Levi, Charter among gainers in quiet pre-turkey session; big Intelsat deal hits the road

By Paul Deckelman and Paul A. Harris

New York, Nov. 24 - Things were pretty quiet in the high-yield secondary Wednesday, traders said, as the market sleepwalked through an abbreviated session ahead of the Thanksgiving holiday - which saw a 2 p.m. ET close on Wednesday, a full close Thursday and another mid-afternoon close Friday, as skeleton crews manned the fort at whatever desks were actually open for business.

In the primary market, the big news was Intelsat's plans to hit the road beginning Monday to market its proposed $2.55 billion mega-deal.

Even though nothing of much impact was seen happening in the aftermarket Wednesday, some issues were moving around, albeit on light activity levels typical of a pre-holiday session.

Typical of the high-yield market over the past, say, two months or so, the bias seemed to be to the upside.

"Some of your paper was up strong," a trader said, even though there was not much news out on the affected companies that anybody could hang onto.

Levi Strauss & Co. debt, for instance, "was up big," he said, even though there was no fresh news out on the San Francisco-based apparel company. "It keeps moving along," he said, even though his particular shop is not really active in it.

"I sold them too soon," he lamented.

He saw the Levi 11 5/8% notes due 2008 at 104.25 bid, 104.5 offered, while its 12¼% notes due 2012 were 105.25 bid, 1015.5 offered. Levi's 7% notes due 2006 were 99.25 bid, 99.5 offered, up about a quarter point on the day.

He also saw Charter Communications Inc.'s paper "up a point across the board," with the St. Louis-based cable operator's benchmark 9.92% notes at 83 bid, up a point, while its 8¼% notes firmed to 97.

"The paper's definitely better," he observed, "but you'll have to look for the news."

One explanation was that Charter continued to bask in the warm afterglow of its successful closing Monday of $862.5 million of new convertible senior notes due 2009, including a $112.5 million greenshoe exercise, and its announcement that it intends to use most of the proceeds of that converts deal to redeem around $588 million of its 5¾% converts due 2005 - two moves that show the debt-laden cabler making some progress on trying to get its more than $18 billion debt problem under control including, notably, upcoming maturities.

Rogers Wireless holds gains

On the new-deal front, the trader said, the Rogers Wireless Inc. bonds sold earlier this week continue to hold the sharp gains they notched above their par issue price.

The Toronto-based wireless operator's new 7¼% senior secured notes due 2012, the 7½% senior secureds due 2014 and the 8% senior subordinated notes due 2012 continued to hover at 104.5 bid, 105 offered.

However, the new issue "that can't get out of its own way" is the Wynn Las Vegas LP 6 5/8% notes due 2014. Those bonds priced Monday at par and have made little headway since, staying around 100.125 on Wednesday, "and that's being supported by the [underwriting] dealer," he declared.

A market source saw "kinda quiet dealings" ahead of the holiday, even in names that had some actual news attached to them.

Huntsman edges higher

For instance, he said, Huntsman International's 10 1/8% notes due 2009 were up by perhaps 1/8 point at 105.5. The Salt Lake City-based chemical company's corporate parent, Huntsman Corp., said Wednesday that it had registered with the Securities and Exchange Commission its intentions of raising up to $1.6 billion via an initial public offering of common stock. Huntsman plans to use the expected $1.25 billion in net proceeds from the offering, plus available cash on hand, to repay or redeem about $1.3 billion in debt out of its total debt load of $6.2 billion.

Another issue seen not doing very much was Sirius Satellite Radio Inc., which this week announced that it had reached the 800,000 subscriber mark and was on track to meeting its goal of one million paying customers by year's end. The New York -based satellite broadcaster also recently announced its high-profile hire of the amazin' Mel Karmazin, a widely known broadcasting industry dynamo, as chief executive officer; the move, along with the recent signing of shock jock Howard Stern - a former Karmazin employee and long-time pal - adds a measure of instant credibility to Sirius as it tries to overtake the lead that rival XM Satellite Radio has built up. Nonetheless, the source said, Sirius' 15% notes due 2007 have recently been anchored to the 108 mark.

The first trader meantime saw Navistar International Corp.'s 7½% notes at 109.375 bid, 109.5 offered, "the highest I've ever seen them," despite a lack of fresh news about the Chicago-based producer of buses and heavy trucks.

A&P continuing gains

Another upsider, he said was Great Atlantic and Pacific Tea Co., whose 7¾% notes traded up to 98.25 - "that's up 12 points in a month," he noted - while its 9 1/8% notes were at 88.5. He called the movement in the Montvale, N.J.-based operator of the venerable A&P supermarket chain "a real estate play," since the company controls some valuable parcels of land.

Another real-estate related move, he said is in Kmart Holdings Corp., which announced plans earlier this month to merger with Sears Roebuck & Co. Troy, Mich.-based Kmart has for months been selling off closed store sites to Sears and several other retailers, and bonds backed by its real estate assets "have been going nuts," the trader said.

He quoted the Kmart D-R structured Starfin bonds, such as its 9.35% notes due 2009 at 90 bid, up four points from recent levels. The Starfin 8.55% bonds were at 89 bid, up three or four points.

"They're readjusting all the factors on all that paper," he said, also quoting the Kmart 8.80% bonds at 90, up four points.

"The minute you show an offering," he said, "it's gone.

Delta higher as exchange ends

Delta Air Line Inc. bonds were seen up about a point across the board, with the Atlanta-based carrier's 8.30% notes due 2030 at 42.5 bid, 43 offered, and its 7.70% notes due 2005 at 85.5 bid, 86.5 offered, buoyed by news that Delta had successfully concluded the short-term notes portion of its big debt exchange offer, though not the intermediate and long-term portions of the debt (see "Tenders and Redemptions" elsewhere in this issue for full details).

Even though Delta had been hoping to get more bondholders to accept its exchange offer - it had offered to issue up to $680 million of new debt in exchange for $2.6 billion principal amount of existing debt - Ray Neidl, an airline industry analyst for Calyon Securities, said that by managing to get at least some of its bondholders to go along with the company on the debt swap, Delta "has bought themselves at least another six to 12 months" of staying out of bankruptcy.

Because Delta will now be able to use the collateral previously earmarked for the intermediate and the long-term securities to back alternative funding, the airline's failure to get the other two parts of the exchange done should have "no effect at all" on the company's overall plans, Neidl said.

With Delta now whittling down its $20 billion debt load at least somewhat, with more likely to follow, and having gotten the pilots' OK on the pay cut, which should save Delta $1 billion a year and having found other areas for cutting expenses, "they're in good shape" relative to where they had been in say, August, September or early October, Neidl said. "I think you're going to see them saying something in a couple of weeks about the restructuring."

Even if Delta had gotten the assent of the full compliment of bondholders for its debt exchange, that still would have actually taken out a net of $1.9 billion (after issuance of the new notes) from a debt load that is 10 times that size. Neidl acknowledges that "they've got more work ahead of them," but he added that "they just have to get themselves stabilized in the short term, and now they can address their long-term balance sheet."

All of this not-so-bad news comes against a backdrop of continued problems for the larger airline industry. Neidl says that "things are still horrible" for the industry on an operating basis. He said that companies like Delta, and like Northwest Airlines Corp. - which announced earlier in the week the restructuring of its $975 million credit facility - "are buying themselves more time with the credit restructuring, but they're still losing massive amounts of money because of low yields and high fuel prices."

World crude oil prices - which had spiked to over $55 a barrel in mid-October, eased back down to around $45-46 in early November, and then pushed back up to around the $50 mark currently, rose 50 cents Wednesday on the New York Mercantile Exchanger to settle at $49.44 per barrel of light, sweet crude for January delivery. That translates to about $1.50 per gallon if an airline isn't hedged, which Neidl calls "very high" by historical standards, even accounting for inflation. "I'm assuming it's going to come down a little bit," he predicted, "but [the airlines] are expecting high fuel prices for the foreseeable future."

No deals price

The last market session prior to the Thanksgiving break came and went without any junk bond issues pricing, as sources had predicted would be the case.

However the Wednesday session did produce some interesting primary market news, as announcements were heard from three issuers.

Intelsat to the launching pad

Leading the pack was satellite communications company Intelsat.

News went out late in the truncated session that the company will begin its orbit of the investor circles on Tuesday, with Deutsche Bank Securities, Credit Suisse First Boston and Lehman Brothers manning mission control.

A source close to the acquisition financing deal told Prospect News late in the session that Intelsat's offering will involve at least two tranches and possibly more.

A sell-sider, commenting just after news of the deal began circulating Wednesday afternoon, said that the fact that Intelsat has its assets parked in the sky in the form of 28 satellites, coupled with the company's multi-year contracts with telecommunications companies and broadcasters, should help to fill the subscription book by the time the final countdown to pricing starts, which is likely to be the week of Dec. 8.

News from Europe

Elsewhere Wednesday the news had to do with issues expected to be sold in European currencies.

Waste Recycling Group Ltd., the Doncaster, United Kingdom, household, commercial and industrial waste-handler, will begin a roadshow Monday for approximately £500 million equivalent of bonds in two tranches.

The offering will also be presented to investors in the United States.

Deutsche Bank Securities, Merrill Lynch & Co. and Barclays Capital are joint bookrunners for the debt refinancing and dividend funding deal.

The company is coming to market with the following tranches:

* WRG Acquisitions plc, the parent of Waste Recycling Group Ltd., will sell £250 million of seven-year second-lien floating-rate notes; and

* WRG Finance plc, the newly formed parent of WRG Acquisitions plc, will sell £250 million of 10-year fixed-rate senior notes.

However a source close to the deal told Prospect News that the final structure could also include dollar- and euro-denominated notes.

The roadshow starts Tuesday for Richmond, Va.-based paperboard packaging products firm Chesapeake Corp.'s €100 million offering of 10-year senior subordinated notes, which is expected to price late in the week of Nov. 29.

Citigroup and Banc of America Securities are joint bookrunners for the debt refinancing and general corporate purposes deal.

Technicals point to strong finish for 2004

Late in the session, Prospect News inquired of one investment banker as to whether the present rally in high yield, with spreads said to be grinding tighter and tighter, will last through the end of 2004.

"If you asked me that a month ago I would has said no," the banker said.

"But the accounts are just desperate to put money to work. And until that dynamic changes, even if we see bad news out of companies, this amount of demand won't be driven away."

Prospect News followed by asking whether high yield was set up for a significant correction, given what have been characterized as historically low yields and tight spreads.

The banker didn't hesitate a second.

"It is set up for a correction," the source said. "There is no doubt about it.

"I think every portfolio manager in the world hates this market," the banker added. "They hate buying these bonds and playing in these deals. But their charters specify levels to which they must be invested. So they don't have much of a choice.

"These guys feel as though they have been getting the short end of the stick for a couple of years now. And as soon as there is a correction I think it's going to be drastic.

"We saw that a little bit this summer, where the new issue market dried up and all of the sudden fund flows went out. The few issues that did come through really got hammered. As soon as accounts felt that they had any leverage they really ran with it.

"When this rally goes it could go very quickly.

"But as long as the mutual funds and insurance companies are flush with cash they pretty much have to be in it. Not playing in a deal because it's an eighth of a point too tight for them really isn't an option because what they earn in the bank or with Treasuries is a fraction of what that bond will pay them.

"So I don't believe anything is going to change in the next month."

"When" not "whether"

Another sell-side source's color brought to mind the hard drinker's adage: "The doctor said it would kill me but he didn't say when."

This source also declined to argue against the premise that the junk market is poised for a significant correction.

However, the source said, in the capital markets it's not "whether" but "when," that counts.

"The market looks like it's out over its skis a little," the sell-sider conceded.

"The strategists are saying that it's all overdone but I don't think they know when it's going to change. Technically, I don't think they see anything immediate that is going to turn it around.

"We've been talking about rising interest rates all year. And the Fed has now raised rates by 100 basis points, meaning the rate has doubled since June.

"And basically the 10-year Treasury is where it was when we started the year."

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