FelCor prices downsized issue, Celanese starts mega-deal roadshow; Lucent lower on SEC news

By Paul Deckelman and Paul A. Harris

New York, May 17 - The high yield primary market - stung late last week by a barrage of spiked deals and the second-biggest mutual fund outflow number ever - started to come back to life Monday, although its initial gambit was feeble - a sharply downsized pricing of FelCor Lodging LP's seven-year note issue. But several relatively small deals were heard either hitting the road or getting ready to start marketing, as well as one absolutely humongous mega-deal - Celanese's $1.565 billion note offering, the proceeds of which will be used to help fund the planned leveraged buyout of the German-based chemical company.

In the secondary market, activity was muted, with traders citing a combination of a variety of factors - the "summer Monday" phenomenon, even though summer doesn't officially arrive for another month; the battering stocks took on sharply rising oil prices and renewed terrorist attacks in Iraq and elsewhere; and the debilitating effect that a big Bear Stearns credit conference this week is expected to exert on the junk market. Among the few names seen actively moving around was Lucent Technologies Inc., whose bonds retreated on news that the Securities and Exchange Commission had fined the company $25 million and charged nine current and former Lucent employees with fraud in a settlement of its case against the Murray Hill, N.J.-based telecommunications equipment maker.

For the primary, the week of May 17 got underway with the market feeling "for the most part unchanged" after news of a $2 billion-plus outflow from high yield mutual funds late last week sent the junk market into a tailspin.

Nevertheless, Monday's session transpired with a good bit of primary market news, with half a dozen prospective issuers announcing roadshow starts, or clarifying timing and price talk on deals, some of which were already known to be in the market.

One sell-side official who spoke to Prospect News late in the session was not surprised by the seeming paradox of issuers starting or pushing ahead with deals in a market now roundly accepted to be a soft one.

"It depends on the nature of the deal," said the sell-sider.

"Companies doing acquisition deals have less flexibility.

"Companies that are looking to do opportunistic financing should have more leeway as to when they bring their deals. But if it's an LBO that has a bond deal and a bank deal and it has a time frame during which those have to be completed, the company can't just put that on hold forever.

"Some people are at the point where they just have to go ahead, even if it means pricing 100 basis points wider.

"But people that can stay away are going to do so."

Half a dozen acquisition deals

This source's color proved right on the mark, as all six of the prospective issuers about which news was heard Monday are in the market with acquisition deals.

The most attention-getting of these, with regard to size, is Kronnberg, Germany industrial chemical company Celanese AG. Issuing through BCP Caylux Holding, it is set to start a two-day European roadshow on Tuesday for $1.565 billion equivalent of 10-year senior subordinated notes in dollar and euro tranches, with tranche sizes to be determined, according to a syndicate source.

A U.S. roadshow is set to get underway on Thursday.

Morgan Stanley, Deutsche Bank Securities and Banc of America Securities will run the books on the deal, proceeds from which will be used to help fund the €3.1 billion LBO of Celanese by Blackstone.

UGS talk

During Monday's session the market also heard price talk of a yield in the 9½% area on the dollar tranche of UGS Corp. and UGS PLM Solutions' $550 million of eight-year senior subordinated notes (B3/B-), to be sold in dollar and euro tranches via Citigroup, JP Morgan and Morgan Stanley.

The euro tranche is being talked at 25 basis points behind the dollar tranche.

Proceeds will be used to help finance the acquisition of the Plano, Tex.-based provider of PLM software and related services by BSW Holdings, Inc. from Electronic Data Systems Corp. for $2.05 billion in cash.

Language Line on the road

Elsewhere a roadshow started Monday for Language Line Inc.'s offering of $170 million of eight-year senior notes (Caa1/CCC+).

The deal, led by Merrill Lynch & Co and Banc of America Securities, is expected to price on May 25 or 26.

Proceeds will be used to help fund Abry Partners LLC's acquisition of the Monterey, Calif. provider of over-the-phone interpretation services from Providence Equity Partners.

The roadshow starts Wednesday for Maax Corp.'s planned $150 million of eight-year senior subordinated notes (B3/B-) via Goldman Sachs & Co.

Proceeds from that offering will be used to support the acquisition of Maax Corp., a Sainte-Marie de Beauce, Que.-based manufacturer of bathroom products, and repay debt.

The roadshow began Monday for Autocam Corp.'s sale of $140 million of 10-year senior subordinated notes, which is expected to price mid-to-late in the week of May 24 via Goldman Sachs & Co. and Citigroup.

Proceeds will be used to fund the acquisition of the Kentwood, Mich.-based designer and manufacturer of components for performance and safety critical automotive applications by GS Capital Partners 2000, Transportation Resource Partners (formerly Penske Capital Partners) and chief executive officer John Kennedy from Aurora Capital Group.

And finally Sheridan Acquisition Corp. expects to price a $60 million add-on to its 10¼% senior secured notes due Aug. 15, 2011 (existing ratings B1/B) on Wednesday, with Jefferies & Co. running the books.

The Hunt Valley, Md.-based publishing company will use the proceeds to finance the acquisition of Dingley Press.

FelCor halves deal size

The only transaction that priced on Monday came from Irving, Tex.-based lodging REIT FelCor Lodging. It priced a downsized $175 million of seven-year senior floating-rate notes (B1/B-) at par to yield six-month Libor plus 425 basis points.

Price talk on the deal, which was originally marketed as a $350 million offering, was Libor plus 400-425 basis points, so FelCor came at the wide end.

Deutsche Bank Securities ran the books.

And again, true to the above-quoted sell-sider's color, FelCor was the only debt refinancing deal that generated news on Monday.

"In this market it's great that it got done, even if it was cut in half and came at the wide end of talk," the official commented.

"It's going to take little while until people on the buy-side really feel comfortable coming back in."

This disruption is no mystery

Earlier in the session another sell-sider told Prospect News that at the start of Monday's business, the market expected to see approximately $1.3 billion, including the eventually downsized FelCor $350 million, to price during the present week.

"The forward calendar has gotten significantly smaller," said the official. "As soon as you drop below $2.5 billion, which has more or less been the run rate that we have seen over the past 16-18 months, you know you are seeing a market disruption.

"Early last June and again in August, we saw two brief, unexplained market disruptions. There were no apparent reasons, especially for the one in June. It is conceivable that the one in August can be attributed to the market's tendency to break for summer vacations.

"But this time around the disruption occurred earlier in the year, and with a lot of decisive forces in play, such as heightened interest rate fear, rising energy prices and also extremely volatile equity markets and swap markets.

"That combination can prevent people from getting into the mood to do deals."

Lucent declines

In the secondary market, Lucent's 6.45% debentures due 2029 were quoted having fallen to 70.5 bid from prior levels at 72, although its benchmark 7 ¼% notes due 2006 were seen only half a point off at 101.5 bid.

A trader said that the Lucent bonds had "opened softer on the SEC news." He saw the 2029 debentures trade into a 70 bid, "then they bounced back a little on the day, up about a half [off their lows] to close at 70.5 bid, 72 offered. He saw the 7¼% notes at 100.25 bid, 101 offered, but did not see the company's other issues.

At another desk, Lucent's 5½% notes due 2008 were being quoted down more than two points on the session at 88 bid.

The SEC, in a civil lawsuit filed with the federal court in Newark, N.J., said that Lucent had "fraudulently and improperly" booked some $1.1 billion in revenue in 2000. It said that Lucent had failed to cooperate fully in its investigation of the firm's accounting, leading to the $25 million fine - the largest ever imposed in an SEC civil case. In agreeing to the fine, Lucent neither admitted nor denied the federal charges, although it said that it wouldn't do it again.

The SEC meantime brought fraud charges against nine present or former Lucent employees, as well as a tenth person, who worked for now-defunct Winstar Communications, a Lucent customer. Three of the former Lucent executives agreed to settle the case by paying large fines; the SEC will pursue the cases against the others.

Nortel lower on more bad news

A trader meantime said that the bonds of Lucent competitor Nortel Networks Corp. "were a little bit softer; it continues to trade down, on bad news after bad news," referring to the latest problems of the Brampton, Ont.-based telecom equipment maker.

He saw the Nortel 6 1/8% notes due 2006 trading "all over the place" between highs of 95 bid and lows of 93 before closing at 94 bid, 95 offered.

Nortel, like its U.S. rival, has had its own well publicized accounting troubles, which recently led to the firing of the company's chief executive and two other senior officials. On Friday, Nortel said it had received a subpoena from federal prosecutors in Texas ordering it to produce accounting records and other documents going back more than four years.

As if all of that weren't enough trouble for the company's investors, The Wall Street Journal reported on Monday that Nortel, which in the past had given its executives their long-term compensation in restricted stock, this year gave its top executives cash bonuses instead of stock - just before the company's shares plunged on a March earnings warning. The paper said Nortel declined to comment on why it departed from its usual compensation method.

AK Steel gains

Elsewhere, AK Steel Corp. notes were seen up a point, its 7¾% notes due 2012 firming to 82 bid and its 7 7/8% notes due 2009 moving up to 85 bid from 84 previously, perhaps in response, a trader said, to the announcement late Friday, essentially after the markets had closed for the day, that Moody's Investors Service had raised the Middletown, Ohio-based steelmaker's speculative grade liquidity rating to SGL-2 from SGL-3.

The ratings agency said that the revision was "based on the company's improved liquidity position as evidenced by its sizable cash balance, unused credit facility availability, and our expectation that AK will have the ability to finance its operating and capital costs out of internally generated cash from operations and existing cash balances for at least the next twelve months."

Salton gyrates, ends higher

A trader saw Salton Inc.'s bonds - which had fallen sharply last week after the Lake Forest, Ill.-based small-appliance maker reported a sharply wider loss and said it was in covenant violations - going "up an down like a yo-yo," before finally closing at somewhat higher levels. He saw the company's 10¾% notes due 2005 firming to 63 bid from prior levels around 59, while its 12¼% notes due 2008 managed to end at 57 bid, up from 54 previously. There was no fresh news out about the company, which makes the popular George Foreman brand home hamburger and hotdog grills.

A market source said that it was his opinion that while the junk market had "been out of control" in the past week, "[Monday] was quieter."

However, he saw Calpine Corp. bonds trading off, pegging the San Jose, Calif.-based power producer's 8½% notes due 2011 at 54.5 bid, down from 57 previously. Its 8½% notes due 2010 and 8¾% notes due 2013 were both seen having eased about a point to 80.5 bid.

At another desk, Calpine's 8 5/8% notes due 2010 were down two points at 55.25.

Tenet rises on contract

Tenet Healthcare Corp. - whose bottom line has recently been affected by bad-debt expenses generated by uninsured patients or patients with insurance whose plans refuse to pay some charges - smoothed out some of its insurance problems with the announcement Monday that the Santa Barbara, Calif.-based hospital operator had signed a contract with Blue Cross of California, so that the insurance plan's 2.7 million members will have access to care at Tenet's 34 hospitals in the state through next year. Terms of the agreement were not revealed.

Tenet's 6 3/8% notes due 2011 advanced to 84.5 bid from 83.25 previously, while its 7 3/8% notes due 2013 rose to 88.25 bid from 87.75

Overall, though, a trader said that "there was nothing going on;" everyone else at his shop had cut out early.

And things weren't going to get any more active this week, he warned, noting the Bear Sterns Global Credit conference in New York on Tuesday and Wednesday.

"Everyone and his brother is going to be going there," he said, "so we can expect more of the same [low activity level] for the next two days."

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