Alltel prices $1 billion toggle deal; EchoStar jumps on AT&T buyout buzz; GM off on sales gimmick news

By Paul Deckelman and Paul A. Harris

New York, Nov. 19 - Just days after its multi-billion-dollar cash-pay bond deal was heard to have been postponed due to the current unsettled credit environment, Alltel Communications/Alltel Communications Finance Inc. set the junk market talking with the sale of $1 billion of 10-year toggle notes, coming at a substantial discount to par. Traders did not see the new bonds trading around in the secondary.

Elsewhere in the primary arena, price talk emerged on Quebecor World Inc.'s downsized and restructured offering of seven-year notes. However, Sequa Corp. was heard by high yield syndicate sources to have postponed its offering of eight-year notes until next week.

Among the established issues, EchoStar Communications Corp.'s bonds were seen flying high on news reports indicating that telecommunications giant AT&T Corp. is very interested in acquiring the Littleton, Colo.-based satellite television broadcaster, Number-Two in the industry behind larger rival DirecTV. Some reports actually speculated that a deal could be announced within days.

On the downside, General Motors Corp.'s bonds, as well as its shares, fell sharply on the news that the Detroit giant will revive last year's "Red Tag" incentives to try and clear unsold 2007 vehicles out of dealer showrooms by year's end. While they are expected to boost sales, the incentives are seen on Wall Street as a signal of how desperate GM views its sales prospects.

Sources said that the broad high yield market traded sharply lower on Monday.

A high yield syndicate official said that traders were marking the cash market down between 1 and 1½ points.

Alltel brings $1 billion

As the Monday primary market got underway the big news concerned the financing for the Alltel Communications merger with Atlantis Merger Sub, Inc.

Late last Friday evening Alltel Communications and Alltel Communications Finance, Inc., priced a $1 billion issue of 10 3/8% 10-year senior PIK toggle notes (Caa1/B-) at 91.50, resulting in a yield to maturity of 11.84%, according to market sources.

Citigroup, Goldman Sachs & Co., Barclays Capital and RBS Greenwich Capital led the deal.

The toggle notes priced one day after Alltel postponed the sale of a portion of its cash-pay notes due to market conditions.

All told, the Alltel financing includes $7.7 billion of Rule 144A/Regulation S bond and/or bridge debt financing in connection with the merger.

The $1 billion tranche of PIK toggle notes that priced Friday leaves another $1.5 billion of PIK debt remaining on underwriters' balance sheets.

In addition, $5.2 billion of cash pay debt remains on underwriters' balance sheets trailing last week's postponed offering of cash-pay notes.

A buy-side source told Prospect News that the toggle notes deal appeared to have been driven by reverse inquiry, and is believed to have been taken down by an even half dozen of accounts.

Meanwhile on the sell-side the Alltel toggle notes deal generated a good deal of discussion on Monday.

Two high yield syndicate officials not in the deal calculated that at its $1 billion size, given the typical 2.5% underwriting spread which would render the underwriters a price of 97.50 (100.00 minus 2.50 equals 97.50), the absolute discount, (97.50 minus 91.50 equals 6.00) implies that the underwriters took a $60 million loss on the deal.

However one of these sources cautioned that there may be more to the toggle notes placement than meets the eye.

For example, this official said, the underwriters might have extracted commitments with respect to the withdrawn cash-pay notes from the enquiring accounts who were seeking to play in the toggle notes deal.

Quebecor for Tuesday

Quebecor World set price talk for its downsized, restructured $300 million offering of seven-year senior unsecured notes (Caa1/B) on Monday.

The notes are talked to price with an 11½% coupon to yield in the 12½% area.

The proposed issue has been downsized from $400 million.

The notes will be non-callable. Previously the notes had been structured with four years of call protection.

Pricing is expected on Tuesday.

Citigroup is the left bookrunner.

Sequa delays

As the abbreviated pre-Thanksgiving week got underway the only other primary market news was that Sequa will delay pricing its $700 million two-part offering of eight-year senior unsecured notes (Caa2/CCC+) until the post-Thanksgiving week, affording bond investors a chance to see how the company's bank loan prices.

The $1.35 billion senior secured credit facility (B1/BB-) is comprised of a Libor plus 325 basis points $1.2 billion seven-year term loan talked in the 98.00 area, in addition to a $150 million six-year revolver talked at Libor plus 325 basis points with a 50 basis points commitment fee.

The notes offering is comprised of tranches of cash-pay notes and discount notes. The discount notes feature a 2.5-year zero coupon.

Lehman Brothers is the lead bookrunner for the LBO deal.

Final assault

With the 2007 primary market remaining just $9 billion away from topping the $156.6 billion issuance record set last year, Prospect News continued to ask high yield syndicate officials what chances this year's market has of topping last year's record.

In spite of the market's recent downturn, two officials who spoke to Prospect News on Monday, each from a different institution, refused to rule out the possibility that 2007 could see a new issuance record.

However both proffered the same caveat: market sentiment must improve.

Both said that aside from the news heard on Monday, there is apt to be little to no primary market news before the Wednesday close for the four-day Thanksgiving holiday in the United States.

However one source, specifying that following Thanksgiving there will still be one entire week of November left to play out, said that the market window between Thanksgiving and Christmas feels a little longer this year.

"There are three solid weeks left after Thanksgiving," the official said.

"There could even be some activity during the first couple of days of the [Dec. 17] week.

"But in order for anything to happen there needs to be a substantial change in sentiment."

New Alltel unseen, indexes point lower

In the secondary market, several traders said that they had seen neither hide nor hair of the new Alltel 10 3/8% toggle notes due 2017.

Elsewhere, they described the overall market activity level as quiet - and the tone as ugly, taking its cue from the equity market retreat that saw the bellwether Dow Jones Industrial Average fall more than 200 points.

Participants said that overall, the market seemed to have a heavy tone to it, with declining issues surpassing advancers by a better than two-to-one margin and market volume down about 12% from Friday's already reduced levels.

"The market felt weak," a trader said, "with not much liquidity to it."

Another trader saw the widely followed CDX index of junk market performance down 11/16 at 93 15/16 bid, 94 3/16 offered. Among other market barometers, the KDP High Yield Daily Index fell 0.47 to 77.42, while its yield widened 13 basis points to 8.65%.

EchoStar orbits higher

But while the overall market tone was negative, that had scant effect on EchoStar's bonds, which pushed higher on the news that AT&T wants to reach out and touch the satellite TV broadcaster - a combination which, if it becomes a reality, would better equip the phone giant to fight back against cable companies trying to encroach upon traditional telephone company turf.

While the cablers are seeking to bundle standard telephone voice and internet access with their core video operations, old-line phone companies like A&T and rival Verizon Communications Inc. are trying to move into video - often via ad hoc marketing alliances with companies like EchoStar or DirecTV - to they too can offer customers bundle packages combining phone, internet and expanded TV offerings.

While talks between AT&T and EchoStar have been going on for several months, several news sources reported Monday that a buyout deal that would pay EchoStar shareholders somewhere between $64 and $68 per share, or about $29 billion total, was near, causing both the bonds and the shares to rise.

A trader saw EchoStar's 7% notes due 2013 move up to 102.75 bid, and said junk marketers "were looking for" its 7 1/8% notes due 2016.

A market source at another desk saw the latter bonds push as high as 104 during the session, from the 101.5 area around which they had closed on Friday, and the bonds traded most of the session in a 102-104 context - although some late-day quotes well under that level, in fact below par, were heard. But the source also saw its 6 5/8% notes due 2014 up 2½ points on the day at 101.25.

Another trader saw the 6 5/8s 2 points higher at 101 bid, 102 offered, citing the AT&T talk, while its 6 3/8% notes due 2011 gained more than 2 points on the day to end at 102.

EchoStar's Nasdaq-traded shares jumped $7.26, or 19.23%, to end at $47.49. Volume of 21 million shares was about eight times the norm.

Same old story for Young

Also within the communications constellation, Young Broadcasting Inc.'s bonds were seen again heading in the opposite direction from EchoStar's - continuing a downslide which was noted last week. As was the case when the bonds were retreating on Wednesday and Thursday, there was no fresh news out about the New York-based TV station operator that might explain the slide.

A trader saw Young's 8¾% subordinated notes due 2014 at 75, and said that they had been "even lower, earlier." He noted that the bonds had been offered at 83.75 on Friday, and had begun the month trading around the 86 bid, 86.5 offered level.

A second trader saw the bonds down 3 points at 72 bid, 73 offered.

At another desk, a market source also saw a three-point drop from opening levels to 72.5 bid, although the issue was down 5 points from Friday's levels.

Another trader also saw the bonds at least 5 points lower over the last several sessions. He theorized that the slide reflected rising market concern "about the company's liquidity position or asset valuations."

He said that in the currently unsettled environment "and the pullback of some of the LBO transactions that are out there people are just taking a look at the asset values" of the companies whose bonds they hold. "They're re-evaluating their asset values, and putting lower valuations."

A market source saw the company's 10% senior notes due 2011 down 3 points at 85 bid.

GM spins its wheels

Elsewhere, GM "got hit pretty hard," a trader said, quoting its widely traded 8 3/8% benchmark bonds due 2033 at 78 bid, 79 offered, down 2¼ points on the session.

Another trader saw the bonds "down a couple" of points at 77.5 bid, 79.5 offered, and saw the credit-default swaps associated with GM's bonds widen out to 805 bps bid, 830 bps offered from 705 bps bid, 720 bps offered last week - a sign of lessened investor confidence in the giant carmaker, since the CDS spreads move inversely with investor optimism about the underlying bonds they are hedging against.

He also saw the debt-protection costs of GM's 49%-owned financial arm, GMAC LLC, widen out to a yawning 910 bps bid, 925 bps offered from 820 bps bid, 835 bps offered last week, while GMAC's 8% notes due 2031 were down a point at 79 bid, 81 offered, and its 6¾% bonds due 2014 lost 1½ points to end at 76 bid, 77 offered.

GM's New York Stock Exchange-traded shares fell $2.48, or 8.47%, to $26.79 on volume of 27 million, about 1½ times the usual daily turnover.

The markets were reacting to the news that GM was bringing back "Red Tag" discounts to boost sales and clear out building inventories - a move interpreted by Wall Street to mean the carmaker expects its November sales to come in well below its earlier projections.

Analysts reason that GM may be fearful that if it does not offer the incentives, the lingering fallout from the subprime mortgage crisis and falling property prices and credit availability may harm car sales.

To combat that, GM last week last week introduced zero-percent financing for up to five years on some of its 2007 and 2008 models.

Investor fears that the GM move could force other carmakers to follow suit or risk losing sales also pushed GM arch rival Ford Motor Co.'s 7% notes due 2031 down to the 73 bid, 73.5 offered level. A trader saw that as a ¾ point drop - but at another desk, a trader called the bonds down some 2 points on the day.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.