Pegasus bonds gyrate wildly; E*Trade deal prices, Celanese mega-deal drops dollar-tranche

By Paul Deckelman and Paul A. Harris

New York, June 2 - Pegasus Satellite Communications Inc. bonds took investors on a wild rise Wednesday, falling sharply on the news that DirecTV and the National Rural Television Cooperative, of which Bala Cynwyd, Pa.-based Pegasus is a rebellious member, had agreed to end the exclusive rights NRTC members had to distribute DirecTV programming to their mostly rural customers - but the bonds were seen having bounced solidly later as holders mulled the news that DirecTV was offering to buy Pegasus' subscribers for a lump sum.

After the market closed, Pegasus put an end to several weeks of speculation about its fate by filing for Chapter 11.

Elsewhere, Nortel Networks Corp. bonds were essentially unchanged, even as the Brampton, Ont.-based telecommunications equipment maker put on a presentation for analysts at which it outlined the progress it was making on restating its results due to previously announced accounting irregularities.

In the primary market, E*Trade Financial Corp. was heard to have priced an offering of seven-year notes, while Allegheny Energy Inc.'s subsidiary, Monongahela Power Co., brought a quickly marketed issue of 10-year bonds to completion. Meanwhile, word spread that Celanese AG's massive $1.315 billion equivalent offering has been restructured two tranches 10-year senior subordinated notes in dollars and euros.

Pegasus Satellite's bonds "saw the most action [Wednesday]," a trader said, quoting the company's 11¼% notes due 2010 as having opened at 48 bid, 50 offered, and now trading flat or without accrued interest. In nominal terms, that was actually up slightly from their Tuesday close around 46 bid, 48 offered, although the trader said that since they had previously been trading with several points worth of interest but now were not the levels are not really comparable.

He saw those bonds trade up to 54 bid, "and then they melted down," back down to 48. But the bonds finished the day at 55.5 bid, 56.5 offered.

"They were very volatile," he continued, "because there was a lot of news out on them. I don't know how actively traded they really were, but there were a lot of markets, a lot of quotes. They were a moving target."

He said he really hadn't seen much of the other Pegasus bonds; only the 11¼%, at a size of $340 million, is really liquid enough to have a lot of investor interest. "The others are mostly less than $100 [million]."

He said that the Pegasus 13½% notes due 2007 were at 19 bid, 21 offered, about the levels they held on Tuesday and "I didn't see any trades in them."

At another desk, a market source saw the 11¼% notes opening at 51 bid and ending at 56.5 bid, same as the 12½% notes due 2007 and 12 3/8% notes due 2006. He saw the 131/2s jump from 19 bid to 23, and pegged Pegasus' 9 5/8% notes due 2005 and 9¾% notes due 2006 at 56.5 bid, up from 53.

A trader in distressed bonds exclaimed that "PGTVs were on a roller-coaster!"

He saw most of the company's issues, such as the 12 3/8%, 9¾% and 11¼% notes going from 55 to 46, then back up to 55, back down to 48 and finally to 55-56 at the close "all trading the same now." The 131/2s, he said, "got up to 22-26, and then traded at 16 and were staying down there."

He said the 131/2s didn't advance because "people are beginning to realize that they're junior - and they're not going to get what the other [holders] are going to get - if they get what they think they're going to get."

He said that ultimately, "it all depends on whether [Pegasus] actually sells to DirecTV, and what the price is. "DTV is going to bid for their subscribers, pay for their subscribers - and then be done with them." The two companies have been at odds for quite some time, with Pegasus feeling that DirecTV is being high-handed and undervalues its subscribers, and DirecTV contending that Pegasus' subscribers aren't worth anywhere near what Pegasus thinks they are worth.

During Wednesday's session, Pegasus received notice from the National Rural Telecommunications Cooperative (NRTC) terminating Pegasus Satellite Television's exclusive distribution arrangements, which provide exclusive rights to distribute DirecTV services in specified U.S. rural territories.

DirecTV made a cash offer to Pegasus - payable in either a lump sum or monthly payments - if Pegasus agrees to an orderly transfer of its subscribers to DirecTV that is completed before Aug. 31.

Pegasus then said it was considering its response - which turned out to be a late-day Chapter 11 filing.

Bankruptcy worries had grown recently due to a court case involving DirecTV, in which DirecTV won a judgment of $51.5 million against Pegasus, plus interest - money Pegasus says it does not have. Furthermore, DirecTV later said that judge Lourdes Baird of the U.S. District Court for the Central District of California had entered a judgment in favor of DirecTV Inc. against Pegasus Satellite Television Inc. and Golden Sky Systems Inc. (Pegasus) of $62.6 million, which includes prejudgment interest. DirecTV is also entitled to recover its legal costs.

Nortel little moved

Elsewhere, Nortel Networks bonds were little changed, with the telecom equipment maker's benchmark 6 1/8% notes due 2006 quoted at 98 bid, 98.5 offered.

The company - in the midst of restating its financial results from 2000 through 2003 due to accounting irregularities which surfaced late last year, held a conference call with analysts Wednesday morning, at which recently appointed chief executive officer William Owens said the company was working as quickly as possible to try to finish up the restatement - but he said that Nortel wanted to be sure the numbers were accurate and complete. Accordingly, Nortel said it did not know when the restatement would be completed and when it would be able to file its long-delayed 2003 10-K annual report with the Securities and Exchange Commission (see related story elsewhere in this issue).

Calpine trades, rises

In other names, a trader said that Calpine Corp. notes were "pretty active" and "in general, up about a point," with the San Jose, Calif.-based independent power producer's 8½% notes due 2008 at 60 bid, 61 offered.

Oregon Steel better

Oregon Steel Mills Inc. 10% notes due 2009 were up half a point at 103.75 bid, 104.25 offered, he said, in the wake of Moody's Investors Service having revised its outlook for the Portland, Ore.-based steel mill operator to positive from stable; the ratings agency cited the company's improved results, and a "strong turnaround" in the domestic steel industry. At another desk, the Oregon 10s were quoted up half a point, but at 104.25.

The trader said that Level 3 Communications Inc.'s bonds were "up a bit," the Broomfield, Colo.-based telecommunications operator's 11% notes due 2008 pushing up to 85 bid, 86 offered from 82 bid, 83 offered Tuesday.

"There was no news," he said, "but it was a decent move."

However, he said that the thin trading volume "makes the market that much more dangerous. The underlying tone is still pretty risk-averse. If you short some bonds here, you can get hurt pretty bad."

Overall, he said market activity was "very spotty - no fluidity to speak of. Generally - it was a mess."

New issue yields seen more appealing

Over half a billion dollars' worth of deals went down Wednesday in the primary market, with the lion's share of the proceeds being hauled away by E*Trade Financial Corp.

And the post-Memorial Day week's mega-deal, Celanese AG's planned $1.315 billion equivalent, underwent one further modification, shedding a dollar-denominated off-shore tranche that had high yield sources far and wide scratching their heads.

Meanwhile a buy-side source, speaking on background, suggested that the present U.S. high yield is a market that even Goldbricks could admire.

"The market has turned around a lot," said the investor. "It's very differentiated. There are a lot of good deals out there with attractive yields.

"If I can earn 9½%-10%, that's an equity-like return. Why buy equities if you can get it in bonds?

"At the beginning of this year you got 8% and had to be happy with it."

The investor also suggested that the fretting about probable higher interest rates that has jammed the financial airwaves throughout the second quarter of 2004 is obscuring the good news.

"It's a great environment for high yield right now," said the buy-sider. "Global growth is strong. Inflation helps high yield - not that we're seeing inflation.

"I don't expect to see an economic slowdown anytime soon. Check back with me in six months, but I think 2004 is going to be a good year.

"The market is so caught up in the Fed. I think the interest rate [Fed Funds target rate] could double by the end of the summer. Everyone is expecting a 25 [basis] point increase at the end of June and another 25 [basis] point increase or a maybe a 50 [basis] point increase in August.

"The rate could double by the end of the year. But that is basically what the market is expecting."

Celanese drops off-shore dollar piece

The deal that has garnered much of the market's attention thus far in the post-Memorial Day week, BCP Caylux Holding (Celanese AG)'s upcoming $1.315 billion equivalent, underwent one further modification on Wednesday.

The company now plans to price two Rule 144A/Regulation S tranches on Thursday, having abandoned a Regulation S-only dollar-denominated off-shore tranche.

The Kronnberg, Germany industrial chemical company is selling 10-year senior subordinated notes (B2/B-), which are expected to be issued with registration rights.

The dollar tranche is being talked at 9½%-9¾%. The euro tranche is talked 50-75 basis points behind the dollar tranche.

Morgan Stanley, Deutsche Bank Securities and Banc of America Securities are joint bookrunners.

Asked to comment on the Celanese deal, the above-quoted buy-sider simply said: "It seems real cheap to me. Originally there were talking in the high eights.

"In this environment any deal you get done is a good one."

E*Trade, Monongahela sell deals

Slightly over half a billion of bonds were sold during Wednesday's session in the primary market.

E*Trade Financial Corp. sold $400 million of seven-year senior notes (B1/B+) at par to yield 8%, wide of the 7½%-7¾% price talk.

Morgan Stanley ran the books on the debt-refinancing deal from the New York City-based online brokerage company.

And in drive-by action Wednesday, Monongahela Power Co. priced $120 million of 6.7% 10-year notes (Ba1/BB-) at 99.753 to yield 6.734%.

Citigroup ran the books debt refinancing deal from the unit of Allegheny Energy, Inc.

Price talk, structure changes

Developments were heard during Wednesday's session on deals in the market that are expected to price before the end of the week.

Language Line Inc. restructured the bond and bank components of its acquisition financing. The company increased the amount of bonds it will offer to $220 million from $170 million, adding a mezzanine tranche.

The company is now offering $165 million of eight-year non-call-four senior subordinated notes (Caa1CCC+). Price talk is 11 ½%-11 ¾%. Despite the overall increase, the tranche has been reduced from $170 million.

Meanwhile at the holding company level Language Line has added a mezzanine tranche of $55 million face amount of nine-year non-call-four senior discount notes. Price talk is 275-300 basis points behind the senior subordinated notes.

The bonds are expected to price on Thursday.

Merrill Lynch & Co. and Banc of America Securities are the underwriters.

The company has reduced the term loan B portion of its credit facility to $285 million from $335 million.

Meanwhile ThermaClime, Inc. issued price talk on its downsized and restructured $78 million two-tranche high-yield note offering.

Price talk is six-month Libor plus 450 basis points on $40 million of seven-year non-call-two first priority senior secured floating-rate notes.

Meanwhile price talk has $38 million of seven-year non-call-four second priority senior secured fixed-rate notes coming with a 13% coupon at a slight discount.

The deal was downsized from $90 million and had previously been marketed as a single 10-year non-call-five tranche. The change in structure prompted Standard & Poor's to withdraw its B- senior secured debt rating on the notes, which had been "based on preliminary terms and conditions."

However an informed source told Prospect News late Wednesday that the expectation is that the deal will be rated. The source also suggested that it could be upsized.

The deal is expected to price on Thursday via Jefferies & Co.

Finally, the buy-sider quoted above told Prospect News on Wednesday that Clean Harbors Inc., which has been in the market with a $150 million offering, will restructure the deal once again.

The investor said that the Braintree, Mass. environmental remediation and hazardous waste management company will now offer eight-year senior second lien notes. Earlier the Credit Suisse First Boston and Goldman Sachs-led deal had been restructured into senior notes, from senior subordinated notes, and the maturity decreased to eight years from 10 years.

The buy-sider said that the Clean Harbors is simply trying to improve the Caa1/B ratings and save some cash.

"It's off the road right now," said the buy-sider. "They had to go back to the bankers, who apparently approved it Tuesday. So now they have to go back to the rating agencies and get the credit rating raised, so they can save themselves some money.

"They think that they deserve more than the triple hooks. And I agree with them."

A bookrunning source contacted late Wednesday declined to comment on any of the investor's information but specified that news on the deal could emerge by the end of the week.

Pacific Energy hits the road

A June 3-10 roadshow is set to run for Pacific Energy Finance Corp.'s $240 million of 10-year senior notes, Prospect News learned on Thursday.

Lehman Brothers will run the books for the debt refinancing deal from the subsidiary of Pacific Energy Partners, LP, a limited partnership headquartered in Long Beach, Calif., which gathers, transports, stores and distributes crude oil and other related products in California and the Rocky Mountain region.

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