Hard Rock, Mobile Satellite deals price; Level 3 bullish on Bear comments; funds see $49 million inflow

By Paul Deckelman and Paul A. Harris

New York, March 23 - Hard Rock Park was heard by high yield syndicate sources to have successfully priced an upsized note offering Thursday, with the formerly single-tranche deal ultimately pricing as a three-part issue. Late in the session, Mobile Satellite Ventures sharply upsized its offering of seven-year discount notes.

Also in the new-deal arena, AutoNation was heard likely to come to market with an $800 million issue in early April, while price talk emerged on Finnish paper maker M -Real Corp.'s euro-denominated issue, which could price as soon as Friday.

In the secondary arena, General Motors' second major news announcement in as many days - that it will sell 78% of its commercial mortgage division to Kohlberg Kravis Roberts & Co. for about $9 billion - was seen having little impact on the giant carmaker's bonds or those of its General Motors Acceptance Corp. financial subsidiary, which technically owns the commercial mortgage unit being mostly sold. If anything, traders said, those bonds were lower on the session due to profit-taking.

A name which was seen on the upside on the other hand, was Level 3 Communications Inc., whose bonds firmed smartly after a Bear Stearns & Co. equity analyst upgraded the Broomfield, Colo.-based telecommunications company's shares.

A market source described high-yield as slightly heavy with Treasuries and the equity sell off on Thursday, and marked it unchanged to down a touch, adding that autos were down.

And late in the session, participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $48.9 million more came into the funds than left them.

It was the first inflow seen after six straight weeks in which the funds had been bleeding money, including the $403.7 million outflow reported in the week ended Wednesday, March 15. That was the single largest weekly outflow seen so far this year.

During that six-week stretch, outflows totaled $780.2 million, according to a Prospect News analysis of the AMG statistics.

Even counting the latest week's result, outflows have still been seen in nine weeks out of the 12 since the start of the year, totaling about $1.1 billion in that time, down from the previous week's nearly $1.15 billion total, according to the Prospect News analysis.

The latest inflow is a small respite from the decidedly negative pattern seen in 11 of the previous 14 weeks, dating back to mid-December. In that time, net outflows totaled $1.995 billion, the analysis indicated.

Those results, in turn, confirm the continuation of the predominantly negative trend that was in evidence throughout most of 2005, when $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the $3.236 billion net outflow seen in 2004.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Mobile Satellite prices upsized deal

Very late in the session, Mobile Satellite Ventures was heard to priced a sharply upsized offering of seven-year senior secured discount notes. That issue, originally envisioned at a $300 million face amount, was more than doubled to $750 million, generating proceeds of $436.17 million.

The new bonds priced at 58.156 and will yield 14%. They will be payment-in-kind until Oct. 1, 2010 and then cash pay at 14%.

The unrated Rule 144A deal was brought to market via joint book-running managers Merrill Lynch & Co. and Morgan Stanley.

Mobile Satellite Ventures, a Reston, Va.-based mobile satellite communications provider, plans to use the proceeds of the issue for general corporate purposes, working capital and to fund the construction of its next generation of integrated networks.

Another bit of late news out of the primaryside was that M-Real's €500 million seven-year issue is expected to price Friday, and was being talked at a yield of around 7¼%.

Deutsche Bank Securities and Barclays Capital will bring the deal in.

The Espo, Finland-based paper maker plans to use the proceeds to repay existing debt.

Hard Rock Park prices $305 million

Also in the primary market, Hard Rock Park, a theme park in Myrtle Beach, S.C., raised $305 million by pricing three issues of securities on Thursday via Deutsche Bank Securities.

At the operating company level, Hard Rock Park Operations, LLC priced a $155 million issue of six-year senior secured floating-rate notes (B3/B) at par to yield six-month Libor plus 475 basis points. The yield came 12.5 basis points wide of the Libor plus 450 basis points area price talk.

Hard Rock Park Operations, LLC also priced a $100 million issue of seven-year fixed-rate junior secured notes at par to yield 12½%.

Meanwhile at the holding company level HRP Mrytle Beach Holdings, LLC priced $50 million of units comprised of one 14½% eight-year senior secured PIK note and one share of class B common stock. The units priced at par with 89.914% of the issue price designated for the note and 10.086% for the stock.

The enterprise had come to market to fund the design, development, construction and equipment of the new theme park. The developers are Fantasy Harbour Theme Park LLC and Hard Rock Cafe International Inc., a subsidiary of the London-based Rank Group.

The $155 million issue of six-month Libor plus 475 basis points senior secured floating-rate notes due 2012 had been marketed via an investor roadshow. On Thursday an informed source characterized the junior secured notes and PIK notes as more targeted placements.

Autonation starts roadshow for $800 million

One roadshow start was announced.

Autonation Inc. will begin marketing its $800 million two-part senior unsecured notes offering (Ba2/BB+/expected BB+) on Monday.

The tranche sizes will be evenly split between a $400 million offering of eight-year fixed-rate notes and a $400 million seven-year floating-rate notes.

JP Morgan, Banc of America Securities and Wachovia Securities are joint bookrunners for the debt refinancing and share repurchase deal from the Fort Lauderdale, Fla., automotive retailer.

MGM, Eschelon steady

Back in the secondary sphere, there was no aftermarket activity seen in the Hard Rock Park deal, and there was certainly none in the very late-breaking Mobile Satellite Ventures offering.

Among recently priced offering which were seen having freed for secondary dealings, both tranches of MGM Mirage's new bonds, which priced Wednesday at par, were seen clinging to that level.

And the new Eschelon Telecom 8 3/8% 2010 add-on bonds, which priced Wednesday at 95 bid, were likewise little changed, a trader said, at 95 bid, 96 on Thursday.

GM dips

Back among the established issues without any new-deal connections, a trader saw GM's benchmark 8 3/8% notes due 2033 "actually a point lower" on the news of the impending asset sale, with the bonds retreating to 73 bid, 74 offered.

He meantime saw GMAC's most widely traded issue, the 8% notes due 2031, dip a point to 92 bid, 93 offered.

"All of the GMACs were about a point lower," he said, noting that the financing arm's 6¾% notes due 2014 retreated to 88 bid, 89 offered, and its 6 7/8% notes due 2011 stepped back to 90 bid, 91 offered.

Another trader confirmed that GM and GMAC were easier, seeing the former down a point at 73.25 bid, 73.75 offered and the latter at 92.25 bid, 93 offered, which he called down a quarter point.

The GM/GMAC bonds headed south despite the news of the nearly $9 billion planned sale of most of GMAC Commercial Holding Corp. Under the complex transaction, GMAC will get about $1.5 billion from the KKR-led investment group and GMAC Commercial Holding repaid $7.3 billion in intra-company loans from GMAC. GM will continue to hold the remaining 22% of the mortgage company, which changed its name to Capmark Financial Group Inc.

Back in August, GM said it had agreed to sell a 60% stake in the commercial mortgage holding business to a buyer group consisting of KKR, plus Five Mile Capital Partners and Goldman Sachs Capital Partners. That buyer group recently decided to increase its equity to 78%, producing the transaction announced on Thursday.

The sale of most of the commercial mortgage unit comes at a time when GM is trying to do a similar deal, and sell control of GMAC itself, in hopes putting some cash - estimated anywhere from $10 billion to $13 billion - into its own coffers and getting GMAC's debt ratings back up to investment grade by selling the majority stake to a better rated financial company.

So far, things have not unfolded quite that way. Several major banks said they were not interested in buying control of GMAC, and the only two bids that have been reported to have emerged so far have come from hybrid groups dominated by private equity companies - a Cerberus Capital Management-led consortium that includes Citigroup's buyout unit, but not the main giant bank itself, and a KKR-led group reportedly including and several large financial players in subsidiary roles. The ratings agencies have indicated that they probably won't up GMAC's ratings back to high-grade - so it could enjoy lower borrowing costs - as long as the private equity players are in the driver's seat.

However, the infusion of nearly $9 billion into GMAC's till can only make the auto finance group a more attractive acquisition target, which could - in theory, anyway - flush out other potential buyers.

The announcement of the mortgage group sale follows by a day GM's announcement that it, its bankrupt former subsidiary Delphi Corp. and the United Auto Workers union had agreed on a plan to offer buyouts to tens of thousands of GM and Delphi hourly employees represented by the UAW.

GM - which spun Delphi off in 1999 but left it with costly car-maker style labor agreements, Delphi charges - will pay the costs of buying out some 13,000 Delphi UAW members for lump sums of up to $35,000 apiece, and will accept as many as 5,000 more Delphi workers into its own ranks. GM is at the same time offering lump-sum buyouts ranging from $35,000 up to $140,000 for all of its own UAW-represented workers, although it is certain that most will not want to take that offer.

GM's bonds initially rose on Wednesday on news of the deal but ended unchanged to lower, according to most traders. Delphi's bonds gave up most of their early gains and generally were up only modestly on the day Wednesday.

In Thursday's dealings, the bankrupt Troy, Mich.-based automotive electronics maker's 6.55% notes due 2006 and 7 1/8% notes due 2029 were each seen down 1½ points at 65 bid, 66 offered and 65.75 bid, 66.75 offered, a trader said.

Dana falls back

He also saw bankrupt Toledo, Ohio-based automotive components maker Dana Corp.'s bonds - which had shot up about three points on Wednesday, as the company firmed up the details of its more than $1.3 billion of debtor-in-possession financing, as having fallen back Thursday by about 1½ points, with Dana's 5.85% notes due 2015 dipping back to 77 bid, 78 offered, and its 6½% notes due 2008 ending down 1½ points at 81 bid, 82 offered.

A trader noted that the auto-parts sector area has recently been strong, as Dana's bonds have jumped sharply from the levels they held when the company went into Chapter 11 on March 3, and as Delphi investors were waxing optimistic about the chances that former parent GM and the union would offer Delphi concrete help as it tries to cut its burdensome labor costs and restructure itself.

He chalked Thursday's pullback up to routine profit-taking off the sector's recent gains.

Level 3 gains on analyst view

Elsewhere, Level 3's bonds were seen solidly better Thursday, helped by Bear Stearns equity analyst Steven Randall's change in his recommendation in the company's shares to "outperform" from "underperform" previously.

""We expect an improved operating environment and the impact of consolidation will benefit Level 3 over the next several years," Randall wrote in a research note.

"In 2006, we expect price declines to continue to moderate while traffic volumes increase, with the potential to accelerate in 2007 and beyond as the internet is increasingly used to transport voice, data and video."

The analyst also upped his fiscal 2006 EBITDA estimate to $583 million from $575 million.

That was enough to push Level 3's 10¾% notes due 2011 up two points to 98.5 bid, 99.5 offered.

A trader at another desk saw those operating company bonds 1½ points better at 98.25 bid, 99.25 offered and saw its holding company 9 1/8% notes due 2018 half a point better on the day at par bid, 101 offered.

A market source saw those bonds at 100.25 bid, which he called half a point up.

Another market source rather colorfully stated that Level 3's bonds were "screaming like a striped-ass ape."

And so were its Nasdaq-traded shares, which jumped 57 cents (16.57%) to $4.01 on extremely heavy volume of 105 million shares, eight times the norm.

Sirius keeps rising

In other activity, a trader saw Sirius Satellite Radio Inc.'s 9 5/8% notes due 2013 trading at 98.5 bid, 99.5 offered, which he called "the highest they've been in months."

The New York-based upstart satellite radio broadcaster - looking to steal market share from both traditional earth-based radio stations and from larger satellite competitor XM Satellite by high-profile coups such as the much-publicized signing of outrageous shock-jock Howard Stern - announced earlier in the week that it has topped four million subscribers, an amazing jump of some 700,000 since the start of the year, and is on track to easily beat its previously announced goal of six million paid customers by the end of 2006.

He also saw the steel sector "continuing very strong" on consolidation speculation, with AK Steel Corp.'s 7 7/8% notes and 7¾% notes both hovering around par bid, 100.625 offered.

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