Red Zone's white flag lowers Six Flags; Charter down but rebounds; Intelsat roadshow extended

By Paul Deckelman and Paul A. Harris

New York, Jan. 18 - Six Flags Inc. bonds were being quoted lower, possibly dropped by the news that big investor Daniel Snyder has apparently had enough of the underperforming theme park company; his Red Zone LLC investment company has signaled that it will drop Six Flags from its portfolio. Elsewhere, the news that Carl Vogel resigned as president and chief executive officer of Charter Communications Inc. and was quickly replaced by director Robert May had only a little impact on the cable company's bonds, which opened solidly lower but recovered most of their losses to only end down a point on the session.

No new issues priced during the Tuesday session, as the primary market looked to the biggest deal now on the calendar, Intelsat's $2.55 billion three tranche offering, and mulled its fate in light of the company having lost its second satellite in recent months.

With its bond deal said to have been poised to price prior to the news, Intelsat held an investor conference call on Tuesday morning to discuss the loss last Friday of its IS-804 satellite, which handled South Pacific media delivery.

The bird was reported to have undergone a fatal electrical power system anomaly.

Market sources told Prospect News that the loss has caused the roadshow to be extended until Friday, with pricing of the deal expected to come early next week.

The Bermuda-based worldwide satellite telecommunications company had been roadshowing a three-part bond offering: $500 million of floating-rate notes due 2012, $1.3 billion of eight-year non-call-four fixed-rate notes, and $750 million of 10-year non-call-five fixed-rate notes. The proceeds will be used to help fund the $5 billion acquisition of Intelsat by Zeus Holdings Ltd. Deutsche Bank Securities, Credit Suisse First Boston and Lehman Brothers have the books.

However on the heels of the loss of the satellite, its second such loss in recent months, there is speculation that the deal could be downsized.

Readers will recall that the Intelsat deal was originally in the post-Thanksgiving market when investors pushed it back into the new year in light of Intelsat's difficulties with its Americas-7 satellite in November.

Sources told Prospect News after Tuesday's conference call that Intelsat claims it has only lost two satellites in 20 years. The company merely has had the misfortune to have lost both of them since this LBO deal has been coming to a head.

And, sources add, it appears that the unfortunate coincidence is going to impact the price tag.

One bank loan market source told Prospect News on Tuesday that the price reduction that the market anticipates will probably impact the bonds and the equity, resulting in less of either or both - but likely not a decrease in the size of the credit facility.

The credit facility is currently sized at $650 million (Ba3), consisting of a $350 million term 61/2-year term loan B talked at Libor plus 225 basis points and a $300 million six-year revolver talked at Libor plus 200 basis points, with a 37.5 basis points commitment fee. By comparison, the bond deal is sized at $2.55 billion senior notes in three tranches.

The reason for such a large difference in size between the two debt transactions is because the company wants to leave its existing bonds in place and the bonds have a carve-out as to how much bank debt is allowed, the source concluded.

Meanwhile, a buy-side source told Prospect News on Tuesday that the market is squarely focused on Intelsat.

"I think it's going to go okay," said the source, who spoke on background. "You're going to see some interest because it is a big benchmark name.

"They will have to price it relatively attractively compared to where the market is," the buy-sider added.

"Apparently they had never lost a satellite before and then they lose two within this time frame. I don't know if you chalk that up to bad luck or what."

Atlantis Plastics starts roadshow

One new roadshow start was heard during the Tuesday session.

Atlantis Plastics, Inc. kicked off a Jan. 18-25 roadshow for its $125 million offering of seven-year senior subordinated notes via Bear Stearns & Co.

The Atlanta, Ga., specialty plastics company will use the proceeds together with a new amended, restated credit facility, to repay debt and fund a dividend to shareholders.

Del, Leslie's Poolmart talked

Meanwhile on Tuesday, price talk of 8¼% to 8½% emerged on Del Laboratories' planned $150 million of seven-year non-call-three senior subordinated notes (B3/CCC+), expected to price on Wednesday via Bear Stearns & Co. and JP Morgan.

And price talk is 7 7/8% to 8 1/8% on Leslie's Poolmart, Inc.'s $170 million offering of eight-year senior non-call-four notes, also expected to price on Wednesday. Banc of America Securities and Lehman Brothers are joint bookrunners.

Price talk is expected to be heard early Wednesday on Carriage Services, Inc.'s $130 million of 10-year senior notes (B2/B-), via Merrill Lynch & Co. and Banc of America Securities. The Houston-based death care company's deal is also expected to price before the end of the week.

A preference for par bonds

The above-quoted buy-sider joined the already extensive chorus of high-yield market watchers who have cited the early January release of the minutes from the Federal Open Market Committee's Dec. 14 meeting as something of a turning point for the market.

However, the buy-sider said that there was more to be concerned about in those minutes than simply the Fed's hawkish tone on inflation and interest rates.

"Another piece of data in those minutes, besides their more hawkish tone regarding interest rates, is that some of the members made comments to the effect that there is perhaps some excessive risk-taking in the credit markets, with spreads tightening and so forth," the buy-sider said.

"I think that could have had some effect as well."

Prospect News followed by asking why, in light of falling junk bond prices in the secondary market on the heels of those minutes, the primary market continues to appear open.

"People apparently still do have some cash out there to put to work," the buy-sider said. "It's not so much that mutual funds have the cash. As we have seen over the past year or so, pension funds, insurance companies and other high-yield asset managers are also involved in the high-yield asset class.

"It's simply tough right now to buy some bonds in the secondary market at the levels where they are trading - at dollar prices in excess of 104.

"I think people would rather look at a par bond in the new issue market.

"There have been a few small deals that have priced, year-to-date," the source added. "But I think the market really has been waiting for this Intelsat deal, to see how it goes."

Intelsat down

Intelsat's outstanding 6½% notes due 2013 were heard to have opened down about 1½ points from the levels they held in Friday's abbreviated pre-holiday session, apparently pushed lower by the satellite failure news, but they got some of that ground back, closing off a point, at 85.5 bid, 86.25 offered.

Six Flags drops

Back among the established issues, Six Flags' 8 7/8% notes due 2010 were quoted by one market source as having retreated two points on the session to close at 98.75.

At another desk, a trader was skeptical about the size of the move; while he characterized Six Flags as "softer," he said he had seen no huge fall in the bonds, which he also pegged in the 98.5 bid, 99.5 offered area, along with the company's 9¾% notes due 2013, but said that this only down about half a point.

While the bonds were "definitely off their highs - but not near their lows," he said. A two point drop, he said "was too much" for one session.

"Over the course of the last week and a half I could see it," he said, noting that the 8 7/8s had begun the new year around 101 bid, 102 offered, "and now, they're 98½ [bid], 100.5 [offered]. Two and-a-half points since the beginning of the year, yes - but they didn't drop 1¾ just since Friday."

He estimated Friday's closing level at 99.5 bid, 101.5 offered. The trader also saw the company's 9 5/8% notes due 2014 at 97.5 bid, 99.5 offered, and said its 9½% notes due 2009, which are being taken out, "hanging in" at 104.875 bid, 105.25 offered.

However, another trader said he had seen one of the major houses quoting the company's bonds "down one, 11/2, [points]", but he didn't know why.

One possible explanation is the news that Snyder, owner of the Washington Redskins, has elected to end his investment in the company. He had bought an 8.8% stake in the amusement park concern last summer, making it his third biggest holding, and said at that time in a filing with the Securities and Exchange Commission that he considered its stock undervalued because management had failed to take vigorous steps to boost the company's value and that he planned to "seek to influence management and the board of directors to take steps to maximize stockholder value."

The filing said that Snyder might consider seeking representation on Six Flags' board of directors, and might also "encourage the company to maximize stockholder value through a possible merger, sale of the company's assets, consolidation, business combination or a recapitalization or refinancing."

However, in the letter Friday to independent director Michael Gellart, Snyder said that since then, management had one failure after another, including reduced guidance for full year 2004 and third quarter adjusted EBITDA and third quarter revenues; the announcement that attendance, revenues, EBITDA (modified) and adjusted EBITDA for the first nine months of 2004 were all less than in the comparable period in 2003 while operating costs and expenses increased over the prior year period; and its report of a loss of $67.7 million for the first nine months of 2004, versus income of $4.2 million a year earlier.

Snyder's letter also detailed how the Snyder - who acknowledged he had no experience running a theme park but who noted he had "extensive experience in the venue-based entertainment business" as owner of a major sports franchise - was rebuffed in his efforts to join the board and try to put his suggestions into play.

Accordingly, he wrote, "in light of what we believe will be a disappointing future for the company, we have determined that continued investment in the company is not in our best interest."

In a parting shot at Six Flags' management, he said that Red Zone's capital and other resources "should be allocated to more promising investments, especially those that have a board and management team that truly understands what it means to be responsive to shareholder concerns."

Charter declines, then gains

Elsewhere, Charter Communications announced the resignation of Carl Vogel as president and CEO, and his replacement by Robert May, a former Cablevision executive who more recently had spearheaded the turnaround at HealthSouth Corp. (see related story elsewhere in this issue).

But the news proved to be pretty much a non-event; Charter's bonds were "off a touch this morning," a trader said, quoting the St. Louis-based cable operator's 8 5/8% notes due 2009, which ended Friday at 81.75 bid, 82.75 offered, as having opened "off a couple of points" at 77 bid, 79 offered, before bouncing off those lows to improve to 80-81 by mid morning, and then to a closing level of 81 bid, 82 offered. He also saw the company's 9 5/8% notes due 2009 drop to 79 bid, 81 offered at the opening from Friday's 82.75 bid, 83.25 offered, but still only end about a point below Friday's close.

Everything "opened down four or five points on the news, but only ended down a point."

Charter's 8% notes due 2012 closed at around the 102 level, down half a point.

Auto names down again

News that General Motors Corp. will take a $609 million pre-tax charge when it reports fourth-quarter earnings Wednesday helped drive automotive names lower for a third straight session; a trader said the market "was pretty sloppy, but especially in the auto sector."

Tower Automotive's 12% notes due 2013 fell to 78.5 bid, 79.5 offered from 80.5 on Friday and that "dragged everything down," he said, notably Collins & Aikman Products. Its 10¾% notes skidded to 101.5 bid, 102 offered from 102.75 bid, 103 offered, while its 12 7/8% notes were offered at 86, down a point.

Goodyear Tire & Rubber Co. "got deflated," he quipped, as the Akron, Ohio-based tire giant's 7.857% notes went from Friday's close above 102 to being offered at 101.5 at Tuesday's finish.

Yet another auto name uselessly spinning its wheels Tuesday was Eagle-Picher Inc., whose ratings were cut last week by Moody's Investors Service, which dropped its 9¾% notes due 2013 to Caa1. That, in turn, dropped those notes to 94 bid from prior levels around 97.25.

However, one exception to the rule was J.B. Poindexter & Co. Inc., which had, the trader said, "very good earnings," lifting its 8¾% notes due 2014 to 106.5 bid from prior levels at 105.25.

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