Level 3 continues climb; Navistar prices upsized 7-year deal

By Paul Deckelman and Paul A. Harris

New York, Feb. 23 - It was Day Two on Wednesday for Level 3 Communications Inc.'s rebound from the bonds' recent lows, spurred by the news that the Broomfield, Colo.-based telecommunications company will sell $880 million of new convertible notes, easing investor concerns that it might run short of cash - and that it was taking down the defenses that may have been preventing potential would-be buyers from coming in and making an offer. However, Wednesday's advance was considerably more restrained than Tuesday's spectacular rise of eight to nine points across the board.

Meanwhile the high-yield primary market found its legs on Wednesday, in the second session following the extended Presidents Day weekend, as more players appeared at the table.

Two issues priced, including a drive-by from Illinois truck-maker Navistar International Corp., which upsized to $400 million from $250 million, and priced on top of the 6¼% area talk.

And the new issue calendar caught a thermal that took it back above the $1 billion mark, as Meritage Homes and Penn National Gaming, two companies that had been waiting in the wings, stepped into the light with quick-to-market deals that are expected to be completed by Thursday's close.

Mildly better day

A buy-side source who spoke to Prospect News on Wednesday asserted that throughout the mayhem that took hold in the U.S. capital markets on Tuesday - rising oil prices, falling stock prices and a notable sell off in Treasuries - the junk market more or less held its own.

"It has been quiet the past couple of days," the investor said late in the Wednesday session.

"Today Treasuries rallied half a point on the long end and I think that put a good bid in."

Soon after the investor rang off, a sell-side source said that Wednesday was generally an improvement over Tuesday.

"The market was a little bit better all around," the investment banker said. "I think we recovered about half the losses that were incurred on Tuesday.

"The 10-year Treasury yield fell a couple of basis points on the CPI number. The Dow Jones [Industrial Average] was up 62 after being off 170 and change on Tuesday.

"Junk bonds were up a quarter of a point today after being off half a point on Tuesday.

"So it was mildly better today."

An advantage for international issuers

Thus far into what has been a quiet February 2005 in the high\-yield primary market, a significant portion of the news has come from Europe, with euro and sterling notes heard to be in the new deal pipeline, while others, such as Ardagh Glass, have already priced.

The investment banker said that the current volatility in the U.S. Treasury market may be providing an opportunity for a special class of issuers.

"It seems to be creating favorable opportunities for issuers who have the ability to tap both the dollar and euro markets, such as companies that have international operations and companies that are understood by both markets, and have previously issued in foreign currencies as well as dollars," the sell-sider said.

"The European market has been hot. The spread from euros and/or sterling to dollars has been very attractive.

"With euro deals you used to have to tack on a premium," the sell-sider observed. "Now an equivalent euro or sterling issue looks a little bit better than a corresponding dollar issue.

"In general interest rates around the world are linked. But interest rates in Europe are not moving like those in the U.S. Even if the 10-year U.S. Treasury is gyrating by 25 basis points one way or another it doesn't mean that the euro is doing the same thing.

"All things being equal, an issuer right now would probably save a little money going over there [to Europe] if they could. But not everyone can."

Meanwhile the above-quoted investor, commenting that European issuers seem to be dogging their U.S. counterparts with PIK note structures and dividend deals, said that the European market presently looks hot.

"I think there is clearly a shortage of high-yield product, relative to demand," the buy-sider said. "Everyone is looking for extra yield, and they are willing to chase it."

Upsized Navistar comes on top of talk

Navistar International Corp., the parent of Warrensville, Ill. truck-maker International Truck and Engine Corp., stole the primary market spotlight on Wednesday by upsizing its issue of seven-year senior notes (Ba3/BB-) to $400 million from $250 million.

The bonds came at par to yield 6¼%, on top of the 6¼% area price talk.

Banc of America Securities and Citigroup ran the books.

The buy-sider who is quoted above in this narrative owned to playing that Navistar deal and refused to carp about the 6¼% yield.

"That's where double-Bs trade these days," the investor said.

"We like the sector, and sometimes it's better to sleep well than to have a high yield."

The buy-sider, who spoke shortly after terms emerged on Navistar's new notes, spotted the par-pricing notes trading at 100.75 bid, 101.25 offered.

Ardagh Glass funds dividend

Meanwhile, as mentioned above Caono plc, a holding company for Ardagh Glass, sold $126.25 million of 10¾% 10-year senior cash or PIK notes at 99.00 on Wednesday to yield 10.917%, near the wide end of the 10¾% to 11% price talk.

BNP Paribas and Citigroup ran the books for the dividend funding deal from the Dublin, Ireland-based glass container manufacturer.

Meritage, Penn National to price Thursday

Two companies known to be measuring the market headed for the starting line on Wednesday, both with drive-by deals that will be marketed via investor conference calls on Thursday, and are expected to price later in the session.

Single family home builder Meritage Homes Corp. plans to price $300 million of 10-year non-call-five senior notes (existing ratings Ba3/BB-) via UBS Investment Bank.

And Penn National Gaming Inc. plans to price $200 million of 10-year non-call five senior notes (B3/B) via bookrunner Deutsche Bank Securities.

Both companies will use proceeds to refinance debt.

Elsewhere Amsterdam, Netherlands-based office products company, Buhrmann, expects to price a quick-to-market $150 million offering of 10-year non-call-five senior subordinated notes (B2/B) on Thursday.

Price talk is for a yield in the 8% area.

Deutsche Bank Securities has the books.

The company will use the proceeds along with other available funds will be used to repurchase the company's outstanding preferred shares C.

Navistar slightly higher

When the new Navistar 6¼% notes due 2012 were freed for secondary dealings, several traders saw them bid around 100.25, not much improved from their par issue price earlier in the session.

However, one market source did see the new bonds quoted as high as 100.75 bid, 101.25 offered.

Level 3 up again

Back among the established issues, Level 3's 9 1/8% senior notes due 2008 were seen as high as 86 bid, 87 offered, up around two to three points from the bonds' closing levels Tuesday, when they had jumped into the low-to-mid 80s from prior levels in the 70s, pushed up by the financing news.

A trader said that the bonds' two-day comeback from their recent lows as "simply unbelievable."

He added that all of the company's bonds were "up 1½ to two points, definitely." He quoted the 11% notes due 2008 as having firmed to 88 bid 89 offered, while its 10½% notes due 2008 were at 87 bid 88 offered.

Another trader said that on a day that was "pretty lackluster and boring," Level 3's notes were "up a bit," quoting the 9 1/8s at 85.75 bid, 86.75 offered, two points better on the day, and its 11s at 88 bid, 90 offered, up from 86.5 bid, 88.5 offered.

"Level 3 was about the only thing that was moving a lot," a market source said, pegging the benchmark 9 1/8s at 85, up 1¼ points, the zero-coupon notes due 2010 up nearly two points at 87.25, and Level 3's 11¼% notes due 2010, 10½% notes due 2008 and 11% notes due 2008 each up two points on the day at 85, 86 and 87, respectively.

The bonds were seen up in response to Tuesday's news that Level 3 will sell the new 10% senior convertible notes due 2011. The move will give the company added liquidity and financial flexibility. Proceeds from the new deal are expected to be used for general corporate purposes, possibly including debt repurchase.

Level 3 on Tuesday also announced that it was terminating its "poison pill" anti-takeover defense, which had been instituted back in the late 90s, and was seen as possibly discouraging potential would-be buyers. However, after having zoomed 18.13% on Tuesday on the news, its New York Stock Exchange-traded shares were up only modestly Wednesday.

Cablevision higher

Also in the communications sphere, Cablevision Systems Corp.'s bonds were seen up across the board, even though the Bethpage, N.Y.-based cable operator posted a wider net loss in the fourth quarter versus a year ago - $305.8 million ($1.06 per share), versus its year-earlier loss of $197.3 million (69 cents a share). However, it should be noted that the vast bulk of the latest year's loss was due to $354.9 million in charges connected with the company's plans to exit the satellite TV programming business. Cablevision has agreed to sell most of the assets of its VOOM satellite business to EchoStar Communications, and to sell the rest of the assets not bought by EchoStar to company chairman Charles Dolan.

A market source saw Cablevision's 6.669% notes due 2009 and 8% notes due 2012 each up a half, to bid levels in a 109.5-109.75 context. And he saw Rainbow National Services' 8¾% notes due 2012 a point better at 113, while its 10 3/8% notes due 2014 were at 117.75, up ¾ point. Rainbow National is the Cablevision unit with which the satellite businesses being divested were associated.

Chiquita shows small gain

Also on the earnings front, Chiquita Brands International Inc.'s 7¼% notes due 2014 were seen up perhaps half a point at 101.75, after the Cincinnati-based banana importer reported better fourth-quarter results and also announced that it had agreed to buy packaged salad maker Fresh Express for $885 million, an acquisition it intends to pay for using a combination of cash on hand, bond debt and convertible preferred shares (see related story elsewhere in this issue).

Chiquita said Tuesday that it earned $25 million (61 cents a share), in the quarter ended Dec. 31, well up from $8 million (19 cents a share), year ago. Sales rose 12% to $768 million from $686 million in the 2003 fourth quarter.

The Williams Cos. reported strong fourth-quarter and full-year earnings and the Tulsa, Okla.-based natural gas producer, pipeline operator and power generating company said it had chopped some $4 billion off its debt load in 2004. It plans to continue cutting debt until it is elevated back to the kind of investment-grade ratings it had before being cut down to junk levels in July 2002 (see related story elsewhere in this issue).

Goodyear Tire & Rubber Co. bonds were higher, after the Akron, Ohio-based tiremaker said that it anticipates a fourth-quarter profit, despite the rise in raw materials costs, and announced plans for refinancing some of its debt (see related story elsewhere in this issue).

Goodyear's benchmark 7.857% notes due 2011 were seen up 1¼ points at 104 bid.

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