Allied Waste deal prices; TXU, other power bonds fall on LBO; Station Casinos mixed

By Paul Deckelman and Paul A. Harris

New York, Feb. 26 - Allied Waste Industries Inc. successfully priced its $750 million offering of eight-year bonds, high-yield syndicate sources said Monday. However, there was little enthusiasm for the quickly-shopped deal in the secondary market, where traders reported that it struggled after it was freed for trade.

Elsewhere in the primary, The Reader's Digest Association Inc. was heard to have downsized its upcoming issue of 10-year senior subordinated notes, slicing $150 million off the prospective deal and borrowing that though bank debt instead. Pre-deal market price talk was heard on the remaining $600 million of new paper.

Talk also emerged on Valassis Communications Inc.'s pending two-part offering of fixed- and floating-rate eight-year notes.

In the secondary market, apart from the lackluster performance of the new Allied Waste bonds, traders were watching the effects that several merger-and-acquisition stories on the newswires were having.

Chief among these was the day's blockbuster M&A deal - the $45 billion leveraged buyout of Dallas-based utility operator TXU Corp. That company's bonds fell sharply on the news that it will be acquired in a largely debt-funded deal that will sharply increase its leverage, much to the chagrin of the major ratings agencies - and those of such sector peers as Mirant Corp., Dynegy Inc. and Reliant Energy Inc. were also lower on investor fears that they may be next. The one power sector name which was not lowered by the news - in fact, it firmed - was Calpine Corp.

The other major M&A news involved Station Casinos Inc., which announced that it had accepted a sweetened offer for a management-led buyout. That initially shot the Las Vegas-based local gaming operator's bonds up solidly - but then they came back in, traders said, after the company's conference call. Still, by the end of the session, some Station issues still seemed up markedly.

There was some movement in Lyondell Chemical Co. unit Millennium America Inc.'s bonds after the Houston-based chemical company announced plans for a billion-dollar-plus asset sale.

A high-yield syndicate official said that the broad market seemed mixed on Monday.

Meanwhile drive-by action returned to the high-yield primary market, as Allied Waste Industries, Inc. priced a $750 million issue quick-to-market style.

Allied wastes no time

Allied Waste completed the session's only issue, an a.m.-to-p.m. deal which saw the Phoenix waste management company price a $750 million issue of 10-year senior notes (B1/BB-/B+) at par to yield 6 7/8%, at the wide end of the 6¾% to 6 7/8% price talk.

USB was the left bookrunner for the debt refinancing deal.

Reader's Digest downsizes

Elsewhere Reader's Digest Association Inc. shifted $150 million of LBO financing to its term loan from its high yield bond deal, on Monday.

Meanwhile the company has set price talk for the downsized $600 million offering of 10-year guaranteed subordinated notes (Caa1/CCC+) at 9% to 9¼%.

The bond transaction, which was downsized from $750 million, is being led by JP Morgan, Merrill Lynch, Citigroup and RBS Greenwich Capital, and is expected to price Tuesday morning.

Valassis talks two-part deal

Valassis Communications Inc. also set price talk on Monday for its $590 million proceeds two-part offering of eight-year senior unsecured notes (B3/B-).

The Livonia, Mich., marketing services company talked a tranche of fixed-rate notes at 8 3/8% area.

Meanwhile the company talked a tranche of floating-rate notes at Libor plus 325 basis points area.

Tranche sizes remain to be determined.

The Bear Stearns and Banc of America Securities led deal is expected to price on Tuesday afternoon.

In addition to Reader's Digest and Valassis, Seminole Hard Rock Entertainment Inc. is also expected to price its $500 million offering of first-priority seven-year senior secured floating-rate notes (B1/BB) on Tuesday.

Late last week the Merrill Lynch-led deal was talked at Libor plus 275 basis points.

Early Allied Waste rise fizzles

When the new Allied Waste Industries 6 7/8% notes due 2017 were freed for secondary dealings, a trader saw them cautiously creep higher at 100.25 bid, 100.75 offered, up from their par issue price earlier in the session.

However, another trader later said that the new issue had slipped from its early peak and was at 99.5 bid, 99.875 offered.

At another desk, the bonds were seen going out at 99.625 bid, 99.875 offered.

Also on the recent new-deal front, a trader said he'd seen "absolutely no sign" of American Railcar Industries Inc.'s new 7½% notes due 2014. The St. Charles, Mo.-based railroad equipment manufacturer's new bonds had priced at par on Friday and had actually moved up about 1½ points before slipping from sight.

TXU tumbles on buyout news

Back among the established issues, TXU was the name on everyone's lips on the news that the largest utility operator in the Lone Star State will be acquired by a buyout syndicate composed of Kohlberg Kravis Roberts & Co., Texas Pacific Group and four Wall Street giants-Goldman Sachs, Lehman Brothers, Citigroup and Morgan Stanley. They will pay TXU stockholders $69.25 per share, or about $32 billion total, and will assume more than $12 billion in debt, bringing the final pricetag to close to $45 billion - the largest-ever private buyout deal.

The deal will be financed mostly through new borrowings - and the new prospect that the company's already sizable debt load will balloon out further sent investors scurrying for the exists.

A junk bond trader - who observed that TXU debt normally is too rich for him - said that he'd seen its 2009 notes initially widen out on a spread versus Treasuries basis to 110 basis points bid, 100 basis points offered, before coming back in to a level about 85 bps bid, 80 bps offered.

At other desks, a sharp price retreat in active trading was seen, with the 6.55% notes due 2034 seen down more than 4 points on the day at about 90 bid - and at one point, those bonds had been down as much as 9 points, hitting an intraday low of 85. TXU's 5½% notes due 2014 and its 6½% notes due 2024 were each seen down more than 3 points at the close at 92.5 and 90.625, respectively. Each had been down an additional 3 points, but came off those lows.

Bondholders were not the only ones dismayed by the deal and the prospect of a huge leverage increase. The three major ratings agencies each expressed their reservations, with Fitch Ratings actually downgrading TXU's credit to junk - it lowered the company's senior unsecured notes to BB+ from BBB-. Moody's Investors Service and Standard & Poor's meantime warned they might do likewise - S&P already has the company's unsecured bonds at junk (BB+), though its corporate credit is still investment grade (BBB-), while Moody's rates the senior unsecured debt at Ba1. In their separate messages, the agencies each cited their concerns about TXU's likely taking on much more debt to finance its own purchase, as well the erosion of its customer base in Texas' tough deregulated electric market.

Other power bonds lose juice

With TXU now officially being bought, other, similar companies may find themselves in play if the big deal sparks a consolidation trend in that sector.

That prospect of being the target of an LBO transaction which will be largely funded by a vast expansion of the target company's debt caused other power names to likewise drop. A trader said that Dynegy's bonds were down about ½ point on the session, with the Houston-based company's 8¾% notes due 2012 a point down at 107.5 bid, 108.5 offered.

Its Houston neighbor Reliant Energy's 6¾% notes due 2013 were down around the same amount, the trader said, at 103 bid, 104 offered, while Atlanta-based generator Mirant's 8.30% notes due 2011 ended at 102.5 bid, 103.5 offered - also down ½ point or so, "all on LBO fears," the trader said.

Calpine bucks the trend

About the only power name to be going anywhere other than down in anticipation of a debt laden LBO was bankrupt San Joe, Calif.-based power plant operator Calpine. A trader saw its bonds "quoted a lot this morning" in response to the news about power generation sector peer TXU. He said its 8½% notes due 2008 were "right around 106," while Calpine's 7¾% notes due 2015 were at 96.5 bid, 97.5 offered.

Another trader said that Calpine had "moved up" after the TXU news showed that people were willing to buy assets in that power sector.

Yet another trader agreed that Calpine was "up a couple," strengthened by the TXU developments. He saw Calpine's 8½% notes due 2011 initially rise as much as 4 points on the session before finishing the day at a wide 101 bid, 105 offered, still up 3 points on the session.

Station bonds seen stationary

Elsewhere in the M&A/buyout arena, a trader saw Station Casinos' bonds gyrating around at higher levels after the company announced plans for an $8 billion management-led buyout, which will include assumption of $2.4 billion of debt.

He said that the company's 6½% notes due 2014, after opening at 92 bid, 93 offered, shot up to 99 bid "on rumors that the bonds were going to be taken out." After the company's conference call - during which Station's chief financial officer flatly shot down that possibility - the bonds fell back down to 92 bid, 93 offered at the close, "unchanged - but with a 7 point swing," he said.

However, other Station-watchers did see the company's bonds move up, with one quoting its 6 5/8% notes due 2018 at 96 bid, up more than 7 points on the day, while its 6% notes due 2012 were up 1½ points at 98.

At another desk, Station's most busily traded bond - its 6 7/8% notes due 2016 - came off peak levels around 99 to end at 92.75, down some 3 points on the session. The 6 5/8s, after swinging wildly within a 10 point range, ended at 92.625, up more than 2½ points.

Lyondell unit moves up

In another M&A deal making news, Lyondell Chemicals agreed to sell its titanium dioxide business to Saudi Arabia's National Industrialisation Co. for $1.2 billion, with the proceeds expected to go to debt repayment.

A trader said that gave Millennium America's 7 5/8% notes due 2026 a 3 point boost to 99 bid, par offered. But he saw other Lyondell debt "not moving much," with its 8% notes due 2014 up perhaps ¼ point at 105.25 bid, 106.25 offered.

MagnaChip is rangebound

A trader saw MagnaChip Semiconductor Ltd.'s bonds quoted around, although he said the South Korean computer chip maker's paper "drifted up, and then back down, but all within a point or 1½ - It was just that I saw a lot of quotes in them. At least they were on people's screens."

He saw Magnachip's 8% notes due 2014 hanging in around a 72-74.5 context, while its 6 7/8% notes due 2011 were at 86.5 bid,. 88 offered. "But that was just something that was quoted a few times," he added.

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