Dobson up on Q4 numbers; MCI little moved by Qwest action; Bear Creek prices two-part deal

By Paul Deckelman and Paul A. Harris

New York, Feb. 18 - A smaller-than-expected fourth-quarter loss pushed the bonds of Dobson Communications Corp. higher in thin, abbreviated pre-holiday trading on Friday, and dragged several other rural wireless providers' bonds up with them, traders said. News that Qwest Communications International Inc. has not given up its desire to acquire MCI Inc. and will make a new, and presumably better offer for the long-distance carrier had little impact on the latter's bonds.

In the primary market, Bear Creek Corp. was heard by syndicate sources to have priced a two-part offering of floating- and fixed-rate notes, while Penn National Gaming Corp. was heard getting ready to roll the dice on a quickly emerging 10-year note offering possibly as early as Tuesday, upon the market's return from the Presidents Day holiday break.

Friday's abbreviated pre-Presidents Day weekend session saw a single transaction completed as Bear Creek Corp. sold $245 million in two tranches - a floater that priced on the tight end of talk and a fixed-rate note that came on the wide end.

That brought the Valentines Day week to a close with the market having seen only $824 million price in five dollar-denominated tranches, which pales in comparison to the previous week's $2.24 billion, in an even dozen tranches.

In the year to Feb. 18, just under $20.05 billion had priced in 75 tranches.

And while the Valentines Day week perhaps did not accomplish much in the way of sweetening the league table totals, sellside sources warned Prospect News to stand well back on Tuesday because the junk bond deal teams had been seen late in the week purposefully shouldering the high-yield wheel.

Harry and David get it done

Friday's sole junk bond transaction came from Medford, Ore.-based gift catalog company Bear Creek Corp. (Harry and David).

The firm sold $245 million of senior notes in two restructured tranches (B3/B-), having earlier in the week shifted $30 million to the fixed-rate tranche from the floating-rate tranche.

The company sold $70 million of seven-year floating-rate notes at par to yield three-month Libor plus 500 basis points, at the tight end of the Libor plus 500 to 525 basis points price talk. The floater had been downsized from $100 million, and call protection had been extended to two years from one year.

Bear Creek also sold $175 million of eight-year fixed-rate notes at par to yield 9%, at the wide end of the 8¾% to 9% price talk. The fixed-rate issue had been upsized from $145 million.

UBS Investment Bank ran the books for the acquisition and debt refinancing deal.

Shortly before the books closed, Diane Keefe, portfolio manager of the Pax World High Yield Fund, who had earlier told Prospect News that the fund was playing the deal, said that a covenant change had accounts going into the deal.

Penn National refi deal ahead

The recent anemia in the high-yield forward calendar could be coming to an abrupt end, sellside sources advised on Friday, intimating that a ramp up in deal announcements was in store for the post-Presidents Day week.

"Down on the trading floor the bond and the loan desks are empty," one sellside source observed late Friday. "But everybody is in deal meetings.

"I think this could be the calm before the storm."

One deal seen heading into the market in the Feb. 21 week is Penn National Gaming Inc.'s $300 million offering of 10-year non-call-five notes, which could possibly price in a Tuesday drive-by.

Deutsche Bank Securities has the books for the debt refinancing deal.

Earlier the Wyomissing, Pa., gaming firm had been expected to come to the high-yield market for capital to fund its acquisition of Alton, Ill.-based Argosy Gaming.

However an informed source said Friday that Penn National first needs to take care of some maturing debt and then is expected to return to the market later in 2005 to raise capital for its acquisition of Argosy Gaming, which is expected to be completed during the first half of the year.

Focus Wickes roadshow Tuesday

Elsewhere, Focus (Finance) plc (Focus Wickes Group) will begin a brief roadshow Tuesday in London for its £100 million offering of 10-year non-call-five mezzanine notes.

An investor presentation will follow on Thursday in Paris, with the deal expected to price thereafter.

ING has the books for the debt refinancing deal from the Crewe, England-based do-it-yourself home improvement store owner-operator.

Masonite re-emerges

And finally Prospect News learned on Friday that the Stile Acquisition Corp./Masonite International Corp. bond deal appears on track to return to the high-yield market pending shareholder approval of a C$2.05 per share increase in the amount offered for the Masonite stock.

A source close to the deal cited syndicate officials as he told Prospect News on Friday that the acquisition, as well as the capital markets deals that will finance it, appears likely to return.

Deutsche Bank Securities, UBS Investment Bank and Scotia Capital are leading the high-yield deal.

The bonds, as well a new credit facility, were withdrawn earlier in the Feb. 14 week when shareholders turned down Masonite's previous offer.

In a Friday news release, Masonite announced that it had amended its agreement with Stile Acquisition Corp., an affiliate of Kohlberg Kravis Roberts & Co., to provide for an increase to C$42.25 per Masonite share, up from C$40.20.

Meanwhile the shareholders meeting at which the new offer will be presented for approval was moved to March 31. The meeting had previously been scheduled for Feb. 18.

However late Friday Prospect News learned that Greystone, one of Masonite's biggest shareholders with about 8% of the stock, has specified that it will support the new bid (see related story in this issue).

Bear Creek quiet, Dobson up

Given the thin level of market activity Friday, with skeleton crews in at many shops and the market closing at 2 p.m. ET for the holiday break, traders said they had seen no secondary activity in Bear Creek's new 9% notes due 2013 and floating-rate notes due 2012.

Back among the established issues, Dobson "was up a lot," a trader said, noting that the Oklahoma City-based provider of wireless services to rural markets had put out its fourth-quarter earnings after the close Thursday. The results, he said were "a little better than expected, and since they have a fat yield to them [because the bonds are trading well under par], they pushed them up about two points" on the session.

He saw the Dobson 8 7/8% notes due 2013 firm to 79 bid, 80 offered, up from 77.5 bid, 78.5 offered on Thursday, while Dobson unit American Cellular Corp.'s 10% notes due 2011 got up to 96 bid, 96.5 offered from prior levels at 94 bid, 94.5 offered.

A source at another shop saw the Dobson 8 7/8s as high as 80, up two points on the day, and also saw the company's 10 7/8% notes due 2010 up 2½ points, to 88.75. However, he pegged Dobson's 12¼% notes due 2008 and 13% notes due 2009 only up half a point on the day, each at 69.5.

The source saw American Cellular's bonds "up quite a bit" on the day, with the 10% notes and the company's 9½% notes due 2009 each rising to about 96.25, up from 93.5 previously.

Dobson reported that in the fourth quarter ended Dec. 31, it had a net loss of $13.9 million, or 10 cents per share, narrower than the year-ago fourth-quarter loss of $70.3 million, or 53 cents per share, and less than the 23 cents per share of red ink that Wall Street had been looking for. The latest quarterly result included a $34.7 million gain from extinguishment of debt and a $16.8 million non-cash income tax expense, while the year-ago result had included a $24.2 million loss from extinguishment of debt, a $26.8 million loss on redemption and repurchases of mandatorily redeemable preferred stock, and a $12.8 million income tax benefit.

Dobson's rise on the not-quite-so-bad-as feared numbers helped push up the bonds of several other companies in that same business, the provision of cellular service to customers well outside the big metropolitan areas that the cellular giants like Cingular Wireless and Verizon Wireless dominate.

Other wireless names rise

The first trader saw Triton PCS Holdings Inc.'s 9 3/8% notes due 2011 advance a point to 87 bid, 88 offered on apparent sector sympathy with Dobson and American Cellular, while Rural Cellular Corp.'s 9¾ % notes due 2010 were likewise a point better, at 98.5 bid, 99.5 offered.

Also in the telecommunications sphere, the first trader said that the news, first publicized late Thursday, that Qwest Communications will continue its pursuit of MCI even though the Reston, Va.-based long-distance company has already agreed to a somewhat smaller acquisition offer from Verizon Communications Inc., did "not really" have much market impact Friday, adding that "IU would call them both unchanged, actually. Maybe they get a little stalled out on the Qwest side with the Treasury market," which went south following a sharply larger-than-expected January reading for core producer prices, a key inflation measure, "But there was no real movement at all."

He saw MCI's 8.735% notes due 2014 at 112.25 bid, 112.75 offered, "which was about where they went out [Thursday]. That rumbling [that Qwest would continue its efforts to get MCI] had occurred toward the end of the day yesterday [Thursday], when they did trade off a little from 113-113.5. So it was already reflected" in the bonds' price.

A source elsewhere saw the MCI 10-years at 112.75, its 7.688% notes due 2009 at 105 and its 6.908% notes due 2007 at 102.5, all unchanged on the session.

He saw Denver-based regional Bell operating company telecom provider Qwest's 7¾% notes due 2031 off a quarter points, at 92.25 bid, and its 7.90% notes due 2010 half a point lower, at par. Most other Qwset paper, he said, was unchanged, although he did see its 6½% notes due 2018 at 87.5 bid, up from 86.75 on Thursday.

Another trader saw "nothing new today [Friday] on Qwest or MCI." Qwest, he said "was definitely weaker [Thursday] on the news that they're back in the hunt" - and the implication that Qwest, already debt-laden, might incur further debt to finance a more than $7 billion acquisition of MCI and assume an additional $4 billion of MCI net debt.

He noted that Qwest's 7¾% notes due 2011, which had traded at 98 bid, 98.75 offered on Wednesday, were trading Friday slightly below that level, at 97.75 bid, 98.75 offered on Friday.

Qwest had originally submitted a $6.3 billion acquisition bid to MCI and then sweetened that cash-and-stock offered to $7.3 billion, according to published reports - just hours before MCI and Verizon announced their engagement, on Valentines Day, with MCI having agreed to a $6.746 billion cash and stock deal that would pay the cash portions of the compensation to MCI shareholders out of that company's own cushiony cash reserves, estimated at $5.5 billion.

Although Qwest's chairman and chief executive officer, Richard C. Notebaert, seemed to sound very casual about Qwest's apparently losing effort when his company held its quarterly earnings call the following day, and said that Qwest would "see how things played out," behind the scenes, Qwest was still very much eager to lock up MCI. Notebaert said in a Thursday letter to MCI's board that "we do intend to submit a modified offer to acquire MCI." Still to be seen is whether MCI wants to get involved with Qwest, financially much weaker than Verizon, even if it does raise its already higher offer.

Bally Total Fitness little moved

Elsewhere, little movement was seen Friday in the bonds of Bally Total Fitness Holding Corp., whose bonds had declined several points on Thursday on the news that federal prosecutors have asked the Chicago-based fitness club operator for documents and other information in connection with an ongoing criminal investigation in the Washington, D.C. area.

Bally's 10½% senior notes due 2011 had fallen to 95 bid Thursday from prior levels at 98.5, while its 9 7/8% subordinated notes due 2007 were two points lower, at 82.5. The bonds hung in around those levels Friday, prompting one trader to remark that the bonds 'had finally reached a level, and [seem to] be stabilizing." He estimated the senior bonds were down about a point or so on the week, while the subordinated notes were off "four to five points" on the week.

B/E Aerospace gets lift

The trader meanwhile saw B/E Aerospace Inc.'s bonds as having been "on a little bit of a tear" since the Wellington, Fla.-based aircraft cabin assembly manufacturer reported quarterly numbers earlier in the week. "I should have bought more," he lamented.

On Wednesday, B/E reported that its fourth-quarter loss fell to $9.3 million, or 17 cents per share, from $19.5 million, or 53 cents per share, a year earlier. Sales rose to $189.6 million, up from $163.4 million. Earnings from operations jumped to $16.3 million from $1.2 million.

He saw its 8 7/8% subordinated notes due 2011 at 105.625 bid, and "we haven't seen that level since its inception." The company's 8½% senior notes due 2010 were at 111.5, "which is also off the charts."

He said that "another name that has almost defied interest rates" is Smithfield Foods Inc., whose bonds "are trading at historically tight spreads" and will likely be upgraded soon.

He quoted the Smithfield, Va.-based meat processing company's 7% notes due 2011 at 108.25 bid, 108.75 offered, "the highest I've seen them, and they trade on a spread to Treasuries." That works out to a 140 basis point spread over the comparable government issue, "which means there's an upgrade coming." Moody's Investors Service rates its senior unsecured bonds at Ba2, while Standard and Poor's rates them at BB.

The company's 7 5/8% subordinated notes due 2008, which are rated a notch lower than the seniors, were trading at 107.5 bid, 108 offered, "which looks like the market is expecting an imminent upgrade."

Homebuilder bonds in retreat

On the downside, the trader saw bonds of homebuilders in retreat, in line with rising Treasury yields, particularly following Friday's problematic PPI index release.

"In general, with Treasuries backing up the way they have," he opined, "interest rate-sensitive paper backs up." An obvious example of such paper is that of the homebuilders, who depend on mortgage interest rates staying affordable in order to keep new-home sales percolating.

Friday's rise in January producer prices caused names in the group to "get hit by interest rates," including Hovnanian Enterprises Inc., whose 6¼% notes due 2015 "got smacked" and dropped to 102.25 bid from 103.75 previously.

KB Home's 5 7/8% senior notes due 2014 dropped to 101.25, down ¾ point on the session, while its 6 3/8% notes due 2011 lost half a point, to 105.5 bid, 106 offered.

There's nothing wrong" with the Los Angeles-based homebuilder, he declared. "It's just the [interest] rates."

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