NRG mega-deal coming, Neenah shelves offering; Xerox firms on possible upgrade

By Paul Deckelman and Paul A. Harris

New York, Nov. 6 - NRG Energy Inc. was seen by junk market participants Monday getting ready to sell $1.1 billion of new bonds this week. But even as the Princeton, N.J. -based power generating company's deal was bring added to the forward calendar, high yield syndicate sources saw another deal - Neenah Foundry Co.'s already downsized $225 offering of 10-year notes - stricken from the slate.

Price talk meantime emerged on Conexant Systems Inc.'s upcoming offering of four-year floating-rate notes.

In the secondary market, Xerox Corp.'s bonds were seen firming as Moody's Investors Service suggested that the Stamford, Conn.-based copier king's ratings might be elevated to investment grade.

Sea Containers Ltd.'s bonds were a couple of points better as the bankrupt Bermuda-based marine and railroad transportation company declared that a recent warning by British pension authorities that they might demand payments into its pension plans was quite unnecessary.

On the earnings front, XM Satellite Radio Holdings Inc. and Young Broadcasting Inc. both reported improved results, meaning smaller net losses from a year ago. But while XM's bonds burrowed about actively before coming to rest pretty much unchanged, Young's paper was improved on the day.

No U.S. issuers priced high-yield bond deals during Monday's primary market session.

However Mexican copper products manufacturer Industrias Unidas, SA de CV completed a $200 million transaction, placing10-year senior notes (B3 expected/B) at par to yield 11½%.

The Rule 144A/Regulation S deal, via Morgan Stanley, came on top of the price talk.

NRG plans $1.1 billion

At Monday's close, the Prospect News forward calendar of junk deals in the market totaled slightly less than $15.75 billion.

Bumping the total higher was NRG Energy, which announced late in the session that it plans to sell $1.10 billion of 10-year senior unsecured notes (expected ratings B1/B-).

The deal, led by joint bookrunners Merrill Lynch & Co. and Morgan Stanley, is expected to price on Wednesday or Thursday.

Proceeds will be used to fund payments to counterparties under certain existing long-term hedging agreements in order to reset hedge price levels to current market prices.

The Princeton, N.J., wholesale power generation company last tapped the junk market in January of this year with a $3.6 billion two-part transaction that saw the company price a $2.4 billion issue of 10-year notes at par to yield 7 3/8%, and a $1.2 billion issue of eight-year notes price at par to yield 7¼%.

Conexant talks floater

Conexant Systems talked its $250 million offering of four-year senior secured first-lien floating-rate notes (B1/B+) at three-month Libor plus 375 to 400 basis points on Monday.

The deal, which is being led by JP Morgan and Credit Suisse, is expected to price on Tuesday afternoon.

Also expected to price on Tuesday is Britania Bulk plc's restructured $215 million offering of senior secured notes (B3/B-)

Late last week the London-based shipping company decreased the tenor of the bonds to five years from seven years, decreased call protection to three years from four years and talked the notes at 10¾% to 11%.

Jefferies & Co. and ABN Amro are joint bookrunners.

HCA heard going well

This week's biggest deal figures to be the Hercules Holding II LLC (HCA Inc.) $5.70 billion multi-tranche offering (B2/BB-).

Sources continued to tell Prospect News on Monday that the deal is going well.

A buy-side source said that some of the shorter maturity paper could come inside of 9%.

Citigroup, Banc of America Securities LLC, JP Morgan, Merrill Lynch, Deutsche Bank Securities and Wachovia Securities are joint bookrunners.

Neenah founders

Finally, Neenah Foundry postponed its $225 million offering of 10-year senior secured notes (B2/B).

The deal, which had earlier been downsized from $300 million and restructured, was talked at 9% to 9 ¼%.

A sell-side source not involved in the Neenah deal said that the accounts may not be spending time on small deals that require a substantial amounts of credit work unless those deals appear to be paying a handsome premiums.

With deals such as the above-mentioned HCA $5.70 billion offering and the Firestone Acquisition Corp. (Freescale Semiconductor Inc.) $5.95 billion offering also currently in the market, investors are apt to focus on these bigger deals which, in the end, promise substantially higher allocations of bonds, the source reasoned.

Xerox gains on upgrade possibility

In the secondary market, a trader saw Xerox bonds tighter, citing the possibility that the company may soon be lifted to investment grade status by at least one major ratings agency, Moody's.

He quoted Xerox' 6¾% notes due 2017 about ½ point better at 102 bid, 102.5 offered.

Another trader noted "a little pop" in the company's bonds.

That blip followed Moody's announcement late in the afternoon that it would consider raising the company's current Ba1 ratings - a move that would elevate it to investment grade. The agency cited the progress Xerox has made on debt reduction, positive operating performance and steady business execution.

Since Moody's changed the ratings outlook to positive over a year ago, "Xerox has continued to demonstrate good installation growth throughout its product offering and with a good product lineup," Moody's said in its statement.

Sea Containers bobs up

From out of the distressed precincts, Sea Containers' bonds were seen better, as the beleaguered company rejected recent contentions by the UK's pension regulatory agency that that body might have to issue a demand - known as a financial support direction, or FSD - that Sea Containers make a payment into one or more of its pension schemes.

"We don't accept it is reasonable or appropriate of the regulator to issue FSDs," the company said. "We are in the middle of a restructuring...the two (UK) pension funds are involved in that restructuring."

Sea Containers said that pension fund members "will be ranked on an equal footing with bond-holders and other creditors. We are keen to let these discussions play out."

Sea Containers' 10¾% notes that were to have come due this past Oct. 15, were seen up 2 points at 68 bid, 70 offered.

XM steady despite stock jump

XM Satellite Radio Holdings' bonds were seen not much changed Monday - even though the Washington, D.C. -based satellite radio operator's shares were up sharply on the announcement that the company posted a lower net loss for the third quarter ended Sept. 30 versus a year ago. XM also said it expects to be cash-flow positive on a continuing operations basis during the current fourth quarter, which ends on Dec. 31.

A trader saw the company's 9¾% senior notes due 2014 gain about ¼ point on the day to 95.5 bid, 96 offered, while its zero-coupon notes firmed ½ pointto 94.75 bid, 95.75 offered.

Another trader said the bonds were "very active, but net-net" not much changed on the day, with the 93/4s at 95.25 bid, 95.75 offered.

In contrast, XM's Nasdaq-traded shares jumped $1.78 (15.63%) to $13.17. Volume of 33.8 million shares was nearly four times the norm.

The shares soared and the bonds traded actively around after the company said that third quarter 2006 revenue increased by 57% percent year over year to $240 million from $153 million a year earlier. The net loss for the quarter was $83.819 million (32 cents per share), a 36% narrowing from $131.869 million (60 cents per share) a year earlier.

During the conference call that followed release of its earnings data, XM's chief financial officer, Joseph J. Euteneuer said that the company was finishing the quarter with "a solid balance sheet."

As of the end of the quarter, the company had long-term debt on its books, net of the current portion, of $1.342 billion, up from $1.035 billion at the end of the previous fiscal year on Dec. 31, 2005.

Euteneuer said XM had $285 million of cash, although this was down from the $711 million that it had at the end of 2005, and from the $431 million as of June 30.

However, he said that with the company anticipating completion this month of the conversion of most of the approximately $100 million principal amount at maturity of 10% senior secured discount convertible notes due 2010 that remained outstanding as of the end of the third quarter, it would have "full access" to $400 million of revolving credit facilities.

In September, the company announced an agreement to issue 28.9 million class A common shares to three holders in exchange for $42.6 million principal amount of the converts and 79,246 shares of the company's 8.25% series C convertible redeemable preferred stock.

At that time, it also announced a tender offer for the remaining $57.4 million of the convertible notes, which was extended past its original deadline and is now slated to run through Nov. 10, subject to possible further extension. The company is offering $320.80 of common stock per $1,000 principal amount of the convertibles. As of Oct. 20, $22.6 million of the notes had been tendered.

The CFO said on the conference call that assuming completion of the offer, XM would reduce the balance of the notes to $33 million by issuing 23 million shares of its class A common stock - a transaction which he said was expected to save $23 million in future interest payments, and would result in a $34 million non-cash charge against earnings in the fourth quarter.

The September agreement with the three holders - which closed at the end of October - and the current tender offer for the remaining notes, are just the latest of a number of transactions by which XM Satellite has been deleveraging by reducing the balance of those notes.

At the end of January, XM announced that it had exchanged $52 million principal amount at maturity of the 10% notes for 17 million common shares, and in mid-April it said it had issued another 9.1 million common shares in exchange for $27.7 million principal amount at maturity of the 10% converts.

Other liquidity transactions which the company has completed this year included the pricing in April of $800 million of senior notes in a two-part offering - $600 million of the 9¾% notes, as well as $200 million of seven-year floating-rate notes. Proceeds were used to fund a tender offer, completed in May, for the company's then-outstanding 14% senior secured discount notes due 2009, its 12% senior secured notes due 2010 and senior secured floating-rate notes due 2009, and the subsequent redemptions of all of the 14% notes and floaters which had not been taken out in the tender.

The CEO further noted that a portion of XM's liquidity comes from subscriber prepayments - and said that the percentage of subscribers pre-paying had been slowly but steadily rising to 43% in the third quarter, versus 42% in the second quarter and 41% in the 2005 third quarter. The average pre-payment period for new subscribers was nine months.

For the 2006 third quarter, XM recorded gross subscriber additions of 868,007 and net subscriber additions of 286,002, and finished the quarter with a total of nearly 7.186 million subscribers - a 43% increase over the 5.034 million subscribers it had a year earlier.

XM remains well ahead in its subscriber race with upstart challenger Sirius Satellite Radio Inc.

However, the company's finances were impacted by its higher cost to add subscribers, a function of increased promotional and programming costs. Its third-quarter subscriber acquisition cost - a component of cost per gross addition - was $60, up from $53 in the 2005 third quarter, while the cost per gross addition was $93, up from $89 in the third quarter of 2005.

Young bonds seen better

Also on the earnings front, Young Broadcasting's bonds were quoted at higher levels, after the New York -based television station ownership group reported that its third-quarter net loss declined to $15.7 million (72 cents per share) from $21.2 million ($1.03 per share), as revenues grew to $53.6 million from $47.5 million a year earlier.

The company attributed its better performance to a surge in political advertising revenues, with many more important elections going on in the TV markets which it serves, and improved performance from its San Francisco station, KRON-TV, which changed from being an independent station a year ago to an affiliate of the fledgling TV web, MyNetworkTV.

A market source saw Young's 8¾% notes due 2014 at 86.75 bid, up nearly 2 points on the day, and its 10% notes due 2011 at 95, up a quarter.

Revlon better ahead of numbers

A trader saw Revlon Consumer Products Corp.'s bonds about ½ point better ahead of Tuesday's scheduled release of third-quarter results by its parent company, Revlon Inc.

He saw the New York-based cosmetics company's 9½% notes due 2011 at 91 bid, 92 offered, and its 8 5/8% notes due 2008 at 96.25 bid, 97.25 offered.

All told, though, the trader said that it was "a pretty quiet day going into elections [on Tuesday]. It was very boring today [Monday], and tomorrow [Tuesday] will be the same. But maybe we'll see some life on Wednesday."

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