Levi bonds continue to firm on Dockers developments; PanAmSat brings drive-by, Calpine a no-show

By Paul Deckelman and Paul A. Harris

New York, Sept. 27 - Levi Strauss & Co. bonds were seen up for a second consecutive session on Monday, after The Wall Street Journal reported that the San Francisco-based blue jeans maker had signed a letter of intent with Vestar Capital Partners for the sale of its Dockers casual clothing operation, essentially confirming Friday's New York Post story that Levi and Vestar were close to an $800 million deal.

In the new-deal arena, PanAmSat Corp. announced plans to sell a new issue of 10-year discount notes, and was seen by high yield syndicate sources to have done exactly that later in the session. Graham Packaging Co., meantime heard to have downsized the eight-year part of the company's planned two-part offering.

However, what had been expected to be the big deal of the day - Calpine Corp.'s planned $785 million offering of 10-year senior secured notes - had not appeared by the end of the session, although price talk did emerge on the deal, which is now expected to price Tuesday.

In total one deal, a quick-to-market discount note issue from PanAmSat that came to $247.3 million of proceeds, priced during the opening primary market session of the Sept. 27 week.

Elsewhere much of the market's attention seemed to be focused on Calpine Corp.'s $785 million offering of 10-year senior secured notes (B+).

Terms had been expected to emerge Monday on the deal that had been marketed via an investor conference call last Friday. However well after the Monday close no terms had been heard.

Early in Monday's session price talk of 9½%-9¾% emerged on the Calpine notes (B+), which are coming to market via Merrill Lynch & Co.

Market sources told Prospect News that while Calpine is talking the notes at 9½%-9¾%, investors working on the deal have in mind a yield that would fall in the 9¾%-10% range.

An informed source told Prospect News late Monday that Calpine is now expected to price on Tuesday.

PanAmSat sells dividend deal

The only terms to emerge during the Monday session were those of a new discount note issue from Wilton, Conn.-based satellite network operator PanAmSat.

PanAmSat Holding Corp. sold $416 million of 10-year senior discount notes (Caa1/B+) at 59.46 to yield 10½% in a drive-by transaction.

The sale generated $247.3 million of proceeds.

The notes are cash pay for the first five years, after which the coupon steps up to 10 3/8%. They came to market in the middle of the 10 3/8%-10 5/8% price talk.

Citigroup ran the books on the deal

Proceeds will be used to fund a dividend to the company's equity sponsors, Kohlberg Kravis Roberts, Carlyle Group and Providence Equity Partners.

A hot market

Not long after the dust settled on the Labor Day holiday, and the forward calendar started to build, Prospect News began asking sources on both the buy-side and the sell-side whether the present high yield is a "hot market."

Up until Monday the closest to an affirmative response that was heard was "Yes, but...," from a variety of sources, many of whom specified that investors are shopping carefully, even though paper is scarce.

However on Monday one investment banker crossed the line, saying that the present high yield must indeed by a hot market, all the while pointing at Monday's PanAmSat deal.

"The equity sponsors are taking about $250 million off the table," the banker observed. "When KKR, Carlyle and Providence Equity bought PanAmSat they put in a total of $550 million between the three of them. And they're already taking off $250 million off the table.

"If you can do that after a month and a half it's a hot market,"

American Tower also comes quickly

Elsewhere Monday, further drive-by action came to the fore as Boston communications tower company American Tower Corp. was heard to be planning to price $250 million of eight-year senior notes on Tuesday afternoon.

The Credit Suisse First Boston-led debt refinancing deal will be marketed via an investor conference call on Tuesday morning.

Graham Packaging downsizes

In the wake of what market sources are describing as "blowout" demand for its institutional term loan, Graham Packaging Holdings Co. downsized its eight-year non-call-four senior notes offering (Caa1/CCC+) to $250 million from $350 million, while upsizing the loan by $100 million.

The two-part bond offering which now totals $625 million instead of $725 million also includes $375 million of 10-year non-call-five senior subordinated notes (Caa2/CCC+).

The acquisition/debt refinancing deal, via Citigroup, Deutsche Bank Securities and Goldman Sachs, is expected to price on Thursday.

Primary "still positive"

The investment banker who made the "hot market" comment above told Prospect News that technically the market seems little changed in the past three weeks.

"The secondary market has been really quiet," said the source.

"The funds flows have slowed a little but they're still positive, which is a good thing.

"Last week we saw a lot of supply," the source added. "And the calendar is still good, with some buyout activity and some refis.

"But it's not too large a calendar, which is good also."

Calpine dips

In the secondary market, Calpine's existing bonds - which had firmed over the previous several sessions on the expectations of a new deal by the San Jose, Calif.-based power producer - were seen trading lower as the actual pricing drew nearer, even though the new Calpine deal ended up being floated off till Tuesday.

A trader observed that Calpine "has a really bad track record as a credit that does well in the aftermarket."

A market source pegged Calpine's 8½% notes due 2011 down about a quarter point at 66.5 and saw the company's 10½% notes due 2006 dipping to 96.75 bid from prior levels at 97.5. He quoted Calpine's 9 7/8% notes due 2011 likewise down three-quarters of a point at 79.75, while its 8 5/8% notes due 2010 got all the way down to 66 bid from 67.5 earlier.

At another desk, Calpine's 8½% notes due 2010 were seen down even more, almost three points on the day, to 76 bid.

PanAmSat lower

PanAmSat's existing bonds were also seen on the downside - especially after Moody's Investors Service cut the company's ratings, lowering its senior secured debt to B1 from Ba3 previously and its senior unsecured debt to B2 from B1.

PanAmSat's 6 7/8% notes due 2028 eased to 83.25 bid from 84 previously, its 9% notes due 2014 lost a point, to 104.5, while its 6 3/8% notes due 2008 closed unchanged, at 102.

Moody's, in downgrading the company's debt, cited its "concern with the effect that the new debt issue and dividend [that PanAmSat will pay to shareholders out of the new-deal proceeds] will have on the company."

Moody's noted the company's "already high financial leverage," as a result of the recent leveraged buyout of PanAmSat by several private equity sponsors, which closed just last month.

The largely debt-financed acquisition severely narrowed PanAmSat's financial flexibility and raised expected year-end 2004 leverage adjusted for operating leases to over 6.5 times, Moody's said.

The ratings agency also noted its view that coming on top of an already hefty debt load, "the company will have minimal equity capitalization and . . . this unanticipated move discounts our expectations for credit improvement and maintenance driven largely by the company's recently communicated business plan."

Moody's said that it had anticipated when it assigned the ratings that were lowered Monday, that PanAmSat "would aggressively bring its leverage down to five times by 2006. The unanticipated decision to increase debt so quickly and despite the lack of any financial flexibility within its ratings to do so, is also likely to make us more cautious about rating the company as prospectively in the future. Moreover," Moody's warned, "this material distribution to the holders of its equity interests, raises concerns of how prudently they will manage the balance sheet and its debt levels going forward."

Levi rises further

Current merger and acquisition activity was seen driving other names, notably Levi Strauss, whose bonds strengthened for a second straight day on the Journal's account of the deal with Vestar, essentially validating Friday's move on the New York Post story predicting the deal.

It should be noted that Levi has not confirmed either paper's story. However, the fact that the WSJ is now reporting a deal with Vestar gives the idea considerable credence in the market.

Levi's bonds were "a little better, especially the 121/4s," a trader said, a view borne out at another desk, where those 2012 bonds were quoted as having moved up to 106 bid from prior levels at 105.25.

An observer at that same desk saw the company's 7% notes due 2006 improving to 100.5 bid from 99.75 earlier, while its 11 5/8% notes due 2008 were 1½ points better at 104.

Other traders saw the 121/4s as much as a point better at 106.25, while the 11 5/8s were up as high as 104.5 bid, as much as a nearly two point gain on the day.

The Levi bonds had first firmed smartly on Friday on the Post story, which quoted a sale price of $800 million - less than Levi's controlling Haas family would have liked, but well above the $650 million floor that the company's banks wanted. Levi is expected to pay down some of its nearly $2 billion debt with the proceeds from the sale.

According to the Journal, Vestar, a financial firm with little expertise in the apparel field, has teamed up with Eric Rothfield, described as a clothing industry veteran, who previously worked for Ralph Lauren Polo Jeans and led Sun Apparel, a denim company. He and Vestar sold Sun Apparel in 1998 for $216.6 million.

Cole National gains

Also among the M&A names, Cole National Corp. bonds were quoted higher on the news that the Federal Trade Commission has given its OK to the acquisition of the Cleveland-based operator of the Pearle Vision Centers eyewear retail chain buy Italian fashion eyeglasses maker Luxottica Group SpA.

The $495 million deal is slated to close on Oct. 4.

Cole's 8 7/8% notes due 2012 were being quoted about a point firmer at 113.5 bid. However, at another desk the bonds were seen unchanged at 113, while Cole's 8 5/8% notes due 2007 were unchanged at 102.75 bid.

RJR weak

Elsewhere, a crossover trader noted weakness in the bonds of tobacco maker RJR, quoting the Winston-Salem, N.C. -based company's 7¼% notes due 2012 at 97 bid, 98 offered, "down two points over the last couple of weeks."

He said that the bonds had been up around par at the beginning of the month, but declined amid investor jitters over the federal government's trial against RJR parent Reynolds American and other cigarette companies, such as Philip Morris parent Altria Co. That trial got underway last week, with the feds alleging that the tobacco companies conspired for years to cover up the effects of smoking and to encourage people to continue to smoke, even after the medical testimony came out decades ago. The companies deny any collusion. The government is seeking disgorgement of some $280 billion of past profits - a verdict that could put the companies out of business if the government wins and the award is upheld.

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