Xerox brings upsized quick deal to market; GM little moved on KKR interest in GMAC

By Paul Deckelman and Paul A. Harris

New York, March 15 - William Shakespeare was right: Julius Caesar should have feared the Ides of March - but March 15 certainly brought nothing to fear in Stamford, Conn., the home of copier and imaging technologies giant Xerox Corp., which boldly moved into the capital markets Wednesday with a quickly priced, upsized $700 million issue of 10-year notes, as well as launching a billion-dollar-plus bank borrowing.

And investors in Movie Gallery Inc.'s recently beleaguered bonds were surely not in a fearful mood, as they took the Dothan, Ala.-based video rental company's notes solidly higher on a combination of news and hope - it announced the signing of a deal which could bring in new revenues from the sub-leasing of space at some 2,200 of its stores, while investors were optimistically awaiting word that Movie Gallery's bankers might give the hard-pressed company some breathing room in its credit facility covenants. The company's 11% notes due 2012 were seen up as much as six points on the day at 54 bid, 56 offered.

Elsewhere, the bonds of General Motors and its General Motors Acceptance Corp. were seen little changed on the day despite the news that a second bidder - an investment group led by Kohlberg Kravis Roberts & Co. - has emerged in the GM's effort to sell a controlling stake in GMAC.

Sources had the broad market advancing a quarter of a point to half a point on Wednesday.

One high-yield syndicate official, remarking that the market was firm, cited contributing factors including the light new issue calendar and the continuing rally in the equity markets.

In the primary market, as sources had been advising since the beginning of the week, Xerox Corp. made a drive-through appearance, pricing a massively upsized $700 million issue that came, high-grade style, at a spread of Treasuries plus 175 bps.

Xerox drives through

The Stamford, Conn., document company, Xerox, didn't exactly sneak up on the primary market. Sources began forecasting a deal from the very beginning of this week.

On Wednesday Xerox priced a massively upsized $700 million issue of 6.4% 10-year senior notes (Ba2/BB+) at Treasuries plus 175 basis points.

The bonds came at a dollar price of 99.413 to yield 6.481%.

JP Morgan and Goldman Sachs & Co. were joint bookrunners for the notes, which the company sold in order to support its customer financing activities, as well as to refinance debt and for general corporate purposes.

The issue was upsized from $400 million.

A source close to the transaction said that the deal had been run pretty much like an investment-grade issue, pricing on a spread to Treasuries, and added that the bond had been worked off of both bookrunners' high-yield and high-grade syndicate desks.

The source added that both investment-grade and high-yield accounts participated in the upsized transaction.

All quiet on the primary front

Elsewhere the primary maintained a ghostly quiet on Wednesday, with sources citing a number of factors that may be suppressing issuance.

One was the Lehman Brothers high yield conference now under way.

Sources also maintained that some potential issuers are still at work on financial numbers which need to be certified in accordance with Sarbanes-Oxley accounting rules.

In an aside perhaps worth mentioning, Steinway Musical Instruments, Inc. filed Wednesday for a 15-day extension from the March 16 deadline for filing its 10-K in order to come into compliance with Sarbanes-Oxley.

The company stated that during the first two months of 2006 its corporate finance department resources "were almost exclusively devoted to a major bond offering," which rendered it unable to complete the preparation of its financial statements and the additional work required to complete management's assessment of internal controls over financial reporting in accordance Sarbanes-Oxley on time "without unreasonable effort or expense."

The bond offering in question, a $175 million issue of 7% notes due 2014 (Ba3/BB-), priced on Feb. 16 at 99.2435 to yield 7 1/8%.

Saskatchewan Wheat marketing C$150 million

Although no word surfaced Wednesday on new U.S. dollar-denominated offerings, information was heard on a Canadian dollar deal.

Saskatchewan Wheat Pool Inc. is in the market with a C$150 million offering of seven-year senior unsecured notes (B) via TD Securities, with involvement from Genuity Capital Markets and RBC Dominion Securities.

Late Wednesday a source close to the deal said that it is expected to price next week.

Xerox up on financing

The new Xerox 6.40% senior notes due 2016 priced too late in the session for any meaningful aftermarket activity, traders said.

However, they did see the company's existing bonds firm on the favorable financing news, with one seeing Xerox's 8% notes due 2027 up a point at 103.75 bid, 104.25 offered, while at another shop the copier king's 7 1/8% notes due 2010 were quoted at that same level, up half a point on the day.

GM gains, falls back

Back among established issues with no new-deal connections, GM "was up a point in the morning" on the Wall Street Journal report that KKR - anxious to beat out rival buyout operator Cerberus Capital Management - had put together a bidding syndicate and had made a non-binding bid of between $12.5 billion and $13 billion for the 51% stake of GMAC that GM is shopping around in hopes of getting the financing unit a better credit rating and getting itself some cash. The Journal report said that Wachovia Corp. was back in after having just recently been reported as dropping out of a joint bid for control of GMAC. Other partners in the syndicate, the story said, were General Electric Co.'s financial arm, Merrill Lynch & Co. and the Bank of Nova Scotia. The syndicate's reported bid is $1.5 billion more than the estimated $11 billion bid made by a buying group led by Cerberus, including Citigroup's private equity unit and several Japanese financial institutions.

However, whatever the respective merits of the KKR group's bid and front-runner Cerberus' offer, GM was reported to be eyeing the new bid coolly, since it is non-binding, is said to have some details GM is dubious about, and since Cerberus has declared that it should be able to get GMAC back to an investment-grade rating within six months of taking control - ostensibly the whole point of selling control of GMAC.

On top of that reportedly less-than-overwhelming reaction from the GM camp, the trader said, whatever upside GM and GMAC's bonds were going to have was further undermined by the news that officials of the United Auto Workers Union told leaders of the labor group's locals that while there was some progress being made in the three-way talks between the union, GM and former GM subsidiary Delphi Corp., the parties were nowhere near a deal on how to cut the bankrupt Troy, Mich.-based automotive components supplier's heavy labor costs.

The parties are laboring under a March 31 deadline set by Delphi; it has threatened to go to the bankruptcy courts and ask that the contracts covering its 34,000 hourly workers be thrown out, if no agreement has been reached by then.

"After the Delphi news, [the GM bonds] faded back to where they started, the trader said, with the automotive giant's 8 3/8% notes due 2033 ending little changed at 74 bid, 74.5 offered.

Other traders saw the GM bonds actually off slightly, with one of them seeing the 8 3/8s half a point lower at 73.75 bid, while its 8¼% notes due 2023 were a quarter point down at 72.25.

The trader meantime saw GMAC's 8% notes due 2031 edge up to end at 94. A second trader saw them inch down to 93.25 bid, 94 offered.

A trader meantime saw Delphi's 6.55% notes due 2006 unchanged at 60 bid, 61 offered, while its 7 1/8% notes due 2029 were likewise steady at 61 bid, 62 offered.

Dana up more

Among other automotive names, Dana Corp. - whose bonds have recently been riding a rocket, fueled by expectations that the bankrupt Toledo, Ohio-based components company's assets are sufficient to cover its debt obligations in full, as well as by technical factors like a short squeeze linked to the derivatives contract market - were again firm on Wednesday. A trader quoted its 6½% notes due 2008 and its 5.85% notes due 2015 each up a quarter point, at 77.75 bid, 78.75 offered and 76 bid, 76.75 offered, respectively. Its 7% notes due 2028 were up half a point at 77.25 bid, 78.25 offered.

The trader saw GM rival Ford Motor Co.'s flagship 7.45% notes due 2031 at 73 bid, 73.5 offered and its Ford Credit subsidiary's 7% notes due 2013 at 88 bid, 88.5 offered, each unchanged.

EchoStar higher on results

Outside of the automotive realm, a trader saw EchoStar Communications Corp.'s bonds better on "strong earnings" posted by the Englewood, Colo.-based satellite television broadcaster.

The trader saw EchoStar's 5¾% notes due 2008 half a point better at 98.5 bid, 99.5 offered. Another saw its recently issued 7 1/8% notes due 2016 notes a quarter-point up at 98 bid, 98.5 offered.

On a conference call following the release of the 2005 fourth-quarter and full-year earnings, company executives expressed confidence that their company - and the satellite industry in general - was well-positioned to continue to battle the cable television industry for access to the homes of customers seeking an expanded lineup of TV viewing choices, particularly in the up-and-coming area of high-definition television. But they were a little more cautious in assessing the long-term impact that the just-announced telecommunications industry mega-merger between AT&T Inc. and BellSouth Corp. might have on its prospects (see related story elsewhere in this issue).

Rent-A-Center steady

Rent-A-Center Inc.'s 7½% notes due 2010 were seen unchanged at 99.5 bid, 100.5 offered, apparently unaffected by the news that New Jersey's highest state appeals court had handed down an unfavorable ruling against the Plano, Tex.-based company, which rents furniture, electronic gear and appliances to consumers.

The court ruled that it could charge them no more than the same 30% annual interest rate that other retailers that allow consumers to pay for their purchases in installments are allowed to charge and must give refunds to any customers charged more than 30%. The company expressed dismay with the ruling and said that it will "review the decision and assess what it means for our continued operation in New Jersey" - although only 25 of its nearly 2,900 U.S. stores are in the Garden State.

Forest names higher

A trader saw strength in the forest products area, but saw no fresh news that might explain the rise.

Bowater Corp.'s 6½% notes due 2013 were at 92 bid, 93 offered, and Domtar Inc.'s 7 1/8% notes due 2015 closed at 85.5 bid, 86.5 offered, both up a point. However, Tembec Industries' 8½% notes due 2011 ended at 50 bid, 52 offered, down a point on the day.

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