Sierra Pacific quickie deal prices; Kerzner bonds jump on buyout bid

By Paul Deckelman and Paul A. Harris

New York, March 20 - Sierra Pacific Power Co. brought a quickly shopped offering of 10-year bonds to market Monday, high yield syndicate sources said. However, the Reno, Nev.-based utility's new issue failed to electrify the secondary market, with the bonds seen clinging to levels around their slightly-below-par issue price.

Elsewhere in the secondary realm, the bonds of Bahamas-based gaming operator Kerzner International Ltd. were seen having risen handsomely on the news that the company has agreed to a $3.6 billion management-led buyout offer. Primary-side players noted that part of the financing cost for the takeover will be funded by an issue of new bonds, as well as bank financing.

General Motors Corp. bonds - which on Friday retreated in reaction to the giant carmaker's disclosure of accounting errors, larger losses than originally reported and a delay in filing its 10-K report - seemed to be bouncing back on Monday, perhaps fueled by a spate of fresh reports over the weekend that GM, its former subsidiary Delphi Corp., and the United Auto Workers union might be getting closer to an agreement would offer buyouts to thousands of factory workers at GM and Delphi as a means of cutting heavy labor costs at the two beleaguered companies.

While that helped give a little bit of a bid to some of the other automotive names, Dana Corp. was conspicuous by its absence - the second straight session in which the bankrupt Toledo, Ohio-based automotive components manufacturer's bonds had failed to move up, following an astonishing nearly two-week-long rocket ride that began after Dana filed for Chapter 11 protection back on March 3.

A sell-side official marked Monday's broad high-yield market "a little better in the secondary on no particular news."

The source added that there will be a lot of focus on Tuesday morning's producer price index report from the Bureau of Labor Statistics.

Another sell-sider said that the broad market rose as much as half a point on Monday, and added that despite last Thursday's news from AMG Data Services that high yield mutual funds underwent a $403.7 million outflow for the week to March 15, there appears to be an ample supply of cash to put to work in junk.

Meanwhile the primary market produced only one news story as the week of March 20 got underway. Sierra Pacific Power Co. priced a $300 million issue of 6% 10-year mortgage notes on top of price talk.

Sierra Pacific drives through

Monday's sole transaction was a quick-to-market deal from Sierra Pacific Power, a subsidiary of Reno, Nev.-based electricity company Sierra Pacific Resources.

The company priced a $300 million issue of 6% 10-year general and refunding mortgage notes (Ba1/BB/BB+) at 99.879 to yield 6.014%.

The deal was priced high-grade style, with the notes coming at a spread to Treasuries of 135 basis points, on top of the price talk.

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

New issue supply remains tight

A sell-side source on Monday characterized the present new issue supply as incredibly small.

"People are talking about how oversubscribed deals are because the supply is not what it was expected to be at this time in March," the sell-sider added.

The official said that presently there is a preference for higher rated paper, and noted a recent preference, both in the new issue market and in the secondary market, for shorter dated issues maturing in eight years or less.

"That is subsiding somewhat," the official said. "People are starting to bite on longer dated bonds again."

However having noted an investor preference for bonds from higher rated issuers the sell-sider professed the expectation that deals would soon begin to appear from lower-rated, higher-leveraged issuers - some of which are expected to be bringing dividend-funding deals.

"We haven't seen much sponsor activity in the past couple of weeks, but that will pick up again," the official commented. "All of these private equity funds have raised mountains of cash in the past couple of years, and they have to do something with it."

The rest of the week

As the March 20 week got underway, only three deals were positioned on the forward calendar as business expected to be cleared by Friday's close.

Hard Rock Park is in the market with a $155 million offering of six-year senior secured floating-rate notes due 2012 (B3), via Deutsche Bank Securities.

Mobile Satellite Ventures is marketing $300 million seven-year senior secured discount notes via Merrill Lynch & Co. and Morgan Stanley. On Friday a source close to that deal told Prospect News that it is going well.

Finally, Saskatchewan Wheat Pool Inc. plans to price a C$150 million offering of seven-year senior unsecured notes (B) via TD Securities.

Sierra Pacific steady in trading

When the new Sierra Pacific bonds were freed for secondary dealings, a trader said that the 6% mortgage notes due 2016 were "trading tight, just a little below par," right around their 99.879 issue price earlier in the session.

Two other traders said they had seen no aftermarket activity at all in the new paper.

Kerzner higher on buyout

With the news of Kerzner International's agreement to the $76 per share buyout by a group led by the company's chairman, Sol Kerzner, and his son, CEO Butch Kerzner, the company's 6¾% notes due 2015 jumped, since the deal terms include the assumption by the buyers of the company's $599 million of net debt, which includes the $00 million of bonds sold last September.

Several traders saw those bonds jump three points in the early dealings to 101.25 bid, 102 offered. However, at another desk, after the market had closed for the day, a trader saw the Kerzner bonds even better than that, pegging their closing level as high as 105.25 bid, 106.25 offered - up from 101.5 bid, 102.5 offered in the morning, when the news of the buyout bid first hit the tape, and well up from late Friday levels at 98 bid, 99 offered. "Now that's a move," he said with considerable understatement.

The bondholder enthusiasm over the buyout bid came despite Moody's Investors Service's announcement that it was placing Kerzner's Ba3 corporate family rating and its B2 senior subordinated rating under scrutiny for a possible downgrade. The ratings agency said that the aggregate transaction price of $3.6 billion, including the debt assumption, reflects a purchase price multiple of about 19 times its fiscal year 2005 EBITDA.

"Given the purchase price, the company's leverage ratios are expected to deteriorate significantly from current levels of about 3.7x.," Moody's warned. It said that its review will focus principally on the company's capital structure, its liquidity to support future committed development activity and financial policy priorities.

However, in a filing with the Securities and Exchange Commission, Kerzner said it plans to tender for its 6¾% senior subordinated notes.

Kerzner equity holders seemed just as enthused about the buyout bid as the bondholders, as the company's New York Stock Exchange-traded shares jumped $9.07 (12.89%) to $79.43 on volume of about three million - 20 times the usual turnover.

GM gains

Elsewhere, traders saw General Motors' bonds, and those of its General Motors Acceptance Corp. financial unit mostly better, apparently bouncing back from the retreat they suffered on Friday when the market reacted to the news that GM's 2005 loss would be $10.6 billion - $2 billion more than originally reported - and that accounting errors in figuring GMAC's returns would delay the filing of the 10-K with the Securities and Exchange Commission until the end of the month, at the earliest.

On Monday, A trader saw GM's benchmark 8 3/8% notes due 2033 a point better at 74 bid, 75 offered and pegged GMAC's 8% notes due 2031 at 93 bid, 94 offered, also up a point. However, he saw other GMAC bonds that don't trade as actively as the 8s largely unchanged, including its 6¾% notes due 2014, at 89 bid, 90 offered, and its 6 7/8% notes due 2011 at 91 bid, 92 offered.

At another desk, a trader saw the GM benchmarks up 1½ points on the day at 74.5 bid, 75.5 offered, and estimated the GMAC 8% bonds half a point better at 92.5 bid, 93.5 offered.

However, yet another trader saw GM up only about a half a point at 92.75 bid, 93.25 offered, and actually figured the GMAC bonds down a point at 92.75 bid, 93.25 offered.

A market source tracking GM's 7¼% notes due 2013 saw those bonds almost a point better at 75.75 bid.

A possible catalyst for the firming in GM might be the weekend news reports that the company, Delphi, and its unions, represented in the bargaining by the largest labor group, the UAW, might finally be making progress towards untying the Gordian knot of how to lower bankrupt Delphi's bloated labor costs - as well as GM's - without completely gutting the provisions of the contracts covering some 34,000 hourly workers at Delphi, and over 100,000 hourly employees at GM.

Last week, GM bonds rose, and so did Delphi's, on a Wall Street Journal story indicating the three parties were near an agreement - but that rally faded as the union quickly said that no such deal was imminent.

The new news reports quoted parties close to the negotiations as saying that representatives of the two companies and the union met through the weekend and were still in talks on Sunday evening in Detroit. They were said to be dickering on the payments and benefits that union workers would receive to accept early retirement. One idea reportedly being kicked around is an attrition program that could include the possibility of Delphi workers coming back to GM.

GM is looking to cut some 30,000 hourly jobs over the next three years at plants around the country. Delphi, meantime, wants to cut is work force and lower labor costs to bring them more into line with the cost structures at other auto-supply companies, since the bankrupt Troy, Mich.-based automotive electronics manufacturer is currently paying wages and benefits under a cost structure it inherited from carmaker GM, which spun Delphi off in 1999.

Any change to the Delphi contract would have to be approved by the U.S. Bankruptcy Court for the Southern District of New York, which is overseeing Delphi's restructuring.

Delphi has threatened to go to the court and unilaterally seek permission to abrogate its contract with the UAW and several other unions if no agreement on a consensual solution to its problem is reached by March 31. However, it should be noted that Delphi has already extended that deadline several times in order to keep talking. The unions have threatened to strike if Delphi makes any sudden moves to junk their contracts. Such a strike would be disastrous for GM, which depends on its former subsidiary for a steady stream of high-tech parts.

Delphi said on Monday that it would delay filing its own year-end report, to wait and see the outcome of the current talks with GM and the UAW.

The company said in an SEC filing that discussions with the other parties were ongoing but "the outcome is uncertain and may have a significant impact on the company's Dec. 31, 2005 financial statements."

Delphi higher on GM hopes

The prospect of GM finally helping its troubled problem child out - perhaps even the way that GM rival Ford Motors Co. helped its struggling former parts subsidiary, Visteon Corp., avoid a probable bankruptcy last year - gave Delphi bonds a boost amid a generally lower automotive sector on Friday, since most of the extra $2 billion of losses GM 'fessed up to were due to larger charges connected with the Delphi bankruptcy. On Monday, Delphi continued to gain, with a trader calling its bonds a point higher at 63 bid, 65 offered.

At another desk, a trader saw the bonds even better, up 1¼ points across the board, with Delphi's 6.55% notes due 2006 at 63.25 bid, 64.25 offered, and its 7 1/8% notes due 2029 at 64.25 bid, 65.25 offered.

Auto sector strong

Other automotive names were generally higher. The second trader saw Visteon's 8¼% notes due 2010 a point better at 81.25 bid, 81.75 offered, and observed the latter's former parent, Ford, up a point on its 7.45% notes due 2031 at 73.75 bid, 74.25 offered. He saw Ford's credit arm's 7% notes due 2013 half a point better at 88.5 bid, 89 offered.

Even Lear Corp.'s bonds were better Monday, he said, despite Moody's cutting the Southfield, Mich.-based automotive seating and interior components maker's debt ratings a big three notches to B2 from Ba2 previously.

The ratings agency cited "deterioration in Lear's operating performance and prospects below previous expectations."

Moody's warned that Lear's leverage "is anticipated to remain elevated over the intermediate term. While restructuring initiatives should support earnings and cash flow over the next two years, the company faces ongoing challenges of customer concentration, vehicle/platform mix issues, margin pressure from un-recouped raw material costs, and exposure to potential disruptive events in the North American automotive industry."

Even so, the trader said, Lear's 8.11% notes due 2009 were half a point better at 91 bid, 91.75 offered, while its 5¾% notes due 2014 were ¾ point better at 81 bid, 81.75 offered.

Another trader agreed that the Lear bonds "didn't do anything" in response to the multiple-notch downgrade - if anything, they were actually up half a point, he said, with the 8.11s firming to 91 bid, 92 offered.

Dana steady at higher levels

One automotive name that did not share in all of the upside movement was Dana, whose bonds seem to have reached their ceiling after an impressive nearly two weeks of gains that followed the March 3 bankruptcy filing.

Driven by technical factors probably related to the need for Dana bonds to settle credit default swaps contracts, as well as market perceptions that bondholders would likely enjoy a fairly substantial recovery, those bonds had zoomed over that time to around 80 bid from prior levels in the low-to-mid 60s, but were seen having plateaued on Friday. In Monday's dealings, a trader saw its 6½% notes due 2009 down a point around 78 bid, 79 offered. Another trader saw its 6½% notes due 2008 unchanged at 79 bid, 81 offered, but saw its other bonds all down a point at 77 bid, 79 offered.

U.S. Steel ignores rating moves

Outside of the automotive sphere, the news that Moody's had upgraded U.S. Steel Corp.'s ratings by a notch, to B1 from Ba2 previously, did little to move the Pittsburgh-based steel giant's bonds. A trader said "they're call constrained" - i.e. already trading around the levels at which they would be called if the company decides to do so, with its 10¾% notes due 2008 at 110 bid, 111 offered, and its 9¾% notes due 2010 at 108 bid, 109 offered.

Finlay drops on S&P cut

Also on the ratings front, he noted, that Finlay Fine Jewelry Corp.'s bonds did react to Standard & Poor's downgrade of the company's debt ratings, with the unsecured bonds dropping a notch to B- and the corporate credit down a notch to B.

S&P said the rating action is based on Finlay's increased business risk following the completion of the merger between its two largest customers, Federated Department Stores Inc. and May Department Stores Co. In addition, Finlay's financial profile is weakening due to the substantial number of store closings, resulting in reduced revenues and cash flow.

He saw Finlay's 8 3/8% notes down 1½ points to 87.5 bid, 88.5 offered.

Friendly down on earnings

Among companies reporting earnings, Friendly Ice Cream Corp.'s bonds were "very volatile," the trader said, after the Wilbraham, Mass.-based ice cream maker and restaurant operator reported larger-than-expected losses and declining sales for the quarter after the market closed on Friday. He saw the company's 8 3/8% notes due 2012 drop from their pre-reporting Friday afternoon levels of 93 bid, 94 offered to depths as low as 87 bid, 88 offered on Monday morning. However, after company executives held a conference call, the bonds recovered somewhat to close at 91.5 bid, "still down 2½ points, but not as bad as they had been."

Solo gains on results

He also saw Solo Cup Co.'s bonds up solidly on "good numbers Friday afternoon." That boosted the 8½% notes due 2014 a point on Friday to 91 bid, 92 offered, and then an additional three points on Monday to closing levels around 94 bid, 95 offered.

ACCO firm

A market source reported seeing some recent strength in ACCO Brands Corp.'s bonds, with the office products maker's 7 5/8% notes due 2015 up about 1½ points over the past three sessions. However, a source at another desk saw them unchanged from Friday morning's levels at 92.5 bid, 93.5 offered.

Overall, though, another trader said, "there was really no volume out there. It was very slow, very quiet. It seems like everybody was still sleeping from the weekend. It was kind of disappointing."

He also noted the chilling effect that the more than $400 million of high yield mutual fund outflows reported last week by AMG Data Services - the biggest single-week loss so far this year - may have had on activity.

"There was really no money chasing paper," he declared. "There was really no value in the high yield market - nothing really attractive."

But "who knows?" he concluded - "I'm hoping that it changes."

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