SunGard prices two separate mega-deals, L-3 comes as well; Delta dives on more bankruptcy talk

By Paul Deckelman and Paul A. Harris

New York, July 27 - SunGard Data Systems Inc., already triumphantly flush with cash after pricing its scheduled upsized $2 billion two-part bond offering early Wednesday, boldly came back to the market later in the day with a separate quickly shopped $1 billion additional deal - and both issues were well received by both primary-side investors and aftermarket players alike.

Meanwhile, L-3 Communications Inc.'s billion-dollar drive-by offering also came to market, although the New York-based defense communications company's offering firmed only modestly when it freed for secondary dealings.

Apart from activity in the new-deal paper, secondary denizens were watching the latest stumbles, fumbles and foibles of Delta Air Lines Inc., whose bonds once again stumbled badly on renewed fears that the struggling Atlanta-based airline company seems to be steering a course that will land it in bankruptcy, sooner or later.

In total, Wednesday's primary market session produced a $4 billion burst of new issuance, the biggest daily volume that the high-yield bond market has seen in over six years.

Two issuers, SunGard Data Systems, Inc. and L-3 Communications, transacted that amount in four tranches, three of which came from SunGard.

And sources round about the market told Prospect News that all four tranches played to heavy demand from the high-yield accounts.

One source commented that Wednesday's massive $4 billion of issuance appeared to have been digested by junk investors with notable ease.

All in all, the source marked the high-yield market unchanged on the session.

SunGard - a 'food fight'

In three oversubscribed tranches, one of which came as a drive-by, SunGard priced $3 billion of notes on Wednesday.

The company completed an upsized $2 billion transaction involving two tranches of eight-year senior unsecured notes (B3/B-/B-).

It included $1.6 billion of fixed-rate notes that priced at par to yield 9 1/8%, on the tight end of the 9¼% area price talk, and $400 million of floating-rate notes that priced at par to yield six-month Libor plus 450 basis points, on the tight end of the Libor plus 450 to 475 basis points price talk.

The combined $2 billion senior unsecured notes transaction was upsized from $1.25 billion.

Deutsche Bank Securities, JP Morgan, Citigroup, Goldman Sachs & Co., Morgan Stanley and Banc of America Securities ran the books for the fixed-rate tranche, according to a bookrunning source who added that the same banks, minus Banc of America Securities, ran the books for the floating-rate tranche.

Then, later in the session, SunGard also priced a quick-to-market $1 billion issue of 10-year senior subordinated notes (Caa1/B-/CCC+) at par to yield 10¼%, on top of price talk, via the same five syndicate members that ran the books for the senior floating-rate tranche.

Rumors of massive oversubscription of the order books ran rampant throughout the session. However one informed source said that the senior unsecured tranches were oversubscribed slightly more than two times.

Meanwhile a buy-side source, also speaking on background, said that pretty much the same held true for the subordinated tranche.

"Everybody who didn't get the seniors basically jumped right back into the subs, as long as they could take the triple-C," the source said, adding that SunGard's timing, in bringing the deal was very good, indeed.

Meanwhile other sources suggested that dozens of accounts walked away from Wednesday's SunGard deal empty handed.

With the proceeds from Wednesday's note issues, SunGard, a Wayne, Pa.-based software company, will take out a $3 billion bridge loan which is part of the overall $11.3 billion LBO financing.

L-3 also oversubscribed

On any other day L-3 Communications $1 billion deal, which was also reported to have played to heavy investor demand, would have likely stole the spotlight.

However, thanks to SunGard, L-3's transaction came in a distant second.

The company priced its issue of 6 3/8% 10-year senior subordinated notes (Ba3/BB+/BB) at 99.09 on Wednesday, resulting in a 6½% yield, on the tight end of the 6½% to 6 5/8% price talk.

Lehman Brothers and Banc of America Securities were joint bookrunners for the acquisition financing from the New York City intelligence technology company.

A buy-side source said that the L-3 deal was heard to have been a little more than three times oversubscribed.

"The market looks strong," the source commented. "The technicals are very good."

When Prospect News followed by asking the buy-sider whether Wednesday's burst of supply would register a significant impact on the market's liquidity, the source seemed disinclined to believe that it would.

"Not yet at least," said the buy-sider. "There is a lot of money looking for a home.

"If you look at what has done the best over the past few weeks it has been the single-Bs and triple-Cs, because there is no value in the double-Bs right now.

"This was welcome supply."

'Not too hot, not too cold'

The buy-side source went on to say that a high-yield market which had demonstrated a noted aversion to risk in the wake of the early spring downgrade of General Motors Corp. debt to sub-investment grade presently seems willing - three months on - to once again stick its neck out.

"Earnings have a lot to do with it," said the source.

"Volatility is at a multiple-year low. Inflation seems to be on the rise, but not to the point where it is unmanageable. Except for the airlines, which are looking at $60 a barrel oil, everyone seems to be okay right now.

"The whole Goldilocks scenario is playing out again."

Biggest day in six years

Wednesday's $4 billion even of issuance turns out to be the biggest day the high-yield market has seen since May 11, 1999, which saw $4.2 billion, according to sources quizzed by Prospect News.

That session, half a dozen years ago, saw Lyondell Chemical Co. price $2.4 billion and International Game Technology do $990 million. Other issuers who priced junk bonds that day included Crown Castle International, Alaska Communications Systems Group and Dolphin Communications.

Talk on FTI Consulting

SunGard and L-3 all but cleared out the forward calendar for the remainder of the present week, one sell-side source remarked late Wednesday.

Only one deal remains as business expected to be transacted before Friday's close.

FTI Consulting Inc. talked its $175 million offering of eight-year senior notes (Ba3/B+) at 7¾% to 8% on Wednesday.

The Goldman Sachs & Co. and Banc of America Securities-led deal is expected to price Thursday.

The sell-side source went on to say that drive-by action does not seem imminent with regard to the Thursday and Friday sessions, however quick-to-market business could easily pick up during the first week of August.

Also, the source said, August does not figure to be an altogether sleepy month in junk land. The primary market could easily remain active right up through the final days approaching the Labor Day break, the source added.

SunGard soars in trading

SunGard was clearly the star of the day in the secondary market as well as in the new-deal arena. When its 9 1/8% notes due 2013 were freed for aftermarket dealings, those bonds shot as high as 104 bid - well up from their par issue price - before settling in at that level, a trader said.

The trader also saw both its floating-rate notes due 2013 and its 10¼% notes due 2015 at 103.5 bid, 104 offered, both up from their par issue prices. Sungard's outstanding 4 7/8% notes due 2014 were meantime a point better at 85.5 bid, 86.5 offered.

At another desk, a trader said that the new SunGard bonds had been "well received" and were all "around 103, give or take a point."

By way of contrast, traders were quoting L-3's new 6 3/8% notes due 2015 as straddling par at best, at 99.75 bid 100.25 offered, up slightly from their discounted 99.09 issue price seen earlier in the day.

Delta plunges

Back among the existing issues, Delta Air Lines' bonds took a nosedive, after the company's chief executive officer, Gerald Grinstein, once again inadvertently reminded investors that Delta could end up in Chapter 11.

This time the vehicle for that warning was an internal company memo - which inevitably was leaked to news organizations - in which the CEO sought to address the question of why the company was continuing to do so badly, even while some of its competitors managed to post profits in the latest quarter (Delta lost $388 million in that period). Grinstein said that "it is in large part a matter of timing and competitive market challenges unique to Delta."

While the CEO noted that Delta was making progress with its much-touted Transformation Plan, which involves some $5 billion of annual savings, "because it takes time to implement some of the changes, we do not yet have the benefit of the plan's full savings to help offset the record-high fuel prices."

He also said that Delta was especially hard hit - more so than such "legacy carrier" rivals as American Airlines, Northwest Airlines and Continental Airlines - because "[t]he overlap with low-cost carriers in our markets is greater than any other network airline. Therefore, Delta is more susceptible to LCC pricing pressures. We currently cannot capture as much revenue per passenger, especially on the East Coast, as legacy carriers with a different LCC market-presence mix are able to do."

On top of that, sky-high fuel costs continue to eat Delta alive, with the airline having spent "an astounding" $1.1 billion on fuel in the most recent quarter, fully $400 million more than it spent to gas up its planes a year earlier.

The bottom line, Grinstein warned is that "there can be no doubt that Delta's transformation plan is delivering results. What is also clear is that it is not enough. The high price of fuel, the interest expense on our debt, and other factors have significantly outpaced our transformation initiatives and masked our progress. Clearly, more must be done, and be done quickly."

He said that "[a]s many of you are aware, given our financial situation, there is renewed speculation about bankruptcy. We have been candid about the risk that a number of factors, some of which are beyond our control, will affect our ability to avoid a Chapter 11 filing."

Grinstein did say, however that Delta was continuing to work on an out-of-court restructuring solution, believing it to still be in the best interests of the company - and to still be achievable.

The financial markets were not impressed by such whistling past the graveyard.

A trader saw Delta's 7.70% notes due 2005 as having fallen to 67 bid, 69 offered from prior levels around 76 bid, 78 offered. The formerly high-flying notes - seen in the upper 80s just a few short weeks ago - have been the most hard-hit Delta issue recently, tumbling sharply from that perch to head lower, traders say, because many in the market believe that Delta will not be able to pay off the remaining $122 million of the notes when they come due on Dec. 15, but will by that time probably be in bankruptcy, with the 7.70s trading pari passu with all of the company's other unsecured bonds, which most recently have been trading in the 20s and the lower 30s. The traders say that the 7.70s are converging toward those lower levels in anticipation of such a development.

At another desk, a trader saw those bonds at that same 67 bid, 69 offering, although there, they had been seen having finished Tuesday at 74 bid, 76 offered.

The trader saw Delta's 7.90% notes due 2009 down three points at 26.5 bid, 27.5 offered, while its 8.30% notes due 2029 were down a point at 22.75 bid, 23.75 offered.

The first trader saw those 8.30s as low as 21 bid, 23 offered, down three points on the session, while the 7.90s were at 26 bid, 28 offered, a three point loss. The trader further saw the company's 10% notes due 2008 having fallen to 28 bid, 30 offered, from 32 bid, 34 offered.

Delta's New York Stock Exchange-traded shares swooned 40 cents (11.80%) to end at $2.99, on volume of 25 .7 million - more than five times the usual handle.

Saks drops on buyout talk

Elsewhere, Saks Inc.'s bonds were seen down several points, on news reports indicating that the Birmingham, Ala.-based department store operator could become the target of a buyout bid by retailer Bon-Ton Stores Inc. and one or more private equity companies, possibly including such heavyweights as Kohlberg Kravis Roberts, Bain Capital, Thomas H. Lee and Apollo Management. According to a recent report by Mergermarket - a merger and acquisitions research firm - Bon-Ton, which earlier this year indicated an interest in possibly buying Saks' Northern stores group, including the Carson Pirie Scott chain, might team up with one or more of the equity players on a bid for the whole company, with Bon-Ton taking the Northern stores, and the buyout shop taking Saks' flagship operation, the Saks Fifth Avenue luxury chain.

Such a deal is only still in the very preliminary stages of being speculated about in the financial press, with none of the companies named confirming that anything of the sort is going on. However, the prospect that some kind of a deal might be in the works - and that it would be likely heavily funded by debt - pushed the Saks bonds down.

A trader saw Saks' 8¼% notes due 2008 down two points at 103 bid, 105 offered, while its 7½% notes due 2010 were off three points at 97.5 bid, 99.5 offered.

Elan rises ahead of results

On the earnings front, a trader noted that Elan Corp. plc's bonds were about half a point better across the board Wednesday, ahead of the Irish drugmaker's scheduled quarterly earnings release Thursday, since "people are expecting good numbers." He saw the 7¼% senior notes at 96.25 bid, while its subordinated 7¾% notes were at 88.75 bid, 89 offered, both up a half point.

Exide steady despite loss

Exide Technologies swing to a loss in the fiscal first quarter ended June 30 from a year-earlier profit; a trader saw the Alpharetta, Ga.-based car battery maker's 10½% notes unchanged at 78.5 bid, 80.5 offered.

Exide said it swung to a fiscal first-quarter net loss of $35.7 million ($1.43 a share) compared to its year-earlier net income of $1.78 billion ($65.71 per share), although excluding some $1.7 billion of gains from the impact of Fresh Start accounting following the company's emergence from bankruptcy and on the discharge of indebtedness, year-ago net was $33.6 million ($1.35 a share).

Company executives said on a conference call following the release of its numbers that Exide's liquidity is adequate, with enough cash on hand and credit revolver availability to run its business. However, they also said the company had hired investment bank Miller Buckfire LLC to help it evaluate possible strategic alternatives, and had also brought in international efficiency experts Proudfoot Consulting to look for ways to cut overhead and make Exide a leaner, better-positioned company (see related story elsewhere in this issue).

B/E unchanged after earnings

B/E Aerospace Corp.'s 8% notes were seen unchanged at 100.25 bid, 100.75 offered following the release of the Wellington, Fla.-based aircraft cabin components maker's quarterly numbers.

And a trader saw Land O' Lakes Inc.'s bonds having moved up following Tuesday's numbers. The Arden Hills, Min.-based dairy producer's 8¾% notes "have been moving steadily up," he said, "another ½ to ¾ point today [Wednesday]. "

He saw those bonds at 105.25 bid, "the highest they've ever been." Its 9% notes were also higher, at 109.25 bid, 110.25 offered.

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