Some telecom, healthcare names seen moving on news; Syniverse talk emerges

By Paul Deckelman and Paul A. Harris

New York, Aug. 17 - Even as overall high yield trading Wednesday remained "lackluster," as one market participant put it, activity was seen in several names which had news out, notably in the telecommunications and healthcare sectors. Primus Telecommunications Group Inc. bonds were seen higher following reports late in the session Tuesday that it may spin off its Canadian operations, while SunCom Wireless Holdings Inc.'s bonds - the old Triton PCS - were up on the company's announcement that it company is terminating its planned acquisition of Urban Comm - North Carolina, Inc. In healthcare, Beverly Enterprises Inc. bonds were being quoted about three points higher on the announcement that it has agreed to be acquired, and Team Health Inc. firmed smartly in response to the company's plans to go public.

In the primary market, not much was going on, traders said. No deals were heard to have priced Wednesday, although price talk did emerge on Syniverse Technologies' planned offering of eight-year notes, which is expected to come to market on Thursday.

Back in the secondary arena, traders saw Primus Telecom's bonds holding steady at the sharply higher levels to which they had moved - apparently under everyone's radar - late Tuesday, after the McLean, Va.-based telecom company was reported to be considering a spin-off of its Canadian operations, which would go into an income trust valued in the $330 million to $410 million range. Investors apparently believe that this could pave the way for some or all of the business to be sold, and the proceeds used to buy back debt.

That was enough to boost the company's 8% notes due 2014 a whopping 11 points to 59 bid, 61 offered, while its 12¾% notes due 2009 were seen up nine points to 48 bid, 50 offered, a trader said. He saw them unchanged Wednesday.

At another desk, a market source pegged the 8s up nine points Tuesday to that same 59 bid level, while the 123/4s were seen up 12 points to 49 bid, before dropping back a point on Wednesday to 48.

Yet another trader saw the 8s at 60 bid, 61 offered, and the 123/4s dropping back a point to 47.5 bid, 48.5 offered.

SunCom rises after dropping acquisition

Also in the telecom sphere, SunCom's bonds were all seen better following the late-Tuesday announcement that the Berwyn, Pa.-based provider of wireless services will save itself $113 million by abandoning its planned acquisition of Urban Comm - North Carolina, which holds FCC wireless licenses in the Carolinas and Virginia.

A trader quoted the company's Triton PCS 8¾% notes due 2011 as having firmed from 80.75 bid to 82.25, its 9 3/8% notes due 2011 up two points at 83 bid, and its 8½% notes due 2013 a point better at 95.25.

Qwest slightly higher

However, the news that Qwest Communications International Inc. had reached tentative agreement on a three-year contract with the Communications Workers of America union, representing 25,000 Qwest employees, did not move the Denver-based telecommunications company's bonds much.

"There was nothing really doing in Qwest," a trader said. "They reached agreement and the bonds went up maybe a half [point]."

He saw Qwest's 7¼% notes due 2011 slightly firmer at 96.5 bid, 97.5 offered, while another source pegged those bonds down a quarter point at 96.25, while its 7 5/8% notes due 2011 were up ¾ point at 104.

Nextel Partners unchanged

And traders said the news that the newly merged Sprint Nextel plans to rely on an appraisal process to set the valuation on its 32%-owned Nextel Partners affiliate, rather than engaging in direct negotiations with representatives of the owners of the other 68% of the Kirkland, Wash.-based company, had little impact on the latter company's bonds, or those of other Sprint Nextel affiliates.

A source saw the Nextel Partners 8 1/8% notes due 2011 unchanged at 109.125, while its 12½% notes due 20119 - which he said "doesn't move much anyway" were likewise steady at 108.375.

Another trader said "the news was expected, and the bonds were unchanged."

Nextel Partners provides Nextel brand wireless services to mid-sized and rural markets. The absorption of the former Nextel Communications Inc. into Sprint Corp., which officially closed last week with the formation of Sprint Nextel, contractually triggers a put option under which Nextel Partners can require Sprint Nextel, as Nextel's successor company, to buy it out.

Sprint Nextel bondholders and shareholders were hoping for a quick and profitable deal, but Sprint Nextel's chief financial officer, Paul Saleh, indicated that the valuation process would involve three different appraisers and could take four months - or even longer if the appraisal results are challenged.

The merger of Nextel - one of the longtime standout names in the high yield telecommunications sector - with Sprint has triggered speculation that the combined company will eventually have to roll up affiliates which provided their respective services in rural and mid-size markets that the major companies chose not to serve directly, which has pushed their bonds and shares higher. While Nextel had only Nextel Partners to deal with, the old Sprint had 10 regional affiliates - some of which were not happy with the merger deal. They charged that it would create a situation that would violate their contractual rights to territorial exclusivity, since Nextel Partners competed directly with such Sprint affiliates as Alamosa Holdings Inc., UbiquiTel Inc. and U.S. Unwired Inc. pre-merger - and it still does, now that it is one-third owned by the new Sprint Nextel, which is legally bound by the old Sprint's promises of market exclusivity.

U.S. Unwired sued to stop the merger, and Sprint ended up settling with the Lake Charles, La.-based affiliate by buying it out for $1.3 billion. Lubbock, Tex.-based Alamosa, Sprint's largest affiliate - particularly after its acquisition of the former AirGate PCS Inc. - has also sued, while several other Sprint affiliates are currently under forbearance orders barring them from taking similar legal action.

The Sprint affiliate companies' bonds were likewise unchanged, as their investors take a wait-and-see attitude on what the Nextel Partners news may mean for their own hopes of a rollup. Alamosa's 11% notes due 2010 and its 8½% notes due 2012 were both unchanged at 112.75 bid and 108 bid, respectively, while UbiquiTel's 9 7/8% notes due 2011 were a quarter point better at 111.25.

Beverly gains on acquisition

In the healthcare area, Beverly Enterprises merger news pushed the Fort Smith, Ark.-based nursing home operator's 7 7/8% notes due 2014 up to around the 112.5 level, up two to three points on the session, although a trader said that while he heard the bonds quoted at those higher levels, he had seen "no Street markets" in them.

Beverly said that it had agreed to be acquired by North American Senior Care Inc. for about $1.4 billion in cash, or $12.80 per common share. Including the repayment of Beverly's outstanding net debt, the company said, the total value of the transaction is about $1.9 billion.

Beverly had $541.023 million of long-term debt on its balance sheet as of the end of the second quarter on June 30, according to the company's most recent 10-Q filing with the Securities and Exchange Commission, including the 7 7/8% notes and its 2¾% convertible subordinated notes due 2033. Net debt, factoring out cash and equivalents on hand, is estimated at about $224 million.

The announcement of the planned sale of Beverly culminates a process that began back in January, when Reis Trusts - an investor group including Appaloosa Management, Franklin Mutual Advisors, Formation Capital LLC and Northbrook NBV, controlling about 8% of the company-made an unsolicited hostile $11.50 per share takeover bid subsequently rejected by Beverly, which operates 345 skilled nursing facilities, plus18 assisted living centers, and 64 hospice/home care centers.

However, Beverly's chairman and chief executive officer, William Floyd, said in late March that "[t]he expression of interest from the Whitman/Appaloosa group has caused a dramatic change in the composition of our stockholder base," including many looking for more immediate gains on their investments - causing the company to decide to "pursue all possible means of maximizing stockholder value in the near term" and put itself up for sale.

Some 47 parties initially participated in the auction process, including the Formation Capital-led group, but Beverly said that after the bids were narrowed down, North American Senior Care offered the best combination of price, terms and conditions. Its $12.80 offer is a better than 40% premium to Beverly's share price in late December, when takeover talk about the company started to bubble up, following a successful two-year effort by the company to put an end to various legal problems and return itself to profitability.

Assuming it goes through, the Beverly buy will be the third such successful acquisition of a major bloc of nursing home assets by the investor group behind North American Senior Care - an entity created specifically for the Beverly acquisition. The same group in 2004 acquired Mariner Health Care, which had 250 skilled nursing facilities in 27 states, in a $1 billion deal, and in 2003 bought 130 facilities in 23 states formerly operated by Integrated Health Services, both of them former high yield debt issuers.

Team Health gains on IPO news

Out of that same sector, Team Health, a Knoxville, Tenn.-based hospital staffing company, was seen up solidly on the news that it plans an initial public offering, with proceeds to go to repay debt.

A trader saw its 9% notes due 2012 firm to 108.5 bid, 108.75 offered, from prior levels at 105.75 bid, 106.75 offered. A source at another desk estimated a 3½ point rise to 108, while another source saw the bonds go from 105.25 bid to 108.

The company - controlled by Madison Dearborn Partners LLC and Cornerstone Equity Investors LLC, each with a 36% stake - hopes to raise about $172.5 million from the IPO.

The two private equity companies acquired Team Health from Caremark Rx Inc. as part of a $335 million recapitalization in March 1999. Caremark still holds a stake in the company, while Team Health management is also part of the ownership syndicate taking the company public.

New Mediacom notes active

In recently priced issue, a trader saw Mediacom 8½% notes due 2015 "trading around and fairly active," at 99.5 bid, par offered, up from Tuesday's issue price at 98.36.

He saw the Mylan Laboratories 5¾% notes, which priced several weeks ago, at 98.75 bid, 99.75 offered Wednesday.

Columbus McKinnon Corp's new 8 7/8% notes due 2013, which priced at par Tuesday and then edged up to 100.5 bid, 101.5 offered, advanced further Wednesday, a market source said, to 102.

Primary quiet

In the primary the word of the day was "quiet." Sources used it to describe the session, as well as to forecast the level of market activity likely to be seen in the run-up to the three-day Labor Day hiatus that is set to begin Friday, Sept. 2.

What about post-Labor Day?

A buy-side source also described the Wednesday primary session as quiet but added that following the Labor Day break the new issue market can be expected to pick back up to at least the level of activity seen in late July and early August.

One key factor, said the buy-sider, is whether or not merger and acquisition business will continue to be robust.

The source also said that there continues to be "a lot of room" for companies to refinance debt in the present high-yield market.

"There is a lot of talk about companies going out and blowing their balance sheets back up," the source said. "But a lot of companies are still focused on taking notes out.

"As long as M&A and refinancing remain robust there will be a calendar to reckon with, although I don't expect it to be super-strong."

The buy-sider also specified that the high yield asset class remains a notably liquid one.

"I don't think it's as crazy as it was back in February and March, where it was completely a one-sided, bid-only market, with no calendar so that you could not source bonds.

"But there are a lot of dealers out there making generous two-sided markets on a lot of names, as far as the number of bonds they will buy and sell."

The specter of rising rates

However another market source, suggesting that high yield players may have been blind-sided by stronger-than-expected Producer Price Index numbers for July, said that any refinancing activity will almost certainly take place against a backdrop of rising rates.

"Inflation is on peoples' minds, that's for sure," the source said, noting that the PPI for July rose 1%, month-over-month - double economists' expectations of 0.5%.

The villain is energy, the source said, adding that the crude goods sector rose 6.7% month-over-month, suggesting that pipeline inflation pressures are coming to bear upon the U.S. economy.

Against such a backdrop, the source added, it is hardly meaningful to talk about whether or not the Fed will continue raising rates - it will.

Syniverse talks eight-year notes at 7¾%

Wednesday produced no movement whatsoever among names on the high yield forward calendar.

However news did emerge from one issuer in the market.

Syniverse Technologies, about to wrap up a three-day roadshow, talked its $150 million offering of eight-year senior subordinated notes at a yield in the 7¾% area on Wednesday. The B2/B rated debt refinancing deal, which is being led by Lehman Brothers, is expected to price on Thursday.

The only other deal in the market is from CitiSteel USA, Inc. which talked its $170 million five-year floater at Libor plus 700 to 725 basis points at 99.00 on Tuesday.

Jefferies & Co. is leading the offering of B3/CCC+ rated notes which are expected to price Friday.

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