SunGard upsizes mega-deal, L-3 talk emerges; Northwest up despite loss

By Paul Deckelman and Paul A. Harris

New York, July 26 - SunGard Data Systems Inc. was heard by high-yield syndicate sources Tuesday to have sharply upsized its two-part mega-deal, nearly doubling it to a total of $2 billion. That gigantic offering is slated to price during Wednesday's session, as is another billion-dollar behemoth, for L-3 Communications Inc.; price talk emerged on that latter big deal.

In the secondary arena, Northwest Airlines Corp. was the main mover, with the problem-plagued Eagan, Minn.-based airline carrier's bonds seen up several points despite its wider second-quarter loss, and despite a reiteration of warnings by its top executives that it could wind up crash landing in bankruptcy without help from its unions and from Washington. Traders said that even though the loss increased from last year's levels, it was still less than most market participants had feared.

Overall, after trading off Tuesday morning, the high-yield market rallied a little in the afternoon on news that General Motors Acceptance Corp. has agreed to sell up to $55 billion in auto loans over five years to Bank of America, a senior official on a syndicate desk said.

General Motors Corp. bonds traded "up a point or two on the news," the source commented, adding that market ended unchanged with good two-sided activity.

The billion-dollar deals

Meanwhile, although no issues priced Tuesday in the primary the market bristled with news of billion-dollar transactions that are expected to be completed on Wednesday.

Since the middle of last week, before official price talk circulated, sources professed the expectation that the SunGard Data Systems, Inc. bond deal would grow.

And on Tuesday it did.

The company upsized to $2 billion from $1.25 billion its two-part offering of eight-year senior unsecured notes (B3/B-/B), while leaving the price talk unchanged.

The fixed-rate notes are talked at the 9¼% area and the floating-rate notes are at three-month Libor plus 450 to 475 basis points.

Deutsche Bank Securities, JP Morgan, Citigroup, Goldman Sachs & Co., Morgan Stanley and Banc of America Securities are bookrunners for the bond portion of the massive $11.3 billion LBO financing.

Prospect News also learned on Tuesday that pricing on SunGard's $4 billion term loan B was reverse flexed to Libor plus 250 basis points from 275 basis points, and a 101.0 soft call was added. A one-eighth percent original issue discount, meanwhile, remained in place.

Meanwhile a market source reported Tuesday morning that demand for the bonds has been good.

One high-yield sell-sider, not part of the bookrunning syndicate, expressed the belief late in the day that SunGard would grow no further than its present $2 billion size due to overall senior leverage constraints.

Elsewhere talk came out Tuesday on L-3 Communications Corp.'s $1 billion offering.

L-3's 10-year senior subordinated notes (Ba3/BB+/BB) are talked at 6½% to 6 5/8%, with pricing also expected to take place Wednesday afternoon.

Lehman Brothers and Banc of America Securities are joint bookrunners for the acquisition deal, which will also be financed in part by the company's $500 million offering of new convertible securities.

And a €1 billion-plus deal

Aside from news relating to the billion-plus dollar-denominated offerings, the market heard Tuesday that Netherlands-based polyolefins manufacturer Basell will start a roadshow Wednesday in Europe for its €1.1 billion equivalent offering of 10-year senior notes, to be sold in dollar- and euro-denominated tranches.

A U.S. roadshow will kick off on Monday.

The deal is expected to price late next week.

Merrill Lynch & Co. and Credit Suisse First Boston are bookrunners for the LBO deal.

Lifecare pushes calendar near $4 billion

Meanwhile as the Tuesday session closed, the forward calendar of deals believed to be in the market pushed ever so close to the $4 billion mark ($3.950 billion, according to data compiled by Prospect News).

The latest deal to hit the high-yield road: Lifecare Holdings, Inc.'s $150 million offering of eight-year senior subordinated notes (Caa1/CCC+), which heads out on Wednesday.

Banc of America Securities and JP Morgan are joint bookrunners for the acquisition deal from the Plano, Tex.-based operator of long-term acute care hospitals.

Northwest gains

Back in the secondary market, Northwest Air's numbers "were actually better than expected," a trader said, "and that benefited their bonds."

He saw the company's 10% notes due 2009 having climbed to bid levels around 43.5 by the end of the session, well up from their close Monday at 40.5 bid, 42 offered. He also quoted Northwest's 8 7/8% notes due 2006 as having advanced to 65.75 bid, 66 offered, from 63 bid, 64.5 previously.

"Both the short end and the longer end felt better," he said. "The numbers were better - the loss was smaller than expected."

In the second quarter ended June 30, Northwest reported a net loss of $225 million ($2.59 per share), including unusual items - a deterioration from a year earlier, when it lost $182 million ($2.11 per share) on that same basis. Excluding $54 million in net unusual items, the second-quarter loss was $279 million ($3.21 per share), far wider than the year-earlier loss of $78 million (90 cents per share), excluding unusual items. However, while that loss was wider than last year's it was still less than the $3.29 per share of red ink that Wall Street had been expecting.

A trader at another desk saw Northwest up anywhere from one to three points on the day, quoting the 10s two points higher at 42 bid, 44 offered, and the 8 7/8s a point better at 64 bid, 66 offered. He also saw Northwest's 9 7/8% notes due 2007 up a point at 48 bid, 50 offered, while its 7 7/8% notes due 2008 got all the way up to 42 bid, 43 offered, from prior levels around 39 bid, 41 offered.

Yet another market source saw Northwest's 8.70% notes due 2007 actually off a point at 47, although he saw the 7 7/8s were two points better on the day at 42, and the 8 7/8s up a point at 65.

The not-as-bad-as-feared results helped to also boost Northwest's Nasdaq-traded shares by 43 cents (9.66%) to $4.88 on volume of 6.6 million, nearly double the usual turnover.

Although the results were not quite so bad as everyone feared, Northwest's flight path is still turbulent and uncertain, with executives of the fourth-largest U.S. carrier telling analysts on a conference call following the release of the numbers that Northwest must have the approval of its employee unions for the full $1.1 billion of permanent labor cost cuts it is seeking, as well as timely legislative relief from Washington for its cumbersome pension obligations. Otherwise, they acknowledged, it could very well wind up in an involuntary restructuring through the courts.

They also said that while the company has an ample cash cushion, north of $2 billion, for now, this will inevitably be drawn down - and the company effectively has no access to sources of additional liquidity as long as its labor cost situation and its pension problem remain up in the air (see related story elsewhere in this issue).

AK Steel higher on earnings

Elsewhere, AK Steel Holding Corp.'s bonds were seen up about half a point to a point on the day after the Middletown, Ohio-based specialty steel producer reported second-quarter numbers. Those bonds had pushed higher on Monday, in apparent market anticipation of favorable results, and, counter-intuitively, they rose further Tuesday, even though the company reported a sharp slide in its profits and earnings missed the analysts' consensus estimate.

A market source pegged the company's 9 7/8% notes due 2009 at 96.5 bid, up from 95.75 on Monday, while its 7¾% notes due 2012 gained perhaps half a point to 93 bid, he said.

At another desk, a trader saw both issues up half a point at 96 bid, 96.5 offered and 93 bid, 93.5 offered, respectively.

Yet another trader called the 7 7/8s a point higher at 96 bid, 97 offered.

The bonds firmed, even though AK suffered a 90% drop in its second-quarter profit, which came in at $9 million (eight cents per share), well down from $92.7 million (85 cents per share) in the year-earlier quarter.

Most of the decline was attributable to a charge related to recent Ohio tax law changes. Excluding the charge, the company reported earnings of 35 cents per share in the quarter, slightly below the 38 cents that Wall Street was expecting.

Looking ahead, while AK said it expects second-half shipments to be "slightly higher" than they were in the first half, on the downside it warned that average selling prices will be lower in the current third quarter than the second.

U.S. Steel steady on earnings

Also in the steel sector, United States Steel Corp.'s notes were seen not much changed against a backdrop of second-quarter numbers from the Pittsburgh-based integrated steel giant.

A market source saw Steel's 9¾% notes due 2010 a quarter point lower at 109.25 bid, while its 10¾% notes due 2008 were that much better at 111.5 bid.

U.S. Steel had net income of $245 million ($1.88 per share) in the second quarter, up from $211 million ($1.62 per share) a year ago, as sales rose 4% to $3.58 billion from $3.45 billion.

Land O'Lakes flat to higher

Also reporting results was Land O' Lakes Inc., whose 8¾% notes were seen by a trader having gained ¼ point on the bid side to 104.25 bid, 105.25 offered from 104 bid, 104.5 offered Monday.

Another trader, however, saw the bonds unchanged at 104 bid, 105 offered, opining that the Arden Hills, Minn.-based dairy producer's notes "already had their runup" over the past few sessions "on expectations of good numbers."

The company reported net income of $25.847 million on sales of $1.802 billion during the second quarter, versus $16.7 million on sales of $1.993 billion last year.

Maytag falls back

A trader saw Maytag Corp.'s 5% notes due 2015 having retreated to 90 bid, 92 offered, well off the bid levels in the 92-93 region to which those bonds had jumped on Monday, from the upper 80s, after rival appliance maker Whirlpool Corp. boosted its takeover offer for the smaller Newton, Iowa maker of its eponymous Maytag and Amana washing machines and Hoover vacuum cleaners by $1 a share to $18. Although the Whirlpool offer is only part cash and the rest is stock, in nominal terms it is well above what an investor group led by Ripplewood Holdings is offering for the company.

But with Maytag still playing coy and refusing to open its books to Whirlpool for fear of voiding the $14 per share deal it has already agreed to with Ripplewood, "some of the exuberance went out of that," the trader said, "and the bonds were weaker."

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