MCI bonds continue to firm as SBC bags AT&T; Uno Restaurant prices, Mauser upsizes euro deal

By Paul Deckelman and Paul A. Harris

New York, Jan. 31 - MCI Inc.'s bonds continued upward for a third consecutive session Monday on investor conviction that SBC Communications Inc.'s successful pursuit of rival long-distance operator AT&T Corp. now definitely puts MCI into play as a possible acquisition target for one of SBC's rival regional Bell operating companies.

In the new deal arena, two comparatively small bond deals priced during the final primary market session of January 2005 - one apiece in dollar and euro denominations.

Meanwhile, in the backwash of the busy Jan. 24 week, which saw just under $7 billion of issuance, sources cited three events spanning the coming four days that are likely to somewhat constrict the junk market: 1) the JP Morgan High Yield conference in Miami, 2) the Wednesday meeting of the Federal Reserve's Federal Open Market Committee, which is expected to produce another hike in short term rates, and 3) the employment report expected on Friday.

Meanwhile on Monday the forward calendar took aboard three new anticipated issues - all of them expected to price before the middle of February.

Magic number for outflows

"The market felt a little better today after being a sideways market for about a week and a half, now," one investment banker said after the Monday close.

"The outflow that we heard about at the end of last week was the biggest one since last summer," the sell-sider added, referring to the $759.5 million outflow for the week to Jan. 26, as reported by AMG Data Services.

"I think $1 billion is becoming the new magic number, with regard to the outflows. With last week's number nobody was heading for the exits.

"The liquidity trend in the high yield isn't great but secondary levels are holding up okay, and Treasury yields are holding steady.

"Overall the market feels pretty good."

Two issues price

The market saw a pair of deals price during the Monday session.

Mauser Beteiligungs GmbH priced an upsized €185 million of eight-year senior notes (Caa1/B-) at par to yield 9 1/8%, on the tight end of the 9¼% area price talk. The deal was increased from €175 million.

Citigroup ran the books for the debt refinancing deal from the Bruhl, Germany packaging company.

Elsewhere Uno Restaurant Holdings Corp. sold $142 million of 10% six-year senior secured second-lien notes (B3/B-) at 98.878 on Monday to yield 10¼%, 12.5 basis points wide of the revised 10% area talk. Late last week the Boston, Mass.-based restaurant operator pushed out its price talk from 9¾% area.

Banc of America Securities ran the books for the acquisition financing.

Three new roadshows

Three prospective issuers appeared on Monday.

Stewart Enterprises, Inc. will begin a two-day roadshow on Tuesday for its $200 million offering of eight-year non-call-three senior notes, which are expected to price in the middle of the present week.

Banc of America Securities has the books for the debt refinancing deal from the Jefferson, La.-based provider of funeral services.

Elsewhere Hydrochem Industrial Services Inc., a Deer Park, Tex.-based industrial cleaning services provider, will start a roadshow Tuesday for $150 million of eight-year senior subordinated notes (Caa1/B-).

The debt refinancing and acquisition funding deal via Morgan Stanley and Credit Suisse First Boston is expected to price next week.

And finally Iesy Repository GmbH & Co. KG, the parent of German cable operator Isey GmbH, will start a roadshow Tuesday for €215 million of 10-year non-call-five senior notes (CCC+).

JP Morgan and Citigroup are joint bookrunners for the acquisition financing that is expected to price early next week.

DynCorp $320 million to price Tuesday

DI Finance/DynCorp International LLC's $320 million of eight-year non-call-four senior subordinated notes (Caa1/B-) are talked at 9% to 9¼%, with pricing expected on Tuesday.

Goldman Sachs & Co. and Bear Stearns & Co. are joint bookrunners for the acquisition deal.

Intelsat edges up

The new Uno Restaurant offering of 10% senior secured notes due 2011 priced too late in the session to be seen in the aftermarket. Among issues which priced last week, traders said they saw no activity in the new Novelis Inc. 7¼% senior notes due 2015, which priced Friday at par and then moved up to a closing price of 101.75 bid, 102.25 offered.

Intelsat's three tranches of notes - which had priced last Monday at par - were seen holding on to, or even slightly extending the gains they had notched last week, with the Bermuda-based satellite telecommunications company's 8¼% senior notes due 2013 hovering at 103.5 bid, 104 offered, its 8 5/8% 2015 seniors orbiting at 104 bid, 104.5 offered, and its floating-rate senior notes due 2012 at a slightly lower altitude than the other tranches, at 102.375 bid 103.125 offered.

MCI heading higher

Back among the established issues, MCI's bonds, particularly its 8.735% notes due 2014, continued to fly higher, pushed upward by official word Monday that confirmed what everybody else had been talking about for days - that SBC Communications will, indeed, acquire its former corporate parent, AT&T, for $16 billion.

Such a deal had first been reported to be in the works around the middle of last week, although neither company would confirm it at the time. The immediate effect was to strengthen AT&T's bonds, which, though they are nominally junk rated at Ba1/BB+, are mostly quoted on a spread versus Treasuries basis as if they were still investment-grade instruments, generally trade off the high-grade desks at most houses and are mostly of interest to crossover investors rather than real junk bonders.

This strengthening continued on Monday, with Ma Bell's 7.30% notes due 2011 seen by one trader having narrowed by 15 basis points on the session to bid levels at 195 basis points over Treasuries, the offered level at 190 bps over, and its 8.31% notes due 2031 having improved by 20 basis points to 290/270.

MCI's paper was also a beneficiary of this trend, since the conventional wisdom is that with the combined SBC and AT&T poised to become the biggest U.S. telecom company in terms of total revenues, an SBC rival such as Verizon Communications Inc. or BellSouth Corp. just in the interest of self-defense might now be interested in countering SBC's purchase of a big long-distance company by making its own purchase of a big long-distance operator - Ashburn, Va.-based MCI, which is Number-Two in the U.S. long-distance market, behind AT&T and ahead of Sprint Corp. While the consumer long-distance business is a shrinking pie, MCI, like AT&T, has a national network infrastructure, an attractive roster of corporate and government customers, and has more than $5 billion of cash on its balance sheet, according to published reports.

The 8.735% notes were being quoted Monday as high as 109.375 bid, 109.625 offered, well up from Friday's levels around 107.75 bid, 108.25 offered.

MCI's 7.688% notes due 2009 were seen up about half a point on the day at 104.75, while its 6.908% notes due 2007 were seen "actually down a little," a market source said, quoting the bonds at 102.5, off from 103.25. "Maybe the price was just a little too high" and the market is adjusting, he opined.

Visteon lower

Elsewhere, Van Buren Township, Mich.-based automotive components supplier Visteon Corp. reported a fourth-quarter net loss of $115 million (92 cents a share), an improvement from its year-earlier net loss of $829 million ($6.60 per share), although most of that was due to a $720 million one-time restructuring charge.

Visteon also announced that it had found errors related to its accounting for retiree health care and pension benefits and income taxes. It said it was consulting with its accounting firm, PricewaterhouseCoopers LLP, to determine if any adjustments or corrections are needed.

Visteon's 8 ¼% notes due 2010 were quoted as having retreated to 100.5 bid from 101.5 on Friday and its 7% notes due 2014 dipped to 92.25 bid from 92.625.

"It looks like the autos got hit along with Visteon," a trader said, quoting RJ Tower Corp's 12% notes due 2013 "down about two points on those [numbers]," at 53.25 bid, 54.75, well down from 55.5 bid, 56.5 offered.

At another desk, a trader quoted the Tower bonds at 54.5, but said they had been at 56 and change on Friday.

Collins & Aikman Products10 7/8% notes due 2011 were half a point lower at 99 bid.

Overall, a trader said, there was "weakness across the board, a little bit, whether it's inactivity or the market in general. We saw some selling."

Land 'O' Lakes, Mothers Work down

Among the issues heading lower, he said, was Land 'O' Lakes Inc., which he said had "kind of hunkered down a bit" , with the Minnesota-based dairy products producer's 8¾% notes due 2011 in a 98.75 bid, 99.25 offered context, off from 100.5 bid, 101.5 offered recently.

Another downsider was Mother's Work Inc., which had gotten as good as 102 bid, 103 offered last week following the Philadelphia-based maternity wear maker's quarterly results, which featured a smaller profit from a year-earlier - but also improved quarter-over-quarter sales trends, causing the company to pretty much stick to its previous financial forecasts.

However, on Monday, Moody's Investors Service lowered the company's ratings, including that of the bonds, which dropped to Caa1 from B3, though with a stable outlook. Moody's said the downgrade reflected its expectations that there will be no near-term turnaround in the company's operating performance, given the competitive pressures in the maternity apparel market and the growth in its store overhead cost structure.

The ratings agency further warned that Mothers Work actually has too many stores, and the increase in cost due to the growth in the store base has made the company's results highly sensitive to any further erosion in comparable-store sales or increases in markdowns.

The bonds "had a nice little run," the trader said, noting that last week's peak level saw them a good eight points up from their lows. From that peak, he saw the bonds at 101.25 bid, 102.25 offered on Monday.

Pathmark finds buyers

But while he saw sellers in Mother's Work, he saw buyers in Pathmark Stores Inc.'s 8¾% senior subordinated notes due 2012, which firmed to 95.75 bid, 96.75 offered from 94 bid, 96 offered previously, although he cited no fresh news about the Carteret, N.J.-based supermarket operator, whose bonds have moved up smartly from the 85-89 area to which they fell following the release of their numbers some weeks ago.

"They've rebounded, and there are some buyers out there," he said. "If it's got a decent story and [investors] think it's going to make it, anything below par seems to be in vogue right now."

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