Cablevision off on Dolan satellite move; AMR up on bullish guidance; White Birch deal spiked

By Paul Deckelman and Paul A. Harris

New York, March 30 - Cablevision Systems Corp. notes were being quoted lower for a second consecutive session Wednesday, after the chairman of the Bethpage, N.Y.-based cable operator asked the Federal Communications Commission to block an asset sale which his own board had previously okayed - so that he could buy those assets himself.

Most of the market names were seen lower Wednesday, but one which was on the upside was AMR Corp. after the Fort Worth, Tex.-based parent company of airline industry leader American Airlines issued positive first quarter revenue and liquidity guidance.

New-deal activity remained pretty much on hold, with no pricings seen during the session; the only real news to come out of the primary sector was White Birch Paper Co., heard withdrawing its planned $400 million two-part bond deal, preferring instead to do bank financing.

Back among the established bonds, Cablevision's paper was "kind of all over the place," one trader said, although no real price movement was seen at that particular desk, with the company's 8 1/8% notes due 2009 seen actually up a quarter point on the session at 105.75, after having bounced around all day in a 105-106 context in active trading, and its 7¼% notes due 2008 "pretty much unchanged," the trader said, at 103 bid, 104 offered.

A second trader saw Cablevision's 7 7/8% notes due 2018 at 107 bid, 108 offered, its 81/4s at 105.5 bid, 106.5 offered and its 8% notes due 2012 102 bid, 103.5 offered, all pretty much unchanged.

However, at another shop, a market source was quoting the company's bonds solidly lower, with its 7 7/8% notes due 2018 below 106, a loss of over two points, its 7 5/8% 2018s likewise down two points at 104, and its 7 7/8% notes due 2007 off a quarter point to 103.75.

"The longer end was getting hit," the source said in noting that the '18s were well down but the '07s were not much hurt.

He saw the 10 3/8% notes due 2014 of Cablevision's Rainbow National Services LLC half a point lower at 111, while the Rainbow 8¾% notes due 2012 lost half a point to around 107.

Yet another source had the latter bond actually firming a point to around 108.

"People are waiting to find out what's happening with them," the first trader said. "With the possible Adelphia [Communications Corp.] bid, the [proposed westside Manhattan] stadium - there's a lot of variables."

Another such variable is "[chairman Charles] Dolan putting in $400 million of his own money to save VOOM, and he's got to figure that out by tomorrow when it expires."

Cablevision's chairman, Charles Dolan, surprised many in the market with his filing with the FCC, asking the agency's assistance in blocking the company's pending $200 million sale of a communications satellite and certain other assets to EchoStar DBS, a deal announced last month.

It's the latest strange twist in what has turned into a bitter family feud being played out between Dolan and his son James, the company's CEO, over the fate of Cablevision's money-losing VOOM satellite television business.

The elder Dolan has championed VOOM, hoping that Cablevision could nurture the high-definition satellite TV service and make it a player in a field dominated mostly by Englewood, Colo.-based EchoStar and the latter's larger, more established rival, The DirecTV Group Inc., of El Segundo, Calif.

But VOOM never quite established itself, losing the support of the younger Dolan and other members of the company's board, who saw it as a money-losing drag on the otherwise profitable cable company, which not only serves television customers in the New York area but which also owns Madison Square Garden and the professional hockey and basketball teams that play there. Over the elder Dolan's objections, they voted to sell the satellite to EchoStar and shut down the rest of the VOOM business, although it got something of a reprieve when Dolan pere stepped forward to say that he would buy the troubled stepchild himself.

After Dolan Sr. failed to line up the financing for the unit last month, the board voted to allow him more time - but the deadline is scheduled to expire Thursday.

Dolan, in his filing with the FCC, said his private entity Voom HD LLC is willing to pay $400 million for all of VOOM, but needs the satellite Cablevision agreed to sell to EchoStar. The filing also said that the sale of the satellite should be blocked because it would stifle competition in the satellite broadcasting industry, already dominated as it is by the DirecTV- EchoStar duopoly.

EchoStar, meantime, expressed bafflement Wednesday that Cablevision's chairman would try to undermine a sale that it had already agreed upon with Cablevision. Its 5¾% notes due 2008 were seen down a quarter point at 98 bid, while its 9 1/8% bonds were half a point down at 106.5 bid, 107.5 offered.

Besides the VOOM controversy, Cablevision is also making news on the speculation - as yet unconfirmed by the company - that it might become a part of one of two syndicates bidding to take control of bankrupt Greenwood Village, Colo.-based Adelphia Communications, raising the possibility that the Kohlberg Kravis Roberts & Co.-led bidding group might substantially up its bid for the Adelphia assets. That helped to send the latter's bonds up sharply Tuesday, but on Wednesday, there seemed to be no followthrough. Adelphia's 10 7/8% notes due 2010 were seen off half a point at 90.

Crown Castle gains on smaller loss

Elsewhere, Crown Castle International Corp.'s bonds were seen a little firmer, after the Houston-based communications antenna tower operator reported a narrowed fourth-quarter loss versus a year ago. It also outlined for investors and analysts on a conference call its continuing effort to refinance its $1.9 billion of debt, preferably via new asset-backed financing if the company can get it, or by conventional junk bonds and/or bank debt if it can't (see related story elsewhere in this issue).

A trader saw Crown Castle's 7½% notes due 2013 up a point at 109 bid, 100.5 offered, while its 9 3/8% notes due 2011 were half a point higher at 109 bid, 110 offered.

A source at another desk saw the 71/2s up a quarter point to 108.75, the 9 3/8s off a quarter point at 108.5, and the company's 10¾% notes due 2011 3/8 point better at 107.

American higher on guidance

Also higher was American Airlines parent AMR, whose 9% notes due 2012 climbed a point to 73 bid, 74 offered, while its 9% notes due 2016 were at 72 bid, 73 offered, also up a point.

The bonds gained after the company said in a regulatory filing that revenue per seat, a key airline industry metric, will rise by 3.5% to 4.5% this quarter for the main airline. Revenue per seat for the entire company, including its smaller regional airlines that feed passengers into the main system, will be up 2.9% to 3.9%, the Securities and Exchange Commission filing said.

AMR said it expects to end the quarter with over $3 billion in cash and short-term investments, including $500 million in restricted cash.

Primary still quiet

Meanwhile the primary market dirge continued on Wednesday.

The only news came from White Birch Paper Co. which opted out of its intensively worked and reworked bond deal and headed for the bank loan market with its $400 million refinancing.

Sell-off is mutual fund driven, Rieke says

Louise Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund, told Prospect News on Wednesday that high yield has been an up-hill, down-hill story for the past few sessions.

"This morning there was selling, right out of the box," Rieke said. "It's my understanding that it was mostly mutual funds, which would indicate that money left the market.

"Around 11 [a.m. ET] the market started to stabilize, and some of the names caught a bid.

"That's really the way it has been happening the past few days: the market sells off in the morning, there's a bid in the afternoon and then it sells off again.

"People are more on the sell-side than they are on the buy-side right now, though. Insurance companies and pension funds are sort of laddering in, but not buying any big positions."

In any event it is Rieke's impression that the high-yield market remains liquid.

"There is liquidity," she said. "If you need to sell something you may have to lower your price a little, but it can be sold.

"The AMG number [$1.5 billion outflow for the most recent week reported, which ended on March 23] reflects the mutual funds, but not the rest of the market, such as insurance companies, asset managers or hedge funds, and so forth."

The Waddell & Reed portfolio manager said that it is likely people are sitting on somewhat more cash than is customarily the case.

"Why spend it when you know you are going to come in tomorrow and prices will be down again?

"The sell-off is mutual fund driven," she added. "It's more retail. People are putting their money in cash. People just want to protect the downside.

"That is really all this sell-off is, I think."

White Birch opts for bank debt

Wednesday's only notable nugget of primary market news was that White Birch Paper Co. restructured its $400 million refinancing deal into bank debt and out of bonds.

An informed source said that the bank deal involved that same group of investors that had been involved with the bonds, and suggested that those investors may have had more capacity in their bank loan baskets, but ultimately wanted the kind of covenant protection a bank deal affords.

Wednesday's action marked the third time that the Toronto-based newsprint company had restructured the bonds.

The informed source went on to say that traditional high-yield investors seemed poised to get the White Birch deal done.

The hedge funds, however, took a powder.

"All of the sudden the hedge funds didn't want to play in this market," the source said. "Typically when things go south you can understand why Fidelity and those guys hold off on the new issue market in order to let things reprice, because they have so much stuff in their portfolios that they don't want to spend the time that it takes to restructure an ongoing deal. Whereas the hedge funds love to jump in and take 20% of the deal, and get all the covenants that they want in it.

"I thought I had this sell-off figured out, but this is a little baffling."

Dacom, Masonite remain in the market

Although it has been delayed, and rumored to have been pulled, an informed source told Prospect News on Wednesday that South Korea-based telecommunications and internet services provider Dacom Corp. remains in the market with its $300 million offering of five-year notes (expected ratings Ba3/BB-).

Credit Suisse First Boston is in the lead with the debt refinancing transaction.

"Dacom has been marketed over in Asia," said the source. "It falls into high yield because the country is investment grade and the company is sub-investment grade."

The source said that Dacom would be marketed to investors later this week.

Elsewhere another informed source told Prospect News on Wednesday that, rumors of its demise notwithstanding, the Stile Acquisition Corp./Masonite International Corp. $825 million two-part deal is also still in the market.

The source, who specified that its status is "day-to-day," added that a shareholder meeting is scheduled for Thursday.

The company is selling $300 million of eight-year non-call-two senior floating-rate notes (B3/B-), which are talked at Libor plus 325 basis points area, and $525 million 10-year non-call-five senior subordinated notes (Caa1/B-), talked at 9% to 9¼%.

Deutsche Bank Securities, UBS Investment Bank are the bookrunners.

Watch for return of new issue premium

One sell-side source told Prospect News on Wednesday that the market correction presently underway in high yield was an inevitable occurrence.

"Things were so tight and spreads had compressed so much that we knew that when it went it was going to go quick," the sell-sider said.

"We're not changing our strategy, as underwriters. We're just updating our clients.

"We think that next week we'll see a new market that is able to digest new issues.

This source added that the supply-starved high-yield market that had prevailed for nearly a year-and-a-half practically did away with the traditional premium companies paid to price new issues.

"The tricky thing is that historically there has always been a new issue premium," the source said. "For issuers who have outstanding bonds, when they price up a new issue they adjust for tenor and security, etc. But there had always been a premium for doing a new deal.

"Now in the past 18 months you have been able to price right on top of the theoretical relative value.

"So if the market backs up 50 basis points, the new issue market backs up 75. In this case I think that when the dust settles we are more than 50 basis points back. It's probably going to be more like 75 to 100.

"And there is nothing to make me believe that mutual funds are coming in our direction, or that there is going to be any quick turnaround. An adjustment of over 50 basis points will spook your individual investor in mutual funds."

Going into the present sell-off this syndicate official's investment bank had "five or six deals that theoretically could have been announced during the next two weeks.

However, the source added, the prospective issuers will likely wait to come until high yield regains its footing.

"Right now is not the time for rate-sensitive issuers," the source said. "The acquisition-driven deals that have to get done can push their way through a market like this."

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