XM bond deal on road as part of financing; Primus bonds fall with stock

By Paul Deckelman and Paul A. Harris

New York, April 17 - XM Satellite Radio Holdings was heard by high-yield syndicate sources on Monday to be hitting the road to market a new $600 million two-part bond deal as part of the Washington D.C.-based satellite broadcasting industry leader's larger financing efforts, which also include negotiations with General Motors Corp. - a big buyer of the company's vehicle-mounted satellite radio sets - on prepayment for some of the agreed-upon equipment.

The upcoming XM deal was seen doing not much for the company's existing bonds, which already trade around the levels at which they are expected to be taken out, using the proceeds of the new financing.

Elsewhere in the new-deal market, Activant Solutions Inc. was also heard to be taking to the road, starting Tuesday, to market its planned offering of 10-year senior subordinated notes. Other new deals hopping aboard the forward calendar included an offering of eight-year notes from Saxon Capital Inc., as well as an add-on to some of its existing bonds from United Auto Group.

In the secondary market, the lassitude in XM's existing bond issues fit right in with an overall sleepy tone in the market, with several traders remarking that not everyone was fully back from the long Easter holiday weekend.

Also contributing to the generally becalmed atmosphere, a trader said, besides "people extending their [vacations], you have oil prices up though $70 per barrel, you have [10-year Treasury] interest rates through 5%, there are two big inflation numbers [Tuesday] and Wednesday, and GM's earnings on Thursday - so we have plenty on the table, more than enough reasons for people to do nothing."

Sources marked the market mostly flat on Monday following the three-day Easter holiday hiatus.

One high-yield syndicate official reported that only a skeletal trading staff was at work during the Monday session, and added that many people were still out on vacation.

Another high-yield syndicate official from a different institution said that junk was initially weaker on Monday morning as a result of the run-up in interest rates last Friday.

However, the official added, the tone of the market improved in the afternoon.

"It was maybe weaker by a quarter of a point, mostly in the morning, and more on quotes than on actual trading," the source commented.

The source also said that Monday volume was light due to the holiday.

Among the few issues seen moving around were Primus Telecommunications Group, whose bonds were seen down several points on the session in tandem with a sharp fall in the McLean, Va.-based telecommunications company's already badly-diminished shares, and Delta Air Lines Inc. The bankrupt Atlanta-based Number-Three U.S. airline carrier's bonds initially went skyward as returning market participants reacted to Friday's news that Delta and its pilots had reached a preliminary agreement on a package of union concessions, apparently averting the possibility of a crippling strike against the carrier - at least for the moment. However, they pretty much came back down to earth later in the session, traders said, as the sobering news about once-again-escalating world oil prices dampened whatever feelings investors may have felt about having dodged the labor situation bullet.

A trader saw Primus' 12¾% notes due 2009 as having fallen to 72 bid, 73 offered from prior levels at 74.5 bid, 75.5 offered. He said he had not seen any fresh news out on the company that might explain the retreat.

At another desk, a trader saw a more restrained decline, to 72.25 bid from 73 bid, 75 offered during Thursday's abbreviated pre-holiday session - although he pointed out that at one point on Monday, the bonds got as low as around 71 bid before firming somewhat off those lows.

The Primus slide coincided with fall in the company's Nasdaq Capital Market-traded shares, which have already fallen deep into penny-stock territory. They lost nine cents (12.23%) to 61 cents. Volume of 1.08 million was a bit heavier than the norm, though not unusually so.

Posters on investment-oriented internet bulletin boards, noting the fall - small in nominal terms but pretty big, percentage-wise - expressed skepticism about the company's recently announced plan for a 10-to-1 reverse stock split, which would have the effect of reducing the number of outstanding shares and, more importantly, boosting the stock's price, which would put it back above the $1 per share mark. Primus' failure to keep its equity above that psychologically potent $1 level led to the recent transfer of its shares from the more prestigious Nasdaq National Market to the lesser Nasdaq Capital Market, and Nasdaq has indicated that it is in danger of being de-listed altogether if the situation is not remedied.

Company critics see the reverse stock split - which will be voted on by shareholders at the May 30 annual meeting in McLean - as a desperate gimmick by chairman and chief executive officer Paul K. Singh to stave off the inevitable restructuring that they say the company is headed for, and one which does not address any of its fundamental problems. They also note that the company is not expected to be cash-flow positive for at least six months to a year at the earliest, while it continues to burn through its cash cushion, which was $60 million at the end of the most recent quarter, and put little stock in Singh's optimistic forecasts that better days lie ahead for Primus.

XM trading at tender levels

XM Satellite Radio's bonds were seen hovering "right around their tender levels" on the company's financing news, said a trader, with its 12% notes due 2010 at 112.5 bid, 113 offered, and its 14% notes due 2009 at 107.375 bid, 107.875 offered. While he saw the former bond up a point and the latter up 3/8, other traders said that they had already seen the bonds at those levels.

"XM never traded much before," one of them said. "They were just put away by people who anticipated a refinancing," given the very high coupons the bonds carry.

XM on Monday announced plans for its $600 million bond sale, and also said it was holding talks with GM - which factory installs XM radios in many of its models as an option - for a possible prepayment of about $240 million for obligations due in 2007 through 2009.

It further said it may increase its senior secured credit facility with GM to $150 million from $100 million, and said that it expects to receive bank commitments for a new $250 million revolving credit facility, with the right to increase that by up to $100 million.

XM estimated that it would need total net proceeds from various sources to retire all of the 12% and 14% notes as well as its senior secured floating-rate notes due 2009.

Bally eases on CFO departure

Elsewhere, Bally Total Fitness Holdings Corp.'s bonds were seen unchanged to slightly lower Monday on the news that the Chicago-based fitness center chain operator abruptly replaced its chief financial officer.

A trader saw Bally's 9 7/8% notes due 2007 at 99.25 bid, par offered, down ¾ point on the session, while its 10½% notes due 2011 were down 3/8 point at 105.75 bid, 106.5 offered. Several other traders, however, said that they had seen no levels Monday in the Bally bonds.

The company said that Ronald G. Eidell takes over as CFO from Carl J. Landeck; the new CFO will have responsibility for all finance and accounting functions - an important role, with Bally in the midst of trying to put together its delayed 2005 annual report and the quarterly report for the 2006 first quarter. It was forced to seek a waiver to July 10 of reporting deadline requirements from its senior bank lenders and bondholders. Bally said it expects to have the reports completed and in the hands of the Securities and Exchange Commission by that deadline.

While the company announcement effusively praised the attributes of Eidell, whom it described as a "finance veteran" and a "well-seasoned professional," Landeck received none of the thanks for a job well done accolades and wishes for a successful future that are customarily found in corporate press releases describing senior executive changes; he was instead disposed of in a half-sentence, with a curt statement that he is "no longer with the company."

The abrupt change is the latest in a series of jarring events at the under-performing Bally, including an abortive attempt by disgruntled shareholders to oust CEO Paul Toback via a proxy battle earlier this year.

Level 3 up on ICG purchase

Among other names, Level 3 Communications Inc.'s bonds were seen up half a point, on the news that the Broomfield, Colo.-based telecommunications fiber-optic network operator will acquire ICG Communications for $163 million in cash and stock - the latest in a series of acquisitions by the expansion-minded company.

The deal will give Level 3 control of ICG's metropolitan and regional networks in Colorado and Ohio.

A trader saw Level 3's 12 7/8% notes due 2010 at 100.5 bid, 101.5 offered.

Pogo dips on acquisition

Also on the M&A scene, Pogo Producing Co.'s 6 7/8% notes due 2017 were seen down about 1¼ points at 96.75 bid, 97.75 offered on the news that the Houston-based independent oil and gas exploration and production company will buy the privately held Latigo Petroleum for $750 million.

Oil prices hurt airlines

Oil prices were on the minds of airline-industry investors and observers, as the world price for crude petroleum pushed above the psychologically significant $70 per barrel mark - sparking fears that jet fuel prices, a major expense for the airlines, will be heading upward as well, further damaging the prospects for the troubled air carrier industry.

That rise in oil prices Monday helped to wipe out early gains that one of major airline names in the junk sector, Delta, had notched on the news that the airline and the union for its approximately 6,000 pilots had reached preliminary agreement on a package of cost-reduction measures.

A trader saw Delta's bonds up as much as three points on the session to 27 bid, 28 offered, on the labor deal, which makes a strike by the pilots against the company less likely now.

However, another trader said that while Delta "ran strong" on the pilot news, "it ran right into $70 per barrel oil and gave it pretty much all back." He saw Delta's 8.30% notes due 2029 move up to 27.5 bid, a two point gain, on the news, but then surrender most of those gains to end at 26 bid, 27 offered, a gain of half a point on the day.

Neither Delta nor the Air Line Pilots Association International released details of the deal, which must be approved by the rank-and-file and then okayed by the bankruptcy court before it can go into effect.

Delta - which in late 2004 had successfully squeezed $1 billion in permanent wage and benefit cuts as well as workrule changes and other productivity enhancements from its captains to stave off bankruptcy, at least temporarily - had been asking for another $300 million in permanent givebacks from the pilots, who had threatened to strike if Delta tried to void their contract.

The trader saw AMR Corp.'s 9% notes due 2012 down 1½ points on the session at 97 bid, 98 offered.

XM Satellite launches $600 million

Meanwhile in the primary market no issues were priced. However the forward calendar continued to build.

A roadshow started Monday for XM Satellite Radio Holdings' $600 million two-part offering of senior notes (Caa2), which is expected to be priced on Friday.

UBS Investment Bank, JP Morgan, Bear Stearns & Co., Citigroup and Credit Suisse are joint bookrunners for the debt refinancing deal.

The Washington D.C.-based satellite radio company plans to sell tranches of eight-year fixed-rate notes and seven-year floating-rate notes. Tranche sizes remain to be determined.

Activant brings $175 million

Meanwhile the roadshow starts Tuesday for Activant Solutions Inc.'s $175 million offering of 10-year senior subordinated notes (Caa1/CCC+)

Deutsche Bank, JP Morgan and Lehman Brothers are joint bookrunners for the acquisition financing from the Austin, Texas-based technology provider of business management solutions.

Saxon $150 million to start Tuesday

Elsewhere Saxon Capital, Inc. will begin a roadshow Tuesday for its $150 million offering of eight-year senior notes via bookrunner JP Morgan.

The Glen Allen, Va., REIT will use the proceeds for general corporate purposes, principally the acquisition of additional third-party mortgage servicing rights and whole loans in bulk. Pending the application of proceeds as described above, they will be used temporarily to pay down debt under the company's committed facilities.

United Auto $300 million add-on

In addition to the deals which launched or were poised to do so, United Auto Group was heard to be bringing a $300 million add-on to its existing 9 5/8% senior subordinated notes due March 15, 2012. However the timing remains to be determined, a source told Prospect News late Monday.

Banc of America Securities and JP Morgan will be joint bookrunners for the debt refinancing deal from the Michigan-based automotive retailer.

The original $300 million issue priced at par in early March 2002.

Also for this week

In addition to XM Satellite Radio's deal, other offerings are winding their ways along the investor roadshow circuit and are expected to price before Friday's close.

Sensata Technologies BV is shopping its $900 million equivalent of dollar- and euro-denominated senior notes (B2) and dollar-denominated senior subordinated notes (Caa1), via Morgan Stanley, Banc of America Securities and Goldman Sachs. Pricing is expected late in the week.

Also Mariner Energy, Inc. is roadshowing its $250 million offering of seven-year senior notes (B3/B-) via Lehman Brothers and JP Morgan. The roadshow is expected to conclude on Wednesday.

Finally, the roadshow started Tuesday for P.H. Glatfelter Co.'s $200 million offering of 10-year senior unsecured notes (Ba1/BB+).

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