Lear gains on Icahn stake; Solo stronger; FelCor plans five-year issue

By Paul Deckelman and Paul A. Harris

New York, Oct. 17 - The news that billionaire financier Carl Icahn thinks enough of Lear Corp. to buy a $200 million stake in the company sent the Southfield, Mich.-based automotive seating and interior components company's shares flying - and the bonds didn't do too badly either, traders said.

Elsewhere, a trader said that Harrah's Entertainment Inc. bonds and those of its Caesar's Entertainment Inc. unit seemed to be better on indications that the prospective leveraged buyout of the gaming giant is by no means a done deal.

Solo Cup Co.'s bonds - which had gyrated around wildly on Monday after the Highland Park, Ill.-based maker of disposable cups and plates finally filed its delayed quarterly results and restated other results stretching back to 2001 - were seen to have moved up on Tuesday, apparently given a boost by a reassuring company conference call.

Overall, a senior high yield syndicate official said that retreating equity prices had little impact on the junk market Tuesday and marked it unchanged on the day with more buyers than sellers.

The source also remarked that high yield is now focused on the new issue calendar.

Another market source marked junk unchanged to slightly lower on the day.

In the primary arena no new deals were seen to have priced, in contrast to Monday, which saw several come to market - the first primary sales in more than a week, including a $1.1 billion two-part deal from West Corp. However, market participants did hear that a similar-sized offering from Metro PCS was hitting the road Wednesday for a marketing campaign, while FelCor Lodging Trust Inc. announced plans to sell an issue of five-year floating-rate notes.

Subsidiary FelCor Lodging LP's floating-rate notes due 2011, which are to be bought back using the proceeds from the bond deal, were seen unchanged, having already moved up to their anticipated takeout level of 102.125, a market source said.

Likewise, the company's 8½% notes due 2011 were also steady at 106.375 bid, while its 7 5/8% notes due 2007, which the company is also tendering for, improved slightly to 101.375.

Lear looking good

Lear's 5¾% notes due 2014 were seen by a source to have firmed a point to 82.75 bid, while at another desk those bonds were seen up 1¼ points at 82.5 bid.

A trader, who also saw those 53/4s move, additionally saw the company's 8.11% notes due 2009 move up to 99 bid, 99.5 offered from prior levels at 97.875 bid, 98.25 offered - a sign, he said, that "the market liked the news" that the savvy investor Icahn was placing a big bet that Lear will survive the current shakeout in the automotive parts industry, which has seen Lear rival Collins & Aikman Corp. slide into bankruptcy, along with other parts-supplier names like Delphi Corp., Dana Corp. and Tower Automotive Inc., while Dura Automotive Systems Inc., in the opinion of many sector-watchers, teeters on the brink.

Certainly, equity investors approved, taking Lear's New York Stock Exchange-traded shares up $3.75 (15.25%) to $28.34.

Under terms of an agreement between Icahn and Lear, the company will issue $200 million worth of stock in a private placement to funds managed by Icahn, who in turn will get to put a representative on Lear's board.

Observers noted that Icahn is known as an activist shareholder, with a reputation for pressing management of underperforming companies in which he invests to make big changes. They also were suggesting Tuesday that Lear turning to the iconoclastic tycoon for an investment could be a sign that the company is having difficulty securing funding from other sources - but Lear says it's no such thing, asserting that Icahn was already a Lear investor, and he approached the company about upping his stake, rather than the other way around.

Lear indicated it planned to use the Icahn capital to help grow its business with Asian automakers as it attempts to diversify past its core customer base, Detroit's now-struggling Big Three domestic carmakers.

Dura settles in, Remy routed

Dura's bonds, meanwhile, were seen pretty steady at the levels to which they moved on Monday after the troubled Rochester Hills, Mich.-based parts maker announced that it would not make the scheduled Oct. 15 coupon interest payment on its $400 million of 8 5/8% notes due 2012, instead invoking the standard 30-day grace period, which the company will likely use to try to work out an arrangement with its bondholders to avoid defaulting on the bonds and being forced into bankruptcy, as so many of its peers have been.

A trader saw Dura's 8 5/8s at 29 bid, 30 offered, and its 9% subordinated notes due 2009 at 5.5 bid, 6.5 offered, with both issues now trading flat, or without accrued interest.

"There was not too much change there," he said.

Overall, he said, "not much was doing in autos" - with one exception. Delco Remy was "down huge," with the Anderson, Ind.-based automotive electronics maker's 11% notes due 2009 down a whopping 8 points on the day to 31 bid, 33 offered. He said that the Remy fell in response to the recent Dura debacle.

Harrah's higher

Outside of the automotive arena, the trader said, Harrah's bonds, like the Las Vegas-based casino operator's 6½% notes due 2016, were up a point on some signs that the proposed leveraged buyout for the company might not go through after all, which would suit bondholders just fine, since they fear that such a transaction would load the company up with new debt, most of it likely senior to bonds in the capital structure.

He cited the news that according to CNBC commentator David Farber, Harrah's directors will turn down a bid of $83.50 a share from Texas Pacific Group and Apollo Management LP and "may not [even] go" for $85 a share if that were proposed. Faber didn't say where he got the information.

His prediction was enough to drive Harrah's NYSE-traded shares down $1.13 (1.51%) to $73.95 on volume of 9.5 million, more than triple the norm - but the 6½% bonds pushed upward to 88.5 bid, 89.5 offered on the news. At another desk, the Caesar's 8 1/8% notes due 2011 were up a point at 103.5.

Starwood dips on LBO talk

However, he saw Starwood Hotels and Resorts Worldwide Inc.'s bonds down ½ point across the board on renewed market talk that the White Plains, N.Y.-based lodging giant could be a target for a private-equity-based LBO like the one that has been proposed for Harrah's.

He quoted Starwood's 7 3/8% notes due 2015 at 99.5 bid, 100.5 offered.

AK firm ahead of vote

The bonds of AK Steel Corp. were seen better, ahead of Wednesday's scheduled vote by some 1,800 hourly workers at the Middletown, Ohio-based steel company's main works on a contract proposal - a vote which could end an eight-month old lockout there.

While the International Association of Machinists wants to see the long lockout end, it has not endorsed the contract, leaving it up to the members at that local to decide.

AK's 7¾% notes due 2012 were seen up ½ point at 99.5, although another source had those same bonds at 98.5, calling them up a point on the day.

Level 3 up on Broadwing purchase

Level 3 Communications Inc.'s bonds were seen by a trader better, following the news that the Broomfield, Colo.-based telecommunications company has agreed to buy Broadwing Corp. for $1.4 billion in cash and stock - the latest in a string of acquisitions by Level 3 as it continues to build its fiber optic network backbone.

He saw the company's 11% notes due 2008 up ½ point at 104.5 bid, 105 offered, a sign he said, that the market liked the deal, and Level 3's continued growth through acquisitions.

Another trader, however, quoting its 6% notes due 2010 unchanged at 89.5 bid, 90.5 offered, said he "didn't see much going on in the name."

A market source elsewhere saw most of the company's bonds steady - but did see its 10¾% notes due 2011 move up to 106.25 bid from 105.375.

Level 3's Nasdaq-traded shares were up 70 cents on the day (13.16%) to $6.02. Volume of 165 million shares was six times the norm.

Solo seen stronger

Solo Cup's 8½% notes due 2014 were seen about a point better on the session at 82.25 bid. That was a change from Monday, when the bonds swung wildly around before coming off their lows but still ended slightly lower on the day.

That followed the company's release of its quarterly financials, which showed a big increase in its net loss for the year.

However, on a conference call Tuesday, company executives pointed out that the loss was mostly due to special non-cash charges, and they touted the news that Solo had finished previously announced restatements of earnings data from the past few years - complying with the requirements set by its bondholders to avoid a possible event of default. The company also got its senior lenders to waive any defaults, at least until January (see related story elsewhere in this issue).

MetroPCS starts $1.1 billion

With respect to the new issue market, no bonds were priced during the Tuesday session.

However the forward calendar of deals thought to be in the market fattened substantially.

MetroPCS Wireless will start a roadshow on Wednesday for its $1.1 billion offering of eight-year senior notes (Caa2/CCC+) via Bear Stearns & Co., Merrill Lynch & Co. and Banc of America Securities.

The Dallas-based wireless company will use the proceeds to refinance existing debt, to fund the purchase of wireless spectrum won in the Federal Communications Commission's Auction 66, and for general corporate purposes.

Southern Union plans hybrid

Elsewhere Southern Union Co. announced a $600 million maximum offering of junior subordinated fixed-rate to floating-rate hybrid notes maturing in 2066 (Ba1/BB+/BBB-) which it expects to price on Wednesday following a Bloomberg roadshow.

Credit Suisse, Goldman Sachs & Co., Lehman Brothers and Merrill Lynch & Co. are joint bookrunners.

The coupon will pay a fixed rate until 2011, at which time the bonds will become callable at par. If they are not called at that time the coupon resets to the three-month Libor equivalent of the new issue spread plus 100 basis points.

The Houston-based natural gas transportation, storage, and distribution company will use the proceeds to fund an acquisition.

Market watchers will recall that Enterprise Products Operating LP priced a $300 million issue of 60-year fixed-rate to floating-rate junior subordinated notes (Ba1/B+/BB+) at par on July, with a 8 3/8% fixed rate coupon that changes in 2016 to a three-month Libor plus 370.75 basis points coupon.

Wachovia Securities was the bookrunner for that deal as well as for $200 million add-on that was priced in August.

Enterprise Products tapped the issue once again in September to the tune of $50 million, this time via Lehman Brothers.

The overall $550 million issue size of the Enterprise Products 60-year hybrids would seem to indicate that there is an appetite for this structure, which is beyond the maturity range of high yield bonds.

Encore launches $215 million

Meanwhile Encore Medical Finance LLC brought its $215 million offering of eight-year senior subordinated notes (Caa1/CCC+) into the market, announcing a Wednesday roadshow start.

Banc of America Securities LLC and Credit Suisse are joint bookrunners.

The Austin, Texas-based orthopedic implant manufacturer will use the proceeds to help fund the acquisition of Encore Medical by The Blackstone Group.

FelCor driving through

In a quick-to-market action, FelCor Lodging LP expects to price a $215 million offering of five-year senior secured floating-rate notes (confirmed Ba3/expected B+) either late Wednesday, or on Thursday.

Merrill Lynch & Co. has the books for the debt refinancing from the Irving, Tex.-based upscale lodging REIT.

Talking the deals

Much of the remainder of Tuesday's primary market news bore upon deals already known to be in the market, and expected to price before the Friday close.

Cricket Communications Inc. (Leap Wireless International Inc.) talked its $750 million offering of eight-year notes (Caa2/CCC) at a yield of 9¼% to 9½%, with pricing set for late Wednesday.

Citigroup, Goldman Sachs, Morgan Stanley, Banc of America Securities LLC and Deutsche Bank Securities are joint bookrunners.

Elsewhere Buffets Inc. put out price talk on Tuesday for its $330 million offering of senior notes (Caa1/CCC) in two tranches.

The buffet-style restaurant company has talked its eight-year fixed-rate notes, which are non-callable for four years, at 11¾% to 12%.

Meanwhile Buffets talked its seven-year floating-rate notes, which are non-callable for two years, at Libor plus 650 to 675 basis points.

Credit Suisse has the books for the acquisition deal which is late-week business.

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