Ball Corp., Serena deals price; GM continues rise; Movie Gallery slides

By Paul Deckelman and Paul A. Harris

New York, March 7 - Armed with a newly extended maturity, Ball Corp.'s $450 million bond offering successfully came to market Tuesday, along with a 10-year deal for Serena Software Inc. The latter deal was heard to have firmed smartly in aftermarket activity.

Auto Nation Inc. meantime unveiled plans to sell $900 million of fixed- and floating-rate notes, and to use a portion of proceeds to take out existing bond debt via a tender offer.

In the secondary arena, General Motors Corp. bonds, and those of its General Motors Acceptance Corp. financial subsidiary, were seen having pushed higher for a second straight session, as the giant carmaker - trying to cut its bloated cost structure in order to bring spending more in line with revenues - announced changes in its pension program for its 42,000 salaried employees.

However, the junk automotive parts sector - which on Monday had been mostly higher, in line with GM's rise that day - was mostly unchanged to easier, in line with a generally easier tone in the overall market, according to traders.

Outside of the autos, Cablevision Systems Corp.'s bonds were easier on news that plans to pay shareholders a $3 billion special dividend are apparently back on track.

And Movie Gallery Inc. bonds were down several points on the day, possibly in response to a pair of conference calls with lenders that apparently did not go as favorably as initially thought.

A buy-side source who spoke on background said that the broad high-yield market was as much as a quarter of a point lower on Tuesday.

"People have watched Treasuries for the past couple of days and are wondering why high-yield is not selling off the way Treasuries are," the source commented.

"Things are tighter but they are coming down."

The buy-sider explained that higher quality high-yield bonds, which tend to trade on spreads to Treasuries, are just grinding tighter with the recent dramatic sell-off in government paper.

This, the buy-sider added, puts portfolio managers in a Catch 22 predicament.

"People don't want to sell because they don't have anything to replace it with. But they don't want to buy because it has gotten so tight.

"Dealers don't have a lot of supply, but they still don't want to be buying stuff at these levels."

The source commented that the market appears to be "grinding a little bit to a halt," as players wait to see whether Treasuries will come back or high-yield adjusts to the higher interest that Treasuries are paying.

"For right now it's a Street-type of trade, with fast-money traders and not a lot of real money going into this market," the buy-side source commented.

Ball Corp. extends maturity

Meanwhile in Tuesday's primary market, two transactions were completed.

Ball Corp. priced a $450 million issue of 6 5/8% 12-year notes (Ba2/BB) at 99.799 to yield 6.65%, within the 6 5/8% area price talk.

The maturity of the notes was extended by two years to 12 years from 10 years.

Lehman Brothers, Banc of America Securities, Deutsche Bank and JP Morgan were joint bookrunners for the acquisition financing.

A source close to the deal said that it went very well, with strong subscription despite Treasury volatility, and added that Ball played to an excellent book.

Serena story catches on

Also on Tuesday Spyglass Merger Corp., which will be merged into Serena Software Inc., priced a downsized $200 million issue of 10-year senior subordinated notes (Caa1/CCC+) at par to yield 10 3/8%, in the middle of the 10¼% to 10½% price talk.

Merrill Lynch, Lehman Brothers and UBS Investment Bank were joint bookrunners for the issue. Proceeds will be used to help fund the acquisition of Serena by Silver Lake Partners for about $1.24 billion.

The offering was downsized from $225 million, with $25 million being shifted to the company's term loan.

A source close to the deal said that the Serena book started building after Monday's announcement of price talk, and added that by the time it was poised to price the deal was multiple-times oversubscribed.

The source added that the combination of strong management and a strong sponsor (Silver Lake Partners) seemed to help investors become comfortable with the company's 6.5-times leverage, and especially with the Caa1/CCC+ ratings on the notes.

Factors at play in the Serena deal were the overall lack of supply in the new issue market as well as some investors who were looking for yield, the source commented, adding that there were accounts that usually don't express much interest in triple-C deals that were nonetheless interested in Serena.

Serena versus SS&C

As a comparable the source pointed to the SS&C Technologies, Inc. $205 million issue of 11¾% senior subordinated notes due December 2013 (Caa1/CCC+) which priced at par last November.

Like Serena, SS&C is a software company. Also similar to the Serena deal, SS&C was using the proceeds to help fund to help fund an LBO of the company.

SS&C, however, at seven-times leverage is slightly more leveraged than Serena.

Spotting SS&C's 11¾% notes trading at a yield-to-worst of 10¾% bid, 10.6% offered on Thursday, the source said that Serena, which came at par to yield 10 3/8%, priced through the SS&C paper.

Cablevision

In an 8-K filing dated Sunday, Cablevision Systems Corp.'s board of directors announced that has authorized Cablevision management to take all steps necessary to implement a $3 billion special dividend to shareholders.

Last December Cablevision canceled a $1 billion issue of 10-year senior notes and a $4.5 billion credit facility owing to technical covenant violations under CSC Holdings, Inc.'s existing bank credit agreement and other debt instruments.

To recap, CSC Holdings had priced the 10-year senior unsecured notes (B2/B+) at par to yield 8 3/8%.

In an 8-K filing dated Jan. 31, 2006, Cablevision announced that it had completed a comprehensive debt covenant compliance review announced when it canceled the bond and bank deals on Dec. 19, 2005. In the filing Cablevision asserted that the company and its subsidiaries are in compliance with all of their debt agreements and instruments. Further, the company determined that no reclassification of debt or other adjustments to its previously issued financial statements were required.

The most recent filing, dated last Sunday, suggested to one market source that Cablevision will soon be returning.

Later Tuesday an informed source told Prospect News that the company has a carve-out under its credit facility for a $3.5 billion greenshoe, which could mean Cablevision will do the entire financing in the bank loan market.

Another informed source, however, said that the company has not yet decided how it will finance the dividend, and added that the financing, at any rate, is ultimately subject to final approval by Cablevision's board.

Ball edges up in trading, Serena soars

When the new Ball Corp. 6 7/8% senior notes due 2018 were freed for secondary dealings, they were modestly better, with one trader seeing them having moved to par bid, 100.5 offered from their 99.799 issue price earlier in the sector. Another saw the bonds at 100.125 bid, while yet another saw the bonds straddling par at 99.75 bid, 100.25 offered.

However, it was quite another story in the case of Serena Software's new 10 3/8% senior subordinated notes due 2016. The most conservative trader estimated the new bonds at 101 bid, 101.5 offered, well up from their par issue price; another saw them at 101.625 bid, while yet another trader saw them get as good as 102 bid, 102.5 offered.

As for other recently priced issues, traders saw Alliant Techsystems Inc.'s 6¾% senior subordinated notes due 2016, which priced Monday at par and then moved slightly higher, holding onto its gains, in the 100.5 bid, 101 offered area.

A trader saw Dave & Buster's Inc.'s new 11¼% senior notes due 2014 at 101 bid, 101.5 offered, hanging onto most of the gains they notched after having priced at par on Friday and then having firmed more than a point in immediate aftermarket dealings.

However, he said that Bon-Ton Stores Inc.'s new 10¼% notes due 2014, which priced at par on Thursday but then began easing from that peak almost immediately, "were still falling," down at least another point on the session to 97.5 bid, 98.5 offered.

Auto Nation's 9% notes due 2008, which are slated to be taken out with the proceeds of the upcoming new deal the company announced Tuesday, were quoted by one trader at 106.75 bid, 107.75 offered, which he called unchanged.

Later in the day, however, another trader said that the bonds had moved up to 108.125 bid, from 107 on Monday.

GM higher again

Among established bonds with no new-issue connections, traders saw GM's benchmark 8 3/8% notes due 2033 about a point better in the 72 bid, 73 offered area, although one saw the bonds up 1½ points at 72.5 bid, 73.5 offered.

GM's bonds had already been firming, having pushed up a point or two on Monday in response to the news that the carmaker - which is trying to turn itself around financially after having lost a massive $8.6 billion in 2005, had agreed to sell most of its stake in the Japanese car and motorcycle maker Suzuki back to that company for about $2 billion. On Tuesday, it said that it would institute new pension procedures for its 42,000 salaried employees, in hopes of garnering as much as $1.6 billion in savings by year-end.

GM is immediately freezing the salaried employees' accrued pension benefits as of Jan. 1. Those hired after Jan. 1, 2001 - about 10% of the non-union managerial and professional workforce - will move exclusively to a defined-contribution plan rather than the current traditional defined benefit plan. Those employees will continue to earn annual interest on the cash balance in their plans and will also get a monthly contribution of 4% of their salary to their 401(k) program.

Those salaried employees hired before Jan. 1, 2001 will stay in their current defined benefit plan - but will get reduced benefits under a new formula. A separate plan for company executives will also be frozen and brought in line with the new plans.

The changes do not affect current retirees or hourly workers.

The pension changes are GM's latest efforts to come to grips with its bloated cost structure in the hopes of bringing it more into line with reduced revenues arising from GM's loss of market share in its core North American operations. Last fall it announced that it had reached agreement with the United Auto Workers on a new deal that will cut its healthcare spending on hourly retirees by $1 billion. GM and the UAW are currently in court, defending that agreement against complaints by the retirees, who now have to pay a portion of their previously all-company-paid healthcare costs. While the retirees claim that the change constitutes a breach of contract, the union and the company, in rare agreement, argue that the changes are necessary for GM's long-run survival, so that it can continue paying any benefits.

GMAC's bonds, which rise and fall more or less in tandem with its corporate parent's, were also somewhat firmer on the session. A trader saw the GMAC 8% notes due 2031 at 91.5 bid, 92.5 offered, its 6¾% notes due 2014 at 88.5 bid, 89 offered and its 6 7/8% notes due 2011 at 90 bid, 90.5 offered, all up half a point on the session.

Another trader saw those 8s at 92 bid, 93 offered, but called that a gain of a point on the day.

Ford up too

The trader also saw GM rival Ford Motor Co.'s flagship 7.45% notes due 2031 up a point at 71.5 bid, 72.5 offered, suggesting that maybe investors "believe that Ford may follow suit" in trying to cut its own costs, since the Number-Two carmaker is affected by many of the same unfavorable industry dynamics as GM - a bloated employee cost structure left over from better days, combined with recently reduced revenues from lower car sales.

Other auto names mixed

He also saw some other gains in automotive parts sector names, following in GM's wake, with Visteon Corp.'s 8¼% notes due 2010 a point better at 79.5 bid, 80.5 offered, while American Axle & Manufacturing Holdings Inc.'s 5¼% notes due 2014 were likewise up a point, also at 79.5 bid, 80.5 offered.

However, another trader saw lesser gains. While he saw the Ford bonds at that same 71.5 bid, 72.5 offered, he called them up ¾ point, saw the Visteons only up 1.4 point, and saw some other auto names easier, including bankrupt Dana Corp.'s 6½% notes due 2008 at 69.5 bid, 70.5 offered, and its 5.85% notes due 2014, at 68 bid, 69 offered, each down 1/4, and its 7% notes due 2028 and 2029, each off ¾ point, at 69 bid, 70 offered.

He also saw bankrupt Delphi Corp.'s 6.55% notes due 2006 and 7 1/8% notes due 2029 each off ¼ point, at 56.5 bid, 57.5 offered, and 57.5 bid, 58.5 offered, respectively.

Among the non-bankrupt automotive names, Lear Corp.'s 5¾% notes due 2014 were unchanged at 77.5 bid, 78.5 offered.

Exide down further

Auto-battery maker Exide Technologies' 10½% notes due 2013 - which swooned a good three points on Monday to around the 74.5-75 bid area from prior levels around 78 after the Alpharetta, Ga.-based company warned that its quarterly EBITDA would come in below expectations and place it in violation of earnings covenants in its credit facility, absent a waiver from its lenders - continued to skid lower on Tuesday, to around 73.5 bid, 74.5 offered. Its Nasdaq-trades shares - which collapsed some 27% on Monday - nosedived another 10% Tuesday to $2.52.

Movie Gallery plunges

Outside of the automotive parts arena, another big loser was Movie Gallery's 11% notes due 2012, which had finished the day Monday bid around 64-65. On Tuesday, those bonds were seen plummeting to bid levels in the 60-61 region, down anywhere from three to five points, traders said.

There was no firm news out about the Dothan, Ala.-based video rental chain operator. However, participants in the bank loan market noted that the company had participated in two conference calls with its bank lenders and other debt holders on Monday - and far from having a positive outcome, as several people suggested on Monday in trying to explain a rise in the company's bonds and shares that session, sources said that the talk was pretty sober, if not downright downbeat. There was talk about the fact that the company faced a tough industry environment, with lower revenues and a lot of competition and would need some covenant relief from the lenders to stay in compliance, maybe not immediately, but looking not too far down the road.

A source said that there was talk of an amendment fee and an increase in pricing on all tranches of the company's credit agreement.

Cablevision eases

Elsewhere, traders saw Cablevision's bonds "probably a little softer," in the words of one, in the wake of the news that the Bethpage, N.Y.-based cable operator is again seriously considering the payment of a $3 billion special dividend to company shareholders. It had planned to pay such a dividend last year, to be funded largely by a huge new issue of bank and bond debt - only to scrub the idea in late December, citing the possibility of technical violations of some of its credit covenants.

Cablevision said in a filing late Monday with the Securities and Exchange Commission that those covenant problems had been worked out and that its board had authorized the company to resume steps to make the dividend happen. The dividend would still be subject to final board approval and other conditions.

A trader saw Cablevision's 8% notes due 2012 about a point down at 96.5 bid, while another pegged its 7 7/8% notes due 2018 half a point down at 98 bid, 98.5 offered.

Charter down

Also in the cable sphere, a trader saw Charter Communications Inc.'s 11% notes due 2015 down 1½ points at 81 bid, 82 offered, citing news articles that said that cablers face increased competition from telecommunications companies, which are working to expand their networks to bring their customers video, even as the cable companies poach into traditional phone company areas like internet access and even local and long-distance phone service.

Analyzing AT&T acquisition

The focus on the locus between the two rival industries has been renewed this week by the news that phone giant AT&T Inc. has agreed to buy regional Bell operating company BellSouth Corp., creating the largest U.S. telecom concern - and leading analysts and investors to wonder out who else may win or lose as a result of the $64.5 billion transaction between the telephone giants.

One area high yield players will be watching will be satellite television - and the early indications are that the AT&T deal will give a leg up to Englewood, Colo.-based EchoStar Communications Corp., currently Number-Two in the industry behind DirecTV Group Inc. - and its gain is likely to come out of the hide of its larger rival.

Industry analysts note that the satellite companies are locked in a fierce battle for market share not only with one another but with national cable operators such as Time Warner Inc., Comcast Corp., Cox Communications Corp. and Charter, and the soon-to-be dismembered Adelphia Communications Corp. and regional powerhouses like Cablevision. The satellite companies have formed alliances with telecom providers - who themselves are competing against the cablers in the provision of high-speed internet access, data services and even traditional voice-based local and long-distance telephone service. The phone companies get a ready source of television content, while the satellite players can offer their customers internet access.

EchoStar inked a pact with AT&T while El Segundo, Calif.-based industry leader DirecTV went the regional route, forming partnerships with BellSouth and with such other regional phone providers as Verizon Communications Inc. and Qwest Communications International Inc. AT&T will emerge as the surviving entity after it swallows BellSouth, and industry analysts expect it to stick with its incumbent partner, EchoStar, and to opt out of BellSouth's multi-year agreement with DirecTV, which contains a provision allowing either party to walk away in the event of a change of control.

However, even though EchoStar's shares initially firmed on news of the combination and DirecTV's retreated, there was no corresponding clear trend in their bond price movements; a trader on Tuesday saw EchoStar's 7 1/8% notes due 2016 down 3/8 at 97.5 bid, 98, while DirecTV's 8 3/8% notes due 2013 were down ¼ point at 98.75 bid, 99.25 offered.

Another area that could be affected is telecommunications equipment suppliers like Lucent Technologies Inc. - a major supplier to both AT&T and BellSouth, some of whose sales going forward could be eliminated as the companies merge their networks and eliminate redundancies. However, Lucent's 6½% notes due 2028 were up ¼ point at 81.5 bid, 82.5 offered.

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