Cumulus deal prices; Toys "R" Us jumps on favorable numbers

By Paul Deckelman and Paul A. Harris

New York, May 1 - Cumulus Media Partners LLC was heard by junk market new-deal participants to have priced an offering of eight-year senior subordinated notes Monday via its CMP Susquehanna Corp. subsidiary. Price talk was meanwhile heard to have emerged on Shaw Communications Inc.'s planned 10-year offering, which could come to market as soon as Tuesday.

In the secondary market, Toys "R" Us Inc.'s bonds were seen bouncing around at levels almost as high as its cartoon mascot Geoffrey Giraffe's nose, propelled upward by favorable market response to its latest quarterly and fiscal-year numbers which, while not terribly impressive, were not as bad as some in the market had feared either.

Going in the other direction, the bonds of Sea Containers Ltd. were heard gyrating around at lower levels in line with a sharp decline in the Bermuda-based railroad and maritime container company's shares, after the company said that it would delay the filing of its annual report with the Securities and Exchange Commission - and warned that its auditors will likely raise a "substantial doubt" about its ability to keep operating as a going concern.

Overall a source marked the broad high-yield market weaker with Treasuries on Monday.

Meanwhile in the primary market a single issue was priced.

CMP Susquehanna comes mid-talk

CMP Susquehanna Corp., the operating company of Cumulus Media Partners LLC, priced an upsized $250 million issue of eight-year senior subordinated notes (B3/CCC) at par to yield 9 7/8%, in the middle of the 9¾% to 10% price talk.

A proposed $50 million tranche of discount notes from CMP Radio Holdings Corp. was abandoned, with $25 million added to the subordinated notes issue and the sponsor, along with Cumulus, contributing an additional $25 million of cash to the financing.

Merrill Lynch & Co., Goldman, Sachs & Co., Deutsche Bank Securities, UBS Investment Bank and Banc of America Securities were joint bookrunners.

Last week Cumulus Media Partners LLC downsized its overall bond offering to $275 million from $325 million and shifted $50 million of its acquisition financing to its term loan B, upsizing the loan to $700 million from $650 million.

The Atlanta-based radio broadcasting company will use the proceeds to partially fund the acquisition of the radio broadcasting business of Susquehanna Pfaltzgraff for $1.2 billion.

The new CMP Susquehanna deal priced too late in the session for meaningful aftermarket activity.

Shaw talks C$300 million

Elsewhere Shaw Communications expects to price its C$300 million offering of 6.15% senior unsecured notes due May 9, 2016 (Ba2/BB+/BB from DBRS) at a spread of 190 basis points to Canadian Treasuries on Tuesday.

TD Securities and RBC Capital Markets are joint bookrunners.

Proceeds will be used to repay bank debt and for working capital purposes.

Shaw Communications is a Calgary, Alta.-based diversified Canadian communications company.

On Monday afternoon an informed source said that the transaction has been well received by both institutional and retail investors, and added that the order books are substantially oversubscribed.

Eyes toward summer

As the May 1 session having generated an extremely light news flow, Prospect News asked two sell-side officials from different high-yield syndicate desks whether the primary market could already be moving into summer, with its attendant lower-than-normal deal volume.

Both sources responded with qualified no's.

One official said "Not quite yet," but added that a lot of the refinancing business has gone away.

Hence, the source said, mergers and acquisitions, and LBO activity will pick up the slack, and added that there are a few big deals still to come.

The other high-yield syndicate official expects the deal flow to be light through Memorial Day.

This source added that there will be deals and there will be some relatively high-volume days, but anticipates that issuance, in the intermediate term, will remain on the lighter side.

A light week

In addition to the Shaw Communications deal mentioned above, only two other offerings are parked on the forward calendar as business expected to be completed by Friday's close.

The Rouse Co. LP/TRC Co-Issuer Inc. is in the market with $500 million of senior notes expected to be structured with a five-year or seven-year maturity (Ba1/expected BB+), via Lehman Brothers.

Also iPayment Inc. is marketing $280 million of eight-year senior subordinated notes (Caa1/CCC+) via Banc of America Securities.

Toys gains

Back among the established issues Toys "R" Us bonds were seen having risen about two to three points across the board in apparent investor response to the Wayne, N.J.-based toy retailer's fiscal fourth-quarter and fiscal 2005 results.

"They must have sold a lot of teddy bears," a trader quipped in passing on the levels.

Actually, though, the numbers were not especially good - the company's net income in the quarter ended Jan. 28 dropped to $142 million from $259 million a year earlier and for the full year it swung into the red to the tune of $384 million from a $252 million net profit a year earlier.

Even so, another trader said, the results were "not as bad as expected, so they went up big this [Monday] morning," and pretty much stayed there.

"Toys '"R" Us had a good 10-K [annual report], so the bonds were up about 2 to 3 points," said a second trader, who pegged the company's 7 3/8% notes due 2018 at 75 bid, 76 offered, up from around 73-74 previously.

Another trader saw the company's 7 7/8% notes due 2013 up 1½ points at bid levels around 83.75-84, while estimating its 7 5/8% notes due 2011 up a point at 85 bid, 86 offered.

The toy-seller's bonds were "definitely up quite a bit today [Monday]," a market source at another desk exclaimed, quoting the 7 3/8s at 76, the 7 7/8s at 84, the 7 5/8s at 86, the company's 6 7/8% notes slated to come due this year at 101.25, and its 8¾% notes due 2021 at 93.875, all up at least two points or more on the session.

It should be noted that the latest yearly results were impacted by $410 million in transaction and related costs stemming from the company's $6.6 billion leveraged buyout around the middle of last year by Bain Capital LLC, Kohlberg Kravis Roberts & Co. and Vornado Realty Trust.

And despite the big paper loss for the year and the profit decline, the company remains solid, liquidity-wise; it noted in its 10-K that "we have been able to meet our cash needs principally by using cash on hand, cash flows from operations, our variable rate revolving credit facilities and the multicurrency revolving facilities."

As of the end of the fourth quarter and fiscal year on Jan. 28, it had $2 billion of unused availability under its secured revolving credit facility and a total of $343 million of unused amounts under its multi-currency revolving credit facilities (£95 million and €145 million).

"We believe that cash generated from operations, along with our existing cash and revolving credit facilities, will be sufficient to fund our expected cash flow requirements, and planned capital expenditures for at least the next 12 months," Toys "R" Us declared in its report. "In addition, we will consider additional sources of financing to fund our long-term growth."

Aviall gains on Boeing acquisition

Elsewhere, another upsider Monday was Aviall Inc., whose normally little-traded 7 5/8% notes due 2011 rose three points to close at 104.75 bid, 105.75 offered, a trader said. That followed the news that aerospace giant Boeing Co. will acquire the Dallas-based distributor of aviation parts and aftermarket services in a $1.7 billion deal, and will additionally assume $350 million of Aviall debt.

Standard & Poor's, noting that Boeing carries an investment-grade A- credit rating, while Aviall is high junk at BB, said it was considering the latter's ratings for an upgrade.

Level 3 higher on purchase

Also on the M&A front, traders saw Level 3 Communications Inc.'s bonds better as the Broomfield, Colo.-based telecommunications company announced the latest in a string of acquisitions - this one for the privately held Tel Cove Inc., in a $1.237 billion cash and stock deal that includes $155.5 million of debt assumption.

"It's another major acquisition," a trader said, "but [the bondholders] still love it," apparently figuring that the benefits of acquiring the regional telecom as part of Level 3's strategy to bulk up by gobbling down smaller players outweighs whatever additional debt it incurs or takes on.

He quoted Level 3's operating company 10¾% notes due 2011 as up two points at 104.5 bid, 105.5 offered, while its 12 7/8% subordinated holding company paper due 2010 was also up a deuce at 102.5 bid, 103.5 offered.

Another trader saw a more conservative gain, with Level 3's 11% notes due 2008 half a point better at 101.5 bid, 102.5 offered.

Level 3's purchase of Tel Cove - which has 22,000 miles of local and long-haul routes across the eastern part of the United States, as well as valuable microwave spectrum licenses - is the fourth sizable acquisition for the company in the last nine months, following its purchases in recent months of the assets of WiITel Communications Group LLC, Progress Telecom and ICG Communications.

Wolverine builds on gains

Also on the upside, Wolverine Tube Inc.'s 10½% notes due 2009 were seen continuing the solid rise they enjoyed late last week following the release of better-than-expected numbers by the Huntsville, Ala.-based maker of copper and copper alloy tubular products, fabricated and metal joining products. A trader saw those bonds at 83.5 bid, 84.5 offered, up a point on the day.

Another trader saw its 7 3/8% notes due 2008 two points better, at 78 bid, 80 offered.

Sea Containers choppy

On the downside, Sea Containers was "all over the place," a trader said, quoting the company's 10½% notes due 2012 going home two points lower, at 85.5 bid, 86.5 offered.

However, even though he noted that Sea Containers' New York Stock Exchange-traded shares sank $1.76 (25.07%) to end at $5.26, on volume of two million, about nine times the usual turnover, the company's other series of bonds - its 10¾% notes due 2006 and 7 7/8% notes due 2008 "came back to almost unchanged." While the 103/4s dipped to 94 during the session, they rebounded to 95 bid, 96 offered, while the 7 7/8s plunged to 85, but bounced off that low to finish at 86.5 bid, 87.5 offered, both little changed.

As for the 101/2s, which did not bounce back, he opined that "that's the one that people are a little nervous on.

"What's happening," he said, "is that people are questioning whether [Sea Containers] is a going concern or not. That's going to hammer the stock - but a lot of high yield research," including that done by the analysts of his own shop, "is saying that the assets basically cover the bonds. So the stock got crushed, down nearly $2 on a $6 stock, but the bonds came back," with the exception of the 101/2s.

Another trader saw the 101/2s down two points at 84.5 bid, 85.5 offered, while the 7 7/8s were also two points lower at 86 bid, 87 offered, while the 103/4s were perhaps half a point lower at 95 bid, 96 offered.

The first trader said that volume in the name, which he normally watches, "was the heaviest I've ever seen."

He said part of the high volume and increased volatility in the name was due to the emergence of hedge funds as sizable market players.

"It's not just holders" who are buying the bonds as an investment, "but you've got the hedge funds that can short the bonds - or conversely, short the stock and buy the bonds. It goes both ways."

He said that "some of the hedge funds were shorting the 10¾% '06, because it's the higher dollar-price bond.

"That's why it's so wild," he continued, adding that "this business has changed so dramatically in the last three or four years. The hedge funds are running it. They've got tons and tons of money - with no regulation."

He said that he must have traded as least $30 to $40 million of Sea Container bonds - with "no idea" whether the buyers were traditional investors who would likely hold onto a bond for a while, or speculators looking for quick in-and-out action on a volatile name.

"Welcome to the Brave New World - bond trading in the 21st Century."

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