Harrah's weaker on stronger buyout bid; Cablevision continues bounce

By Paul Deckelman and Paul A. Harris

New York, Oct. 11- Harrah's Entertainment Inc.'s bonds were in retreat on Wednesday, pushed lower on news reports that the private equity companies proposing a leveraged buyout of the Las Vegas-based gaming giant sweetened their bid, making it more likely that stockholders might go for the idea - which, in turn, would mean loading the company up with more debt.

Also on the buyout beat, Cablevision Systems Corp. bonds - which had closed out Tuesday's session having recovered some, though not all, of the ground lost earlier in the session when the bonds plunged on LBO jitters - continued to improve on Wednesday, particularly on the longer end of the curve, traders said.

From the distressed precincts came word that Adelphia Communications Corp.'s bonds were several points better across the board, although traders could point to no specific fresh news that might explain the rise. Sea Containers Ltd.'s bonds meantime continued to erode, with the deadline for paying off on its 10¾% notes now just days away and still no definitive word coming from the company as to how - or if - it will pay them.

A sell-side source marked the broad high yield market slightly lower with Treasuries on Wednesday, and added that the context for the 10-year government paper now appears to be in the 4.75% range and no longer in the 4.50% range.

In the primary market, things remained quiet, although Michaels Stores Inc. was seen getting ready to hit the road Thursday to market its previously announced $1.075 billion two-part offering of senior and senior subordinated notes. Neenah Foundry Co. was also heard preparing to pitch its $300 million issue of fixed- and floating-rate notes to investors, starting next week.

Harrah's gets hit

Back among the secondary names, Harrah's bonds were lower, a trader said, after the company reportedly received a sweetened takeover bid from Apollo Management Group and Texas Pacific Group. Its 5¾% notes due 2017 retreated ¾ point to 81.75 bid, 82.75 offered.

At another desk, Harrah's 7 1/8% notes due 2007 eased to 100.5 bid from prior levels around 101.

The buyout shops - which on Oct. 2 offered $81 per share for Harrah's, or $15.05 billion, a bid rejected by the company - were reported by Wednesday's editions of The New York Times to have upped that offer to $15.5 billion, or $83 to $84 per share.

Debt investors and the major ratings agencies have reacted negatively to the prospect that Harrah's might be bought out, recognizing that such a deal - which would be the largest ever gaming industry buyout and among the five biggest buyouts in any kind of industry - would likely require a substantial increase in leverage to finance the takeover. Existing bonds especially would suffer, since the new debt would likely be secured and would thus rank above the outstanding debt in the capital structure.

Standard & Poor's and Fitch both lowered Harrah's previously investment-grade ratings into junk bond territory, while Moody's Investors Service put Harrah's on watch for a possible downgrade, citing the anticipated increase in leverage and structural subordination of the existing bonds. The agencies also projected that even if the buyout deal did not go through - and some shareholders do object to the offer as inadequate, forcing its sweetening - management would have to appease the shareholders by doing something to increase share value, which would also likely be debt funded.

Cablevision continues climb

Among other names figuring in buyout talk, Cablevision's bonds were seen better Wednesday, continuing the bounceback which had actually been observed late Tuesday, when the bonds came off their sharp early lows to end only modestly lower.

Those bonds had fallen initially by 6 points or more Tuesday in reaction to the news that the Dolan Family Group, the company's controlling shareholder, planned to finance its previously announced deal by selling $2.81 billion in new junk bonds and $9.55 billion in new bank debt.

After that, though, the Bethpage, N.Y.-based cable system operator and sports team owners' bonds got up off the floor to only end down about 2 or 3 points on the day, as market participants seemed to decide that the company's post-transaction leverage might not be as bad as initially feared.

And that trend remained in effect - at least on the long end of the curve - on Wednesday, a trader said, quoting the company's 7 7/8% notes due 2018 at 99 bid, 101 offered, up by 1 to 1½ points.

However, among the shorter bonds, the bounce was "nothing major," the trader said, pegging Cablevision's 7 7/8% notes due 2007 up perhaps ¼ point at 101 bid, 102 offered.

Cablevision unit CSC Holdings' 8 1/8% notes due 2009 were seen up nearly a point at 102.75, while its 7 7/8% notes due 2018 were a point better at par bid.

Jacuzzi also sees buyout

Bucking the general trend of bondholders reacting negatively to news of a buyout by a private equity company were Jacuzzi Brands Inc.'s 9 5/8% senior secured notes due 2010, which were seen up a point on the day at 106.75.

The West Palm Beach, Fla.-based maker of whirlpool bathtubs, hot tubs and other pricy plumbing fixtures said Wednesday that it had agreed to be bought by Apollo Management for $12.50 per share in cash, or $990 million, and will assume $260 million of debt.

Apollo said that it would sell Jacuzzi's plumbing business to Rexnord Corp. for about $950 million.

Jacuzzi envisions that the transaction will close during next year's first quarter, subject to regulatory and shareholder approvals. However, the latter is by no means a done deal - the company's largest shareholder "vehemently" opposes the transaction and called the offer "insufficient," according to a filing with the Securities and Exchange Commission.

Toys 'R' Us lifted by retailing surge

Elsewhere, Toys "R" Us Inc.'s bonds were seen firmer, market sources said, although there was no specific news out about the Wayne, N.J.-based toy and game specialty retailer.

A source called the company's 8¾% notes due 2021 up as much as 2 points on the session at 93.5 bid. At another desk, a source saw the company's 7 7/8% notes due 2013 up nearly a point at around the 83 level.

Toys "R" Us - which went private in a big buyout deal last year - is seen by some retailing watchers as likely to benefit from the generally stronger trend in the industry, which has seen sales pick up on many fronts in recent weeks, driven by sharply lower gas prices, lower mortgage rates of late and better consumer confidence numbers. The National Retail Federation predicts a healthy 5% gain in sales for the November-December period.

Approaching the holiday shopping season, brisk demand is reported for such items as "TMX Elmo," whose better-than-expected sales are making it increasingly likely to be the "must-have" toy for the season and causing manufacturer Mattel Inc.'s Fisher Price unit to up production.

Other toys expected to be hot sellers this year, which will translate to ringing cash registers at stores like Toys "R" Us, and its rivals, such as Wal-Mart Stores Inc., include Sony Corp.'s new generation console PlayStation3 and Hasbro Inc.'s "Butterscotch," a $299 life-size robotic pony.

Distressed names diverge

Among the distressed names, Adelphia Communications' bonds were clearly better, prompting one trader to surmise - in the absence of any real news - that "something is going on behind the scenes, something that we don't know about," which he said had pushed the company's bonds up as much as 4 points, across the board.

But not everyone was in a conspiracy theory mode. Another trader, who saw the bankrupt Greenwood Village, Colo.-based cabler "up a couple" of points, with its 10¼% notes due 2011 at 74.5 bid, 75.5 offered, a 2 point gain, suggested that "they're nearing a court ruling on their plan for distribution of their assets" as a possible explanation for the rise.

However, Sea Containers - whose bonds fell as much as 8 points on Tuesday on investor angst about the upcoming bond maturity - continued to sink lower, investors still on edge about the lack of any fresh news about what it intends to do about its 10¾% notes that are slated to mature on Oct. 15.

"There was no news about [the 103/4s], so the bonds were weaker, said a trader, quoting them down another point, at 71 bid, 73 offered.

Amkor continues rise on filing

Amkor Technology Inc.'s bonds, which had firmed on Tuesday on the news that the Chandler, Ariz.-based semiconductor industry company had - finally - filed its restated 2005 and its first-quarter 2006 financial reports with the SEC, thus averting a possible default event, continued to improve on Wednesday.

A market source saw the company's 9¼% notes due 2008 at 101.5 bid, a solid gain from 98.5 previously, although the movement in its other bonds was more restrained. For instance, its 7¾% notes due 2013 were seen up ¾ point at 91.

Michael's launches $1.075 billion

In the primary market, meanwhile, no issues were priced.

However the new issue calendar continued to build. And sources professed the expectation that a more dramatic buildup is in store in the weeks ahead, as late October gives way to November.

One of the fall's anticipated LBO mega-deals came out from behind the curtains on Wednesday.

Michael's Stores will begin a roadshow on Thursday for its $1.075 billion two-part offering of high yield notes.

The Irving, Tex.-based specialty retailer is offering $750 million of eight-year senior notes (B2/CCC) and $325 million of 10-year senior subordinated notes due 2016 (Caa1/CCC).

Deutsche Bank Securities is the left bookrunner. JP Morgan, Banc of America Securities LLC and Credit Suisse are joint bookrunners.

Neenah to launch $300 million

Elsewhere, Neenah, Wis.-based Neenah Foundry was heard to be gearing up for a roadshow featuring its $300 million offering of senior secured notes (B2) in fixed-rate and floating-rate tranches.

The tenors of the notes and the tranche sizes remain to be determined.

The debt refinancing deal, via Credit Suisse and Banc of America Securities, will be on the road next week.

A PIK deal from Invitel

Hungarian fixed-line telecommunications company Invitel Holdings NV will present its €125 million offering of 6.5-year floating-rate PIK notes to investors on Thursday and Friday in London.

Credit Suisse is leading the dividend deal from Hungary's second largest fixed-line telecom.

Indonesia's biggest junk deal ever

Although a case could be made that Indonesia's state-owned electric utility, PT Perusahaan Listrik Negara (PLN) is a quasi-sovereign, the $1 billion of Rule 144A/Regulation S bonds that PLN issued on Wednesday via financing subsidiary Majapahit Holding BV is being labeled as the biggest Indonesian junk deal ever.

The UBS-led deal (B1/BB-/Perfindo A) saw a $450 million tranche of 7¼% five-year notes price at 99.382 to yield 7.4%, inside of the 7½% to 7¾% price talk, and a $550 million tranche of 7¾% 10-year notes price at 98.976 to yield 7.9%, inside of the 8% to 8¼% price talk.

In spite of the headline noise currently plagueing Asia - over whether or not North Korea actually set off a big one, and if so what comes next - the deal was said to been heavily oversubscribed and to have gone very well.

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