Upsized Level 3 deal prices, Seitel also; Primedia jumps as asset sale eyed

By Paul Deckelman, Paul A. Harris and Stephanie N. Rotondo

New York, Feb. 9 - Level 3 Communications Inc. took advantage of the junk bond market's easy familiarity with its name and story to double the previously announced size of its quickly shopped two-part bond issue, as the Broomfield, Colo.-based telecommunications infrastructure company came to market Friday with a $1 billion mega-deal consisting of fixed- and floating-rate notes. However, the deal did not meet the same warm reception in the secondary market, where it firmed only slightly off its issue price.

Seitel Inc.'s smaller offering of seven-year senior notes, on the other hand, were seen to have firmed smartly after it broke. Also coming to market successfully was an upsized add-on offering from Griffin Coal Mining Co. Ltd. and a late-session add-on offering from DaVita Inc. Stena AB also sailed in with an add-on deal, this one denominated in euros.

On the calendar, Rite Aid Corp. was heard to soon be bringing a new $800 million two-part offering, with the company hitting the road Monday to sell the issue to potential investors.

In the secondary market, Primedia Inc.'s bonds shot up in tandem with its equity after the New York-based magazine publisher and internet website operator announced that it had hired Goldman Sachs and Lehman Brothers to help it explore the possible sale of its Enthusiast Media segment, perhaps for as much as $1 billion.

On the downside, Remy International Inc.'s bonds fell several points in apparent reaction to the company's disclosure that it had drawn down its revolving credit agreement by a greater-than-anticipated amount. Spectrum Brands Inc.'s bonds fell back in response to its fiscal first-quarter numbers, while Harrah's Entertainment Corp.'s bonds were down as well, possibly on investor jitters about the company's upcoming LBO.

With an anemic new issue calendar in the high-yield market, sources throughout the Feb. 5 to Feb. 9 week were forecasting significant drive-by business.

Indeed the Friday primary market session saw four issuers price an aggregate of five dollar-denominated tranches of notes, generating just under $1.880 billion of proceeds.

Only one of the five had been marketed via a full investor roadshow.

Level 3 doubles to $1 billion

Level 3 Financing, Inc. priced a massively upsized $1 billion two-part senior notes transaction (B2/CCC-) on Friday.

The Broomfield, Colo., communications and information services company sold a $300 million tranche of eight-year floating-rate notes at par to yield six-month Libor plus 375 basis points, on top of the price talk.

Level 3 also priced a $700 million tranche of 10-year fixed-rate notes at par to yield 8¾%, on the tight end of the 8¾% to 8 7/8% price talk.

Merrill Lynch & Co. and Credit Suisse were joint bookrunners for the deal, the overall size of which was increased from $500 million.

Proceeds will be used to finance assets to be used in the company's communications business, including the purchase of completed and future acquisitions.

An informed source said that the deal had gone very well and added that the bonds had traded up in the secondary market.

Seitel atop tightened talk

Seitel, a Houston-based provider of seismic data to the oil and gas industry, completed Friday's sole roadshow-marketed deal.

The company priced a $400 million issue of seven-year senior notes (B3/B-) at par to yield 9¾%, on top of price talk that was earlier tighened 10% area.

Morgan Stanley, Deutsche Bank Securities and UBS Investment Bank for the acquisition funding and debt refinancing deal.

DaVita drives through

Back in the universe of quickly marketed deals, DaVita priced a $400 million add-on to its 6 5/8% senior notes due March 15, 2013 (B1/existing B) at 100.50 to yield 6.523%.

Credit Suisse ran the books for the debt refinancing from the kidney dialysis services provider.

The original $500 million issue priced at par in March 2005.

Griffin upsizes tap

Also tapping an existing issue on Friday was Western Australia's Griffin Coal Mining.

Griffin Coal upsized to $75 million from $50 million an add-on to its 9½% senior notes due Dec. 1, 2016 (existing Ba2/confirmed BB-) and priced the notes at 103.50.

The issue price came on top of the price talk. The resulting yield was 8.951%

Merrill Lynch & Co. was the bookrunner.

Proceeds will be used to support the private coal mining company's liquidity position ahead of its significant upcoming capital expenditure programs.

The original $400 million issue priced at par in November 2006.

Week's issuance tops $3.5 billion

The Feb. 5 week issuance total topped $3.5 billion in 14 dollar-denominated tranches.

Tallying Friday's deals, year-to-date issuance at Friday's close came to just under $18 billion in 59 tranches.

Hence, approximately $1 billion separates 2007 year-to-date issuance from that of the record-breaking year of 2006, in a year-over-year comparison.

At the Feb. 9, 2006 close, the market had seen slightly more than $19 billion of dollar-denominated junk bonds priced in 44 tranches.

Rite Aid markets $800 million

The Feb. 12 to Feb. 16 week gets underway with only one deal on the new issue calendar of business that is in the market.

Rite Aid Corp. will begin a roadshow on Monday for an $800 million two-part offering of notes.

The Camp Hill, Pa.-based drugstore chain is in the market with a $300 million tranche of 10-year senior secured second-lien notes (/B+/BB-) and a $500 million tranche of eight-year senior notes (/B-/CCC+).

The roadshow is scheduled to conclude on Wednesday, with the notes expected to price later that day or on Thursday.

Citigroup will run the books for the debt refinancing deal.

Rite Aid is in the process of acquiring Canadian drug retailer Jean Coutu Group's U.S. operations, including the Brooks and Eckerd chains.

No high levels for Level 3

When the new Level 3 bonds were freed for secondary dealings, a trader saw the company's 8¾% notes due 2017 at 100.375 bid, 100.75 offered, while its floating-rate notes due 2015 were at 100.375 bid, 100.625 offered, both up, however slightly, from their par issue price.

Another trader saw both tranches of bonds going home at 100.5 bid, 101 offered.

Seitel shakes up secondary

The new Seitel 9¾% senior notes due 2014, on the other hand, were seen by a trader at 101.875 bid, 102.75 offered shortly after they broke. He saw the bonds eventually pushing up to 102 bid, 103 offered. Another trader saw the bonds at 102 bid, 102.5 offered, declaring "everything was up [Friday] in the new issues."

Among them was the dollar-denominated add-on deal for DaVita. The trader saw DaVita's add-on 6 5/8% senior notes due 2013 at 100.5 bid, 101 offered, unchanged from the issue price of 100.5. On the other hand, Griffin Coal's 9½% add-on-notes due 2016 "didn't show up in the market" after having priced at 103.5 bid.

Primedia a mover

Back among the established issues, Primedia's bonds, as well as its shares, climbed after the company said it would consider a sale of its Enthusiast Media division.

A market source saw the company's 8 7/8% notes due 2011 up 1¼ points at 103.25, while its 8% notes due 2013 were seen up as much as 5 points on the session at 102.

A trader saw a more restrained move of ¾ point to a point on the session, with the 8 7/8s also up that much at 103.25 bid, 103.75 offered.

Primedia's New York Stock Exchange-traded shares jumped 28 cents (16.97%) to $1.93 on volume of 4.2 million, about nine times the average daily handle.

Primedia said it had hired Lehman and Goldman to help it consider the possible sale of its Enthusiast Media division, which includes such well-known titles as Motor Trend, Hot Rod, Automobile and Automotive.com, among more than 70 publications and 90 web sites.

Primedia will also consider spinning off its other major segment, which publishes advertising guides for the apartment and new- and-used-car markets.

Remy down on greater revolver draw

On the downside, a trader saw Remy International's bonds as "definitely one" that fell, citing the news that the Anderson, Ind.-based automotive electrical systems manufacturer - the former Delco Remy - had drawn down its revolving credit facility more than originally expected, sending its bonds down "6 or 7 points" on the day.

He saw Remy's 9 3/8% notes due 2012 at 30 bid, 32 offered, and pegged its 8 5/8% notes due 2007 at 82 bid, 84 offered, calling them down about 6 or 7 points.

However, a trader at another desk while seeing Remy "down pretty good for a while, said that the bonds ended down 3 points at the most, across the board.

He saw the 8 5/8s down a trey at 83 bid, 85 offered, the 9 3/8s likewise 3 points down at 30 bid, 32 offered, and said that the company's 11% notes due 2009 similarly lost 3 points, finishing at 33 bid, 35 offered.

Remy announced Friday that it had completed the previously announced sale of its light and medium truck diesel engine and component remanufacturing business conducted by Franklin Power Products, Inc. and International Fuel Systems, Inc. to Caterpillar Inc, for total cash proceeds of $153.2 million, including $3.2 million of an estimated post-closing purchase price adjustment.

Of the proceeds from the transaction, Remy deposited the first $50 million into a restricted account, pledged as collateral to the company's lenders under its senior credit facility, and available for withdrawal only with the required consent of senior lenders. Remy kept $7.8 million of the proceeds to pay expenses related to the transaction and make a required distribution of available cash to a joint venture partner of the business it sold. It used the remaining $95.4 million to repay outstanding revolver borrowings under the senior credit facility.

"What it really came down to," the first trader said, "was they actually drew down a bigger number of their revolver. They originally were going to use less [of the deal proceeds] to pay down the debt. And now, they're going to use a bigger chunk of their asset sale to pay down the debt."

Federal-Mogul still rolling upward

Elsewhere among the automotive names, a trader saw Federal- Mogul Corp. bonds continuing to firm, reaching a high point of 86 before finally ending at 85.5 bid, 86.5 offered, up another point on top of recent gains.

The Southfield, Mich.-based auto parts producer has been given a boost by the recent decision of the bankruptcy court overseeing its restructuring to set a date in may for its final court hearing, after which the company will emerge from Chapter 11, some 3½ years after it was forced into bankruptcy under a flood of asbestos-related medical damage claims.

Spectrum spanked after Q1 loss

Spectrum Brands' bonds were seen mixed, after having fallen on Thursday in tandem with a two-day big slide in the Atlanta-based consumer products company's stock, after it reported a fiscal first-quarter loss on falling revenues.

The company's 7 3/8% notes due 2015 were seen having actually firmed to 85.875 bid from Thursday's finish at 85 - which represented a drop of 2 points from its pre-earnings levels. Activity both days was described as very busy.

Its 8½% notes due 2013 retreated to 90.75, a market source said, from, Thursday's close at 92 - and well below pre-earnings trading levels in a 94-96 context.

At another desk, a market source called those bonds 91.5 - but indicated they were still down some 2½ points on the day.

Spectrum's New York Stock Exchange-traded shares, meanwhile, dropped precipitously on Thursday on the news of the poor earnings, and continued to head south on Friday, closing down $1.22 (12.34%), at $8.67. Volume of 4.1 million shares was four times the norm.

The maker of Rayovac batteries and Remington shaving products on Thursday reported that in its fiscal first quarter, it suffered a loss of $18.8 million (38 cents per share) - a sharp deterioration from the year-earlier period, when the company recorded a profit of $2.3 million (5 cents per share). Revenue fell to $564.6 million from $566.3 million a year earlier.

The results were well below analysts' consensus expectations of a profit of 8 cents per share on revenue of $640.3 million. Spectrum also announced that it plans to sell its home and garden business, and said it is also considering sales of other assets.

Analysts responded negatively to the earnings data, with Prudential Securities downgrading the company's shares, and Standard & Poor's on Friday cutting its corporate credit rating on Spectrum to CCC+ from B- previously, with a "developing" outlook.

S&P analyst Patrick Jeffrey additionally noted that Spectrum is facing intense competition in its battery business and increased commodity costs.

Harrah's gets hit

Also on the downside, Harrah's Entertainment was lower, possibly on investor reaction to the latest financing details about the Las Vegas-based gaming giant's upcoming leveraged buyout.

Harrah's 5 5/8% notes due 2015, fell 2¼ points, to 85.625 bid.

The company disclosed in a filing with the Securities and Exchange Commission that it had received commitments for as much as $22.3 billion in loans to fund its LBO.

The lending syndicate - led by Bank of America and Deutsche Bank AG - agreed to provide a $7 billion seven-year term loan and a $2 billion six-year revolving line of credit.

Harrah's further said that Citigroup Inc. will also arrange $6.02 billion of bridge loans if a sale of the same amount of bonds isn't completed in time for the acquisition.

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