Charter prices quickie deal, River Rock brings $200 million; JL French lower on results

By Paul Deckelman and Paul A. Harris

New York, Nov. 4 - Charter Communications Inc. came to market Tuesday with a quickly shopped $500 million offering of 10-year notes, while River Rock Entertainment Authority priced a slightly upsized offering of eight-year paper.

In the secondary market, Charter's big new deal was seen having little impact on its existing bonds. JL French Automotive Casting Inc.'s bonds were quoted solidly lower, after the Minneapolis-based automotive components maker posted a sizable third-quarter net loss.

The buzz in Tuesday's primary market - a buzz that actually began late Monday - concerned Charter Communications. The troubled St. Louis cable company, which had seen previous attempts to complete a junk deal unravel, spooled in an even half billion on Tuesday.

And one source told Prospect News that plenty of investors were tuned in.

The issuing entities, CCO Holdings, LLC and CCO Capital Corp., sold $500 million of 10-year senior notes (B3/CCC-) at par to yield 8¾%, at the tight end of price talk. JP Morgan, Banc of America Securities, Morgan Stanley and Citigroup ran the books.

Throughout the session sources told Prospect News that the deal seemed to be faring well - a sharp contrast to the $1.7 billion two-tranche offer from Charter Communications Capital Corp. I, LLC and Charter Communications Capital Corp. II, LLC that was postponed due to "unfavorable market conditions" on Aug. 14.

And throughout the session Prospect News quizzed its sources as to what was making the distinct difference.

For one thing, said a sell-side official, Moody's revised its ratings outlook on Charter Communications Inc. to stable from negative. Also there was news that the nation's third-largest cable provider turned a $37 million profit in the third quarter.

One informed source told Prospect News that the deal that Charter pulled in mid-August had the seven-year senior notes being talked at 10 1/8% area and 10¼% area on the 10-year senior notes.

"There have been three incarnations over the past few months. One was officially announced, was on the road, and got pulled. Then it sort of came back but didn't really materialize. Now, of course, it actually came back and priced.

"But any way you cut it, it's a tight pricing.

"Part of it can be attributed to the present market," the official continued, "and part of it is the senior nature of the deal.

"CCO Holdings is above CCH II [the issuing entity in August's postponed deal] on the capital structure. It's the holding company of CCH II."

Andrew Feltus, an assistant portfolio manager with Pioneer Investment Management, did not profess any great interest in Tuesday's Charter deal, but noted that the present conditions in high yield, which find cash-heavy accounts pursuing investment opportunities, certainly appeared to have benefited the troubled St. Louis cable giant.

"It's an issue that's got some issues," said Feltus, "and they didn't price it cheap.

"There is plenty of cash out there, and the market action confirms that," Feltus added. "It's not like this market is cheap."

To illustrate his point Feltus pointed to Monday's upsized offering from Manitowoc Co. Inc. of $150 million 10-year senior unsecured notes (B1/B+); it priced at par to yield 7 1/8%, at the tight end of the 7¼% area price talk.

"We looked at it and thought about it, because we already own some of it, and thought this might be the time to add to what we have," Feltus said. "But it came at 7 1/8%!

"I remember when double-Bs were issuing at seven and thought that was pretty amazing. It seems like single-Bs are doing it now. It's kind of shocking."

Aside from Charter, the market heard terms Tuesday on River Rock Entertainment Authority's deal. The company, which operates a Native American gaming complex in Sonoma, Calif., priced a slightly upsized issue of $200 million 9¾% eight-year senior notes (B2/B+) at 98.651 to yield 10%. A source close to the deal specified that it priced "within talk." It was increased from $190 million. CIBC World Markets ran the books.

Also on Tuesday Allied Waste North America, Inc. joined the expanding list of issuers that have been bringing quick-to-market deals. The Scottsdale, Ariz. waste services company intends to price an offering of $250 million of seven-year senior secured notes on Wednesday via Citigroup and JP Morgan. No price talk was available as Prospect News went to press.

And price talk of 6 5/8%-6 7/8% emerged Tuesday on Massey Energy Co.'s $360 million of seven-year unsecured senior notes (Ba3/BB), which are expected to price late Wednesday afternoon via UBS Investment Bank.

Feltus, the Pioneer assistant portfolio manager, told Prospect News on Tuesday that while there was little in the way of hard news in the emerging markets, investors seem to be conquering fears recently kindled when Russian president Vladimir Putin jailed Yukos oil magnate Mikhail Khodorkovsky for alleged fraud and tax evasion.

"I think Russia has really stabilized now from when the news initially broke," Feltus commented. "Spreads have tightened a good 20 or 25 basis points on the governments. Corporates are up a point or so in the last 48 hours. It's not quite to where we were before the news broke, but we are at the highest levels we have seen since then."

Feltus said that Putin, who met with investors last Friday, seemed to succeed in allaying fears that the former KGB hood would begin exercising a heavy hand in the affairs of Russian businesses.

"This is not a change in policy," Feltus said. "It's a one-off event," adding that Khodorkovsky had apparently violated a pact that Putin had struck with Russia's renegade oligarchs in the aftermath of the demolished Soviet Union.

That agreement, Feltus said, holds that "business doesn't mess with government, and government doesn't mess with business," and added that Khodorkovsky was throwing money and clout against the Putin regime.

"Russia is not great for the rule of law," Feltus said. "No emerging market is. Initially people worried that the arrest represented a big change in Russian policy. But it's not. This guy was campaigning against the government and he paid the price."

Overall, Feltus said, Russia continues to bask in the light of its recent upgrade to an investment-grade Baa3 from Moody's.

"As long as the country is growing and paying down debt it's becoming a better credit," he said.

"Now they have five Bs, and are split-rated. You can buy five-year paper at 220 over. Presently that looks pretty good."

The new Charter Communications 8¾% notes due 2013 priced too late in the session for trading around; meantime, the St. Louis-based cabler's outstanding bonds were essentially range bound, with the benchmark 8 5/8% notes due 2009 continuing to hover around the 79 bid, 80.5 offered area, little changed on the session. A trader noted, however, that Charter's short-term convertible debt was higher "on expectations that the company will call it, since it's the shortest debt in their capital structure." He quoted the company's 5¾% converts due 2005, for instance, as having moved up to 92 bid, 93 offered, from prior levels around 89 bid, 90 offered.

Dex Media Inc.'s new 8% senior notes due 2013, which had priced on Monday at par and then moved up to around 101 bid, 101.5 offered on the break later Monday, were heard to have fallen back during Tuesday's dealings, dipping to around par bid, 100.75 offered by the end of the session. However, the Denver-based telephone directory publisher's zero-coupon senior discount notes due 2013, which priced Monday at 64.393 bid, moved up to 65.25 bid, 65.75 offered.

American Towers Inc.'s new 7¼% senior subordinated notes due 2011, which priced at par on Monday, got as high as a wide 100.75 bid, 102.5 offered early Tuesday, but then traded down into a 100.125 bid going home.

Back among the established issues, JL French's 11½% notes due 2009 were quoted as low as 53 bid by the end of the day, down about five or six points from their prior levels, probably in response to the company's earnings data.

French, which makes aluminum die cast automotive parts such as oil pans, engine front covers and transmission cases, was hurt by production cutbacks at its largest customer, the Ford Motor Co. It reported that in the third quarter, it had a net loss of $116.4 million, versus a net loss of $1.6 million in the year-ago quarter. Operating income before the impact of $104.5 million of restructuring and impairment charges was $7 million in this year's third quarter, versus $10.9 million in the prior-year quarter. EBITDA before the restructuring and impairment charges decreased to $18.2 million from $22.6 million a year ago.

But French's troubles did not necessarily translate to setbacks across the auto sector; Collins & Aikman Products Co.'s 10¾% senior notes due 2011 were seen up a point and a half at 84 bid, while its 11½% subordinated notes due 2006 were a point better at 76. Dura Operating Corp.'s 9% notes due 2009 were more than a point better at 93.5 bid, while Delco Remey International Inc.'s 11% notes due 2009 were quoted a point better at 91.

"It was pretty quiet today," one market observer said, noting that even companies with significant news out weren't really going much of anywhere.

The latest accounting-related troubles of embattled healthcare operator -Santa Barbara, Calif.-based hospital owner Tenet Healthcare Corp. - were little moved on the news that the California Department of Health Services is expanding audits of Tenet-owned hospitals in the state after an audit of one center found $12 million in excess reimbursements. Tenet's 7 3/8% notes due 2013 were actually seen up half a point at 97 bid.

And even though Tyco International Ltd.'s dirty laundry is being aired in the high-profile trial of the Bermuda-based conglomerate's high-living former CEO, Dennis Kozlowski, that company's bonds weren't much seen around - not even after the company announced the latest in a series of belt-tightening moves aimed at dismantling the corporate empire that Kozlowski put together during the heady days when Tyco was growing by leaps and bounds via acquisitions. Tyco said it would eliminate 7,200 jobs, exit more than 50 business lines and sell its undersea fiber-optic cable network. Tyco recorded a $1.2 billion charge in the fiscal fourth quarter ended Sept. 30, for the restructuring and divestitures.

But a trader said that while Tyco stock was up $1.48 (7.04%) to $22.50, "it must not have had much effect" on the bonds. "It was pretty much a non-event." And despite Tyco's technically below-investment-grade rating - Moody's Investors Service gives the company a Ba2 - "those bonds have been trading at pretty tight spreads. They don't make very much sense for high yield accounts, as far as spreads go." He quoted Tyco's 6 3/8% notes due 2006 as having recently hung in at a very un-junk-like 175 basis points off comparable Treasuries.

Other traders agreed that Tyco was not something which they saw trading around very much.

Dynegy's longer-dated debt was seen moving up a bit in the wake of Monday's announcement that the Houston-based energy operator would sell its Illinois Power Co. assets to Exelon Corp., the corporate parent of Chicago's main electric utility, Commonwealth Edison Co., in a $2.25 billion deal that includes Exelon's assumption of $1.8 billion of Illinois Power debt.

A market source said that while Dynegy's 6¾% notes due 2005 were pretty much unchanged at 100.5 bid, its 7 1/8% notes due 2018 firmed to 81.5 bid from 80 bid on Monday, while its 6 7/8% notes due 2011 went to 88.875 from 87 on Monday. A trader elsewhere, however, said the 6 7/8s actually came off their highs for the day - they were around 90 bid, 91 offered in the morning - to end at 88.75.

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