Airline bonds up on UAL debt deal; Cablevision firms; Donnelley directory deal seen

By Paul Deckelman and Paul A. Harris

New York, Nov. 6 - It was up, up and away Wednesday for the bonds of United Airlines and its competitors, helped by Tuesday's news that the Number-Two U.S. air carrier had reached agreement with one of its lenders on a big restructuring deal for some of UAL's debt.

In the primary market, R.H. Donnelley Corp. was expected to launch a $750 million two-part bond deal next week, with the proceeds slated to help fund the company's purchase of Sprint Corp.'s directory business. And Chesapeake Energy Corp. priced a small $50 million add-on.

United Airlines bonds were up as much as 12 points for some issues, six points for some of the others, in continued favorable market response to the news that financially troubled UAL had managed to restructure $500 million of debt coming due this month and next (see related story elsewhere in this issue).

A trader pegged its 10.67% notes due 2004 at 41 bid/43 offered, up at least 10 points on the session. He saw UAL's three other issues trading up about five or six points on the session at 33 bid/35.

Wednesday marked the fourth straight session during which UAL debt had been firming smartly; the bonds had risen Friday after United was heard by market participants to have paid the Nov. 1 coupon on its 10.67% bonds, and on Monday after it announced that the powerful pilots' union had agreed in principle to $2.2 million in wage concessions - part of a package of concessions with the five unions that the other that United needs if it is to have any hope of getting $1.8 billion of federal loan guarantees.

A trader said that the United bonds had probably risen by as much as 20 points in total over the last four sessions, but observed that "I think that they have run their course."

United's rivals were also taking wing Wednesday, in an apparent sector bounce sparked by UAL. A trader quoted Delta Airlines' 7.90% notes due 2009 as having firmed to 64 bid without any offers from prior levels at 61 bid/64 offered, and saw Northwest Airlines' 8 3/8% notes due 2004 at 72 bid and looking for offers, up from 68 previously.

At another desk, Northwest's 7 5/8% notes due 2008 were being quoted up more than 10 points, at 54 bid, and Continental Airlines' 8% notes due 2005 were seen having jumped to 57.5 bid, well up from prior levels around the lower 40s, although a source the movement may have come over more than one session.

Back on the ground, a trader saw Cablevision's bonds "moderately higher" on the news that the Woodbury, N.Y.-based cable operator will get a $75 million infusion of cash from Quadrangle Partners. It's the second big deal this week for Cablevision, which had announced Monday that it would sell its 80% stake in the Bravo! cable channel to NBC for $1 billion in its own stock and in the stock of NBC parent General Electric Co.

The trader quoted Cablevision's 8 1/8% notes due 2009 as having firmed to 89 bid/90 offered from prior levels at 86.5 bid/87.5 offered, attributing the gain to the news of the equity investment.

Another trader noted the news but downplayed its impact, calling it "not a big deal" given the relatively small amount of money involved. He said he had not seen "a lot of movement in the senior bonds," although he said that the company's subordinated debt had been moving up.

At another desk, Cablevision's 7 5/8% notes due 2011 were two points better at 88 bid. Its shares, meantime, jumped $2.56 (19.71%) to $15.55.

Elsewhere in the communications sphere, the trader saw Time Warner Telecom bonds "feeling better," its 9¾% notes firming a point to 50 bid/52 offered. He noted that the Littleton, Colo.- based voice and data services company's bonds had been steadily firming since last week, when it announced that its bank lenders had agreed to easing some covenants.

He also saw telecom equipment maker Lucent Technologies Inc.'s benchmark 7¼% notes due 2006 firming to 53.875 bid/55 offered from 51 bid/54 offered previously.

Charter Communications Holdings LLC debt, which had retreated about five points on Tuesday after the St. Louis-based cable operator reported a mixed bag of results for the third quarter, were not much changed Wednesday, its 8 5/8% notes due 2009 continuing to hang in around the 43-44 bid level.

A trader said that "the stuff that had been getting murdered lately was up today." quoting Calpine Corp's 8½% notes due 2011, which advanced from 35.5 bid/36.5 offered to 38.5 bid/39.5 offered, and Nortel Networks Corp.'s 6 1/8% notes due 2006, ending the day up a deuce at 55 bid/56 offered.

Meanwhile the post-Election Day high-yield primary market chugged along purposefully during Wednesday's session with terms gushing in from Chesapeake's $50 million add-on.

And for those investors who couldn't find enough bonds in the Dex Media East LLC deal, keep the phone book out. Market sources advised Prospect News on Wednesday that similar merchandise might soon be available

Look it up under "D" for Donnelly or "S" for Sprint sources advised.

A Rule 144A deal from R.H. Donnelly in the amount of $750 million is expected to launch during the week of Nov. 11, via Salomon Smith Barney, Bear Stearns & Co. and Deutsche Bank Securities Inc., market sources told Prospect News on Wednesday.

The Purchase, N.Y. marketer of yellow pages advertising will use the proceeds to help finance its $2.23 billion acquisition of Sprint's directory publishing business.

Mike Difley, vice president and portfolio manager of the American Century High Yield Fund, told Prospect News on Wednesday that he played Dex and will have a look at Donnelly.

"We played the Dex seniors but we didn't get much," said Difley.

With respect to concerns voiced by some sources that 10% of yellow pages-type look-ups currently take place on the Internet, Difley told Prospect News that such issues did not prompt him to look under "P" for psychoanalyst or "T" for tranquilizer.

"It wasn't a super-big concern of mine," he said. "It's a risk, but the cash flow is relatively stable with these companies. Dex is joint-marketing their hard copy and online businesses, hopefully they're getting business from both."

With Dex having recently priced $975 million in the run up to Halloween and Donnelly reported to be following with another $750 million, Prospect News asked Difley what the comparatively generous supply of new bonds portends for the market.

"People have expressed concern that it could put pressure on existing bonds given that there is a pipeline of supply out there," he answered.

"But it's likely that all of these deals that come along will price off of the first deal. And that has traded very well.

"That's pretty good, at least from an issuer perspective. It's not so good from a buyer's perspective."

In addition to eyeing Donnelly, the American Century High Yield Fund manager told Prospect News that he might take a look at Constar International, Inc.'s upcoming sale of $200 million of 10-year senior subordinated notes (B3/B). Price talk of 10¾%-11% emerged Wednesday on the notes, which are being issued to help fund the spin-off of Constar from Crown Cork & Seal and to repay debt to Crown Cork & Seal. The deal, via Salomon Smith Barney and Deutsche Bank, is expected to price Thursday morning.

"There could be some residual asbestos concerns with this company," Difley commented. "I'll probably take a look at it, but due to the fact that I've got other exposure in that sector I'm probably not going to be playing that one."

With regard to the money reported to have flowed into high-yield mutual funds during recent weeks Difley said that this time around it doesn't necessarily appear to be market-timer money.

"Obviously investors have an appetite again for some high yield exposure, although we've seen this before where money comes in and within a relatively short amount of time it turns around and goes right back out," he said.

"But the flow here has been more moderate than it was before. It has been growing slightly each week rather than just getting a big surge that comes in and goes out quickly.

"Hopefully this money will stay in for a while."

Finally on Wednesday terms emerged on a drive-by deal. Chesapeake Energy Corp. priced a $50 million add-on to its 9% senior notes due Aug. 15, 2012 (B1/B+) at 104.25 for a yield to maturity of 8.531%, via Salomon Smith Barney, with proceeds slated to repay debt. The original $250 million priced on Aug. 7 at a yield of 9.25%.

The new Owens-Brockway Glass Container bonds, which priced Tuesday at par and then which moved up a little from that issue price in initial secondary dealings, were heard to have firmed a bit more Wednesday, closing up half a point at 101.125 bid/101.375 offered.

Owens-Brockway corporate parents Owens-Illinois Inc.'s existing 8.1% notes due 2007 were meantime up more than three points, to about the 96.75 bid level.

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