Blockbuster, Cablevision unit price deals; Delta off in otherwise quiet secondary

By Paul Deckelman and Paul A. Harris

New York, Aug. 13 - Entertainment-oriented companies dominated the high-yield primary market Friday as a unit of Cablevision Systems Corp., Rainbow National Services LLC/RNS and video-rental giant Blockbuster Inc. successfully rang the curtain down on new deals. The Rainbow deal was a two-part offering.

In secondary dealings, traders said it was a "typical summer Friday," with not much of anything doing and lots of people angling for an early getaway on the weekend. The only real standout feature was the continued slippage of Delta Air Lines Inc.'s bonds, as investors remained worried about the beleaguered Atlanta-based air carrier's ominous cash-burn rate and warnings about a possible bankruptcy if it does not get the pay-cut concessions it seeks from its pilots.

On primary desks, the new issue calendar continued to unwind on Friday - a session that saw three tranches price for a total of $1.1 billion of business.

Meanwhile one issuer, Parker Drilling Co., showed up with a six-year floater deal that launches on Monday and is expected to price Wednesday.

And as the market wended its way toward Labor Day the active forward calendar dipped below the $1 billion mark with the completion of Friday's deals. A tally of announced business turns up six deals totaling $855 million of business, all of which is expected to price before Aug. 20.

Walk on the wide side

Although sources reported throughout Friday's session that high yield seemed to be on firmer footing than had been the case earlier in the week, evidence of that firmer footing was elusive in the primary market.

All three of the tranches that priced during the session came either at the wide end or wide of price talk.

"Not all of these deals are getting great execution but they seem to be getting done," one investment banker said at the close of the session.

The source added that the negative funds flow picture in high-yield mutual funds does not seem to be registering a huge impact (AMG Data Services reported $91.3 million outflow on Thursday bringing to approximately $4.899 billion the cumulative net outflows for 2004).

Rainbow wide of talk

Friday's largest issuer was Rainbow National Services, a subsidiary of Cablevision.

The company priced $800 million of high-yield bonds in two slightly restructured tranches via Banc of America Securities, Bear Stearns & Co., Credit Suisse First Boston and JP Morgan.

Rainbow priced an upsized $300 million tranche of 8¾% eight-year senior notes (B3/CCC+) at 99.279 to yield 8 7/8%, wide of the 8½%-8¾% price talk. It was increased from $250 million.

The company also priced a downsized $500 million of 10 3/8% 10-year senior subordinated notes (Caa1/CCC+) at 99.217 to yield 10 ½%, wide of the 9 ¾%-10% price talk. The tranche was decreased from $550 million.

Blockbuster done at the wide end

Friday's remaining business came from Blockbuster Inc.

The Dallas provider of in-home movies and games sold $300 million of eight-year senior subordinated notes (B1/B+/B+) at par to yield 9%, at the wide end of the 8¾%-9% price talk.

JP Morgan, Credit Suisse First Boston and Citigroup ran the books for the deal, proceeds from which will be used to pay part of an anticipated special cash distribution to holders of Blockbuster's common stock.

Parker Drilling plans $150 million

Meanwhile Parker Drilling Co. brought the only addition to the dwindling pre-Labor Day pipeline on Friday.

The Houston-based oil well drilling services provider will launch a $150 million offering of six-year senior floating-rate notes (B2/B-) on Monday.

Pricing is expected to take place on Wednesday.

Lehman Brothers and Banc of America Securities are joint bookrunners for the debt refinancing deal.

Rest of 2004 seen hinging on M&A

Late Friday a sell-side source told Prospect News that the remainder of 2004 in the new issue market may well hinge on the volume of merger and acquisition activity.

"M&A and sponsor business is likely to be a bigger part of the fourth quarter," the source said.

"From where we're sitting it seems that so much of the possible refinancing business has already been done."

Rainbow, Blockbuster edge up in trading

When the new Rainbow National bonds were freed for secondary dealings, both the 8 ¾% senior notes due 2012 and the 10 3/8% senior subordinated notes due 2014 were seen to have firmed slightly to 99.5 bid, 99.75 offered from their respective issue prices at 99.217 and 99.279.

The new Blockbuster 9% notes due 2012 were quoted at 100.5 bid, 100.75 offered, up a little from their par issue price.

Delta down again

Back among the established bonds, Delta seemed to be the only name that was really going anywhere in an otherwise largely becalmed market, with its 9¾% notes due 2021 having slid to 27.5 bid from prior levels around 31.5, a trader said.

Another trader pegged those bonds maybe a point lower and allowed that they were off considerably.

Delta's more widely traded issues - its 7.70% notes due 2005 and 8.30% bonds due 2029 - were not seen Friday, instead quoted languishing around the lower levels to which they had fallen earlier in the week - about 41-42 bid for the 7.70s and 26-27 bid for the 8.30s.

The Delta bonds had been dropping steadily all during the week after the company warned in a 10-Q filing Monday with the Securities and Exchange Commission that it had burned through about $700 million of cash reserves in the first half of the year, cutting its cash stockpile down to about $2 billion from the $2.7 billion it had started the year with. Delta also said that it anticipated continuing to burn cash at a similar rate for the remainder of the year, and reiterated its recent warnings that it could face a Chapter 11 filing if it were unable to wring additional pay-cut concessions from its 7,500 pilots. Delta wants $1 billion in pay cuts from the captains to stabilize its cost structure - about $200 to $300 million more than the pilots' union is offering.

Beyond the continuing Delta debacle, not much was going on, traders said.

"A lot of people went home early," said one trader unlucky enough to have drawn the short straw and still be manning the fort at the office in the late afternoon. "They used any excuse at all to get out. It was the end of a dull week."

To show just how dull it was, he noted the fact that even though Key Energy Group warned that it was unlikely that it would be able to complete the audit of its 2003 financial statements and restatements for prior periods by Sept. 30 as previously envisioned there was no movement in the company's 8 3/8% notes due 2008, which stayed around the 105 level. Its 6 3/8% notes due 2013 were likewise steady at 95. "I don't think people cared," the trader said.

The Midland, Tex.-based oil well services company said it needed additional time to complete the physical count and valuation of all of its fixed assets.

The company has begun talks with its credit facility lenders on getting a waiver of the reporting deadline requirements, though the bondholders have already provided latitude and stand to receive additional consideration of $2.50 per $1,000 principal amount for each month after Sept. 30 that the financial statements are not filed, up to Jan. 1, 2005.

Hanger holds at lower prices

Hanger Orthopedic Group Inc. - which also ran into trouble meeting financial reporting deadlines this past week - was meantime unchanged on the day, its 10 3/8% notes due 2009 at 86.5 bid, while its 11¼% notes due 2009 were 88 bid.

The bonds of the Bethesda, Md.-based operator of orthopedic-care and prosthetic centers had taken a nosedive into the lower 80s from prior levels around par earlier in the week after the company - already investigating televised allegations of billing abuses at one of its 618 centers - said it would have to delay filing its results by a week and would be in default on some of its bank debt covenants and be barred from accessing its revolving credit facility. Hanger had been scheduled to report on Aug. 9, but pushed that back to this Monday.

Monday is also when the $10.37 million semi-annual coupon payment is due on the 10 3/8% notes - and as of late Friday there had been no indication from the company whether it would indeed make that payment. Company officials did not return several phone calls from Prospect News on Thursday and Friday seeking a clarification. Some analysts and other observers were betting against the company making the coupon, since Hanger had said in an SEC filing that it only had about $14 million of cash on hand.

American Seafoods unchanged

There was no movement seen in American Seafoods Group LLC's 10 1/8% notes due 2010, stuck around the 116 level, following the Seattle-based fish processing company's announcement late Thursday that it was indefinitely postponing its downsized $450 million offering of new Income Deposit Securities due to market conditions. The company also said that the tender offer for the 10 1/8% notes that was to have been funded with the new-deal proceeds had been terminated (see "Tenders and Redemptions" elsewhere in this issue).

Six Flags, Metris unmoved

Several other bonds were seen unmoved, despite ample news out on them that caused their stock to jump.

Six Flags Inc.'s shares were the biggest percentage gainers on the New York Stock Exchange, up 53 cents (14.97%) to $4.07, as the New York-based theme park operator's stock seemed to rebound from losses it had after the company reported disappointing second-quarter earnings earlier in the week. Its bonds, however, remained anchored with a half point of previous levels, its 8 7/8% notes due 2010 steady at 89.5

Metris Cos.' 10 1/8% notes due 2006 were unchanged at 97.5 bid even as Metris' shares were the third biggest percentage gainer on the NYSE, up 77 cents (12.01%) to $7.18, as the credit-card lender posted surprisingly good July figures in an 8-K filing with the SEC.

Metris - which lends primarily to borrowers with spotty credit records who may have trouble getting a credit card through a more selective "respectable" lender - reported that credit card delinquencies fell to 16.86% in July from 18.98% in June and from levels over 20% for most of the past year, the improvement attributed to more aggressive company efforts to collect from deadbeat cardholders. The size of the improvement surprised most Wall Street analysts.

With delinquencies down and the payment rate up, excess spread - a measure of bondholder protection against the effect of delinquent accounts on the company's finances - beefed up to 5.68% , its highest level since October 2002, from 4.01% the month before. Citing the better results and the resulting anticipated higher book value, Credit Suisse First Boston upgraded the stock from 'neutral' to 'outperform,' while Goldman Sachs upped its third- and fourth-quarter estimates, and its projections for 2005 as well.

And Sirius Satellite Radio's 14½% notes due 2009 were unchanged at 107.25, even as Sirius' shares were among the most active on the Nasdaq, trading up 13 cents (6.84%) to $2.18, on volume of 28 million shares.

Investment-oriented Internet bulletin boards buzzed Friday with the news that Sirius' new palm-sized XACT "Stream Jockey" radio units are going to be sold via the widely-watched Home Shopping Network, with the debut showing on HSN slated for 11-11:20 a.m. ET on Saturday, and another showing at 9 p.m. ET that night. There was some board speculation that HSN had bought a large quantity of the radios - figures as high as a million units were being bandied about. Sirius bears said that turning to HSN as a sales outlet was a sign of the company's desperation and an indicator that Sirius, lagging far behind more established competitor XM Satellite Radio, was not doing as well as it has to in its main market - factory installations on new cars. Sirius fans meantime noted that HSN has a huge reach, with several million fanatically loyal viewers who buy regularly and generously, and noted that it is a proven sales outlet for high-end brand-name computer and electronics equipment from such well known makers as Compaq, Dell and Sony.

A trader saw "some movement" on Levi Strauss & Co.'s 7% notes due 2006, quoting them 96 bid, down from 98.5 previously. But he saw no news out on the San Francisco-based blue jeans maker and said there wasn't really much activity in the credit on a "kind of thinly traded day."

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