Charter brings $1.5 billion mega-deal, Premcor also prices; Lucent gains on results

By Paul Deckelman and Paul A. Harris

New York, April 20 - Charter Communications Operating LLC brought its long-awaited $1.5 billion two-part offering to market Tuesday; also heard having sold an issue - upsized - was Premcor Refining Group Inc. A smaller deal from Curative Health Services Inc. also priced. Meantime, Radnet Management Co.'s planned eight-year deal was heard by syndicate sources to have been spiked.

In the secondary market, Lucent Technologies Inc. was one of a number of companies reporting earnings Tuesday, and the Murray Hill, N.J.-based telecommunications equipment maker's bonds firmed after it reported a profitable quarter - its third straight - versus a sizable year-ago loss.

Charter completes $1.5 billion

A session that saw over $2 billion of new issuance was led by St. Louis cable TV and Internet services provider Charter Communications.

Charter Communications Operating LLC/Capital Corp. sold $1.5 billion of senior secured second lien notes (B2/B-) in two parts on Tuesday.

The company sold $1.1 billion of eight-year notes at par to yield 8%, at the inside of the 8 1/8% area price talk, and $400 million of 10-year notes at par to yield 8 3/8%, spot on the 8 3/8% area price talk.

JP Morgan, Banc of America Securities, Citigroup and Credit Suisse First Boston ran the books for the debt refinancing deal.

Also on Tuesday Premcor Refining Group Inc. priced a restructured two-part $400 million issue of senior notes (Ba3/BB-).

The Old Greenwich, Conn.-based petroleum refiner priced an upsized $200 million (from $150 million) of seven-year notes at par to yield 6 1/8%. That was at the wide end of the revised 6% area price talk, which had widened from 5¾% area.

The company also priced a downsized $200 million (from $250 million) of 10-year notes at par to yield 6¾%. The 10-year notes priced wide of the revised 6 3/8% area price talk, which had been widened form 6%-6¼%.

Credit Suisse First Boston, Morgan Stanley and Citigroup ran the books for the debt and acquisition financing deal.

Finally Curative Health Services, Inc. sold $185 million of seven-year senior notes (B3/B-) at par to yield 10¾%, well wide of the 9¾%-10% price talk.

UBS Investment Bank ran the books on the acquisition financing deal from the Hauppauge, N.Y.-based specialty pharmacy services and specialty healthcare services provider.

Also during the session Primedex Health Systems, Inc. announced that it had pulled its offering of $150 million of senior secured notes due 2012.

Euro pipeline continues to fill

What some sources are referring to as a phenomenal buildup in the euro high yield calendar continued on Tuesday.

Spanish cable company ONO was heard to be headed to the European high yield market with a €350 million debt refinancing senior notes deal sometime in May. The underwriters will be BNP Paribas, Banc of American Securities, Deutsche Bank Securities and Morgan Stanley.

Cirsa Finance Luxembourg, a subsidiary of the Spanish leisure and gaming company Cirsa, is expected to begin a roadshow next week for €250 million of 10-year notes. Deutsche Bank Securities will run the books on the debt refinancing deal.

Finally Sicpa, an ink-maker headquartered in Switzerland, is heard to be coming into the high-yield bond market with an offering of €150 million. BNP Paribas and Credit Suisse First Boston will be the underwriters.

One U.S. roadshow start

The roadshow starts Wednesday for Valmont Industries Inc.'s offering of $150 million of 10-year senior subordinated notes (Ba3/B+), which are expected to price on April 29.

Credit Suisse First Boston will run the books acquisition financing deal from the Omaha, Neb.-based manufacturer of engineered support structures for irrigation equipment and a provider of coating services.

Rate worries for primary

Talk of rising short-term interest rates has been creating intermittent chop in the capital markets since Fed Chairman Alan Greenspan first intimated the possibility of higher rates in late January.

On Tuesday one sell-side source told Prospect News that Greenspan made his most unbridled pronouncement since the Fed Funds rate fell to its current level of 1%.

Speaking before the Senate Banking Committee, Greenspan said that the banking system was well prepared to deal with rising rates. The statement, along with Greenspan's contention that deflation risk has decreased, has been widely interpreted to mean that coming rate increases are more or less an accomplished fact.

"We're going to see continued sell-off in the Treasury market based on today's comments," the sell-side official commented, adding that quite late in the session the 10-year Treasury was yielding 4.45%

"Rising rates are no longer a threat," the sell-sider added. "Based on what we heard today higher rates are coming, period. Greenspan just set the stage. It's been a long time since we've had this straightforward a statement.

"I think we could have a pretty quiet summer in high yield."

However another sell-sider who spoke to Prospect News paraded out a few numbers and disagreed with his counterpart's color.

Market seen to be on a good pace

"I think it will be busier than previous summers if rates stay this low, given the pace that we're on."

This official calculated year-to-date new issuance at approximately $55 billion, and said that that figure already surpasses the total new issuance for the year 2000: $52 billion. (Prospect News' total of dollar-denominated deals so far this year is $53.2 billion.)

This investment banker added that the primary market is on a pretty good heading to also soon surpass the total new issuance of 2002: $61 billion.

And giving 2003 new issuance as $140 billion, the source stopped short of predicting that 2004 would surpass that. Nevertheless, the official said, $55 billion by mid-to-late April is not a bad start upon such an assault.

Good deal for issuers, even if rates rise

The investment banker went on to say that, given some predictions that the Fed could hike short term rates by as much as 50 basis points by the end of the year, raising money in the high-yield market would still make abundant sense.

"You could shift our entire market out 100 basis points and it still compares very favorably all along the curve from the company's perspective," said the official.

"The day may come when companies are not paying 7% any longer. But then again 8% isn't bad compared to, say, 10%.

"Anyone who sells bonds at this point in time will look back 10 years from now and say 'We got a great deal.'"

Charter around par in trading

When the new Charter Communications notes were freed for secondary dealings late in the day, they "never traded above issue [par], a trader said, quoting the 8% second-lien senior notes due 2012 and 8 3/8% second-lien notes due 2014 at 99.75 bid, 100.25 offered. Another trader saw the 8 3/8s at 99.5 bid, par offered, but had the 8% paper "hanging in there" right at their issue price, with a par bid.

The St. Louis-based cable operator's existing paper meantime remained firm, on expectations that even though Charter is basically replacing one kind of debt with an equivalent amount and not bringing its huge debt load down, by doing the bond deal and using the proceeds to take out subsidiary level bank debt, it is extending its maturities and lowering its overall interest costs - on balance, a good thing for the embattled cabler.

Charter's 10% notes due 2009 were seen up three-quarters of a point at 88.25 bid, while its 8 5/8% notes due 2009 were a 1¼ points better at 86.5 bid.

Lucent gains on earnings

Back among the fully established issues, Lucent's bonds firmed after the company released its earnings results, which saw the telecom equipment maker post net earnings of $68 million (two cents a share) in the fiscal second quarter ended March 31, versus its year-earlier loss of $553 million (14 cents a share). Excluding one-time items, Lucent earned three cents per share in the quarter, topping Wall Street estimates by a penny.

It was the third consecutive quarterly profit posted by Lucent, whose fortunes had declined sharply when the telecom industry imploded in 2000-2001, causing Lucent to sharply downsize its operations and eliminate two-thirds of its workforce positions in order to get expenses and debt under control and return to profitability.

Lucent's 7¼% notes due 2006 were seen up a quarter point on the session at 105.75 bid, while its 6.45% bonds due 2029 were half a point better at 84 bid. However, at another desk, a trader saw the 71/4s as having weakened from earlier levels to finish down a quarter point at 105.25 bid, 106 offered.

Lucent shareholders didn't mind the profitable quarter but were disappointed with the company's sales projections, having hoped for a better forecast; they took its New York Stock Exchange-traded shares down 44 cents (10.16%) to $3.89.

Lucent - which has predicted that it will post a profit for the full fiscal year, its first after several years of losses - boosted its sales outlook for the year on anticipations of a continued capital spending revival by major telecom industry players like Verizon Communications, a big Lucent customer. Lucent now expects sales gains for the full year in the low single digits, percentage-wise - up from its previous projections that sales would essentially be flat to up a smidgen.

But while Lucent's results represent a sharp turnaround from a year ago, they're not as positive as the fiscal first quarter gains of $338 million (seven cents a share), showing the impact of a charge associated with the revaluation of warrants that are expected to be issued as part of Lucent's global settlement of shareowner litigation, which was partially offset by certain income tax benefits and bad debt and customer financing recoveries.

Revenues slid to $2.19 billion, down 3% from $2.26 billion in the first quarter and down 9% from $2.4 billion a year ago, mainly on a decrease in revenues for wireless network gear, the company's biggest business, although the company still turned a profit, as operating expenses fell to $623 million in the latest quarter from $648 million the quarter before and from $742 million a year ago.

AK Steel rises on earnings

Also reporting earnings Tuesday was AK Steel Corp., and the Middletown, Ohio-based steelmaker's bonds firmed smartly after it released its results.

A trader saw AK's 7 7/8% notes due 2009 two points better at 95 bid, 96 offered, while its 7¾% notes due 2012 pushed up to 92.75 bid from 90.5 previously.

The steelmaker's bonds were "definitely stronger" on the day said a trader at another desk, who saw them at roughly those same levels.

AK earned $165.4 million ($1.52 a share) in the quarter, a sharp turnaround from its loss of $40.8 million (38 cents a share) a year ago, although the profit is attributable to an after-tax gain of $1.61 per share for the sale in March of its Douglas Dynamics unit.

Without that gain and certain other discontinued operations, the company reported a loss of 15 cents a share - although that was well under the 43 cents a share of red ink analysts were expecting.

On the downside, Level 3 Communications Inc. bonds were down for a second consecutive session, after having dipped about a point-and-a-half on Monday, despite a lack of fresh negative news on the Broomfield, Colo.-based telecom fiber optic network provider.

In Tuesday's dealings, its 9 1/8% notes due 2008 were seen down another two points to 78.5 bid.

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