Market sources see increased activity in high-yield LBO backlog as dealers look to move inventory

By Paul A. Harris

St. Louis, April 1 - Market sources told Prospect News on Tuesday that underwriters appear to be stepping up activity in the hung high-yield bridges related to the leveraged buyout backlog.

A trader in a buyside shop said that some Alltel Communications/Alltel Communications Finance, Inc. cash-pay notes are being informally marketed at 85.00 with a 10% coupon to yield 13%.

When contacted late Tuesday by Prospect News, Citigroup, the lead underwriter, said that nothing has been announced.

In mid-November, underwriters formally launched an undisclosed amount of Alltel cash-pay notes but subsequently pulled the deal due to market conditions.

At the time, a portfolio manager from a high-yield mutual fund said that Citigroup had built an order book sufficient to place $1 billion of the notes but elected not to do so because of apprehensions that the notes would not trade well.

The Alltel financing, to fund the merger of the company with TPG Partners and GS Capital Partners affiliate Atlantis Merger Sub, Inc., included an overall $5.2 billion of senior unsecured bridge debt. The financing also included $2.5 billion of senior unsecured PIK debt.

In November, underwriters placed a $1.0 billion issue of 10 3/8% 10-year senior PIK toggle notes (Caa1/B-) at 91.50, resulting in a yield to maturity of 11.84%, leaving $1.5 billion of the PIK debt remaining to be placed.

Elsewhere on Tuesday, the trader said that some of the First Data Corp. hung high-yield bridge is being quietly marketed.

Last October, underwriters priced a $2.2 billion tranche of First Data 9 7/8% eight-year senior cash-pay notes (B3/B-/B-) at 94.796 to yield 10 7/8%.

The trader said that the First Data 9 7/8% notes were trading in the low 80.00s on Tuesday - a level that should provide an indication of where the backlog could be expected to price.

The bond portion of the First Data LBO financing, to fund the acquisition of the company by Kohlberg Kravis Roberts & Co., totals $6.8 billion.

In addition, the trader said that a portion of the Solutia Inc. high-yield debt, related to the company's $2.05 billion Chapter 11 exit financing, is being informally marketed.

In early February, Solutia marked down a $430 million face amount of 12½% senior notes due 2016 (B2/B-) to 93.00.

In late February, trailing court action, Solutia's underwriters, Goldman Sachs, Citigroup and Deutsche Bank, waived a material adverse effects provision contained in their commitment to the exit financing.

At that time, the underwriters agreed to fund the entire package: a $450 million asset-based revolver, a $1.2 billion senior secured term loan and a $400 million senior unsecured high-yield bridge.

The trader who spoke to Prospect News on Tuesday was unable to provide any pricing indications on the Solutia backlog.

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