UAL bid up on further belt-tightening; NDC upsizes 10-year deal

By Paul Deckelman and Paul A. Harris

New York, Nov. 18 - United Airlines bonds were quoted higher Monday, after the troubled air carrier announced a further slate of cost-cutting measures, including 9,000 layoffs, and a cutback in routes. But traders did not see much actual trading in UAL - or any other bonds for that matter - as a pre-holiday lassitude seemed to settle over the market, even though the Thanksgiving holiday break is still more than a week away.

In the primary arena, meantime, the Nov. 18 week got off to a healthy start as NDC Health Corp. came to market with an upsized $200 million issue of 10-year notes.

Market players also saw a "significant" high-yield presence in a new split-rated five-year note deal for optical products maker Bausch& Lomb Inc.

And price talk was heard on Rexnord Corp.'s upcoming deal and on the whopper of the week, R.H. Donnelley Corp.'s note sale, the deal to fund the buyout of Sprint's directories business.

However while the Donnelley whopper was said to be flourishing on Monday, it was a different story on the Home of the Whopper: Texas Pacific Group, it was heard Monday, wants to take a little more time to chew on the Burger King Corp. deal.

"There has been a lot of money coming into the market," one high yield official commented Monday. "The market is just doing well.

"People were on hold for a while, but we've had five weeks of inflows now - almost $3 billion," the sell-side source added.

"All that money needs to be put to work."

Atlanta healthcare information services company NDCHealth upsized its deal to $200 million from $175 million and priced the 10-year senior subordinated notes (B2/B) at par to yield 10½%, spot on the 10½% area price talk. Bookrunners were Credit Suisse First Boston and Merrill Lynch & Co.

For Bausch & Lomb's $150 million of five-year notes (Ba1/BBB-), as much as 30% of the names in the book were high yield accounts, according to a syndicate source.

The Rochester, N.Y. eyecare products and services provider's 6.95% notes priced at 99.853 for a 6.986% yield or a spread of 395 basis points.

"There were some people looking for a safer-rated credit in their portfolios," the syndicate source commented on the high yield play in Bausch & Lomb.

Price talk emerged Monday on both tranches of R.H. Donnelley's $750 million of new junk via joint bookrunners Salomon Smith Barney, Bear Stearns & Co. and Deutsche Bank Securities Inc.

Talk is 9%-9¼% on the $300 million of eight-year non-call-four senior notes (B1/B+) while the $450 million of 10-year non-call-five senior subordinated notes (B2/B+) are being talked at 11%-11¼%.

The deal, which is part of the $2.23 billion financing of R.H. Donnelley's acquisition of Sprint's directories publishing business, is expected to price Wednesday or Thursday, according to syndicate sources.

One syndicate official compared Donnelley to fall 2002's other directories behemoth, the two-part $975 million offering from Dex Media East LLC that priced on Oct. 30. Its $450 million of seven-year senior notes (B2/B) priced to yield 9 7/8% and $525 million of 10-year senior subordinated notes (B3/B) priced yield 12 1/8%.

"The Donnelley deal is looking huge," the source said. "Demand is very strong. These appear to be coming almost 100 basis points inside of Dex Media."

Price talk was also heard Monday on the new offering from Milwaukee-based industrial conveying equipment manufacturer Rexnord Corp. Its 10-year senior subordinated notes (B3/B-) via Credit Suisse First Boston and Deutsche Bank Securities are being talked at 10¼%-10½%, with pricing expected to take place Tuesday afternoon.

Finally on Monday, with regard to a deal that has been positioned on the forward calendar generating considerable speculation since late summer, Diageo said it was informed on Nov. 15 by the buying group led by Texas Pacific Group that Texas Pacific and its partners would not be able to complete the acquisition of the Burger King on the terms previously agreed. However, Texas Pacific and its partners expressed a desire to continue in discussions towards a transaction materially different as to terms and structure.

Meanwhile Constar International Inc.'s new 11% senior subordinated notes due 2012 - which priced on Friday at 98.51 - continued to struggle in secondary dealings.

"There's more sellers than buyers that want to stay in the middle of the market," said a trader who quoted the new bonds down around a point from late Friday.

"We definitely have bonds cheaper than [the issue price] 98.5, coming in a little weaker now; we're thinking 97.5 [bid]/ 98.5 [offered], but there really was no bid today in the street."

Another trader said: "It certainly felt like on Friday we had a couple of guys who wanted to get out who had gotten in on the deal. And it was tough to find bids"

Among already established issues, the trader saw United Airline's bonds bid higher, after the struggling Chicago-based Number-Two U.S. carrier announced a series of deep belt-tightening step, including 9,000 more layoffs, a 6% cutback in the coming year's flight schedule, deferral of all aircraft deliveries through 2005 - and even a rare reduction in management pay.

UAL has already indicated that its unions have agreed in principle to $5.8 billion in wage cuts and other concessions over five years, and said that non-unionized employees, which includes the management cadre, will chip in an additional $.1.3 billion, with well-paid executive officers in senior management to participate in the cuts in what CEO Glenn Tilton called an "appropriately significant" manner.

UAL needs those pay cuts, plus its other cost-saving measures, including the aircraft-delivery deferral and a sharp reduction in capital spending to $450 million in 2003 and to $400 million in 2004 from an annual average of $2.4 billion, in order to convince the federal Air Transportation Stabilization Board to sign off on a $1.8 billion federal loan guarantee without which it will be unable to borrow $2 billion which the airline says it needs to avert bankruptcy. UAL has said that a Chapter 11 filing is likely if it does not get the loan guarantee.

UAL's shares soared skyward Monday on the turnaround plan, up 55 cents (18.64%) to $3.50, although they ended well below the day's peak level of $4.15. Volume of 6.7 million shares was double the norm.

On the bond side, the trader saw UAL's 10.67% senior notes due 2004, which last week had fallen to levels in the mid-to-upper 20s after having been as high as the low 40s previously, as having bounced back a bit to bid levels around 30-31.

However, at another desk, a trader said that the carrier's bonds were moving "pretty much sideways, in the same range" that they've recently occupied. And a distressed-debt trader said that he had seen offerings on some UAL bonds "a few points lower" compared with recent higher levels, although he had no firm levels for Monday's dealings.

Bonds of other airlines, which took something of a hit on Thursday and Friday as executives from the major carriers addressed a Salomon Smith Barney transportation conference and almost uniformly painted a gloomy, or at best, a murky picture of the industry's outlook over the next year or so, continued to soften; Continental Airlines Inc. 8% notes due 2005 were seen down a point-and-a-half to around the 50.5 bid level, with Northwest Airlines Corp.'s 7 7/8% notes due 2008 quoted down the same amount at 52 bid.

Back on the ground, Qwest Communications International Inc. said in a Securities and Exchange Commission filing that it had found more accounting mistakes that will force it to erase $358 million in additional EBITDA for 2000 and 2001. The troubled Denver-based telecommunications operator - currently under both regulatory and Justice Department scrutiny - said it misclassified some costs associated with designing, deploying and testing facilities, erasing $200 million in adjusted EBITDA for 2000 and 2001. Improperly deferred commissions chopped off $158 million for 2001.

Qwest had previously said it would re-state its earnings by at least $1.2 billion for those years.

Qwest also cautioned in the filing that "there is substantial risk that our free cash flow from operations . . . and the cash proceeds from the sale of the remainder of our Dex publishing business will be insufficient to meet our debt service obligations after 2005."

And that cash crunch could come even sooner - the company warned that if it fails to complete the Dex sale or if its business deteriorates it may have trouble meeting its debt obligations in the next three years unless it obtains additional funding.

But while a trader said he saw "a little profit taking" on the news, and quoted Qwest paper about a point lower across the board, others saw virtually no movement, with Qwest's 7¼% holding company notes due 2005 seen at 71 bid, around where it's recently been, and its 6 7/8% operating company notes due 2033 at 71.5 bid/73.5 offered.

A trader even saw quoted bid levels on some Qwest paper "up a little stronger." But he said that when he put his own paper out in the street, "I couldn't get anyone to bid on it nor could I get anyone to cut my offering."

He saw the 6 7/8s of '33, "up maybe about a point on the bid side. But there was no real trading. No one is hitting bids, no one is lifting any offerings. You couldn't trade round lots, you couldn't trade odd lots, you couldn't do a damn thing. It was [bid] a little stronger. But beyond that, it was a major non-event."

Elsewhere, Better Minerals and Aggregates' 13% notes due 2009 were seen down two points, at 68 bid; a week ago, they had traded at 78.

OM Group's 9¼% notes due 2011 were quoted at 36 bid, well down from 41 previously, after Standard & Poor's late Friday cut the Cleveland-based specialty chemicals maker's ratings a notch, dropping the bonds to B- from B previously.

On the upside, a market source said that Rural Cellular "seems stronger lately," with its 9¾% notes due 2010 having firmed to 54 bid from 50 previously. Tower operator SpectraSite Holdings Inc., which on Friday announced a Chapter 11 filing, was slightly firmer now that the long-awaited other shoe had dropped; its zero-coupon discount notes due 2009 advanced to 26.5 bid from 24.

Tenet Healthcare Corp. - a former junk bond name which managed to get upgraded to investment grade last year, but which teeters precariously on the fence separating the two in the wake of damaging revelations about possible Medicaid irregularities at the Santa Barbara, Calif.-based hospital operator, said Monday in a letter to shareholders that the SEC has opened an informal file on the company.

Even so, a market observer quoted its Baa3/BBB- bonds up a point-and-a-half on Monday, with its 5 3/8% notes due 2006 at 91 bid and its 6 3/8% notes due 2011 and 6½% notes due 2012 both at 89 bid.

The latter two issues had traded as high as 106 as recently as Oct. 30, before going on the slide on news that the FBI and investigators for the Department of Health and Human Services had raided one of its hospitals in Redding, Calif. Looking for evidence of improper billings by two doctors there; this was followed up in the first week of November by management announcing the abrupt departure of two top executives and acknowledging that its unusually large outlier [much more expensive than customary] billings were attributable to aggressive pricing tactics that Tenet promised it would temper in the future.

Those disclosures dropped the bonds as low as 83 bid on Nov. 8, but they have slowly ground back up to present levels since then; the market observer opined that they might have been rebounding on the realization by investors that the problems "weren't so much them [Tenet] as a company as the individuals [doctors] involved."

But apart from those individual pockets of light activity, overall, market participants said, action was clearly restrained; the day was, as one trader called it, "holiday slow. It was dead." He predicted that if things were this slow with the holiday break still over a week away, it would likely get even slower as this week and the first part of next week drag on.

Another trader agreed with that basic assessment, adding that there was "no action that I saw whatsoever. I can't tell you that I did much of anything today, except plan a Christmas tree-cutting weekend. It was completely quiet here today. I didn't see much trade. That's the kind of day it was. There was nothing going on here."

© 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.