Level 3 plans deal, bonds higher; Levi lower after Moody's downgrade

By Paul Deckelman and Paul A. Harris

New York, Sept. 22 - Level 3 Communications Inc. said it would sell $500 million of new eight-year notes Monday, while a pair of agriculture-related firms harvested the proceeds of their new deals - Hines Nurseries Inc., which priced $175 million of new eight-year notes, and Seminis Vegetable Seeds Inc., which brought a $190 million 10-year deal to fruition. A third such "green-thumb" bond deal, a $200 million offering for lawn-care company The Scotts Co., meantime remains on the forward calendar.

Level 3 bonds were seen at firmer levels in secondary trading, encouraged both by the financing news as well as by the telecommunications company's reaffirmation of its consolidated revenue numbers for the full year. On the downside, Levi Strauss & Co. bonds were lower after Moody's Investors Service cut the blue-jeans maker's debt ratings, and Loral Space & Communications Inc. debt lost altitude after the satellite communications company declared one of its orbiting birds a total loss.

The final session of summer 2003 (autumnal equinox takes place 6:47 a.m. ET Tuesday) saw terms emerge on a pair of par-pricing dollar-denominated fixed-rate deals that came with identical yields.

And sell-side sources who spoke toward the close of Monday's session noted that both offerings, one each from Hines Nurseries and Seminis Vegetable Seeds, priced inside of their respective, identical price talk.

Meanwhile two companies, Level 3 Communications, Inc. and IMCO Recycling Inc., stepped up to the starting line with bond deals that will begin roadshowing Tuesday.

Monday was salad-day for Oxnard, Calif.-based fruit and vegetable producer Seminis, which priced $190 million of 10-year senior subordinated notes (B3/B-) at par to yield 10¼%

Citigroup pruned, weeded and watered the new Seminis notes which came inside the 10½% area price talk.

One source, late in the session, reported seeing the new Seminis paper taking impressive root in the aftermarket - as high as 102.5. Another sell-sider thought they might have even climbed slightly higher.

Also coming inside of their 10½% area talk were Hines Nurseries, Inc.'s new notes. The Irvine, Calif. commercial nurseries operator sold $175 million of eight-year senior notes (B3/B) at par, also to yield 10¼%. Credit Suisse First Boston was the bookrunner.

Like Seminis, Hines Nurseries sprouted up impressively in the secondary, a source said, citing levels of 104, 105.

Several traders quoted the notes due at levels just below 104 bid, well up from their par issue price, which one acknowledged was "certainly a nice little run."

"I would not say the market felt good when we were starting out on Monday," a sell-side official told Prospect News. "But by the time both of these 'mirror' deals came inside of their price talk things felt somewhat better."

Another sell sider reported that the beating which the U.S. dollar was taking Monday had fallout in the junk market. The 10-year Treasury went as high as 4.32% before falling back to 4.24%, this source added.

Nevertheless, added the official, Hines and Seminis would seem to serve as strong indicators that investors continue to be in possession of cash that they need to put to work.

Also pricing during the opening session of the Sept. 22 week was an addition to an existing floating-rate issue from Calpine Corp. subsidiary Calpine Construction Finance Co. LP/CCFC I.

The San Jose energy company priced a $50 million add-on to its second priority senior secured floating-rate notes due Aug. 26, 2011 (B-) at 99.0. The interest rate on the Goldman Sachs-led deal is three-month Libor plus 850 basis points, with a Libor floor of 1.25%.

The original $365 million offering priced at 98 on Aug. 7.

Two companies filled the vacancies on the new deal calendar left by Hines and Seminis.

Level 3 Communications, Inc. begins the roadshow Tuesday for $500 million of eight-year senior notes, which are expected to price later this week.

Citigroup and Credit Suisse First Boston will run the books on the Broomfield, Colo.-based information and communications company's new offering.

The roadshow also starts Tuesday for IMCO Recycling's $200 million of seven-year senior secured notes (B3/B-), which are expected to price on Oct. 1.

JP Morgan is the bookrunner for the Irving, Tex.-based aluminum and zinc recycler's deal.

Finally, during Monday's primary market session, price talk of 10¾% area was heard on MetroPCS, Inc.'s $150 million of eight-year senior notes (B3/CCC+), expected to price Wednesday via Bear Stearns & Co. and UBS Investment Bank.

Back among the established issues, Level 3's bonds were seen at stronger levels after the company announced its planned new deal and updated its third-quarter and full-year financial projections, after having adjusted both for discontinued operations, to reflect the sale of Midwest Fiber Optic Network, which Level 3 acquired earlier this year when it completed its acquisition of Genuity Inc.

The company also cautioned in its statement that it anticipates slightly lower than projected revenue in its communications business for the third quarter, due to lower-than-expected usage in its softswitch and IP businesses.

But while Level 3 said it expected third-quarter consolidated revenue of between $865 million and $900 million, owing to the discontinued operations and market softness - well down from the $930 million figure it had put out in July - it upped its projections for consolidated third-quarter EBITDA, from $97 million to somewhere in the $97 million-$102 million range, based on its cost-management initiatives, and it re-affirmed previous full-year consolidated revenue projections of between $4.04 billion and $4.28 billion.

"Level 3 was up a little stronger today, even though the news came out that it had to reduce its expectations of revenue flows and its outlook for the quarter," a trader said, quoting the company's 9 1/8% notes due 2008 as having risen two points to 86 bid, while its 11% notes due 2008 shot up to 91.5 bid, 92.5 offered from Thursday's levels at 89 bid, 91 offered and its 12 7/8% notes due 2010 went from 71 bid, 73 offered to 72.25 bid, 74.25 offered. "There was some strength there," he said.

At another desk, a trader saw Level 3's 11¼% notes due 2010 having firmed to 89 bid, 90 offered, while its zero-coupon/10½% notes were higher at 85 bid, 86 offered and its zero-coupon/12 7/8% notes were at 73 bid, 74 offered.

Elsewhere in the communications sphere, Qwest Communications International Inc.'s 8 7/8% notes due 2012 were half a point better at 109.5 bid, and American Tower Corp.'s 9 3/8% notes due 2009 were likewise half a point better at just under 104. Nextel Communications Inc.'s 9½% notes due 2011 were half a point higher at 111.

But Charter Communications Holdings Inc. - whose bonds had firmed Friday on the news that the St. Louis-based cable operator had exchanged $1.6 billion of new 10¼% notes due 2010 for over $1.9 billion principal amount of existing convertible and straight junk bond debt - rebounded downward on Monday, with its 8 5/8% notes due 2009 quoted off two points at 78.5 bid.

A market observer saw its zero-coupon/9.92% notes due 2011 "down a couple of points," at 74 bid, while its zero-coupon, 11¾% notes due 2010 were at 73.5 bid, "pretty much sideways."

Among the satellite operators, EchoStar DBS Corp.'s 6 3/8% notes due 2011 were about a point lower at 99 - but Loral Space and Communications' 10% notes due 2006 were seen six points lower at 54 bid; the New York-based producer and operator of communications satellite said that its TeleStar 4 satellite, which had stopped working on Friday, was a "total loss," although it was insured for $141 million.

Back on the ground, Levi Strauss bonds - which had bounced around last week at generally higher levels as the company put the finishing touches on its bank financing deal - moved lower Monday after Moody's Investors Service cut the San Francisco-based apparel producer's debt ratings, including its unsecured bond rating, which fell to Ca from B3 previously (although Standard & Poor's affirmed Levi, with its senior unsecured rating at B).

Moody's said the downgrade "reflects [its] concerns about the rapid decline in the company's financial flexibility vis a vis its recently executed credit agreement, and weaker than anticipated year to date results, particularly in the areas of sales, working capital needs, and cash generation, which have led to higher debt levels."

The ratings agency also noted Levi's "relatively weak cash generation due to a high debt burden; revenues and return on assets which have underperformed Moody's expectations; the required cash outlay and the execution risk inherent in the company's attempt to reduce its cost structure at a pace consistent with persistent price deflation," as well as its lower unit demand for its core blue-jeans product and the increased pressure from retailers for margin support plaguing the industry.

Moody's further noted that while Levi had made a "significant" investment in working capital and new product development, this investment "has not provided the anticipated returns on investment, nor sufficiently stemmed the company's revenue decline that started in 1996."

A trader said that Levi's 11 5/8% notes due 2008, after having opened at 91 bid, fell as low as 86 on news of the downgrade, before bouncing off its lows to close at 87.5 bid, 89.5 offered.

Its 12¼% notes due 2012 had likewise opened at 88.5 bid, but then fell to 85, and closed at 85 bid, 87 offered. Levi's 7% notes due 2006 opened at 84, dipped to 82, and then bounced off their lows to end at 83 bid, 84 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.