Vivendi, Cincy Bell upsize deals as market winds down; Aurora up on restructuring news

By Paul Deckelman and Paul A. Harris

New York, July 2 - As the primary market continued to wind down Wednesday as it continued to head towards the three-day Fourth of July break, three deals priced - two of them upsized - clearing the calendar of business that had been expected to be transacted during the holiday-abbreviated week.

Secondary activity remained light, although troubled Aurora Foods Inc.'s bonds were quoted solidly higher on news that the company has entered into a restructuring agreement with investors.

In the primary, Vivendi Universal, which was in the mainstream news headlines Wednesday because its U.S. entertainment assets including film, television and theme park businesses are presently reported to be the subject of hot bidding war, priced an upsized offering of €1.35 billion equivalent (from €1.1 billion equivalent) of five-year senior notes (B1/B+), during the session.

The notes, which were issued in two tranches-$975 million and €500 million-priced at par to yield 6 ¼%, at the tight end of the 6 1/4-6 ½% price talk.

Goldman Sachs was bookrunner.

Also significantly upsized was the offering from Cincinnati Bell Inc., which sold $500 million (increased from $300 million) of 10-year senior notes (B2/CCC+) at par to yield 7 ¼%.

The company, formerly Broadwing Communications Services, Inc., priced its notes at the inside of the 7 ½% area price talk, with Credit Suisse First Boston, Banc of America Securities and Goldman Sachs running the books.

Also pricing Wednesday was an offering from Dulles, Va. rocket science firm Orbital Sciences Corp., which sold $135 million of eight-year senior notes due July 15, 2011 (B2/B+) at par to yield 9%, at the wide end of the 8 3/4-9% price talk, via Banc of America Securities.

And although sources reported no new additions to the new issuance calendar, on Wednesday, Prospect News learned that the €1.5 billion acquisition of the aerospace businesses of FiatAvio SpA by the Carlyle Group and Finmeccanica will involve new high yield bonds as part of the debt/equity financing.

The deal, according to an informed source, is expected to come during the July-August time frame.

According to a Wednesday press release the acquisition will be financed with equity from The Carlyle Group and Finmeccanica and debt provided by Banca Intesa, Citigroup, Goldman Sachs, Lehman Brothers and Mediobanca, according to a press release issued on Wednesday.

Banca Intesa, Citigroup (bookrunner), Lehman Brothers (bookrunner) and Mediobanca are acting as mandated lead arrangers of the senior debt, according to the release. Citigroup, Lehman Brothers and Goldman Sachs are lead underwriting the subordinated debt, while Banca Intesa is acting as underwriter, the release added.

One sell-side source who spoke to Prospect News on Wednesday said that the "technical" rally that has run throughout the second quarter of 2003 could well play out through the remainder of the year.

"There is a lot of money out there, and people don't have any choice except to put it to work," the source said.

"Because of that we are seeing some amazing secondary levels," the sell-side official added.

"I think money will continue to come in to high yield, at least in the near term, as the market rallies on technicals, and people watch, during these next few weeks, as companies start to report their second quarter numbers."

When the day's new deals crossed over to the secondary side to the fence, there was not much really going on. A trader said that the new deals "didn't really run," quoting several of them, such as Orbital Sciences, Vivendi and Mohegan Tribal Gaming Authority's new 6 3/8% senior subordinated notes due 2009 as all hanging around par-to-100.5 levels.

"Mohegan didn't really run, and Vivendi didn't run away either," he said. "It seems like the whole market is kind of tired - not surprising considering the very busy June which high yield players just experienced, in which an astonishing $17.048 billion of new junk priced in 62 deals, according to a Prospect News analysis of new-deal activity (see Wednesday's Prospect News High Yield Daily for a full breakdown).

"In the secondary," he said, among the established issues, "most stuff we were working on [Tuesday] had the same levels."

One notable exception was the bonds of Aurora Foods, which one market source described as "way up today." He quoted the St. Louis-based food products producer's 8 ¾% notes due 2008 and its 9 7/8% notes due 2007 as both having risen to levels around 47 bid from 35.5 earlier in the week, following the problem-plagued company's announcement that it is undertaking "a comprehensive financial restructuring designed to reduce its outstanding indebtedness, strengthen its balance sheet and improve its liquidity." As part of the restructuring, Aurora has entered into an agreement in principle with J.W. Childs Associates, L.P., a Boston-based private equity investment firm, which will make an investment of $200 million for a 65.6% equity interest in the reorganized company (see related story elsewhere in this issue).

A trader said that given the company's well-publicized problems, neither the news of the restructuring deal nor the fact that the bonds would rise on it were "any great surprise."

Elsewhere, RCN Corp.'s bonds were being quoted down about two to three points to 40 bid, after the Princeton, N.J. -based telecommunications company said it had discovered what it called "inconsistencies" in the terms of 11% senior discount notes due 2008. That bond, issued five years ago, was supposed to have been a non-interest-paying instrument for the first five years of its life - but RCN said it uncovered the inconsistency in the bond's indenture that required the company to make its first $8 million semi-annual interest payment six months before it expected to.

RCN made the payment, but said it is "actively investigating these inconsistencies."

Apart from these blips of news, not much was going on, price-wise, participants said, even when there was news. Prime Hospitality Corp.'s 8 3/8% notes due 2012, for instance, were unchanged at 96 bid, even after hotel owner Hospitality Properties Trust said that Prime Hospitality had defaulted on a lease for 24 AmeriSuites hotels after missing a $2 million monthly rent payment that came due on Tuesday.

And there was no rise in Hollywood Entertainment Corp.'s 9 ¼% notes due 2007, which stayed at 99 bid, even as the nation's Number-Two movie rental chain reported an 11% rise in same-store sales in the second quarter from a year earlier, and slightly raised its earnings forecast for the latest quarter on higher rental revenue and video game sales.

"There was just not a lot of activity going on, and trading was very thin," a trader lamented,. After noon [ET] today, only half of the normal participants were in. And tomorrow [Thursday] is just gonna be a joke."

The Bond Market Association has recommended a 2 p.m. ET close Thursday ahead of Friday's July Fourth holiday, when all U.S. financial markets will be closed.

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