Prime Hospitality jumps on buyout news, coming tender; Medquest prices

By Paul Deckelman and Paul A. Harris

New York, Aug. 19 - Prime Hospitality Corp. bonds zoomed to sharply higher levels Thursday, in the wake of the announcement after the market had closed on Wednesday that affiliates of The Blackstone Group will acquire Prime in a $790 million deal that includes assumption of the Fairfield, N.J.-based lodging company's debt. Other upsiders included Delta Air Lines Inc., although the troubled Atlanta-based air carrier's bonds gave back much of their gains later in the session following a credit ratings downgrade. Nortel Networks Ltd. bonds firmed as the Canadian-based telecommunications equipment maker updated the market on its efforts to compile and report its financial results.

The Thursday primary market session saw the last of the Aug. 16 week's business concluded as two small deals were priced by the investment banks.

Meanwhile, although the market typically hears a weekly report on the direction of cash either into or out of the high yield mutual funds each Thursday, various sources told Prospect News that this week the fund flow data compiled by AMG Data Services would not be available until Friday morning.

And sources continued to tell Prospect News on Thursday that, surprises notwithstanding, the high-yield new issue market may for all intents and purposes have rolled up the sidewalks as it waits for the buy-side to reconvene after the Labor Day break.

Back among the established issues, Prime Hospitality Group's 8 3/8% notes due 2012 were heard to have skyrocketed to 115 bid from prior levels around the 106 area, "because they are tendering for the bonds," a market source said.

In their Wednesday evening statement announcing the takeover deal, the companies said that in connection with the transaction, Prime Hospitality would begin a tender offer and consent solicitation for its $178.7 million principal amount of outstanding 8 3/8s. However, no tender was formally announced on Thursday.

Delta jump higher, sink

Elsewhere, traders saw volatile action in Delta Air Lines' paper, following Wednesday's news developments - including the company's presentation of its long-awaited, much-ballyhooed strategic turnaround plan to its board, chief executive officer Gerald Grinstein's warning to the company's employees in a memo that the turnaround would likely involve job cuts, and Delta's moves to begin restructuring - either in court or out - with the reported hiring of a bankruptcy law firm and the start of its efforts to gain consent from the holders of some aircraft-secured bonds for indenture changes that could aid restructuring. On Thursday, Delta was meeting behind closed doors with representatives of its 7,500 unionized pilots, to try to get the captains to cough up more pay-cut concessions, possibly by giving them equity in the company.

With all of that going on, Delta's bonds - which rose modestly on Tuesday on reports the pilot talks would take place and then zoomed higher Wednesday on turnaround plan euphoria, were "all over the place" Thursday, a trader said, quoting its benchmark 7.70% notes due 2005 as having "taken off this morning, literally," to highs of 52 bid, 53 offered, well up from their Wednesday close at 45 bid, 46 offered. He saw Delta's 8.30% notes due 2029, which had closed Wednesday at 28 bid, 29 offered - well up from prior lows around 25 - jump to 32 bid, 33 offered in the early going Wednesday.

However, the bonds were dragged back down to earth later in Thursday's session, after Standard & Poor's downgraded the company's credit ratings. "They came right back down after the downgrade," the trader said, with the 7.70s finishing at 47.5 bid, 48.5 offered, "still up a couple [of points] on the day, but way off the high."

He saw the 8.30s having come down from their peak level to end at 29 bid, 30 offered, well off their earlier zenith.

S&P cut the ratings on the company's corporate credit and senior secured debt to CCC from CCC+ previously, while it knocked the senior unsecured debt rating down to CC from CCC- previously.

The ratings agency noted Delta's announcement Wednesday that it would ask the holders of $1.7 billion of aircraft secured pass-through and equipment trust certificates to allow the company to buy the notes and hold them, something currently not allowed by the certificates' indenture. Delta said this will give it greater financial flexibility. However, S&P warned that any effort by Delta to get the certificate holders to exchange their paper for less than the certificates' full value in a "coercive" exchange - something which many analysts see is likely - would, in the ratings' agency's view, be tantamount to a default, which would warrant a further drop in the ratings. S&P currently calls the bonds' outlook negative.

Nortel gains on earnings

Elsewhere, Nortel Networks' 6 1/8% notes due 2008 were "a little better," the trader said, rising to 101.25 bid, 101.5 offered, a one-point gain, after the Brampton, Ontario-based telecom equipment maker announced estimated limited preliminary unaudited financial results for the first and second quarters of 2004, as it continues its attempts to restate those results in the face of numerous accounting irregularities which it discovered. Nortel now expect to have final unaudited results for the first and second quarters when it files the quarterly reports for those periods, which Nortel anticipates happening by the end of the current third quarter.

Those accounting irregularities led to the firing for cause of four senior executives earlier in the year, including the company's then-president and chief executive officer and its then chief financial officer. On Thursday, it announced that it was firing another seven executives at the unit level, for cause, and demanding that they pay back some $10 million of bonuses they had been awarded prior to the discovery of their role in the accounting mess.

Nortel also said it would let go another 3,500 employees - about 10% of its overall work force - as part of a broad strategic effort to shape up the company's operations.

Navistar lifted by results

On the earnings front, Navistar International's 7½% notes due 2011 were seen a point higher, at 104.5 bid, despite what the market saw as lackluster quarterly earnings for the suburban Chicago-based maker of trucks and buses. Although the company posted higher quarterly per-share earnings, analysts said it recorded lower-than-expected earnings from its core manufacturing operations.

Even so, a trader said, "while the stock market didn't like it" - the company's shares declined 7% - "the bond market did."

Winn-Dixie better

Winn-Dixie Stores Inc. reported a net loss for the fiscal fourth quarter ended June 30, versus a year-ago gain, as the struggling Jacksonville, Fla.-based supermarket operator recorded a sizable restructuring charge as it tries to turn itself around (see related story elsewhere in this issue). Its 8 7/8% notes due 2012 were seen up a point to 93, and a trader also noted some investor interest in the company's real-estate secured passthrough certificates, such as its 8.181% certificate, which was a point better at 75 bid.

Calpine lower

On the downside, Calpine Corp. bonds, recently strong on the news the San Jose, Calif.-based electric power generator will sell its Canadian gas reserves, were "a little weaker," a trader said, its 78 ½% notes due 2011 dipping to 59 bid, 60 offered from prior levels at 61 bid, 62 offered.

"The party," he declared, "is over."

The 'E'-word

Thursday morning one investment banker spelled out a chronology that extended the comparative dormancy in the primary market to well beyond Labor Day.

This sell-sider said that uncertainty over the results of the coming U.S. presidential election - which pollsters are handicapping as more or less a dead heat - does not make for an attractive marketing environment for issuers.

"There's no question," said the banker, "people will prefer not to be marketing as the election heats up.

"People who wanted to go have gone," added the source. "The rest are just going to wait and see what happens. People don't want to get stuck marketing through that period. It's too uncertain for underwriters.

"Unless it's a repeat issuer, most of the guys who are starting the documentation will probably hold off until the election is over."

Not expecting blowouts

This sell-side source allowed that the new issue market will continue to see a measured amount of activity. However mega-deals are not expected in the early-to-mid autumn.

"Everyone anticipates a slowdown in new issuance after Labor Day," the official said. "That's in line with flat to marginally down funds flows, which of course is not the only indicator of the market's receptiveness to new issuance.

"As long as we don't see huge deals come late in the third quarter I think the market will be able to digest what we anticipate as being lower but still steady volumes of new issuance.

"There probably won't be too many big blowout deals, at least until November. Most of the big guys have tapped the market already. So it's going to be the guys who were waiting for year-end numbers.

"Early October could be busy, but I think it will be a bunch of small deals."

MedQuest discount notes wide of talk

The largest of Thursday's two small deals came from MQ Associates, Inc. the parent of outpatient diagnostic imaging centers operator MedQuest, Inc.

The Alpharetta, Ga. company sold $136 million of eight-year senior discount notes (Caa1/B-) at 62.337 to yield 12¼%, wide of the 11¾%-12% price talk.

The sale generated $84.8 million of proceeds.

JP Morgan ran the books on the dividend-funding deal.

"It's interesting to see a small triple-C deal - less than $100 million - get done in late August," one primary market source commented.

"That could be an indicator going forward as to what might get done.

"With a deal that size they circle up four or five investors and get it out the door. And that's the last you'll hear of it."

Notes/warrants deal from Securus

On the heels of the $154 million proceeds Wednesday transaction Securus Technologies, Inc. the Denver-based securities technology company priced a $40 million offering of units comprised of 10-year senior subordinated notes yielding 17% with warrants for shares of the company on Thursday.

Credit Suisse First Boston ran the books.

An informed source who spoke to Prospect News about the deal declined to specify the issue price or to provide any other details about the units.

The $40 million amount represents the approximate size by which the company's new 11% senior secured notes due 2011 (B2/B+) was downsized in a transaction that priced at 97.651 on Wednesday to yield 11 ½% (see related story in this issue).

Euro pipeline continues to build

The European high-yield market continued to go through its late summer warm-up drill on Thursday, as the euro and sterling-denominated pipeline built up further.

Trailing Wednesday's news that German plumbing fixtures manufacturer Grohe AG would tap the high-yield market for €335 million and that Dutch department store owner Royal Vendex KKB NV would come with €350 million, two more prospective issuers topped the horizon on Thursday.

Like Grohe and Vendex, both appear set to complete deals in the third quarter.

United Kingdom-based pizza and pasta restaurant owner-operator ASK Central plc is expected to bring £130 million of bonds, with Lehman Brothers and The Royal Bank of Scotland expected to lead the acquisition deal.

And French publisher Editis, formerly Vivendi Universal Publishing, is expected to come to market with a €150 million offering, with BNP Paribas, Credit Suisse First Boston and Lehman Brothers to take part in underwriting.

Those two morsels of euro junk news aside, one high yield source from Europe told Prospect News on Thursday that business there is hardly more brisk than is the case in the United States.

"The market is very slow in August in Europe as the whole market is generally on holidays," the source commented.

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