VNU mega-deal launches, market awaits El Paso; B/E Aerospace up on tender

By Paul Deckelman and Paul A. Harris

New York, July 11 - VNU NV launched its $1.67 billion equivalent multi-part deal on Tuesday, junk market syndicate sources said.

The sources meantime said that price talk had emerged on El Paso Corp.'s offering of five-year trust certificates, which are expected to price on Wednesday.

That's also when Iron Mountain Inc. is expected to bring a quickly-shopped offering of 12-year notes to market.

Also expected this week is a 60-year bond from Enterprise Products Partners LP.

In a mostly quiet and range-bound secondary market, traders saw a little firmness in the bonds of B/E Aerospace Inc. on the news that the company has begun a cash tender offer for its 8½% notes due 2010. Also up marginally was Levi Strauss & Co., which reported a solid rise in its second-quarter net earnings - although that gain was mostly due to a one-time charge. Lucent Technology Inc. notes were off, after the Murray Hill, N.J.-based telecommunications equipment maker warned that slow sales will push revenues for the company's third quarter to levels below second-quarter levels, and below a year-earlier as well

A buy-side source marked the broad high yield market unchanged to perhaps down a quarter of a point on Tuesday.

No issues were priced in the primary market but the stage was set for a Wednesday session during which $700 million is expected to price.

El Paso talks trust certificates

El Paso talked its upcoming $500 million offering of five-year performance-linked trust certificates (B2) at 7¾% to 8% on Tuesday.

Deutsche Bank Securities is the bookrunner for the debt refinancing deal from the Houston-based natural gas company, which is expected to price on Wednesday.

Iron Mountain plans $200 million

Also expected to price Wednesday is Iron Mountain's quick-to-market $200 million offering of 12-year senior subordinated notes (expected ratings Caa1/B) via Bear Stearns & Co., JP Morgan Securities and Lehman Brothers.

The company will use part of the proceeds to fund a tender for its $150 million of outstanding 8¼% senior subordinated notes due 2011.

An investor said that the Boston-based information protection and storage solutions company is attempting to take out the 8¼% notes a year before they become callable at a price lower than the initial call price.

The investor added that if the company can't get the tender done it will likely pay down bank debt and redeem the 8¼% bonds when they become callable.

The source said Iron Mountain should be able to get the deal done despite the low, triple-C rating from Moody's because Iron Mountain is a name well known to high yield investors.

Enterprise Products lines up 60-year deal

Also expected to price bonds this week is Enterprise Products Partners, which announced a $300 million offering of 60-year fixed-rate to floating-rate junior subordinated notes (Ba1//BB+) on Tuesday.

Wachovia Securities is the bookrunner and structuring advisor. Lehman Brothers is the joint bookrunner.

The notes will pay a fixed rate of interest until 2016, after which the interest rate will float at a percentage above three-month Libor. There will be 10 years of call protection.

Proceeds will be used to temporarily reduce multi-year revolver debt and for general partnership purposes.

The Houston-based midstream natural gas company will sell the notes under the name Long-Term Subordinated Notes (LoTS).

VNU launches $1.67 billion

Elsewhere in the primary market, Haarlem, Netherlands-based market research company VNU NV launched its $1.67 billion multi-tranche notes offering, as its roadshow got underway in London.

The U.S. roadshow will follow, beginning on Monday, with pricing expected to take place on July 24.

VNU plans to sell $835 million equivalent of eight-year senior notes and $835 million equivalent proceeds of 10-year senior subordinated discount notes.

Both series of notes will be sold in dollar-denominated and euro-denominated tranches.

Deutsche Bank Securities, JP Morgan, Citigroup, ABN Amro and ING are joint bookrunners for the acquisition financing.

Buy-side in the driver's seat

Recently high yield sources have been telling Prospect News that market conditions now favor the buy-side, which has been extracting a "new issue premium" from companies that are attempting to sell bonds.

The buy-side source who spoke to Prospect News on Tuesday had no quarrel with this color.

"It seldom happens that way," the source said, "but this is one of those times."

The investor added that anyone who is bringing a challenging credit to the present new issue market should be prepared to pay "an arm and a leg" in interest in order to get the deal done.

Prospect News, noting that a just a few months ago high yield spreads were hovering near record tight levels, asked whether the recent widening has set the stage for investors to be adequately compensated for taking risk or if, on the other hand, the market has merely cheapened somewhat relative to those record-tight levels.

"If you're asking whether 11¼% is fair for a triple-C with a lot of hair on it, that's hard to say," the investor shot back.

"You really just have to take it on a credit-by-credit basis."

What alarms this buy-sider is a perception that private equity firms are presently paying big multiples for a companies, putting in equity and soon thereafter taking back the initial equity by putting the arm on high yield investors.

"The going rate is seven-times leverage," the investor insisted, adding that if such a high leverage ratio means that companies must pay coupons of 10% or 11%, so be it, as far as "the buyout shops" are concerned.

"But if there is a slowing economy, so that growth rates are lower, that big coupon causes leverage to increase," the investor observed.

Prospect News interjected that Fed-watchers have lately divined from statements by the Federal Reserve's policy-making Federal Open Market Committee that the current regime of interest rate tightening - which has seen 17 rate increase since 2004, bringing the short term rate to its present 5¼% from a low of 1% - might finally be coming to close.

If indeed the Fed halts its rate hikes shouldn't such a move help to alleviate the pressure on balance sheets of companies with moderate to high leverage, Prospect News asked the investor.

"The Fed could put on the brakes pretty soon," the buy-sider shot back. "But that would probably mean that the economy was slowing, which means your top line is slowing, which means your cash flow is slowing.

"Since your debt stays the same your leverage goes up, making it tough to cover that high-coupon debt."

Windstream trades

With little in the way of new-deal activity having happened over the past two weeks, there was not much secondary trading of recently priced issues going on. A trader did see Windstream Corp.'s 8 1/8% notes due 2013 around 102.25 bid, 102.625 offered, while the Little Rock, Ark.-based telecommunications company's 8 5/8% notes due 2016 were slightly better than that level.

There wasn't all that much actually going on among established names either, traders said. "It was pretty boring, actually," one of them opined.

B/E higher

A market source was quoting B/E Aerospace's bonds higher, with its 8½% notes due 2010 at 106.5 bid, up from 105.75 previously, while the Wellington, Fla.-based aircraft interior components manufacturer's 8 7/8% notes due 2011 were up about a quarter point to 104.125. That followed the company's announcement that it has begun tendering for the $175 million of outstanding 101/2s. That tender offer, which also includes a solicitation of noteholder consents to proposed indenture changes, is slated to expire on Aug. 7.

However, at another desk, a trader quoted both sets of bonds unchanged, the 81/2s at 105 bid, 105.75 offered, and the 8 7/8s at 104 bid, 104.75 offered.

Levi edges up on earnings

The trader did see Levi Strauss' bonds up about half a point, with the San Francisco-based apparel company's 9¾% notes due 2015 at par bid, 100.5 offered, and its 12¼% notes due 2012 at 111 bid, 112 offered. A market source at another shop pegged the 93/4s up ½ point at 100.25, while its 8 7/8% notes due 2016 were up 5/8 point at 95.125.

Another market source said its 7% notes coming due on Nov. 1 were ¼ point better at 97.25, while the 8 5/8s were up ¾ at 95.75. The 93/4s were a point better at 99.5, while its floating-rate notes due 2012 were ½ point up at 102. The 121/4s were seen up 3/8 at 111.25.

That followed the San Francisco-based blue jeans maker announcement of better second-quarter net earnings, as profits jumped nearly $14 million, or 50%, to $40.2 million in the quarter ended May 28, from $26.8 million a year earlier. However, Levi acknowledged that the rise was largely due to a $32 million income tax benefit it was able to book, and its operating income fell to $115 million from $145 million a year ago. Sales were down about 1% year-over-year, on weakness in its European division and its Levi Strauss Signature brand business in the United States.

However, bond investors may have been heartened when company executives said on their conference call with analysts following the release of the earnings data that their top priority continues to be cutting debt - and outgoing president and chief executive officer Philip A. Marineau flatly shot down any suggestion that the privately held company might use the cash on its books to pay a dividend to its shareholders, reiterating that bringing down the company's $2.3 billion debt remains "Priority One" (see related story elsewhere in this issue).

However, not everyone was convinced. Another trader said that "when all was said and done, Levi ended unchanged," seeing the 93/4s drop a point to 98.5 bid, 99.5 offered in the early going before coming off those lows after the conference call and firming to 99.5 bid, 100.5 offered - about the same level at which he saw them on Monday.

Lucent weaker after warning

He also did not see very much movement in Lucent's bonds, calling its 6.45% notes due 2029 off perhaps half a point lower at 84.5 bid, 85.5 offered, which he added was "really nothing" in terms of movement. Another trader, however while pegging those Lucent bonds at 84.75, called that a 1 point drop.

A market source elsewhere saw the 6.45s down ¾ point at 84.5, while the company's other bonds were down about the same amount - its 5½% notes due 2008 at 97, its 6½% notes due 2028 at 84, and its 7¼% notes slated to come due on July 15 at par.

Lucent announced after the close on Monday that slower-than-anticipated sales of wireless communications gear will push its third quarter revenues down to about $2.04 billion - a sequential drop from the $2.14 billion seen in the just concluded second quarter and well down from $2.34 billion a year ago.

Amkor lower

Also seen on the downside on Tuesday was Amkor Technology Inc., whose 7¾% notes due 2013 retreated 1½ points to about the 89 level, a market source said, while a trader saw its 7 1/8% notes 1 point lower at 89 bid, 89.5 offered, although nobody had a ready explanation for the retreat in the Chandler, Ariz.-based semiconductor manufacturing services company's paper.

Mirant Corp.'s notes were seen down about two points, a trader said, after the Houston-based energy generating company announced plans to repurchase common stock in a Dutch auction tender offer; it will concurrently sell its Philippine and Caribbean businesses, but plans to return those proceeds to the shareholders, rather than cutting debt. He saw the company's 8.30% notes finishing the session at 98.75 bid, 99.75 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.