Cablevision up on unit sale news; Lucent again on upside

By Paul Deckelman and Paul A. Harris

New York, Nov. 4 - Cablevision bonds were firmer Monday on news that the company had agreed to sell its 80%-owned Bravo! unit to NBC for $1 billion. Also on the upside was Lucent Technologies Inc., shrugging off the dip that its bonds took on Friday, on indications that major Lucent customer Verizon Communications may soon be buying more telecommunications equipment - with Lucent in a position to pick up a good chunk of that business.

In primary market activity, the success of the transactions from Dex Media East LLC and Wynn Resorts Ltd. has coaxed other issuers to step out of the shadows.

Timing was heard on Rexnord Corp.'s $225 million of senior subordinated notes due 2012 (B3/B-), which is set to hit the road Thursday according to a syndicate source. The deal, via Credit Suisse First Boston and Deutsche Bank Securities Inc., is expected to price on Nov. 20.

Also tentative timing emerged on National Waterworks Inc.'s $200 million of 10-year senior subordinated notes (B3/B), via Goldman Sachs & Co. and JP Morgan, with a Wednesday start for the roadshow and a Nov. 15 pricing.

And price talk of 8¾%-8 7/8% emerged on Owens-Brockway Glass Container Inc.'s $300 million of 10-year senior secured notes (B2/BB/BB) via Salomon Smith Barney, Banc of America Securities and Deutsche Bank Securities. That deal is expected to price Tuesday.

"The market feels stronger," one sell-side source said Monday.

"Money is coming in," the official added, making reference to the $683.76 million reported to have flowed into high-yield mutual funds for the week ending Oct. 30.

"Hopefully some of that will drift over to the secondary market for the next month," the sell-sider added. "And hopefully we'll see some new issuance."

Meanwhile another official from a different investment bank concurred to a certain extent with his counterpart's assessment.

"The market definitely is improving," this official said. "The QwestDex bonds are trading at 104-105.

"But I also think there is a substantial new issue premium," this source added. "I think investors aren't stupid and they are going to make people pay. QwestDex had a 50-75 basis points new issue premium."

Tim Collins, who co-manages Northwestern Mutual's Mason Street High Yield Fund with Steve Swanson, told Prospect News that he had played the Dex offering, and noted that other directories deals are said to be heading into the market. In particular Collins pointed to the R.H. Donnelly deal to acquire the directories business of Sprint, and said that the dynamics are such that Sprint may indeed have to make certain accommodations to the circumstances of the present high yield market.

"Sprint is very motivated to get that thing sold," said Collins. "The buyer and the seller may step back if they find the market unaccommodating and wait to bring the deal when things improve. But they are going to sort of have to be price takers.

"If the market turns out to be in bad shape rather than good shape you run the risk of getting into the 'pushing-on-the-string' phenomenon, where they have to get their $700 million done and in order to get that kind of demand in their book the pricing could back up a lot.

"People who are sitting there holding Dex may then see the pricing differential create a value tradeoff that starts to put pressure on the trading level of Dex. I think that's a risk when you know you're going to have a lot of supply coming in a similar sort of credit."

When Prospect News told Collins that some analysts had stated that as much as 10% of yellow pages-type look-ups currently take place on the Internet and that the percentage is thought to have the potential to increase Collins conceded that indeed that might be the case. However, Collins replied, even if yellow pages advertisers suddenly discover that as much as 50% of the look-ups are on the Internet, will those advertisers be willing to forgo the 50% of the business that they generate with "relatively inexpensive" yellow pages ads?

"It's hard to imagine a whole lot of businesses in our market that have more underlying fundamental stability than these yellow pages businesses," Collins said. "I think that's one of the reasons you had a little bit of a food fight on this Dex deal. I think that people are so mentally exhausted from just getting whipped about by bad credit news that even if it's a little on the levered side when someone comes along with a deal where you're going to have nice quiet reading when the Qs come out it has a pretty strong visceral appeal for folks these days.

"I think you're going to have a pretty deep bid for businesses like this that are trying to do financing, especially when you have credible equity sponsors putting 25%-30% equity in the deals."

Collins, who also played the Wynn Resorts deal (see related story in this issue), noted that both Dex and Wynn had sizable equity pieces.

"There seems to be a pretty fair chunk of equity going into these transactions now and I think that's good," he said. "Unfortunately with the kind of economic environment that we've been in these past few years, with defaults high and general credit conditions and access to credit for a lot of companies deteriorating, the dirty little secret has been that a lot of times bondholders have purchased a transaction expecting that they were bondholders, and found out after the fact that they had really purchased a residual claim and that they were really going to end up with equity through a reorganization.

"So I think to the extent that credit standards have tightened up a little bit and banks are being more judicious, deal terms are being tightened up, and more equity is coming into these transactions, that bodes well for a longer-term turn in the credit cycle, as long as everybody continues to maintain some discipline.

"After all," Collins added sardonically, "by historic standards it's not like you can accuse somebody who is using 25% or 30% equity of being hyper-conservative. Everybody got used to some of these 5% and 10% 'no-skin-in-the-game' kinds of deals. And I guess if you can make one of those work it's great for your equity.

"But the fact is if you do enough of those kinds of deals you have a lot of accidents. Whereas I think if you start putting more equity in these deals and you see more of them structured (like Wynn and Dex) I suspect you're going to have fewer accidents in the future."

Back in the secondary market, Cablevision's CSC Holdings Inc. bonds were up about four or five points on the news that the Woodbury, N.Y.-based cable operator would deal its 80% holding in Bravo to the Peacock Network for $1 billion. Cablevision will receive no cash in the deal; NBC will instead give back the 16% stake it held in Cablevision, giving the latter's chief, Charles Dolan, more of a free hand in trying to arrange other asset sales; the bulk of the purchase price will be paid in shares of NBC's corporate parent, General Electric Co.

NBC will also buy the remaining 20% of Bravo! from minority owner Metro-Goldwyn-Mayer Inc. for $250 million in cash.

Cablevision's 7 7/8% notes due 2007 were being quoted up four points, at 88.5 bid. Its 8 1/8% notes due 2009 gained nearly three points to close at 86.5.

On the equity side, Cablevision shares jumped $1.71 (16.95%) to $11.80, on volume of 9.4 million shares, nearly three times the norm.

Besides Cablevision, the communications field and related areas remained hot Monday; like Cablevision, publishing and internet content provider Primedia Inc. announced an asset sale and its bonds and shares rose.

New York-based Primedia's 8½% notes due 2006 gained 6 points on the session to end at 93 bid, while its 8 7/8% notes due 2011 were up nearly 5 points, to 89.

The company announced the sale of American Baby magazine and several affiliated print and television properties to Meredith Corp. for $115 million.

Primedia's shares rose 32 cents (16.08%) to $2.31, on volume of slightly over one million shares, three times more than usual.

Nextel Communications Inc. shares and bonds suffered a brief dip during the session on an unconfirmed rumor - reported by at least two Internet websites that track stock market scuttlebutt and other developments - questioning its recently released subscriber-addition numbers.

But as quickly as those rumors surfaced, they evaporated, and the Reston, Va.-based wireless provider's securities recovered.

Its benchmark 9 3/8% notes due 2009 ended the session at 87.5 bid/88.25 offered, "a little off their highs" at 88, a trader said, but well up from earlier lows around 86.125 bid/86.375 offered. Another trader likewise quoted the bonds as having topped off at a bid level in the 87-89 range before closing in the 86-88 neighborhood, and said Nextel's 10.65% notes pushed upward on the session to end at 92 bid/94 offered.

Nextel shares were up 49 cents (3.43%) to close at $12.97, on volume of 61.8 million shares, double the usual.

Telecom equipment maker Lucent "recouped" most of the ground lost Friday, when the bonds fell in the face of a ratings downgrade by Moody's Investors Service and reports that an ongoing federal probe of the Murray Hill, N.J.-based company's accounting might be far wider than Lucent has been saying.

After having fallen Friday to bid levels in the 46-47 area, Lucent's benchmark 7¼% notes due 2006 moved up to 51.625 bid/52.25 offered, regaining almost all of Friday's losses. Its shares firmed by 4 cents (3.51%) to close at $1.18. The rebound was believed to have been helped by giant regional Bell operating company Verizon's announcement that it would expand its data operations in an effort to tackle the lucrative market for large corporate and government customers, a market currently dominated by AT&T Corp. and the bankrupt WorldCom Inc. Lucent is a major incumbent supplier to Verizon and the announcement holds out the possibility of new equipment sales, market observers said.

The bonds of slot machine maker International Game Technologies were seen holding steady at levels well above par, even as its shares briefly hit a new 52-week intraday high above $78, before giving up those gains on late-session profit-taking. The Las Vegas based gaming equipment maker was seen poised to profit if voters in several states, as expected, approve pro-gaming ballot initiatives, while Pennsylvania voters are choosing between two candidates who each are on record as supporting the placement of slot machines in racetracks in the state (see related story elsewhere in this issue).

United Air Lines bonds continued to move up for a second straight session Monday, aided by the troubled carrier's having made the scheduled Nov. 1 coupon payment on its 10.67% notes due 2004, and on the news that UAL's pilots had agreed to $2.2 billion of labor cost concessions over five years. News of the pilots' pact raised investor hopes that United might be able to bang out similar agreements with its other four unions, considered the key to getting a federal loan guarantee which united says it needs to stay out of bankruptcy.

The 9.67% notes went from 24 bid to 25 on Monday, while its 9¾% bonds due 2021, offered at 18 on Friday, had nudged up to the 20 level Monday.

But all the bonds still traded flat, or without the accrued interest, despite UAL having made the 10.67% payment - a sign, a trader said that the market remains skeptical it will be able to make the next coupon payment that comes due.

"That's great that they made the payment - but the market is not expecting another payment - and they still have $900 million coming due soon," he noted.

Still, UAL shares flew up 62 cents (24.22%) to end at $3.18.

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