End of Echostar-Hughes deal a tasty DISH for investors; upsized Turning Stone Casino deal prices

By Paul Deckelman and Paul A. Harris

New York, Dec. 10 - Echostar DBS Corp.'s more than year-long effort to take acquire larger rival Hughes Electronics Corp. ended Tuesday not with a bang but with the proverbial whimper, as the two companies announced the termination of their merger agreement in the face of overwhelming federal regulatory opposition. But Echostar's shareholders and bondholders shed no tears - instead, they drove the company's stock up sharply, and pushed the bonds higher as well.

For investors looking to fill their high-yield stockings in the run-up to the holidays, the selection increased Tuesday in the primary market, as add-on deals from Owens-Brockway Glass Container Inc. - the company's third visit to the junk bond market this year - and United Rentals, Inc. were announced.

Owens-Brockway is planning to price $150 million add-on to its 8¾% senior secured notes due Nov. 15, 2012 (existing: B2/BB) on Wednesday via Salomon Smith Barney, Banc of America Securities and Deutsche Bank Securities Inc. Unofficial price guidance is 8½%.

And a Wednesday roadshow start was heard for United Rentals, Inc.'s $200 million add-on to its 10¾% senior notes due April 15, 2008 (existing: B1/BB-). The deal is expected to price on Monday afternoon via Credit Suisse First Boston.

Also coming up, price talk of a yield in the 11¾% area emerged Tuesday on Brickman Group Ltd.'s $150 million of seven-year non-call-four senior subordinated notes (B2/B) which figure to price Wednesday afternoon via CIBC World Markets and Lehman Brothers.

Finally in primary action, Turning Stone Casino Resort Enterprises came to market with an upsized issue of eight-year notes. The New York State tribal gaming, entertainment and lodging firm, a first-time issuer, increased its deal to $135 million from $125 million and priced the eight-year senior notes (B1/B+) at par to yield 9 1/8%, at the tight end of the 9 1/8%-9 3/8% price talk. Bookrunner was Banc of America Securities and joint lead SG Cowen.

Not long after the wheel stopped spinning on the tribal gaming company's upsized deal, Louise Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund, advised Prospect News that high-yield investors brought a healthy appetite to the deal.

"It was very very skinny allocation," Rieke commented. "Where they priced it (9 1/8%) was reasonable, I guess. They priced it on the narrow end of the (9 1/8%-9 3/8%) range. But I guess they had a huge book so they could do that."

Regarding deals on the forward calendar, Rieke specified that her fund would be having a look at SKF Foods Inc./Del Monte Corp.'s $300 million of 10-year senior subordinated notes (B2/B), expected to price Friday via Morgan Stanley, JP Morgan, Banc of America Securities and UBS Warburg.

"We're relatively light in the food sector," she commented. "Whether or not we will actually buy it I don't know yet."

Rieke also said she would be having a look at one of the two energy deals now on the road: Westport Resources Corp.'s $300 million add-on to its 8¼% senior subordinated notes due Nov. 1, 2011 (existing: Ba3/B+) via Credit Suisse First Boston, JP Morgan and Lehman Brother. The offering is poised to price Wednesday or Thursday.

"I already own Chesapeake," Rieke said, referring to the calendar's other energy deal, Chesapeake Energy Corp.'s $150 million of 12-year senior notes via Bear Stearns & Co.

"I'm probably not going to be interested in adding on to Chesapeake because I have a good-sized position," Rieke added.

Rieke said that the fortunes of the high yield market seem to be trailing the ebb and flow of equities.

"For the last week and a half or two weeks the market has come off of its highs, kind of like the equity market," she said. "You look at it and you say 'It's overvalued.'

"Even though we've had a lot of cash into the market, especially over the last two weeks, the market has come down. So maybe people are building cash positions again.

"Technically you would have thought with the money coming in the market would have kept going. And buyers have said 'It's too rich, I'm not buying.' And in fact they were selling some of that high-priced paper, and taking the money off the table and going someplace else."

Still, Rieke said, the junk bond market remains attractive.

"We were looking at some yields on other fixed income products," the Waddell & Reed manager said. "There is very little yield in money markets. Intermediate-term there is no yield. And even medium-term or even longer term high-grade bonds have no yield either.

"So if you're an investor and you're in fixed income because you want some yield you have to be in our market."

Surveying the forward calendar prior to Tuesday's opening, one investment banker told Prospect News that the build-up in the post-Thanksgiving forward calendar comprised just about the volume of primary market activity that the sell side had been anticipating.

"The activity level picked up fairly significantly but it was not overwhelming," this official commented.

"The thing that took a lot of people by surprise is how strong the market is right now."

Back in the secondary market, Echostar's bonds were described by a trader as having "traded up slightly" on the news that the Littleton, Colo.-based satellite television broadcaster had thrown in the towel on its proposed acquisition of Hughes, the General Motors Corp. unit which operates DirecTV, the major rival to Echostar's own DISH Network. Combining the two largest U.S. satellite TV broadcasters would have created a behemoth of 19 million subscribers - but the Federal Communications Commission and the Justice Department both said the resulting Echostar-controlled entity would have a virtual monopoly over satellite TV. The Commission rejected Echostar's contention that the combined DirecTV-DISH Network entity would still have only a relatively small piece of the pie compared with its cable-TV industry rivals, and likewise nixed Echostar's proposal to sell some of its operations to Cablevision to create a rival that would satisfy anti-trust concerns.

The feds said that letting the two companies combine would create a monopoly situation, particularly in rural areas unserved by the cablers, where satellite dishes are the only way to get anything other than local programming. Even in areas having cable, the regulators warned, the number of choices for consumers would drop from three - DISH Network, DirecTV and the incumbent cable operator - to just two if the merger had proceeded.

Even though the end of the merger attempt means that Echostar will have to pay Hughes a $600 million breakup fee, bond investors preferred incurring that expense to the prospect of Echostar issuing billions of dollars of new debt to help finance the $19 billion takeover of DirecTV.

That sent Echostar's 9 3/8% notes due 2009 up about two points on the session, to 104.5 bid/105 offered. At another desk, its 10 3/8% notes due 2007 were likewise two points higher at 107.25 bid.

Equity investors were also cheered by the notion that the deal was off; Echostar's Nasdaq-listed shares jumped $2.04 (10.71%) to $21.09 on volume of 18.2 million shares, almost six times the norm.

One provision of the deal - had it been allowed to go through - would have required Echostar to buy DirecTV's 81% stake in satellite operator PanAmSat Corp. for $2.7 billion. Once the deal ran into regulatory flak from Washington, Echostar renegotiated its terms with Hughes so that it would not be obligated to buy the PanAmSat stake in the event that the merger fell through.

Once shareholders and debtholders of Wilton, Conn.-based PanAmSat realized that the end of the merger plan also meant the end of their hopes of being bought out, PanAmSat's securities tumbled, its 8½% notes due 2012 dropping two points to 95 bid/96 offered. The company's shares were even worse, plunging $4.05% (21.25%) in Nasdaq dealings to end at $15.01, on volume of 9.2 million shares, more than ten times the usual.

Another high yield satellite TV player - Pegasus TV, which provides DirecTV service to 1.4 million customers in 41 states - was higher on the news about Echostar and Hughes; its 12½% notes due 2007 were quoted up five points, at 50. The Bala Cynwyd-based satcaster's Nasdaq shares, however, inched up only four cents (3.45%) on Friday, to $1.17. Volume of 301,000 shares was about triple the usual.

Elsewhere among the communicators, Charter Communications Inc. announced an internal restructuring of sorts to better improve the company' operation, consolidating operations into five geographically clustered divisions. The St .Louis-based cabler said it would "focus on customer-oriented execution within key markets that serve an average of 250,000 customers within those five divisions."

At the same time, it said, changes in the company's corporate office will enable Charter to "eliminate redundant practices, streamline reporting structures, better leverage technology and information systems and take advantage of its size and national scope." This realignment, it said, would result in a "significant" number of job cuts in the company's 18,700 -person workforce, although Charter declined to be more specific as to actual numbers or put a price tag on the savings expected to be generated by the moves.

Charter's bonds were being quoted up about a point or so, with its benchmark 8 5/8% notes due 2009 seen around the 52-52 level, and its 9.92% notes due 2011 rising to 42 bid.

A trader commented that in his view, the Charter announcement amounted to "a big yawn. But there are so many rumors about this company floating around that the bonds went up."

Separately, the Los Angeles Times online edition reported Tuesday that with the company already under scrutiny by a federal grand jury over the way it counts its subscribers, the FBI has broadened the probe, contacting many of the nation's largest cable channels last month to find out how the way Charter accounts for customers who don't pay their cable bills compares with general industry practices. The paper attributed its information to industry executives who had received the inquiries from the Bureau.

Elsewhere, Lucent Technologies Inc. debt, which has been falling over the past few sessions as investors apparently re-evaluate whether the telecommunications industry's troubles are really over, as some had believed, were mostly quoted unchanged on the session, with its 7¼% notes due 2006 at 56.5 bid, and its 6½% bonds due 2028 at 40 bid. The Lucent bonds had been trading as high as the low 70s a week ago.

Lucent shares were up 11 cents (8.40%) to $1.42 Tuesday, while Nortel Networks Corp. Jumped 29 cents (18.95%) to $1.82.

Despite that stock surge, the 6 1/8% notes due 2006 of Nortel, a Lucent rival whose shares and bonds have pretty much moved in tandem with Lucent's recently, as both are affected by the same industry dynamics, were also seen hanging in there at around the same 62-63 level to which they had recently fallen.

Also pretty much unchanged was United Airlines debt, which continues to languish at bid levels around the 11.5-12.5 level following the Number-2 U.S. airline carrier's Chapter 11 filing on Monday. That bankruptcy filing had been widely expected in the market, and the bonds had actually fallen to their current levels around the middle of last week, after the Air Transportation Stabilization Board sealed UAL's fate by turning down its request for a $1.8 billion federal loan guarantee.

Navistar International Corp.'s 9 3/8% notes dropped 1½ points to 93 bid/95 offered, after Standard & Poor's lowered the Warrenville, Ill.-based heavy truck maker's corporate credit to BB- from BB previously, saying the downgrade "reflects concerns regarding the magnitude of restructuring costs and necessary pension fund contributions, and the strategic setback represented by a recent engine supply contract cancellation."

S&P credit analyst Eric Ballantine further warned that the ratings agency "now expects weak truck demand to persist for longer than previously assumed, putting pressure on the company's financial performance and liquidity." The Fitch ratings service also cut Navistar's ratings on Monday.

Moody's Investors Service late Tuesday added its voice to the chorus, dropping its senior debt to Ba3 from Ba1 previously and its subordinated rating to B2 from Ba2.

Moody's said that the cut reflects its expectation that "Navistar's cash generation and debt protection measures will remain under considerable pressure through 2003 as a result of the continuing downturn in the North American truck market and the decision by Ford Motor Company that it will not install the V-6 engines developed by Navistar for use in Ford's light trucks and SUV's. As a result, we expect that Navistar's manufacturing operations will generate negative cash from operations during 2003, and that debt protection measures will remain stressed during this period."

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