Refco bonds retreat, Level 3 gains; Chukchansi deal prices, Rural Cellular slates deal

By Paul Deckelman

New York, Oct. 31 - The sharp recent rise in Refco Inc.'s bonds came to an abrupt halt Monday, high yield market sources said, while bonds of another busted company, Delphi Corp., were solidly on the upside.

Also higher were Level 3 Communications Inc.'s bonds, apparently given a boost by the news that the Broomfield, Colo.-based telecommunications company will acquire WilTel Communications Group Inc. in a deal to be funded mostly with Level 3 shares, along with some cash.

In the primary arena, Rural Cellular Corp. announced plans for bond issue, the proceeds of which will be used to taking out some of its existing bond debt.

And Chukchansi Economic Development Authority came to market with a two-part offering of fixed-and floating-rate notes (B2/BB-) that priced right on the button relative to pre-deal market price talk.

The Fresno, Calif.-based Native American gaming concern was heard by primaryside sources to have successfully priced a $310 million two-tranche via bookrunner Merrill Lynch & Co., high yield market sources said.

It sold $200 million of fixed-rate senior notes due Nov. 15, 2013, which priced at par to yield 8%, in line with pre-deal market price talk, and $110 million of floating-rate senior notes due Nov. 15, 2012. The latter tranche priced at par to yield 350 basis points over the 6-month Libor rate, also in line with talk.

"It was very popular, very well received," a primaryside source said, additionally declaring it was "good stuff all around."

The Authority plans to use the new-deal proceeds to fund its tender offer for its 14½% senior notes, to repay other debt and to fund expansion, and for general corporate purposes.

Rural Cellular also plans to use the proceeds of its upcoming bond issue to take out existing bonds - in this case the Alexandria, Minn.-based telecommunications company's $125 million of outstanding 9 5/8% senior subordinated notes due 2008, including payment of the call premium, accrued interest and related expenses. Any remaining proceeds could be used for general corporate purposes, including, without limitation, replenishing cash used to pay preferred stock dividends and repurchasing preferred securities.

That quickly-emerging "drive-by" deal is coming to market via joint book-running managers Lehman Brothers and Morgan Stanley, and is expected to price Tuesday around 11 a.m. ET, syndicate sources said. Just a few hours after the offering was announced by the company, it held an investor call to market the deal to would-be investors.

Separately, the company also drew down some $58 million under its $60 million senior secured revolving credit facility, against the possibility that Rural Cellular might not have access to making additional draws from the facility at a later date.

Further, Rural Cellular announced preliminary third-quarter results during the session, which included a better-than-expected boost in revenues. Total revenue was $148.3 million, up 12% from $132.4 million a year ago, and also better than the $135 million that Wall Street had been looking for. Roaming revenue drove the increase, rising 12% to $41.8 million.

Looking at acquisitions

Elsewhere in the primary, market participants eyed several of the announced big acquisition deals that hit the tape on Monday, wondering whether the junk bond market will eventually play a part in any of the financing, although there was no immediate indication of such a role on Monday.

Bon-Ton Stores Inc. will be buying the northern department stores division of Saks Inc. for $1.1 billion in cash and the assumption of $85 million of liabilities. The York, Pa.-based regional retailer's executives said on a morning conference call following the announcement of the Saks deal that it is looking at various financing options to fund the deal, including a possible issuance of senior notes, as well as using an asset-backed facility and a mortgage-backed facility. However, no firm decision has yet been reached exactly what form the financing will take, other than that it will be provided through Bank of America.

Another major acquisition deal announced Monday was Level 3's takeover of WilTel - formerly the telecommunications unit of pipeline operator Williams Cos., Inc., then an independent company and then sold several years ago to Leucadia National Corp., the current owner. Although there is a hefty cash component involved, at least $370 million, in addition to 115 million shares of Level 3's common stock, the company indicated on its conference call that it has enough cash on hand to fund that portion of the deal - although it didn't come right out and say that is how the deal will be done.

There actually was some news out about the bond portion of another, even bigger acquisition deal, the recently announced planned purchase of utility operator Texas Genco by power generating company NRG Inc. That deal, which carries a $5.8 billion cash pricetag, plus the assumption of Texas Genco's debt by NRG, is to be funded in part by a $3.6 billion issue of senior unsecured notes. The notes are one component of a multi-part financing package that will also include $4.8 billion of bank debt and $1.5 billion of equity or equity-linked securities. Market sources told Prospect News that those financing transactions are now likely to not take place before the first quarter of 2006.

Talk on Hopson

From out of the emerging markets segment of the primary sphere came the word that Hopson Development Holdings Ltd.'s upcoming $300 million issue of seven year senior unsecured notes is likely to price to yield 8 1/8%, up marginally from the 8% area at which the notes were originally talked.

The slightly wider talk emerged as the roadshow for the deal was winding down, making final stops in New York on Monday and Boston on Tuesday, with pricing anticipated shortly thereafter via sole bookrunning manager Credit Suisse First Boston and co-manager Morgan Stanley.

The Guangzhou, China -based specialized property group plans to use the proceeds from the bond sale to fund ongoing property developments and land acquisitions and for general corporate purposes.

And market participants awaited the possible release Tuesday of guidance on Sateri International Co. Ltd.'s planned $300 million two-part bond offering, new-deal sources said Monday. That deal is expected to price sometime in the middle-to-latter part of the week, via Credit Suisse First Boston and Merrill Lynch.

The exact structure of the deal has apparently still not been finalized. The first tranche would consist of either five-year or seven-year non-callable bonds, while the second tranche would consist of perpetual bonds that would be callable after five years, with no step-up.

While the deal has been on roadshow in Asia, Europe and the United States, there have been some unofficial rumblings that reportedly put talk on the bullet bonds as high as 12% and on the perpetual bonds as high as 12½%, considerably wider than originally anticipated yield levels

Sateri, an Indonesian-based producer of viscose fiber and pulp, plans to use the proceeds of the new offering to finance the expansion of its Bahia Pulp mill in Brazil.

Rural Cellular firm, 9 5/8s jump

Back in the secondary market, a trader quoted the new Chukchansi floater notes at par bid, 101 offered, following their late-session pricing at par.

Rural Cellular's bonds were mostly seen up only slightly following the wireless company's barrage of news - but the one bond that was up notably was the 9 5/8% issue, which is to be taken out with the proceeds of the company's new deal.

A market source saw those bonds jump to 101.25 bid, up from 99.75 previously, on the news, while another source saw them "straddling the [anticipated] call price of around 101.6, with a reading of 101.5 bid, 101.75 offered, well up from 99.25 bid, 100.25 offered.

Level 3 gains on acquisition

Level 3's bonds were also seen to have firmed solidly on the news that it will buy out its Tulsa, Okla.-based rival fiber-optic network operator in a deal that has a total price tag of about $680 million - but which does not include such unwanted assets as WilTel's headquarters or the equally undesired assumption of any of WilTel's outstanding debt or mortgage obligations.

Level 3 meantime is projecting that WilTel will contribute $1.5 billion to $1.6 billion in revenue in 2006 - although that amount includes WilTel's master contract with telecom giant SBC Corp., and is expected to fall to $600 million in 2008 as SBC shifts its traffic away from WilTel/Level 3 and onto AT&T's network, as SBC is just now completing its acquisition of the rival phone giant, its former corporate parent. WilTel still will contribute anywhere from $50 million to $90 million in cash flow for 2006, Level 3 estimates, and about $125 million to $150 million a year thereafter.

A trader saw Level 3's benchmark 9 1/8% notes due 2008 as having pushed up to 83.25 bid, 84.25 offered from prior levels around 82 bid, 83 offered, while a second trader pegged Level 3's notes up two points across the board, with the 9 1/8s at 83.5 bid, 84.5 offered, and the company's 10¾% notes due 2011 at 85.25 bid, 85.75 offered.

"That was the biggest mover of the day" at his shop he said.

Saks up a little on sale

In contrast, there was little movement seen in Saks' bonds, even though the Birmingham, Ala.-based retailer stands to reap a billion-dollar windfall as it unloads its mostly Midwestern northern department store operations on Bon-Ton, leaving it pretty much free to focus on its eponymous high-end Saks Fifth Avenue operations.

The Saks bonds, the same trader said, "don't really trade around that much to begin with," with the company having already taken out over half a billion-dollars face amount of bonds via a tender offer earlier this year.

He saw the Saks 8¼% notes due 2008 "up maybe a little," at 104 bid, 105.

Delphi stronger

Delphi's bonds were noticeably better, with its issues all quoted in the 69 bid, 69.5 offered area, up from prior levels around 66 bid, 67 offered. A trader opined that he thought the move was "purely technical," rather than fundamental, having to do with positioning by speculators in credit default swap contracts, rather than any real developments in the bankrupt Troy, Mich,.-based automotive components maker's situation.

Refco weaker

Also from the distressed precincts, Refco's bonds "were going back down," a trader said, after having surged last week on news that multiple buyers were attracted to the bankrupt New York based financial services company's valuable futures unit and./or other parts of the troubled company. Final bids are due in to the bankruptcy court by Friday.

He pegged the company's 9% notes due 2012 as having dropped two points to 69 bid, 71 offered, although another trader only had the bonds down a point at 70 bid, 71 offered.

Some of the gloss may have been taken off of Refco by news reports that global investor Jim Rogers is suing the company for the return of some $342 million, charging that money Rogers wired to the futures broker was moved from a government-regulated account to a non-U.S. regulated offshore entity, Refco Capital Markets - even while Refco was assuring him, wrongfully, he alleges, that the money was safely tucked away in protected segregated accounts and not mingled with the money of other investors.

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