Bausch & Lomb downsizes, restructures deal; Level 3 off on CFO departure; GM gyrates

By Paul Deckelman and Paul A. Harris

New York, Oct. 15 - Bausch & Lomb Inc. was heard to have downsized and restructured its planned bond issue Monday, cutting its three-tranche offering down to a single piece - somewhat enlarged from the tranche's originally envisioned size, but smaller than the overall amount originally shopped to investors. Price talk on the issue also emerged, high yield syndicate sources said.

Meanwhile, price talk was heard on First Data Corp.'s big upcoming issue of eight-year cash-pay notes. And details surfaced on the upcoming two-part mega-deal of Energy Future Holdings Corp. - the company formerly known as TXU Corp.

In the secondary arena, Level 3 Communications Inc.'s bonds were seen in retreat, in line with a fall in the Broomfield, Colo.-based telecommunications company's shares, following the announcement that veteran chief financial officer Sunit Patel will presently leave the company; that news sparked media speculation that Level 3, which reports third-quarter numbers later this month, failed to meet its financial goals for the period.

General Motors Corp.'s bonds were seen gyrating around at mostly higher levels, as the automaker revealed more details of its newly ratified labor agreement with the United Auto Workers Union - a deal which GM says will cut its retiree healthcare obligations by some $47 billion.

Following Monday's close a high yield syndicate official said that the CDX High Yield 9 index was unchanged at a mid-point of 100.50.

Meanwhile in the new issue market, although no deals were priced, the forward calendar grew by an estimated $6 billion-plus, as notes backing the First Data Corp. and TXU Corp. LBOs, parts of the hung bridge loans which underwriters are attempting to remove from their balance sheets, came into the market.

Cash(pay) is king

All of the high yield primary market news that circulated on Monday had to do with cash-pay notes from LBO bond financings which are part of the estimated $300 billion-plus of risk overhang left on underwriters' balance sheets from unplaced high yield bonds and unsyndicated leveraged loans in the wake of the subprime related summer freeze up in the credit markets.

With respect to the only such deal that has been on an announced investor roadshow, underwriters set price talk for Bausch & Lomb's $650 million offering of eight-year cash-pay notes (Caa1/B-) at the 10% area.

The overall notes offering was downsized from $750 million, with $100 million shifted to the bank loan which has been going well, according to a market source.

The eight-year senior cash-pay notes tranche was upsized to $650 million from $400 million.

Meanwhile a $175 million tranche of eight-year senior toggle notes and a $175 million of 10-year senior subordinated notes were withdrawn.

Pricing is expected on Tuesday via left bookrunner Banc of America Securities. Credit Suisse, Citigroup and JP Morgan are joint bookrunners.

First Data sets talk

Price talk also surfaced Monday on a to-be-determined amount of First Data's eight-year senior cash-pay notes: the 10¾% area.

In a Monday ratings release, Fitch Ratings assigned its B- rating to an offering of "up to $2 billion" of the notes.

The deal, which was marketed during an investor conference call on Monday morning, is expected to price on Tuesday morning.

Citigroup, Credit Suisse, Deutsche Bank Securities, HSBC Securities (USA), Lehman Brothers, Goldman Sachs & Co. and Merrill Lynch & Co. are the underwriters.

The cash-pay notes are part of an expected total combined $9 billion of issuance. The announced structure included $3.75 billion of senior cash-pay notes, $2.75 billion of senior PIK notes and $2.5 billion of senior subordinated notes.

TXU launches

Elsewhere on Monday underwriters launched a combined $4.5 billion of senior cash-pay notes which are part of the TXU Corp. LBO financing.

The notes are expected to price late in the Oct. 22 week.

Energy Futures Holdings is offering $2 billion of 10-year notes (B3/CCC+).

Morgan Stanley, Goldman Sachs & Co., Citigroup, JP Morgan, Lehman Brothers and Credit Suisse are joint bookrunners.

In addition, Texas Competitive Electric Holdings is offering $2.5 billion of eight-year notes (B3/CCC).

Goldman Sachs & Co., Morgan Stanley, Citigroup, JP Morgan, Lehman Brothers and Credit Suisse are joint bookrunners for the Texas Competitive Electric Holdings notes.

The expected overall combined total notes issuance for the LBO financing is $11.25 billion.

Whither the toggles?

Omitted from Monday's news was any word of the estimated combined $7.175 billion total of PIK toggle notes which are announced parts of the Bausch & Lomb, First Data and TXU financings.

Since the onset of the subprime-driven crisis in the credit markets, high yield observers have been advising Prospect News that toggle notes, which allow issuers to make in-kind payments, as opposed to cash payments - increasing the interest rate but also upping leverage - would be the junk market's toughest sell once the primary market started regaining its feet.

Those forecasts seem completely credible in light of the news from Monday's primary market.

However the big underwriters have recently succeeded in placing substantial amounts of toggle notes.

Within the past month Biomet Inc. placed $745 million of its toggle notes due Oct. 15, 2017, which have a 10 3/8% cash coupon and a toggle coupon of 11 1/8%.

The most recent development with respect to that issue came in a three-part $2.348 billion add-on deal late last week, in which underwriters priced a $56.242 million add-on to those toggle notes at 101.50 to yield 10.128%, bringing the issue to its present $745 million size.

Also late last week, one day after completing the sale of a $550 million tranche for Allison Transmission Inc. made up of eight-year senior cash-pay notes, underwriters returned to price a $550 million tranche of eight-year senior toggle notes at par to yield 11¼%, 25 basis points behind the cash pay notes.

Allison bonds trade lower

Back in the secondary arena, a trader saw Allison Transmission's new 11% notes due 2013 trading at 101.5 bid, 102.5 offered - down from the lofty levels above 103 which those new bonds had held after their pricing on at par Thursday.

Allison's new 11¼% PIK toggle notes due 2015, meantime, which had moved up much more modestly after their pricing Friday, had fallen to well under par. The bonds traded at 100.125 bid, 100.25 offered "out of the gate" Monday, the trader said, but by day's end had retreated to 98,.75 bid, 99.5 offered, down from their par issue price.

"Both started out OK," the trader said, "and both slipped. Only the 11s are still trading at a premium."

Level 3 off on CFO resignation

Among the established names, Level 3's 9¼% notes due 2014 were seen by a source as among the most widely traded issues on the day. Those bonds, which have recently hovered slightly above par, were trading down about 2½ points on Monday to just under 98. Its 12¼% notes due 2013 were quoted at 110, off about 2 points from last week's levels, though on substantially less volume than the 91/4s. The 8¾% notes due 2017 lost a point or so to end around 97.

Level 3's Nasdaq-traded shares slid 54 cents, or 11.02%, to $4.36, on volume of 116 million shares, about three times the usual turnover.

A trader said that the bonds and shares fell "because [CFO Patel] is leaving - and the Street likes him."

The bonds and shares went south after the company, which primarily provides various telecom services on a wholesale basis to other telecom providers, announced that Patel would be departing the company. He will stay on until a new CFO is found, an announcement expected to take place some time in next year's first quarter.

Level 3 is slated to release its third-quarter results on Oct. 23. Wall Street is looking for an adjusted third-quarter loss of between 9 and 11 cents a share on about $1.05 billion of revenues. There was some comment in the financial media that the timing of the company's announcement about Patel's pending departure suggests that Level 3 - which like most junk-rated telecom issuers, has racked up sizable losses each year - may have missed its third-quarter and full-year financial targets. A company spokesman declined comment on whether there was any connection.

"As the company focuses on ensuring we take full advantage of the opportunities presented by our marketplace, we believe we need a CFO with skills and experience which emphasize both operational and financial management," Level 3's chief executive officer, James Q. Crowe, said in a press release.

Patel, who joined Level 3 in 2003, is considered in the industry to be largely a financial manager rather than an operations person. He oversaw Level 3's aggressive program of growth through industry consolidation, as it gobbled up assets of other telecom companies as part of the start-up telecom provider shakeout earlier in the decade. Among the properties it has opportunistically acquired over the last several years are Broadwing Corp., WilTel Communications Group LLC, Genuity Inc. and ICG Communications Inc. Patel's successor is expected to focus more on such operational areas as generating more business from the acquired companies.

Patel also ran an active capital-markets program which saw the company actively issue junk debt to fund its ambitious expansion and acquisition programs - although some of those proceeds were also used for the successful refinancing of sizable earlier, higher-coupon issues, such as its 10¾% senior notes due 2011 and its 11½% senior notes due 2010, both of which were substantially taken out earlier this year via tender offers.

At a recent Jefferies & Co. investor conference, Patel said that Level 3, which had a debt-to-EBITDA ratio of about 9.3 times at the end of the second quarter, is shooting for a 7.5x ratio by year-end and ultimately hopes to bring that ratio down further to the 3x to 5x range. He also noted that the company - which had about $800 million of cash on its balance sheet at the end of the second quarter - was steadily getting closer to the point when it would become cash-flow positive - an event which the CFO predicted would be "several quarters away."

Crowe lavishly praised Patel, calling his achievements "nothing short of spectacular" and indicating he would like him to stay with the company in some capacity other than CFO, although the company statement was short on information as to what that might be.

GM gains continue

A trader saw General Motors benchmark 8 3/8% notes due 2033 trading at 93.75 bid, 94.25 offered, which he said was up about ½ point on the day, while seeing domestic arch-rival Ford Motor Co.'s 7.45% notes due 2031 doing even better, up 1¼ points to 82.25 bid, 83.25 offered.

Another source saw the GM benchmarks trade as high as 97 bid, before dropping back to around the 94 area, 2 points better on the day.

A trader noted that GM laid out details of its new labor contract in a regulatory filing - including the fact that establishing a trust fund to take over retiree healthcare costs will end up saving the carmaker some $47 billion of healthcare obligations. GM will fund the trust fund with a one-time $29 billion payment, and turn it over to management by the UAW in 2010.

Trump gains continue

Elsewhere, Trump Entertainment Resources Inc.'s 8½% notes due 2015 were actively traded, participants said, and pushed upward by continued takeover buzz about the Atlantic City, N.J.-based gaming company.

A trader pegged the bonds a point higher at 88 bid, 89 offered, noting that they have "moved up steadily, ¼ point to ½ point a day" since takeover speculation started coming back earlier in the month, adding "we definitely continue to hear rumors."

Another trader said they "definitely opened stronger" than Friday's closing level around 87.5 bid, 88 offered, seeing them at 88 bid "right out of the gate this morning", and finishing at 88.5 bid, 89 offered.

However, yet another trader, while seeing the active volume levels, called the bonds ½ to ¾ point lower at 88 bid, 89 offer

Overall, a trader saw the widely followed CDX index of junk market performance down 1/8 point, at 100 3/8-1001/2. The KDP High Yield Daily Index was down 0.03 at 80.54, while its yield widened by 2 basis points to 7.71%. Advancing issues, though, led decliners by about a five to four ratio.

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