Freescale mega-deal prices, trades up; Six Flags off on earnings

By Paul Deckelman

New York, July 16 - The long-awaited Freescale Semiconductor, Inc. three-part deal priced Friday - all $1.25 billion of it, the biggest deal the junk bond market has seen in many weeks. Traders said that after the Austin, Tex.-based microchip manufacturer's offering finally came to market after having been delayed from Thursday's anticipated pricing, it performed smartly on the break and traded up on the session.

Freescale easily dominated a primary session that also saw another billion-dollar plus deal, the pending offering from Canadian pharmacy chain operator Jean Coutu, restructured into a two-part offering. And some information came out on yet another upcoming $1 billion baby, PanAmSat Corp.'s 10-year deal.

In the secondary market, Six Flags Inc. bonds were riding the roller-coaster downward after the theme parks operator released interim results which showed that June had been a disappointing month for the company.

Freescale - which is being partly spun off by electronics giant Motorola Inc. - had been expected to price Thursday as part of a two-pronged financing effort that also included an initial public offering of common stock.

But faced with lackluster investor enthusiasm, the IPO was delayed as Motorola was forced to drop its initial expectations of a pricing in a range of $17.50 to $19.50 per share down to a range of $13 to $14. The trouble getting the equity portion done had put the bond deal on hold until the IPO situation was resolved. Ultimately, it priced 121 million shares at $13 for total gross proceeds of about $1.58 billion - well below the more than $2 billion that the company had been anticipating.

Once that was out of the way, it was time to price the bonds - and price they did, and quickly. A syndicate source described the bond deal as "well oversubscribed, by a factor of five or six times."

"I think the bond deal went OK," another syndicate source said. "Everyone was talking about the equity deal. It was expected last [Thursday] night, immediately after the market closed, but it didn't happen until this [Friday] morning. It ended up much worse than planned."

However, he said, "the bond deal was fine from the beginning. There was never any problem getting that one done."

Freescale sold $500 million of 10-year notes at par to yield 7 1/8%, for a spread of 267 basis points over Treasuries. It sold $350 million of seven-year notes at par to yield 6 7/8%, for a spread of 277 basis points, and sold $400 million of five-year floating-rate notes at par to yield 275 basis points over the 3-month Libor rate.

Pre-deal market price talk had called for the 10-years to price at a yield of between 250 to 275 basis points over the 10-year Treasury note; for the seven-years to price at a yield 25 bps inside the 10-year; and for the floating-rate tranche to price at 275 bps over Libor. The 10-years priced within the anticipated yield range, and the other two tranches priced in line with market expectations.

The new notes were heard to have been well received when they were freed for secondary dealings, all of them pushing to levels at 101 bid or above from their par issue price.

"They did surprisingly well," a secondary market trader said, pegging the 10-year and the seven-year bonds as high as 101.25 bid during the session, well up from their par issue price, before closing around 100.75 bid, 101.25 offered.

The five-year floaters, meantime, got as good as 101.5 bid, also up from par at issue, and ended at 101.25 bid, 101.75 offered. "Clearly, they had the best performance," he said.

Another trader noted the same pattern, although he saw the floaters do as well as 101.625 bid, 102.125 offered.

Also on the new deal front, Stone Container Corp. of Canada's new 7 3/8% 10-year senior notes, which priced at par Thursday, pushed up to 101.5 bid, 102 offered.

Six Flags drops

Among the established issues, Six Flags "got mowed," a trader said, quoting the New York-based amusement park company's 9¾% notes due 2013 as having fallen as low as 92 bid from prior levels at par before bouncing off that intraday low to close at 95.5 bid, 96.5 offered. "So they did come back," he noted - but still ended down more than four points on the day. He saw the company's 8 7/8% notes due 2010 ending at 96.5 bid, 97.5 offered, down from bid levels in the par-101 area on Thursday.

Six Flags "was under pressure today [Friday]," another trader said, estimating the company's 9½% notes due 2009 at 98 bid and its 9 5/8% notes due 2014 at 94 bid, 95 offered, off as much as five or six points, he estimated.

The company, in the midst of preparing its official second-quarter results, issued some interim numbers - which showed that revenue through June trailed the year-earlier period by about 1%.

The company said it expected first-half revenue of about $400 million to $402 million, down $3 million to $5 million from a year earlier. It projected that modified EBITDA would fall by about $11.8 million to around $30 million, versus $41.8 million a year ago.

The company blamed the effects of bad weather in some of its operating areas.

It said attendance fell sharply in the last two weeks of June after tracking slightly ahead of 2003 levels.

Even though performance had improved in early July and Six Flags expressed guarded optimism about its prospects for the rest of the summer, investors were not impressed.

The company's New York Stock Exchange-traded shares plummeted $1.60 (25.32%) to end at $4.72, on volume of 4.1 million shares, about eight times the norm.

Levi continues gains

On the upside, Levi Strauss & Co, bonds, which have been strong for most of the week, continued to push upwards. A trader saw them up a point to two points across the board, quoting the San Francisco-based blue jeans maker's 7% notes due 2006 at 96.5 bid, 97.5 offered, while its 11 5/8% notes due 2008 firmed to 101.25 bid, 102.25 offered and its 12¼% notes due 2012 got as good as 103 bid, 104 offered.

Outside of the favorable earnings figures, "I can't think of any news" to justify the continued rise, he said. "It was just more of the same. Earnings were good - and we get closer and closer to a Dockers sale."

Levi said during the week that it would "shortly" begin soliciting the consent of its lenders to sale of the khaki casual clothes unit, which could fetch anywhere between $500 million and $1 billion, with proceeds slated for debt reduction.

Jean Coutu restructures, releases talk

Back on the primaryside, price talk, and details of the changes in Canadian pharmacy chain operator Jean Coutu Group's planned $1.2 billion bond deal emerged.

That issue had previously been structured as a one-tranche offering of 10-year senior notes. However, now, it will consist of a $250 million tranche of eight-year senior notes and a $950 million tranche of 10-year senior subordinated notes,.

Official price talk on the eight-year piece calls for a yield in the 7¾% area, while the 10-year bond is expected to yield in the 8½% area.

The books on the Rule 144A offering are scheduled to close at 5 p.m. ET Monday and pricing is expected to occur on Tuesday morning.

Deutsche Bank and Merrill Lynch are the joint book running managers on the deal.

Another deal which was heard to have undergone some tinkering is Foundation PA Coal Co.'s planned offering of 10-year senior notes.

The company will now sell $300 million of the notes in a Rule 144A transaction, down from the $335 million originally shopped around the market. The downsizing follows the recent upsizing in the term loan portion of the company's planned financing by that same $35 million, to $470 million total.

The deal is currently on the road, with the roadshow expected to wrap up on Wednesday, with pricing expected that same day via joint bookrunners Citigroup and Credit Suisse First Boston.

Proceeds of the notes sale and the bank debt will be used to help fund the purchase of coal assets by a consortium comprised of several equity investors.

PanAmSat prepares for marketing

And PanAmSat Corp. was heard by high yield syndicate sources Friday preparing to hit the road this week with a planned $1.01 billion offering of new 10-year senior notes.

The sources said that The Wilton, Conn.-based satellite communications company's planned new deal would be led by joint bookrunning managers Credit Suisse First Boston and Citigroup, and would roadshow from July 22 through July 30. The deal is expected to price on July 30.

The bond deal is one of several financing transactions that the company - currently 80% owned by DirecTV Group Inc. - announced on Wednesday, in connection with the anticipated sale of PanAmSat to affiliates of Kohlberg Kravis Roberts & Co., The Carlyle Group and Providence Equity Partners, Inc.

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