Elan bonds continue retreat; Cablevision bonds off on VOOM confusion

By Paul Deckelman and Paul A. Harris

New York, March 1 - Elan Corp.'s bonds continued to head lower Tuesday, although the magnitude of their retreat was far less than the swoon seen on Monday when the bonds lost around 12 points after the Irish pharmaceuticals company and its partner Biogen Idec Inc. announced a voluntary suspension of sales of their new multiple sclerosis drug Tysabri, after one patient who used it died and another developed a serious disease of the central nervous system.

Also on the downside were Cablevision Systems Corp. bonds, after the Bethpage, N.Y.-based cable operator announced plans to close its VOOM satellite TV unit after the apparent failure to sell the unit's assets to a group controlled by company chairman Charles Dolan. However, traders noted that the Dolan group put out its own announcement that would seem to indicate that the prospects of a deal are not quite dead yet.

In the primary market, activity was super-slow, with no deals heard to have priced by closing time, and only scattered calendar-building activity. One item, however, was anything but routine, as Amadeus Travel was heard likely to do a €1 billion deal sometime in this year's first half, with the money used for a leveraged buyout of the company.

A little more immediately, Fraser Papers Inc. was heard getting ready to hit the road Wednesday to sell a $150 million issue of 10-year bonds.

Among newly issued debt, Rural Metro Corp.'s new 9 7/8% due 2015 were quoted at 102.25 bid, 103.25 offered - well up from the Scottsdale Ariz.-based emergency medical transportation company's bonds' par issue price Monday, but actually off slightly from Monday's close at 102.5 bid, 103.5 offered.

Back among the established issues, Elan's 7¼% notes due 2008 - which on Monday had fallen as low as 86 bid, 88 offered from prior levels at 104.25, before bouncing off those lows to end at 92 bid, still down 12 points on the day - were once again lower, although they suffered nothing like Monday's dramatic drop.

A trader quoted those bonds at 89 bid, 90 offered, saying that they felt "pretty heavy."

He also saw the company's 7¾% notes due 2011 dip to 86 bid, 87 offered, down from 87.5 bid on Monday. Again, Tuesday's drop in the issue was a drop in the bucket, compared with Monday's plummet from 106 bid.

The Elan bonds "had traded off their [Monday] lows and were up two or three points early on," he said, "but then they faded. I don't know if there was more news on them, or just sellers coming out.

Several other traders also saw the 73/4s at 86 bid, 88 offered, although one described that as "relatively unchanged."

The bonds had been badly beaten down on Monday when Elan and Biogen said that after discussions with the Food & Drug Administration they had decided to pull the multiple sclerosis drug Tysabri off the market in the wake of the death of one patient who had used it and a serious illness that the drug may have caused in another.

"If you read some of the equity analysts' reports on these guys and look through their business," the first trader said, "basically 90% of the value of the company is tied up in that one drug. So, if you take that away . . ." He left the sentence trailing off ominously.

What happens next "all depends on whether they're able to bring it back or move it in a different direction," presumably after finding whether Tysabri was in fact to blame for the death of the one patient and the illness of the other. "Maybe they can recover. But if not, I think it's basically going to be a restructuring. A lot of people are coming to that realization now."

Moody's Investors Service meanwhile lowered its outlook on Elan's B3 bonds to negative from stable previously. The ratings agency cited "greater uncertainty regarding Elan's longer-term viability if the marketing of Tysabri does not resume."

Cablevision off on VOOM muddle

Elsewhere, Cablevision bonds were lower amid investor confusion over what's to happen to the cable operator's money-losing VOOM satellite TV programming unit.

Cablevision's 8% notes due 2012 were quoted down two points on the session at 111 bid. That was the same level at which another Cablevision bond, the CSC Holdings 8 1/8% notes due 2009, were seen to have eased, down a point on the day.

At another desk, a trader quoted Cablevision's 7 7/8% notes at 107 bid, 108 offered, down about half point on the session, although the trader said that those bonds had been down a full point, at 106.5 bid, 107.5 offered, before coming off the lows. "They did bounce a little."

Meantime, Cablevision unit Rainbow National Services' 8¾% notes due 2012 were at 113 bid, 114 offered and Rainbow's 10 3/8% notes were at 118 bid, 119 offered, "pretty much where they were yesterday," the trader said, "or maybe down 1/4." Rainbow is the unit that VOOM has been a part of.

Back in December, Cablevision, tired of the drag that VOOM was exerting on earnings, decided to sell assets of its money-losing Rainbow DBS business, including an orbiting earth satellite, to EchoStar Communications Corp.

That decision was not reached without considerable boardroom acrimony that pitted company chairman Charles Dolan, VOOM's champion, against his own son, James, the company's chief executive officer, who wanted to pull the plug on VOOM once and for all.

However, not all of the Rainbow assets were sold to Colorado-based EchoStar, and Cablevision said it would shop the remaining assets around. After announcing the EchoStar deal, the elder Dolan and another son, Thomas, went about putting together a syndicate to buy the remaining VOOM assets. They were running against a Feb. 28 deadline to make a deal with the company and apparently could not come up with one in time, for Cablevision on Tuesday issued a statement saying that it would close VOOM.

However, "the word is that Charles Dolan seems to not be giving up," the trader said, noting another memo sent to VOOM employees saying that the Dolan family "remains committed to the business and that the financing for the deal is in place. It seems to be a little ambiguous as to what's going on."

Charter down on earnings

Cablevision competitor Charter Communications Inc. was out with fourth-quarter and year-end numbers, and the St, Louis-based cable operator's bonds were seen pretty much down about half a point across the board.

A trader saw Charter's 7 5/8% notes at 81.5 bid, 82.5 offered, while at another desk, Charter's 8% operating company notes due 2012 lost nearly a point to end at 102. Charter's 9 5/8% notes due 2009 were seen off a point at 82.25 bid.

A trader said that the news that Charter's respected acting co-CFO, Derek Chang, was leaving the company (see related story elsewhere in this issue) was "a shock to the market" that drove the bonds down half a point, even though "they hit the cash flow target that they were gunning for," and even though the loss of 209,000 analog subscribers in 2004 - 40% of them in the fourth quarter - is not that big a deal, because "the real money to be made is in high-speed data and they've been making some real inroads in that business. So they have a good product and you can make a decent margin on high-speed data."

He said that at his shop "we're OK with Charter," despite the company's $19 billion of debt. "Our sense is these bonds are covered." At a yield of 10% for most of the Charter issues, he said, "this is one of the best plays in high yield at this point.

"People are dying for good opportunities in high yield," he said. "I think this is a glaring one."

Snow muffles primary

Talk turned Tuesday to the weather as Prospect News called upon high-yield primary market sources.

Snow, they said, had thinned the ranks of the junk bond market, and added that bond prices had been seen to ease somewhat during the muted March 1 session.

They also added that more snow was on tap for Tuesday night.

Hence the weather served as the primary explanation for a quiet session that saw no issues price, although there was an assortment of roadshow announcements. Interestingly, among three deals heard Tuesday to be poised to hit the high-yield road, only one was from a North American company - and that one was a Canadian firm.

Two Asian firms to shop notes

Two Asian firms stepped forward, both with sizable deals during the session. A sell-side source said that both figure to garner the attention of high-yield accounts as well as emerging markets investors.

Singapore-based commodities trading firm, Noble Group Ltd., will commence a two-team roadshow on Thursday in Singapore and the United States for a $500 million offering of 10-year non-call-five senior notes (expected ratings Ba1/BB+).

Subsequent roadshow stops will include the United States and Europe, with the deal expected to price mid-to-late next week.

JP Morgan has the books for the deal, proceeds from which will be used to strengthen the company's balance sheet and provide working capital.

Also Hong Kong-based Titan Petrochemicals Group Ltd. will begin a roadshow on Wednesday in that city for its $400 million offering of seven-year senior unsecured notes (B1/B+).

As with Noble Group, investor presentations are scheduled to be made in Europe and the United States, and Titan is also expected to price mid-to-late next week.

Morgan Stanley has the books for the deal, proceeds from which will be used to repay the petrochemical trading firm's secured debt, provide it with working capital and also be used for general corporate purposes.

Fraser Papers $150 million starts Wednesday

The only North American company to announce a bond deal during the Tuesday session was Toronto-based Fraser Papers Inc., which will kick off its roadshow on Wednesday for a $150 million offering of 10-year non-call-five senior notes (B3/B).

The Credit Suisse First Boston-led deal is expected to price next week.

Proceeds will be used to repay debt and buy out leases.

Along the euro pipeline

Meanwhile on Tuesday rumblings were heard of pending European high-yield issuance.

One name that has "been out there," in the parlance of investment bankers, is that of German upscale women's apparel designer and marketer Escada AG.

The company is heard to be coming with a €150-200 million offering of high-yield notes via Deutsche Bank Securities and Morgan Stanley.

A source said Tuesday that Escada is likely to be coming within the next few days.

Another European company heard to be prepping a bond deal is Paris, France-based electrical equipment supplier Rexel SA.

Rexel is expected to come with a €600 million offering of 10-year notes, via JP Morgan, HSBC, Merrill Lynch & Co., Morgan Stanley and The Royal Bank of Scotland.

The European source said Tuesday that the LBO financing deal could come within the next 10 days.

Further out along the pipeline is Spain's Amadeus Global Travel Distribution, SA, which is expected to sell approximately €1 billion of high-yield bonds during the first half of 2005, also to back an LBO.

Credit Suisse First Boston and BNP Paribas will be involved in the transaction that is thought likely to emerge in an April-May time frame.

The source told Prospect News that at present the European high-yield market appears to be moving from strength to strength.

"There is a ton of cash," said the source.

"The market has been a lot stronger over the past couple of days," the source added, making reference to the DJ iTraxx Crossover Europe Series II five-year index, a crossover index for credit derivative swaps.

"It's at 159, now, which is really the tightest it has ever been. A couple of months ago it was 200 over, and I thought it was tight then."

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