MetroPCS brings upsized deal, bonds trade up; Nortel gyrates on Chapter 11 filing; broad market lower

By Paul Deckelman and Paul A. Harris

New York, Jan. 14 - MetroPCS Wireless Inc. brought a quickly shopped offering that mirrored its existing 9¼% notes due 2014 to market Wednesday, high yield syndicate sources said. The new issue - which came at a steep discount to par - was solidly upsized to nearly double the amount originally planned, and the bonds traded up smartly when they were freed for secondary dealings.

Also in the primary sphere, price talk emerged on the $765 million equivalent two-part dollar- and euro-denominated offering that German healthcare company Fresenius SE is shopping to potential investors.

And Intelsat Ltd. announced plans for its Intelsat Subsidiary Holding Co. to sell new bonds to finance the unit's modified Dutch auction tender for a portion of its existing bonds; the bonds included in the tender offer were seen up several points on the day.

Among issues having no new-deal links, Nortel Networks Corp.'s bonds nosedived on the news the Canadian telecommunications equipment maker had filed for bankruptcy, though they bounced off their early lows to mostly end only modestly lower, in heavy trading.

Isle of Capri Casinos Inc.'s bonds, which had shot up on Tuesday on news that the gaming company would take out a portion of them via a tender offer - were seen having fallen back a little to levels well below the price the company said it would pay for any bonds it accepts for purchase.

The high-yield market was down ½ to 1 point on Wednesday, according to a trader for a high-yield mutual fund, who said that falling stock prices and more dire news from the financial sector appeared to be forces inhibiting investors from jumping into junk.

Meanwhile a money manager from a different high-yield mutual fund said that while junk was softer on the day it felt better toward the Wednesday close.

MetroPCS upsizes

MetroPCS Wireless, Inc. priced an upsized $550 million issue of notes mirroring its 9¼% senior notes due Nov. 1, 2014 (B3/B) at 89.50 to yield 11.186% on Wednesday.

The notes came at the tight end of the 89.00 to 89.50 price talk.

The issue was upsized from $300 million.

JPMorgan, Banc of America Securities and HSBC were joint bookrunners for the sale of the non-fungible mirror notes. The $492.25 million of proceeds will be used for general corporate purposes.

The deal was driven by $250 million of reverse inquiry, according to a market source, who added that the order book was reportedly full when the 11 a.m. ET investor call took place.

The notes rallied smartly in the secondary market. Shortly after pricing they were seen at 91¼ bid, 92¼ offered, according to a hedge fund manager.

Fresenius dollar deal oversubscribed

Elsewhere price talk and tranche sizes surfaced Wednesday on the Fresenius US Finance II Inc. two-part offer of six-year senior bullet notes (Ba1/BB).

The German pharmaceuticals firm talked $500 million of dollar-denominated notes to yield 10½%, and to price at a discount of 5 to 10 points.

That $500 million tranche commands $4 billion of orders, according to a high-yield mutual fund manager, who thus expects to be severely cut back on allocations.

Meanwhile a €200 million tranche is talked at 10¼% to 10½%, also with a discount of 5 to 10 points.

The euro-denominated deal is reportedly not seeing demand near as intense as that of the dollar deal, market sources say.

The bridge refinancing deal is set to price Thursday morning, New York time.

JPMorgan, Deutsche Bank Securities, Credit Suisse and BNP Paribas are joint bookrunners for the dollar-denominated notes.

Deutsche Bank Securities, JP Morgan, Credit Suisse and BNP Paribas are joint bookrunners for the euro-denominated notes.

Intelsat announces notes offer

Intelsat Subsidiary Holding Co., Ltd., a subsidiary of Intelsat, Ltd., announced that it plans to fund a cash tender for two series of outstanding notes with an offering of new senior notes.

The size of the tender is $200 million, which is the likely size of the bond deal according to Dianne VanBeber, Intelsat's director of investor relations.

Goldman Sachs & Co., the dealer manager for the tender, is the likely underwriter for the new senior notes, VanBeber added.

The tender is for $200 million of Intelsat's outstanding 7 5/8% senior notes due 2012 and 6½% senior notes due 2013.

The early participation date is Jan. 28. The tender expires on Feb. 11.

Elsewhere Wednesday R.R. Donnelley & Sons Co.'s upsized $400 million high-grade deal, 11¼% senior unsecured notes due 2019 (Baa2/BBB+/BBB), which priced at 99.992 via Banc of America Securities, Citigroup and JPMorgan, saw a modicum of high-yield play - a couple of junk accounts, but nothing major - according to an informed source.

And the cascade of defaulting high-yield companies is expected to continue, according to a high-yield mutual fund manager, who said that Charter Communications, Inc. and Six Flags, Inc. both are rumored to be on the verge of bankruptcy.

New MetroPCS paper pops up

When the new MetroPcs 9¼% notes were freed for secondary dealings, a trader saw the bonds at 91.5 bid, 92.5 offered, well up from their pricing level at 89.5.

Another trader pegged them at 91.75 bid, 92.25 offered - and declared that the bonds "only moved up because the underwriters priced the deal too cheaply in the first place."

Yet another trader, seeing the new bonds at 91.5 bid, 92.5 offered, agreed. Investors, he said, "are saying to themselves 'why am I going to pay par for [new] bonds that are still going to trade in the mid-90s anyway?' and so they show no interest" in paying par when the bonds are marketed, forcing the underwriters to ultimately price the deal well below par just to get it done and get it out there.

"Eventually, they [in effect say] 'we'll buy them at 89, because we know that we have two or three quick points in them that they'll trade up to. If they trade up to 94, we'll get out of them early and won't have to keep them on the books'."

He added that "the people who are buying these deals know that these [issuers] need the money, so they have a little more leverage" to hold out for a lower price and higher yield. "They don't have to pay par and be competitive to get bonds when they first come out."

And the MetroPCS deal was hardly unique on that score - the trader further noted that "we've seen the same thing with all of the recent deals," referring to the offerings for a unit of Cablevision Systems Inc. last week and before that, at the tail end of 2008, from El Paso Corp. and Kansas City Southern Railway Co.

"They've all been pricing in the high 80s [88.885 for Cablevision, 88.909 for El Paso and 88.405 for Kansas City Southern] and immediately jumping two or three points, even on the first day."

Since then, the El Paso deal, which priced on Dec. 9 and the Kansas City Southern deal, which came to market on Dec. 15, have since moved up to around the par level; meantime, Cablevision's CSC Holdings Inc.'s upsized $750 million offering of 8½% notes due 2014 reached highs around 93 bid, 94 offered earlier in the week, although they have since eased a little from that peak level. A trader at another desk called them 91.5 bid, 92.5 offered on Wednesday, down ½ point on the day.

Market indicators slide again

The widely followed CDX High Yield 11 index of junk bond performance, which had fallen by 3/8 point on Tuesday, was down a full point on Wednesday, a trader said, quoting it at 75 7/8 bid, 76 3/8 offered. The KDP High Yield Daily Index fell by 53 basis points to 55.15, while its yield widened by 22 bps to 13.84%.

In the broader market, advancing issues continued to trail decliners, by around a better than five-to-four margin. Overall market activity, reflected in dollar volumes, declined 8% from the pace seen in Wednesday's session.

"We definitely [saw] continued weakness," a trader said of Wednesday's market. "Without a doubt, there was a downside bias."

Active issue trade lower

He noted for instance that the issue regarded by some as a junk market bellwether, the Community Health Systems Inc. 8 7/8% notes due 2015, retreated to 92 bid from Tuesday levels at 93.375, on $22 million of bonds traded.

Apart from the Nortel bonds - easily the day's biggest movers - perhaps the most actively traded credit was Freeport McMoRan Copper & Gold Inc., whose 8¼% notes due 2015 eased to 80 bid in round-lot trading from 81.875 on Tuesday, on what the trader called "big-time volume" of $50 million.

He also saw the Phoenix-based metals mining company's 8 3/8% notes due 2017 dropping to 78 bid from 81 offered on $21 million, observing that "some issues have been getting clobbered here, just like in the days of old."

Other fairly active bonds that he saw on the downside included Charter Communications Inc.'s CCO Holdings LLC's 8¾% notes due 2013, which dropped to 64 bid from 70 previously, which he called a "good illustration of the breadth of the downward pressure on our market," with "significant selling " of $24 million traded.

And he saw Wynn Las Vegas LLC's 6 7/8% notes due 2014 down a deuce at 76.5 bid, versus 78.5 on Tuesday, but noted "an uptick in volume" to $30 million. "It's typically an active bond," he said - but not $30 million active," which put it among the most active issues of the day.

Nortel drops the other shoe

But the biggest movers on the day were Nortel Networks' bonds, which bounced around at lower levels, in heavy trading, after the Toronto-based company finally resolved the speculation about whether it would make over $100 million of scheduled interest payments due Thursday by filing for bankruptcy protection.

A market source saw heavy trading in the three outstanding issues issued by the company's Nortel Networks Ltd. subsidiary --- the floating-rate notes due 2011, the 10 1/8% notes due 2013 and the 10¾% notes due 2016. Those bonds had all finished in a 22-24 context on Tuesday - they had actually been easing over the previous two sessions as investors wondered whether the company would make the scheduled interest payments - but then they quickly dived to levels around 15 bid on the early-morning news that Nortel had sought bankruptcy protection. However, after hitting those early lows, each of the three issues turned back upward, in heavy trading mostly dominated by round lots, to plateau around the 19-20 area.

A trader -- quoting the 10¾%, the 10 1/8% and the floating-rate notes all trading "about the same, 19.5 to 20," said that almost every trade "looks like $1 million or more, except for a few small pieces," adding that this was not surprising, as Nortel's slide into bankruptcy "was expected."

Another trader saw the floaters as the most active issue, having fallen to 18.75 bid from 22.5 on Tuesday, on very heavy volume of $70 million. He saw the 10¾% notes drop to 19.75 bid from 24.5, with $34 million traded, while the 10 1/8% notes eased to 21 bid from 22.25, on volume of $33 million.

Nortel's Northern Telecom Capital Corp. 7 7/8% bonds due 2026 meantime plunged to 7.25 bid from their previous round-lot level of 20, seen on Dec. 29. Volume was $8 million.

Meanwhile, Nortel's Northern Telecom Capital Corp. subsidiary's 7 7/8% bonds due 2026, which had most recently traded around 20 bid at the tail end of last year and which had not been seen in the trading pits since, were heard to have opened sharply lower and then having kept falling to around the 7 bid level before stabilizing there. Activity was much less than in the parent company's corporates.

Nortel - once Canada's largest company with over 90,000 employees at its peak, around 2000, three times what it has now, and a market capitalization approaching $300 billion - which has since shrunk to just $155 million - has been on the slide for a long time, losing sales both because of a general retrenchment in equipment spending by the major telecommunications companies that make up its customer base, as well as aggressive encroachments upon its market share by rivals offering newer technologies, such as Cisco Systems Inc., Ericsson and Alcatel-Lucent.

Junk market denizens have been speculating for weeks that Nortel would be forced into Chapter 11 if it was unable to make Thursday's coupon payments totaling approximately $107 million.

"Nortel filed for bankruptcy in Delaware, answering the question of whether it would make $100 million of coupon payments due tomorrow," wrote Gimme Credit analyst Kim Noland in an afternoon comment. "We had predicted that the company might decide to preserve its remaining cash to assist in a restructuring given its seeming inability to sell its Metro Ethernet subsidiary for a good price."

The Toronto-based company attributed its decision to file to a credit crunch and declining sales. According to court papers, Nortel has about $6.3 billion in debt and over 25,000 creditors as of Sept. 20, 2008.

"The global financial crisis and recession have compounded Nortel's financial challenges," the company said in a statement. "This process will allow Nortel to deal decisively with its cost and debt burden, to effectively restructure its operations and to narrow its strategic focus in an effective and timely manner."

Now, the market is waiting to see if Nortel will indeed be able to sell some assets as it goes through the restructuring process.

On the news, Standard & Poor's cut Nortel's credit rating to D from B-.

Intelsat bonds gain altitude on tender news

Apart from Nortel, traders saw Intelsat's 7 5/8% notes due 2012 and 6½% notes due 2013 up on news that the Bermuda-based satellite communications company will tender for a portion of those bonds in a modified Dutch auction tender, using the proceeds from its upcoming bond issue to pay for that buyback.

A trader said the 7 5/8s were up 4 points on the day to 76 bid, 78 offered, a rise he attributed to the tender offer news.

He had not specifically seen the 61/2s, but surmised that "they're probably up a similar amount on the tender news as well."

Isle of Capri steps back

A trader meantime saw Isle of Capri Casinos' 7% notes due 2014 - which had zoomed about 6 or 7 points Tuesday to the low 50s on news that the St. Louis-based gaming company will tender for $140 million face amount of the $500 million of outstanding bonds at 55 to 58 cents on the dollar - fall back to 50.5 bid, versus 52.875 on Tuesday.

"They were pretty active," he said, "but lower, even with the tender offer [news]. You would think that it would have bucked the downward trend." At another desk, a trader called the Isle bonds "down 1 or 2" on the day at 49 bid, 51 offered, versus 50.5 on Tuesday, but said that dealings were "very light."

Elan gains on Citi news

In an apparent case of a delayed reaction, a trader saw Elan Corp. plc's bonds firmer by points - against the backdrop of a generally down market - a day after the Irish drugmaker announced that it had hired Citigroup to help it evaluate strategic options, possibly including the sale of assets or even the company itself.

He quoted its 8 7/8% notes due 2013 at 69 bid, 71 offered, which he called a 3-point gain on the session and said its bonds generally were 2 to 3 points higher.

"It's amazing" that anything could go up in a down market influenced by the big loss in equities, which saw the bellwether Dow Jones Industrial Average off nearly 250 points on the day, the trade commented.

Chemicals clobbered, again

Among the struggling chemical names, Chemtura Corp.'s 6 7/8% notes due 2016 fell to 49.5 bid from 53.125 before, with $13 million trading. Nova Chemicals Corp.'s 6½% notes due 2012 eased to 40 bid, down ½ point, on $8 million of turnover.

A trader saw bankrupt chemical maker Lyondell Chemical Co.'s 9.80% notes due 2020 lower by ½ point at 30 bid, on $3 million trades; its Equistar Chemicals 7.55% bonds due 2026 were also at 30 bid, but down 3 full points on the day, also on $3 million of volume, while Lyondell's 10¾% notes due 2010 actually gained ½ point to 30 bid, on volume of $1 million.

Auto bonds limp along in low gear

In the autosphere, a trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2031 unchanged at 17.5 bid, 19.5 offered, while domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were at 25 bid, 27 offered, down a point on the day.

Another trader saw the GM benchmarks at 17 bid, down from 18.5, on $2 million of volume. "They were not very active, but obviously weaker," he opined. He also saw GM's 7.20% notes due 2011 unchanged at 27 bid, with $7 million changing hands.

He also saw the Ford long bonds fall to 25.5 bid from 27.25 previously, with $8 million traded.

Among the automotive finance names, a trader saw GMAC LLC's 8% bonds due 2031 off 1¼ points to 51.5, on $2.5 million traded. Another trader saw those bonds "fall a little," down a point at 51 bid, 53 offered.

"These had a huge run-up, of about 30 points or so" from where they were before GMAC got its federal approval to become a bank and access the TARP bank-bailout money, "so they've been giving back a point or so every day" over the last few sessions.

GMAC's floaters due May 15 lost ¼ point to 95, on $2 million traded.

Ford Motor Credit Co.'s 8¾% notes due 2010 traded down to 81.75 bid from prior levels at 83, on volume of $11 million.

Andrea Heisinger and Stephanie N. Rotondo contributed to this report.

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