Lamar brings upsized add-on; Vertis, ACG off as merger dies; builders lower despite stock gains

By Paul Deckelman and Paul A. Harris

New York, Oct. 1 - Lamar Media Corp. brought a quickly-shopped, upsized issue of eight-year notes to market Monday; those new bonds were seen having firmed when they were freed for secondary dealings. Also seen stronger were other recently priced offerings from American Tower Corp. and Quebecor Media.

Among the established issues, bonds of Vertis Inc. and American Color Graphics Inc. were seen falling anywhere from 4 to 6 points after Vertis called off its planned acquisition of the rival advertising insert printer.

Homebuilders' bonds were mostly lower - even though stocks of the builders rose after a Citigroup analyst touted the shares of two of the biggest names in the business, Lennar Corp. and D.R. Horton Inc., saying recent declines in their prices made them attractive. Among the bond names which did not get any lift from the builders' stock surge were Horton and Hovnanian Enterprises Inc. However Tousa Inc.'s bonds - the former Technical Olympic - went up solidly. Traders offered various explanations, including the attractive price levels for the Hollywood, Fla.-based builder's beaten-down notes, as well as it having made a coupon interest payment on one series of bonds.

A high yield syndicate official, taking note of a dramatic Monday rally in the stock market, said that the CDX High Yield 9, which launched late last week, closed the first October session at 99 1/16 bid, after having opened at 98¾ bid.

Lamar Media upsizes

Lamar Media became the fifth U.S.-based issuer to do a drive-by deal since mid-September when it priced an upsized $275 million add-on to its 6 5/8% senior subordinated notes due Aug. 15, 2015 (Ba3/B) at 94.868 to yield 7½% in a quick-to-market transaction on Monday.

The price talk was 7½%.

JP Morgan and Wachovia Securities were joint bookrunners for the debt refinancing, working capital and other corporate purposes deal.

The original $400 million issue priced at par on Aug. 9, 2005.

The Baton Rouge, La., outdoor advertising company priced a previous $200 million add-on at 92.809 to yield 7¾% on Aug. 15, 2006.

Hence Lamar Media walked away from Monday's transaction with an interest rate lower than the one printed on the paper it issued in the late summer 2006 tap, but substantially higher than the original par-pricing 6 5/8% issue in 2005.

Also pricing a Rule 144A deal on Monday was Argentine energy company Edenor SA, which completed a $250 million issue of 10-year notes at par with a coupon of 10½%, via Citigroup and Deutsche Bank.

Parallel, but possibly converging

In the most recent issue of Leverage World: The Weekly Publication of High Yield Strategy, noted junk bond strategist Martin Fridson remarked: that "The tale of the unsold leveraged buyout (LBO) paper has taken some unexpected twists.

"Conventional (long-only, fee-based) high yield investors seem unconcerned about the overhang of paper they deem unacceptably structured regardless of price. They have resumed their purchases of 'acceptable' bonds. These are issues of well-regarded credits, not (at least so far) related to LBOs, with terms geared to a supply-demand environment less lopsidedly favorable to issuers than earlier this year. Meanwhile, hedge funds and private equity firms are taking up the LBO bridge financing that banks found themselves stuck with when the music stopped.

"The two markets are essentially operating independently and in parallel."

In the "acceptable" category Fridson includes recent large issues from R.H. Donnelley ($1 billion) and American Tower ($500 million).

"These successful, large sales corroborate earlier impressions that high yield institutional managers have cash to put to work. It is just that they do not want to put it to work in obligations that were designed in a period when anything (read: covenant-lite structures and toggle PIK coupons) would fly."

He also notes that the LBO financing backlog, "previously estimated at $330 billion," has been reduced by means of the partial sales of selected loans of Allison Transmission and First Data Corp., and the cancellation of the Harman International LBO, as well as the likely cancellation of the Sallie Mae LBO.

Fridson recounts that the market buzz maintains that the investment banks are facilitating the hedge funds' and private equity firms' loan purchases with seller financing, reportedly with leverage of three to four times, in addition to other inducements including selective covenant changes, most favored nation clauses, and steep discounts.

Fridson adds that in the wake of the recent "conventional" deals, such as the above-mentioned R.H. Donnelley and American Tower transactions, there is talk of plans to sell the bond portion of Allison Transmission's LBO financing as a drive-by.

"This approach would be unusual - perhaps even completely unprecedented - inasmuch as the drive-by mechanism is ordinarily reserved for well-regarded, repeat issuers," Fridson observes.

"Drive-bys are often add-ons to deals that were road-showed a short while earlier. Carrying through on this plan would mark a departure from the independent, parallel operation of the conventional high yield bond market and the market in leftover LBO financing."

New bonds move up

When the new Lamar Media 6 5/8% notes due 2015 were freed for secondary dealings, a trader saw them in a 95.5 bid, 96 context, well up from their 94.868 issue price earlier in the session. Yet another pegged the new bonds at 95.5 bid, 95.875 offered.

A trader noted that the add-on deal "is going to be a new Cusip, which sort of perturbed some people." Even though the terms of the new bonds are identical to those of its existing bonds, it will be treated as a separate issue - in fact, he said there are going to be three separate tranches of 6 5/8% notes out there, which he said was "a little bit odd - why they wouldn't make them fungible, I don't know." He said he had not seen the new bonds trading around, but quoted the existing 6 5/8s "a little better bid-for," at 95.75 bid, 96 offered.

Also among the recently priced deals, that trader saw American Tower's new 7% notes due 2017 move up to 100.75 bid, 101 offered from levels around 100.25 bid, 100.5 offered on Friday. The bonds priced at par on Sept. 24.

He also saw the new Quebecor Media 7¾% notes due 2016 at 95.5 bid, 95.75 offered, up from 95 bid, 95.25 offered, and well up from their 93.75 pricing level last Wednesday. "So good-quality, recent new-issue type stuff has rallied along with the market."

Vertis, ACG off as merger flops

Back among the established issues, a trader saw American Color Graphics' 10% notes due 2010 fall to 64 bid, 66 offered from 73 bid, 75 offered at the opening on the news that the Brentwood, Tenn.-based company's planned acquisition by rival advertising insert publisher Vertis had been called off.

Another trader saw the ACG 10s down 6 points on the day at 64 bid, 66 offered, while Vertis' 10 7/8% notes due 2009 were down 4 points at 92 bid, 94 offered.

Another trader saw the Vertis bonds at 93, which he said was 4 points lower, but had not seen the ACG bonds.

Baltimore-based Vertis said that the planned transaction, which was announced in July, had been terminated, although it said that it is still "prepared to entertain further discussions."

After the initial announcement, the two companies had extended their deadline for signing a definitive merger agreement several times. They recently announced that certain American Color bondholders had agreed to an exchange offer for their outstanding notes, a key element necessary for the deal to happen.

After that, however, Vertis said that it had made what was apparently a final offer to ACG to sign a merger deal, and had received "no affirmative response" by the Sunday night deadline, causing Vertis to pull the plug on the arrangement and terminate its letter of intent.

Housing bonds off despite stock surge

Elsewhere, traders generally saw housing names off, even as the sector's stocks surged on bullish comments from a Citigroup equity analyst, who touted the now more attractively priced shares of industry heavyweights Lennar and D.R. Horton.

Horton's 8% notes due 2009 were seen off 1 point on the session at 99 bid, while a market source saw sector peer Hovnanian's 6 3/8% notes due 2014 down a full 3 points at 78 bid.

Another trader called Red Bank, N.J.-based Hovnanian's 8 7/8% notes due 2012 two point losers at 76 bid, 78 offered and saw Standard Pacific Corp.'s 6½% notes due 2008 down 1½ points at 86 bid, 88 offered.

There was one major exception: a trader said Tousa "looked like it moved," with its 8¼% notes due 2011 up 2½ points at 61 bid, 63 offered, its 9% notes due 2010 at 63 bid, 65 offered, up 2 points, its 10 3/8% notes due 2012 up 3 points at 30 bid, 32 offered, its 7½% notes due 2011 at 25 bid, 27 offered and its 7½% notes due 2015 at 24 bid, 26 offered, both also up 3 points.

At another desk, a trader saw the company's 10 5/8% notes due 2012 up 3½ points at 31 bid, 33 offered, and said the news that the company had made its scheduled coupon interest payment on the 81/4s "is a favorable sign for Tech Olympic." He also noted that "obviously, they took a big hit recently, and the cheaper price to which those bonds had recently been beaten down to "makes the bonds more attractive."

Freescale rises

Among other notable names, Freescale Semiconductor Inc.'s recently volatile bonds were seen better, with its 8 7/8% notes due 2014 up about 3 points at just below par, although no one had seen any definitive positive news about the Austin, Tex.-based semiconductor manufacturer. High-tech sector peer Amkor Technology Inc.'s 7¾% notes due 2013, on the other hand, were off slightly to the 96.5 region.

A trader saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 up 1 point at 88.75 bid, 89.75 offered, while domestic arch-rival Ford Motor Co.'s 7.45% notes due 2031 were up ¼ point at 79.75 bid, 80.75 offered.

Conference seen stilling the market

Overall, a trader said that not too much was happening. "It's the first day of the [fourth] quarter, it's a Monday, and there's a conference going on" - Deutsche Bank Securities' annual get-together in Arizona, which took many portfolio managers and other investment decision makers away from the front lines.

"Initially, the high yield market was lower - we opened up a little softer," he said, as stocks opened "kind of unched [unchanged]. As the market kind of took off, we rallied a little bit with it."

However, he said "flow-wise, things were extremely light. We saw a couple of bid lists from liquidation-type guys - but even that was very sketchy, very thin. It seemed like nobody wanted to participate today."

Another trader noted that everyone seemed to be watching the stock market, which soared on Monday, the bellwether Dow Jones Industrial Average climbing back above the 14,000 mark for the first time in 2½ months - even as the biggest U.S. bank, Citigroup, and its European counterpart, UBS AG, each warned that their upcoming earnings reports will show massive multi-billion-dollar losses and writedowns as a result of the recent problems of the subprime lending industry and the sharp decline in mortgage-backed securities.

"They just keep chasing this stuff," he marveled. "They can't wait to buy these things."

The trader saw the widely followed CDX index of junk market performance up 3/8 at 99 1/16- 99 3/16. Among other gauges of market performance, the KDP High Yield Daily Index was off 0.02 to 79.82, while its yield widened by 1 basis point to 7.89%.

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