La Quinta bonds jump on Blackstone buyout news; Cablemas, Shaw deals price

By Paul Deckelman and Paul A. Harris

New York, Nov. 9 - La Quinta Corp.'s bonds were seen up solidly on Wednesday, buoyed by the news that The Blackstone Group has agreed to acquire the Dallas-based lodging company in a $3.4 billion that includes the assumption of La Quinta's approximately $810 million of debt.

On the downside, General Motors Corp.'s bonds were seen lower, after Fitch downgraded its debt two notches to B+ and the company announced that it will restate its 2001 earnings, during which time earnings may have been overstated by as much as $400 million. Market participants also worried about a possible strike at its No. 1 parts supplier, Delphi Corp.

Overall junk was seen lower, impacted by weakness in Treasuries and the continued bad news about General Motors.

One source said that trading was "light" in the morning, and tapered off to almost nothing Wednesday afternoon.

Meanwhile a primary market that saw its biggest day in a season on Tuesday, with $2.55 billion pricing is six tranches, turned out terms on only one dollar-denominated sub-investment grade bond deal on Wednesday as Mexico's Cablemas SA de CV placed an upsized $175 million issue of 10-year notes.

Cablemas oversubscribed, trades up

Mexico City-based cable TV operator, Cablemas, priced an upsized $175 million issue of 10-year senior notes at par to yield 9 3/8% during the Wednesday session.

The deal, which had been increased from $165 million, came at the tight end of the 9½% area price talk.

Credit Suisse First Boston ran the books for the debt refinancing, capital expenditure funding and general corporate purposes issue.

An informed source told Prospect News that the Cablemas deal went well, with the order book 2½ times oversubscribed, and added that the bonds traded up 75 cents when released for trading in the secondary market.

Shaw upsizes to C$450 million

Terms also emerged Wednesday on Shaw Communications Inc.'s upsized C$450 million issue of seven-year senior notes (Ba2/BB+).

The Calgary, Alta., company's new issue priced at par to yield 6.10%, at the tight end of the 6.20% area price talk.

TD Securities had the books for the debt-refinancing and working capital deal.

One informed source told Prospect News that because Shaw is a Canadian company, with a considerable name-recognition in Canada, the deal met with a lot of retail demand in the Canadian market.

The source added that U.S. accounts also played the deal, and commented that the order book was oversubscribed.

Winding down the short week

With the bond market closed Friday in recognition of Veterans Day in the U.S., four deals appear poised to price in what will be the week's final session, on Thursday.

EPL Finance Corp. (El Pollo Loco) has talked its $150 million offering of eight-year senior notes (Caa1/CCC+) at 11¾% to 12%. Merrill Lynch and Banc of America Securities are in the lead.

Targus Group International Inc. has 11¼% to 11½% talk out on its $150 million offering of eight-year senior subordinated notes (B3/CCC+) via Goldman Sachs & Co. and UBS Investment Bank.

On Wednesday, Athens, Greece-based Yioula Glassworks Group SA talked its €130 million offering of 10-year senior notes (B) 8¾% to 9%. Citigroup has the books.

Also expected to price is another emerging markets deal that is said to involve U.S. accounts: Malaysia's MegaSteel Harta.

The company is in the market with $450 million of senior secured notes (B1/B+) in two parts, a five-year note talked in the high 10% range and a 10-year note talked in the high 11% range.

Credit Suisse First Boston is leading the deal.

Three for the road

The busy November forward calendar continued to build on Wednesday with three prospective issuers announcing deals that will be marketed via complete roadshows, with pricing expected prior to Thanksgiving.

A roadshow got underway on Wednesday for Tronox Worldwide LLC's $350 million offering of seven-year senior notes (B1/B+) via Lehman Brothers and Credit Suisse First Boston.

Elsewhere Metals USA is in the market with a $275 million offering of senior secured notes (B3/B-), with Credit Suisse First Boston and CIBC World Markets as joint bookrunners.

Finally Greektown Holdings LLC and its wholly owned subsidiary, Greektown Holdings II, Inc., will begin a roadshow on Thursday for a $185 million offering of eight-year senior notes via Merrill Lynch.

La Quinta strong

Back among the established issues, La Quinta was the star performer of the day, driven by news of the Blackstone buyout deal. A trader saw La Quinta's 7% notes due 2012 jump to 106.375 bid from prior levels at 101.75, while its 8 7/8% notes due 2011 firmed a little more conservatively to 108.25 bid from 106.875.

Another trader noted that "we normally don't see a hell of a lot" of the hotelier's bonds. He saw the 7s up four points on the day at 106 bid, 107 offered.

La Quinta's New York Stock Exchange-traded shares zoomed $2.67 (32.48%) to end the day at $10.89 on volume of 26.2 million shares, some 25 times the usual activity level.

Blackstone will pay $11.25 in cash for each "paired" La Quinta share, a 37% premium over La Quinta's closing price of $8.22 on Tuesday. The total cash portion of the deal comes to $2.3 billion; including the debt assumption and transaction costs, the price tag will swell to $3.4 billion. Word from the bank debt market was that La Quinta had lined up the financing needed to back the LBO deal.

GM sinks

Apart from that, GM was making news on Wednesday on several fronts, all of it bad, and its bond price levels reflected that, with a trader quoting the Detroit-based automotive giant's benchmark 8 3/8% notes due 2033 as having fallen to 71.5 bid from prior levels at 72.75, while its 8¼% notes due 2023 were down 1½ points at 70.5.

Another said that GM was down from the get-go, thanks to a Wall Street Journal article that said GM - which said it would look into selling a controlling stake in its General Motors Acceptance Corp. financing unit - might have to put $2 billion to $3 billion of the anticipated proceeds (which could total $11 billion to $15 billion) to the government's Pension Benefit Guaranty Corp. to safeguard against a possible taxpayer bailout of the auto titan's U.S. pension funds.

"So that kind of put a negative spin on things" from the outset, the trader said. He saw the bonds and GM's stock "both seeming to bottom where they did back in May, and bounce off of that level," with the shares closing right at that May low of $24.65, while the '33 bonds got as low as 70, before coming off that level to close at 71 bid, 72 offered.

Besides the Journal article and the Fitch downgrade (down two notches, to BB+), GM also said late in the session that it would have to re-state its financial statements for 2001 because they had been overstated by about $300 million to $400 million due to accounting errors that led to a 25% to 35% overstatement of net income from continuing operations, according to a filing with the Securities and Exchange Commission.

And on top of that, former GM subsidiary Delphi Corp., currently in Chapter 11, reported a sharply wider loss for the third quarter. GM could be on the hook for several billion of Delphi pension and other employee costs as a result of the latter company's reorganization.

Another trader, looking at the late-day headline about the GM earnings restatement, exclaimed: "I can imagine how they're going to open" Thursday with the additional bad news. "Ooooh, this is gonna be ugly."

He said that up until now, "the market has been factoring in [these kind of negative developments] on the GM paper," and he suggested that the GM bonds could open Thursday "in the mid-60s, I would imagine - so watch that one in the morning."

Other autos weak

The GM news, combined with Delphi's wider loss "put a negative slam" on that whole auto sector, another trader suggested. Delphi's bonds, which all trade pretty much on top of one another since the Troy, Mich.-based automotive electronics maker's Chapter 11 filing early last month, were seen having plunged four points on the session to about 57 bid following its release of the third-quarter numbers. For the quarter, Delphi's net loss was $788 million ($1.40 per share), far wider than last year's third-quarter deficit of $119 million (21 cents per share). Revenue was $6.28 billion, down from $6.64 billion in third quarter 2004.

Another automotive name seen lower on sector sympathy was Delphi rival Visteon Corp., which on Tuesday reported its own bearish quarterly results and fell accordingly. The Van Buren Township, Mich.-based components maker's notes continued to retreat Wednesday, its 7% notes due 2014 seen down two points at 81.375 bid, and its 8¼% notes due 2010 three points lower at 88.5.

Jefferson Smurfit better

Also on the earnings front, Jefferson Smurfit Group's bonds firmed after the Ireland-based packaging maker posted its third-quarter results and, more importantly, outlined steps aimed at cutting costs and rationalizing output, including the closure of up to 20% of its corrugated cardboard plants by 2008, the possible sale of some or all of its consumer packaging division, and other measures aimed at cutting costs by $600 million annually, while raising revenues.

Smurfit's 8 3/8% notes due 2012 rose to 97.125 bid from 96.5, while its 7½% notes due 2013 were half a point better at 91.75, and its 9¾% notes due 2011 moved up to 101.375 bid from 100.75.

Exide eases

Exide Technologies' 10½% notes due 2013 lost half a point, a market source said, to close at 76 bid after the Alpharetta, Ga.-based storage battery maker reported a wider loss for the fiscal second quarter ended Sept. 30. Still, company executives said it was making progress in trying to cut costs and maintain liquidity.

And the company announced the abrupt resignation of its chief financial officer, although the CEO said no negative inferences should be drawn from the move, which he described as "a mutual decision" (see related story elsewhere in this issue).

Jean Coutu lower on Moody's cut

A trader saw "a little action" in Jean Coutu Group Inc.'s bonds, after the Montreal-based retailer - operator of the Eckerd drugstore chain in the U.S. northern states - was downgraded by Moody's Investors Service.

He pegged Jean Coutu's 8½% notes due 2014 down three points on the day at 91 bid, 92 offered, while its 7 5/8% notes due 2012 lost 2½ points to close at 97.

Moody's downgraded Jean Coutu's corporate family rating to B2 from B1 and lowered the 7 5/8s to B3 from B2 and the 81/2s to Caa1 from B3, all with a negative outlook.

"The downgrade of the long-term ratings reflects the weak performance of the acquired Eckerd stores and their slower-than-anticipated integration into the company," Moody's said. "As a consequence, lease-adjusted leverage and fixed charge coverage will not soon improve to levels that are appropriate for a higher rating level."

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