, the only pricing of the day, high yield syndicate sources said. That pricing topped off a fairly busy, if holiday-shortened, week which also saw the emergence of a billion-dollar-plus mega-deal from EchoStar DBS Corp. and smaller deals from Corrections Corp. of America and AMC Entertainment Inc.

The secondary market meantime was seen taking its cue from the equity market, which plunged on disappointing earnings from bellwether names like Citigroup Inc. and General Electric Co. But the biggest loser on the bond side of the fence was the privately held Select Medical Corp., whose notes were being quoted down as much as 10 points on the news that the federal agency which administers Medicare had proposed major cuts in reimbursement rates to long-term care providers such as Mechanicsburg, Pa.-based Select.

Elsewhere, the bonds of SunCom Wireless Holdings Inc. - the old Triton PCS - were seen plunging in line with a big fall in the Berwyn, Pa.-based wireless service provider's stock, after the company issued drastically bearish revised earnings guidance for the fourth quarter, and hired an advisor to help it to evaluate its options for improving its financial condition.

From the beleaguered automotive supplier sector, Dana Corp.'s bonds continued to fall, moving several points lower on the day and bringing its earnings-driven loss for the week to 10 points, traders said.

One new deal

One issue priced Friday in the primary market as DRS Technologies Inc. completed an upsized $600 million two-part transaction.

The Parsippany, N.J.-based provider of technology products and services priced an upsized $350 million of 10-year senior notes (B2/B+) at par to yield 6 5/8%. The issue, which was increased from $325 million, priced at the narrow end of the 6¾% area price talk.

Meanwhile DRS Technologies also priced a $250 million issue of 12-year senior subordinated notes (B3/B) at par to yield 7 5/8%, again at the narrow end of the 7¾% area price talk.

Bear Stearns & Co. ran the books for the acquisition deal that was upsized from the planned $575 million across both tranches.

2006 issuance up 13% on 2005

With Friday's DRS deal, the week of Jan. 16 came to a close having seen $2.6 billion of issuance price in five dollar-denominated tranches.

That takes the 2006 total to $4.5 billion in 22 tranches, 13% ahead of 2005 on a year-over-year basis. By the Jan. 20, 2005 close the market had seen $3.9 billion price in 20 tranches.

Korea's C&M tightens talk

In a deal said to be seeing huge demand in the United States as well as in Asia, South Korean cable TV provider C&M Finance Ltd. tightened the price talk on its $550 million two-part offering of senior unsecured notes (Ba2/BB+) on Friday.

The Seoul-based company's tranche of floating-rate bullet notes is now talked at the Libor plus 262.5 basis points area, revised from the 275 basis points area.

Meanwhile talk was revised on C&M's 10-year fixed-rate notes to 8 1/8% to 8¼% from 8¼% to 8½%. The fixed-rate notes come with five years of call protection.

Pricing is expected on Monday, via Goldman Sachs and Citigroup.

A backdrop of mega-deals

Joining the Korean cable company on the new issue calendar for the Jan. 23 week are a pair of billion-plus mega-deals.

NRG Energy Inc. plans to price a $3.6 billion three-part senior unsecured notes transaction (/B-/B): eight-year fixed-rate notes, 10-year fixed-rate notes and eight-year floating-rate notes.

Morgan Stanley and Citigroup are joint bookrunners for the acquisition financing.

Meanwhile over in the leveraged loan market NRG's $5.2 billion bank deal has been variously characterized by sources as a "riot" and a "blowout." The Princeton, N.J., energy company flexed down the pricing of its $3.2 billion seven-year term loan B to Libor plus 200 basis points from 225 basis points on Friday.

Also expected to price in the Jan. 23 week is Ineos Group Holdings plc's €3.105 billion equivalent four-tranche transaction made up of 10-year senior fixed-rate notes and senior floating-rate notes, both in dollar and euro tranches (B2/B-).

Merrill Lynch, Barclays and Morgan Stanley are the bookrunners.

At the Friday close talk had not been heard on either NRG or Ineos, sources.

EchoStar lower in trading, AMC up

The new DRS Technologies bonds priced too late in the session for any meaningful aftermarket activity, traders said.

However, they did see a little bit of action in two issues which priced too late on Thursday to do very much in the secondary arena - EchoStar DBS and AMC Entertainment.

EchoStar's new 7 1/8% notes due 2016 "traded lower right off the bat today [Friday]," a trader said, seeing the Englewood, Colo.-based satellite broadcasting company's bonds fall to 99.125 bid, 99.375 offered from their 99.612 issue price Thursday. "The bonds were trading fairly actively out there."

He also saw the new AMC Entertainment 11% senior subordinated notes due 2016 as having opened up Friday trading into a 100.5 bid, after their par pricing late Thursday, and then going home at 100.5 bid, without any offers.

"They kinda came, opened up at a premium, and then some sellers popped up around the 100.5-100.625 level, and that was pretty much it."

A trader at another desk saw those AMC bonds at 100.25 bid, 100.75 offered, and called the new EchoStars bid around 99-99.25.

Select Medical plunges

Back among the established issues, Select Medical's bonds were "down sharply" on the Medicare reimbursements concerns, said a trader, who saw its 7 5/8% notes due 2015 fall as low as 87 bid, 90 offered, before closing at 85.24 bid, 88.25 offered, well down from Thursday levels around 96.125 bid, 96.625 offered. He saw the company's floating-rate notes due 2015 having fallen as low as 80 from Thursday levels "in the 90s," before those bonds clawed their way partly back up to end around 85.

A trader at another shop said that Select Medical "fell five points right out of the gate" on reports that the government's Centers for Medicare & Medicaid Services had proposed rule changes that would reduce some government reimbursements to long-term care providers by as much as 11%. After that, "the bonds were down eight points, and finally ended down 10 points," with the 7 5/8s, "the really active one" of the two outstanding bonds, closing at 86 bid, 87 offered. The trader did not see the floating-rate notes.

Yet another trader pegged the 7 5/8s at 88.125 bid, 89.25 offered, down from 96 bid, 96.5 offered. He saw "no two-sided markets" for the floaters, but guesstimated them as being around 86 bid, 88 offered, down from levels that had reached as high as 102 in the not too-distant past.

However, there didn't seem to be much movement in other names that could potentially be affected by the changes. While a trader saw LifeCare Holdings Inc.'s 9¼% notes due 2013 offered in the high 60s, without a bid, "pretty bad for a bond that came at par just last summer," he did not have a recent earlier quote for comparison.

And he saw HealthSouth Corp.'s bonds "kind of unchanged" at 99.5 bid, 100.5 offered. Other traders also saw little or no movement in HealthSouth.

Market weakens

Apart from the healthcare area, "the market felt a little soft at the end of the day" was how one trader put it.

"The move down in equities kept the lid on most stuff," another said. With stocks being beaten as badly as they were, "today was more an equity day [in terms of market attention] than a bond day."

SunCom drops

SunCom Wireless/Triton PCS's 8¾% notes were seen off four points, finishing at 61 bid, 62 offered, said a trader, who noted that the struggling telecommunications company's issue "started the week in the low 70s," and was thus down 10 points over the course of the week.

The company's New York Stock Exchange-traded shares, meantime, were off 30 cents (12.88%) to $2.03. Volume of 1.6 million shares was about five times the norm.

SunCom said that said it expects to post a fourth quarter EBITDA loss of $14 million - a sharp reversal from previously released guidance that projected a fourth-quarter profit of between $5 million and $10 million. It said that it would issue no further guidance, citing the "unpredictable nature" of its business.

And the company announced the hiring of Lazard Freres & Co. as its financial advisor, and Weil, Gotshal & Manges as a legal advisor.

Dana keeps dropping

Elsewhere, traders saw Dana Corp.'s bonds continuing to retreat in the wake of the Toledo, Ohio-based automotive systems company's terrible third-quarter results, including its $1.27 billion net loss for the quarter, and declines in EBITDA.

A trader saw Dana's 6½% notes due 2009 "down two points on the day and 10 points on the week" at 70.5 bid, 71.5 offered.

Another trader saw its 5.85% notes due 2015 down 2½ points on the day at 63.75 bid, 64.75 offered.

Dana, yet another trader said, "saw better sellers." He marked the company's 6½% notes due 2008 at 73 bid, 75 offered.

Other auto names steady

Apart from Dura's long slide to nowhere, automotive issues were pretty much unchanged traders said, with both General Motors Corp.'s benchmark 8 3/8% notes due 2033 and rival Ford Motor Co.'s widely traded 7.45% notes due 2031 seen pretty much rangebound around 69.5 bid, 70.5 offered.

A trader saw the Number-Two U.S. carmaker's bonds unchanged even though the company is scheduled to provide the financial markets with the details of its long-awaited turnaround strategy on Monday. Whatever details emerge, he said, "they'll have been pretty much as expected. We know Ford is making lots of job cuts."

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