Advanstar downsizes two-tranche deal; Qwest up on Sprint alliance

By Paul Deckelman and Paul A. Harris

New York, Aug. 4 - Advanstar Communications Inc. downsized its two-part offering of second-priority senior secured notes, while Sonic Automotive Inc. announced plans to sell $200 million of new 10-year notes and use the proceeds for paying down its bond and bank debt.

In the secondary market, Qwest Communications International Inc.'s bonds were higher across the board after the Denver-based regional Bell operating company said that it would offer nationwide wireless telephone service to the customers in its region, using Sprint PCS's network.

"Struggle" became the watchword for Monday's session in the primary market as Boston business information firm Advanstar reduced its two-tranche deal that saw both the fixed- and floating-rate pieces price wide of talk.

Sources also reported that Hilcorp Energy Co. was enmeshed in struggle during the opening session of the August 4 week as the Texas company downsized its bond deal and made an outward revision of price talk. Although terms on the Hilcorp offering had been expected during the session by several sources, by late Monday as Prospect News went to press none had emerged.

These and other struggles (for example FHC Health Systems, Inc.'s postponement of its $250 million eight-year notes offering (B3) last Friday, attributed to market conditions) may have been caused by various factors, sources advised Prospect News. Chief among them are the recently reported outflows of cash from high-yield mutual funds and a late summer new deal pipeline that is uncharacteristically clogged with junk bond deals.

Advanstar Communications cut its offering to $360 million from $400 million and sold the second priority senior secured notes (B3/B-) in two tranches via Credit Suisse First Boston.

The Boston-based business information company priced $230 million of fixed-rate notes due Aug. 15, 2010 at par late Monday to yield 10¾% (price talk was 10¼%-10½%) and $130 million of floating-rate notes due Aug. 15, 2008 at par with an interest rate of three-month Libor plus 750 basis points (price talk was Libor plus 700-725 basis points).

While no terms emerged on Hilcorp's deal, throughout the session the market buzzed with news of its apparently burdensome attempts to climb the high yield hill. The seven-year senior notes deal (B3/B) was reportedly downsized to $300 million from $350 million with $50 million shifted to the new credit facility. And talk, which had initially been reported at the 10% area, was revised to 10¼%-10½%.

Deutsche Bank Securities and Lehman Brothers are the bookrunners on Hilcorp.

The apparent choppiness that Advanstar and Hilcorp underwent as the new week got underway did not stop a pair of prospective issuers from running new offerings into the pipeline.

Charlotte, N.C.-based Sonic Automotive, Inc. announced that its offering of $200 million of 10-year non-call-five senior subordinated notes (existing ratings B2/B+) is expected to price during the present week via Banc of America Securities, JP Morgan and Merrill Lynch.

And the roadshow starts Wednesday for Sheridan Group Inc.'s offering of $100 million eight-year non-call-four senior secured notes (B1/B). Jefferies & Co. is the bookrunner on the Hunt Valley, Md. publishing company's deal.

And as three companies issued price talk during Monday's session, one sell-side source suggested that the talk may have emerged early and went on to explain this thesis.

"Today high yield traded up a little bit," said the sell-side official. "In terms of the primary market I have to imagine that with $3.8 billion coming it's better to be one of the first guys to market than one of the last.

"That's why I think you're hearing talk come out on some of these names a little early - for instance Fisher Scientific and GenCorp.

"I think you're going to see some people hurrying to get to market."

Indeed price talk of 7¼%-7½% did surface on Fisher Scientific International Inc.'s $200 million of 10-year senior subordinated notes (B2/B+), expected to price on Wednesday via JP Morgan.

Prospect News asked the above-quoted sell-side official if, in light of the recently reported struggles in the new issuance market, talk of 7¼%-7½% might now seem somewhat rich on the new B2/B+ senior subordinated notes from the Hampton, N.H. laboratory equipment maker.

"It's wild," said the official. "But people like the company. It has dominant market share. Whether the biotechnology field goes up or not doesn't really matter. People think they will continue to buy scales and the equipment they need to do the research."

Price talk of 9 3/8% area was heard on Concentra Operating Corp.'s $150 million of seven-year non-call-four senior subordinated notes (B3/B-), expected to price on Tuesday afternoon via Credit Suisse First Boston and Citigroup.

And price talk of 9% area emerged Monday on GenCorp Inc.'s $175 million of 10-year non-call-five senior subordinated notes (B2/B+), expected to price late Wednesday via Deutsche Bank Securities.

Secondary dealings were quiet, a trader said: "A little action this morning and then everything just died. People want things to calm down a little" - especially after having gone through a week which the same trader termed "crazy."

Qwest's announcement of its planned wholesale arrangement with Sprint sent both its shares and bonds higher, with Qwest Services Corp.'s 13% notes due 2007 heard to have risen three points on the session to 108 bid.

A trader said that Qwest paper "certainly seemed to a have a bid to it" on the news, and quoted the company's Qwest Capital Funding 7¾% notes due 2006 as having jumped to 91 bid, 92 offered from prior levels at 86 bid, 88 offered, "a pretty big move," while parent Qwest Corp.'s 8 7/8% notes due 2012 as having improved to 104 bid, 105 offered from 101 bid, 103 offered on Friday.

In general, the trader said, "Qwest's corporates were up three [points], the short-dated Funding paper was up four to five, and the Services paper was three or four better."

At another desk, the 73/4s were seen having moved up to 90.5 from previous levels around 88, while the company's 13½% notes due 2010 were two points better at 110.5. Qwest's 6 5/8% notes due 2005 moved up to 99.5 bid, 100.125 offered.

On the equity side, Qwest's New York Stock Exchange-traded shares rose 34 cents (8.97%) to $4.13 on volume of 6.9 million, about one-and-a-half times the usual 4.6 million-share turnover.

Qwest - which serves residential customers in 14 Western states stretching from Minnesota to Washington State, as well as servicing business customers nationwide, currently offers local/regional wireless service, but does not have its own nationwide wireless operation, as do some of its RBOC peers like BellSouth Corp. and SBC Communications Inc., the corporate parents of Cingular, and Verizon Corp.

Phone-industry watchers said the lack of such a service put the financially struggling Rocky Mountain-based phone carrier at a disadvantage, since an increasing number of phone customers are seeing to have nationwide wireless service bundled in with their local service, long-distance and internet one convenient package.

The upside for Sprint, meantime, is that marketing its service to Qwest's customers through Qwest will give it greater market share and more revenue.

Elsewhere, news that Echostar Communications Corp. will redeem $245 million principal amount of $700 million of outstanding 9 1/8 % senior notes due 2009 next month drove those bonds down to 109.5 bid - closer to the planned takeout level - from 111.25 previously (see Tenders and Redemptions elsewhere in this issue for full redemption details).

Also in the communications area, Charter Communications Holdings LLC's bonds were easier across the board, with its 10% notes due 2009 down a point-and-a-half at 77 bid.

Standard & Poor's on Monday dropped the troubled St. Louis-based cable operator's corporate credit to CC and lowered the ratings on a number of Holdings' bonds which the company is partially tendering for to C from CCC- previously.

Charter last week announced that it was sharply increasing the amount of Holdings' bonds which it is offering to buy back from their holders - at a sizable discount to par, of course - as part of a $1.3 billion junk and convertible buyback first announced last month.

S&P said that the revised offer "constitutes a distressed exchange for Holdings noteholders, who must choose between accepting a cash offer below par value or face a greater risk of default that could stem from rising maturity pressure at the public parent company." S& P noted that the revision in the tender offer announced by Charter mean that it will now buy back substantially less of two issues of convertible debt maturing in 2005 and 2006 in favor of higher-interest-rate - but longer maturity - straight junk debt, a move which the ratings agency warns will keep "financial pressure high in light of convertible debt interest payments due in 2004 and $1 billion in convertible debt maturing in 2005 and 2006."

The ratings agency further said that the $1.7 billion of new debt that Charter will issue to fund the proposed buyback "results in about $1.2 billion in incremental debt structurally senior to any debt not tendered."

Xerox Corp.'s 7.20% notes due 2016 were quoted as having declined to 91.5 bid from 94 previously, and its 9¾% notes due 2009 went to 106.5 bid from 109, possibly pushed down by investor reaction to a ruling late Friday by an Illinois appeals court, which said that the Stamford, Conn.-based office equipment giant underpaid retirement benefits to former workers and would have to cough up about $300 million.

A trader noted that AMR Corp.'s 9.73% notes due 2014 were offered at 63.75 in response to news that the Fort Worth, Tex.-based airline giant would bring a $250 million issue of convertible debt to the market (after the market closed, AMR changed course and grounded the planned convertible offering, citing turbulent market conditions).

"It looks like there are still sellers" of the AMR paper, he had said earlier, as market action wound down for the day. "Offers have been higher than recently. People will use this [prospect of more debt being issued] as an excuse to get out."

The junk market had a pretty tough week last week - it saw more than $2 billion of new debt appear in an already nearly saturated market, with the forward calendar continuing to build, even as market liquidity and ability to absorb lots of new debt declining, as evidenced by the $1.06 billion junk funds outflow total. In view of all of those negatives he said, "a lot of people just stayed on the sidelines, because everybody had gotten beaten up. Everyone was licking his wounds."

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