Charter ups mega-deal price talk as three offerings price; Six Flags lowered on earnings

By Paul Deckelman and Paul A. Harris

New York, Aug. 13 - New increased price talk emerged Wednesday on Charter Communications Inc.'s upcoming $1.7 billion two-part bond offering - just a day after the company had officially indicated the levels at which it expected to bring the bonds to market. The revised talk fits in with a recently seen trend of issuers forced to up the yields on their deals in order to get the placements done. Elsewhere in the primary market, Williams Scotsman Inc. and Nevada Power Co. priced new offerings, while Pilgrim's Pride priced an add-on to an existing note issue.

In the secondary arena, Six Flags Inc. debt fell sharply after the theme park operator reported disappointing second-quarter earnings.

On the heels of a two-day dry spell terms emerged on three new issues in the high yield primary on Wednesday.

Meanwhile a Thursday session took shape during which the vacation-thinned ranks of the high yield accounts will be focused on two mega-deals.

The largest of the two, Charter Communications' $1.7 billion deal (CCC-), came out with upwardly revised price talk during Wednesday's session after being restructured on Tuesday.

Talk is increased to the 10 1/8% area from 9¼%-9½% on the seven-year non-call-four notes and to the 10¼% area from 9 3/8%-9 5/8% on the 10-year non-call-five notes. Both tranches are expected to price on Thursday, with tranche sizes remaining to be determined.

The deal will be issued through Charter Communications Holdings II LLC and CCH II Capital Corp.

The St. Louis cable operator restructured its deal on Tuesday into an offering from a single issuer. Previous to that restructuring two separate Charter issuing subsidiaries, one senior to the other in the capital structure, had each been set to offer $850 million of 10-year non-call-five notes. The restructuring was undertaken, according to informed sources, in order to eliminate confusion.

Citigroup, Banc of America Securities and JP Morgan are joint bookrunners on the deal which is expected to price Thursday.

The market also heard price talk Wednesday on Dex Media West LLC's $1.315 billion of notes in two tranches which are likewise expected to price Thursday.

Talk is 8½%-8¾% on $535 million of seven-year non-call-four senior notes (B2/B) and 10%-10¼% on $780 million of 10-year non-call-five senior subordinated notes (B3/B).

JP Morgan, Banc of America Securities, Deutsche Bank Securities, Lehman Brothers and Wachovia Securities are joint bookrunners on the second of the big financings undertaken in the effort by Denver-based Qwest to raise cash by selling off its yellow pages business.

Eyeing Charter and Dex, which represent $3.15 billion in and of themselves, sell-side sources advised Prospect News that while they won't necessarily compete with one another, both are plying markets thinned by vacationing investors and are therefore competing for attention.

In the meantime the market saw three transactions come to completion on Wednesday.

Nevada Power Co. sold $350 million of 10-year non-call-five general and refunding mortgage notes series G (Ba2/BB) at par to yield 9%, wide of the 8¼% area price talk. Merrill Lynch & Co. was the bookrunner on the Las Vegas-based regulated public utility's deal.

Baltimore mobile office and storage space company Williams Scotsman Inc. stashed $150 million of investors' cash after completing its offering of five-year non-call-three senior secured second lien notes (B2/B+). With Deutsche Bank Securities running the books, Williams Scotsman's notes priced at par to yield 10%, in the middle of the 10% area price talk.

And Pittsburg, Tex. poultry producer Pilgrim's Pride priced a $100 million add-on to its 9 5/8% senior notes due Sept. 15, 2011 (B1/BB-) at 103.5 for a yield to worst of 8.865%. The Credit Suisse First Boston-led deal came just within the 8 5/8%-8 7/8% that had been crowed on Tuesday.

Some market observers had also anticipated terms emerging Wednesday on Monitronics International Inc.'s $200 million of seven-year non-call-four senior subordinated notes (B3/B-). However as Prospect News went to press terms on the Banc of America Securities-led deal from the Dallas security alarm firm had not emerged.

When the new Williams Scotsman 10% senior notes due 2008 were freed for secondary dealings, "they did very well," a trader said, pegging the new bonds at 101.75 bid, well up from their par issue price earlier in the session, although he noted that the fat coupon (10%) was the likely explanation, rather than any great investor enthusiasm for the company itself.

"It's becoming a buyer's market," he declared, noting that talk a week or two ago was that the issue would come in yielding somewhere around 9¼%.

"Indigestion and rising interest rates - Treasuries got slammed today - are finally catching up with the market" and forcing issuers to fatten the yields they are offering to entice investors, he continued. He noted that with the Nevada Power offering, a deal that had been anticipated as an 8¼% yield not long ago, ended up pricing to yield 9%.

When the new Nevada Power 9% mortgage notes due 2013 moved into the secondary, "they did a little better," said a trader who quoted the notes at 100.5 bid,101 offered, up from their par issue price.

Back among the established issues, Six Flags bonds took a screeching ride downward that would rival the vertical drop of the largest roller coasters at the New York-based theme park operator's properties, after it reported a second quarter net loss of $12.3 million (19 cents per share), more than double the year-ago deficit of $5.96 million (12 cents a share). Excluding special items, the company posted a one-cent-per share loss, versus the year-ago eight-cent gain, although that wasn't quite as bad as the three-cent-per-share loss Wall Street had been looking for.

That slight outperformance versus expectations may have help to boost company shares - which initially retreated but ended the session up four cents (0.91%) to $4.44, with New York Stock Exchange volume of two million shares about double the norm.

But bondholders found no such silver lining, with a trader quoting the company's 8 7/8% notes due 2010 at 82.5 bid, 84.5 offered; its 9¾% notes due 2007 at 89 bid, 90 offered; its 9½% notes due 2009 at 86 bid, 87 offered; and its 9¾% notes due 2013 at 85.5 bid, 86.5 offered, all down three to four points on the session, he said.

Another trader saw the slide even more pronounced, asserting that Six Flags paper was "quite a bit lower" and seeing the 8 7/8% notes at 82 bid, 84 offered, the 93/4s at 86.5 bid, 88 offered, the 91/2s at 84 bid, 86 offered, and the 93/4s at 86.5 bid, 88 offered, all down about six to seven points in his estimation.

Besides reporting the wider loss versus a year ago, Six Flags also said that full-year adjusted EBITDA would trail 2002 results by about 15%, coming in around $325 million to $330 million, versus $382.5 million in 2002. It blamed the still-soft economy and bad weather during the second quarter for the expected fall-off.

Elsewhere, EchoStar Communications Corp. reported favorable second-quarter numbers - but little bond-price action was seen.

"There wasn't really any change," said one market observer about the Littleton, Col.-based satellite broadcaster's bonds, quoting its 9 3/8% notes due 2009 at 105.5 bid, up from prior levels at 105.375, "a really big mover," he added, tongue in cheek.

EchoStar earned $129 million (27 cents per share) in the second quarter, up from $37 million (eight cents a share) in the year-ago quarter. Free cash flow boomed to $151 million from $33 million in the 2002 period. The company also reported that it had added 270,000 net new subscribers during the quarter, bringing its customer total to 8.8 million.

Energy names reporting earnings included El Paso Corp. and Dynegy Inc., and the bonds of both moved lower, in line with a general recent weakening in the power generation sphere.

El Paso's 7% notes due 2011 were quoted as having fallen to 79 bid from 80.5 on Tuesday, while its 7 7/8% notes due 2012 were two points lower at 80 bid. At the same desk, Dynegy's 9 7/8% notes due 2012 were quoted nearly three points lower at 96.75 bid, while its 8 1/8% notes due 2005 were a point down at 98.

A market source also noted the continued deterioration in the bonds of Reliant Resources Inc., which on Tuesday had reported a second-quarter loss from continuing operations of $28 million, or nine cents per share, versus a year-earlier profit of $122 million, or $42 cents per share.

Those numbers caused the Houston-based energy operator's 9¼% notes due 2010 and 9½% notes due 2013 to fall seven or eight points on the session Tuesday to around 87 bid; the market source saw both bonds continuing to slip-slide down to 83.5 bid on Wednesday.

Also among the power operators, Calpine Corp.'s 8½% notes due 2011 were seen a point lower at 66.5 bid, 67.5 offered and its 8 5/8% notes due 2010 lost a point and a quarter to close at 67, while its recently priced 8¾% notes due 2013 were two points off the pace at 86.5 bid, 87.5 offered.

Michigan energy operator CMS Energy Corp.'s 7½% notes due 2009 lost nearly three points to close just above 88 bid.

On the upside, a trader said that the petroleum refiners were getting stronger, with Premcor Refining's 7½% notes due 2013 a point-and-a-half better at 92.5 bid, 93.5 offered and its 9¼% notes due 2010 a point up at 104 bid, 105 offered. Tesoro Petroleum's 8% notes firmed to 100.5 bid, a half point gain, "even though the company stated that it hadn't achieved its goals, the bonds still held their own."

And another trader saw continued strength in Levi Strauss 11 5/8% notes, quoted almost a point better at 93 bid, 94 offered. "Don't ask me why," he shrugged, except for possible overall strength in the retailing and clothing sector.

But overall, "it was a lousy day," as one trader said. "People are grumpy and just trying to hold onto their gains, especially with what's happening in Treasuries."

Another trader agreed that "the market was just uglier," with the government bonds continuing to get hammered, "it's backing up."

Noting the wet-blanket effect that last week's report of a record junk bond mutual fund outflow ($2.56 billion) had on new-deal issuance and secondary performance, especially coming on the heels of a billion-dollar outflow the previous week, he warned that "if we get another big outflow [Thursday] - watch out."

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