Charter bonds up on debt exchange; Pinnacle prices; EchoStar floaters well bid for

By Paul Deckelman and Paul A. Harris

New York, Sept. 19 - Charter Communications Inc. announced an agreement to exchange $1.6 billion of newly issued 10¼% notes due 2010 for more than $1.9 billion principal amount of existing convertible notes and straight debt Friday (see related story elsewhere on page one for full details). Charter's existing bonds moved up on the news.

The primary market meantime saw Pinnacle Entertainment Inc. bring $135 million of 10-year senior subordinated notes.

And traders said that EchoStar DBS Corp.'s new floating-rate notes firmed smartly from their par issue price once the three tranches of the $2.5 billion mega-deal were freed to trade around.

But Charter was clearly the name of the day in the secondary market, following the company's announcement of the debt-for-debt swap.

The trader quoted the new 10¼% notes as having firmed to 103 bid from their par issue price.

As far as the existing issues, he said that they were "up three or four points, while the zeroes were obviously better, up five or six."

He said "there were sellers initially, then buyers after a while. They [the bonds] kind of cleaned up and traded higher."

At some other desks, however, things were seen having moved in reverse order. A trader - who quoted the company's benchmark 8 5/8% notes due 2009 as having firmed to 80.5 bid, 81.5 offered at the end of the day from 78.25 bid, 79 offered late Thursday, said that earlier in the day, he had seen the Charters "as good as 82 bid", before they dropped back off those highs to close with gains in the two-point range.

He quoted Charter's 10% notes due 2011 - which he said "trade pretty close to the 8 5/8s" - as having closed the day at 80 bid, 81 offered, while Charter's zero-coupon/9.92% senior discount notes due 2011 firmed to 75.5 bid, 76.5 offered, well up from Thursday's close at 73 bid,75 offered.

A market-watcher at another shop quoted Charter's 8¼% notes due 2007 three points better at 87 bid, and saw the 8 5/8s firm to 81 bid, a gain of two-and-a-half points. He saw other Charter issues likewise all up in that same two-to-three point context.

Charter was the third well-known name to excite the market with an abruptly emerging billion-dollar-plus transaction in as many days, with large, well-known issuers apparently choosing to opportunistically strike while the proverbial iron is hot and interest rate conditions and market liquidity factors are favorable. On Wednesday, Nextel Communications Inc. brought a solidly upsized billion-dollar offering of new 7 3/8% senior serial redeemable notes due 2015 to market, followed by EchoStar's even more hugely upsized $2.5 billion three-part deal on Thursday.

The new EchoStar notes began trading around Friday, and market participants said the smallest of its three tranches - the $500 million of floating-rate notes due 2008 - was clearly the star performer.

"The issue was only $500 million," a trader said (versus the $1 billion each sizes of the other two parts of the deal, the 5¾% senior notes due 2008 and the 6 3/8% senior notes due 2011). The floater tranche, he said, "was very well spoken for," moving up to 101.5 bid, 102 offered from its par issue price, while the other two tranches, which also priced at par, traded in a 99.625-par context.

"Most people got what they wanted" from this deal, he added.

There was some activity in the bonds of Amerisource Bergen Corp. after The Wall Street Journal said that the FBI and the Food and Drug Administration were investigating the Valley Forge, Pa.-based drug wholesaler, which buys pharmaceuticals from manufacturers and then distributes them to hospitals, doctors', nursing homes and other customers. The Journal said the feds were probing whether AmerisourceBergen had sold drugs to anyone who then turned around and resold them in an illicit secondary market as part of a scheme to allegedly get multiple rebates from the manufacturers.

The company held a mid-morning conference call and issued a statement in which it denied any wrongdoing, said it had not had any contact with any government agencies on this issue since it cooperated with a federal probe of one of its customers back in 2001, and theorized that the paper was rehashing old news after the recent guilty plea to mail fraud charges by a former AmersourceBergen employee who had serviced the California customer involved in that probe two years ago.

The company's denial notwithstanding, its New York Stock Exchange-traded shares fell Friday, dipping $1.82 (3.21%) to $54.83, although they had bounced back from their day's lows at $53.10 following the denial. Volume of 13.8 million was nearly 10 times the norm.

On the bond side, one source said the damage had not been much, quoting AmeriSourceBergen's 8 1/8% notes due 2008 at 107 bid, down from 107.75 bid previously, while its 7¼% notes due 2012 were a point down at 101.75.

But one trader said that at least in the morning dealings, the bonds headed south as people digested the accusations in the Journal. He saw the 8 1/8% notes dipping to 106 bid from 108.25 bid, 110.25 offered on Thursday and pegged the 7¼% notes breaking below par to 99.5 bid, 101.5 offered, from 103.5 bid, 105 on Thursday.

Another trader also saw a bigger downturn - at least initially - quoting the 8 1/8% notes at 108 bid, 109 offered pre-news and then having fallen to 105.5 bid, 107 offered after the news came out. He acknowledged, however, that his reading came fairly early in the day, when the company's shares were still halted and before the denial of any wrongdoing, and said that the bonds may have come back up later.

At another desk, a trader asserted that the story which the Journal had run about wholesalers reselling product "has been out there before and the market kind of shrugged it off."

He noted that AmeriSource is "a $40 billion company, so even if as the Journal said it's potentially a 2% hit, you're talking about a very small number. It's not going to affect the company at all. The bonds were unchanged."

He pointed out that the stock had recovered from its early lows to close only down a little on a percentage basis and said that from a bond perspective, "it was a non-event. Bonds were off maybe a point, but it seemed to be better buyers, certainly." His shop ended up trading several blocks of Amerisource Bergen 8 1/8s in a 107-108 context, "largely unchanged. A lot of hoopla, not a lot to it that could affect the company."

Elsewhere, Levi Strauss & Co. "was mildly better," a trader said, as the San Francisco-based apparel maker's efforts to win $1.15 billion of new bank financing appeared to be paying off, its loans said to have been strongly oversubscribed.

The trader quoted Levi's 11 5/8% notes due 2008 at 92 bid, 92.5 offered, up from 91 bid, 92 offered Thursday; its 12¼% notes due 2012 up two points at 89 bid, 90 offered; and its 7% notes due 2006 a point-and-a-half better, at 86 bid,87 offered.

Meanwhile the week of Sept. 15 came to a sleepy conclusion in the high yield primary market, with Pinnacle Entertainment, Inc. representing the session's sole transaction.

The Las Vegas-based gaming and entertainment company sold $135 million of 8¾% 10-year senior subordinated notes at 98.369 to yield 9%, in the middle of the 8 7/8%-9 1/8% price talk.

The Bear Stearns-led deal came to market wearing the triple-hooks: Caa1/CCC+. And throughout the session Prospect News pressed its news sources for color on what appeared on the surface to be incongruity: a deal with notably-low credit rating coming with what appeared to be eye-poppingly tight price talk.

Mike Difley, vice president and portfolio manager of the American Century High Yield Fund responded that the ratings by no means told the complete Pinnacle story.

"If you just look at the ratings it would seem rich because obviously triple-C indexes trade at quite a bit higher yield than that," he said.

"But Pinnacle is a name that is pretty well known in the market. And existing bonds have been trading not too far off of that level - at least recently.

"You can also make the argument that it trades cheap relative to other moderately diversified riverboat-type gaming companies."

Within minutes of terms emerging on the Pinnacle deal, Andrew Feltus, an assistant portfolio manager with Pioneer Investment Management, told Prospect News that while he might have liked a little more of a pop out of Pinnacle, you have to factor in the company, the sector and the dynamics of the market when you analyze its 9% yield.

"It's a little more aggressive than I would have liked," said Feltus. "But they got it done.

"They are about a 5.5-times leveraged company. That is a fair amount of leverage. It's something you have to pay attention to.

"But the leverage is related to new casino construction. So if you think they can execute the new construction and bring it on-line with a minimal amount of problems, it's a good story.

"Nine percent is pretty tight," the investor reiterated. "But give me another bond in the gaming sector that yields that much. And that's how they're pricing it: they're not pricing it relative to the rest of the high-yield market, they're pricing it relative to the gaming market.

"The market is pretty well priced," Feltus said. "Things aren't coming cheap anymore."

In the secondary, a trader saw Pinnacle Entertainment's new 8¾% senior subordinated notes due 2013 "trade to a slight premium" above their issue price at 98.369, estimating them to be about a point higher going home.

Meanwhile, one prospective issuer was heard to have entered the new deal pipeline during the Friday session.

Koppers Inc. announced a $300 million offering of 10-year senior secured notes (B) via Credit Suisse First Boston.

The roadshow began Friday and the deal is expected to price early in the week of Sept. 29.

And price talk of 10½% area emerged on Seminis Vegetable Seeds Inc.'s upcoming $190 million of 10-year senior subordinated notes (B3/B-), which are expected to price on Monday afternoon via Citigroup and CIBC World Markets.

Late in the session one sell-side official took a moment to take stock, and said that especially in light of the Sept. 15 week's two whopper deals - Nextel Communications, Inc.'s $1 billion (upsized from $500 million) and EchoStar DBS Corp.'s $2.5 billion (up from $1.5 billion) - the market looks good.

"Flows have been positive all year, the past two weeks notwithstanding," said the source. People still have cash to put to work.

"A lot of paper went up this week: $4.5 billion of deals. But a lot of it was recycling paper.

"Look at the Nextel deal: a lot of that was refis. So even though you had outflows, liquidity is still strong. You're not taking cash out of the market.

"With the DISH deal, where they were taking out $1.6 billion of the 9 3/8% paper, there was still net money coming out of the market, but not the $2.5 billion that it looked like.

"A big chunk of the calendar is refis, when you really dig into it," said the sell-sider. "Scots is actually putting money back into the market. They're taking out $400 million with $200 million of new notes and a bank deal. So it's actually creating cash for people."

When asked if more drive-bys like Nextel and EchoStar might be anticipated in the fall weeks to come, this official responded that the stage certainly seems set for it.

"With Treasuries backing off where they are, if you're an issuer you've got a second bite of the apple almost. They may have gotten away from you in the end-of-July through August time frame: flows went against you. Treasuries backed up.

"Now you have a situation where the liquidity feels good. The economic outlook feels good. And yet the Treasuries have backed off to the lower levels where they were when they hit their highs, on a yield basis.

"If you're anywhere near being a spread-based issuer this may be a little window of opportunity.

"Treasuries helped the Nextel deal and the DISH deal. The DISH deal had to have had a substantial amount of investment-grade play. And they're all spread buyers."

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