DirecTV brings drive-by mega-deal; Idearc continues gains; Tesoro off on quarterly results

By Paul Deckelman and Paul A. Harris

New York, May 7 - DirecTV Holdings LLC and DirecTV Financing Co. brought to market on Wednesday what one bond trader described as "the first adult-sized high yield issue in quite some time" - a quickly shopped $1.35 billion eight-year offering. The new bonds were seen only slightly moved in initial aftermarket dealings - a sign, traders said, that the mega-deal had been correctly priced.

The El Segundo, Calif.-based satellite broadcasting leader also reported a 10% gain in quarterly earnings.

Elsewhere in the primary arena, PNM Resources Inc. was heard to be shopping around an offering of seven-year notes, while Public Service Co. of New Mexico was planning a split-rated issue of 10-year notes.

High yield syndicate sources also heard price talk emerging on Ace Hardware Corp.'s upcoming $300 million offering of eight-year notes.

In the secondary market, Idearc Inc.'s bonds were heard continuing to firm, riding the momentum seen on Tuesday when the Dallas-based telephone directory operator's bonds rose by about 4 points after it announced better-than-expected first-quarter numbers.

Sprint Nextel Corp.'s bonds were generally firmer, investors apparently overlooking the company's problems to focus on its positive news - its $14.5 billion wireless broadband joint venture with Clearwire Corp, and the alliance's success in enlisting some communications industry heavyweights as financial backers.

On the downside, Tesoro Corp.'s bonds were lower, after the company reported weak quarterly results.

WCI Communities Inc.'s bonds slid after the troubled Bonita Springs, Fla.-based developer began to search for creative alternatives to paying its bonds in the usual way.

A trader in a buy-side shop said that junk ended a touch weaker on Wednesday.

"We've had a pretty good run, and I think this is just a little bit of breath-taking," the trader commented, adding that during the month of April the Lehman Brothers high yield index was up more than 5%, and up an additional half a percent for the new month to May 6.

"That's a pretty good move," the source commented, adding that year-to-date the Lehman index is up 1.63%.

Meanwhile an official from a junk syndicate desk commented that the high yield was lower along with equities on Wednesday, but had been lower on Tuesday despite equities rallying during that session.

DirecTV's $1.35 billion fly-by

Quick-to-market action continued during the Wednesday primary market session with DirecTV Holdings LLC and DirecTV Financing Co., Inc. pricing a $1.35 billion issue of seven-year senior notes (Ba3/BB) at par to yield 7 5/8%.

The notes priced in the middle of the 7½% to 7¾% price talk.

There is a $150 million greenshoe.

JP Morgan, Banc of America Securities and Credit Suisse were joint bookrunners for the dividend deal which will enable parent DirecTV Group to repurchase stock.

The buy-side trader said that the dividend-funding deal is not exactly the most bondholder-friendly kind of trade.

Talking the deals

The back end of the first full week of May promises to be busy in the primary market, with four announced tranches totaling $1.5 billion - $1.15 billion of them straight high-yield - expected to price before Friday's close.

On Wednesday Petrohawk Energy Corp. set price talk for its $500 million offering of senior notes due 2015 (B3/expected B) at 7 ¾% to 8%.

The debt refinancing deal, being led by Lehman Brothers, is set to price on Thursday.

Elsewhere Ace Hardware Corp. talked its $300 million offer of eight-year senior secured notes (Ba2/BB-) at the 9% area.

The Banc of America Securities-led debt refinancing and general corporate purposes deal is also expected to price Thursday.

PNM brings $700 million

Also during the mid-week session Public Service Co. of New Mexico and PNM Resources disclosed plans to price a combined $700 million amount of SEC registered notes in two tranches on Friday.

Lehman Brothers is the left bookrunner for both deals.

Public Service Co. of New Mexico, the operating company, is in the market with a $350 million amount of split-rated 10-year senior unsecured notes (Baa3/BB+/BBB-). The deal is being run off both the high yield and investment grade syndicate desks, with high grade accounts expected to take part in the deal.

Meanwhile at the holding company-level, PNM Resources plans to sell $350 million of seven-year senior unsecured notes (Ba2/BB-).

PNM Resources is concurrently remarketing its 4.8% senior notes, series A, initially due 2010.

DirecTV holds around issue level

When the new DirecTV 7 5/8% senior notes due 2016 were freed for secondary dealings, a trader saw them having advanced to 100.125 bid, 100.625 offered from their par issue price earlier in the session.

Another trader quoted the bonds at 100.25 bid, 100.5 offered.

He also saw that the Newfield Exploration Co. 7 1/8% notes due 2018, which priced Monday at par and which then moved up just slightly from that level, were at 100.125 bid, 100.25 offered, after having gone as high as 100.375 bid on Tuesday.

And he saw no dealings at all in the new Atlas Energy Operating Co. LLC 10¾% add-on notes due 2018, which priced at 104.75 Tuesday and which were then not seen trading in the secondary sphere. "They were very well placed," he said.

He noted that the fact that each of the new par deals, after having priced, then firmed only marginally after that, was an indicator that the bonds had been priced at appropriate levels and allocated correctly by the respective underwriters, rather than at the kind of too-cheap levels seen in the recent offering of Ford Motor Credit Co. 12% notes, which priced at a significant discount to par, somewhere below 99, and which then moved up sharply over the next few sessions in the aftermarket as investors scrambled for the bonds and to collect the extra yield afforded.

In the latest deals "the underwriter provided a valuable service to the issuer [by pricing the bonds appropriately], versus Ford, which went up more than 3½ points, which is a disservice to the issuer."

He saw the Ford Credit bonds trading small pieces Wednesday between 103 and 104 and round lots around 102.5.

DirecTV existing bonds dip, rebound

A trader meantime saw DirecTV's existing 6 3/8% notes due 2015 initially trade down a point, possibly in response to supply concerns generated by the big new bond deal, but then bounce off that low to finish the day unchanged at 95 bid, 96 offered.

The company's bonds, old and new, were no doubt helped by its strong first-quarter earnings reported on Wednesday. Its net income pushed up by about 10% to $371 million, or 32 cents a share, versus $336 million, or 27 cents, a year ago. Wall Street was looking for earnings of around 30 to 31 cents per share. Revenue, which rose 17% to $4.59 billion, also beat expectations of about $4.5 billion.

DirecTV attributed the gains to its success in adding more subscribers to its services than anticipated, particularly for high-definition TV. Average revenue per customer - ARPU in the jargon of the communications industry - rose 8.6% to $79.70 a month due to higher prices and more high definition signups. The company also reported reduced churn - turnover of subscribers cancelling their service.

Despite the generalized trend of recent quarters among media companies, who have seen their revenues and profits fall in line with the softer economy, DirecTV's chief executive officer Chase Carey said on the company's conference call with analysts and investors that the economy "has not had a material impact on the results you're seeing from us."'

DirecTV also announced plans to expand its share buyback to $3 billion, to be largely debt funded. Besides the proceeds of Wednesday's bond sale, the company may issue an additional $150 million of the new notes, and plans to raise as much as $1 billion through an incremental term loan under its existing credit facility.

A trader said that the new DirecTV deal was "probably one of the biggest talking points of the day." He called it "the first adult-sized high yield issue in quite some time."

Market indicators easier

Aside from that, he said "the market had a decent tone." He said that "nothing really jumped out" among the established issues as most of the action was earnings driven. For the most part, apart from names which posted good or bad earnings and whose bonds then reacted to that, "there were no big movers and shakers."

Junk players, he said, "were keeping an eye on stocks and oil. We'll see better selling into strength. Away from [the energy sector], things were unchanged to maybe a touch softer, but there was nothing really earth-shattering out there today."

A trader saw the widely followed CDX junk bond performance index down ¾ point Wednesday to 97 bid, 97¾ offered. The KDP High Yield Daily Index fell by 8 bps to76.20, while its yield widened by 4 bps to 9.09%.

In the broader market, advancing issues trailed decliners by a narrow margin. Activity, represented by dollar volume levels, eased about 1% from Tuesday's pace.

Idearc bonds continue gains

Among specific issues not having any new-deal implications, traders saw Idearc's 8% notes due 2016 continuing to firm following the solid numbers the company reported Tuesday. A market source saw the bonds up more than 4 points on the day, pushing to a late-day high of 72.5 bid in busy trading helped by several small-sized trades at that level.

However, another trader, looking at larger-sized trades, pegged the bonds up a point to 68.5 bid, 69.5 offered. Another trader saw them unchanged at 68 bid, 69 offered, while at yet another desk, a market source estimated the bonds up another ½ point at 69.25 bid.

Idearc on Tuesday reported that first-quarter net income rose 7.8% from year-ago levels to $111 million, or 76 cents per share, versus $103 million, or 70 cents per share, in the 2007 first period. Excluding earnings charges and other one-time items, the company earned $116 million, or 79 cents a share. While that was actually down from its year-earlier ex-items earnings of $119 million, or 82 cents per share, it was well above the roughly 62 to 65 cents of per-share earnings that Wall Street was looking for.

Idearc rival and sector peer R.H. Donnelley Corp.'s bonds, which also rose on Tuesday in response to the numbers and the implications they have for the directory publishing industry as a whole, continued to rise as well on Wednesday, ahead of the scheduled Thursday release of Cary, N.C.-based Donnelley's own earnings data. Its 6 7/8% notes due 2013 rose a point to 64.25.

Mohegan up although numbers are down

Also on the earnings front, a trader saw the Mohegan Tribal Gaming Authority's 6 1/8% notes due 2013 up a point at 93 bid, 94 offered "after the numbers came out" - even as the Connecticut-based Native American gaming concern, operator of the Mohegan Sun casino resort, reported EBITDA of $84 million, representing a 10.6% decline from a year ago, when operating profit was $94 million. The drop was chiefly attributable to a slide in slot-machine revenues - but company executives on their conference call sounded upbeat about the current second quarter and noted that while slots revenue fell, table-games revenue and revenues from non-gaming areas like food and beverages, retail and entertainment rose.

Tesoro off on numbers

A trader saw Tesoro Corp.'s 6½% notes due 2017 losing a point at 89 bid, 90 offered, blaming the downturn on weak numbers, as the San Antonio-based petroleum refiner took an $82 million loss over the first three months of the year.

At another desk, a market source saw Tesoro's 6 5/8% notes due 2015 a full 3 points down at 91.5 bid.

WCI off as it seeks 'solutions'

A trader saw WCI Communities' 9 1/8% notes due 2012 down 4 points at 47 bid, 49 offered.

That slide followed the news that the builder of luxury homes and high-rise condos posted a first-quarter net loss of $84.1 million, or $2 a share, versus a year-earlier loss of $15.8 million, or 38 cents a share.

It also announced the hiring of the Lazard investment banks to find "creative solutions" to satisfy noteholders in light of cash limitations (see related story elsewhere in this issue).

Sprint gains on Clearwire developments

Apart from earnings-driven situations, market participants saw Sprint Nextel's bonds, and those of its Sprint Capital financing arm, mostly better, apparently given a boost by news of the Overland Park, Kan.-based wireless company's plans to combine its wireless broadband assets with those of Claearwire Corp., forming a $14.5 billion company.

Some of the funding for the combination will come from such powerful communications industry players as cable-TV powers Comcast Corp. and Time Warner Cable, chip-making giant Intel Corp. and internet powerhouse Google. Together with Bright House Networks, they are putting up $3.2 billion and will own 22% of the combined company. Clearwire shareholders will have 27% and Sprint Nextel will own 51%.

News of the combo overshadowed other bad news, including speculation by some analysts and media outlets that Sprint Nextel might look to jettison the former Nextel Communications Inc., which joined with what was then Sprint Corp. in a $35 billion merger in 2005 that in the opinion of many analysts has proven to be less than the sum of its parts.

Sprint Capital's 6.90% notes due 2019 were seen up nearly 2 points at 86.5 bid, although its 7 5/8% notes due 2011 were seen to have eased around ½ point to 97.5 bid, both in active trading. The parent's 5.95% notes due 2014 were seen having gained 3 points to around the 80 level.

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