Big Intelsat/PanAmSat deal restructured, delayed; Nortel coming with $2 billion offering

By Paul Deckelman

New York, June 16 - The high-yield primary market was awaiting the pricing of the huge multi-part PanAmSat Holding Corp./Intelsat Ltd. offering Friday - and players just kept right on waiting through the end of the session as the deal was shoved off until Monday at the earliest, and was heard as well to have been downsized and restructured.

Two other giant-sized deals were seen getting ready to hit the road on Monday for marketing to potential investors - familiar junk bond name Nortel Networks Corp. and the soon-to-be-operating Windstream Corp., each of which will be bringing at least $2 billion to market in multi-tranche deals. Also heard preparing for the start of a roadshow Monday was Houston-based oil and gas exploration and production operator Hilcorp Energy Co.

The new bonds of Pokagon Gaming Authority - which formed smartly on Thursday after they priced and then were freed for secondary dealings - continued to push higher on Friday, traders said.

Back among the established issues, the overall market was "pretty quiet," a trader said. "A lot of people just disappeared," mesmerized either by the U.S. Open Golf tourney, taking place in suburban Westchester County, N.Y., within easy traveling distance of hooky-playing bond market denizens, or by the televised World Cup soccer matches. "Chalk it up to golf and the World Cup," the trader said.

Among names that seemed to be doing anything, homebuilders like KB Home and Hovnanian Enterprises Inc., were seen as volatile. So were the bonds of Canadian forest products company Tembec Industries Inc.

Auto parts producer Delphi Corp. got a boost as creditors backed the bankrupt Troy, Mich.-based company's efforts to get a judge to allow it to void contracts with its largest customer, General Motors Corp.

New-deal syndicate sources said the huge (over $3.5 billion, originally) multi-part bond deal being brought to market by merging satellite communications operators PanAmSat and Intelsat was heard to have been downsized and restructured with the addition of a bridge loan component, and was pushed off to Monday's business.

The sources said that the overall size of the complex deal was reduced to $2.915 billion from $3.515 billion previously, with the biggest portion of the deal - $2.19 billion of fixed- and floating-rate notes being issued by Intelsat's holding company subsidiary, Intelsat (Bermuda) Ltd., being cut down to $1.59 billion. The other $600 million will now be in the form a bridge loan.

That tinkering around with the bond deal's size and structure is another indicator of apparent investor reluctance to sign on to the mega-deal in its original form. On Thursday, syndicate sources said that revised - and somewhat wider - price talk was heard on all of the tranches, indicating that the company and its underwriters were forced to sweeten the terms in order to pass muster with the potential buyers.

The other portions of the deal are unchanged in size - a $575 million tranche of 10-year senior notes, non-callable for the first five years after issue, from PanAmSat Corp., the operating company subsidiary for PanAmSat Holding Corp., and a $750 million tranche of 10-year senior notes, non-callable for the first five years, being brought by Intelsat (Bermuda) Ltd., but guaranteed by Intelsat's operating company subsidiary, Intelsat Subsidiary Holding Co.

Deutsche Bank Securities, Citigroup, Credit Suisse, Lehman Brothers and Merrill Lynch & Co. will serve as joint bookrunning managers on the PanAmSat portion of the blockbuster deal, with Goldman Sachs & Co., Bear Stearns, BNP Paribas, JP Morgan and Royal Bank of Scotland as co-managers. The Intelsat part of the deal has the same bookrunners and co-managers, except that Merrill Lynch will serve as one of the co-managers rather than as one of the joint bookrunners. Proceeds from the big deal, when it finally does price, will be used to partly fund the merger of the two satellite companies.

Nortel plans $2 billion

While the IntelSat/PanAmSat deal remained grounded, at least for Friday, primary players saw two other huge deals making their way onto the forward calendar. Nortel Networks Ltd., a subsidiary of Brampton, Ont.-based telecommunications equipment manufacturer Nortel Networks Corp., will begin a roadshow Monday for a $2 billion, three-tranche issue of fixed- and floating-rate unsecured notes. That bond offering will consist of a seven-year tranche of non-callable senior fixed-rate notes, a 10-year tranche of fixed-rate senior notes that will be non-callable for the first five years, and a five-year tranche of non-callable floating-rate senior notes. The tranche sizes will be determined.

The sources said that after the roadshow, the multi-part deal will likely price early in the week of June 26, brought to market via joint bookrunning managers JP Morgan and Citigroup.

Proceeds from the offering will be used to repay debt and for general corporate purposes.

Windstream to sell $2.5 billion

The other big deal slating Friday was Windstream's $2.503 billion two-part offering of seven- and 10-year senior notes. Windstream is selling $800 million of seven-year notes that are non-callable for the life of the issue, as well was $1.703 billion of 10-year notes, which are non-callable for the first five years.

The new Little Rock, Ark.-based telecommunications company - being formed as the result of a soon-to-be completed acquisition transaction between Alltel Corp. Inc. and Valor Communications Group Inc. - is expected to hit the road Monday to begin selling the deal to possible buyers. There will also be an investor call slated for Wednesday, with pricing expected to take place at the beginning of the following week.

Proceeds of the bond issue, along with $2.9 billion in new senior secured credit facilities, will be used to fund Irving, Tex.-based Valor Communications' acquisition of Alltel Corp. Inc.'s landline telecom business, which is being spun off by Alltel so the Little Rock-based latter company can re-position itself as a pure-play wireless telecom provider.

The bonds will come to market via an underwriting syndicate led by Merrill Lynch & Co. and JP Morgan, the joint bookrunning managers.

Hilcorp unveils $200 million deal

Also seen getting into the new-deal pipeline was Hilcorp Energy, which was heard to be selling $200 million of 12-year senior notes though its Hilcorp Energy I and Hilcorp Finance Co. subsidiaries. It will market the deal to investors on a roadshow that starts Monday and runs through Thursday, with pricing expected soon after that via joint bookrunning managers Lehman Brothers and Deutsche Bank Securities.

Proceeds will be used to repay bank debt which was incurred to fund acquisitions by the privately held Hilcorp, which was formed in 1988 for the express purpose of acquiring and exploiting producing oil and gas properties, and which has completed over 300 acquisitions since its inceptions - mostly properties that larger industry players consider non-strategic.

Nortel lower in trading

A trader in the secondary market saw Nortel's 6 7/8% notes due 2023 trading down about a point Friday in the wake of the company's announcement of its upcoming big deal. Those bonds ended the session at 86 bid, 87 offered.

Pokagon up again

And the trader saw Pokagon Gaming's new 10 3/8% senior notes due 2014 - which priced on Thursday at par and then pushed as high as 102.5 bid in initial aftermarket trading that session - continuing to rise, to about 102.25 bid, 103.75 offered, He saw the bonds up a point on the session.

Tembec sinks, rebounds

Back among the established issues, he said that Tembec's bonds "were pretty volatile today," with its 8 5/8% notes due 2009 having opened "very sloppily," trading down two points at the outset.

"I guess people were concerned about the approval of the tariff deal that was announced a month or so ago."

Under the terms of that accord, announced in late April, the United States - which had long contended that Canadian lumber producers like Montreal-based Tembec were undercutting domestic companies and which for the past four years has collected a total of some $5 billion in tariff penalties on their wood exports to the States - will give 80% of that money, or about $4 billion, back to the Canadian producers. Tembec, one of the biggest losers under the tariff scheme, is slated to get about $300 million back - assuming the deal goes through.

"Some [of the investors] assumed the deal was falling apart - but later on in the morning, about 10:30 or 11 [ET], the Canadian Trade Minister said that he was optimistic that the deal would be completed and get the [necessary] approvals." The Tembec bonds then "bounced back," to finish the day at 53.5 bid, 54.5 offered, essentially unchanged. "But it was ugly, first thing in the morning."

KB Home higher

In the homebuilding sector, the trader saw KB Home's bonds "actually moving up a point, even though [the company] was negative on its outlook, with the 7¼% notes due 2018 ending at 94 bid, 95 offered, up a point.

The Los Angeles-based builder said on a conference call that it expects fiscal third- and fourth-quarter income to be well below Wall Street's forecasts, warning the U.S. housing market will remain "challenging" for the rest of year.

The company forecast earnings for the third quarter ending in August to be $2.30 per share, well under Wall Street expectations of about $2.67 per share. It projected $3.20 per share for the fourth quarter ending in November, while analysts have been predicting $3.32 per share of profits.

Sector peer Hovnanian's bonds were up about half a point, its 8 5.8% notes due 2017 ending at 98 bid, 99 offered.

However, a trader at another shop, while seeing those '17s better on the day, saw the Red Bank, N.J.-builder's other bonds "bouncing around," including its 7½% notes due 2016, which eased to 92.5 bid, 93.,5 offered from prior levels at 93.5, as "guys were just hitting bids."

Delphi higher

Delphi paper was "up a little bit on late yesterday [Thursday's] news of buyout progress," a trader said, quoting the company's 6.55% notes due 2006 at 84.5 bid, 85.5 offered, up two points on the session.

The United Auto Workers union said late Thursday that over 33,000 factory workers at GM and Delphi have accepted buyout offers from the two companies so far, exceeding early expectations. Delphi is seeking to sharply cut its 33,000-member hourly work force in order to bring labor costs down and, along with GM, has offered hefty bonuses to union workers to get them to leave.

Delphi also got encouragement on the news that its creditor groups are backing its efforts to cancel the contracts with GM. Delphi, spun off from GM in 1999, says many of its parts-supply contracts with its former parent are uneconomical for the company.

While Delphi rose, the trader said, bankrupt Toledo, Ohio-based parts manufacturer Dana Corp. also "caught a little of it," to finish the day at 86.5 bid, 87.5 offered.

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