Paxson bonds up on possible acquisition bid; MCI says "thanks - but no thanks" to Qwest

By Paul Deckelman and Paul A. Harris

New York, April 6 - Paxson Communications Corp.'s bonds were up solidly and its stock price more than doubled Wednesday on reports that 1980s TV star Byron Allen is interested in buying the struggling West Palm Beach, Fla.-based television broadcaster for $2.2 billion and converting its family-oriented PAX network into over-the-air TV's first network aimed specifically at African-Americans.

Elsewhere, MCI Inc. said Wednesday that it had once again rejected Qwest Communications International Inc.'s takeover bid, and will stick with a lower offer from the more financially solid Verizon Communications Inc.

Primary market activity was virtually nil.

A trader said Paxson's bonds were "up a lot today," with the company's zero-coupon/12¼% notes due 2009 up four full points to 95 bid, 96 offered, while its 10¾% notes due 2008 gained 2½ points to close at 100.5 bid, 101.5 offered.

At another desk, a market source pegged the zeroes up about three points to 95.5, the 103/4s up 1 3/8 points at 100.125, and its 13¼% notes due 2006 up nearly two points to 70.5

Paxson's American Stock Exchange traded shares, which had closed Tuesday at a price of 60 cents, jumped 81 cents (135%) Wednesday to end at $1.41 on volume of 12.4 million, an astounding 35 times the usual daily turnover.

The bonds and the shares zoomed skyward on news reports, first appearing in Television Week, a broadcast industry trade paper, to the effect that Allen - probably best known for his starring role as co-host of the hit 1980s show "Real People," is, in his own words "aggressively" pursuing an acquisition of Paxson by his Entertainment Studios company.

The entertainer-turned businessman has been quoted as saying that he's had preliminary discussions with Paxson, and with General Electric Corp.'s NBC broadcasting unit, which formerly owned a 32% stake in Paxson that it tried to put back to the company by exercising an option to do so in 2003 and seeking repayment of its $145 million investment, a point of dispute between the two companies.

Allen - who has estimated that at least $2.2 billion would be needed to take out Paxson's senior debt, preferred stock and public equity - said he has also held talks with Credit Suisse Boston and a number of private-equity firms about putting together a deal.

Paxson owns 60 TV stations across the country, capable of reaching 85% of U.S. television homes, including a high-powered, but low-rated, UHF channel in New York. The company had been shopping itself around for about two years after it became apparent in 2003 that NBC would not be interested in buying the two-thirds of PAX that it did not own, but it recently announced an end to the efforts to find a buyer and said that it would instead concentrate on improving its core business operations.

Cablevision lower

Also in the TV area, Cablevision Systems Corp. "was down a bit," a trader said, in response to news reports that the Bethpage, N.Y.-based cable operator had, in fact, gone ahead and made a $16.5 billion all-cash offer for bankrupt Adelphia Communications Corp.

Cablevision, according to the reports, acted alone, in contrast to previous stories indicating that it would join forces with Kohlberg Kravis Roberts & Co. and Providence Equity Partners, who submitted their own bid for the insolvent Greenwood Village, Colo.-based cabler. TimeWarner Cable and Comcast Corp. also teamed up to submit a joint cash and stock bid for Adelphia estimated at $17.6 billion.

"The conjecture is they're not going to be able to pull it off," the trader said of Cablevision's gambit. He quoted the company's 8% notes due 2012 down about 1½ points on the session at par bid, 101 offered, while its 7 5/8% notes due 2011 were down ¾ of a point at 102.75 bid, 103.75 offered. In general, he said, Cablevision's senior paper was down a point and its subordinated bonds were off 1½ points.

A market source at another shop Quoted Cablevision's 8 1/8% notes due 2009 a point lower at 104, its 7 1/8% notes due 2018 down nearly two points at 104.25, and its 7¼% notes due 2008 down ¾ point at 101.75.

Cablevision's Rainbow National Services unit's 8¾% notes due 2012 "were actually up," at 108.5 bid, a two-point gain, allowing that given all of the uncertainty currently surrounding Cablevison - not just the sudden Adelphia bid, but the internal struggle going on within the company between chairman Charles Dolan and his CEO son James over whether to continue its money-losing VOOM satellite TV venture - such a rise in the Rainbow bonds "seems odd."

The elder Dolan "is juggling a lot of balls in the air," a source said. Cablevision is also heavily involved in efforts to torpedo plans to build a new football stadium on Manhattan's West Side, hoping to block a potential sports venue competitor for the Cablevision-owned Madison Square Garden.

Adelphia's bonds were meantime seen little changed, its 10¼% notes due 2011 quoted at 94.75 bid and its 10¼% notes due 2006 unchanged at 88.

MCI steady

Also on the acquisition front, MCI's bonds were generally seen little changed Wednesday after the Ashburn, Va.-based long-distance giant again refused to back out of its merger deal with Verizon, despite the nominally higher value of Qwest's offer.

A source quoted its 8.735% notes due 2014 up perhaps a quarter, at 108.75, while its 7.688% notes due 2009 were unchanged at 103.75, and its 6.908% notes due 2007 were up 1/8 at 101.875.

A trader at another desk said the MCI 2014 long bonds "were a point better first thing this morning [on the news of the rejection of Qwest's bid], but that didn't last." He saw the bonds unchanged at 108 bid, 109 offered.

Denver-based regional Bell operating company Qwest had imposed a deadline of midnight Tuesday for MCI to accept its offer, which had recently been again increased to a total of $9.1 billion of stock and cash. But the take-it-or-leave it ultimatum did not produce the desired result, as MCI once again said it considered Verizon a better fit for the company.

After months of talks, Verizon and MCI had announced their marriage plans - on Valentine's Day, no less - but Qwest remained a pesky and persistent suitor, raising its offer several times from the initial $7 billion bid and finally imposing the April 5 deadline in an effort to force MCI's hand.

New York-based Verizon, faced with the prospect of seeing rival RBOC Qwest spirit away MCI and its national network and impressive list of government and business customers, ultimately raised its own bid to $7.64 billion from the initial $6.745 billion, adding more cash and putting a floor under the stock portion of its bid so as to preserve its value even if Verizon shares fell in price

Some MCI shareholders expressed dismay that the company was consistently accepting the lower bid from Verizon, and Qwest had initially complained that MCI had ignored its offer. In response, MCI - with Verizon's blessing - held talks with Qwest. At one point, Verizon even warned that if MCI were to declare the Qwest offer superior and recommend it to its shareholders, Verizon would not fuel a bidding war by offering more for MCI than it thought the company was worth; it would instead withdraw its offer, take its $250 million breakup fee and go home.

But things never did get that far.

In its early-morning statement, MCI said that it had "reached out to Qwest seeking improvements on financial terms," only to be rejected. According to some news reports, MCI wanted Qwest to up its offer to $9.8 billion, or $30 per share, to swing the deal.

Besides wanting more money, MCI had its doubts about whether the debt-laden Qwest would be able to line up the sufficient financial resources to actually close the deal, worried about its would-be partner's contingent liabilities, was skeptical of Qwest's projections of supposed synergies that could be realized in a merger, and was taken aback by the opposition some current MCI customers expressed to a potential combination with Qwest, the smallest and financially most shaky of the four RBOCs that provide most of the local phone service in the United States (besides Verizon, the others are BellSouth Corp. and SBC Communications Corp.).

"In the face of these risks, MCI was not willing to jeopardize the certainty of its Verizon agreement for the uncertainties surrounding the Qwest proposal," MCI said.

Besides Verizon's overall financial stability and stronger capital structure - typified by its single-A credit rating versus Qwest's deep junk rating - MCI also said that there was certainty that Verizon could, in fact, close the deal, "realistic" projections of synergies, and, for the benefit of the customers, "the ongoing ability and commitment to sustain network service quality and invest in new capabilities." Verizon is currently the nation's largest telecom operator and also has a sizable wireless presence, while Qwest has none.

Under the revised deal that the two companies agreed to on March 29, MCI shareholders would cash and stock worth at least $23.50 for each MCI common share, comprising $8.75 (including MCI's March 15 dividend payment of $0.40 per share) as well as the greater of 0.4062 Verizon shares for every share of MCI common or Verizon shares valued at $14.75.

Qwest's last offer was valued at $27.90 per share.

Qwest reacted to the MCI decision by reiterating its contention that it had the superior offer, noting "statements of support from many MCI shareowners" - and saying that "shareholders will dictate the next steps in this process," a possible veiled signal that it still might consider trying to go around MCI management via a hostile takeover bid, should it become apparent that the MCI shareholders are balking at the lower Verizon offer.

J.C. Penney up, then back to unchanged

In the retailing realm, J.C. Penney & Co. Inc. "were up about two points initially, but gave it all back," said a trader, who quoted the Plano, Texas-based department store operator's 7.40% notes due 2037 unchanged at 95.5 bid, 96.5 offered.

Toys "R" Us Inc. was seen higher, its 7 7/8% notes due 2013 down about a point at 92.

Scotia Pacific down

Scotia Pacific Co. LLC's 7.11% notes due 2014 were quoted at 80 bid, 82 offered, well down from recent levels around 86 bid, 87 offered.

"Its been trading sloppily," a trader observed, noting that on Wednesday, California state regulators put an indefinite stay on a March 16 order by the California North Coast Regional Water Quality Control Board, giving Scotia's corporate parent, The Pacific Lumber Co., permission to expand logging on its acreage in the Freshwater and Elk River watershed to 75% from 50%.

Separately, Scotia Pacific said it hired UBS Securities LLC to help it find a way to restructure $750 million in timber notes, and warned it may not have enough money to make the scheduled July 20 interest payment. UBS will receive $5.6 million if it comes up with a successful restructuring.

Primary quiet

The primary market spent the mid-week session in a state of suspended animation as no bonds priced, no deals were announced, and no news, such as timing or price talk, emerged on deals thought to be in the market.

"We've seen some strength in the secondary yesterday and today," one sell-side official said late Wednesday.

"It feels like the forward calendar could start to build. But today there was zilch."

Eyes on the Hughes Network deal

The syndicate official commented that high-yield players would be closely tuned into the fortunes of Hughes Network Systems LLC's $325 million offering of eight-year non-call-four senior notes (B1), which began its roadshow Tuesday, via bookrunners JP Morgan and Bear Stearns & Co.

"It's a pretty big deal," the sell-sider commented. "I think there are potential issuers who will be watching to see what kind of execution it gets."

The European pipeline

Meanwhile a sell-side source in Europe told Prospect News that the high-yield market there has been generally pretty sloppy.

"Supposedly we are going to see six to eight deals come in the next two to three weeks," the source added. "It will be interesting to watch things progress.

"My sense is that a decent bid for new paper remains, but the question is whether issuers' price expectations are a bit too lofty at present."

Meanwhile another source in Europe said that the market on Wednesday had a strong tone, with existing single-B paper trading at a spread of 350 basis points, 20 basis points better, while investment grade bonds were trading at a spread of 70 basis points, three to five basis points better.

Breathing room for General Motors

Market sources also saw the debt of U.S. auto maker General Motors Corp. trading tighter on Wednesday, and expressed the belief that the move in the paper could be seen as significant for junk.

One of the sources said that on the surface it seemed counterintuitive that GM's debt should tighten, as it was cut to Baa3 by Moody's on Tuesday.

A trader, whose focus is high yielding Asian paper, expressed the belief that some high-yield players had been positioning for a more drastic move.

"Moody's did not take GM to junk," the trader reasoned. "They have given the credit some breathing room, for perhaps three months to nine months.

"The market was factoring in the possibility that Moody's would take GM to junk. When that didn't happen GM spreads tightened by about 15 basis points - since they were downgraded GM spreads are 15 points tighter! And that has give the market some confidence, and bolstered the mindset of the bulls, that the market had actually gotten too wide."

Meanwhile a sell-side source in the U.S. spotted GM paper "eight or so [basis] points tighter on the long end and five [basis] points tighter on the short end."

Dacom day-to-day

Late Tuesday primary market sources told Prospect News that the only junk bond deal that appears poised to price during the two remaining sessions of the present week is Korean telecom Dacom Corp.'s $300 million of five-year notes (Ba3/BB-),via Credit Suisse First Boston.

On March 23 a source close to the deal said that it was delayed because of the sell-off in the high yield market.

Credit Suisse First Boston has the books for the debt refinancing deal.

A source close to the transaction told Prospect News on Wednesday that Dacom remains day-to-day.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.