Charter bonds gyrate on new-deal and tender offer news; revamped Western Wireless offering prices

By Paul Deckelman and Paul A. Harris

New York, July 11 - Charter Communications Holdings LLC bonds shot up on Friday on the news that the troubled St. Louis-based cable-TV operator would be tapping the capital markets for $1.7 billion of new junk bonds - and using the proceeds to redeem some $1.3 billion principal amount of existing bonds at a discount. But after strong initial gains, the rally faded, and traders said the notes had surrendered much of the gains to close only moderately higher.

In the primary market, Charter's planned offering was Topic A of conversation, although several other, considerably smaller deals were also heard to have joined the forward calendar. And Western Wireless Corp. priced its $600 million offering, though after first restructuring it into a single-tranche deal, rather than the originally planned duo of seven-year and 10-year notes.

St. Louis-based cable operator Charter Communications had been anticipated by some capital markets observers to be heading to the investment banks with a new convertible deal. However on Friday Charter showed up not with converts but with $1.7 billion of new junk, some or all of it likely to come in the form of 10-year senior notes, according to one source.

Citigroup will lead the deal that could price as during the week of July 21, according to one informed source.

Further details were not available at press time.

David Andersen, senior vice president for communications at Charter, told Prospect News on Friday that there appears to be a pretty strong appetite in the high yield market for Charter's new paper.

"It's very positive," Andersen said, "It's very good news for the company."

Despite the big Charter news, late in the session sources advised Prospect News that the primary market's pace has undergone a marked deceleration in the wake of the Independence Day break.

"People were sure that there was going to be another rush of deals after the Fourth of July," said one sell-side official late Friday, alluding to a widely-held perception that high yield investors remain cash-heavy and are under a certain amount of pressure to put that cash to work.

"I just don't see the 'rush,'" the official continued. "We have five deals on the calendar to price next week. Things feel a little bit slower to me."

Another sell-sider seemed to concur. "This week's story was Calpine," the source stated, alluding to Calpine Corp.'s upsized $3.3 billion in bond and bank transactions that was completed Thursday, with $2.55 billion coming in the form of two fixed-rate bond tranches and one tranche of floating-rate notes.

"Other than Calpine, things seem more toned down to me," the sell-side official added.

In any case, Western Wireless seemed to successfully sense the tone of the cash-heavy high-yield market during the final session of the July 14 week. The Bellevue, Wash.-based telecommunications company sold $600 million of 10-year senior notes at par to yield 9¼% - at the tight end of the 9¼%-9½% price talk. Goldman Sachs & Co., JP Morgan and Wachovia Securities ran the books.

With the Caa2/CCC ratings on the new Western Wireless notes, it became the lowest-rated deal since AMC Entertainment Inc. sold $175 million of 9 7/8% 10-year senior subordinated notes (Caa3/CCC) on Jan. 11, 2002 at 98.436 to yield 10 1/8%.

In addition to Charter, the market learned on Friday that Wabtec (Westinghouse Air Brake Technologies Corp.) would start a roadshow on Monday for $150 million of 10-year senior notes (Ba2/BB). The JP Morgan-led deal is expected to price during the week of July 21.

Sources also reported Friday that Focus Wickes plc starts a European roadshow Tuesday for £225 million in sterling and euros of eight-year mezzanine notes. ING Barings and Royal Bank of Scotland will run the books on the London-based home improvement store operator's deal. The roadshow is expected to wrap up on July 22.

In addition IMC Global announced in a Friday press release that it will bring $310 million of 10-year senior unsecured notes to fund the purchase of up to $100 million of 6.55% notes due 2005 and up to $200 million of 7 5/8% senior notes due 2005.

Goldman Sachs will run the books for the deal, although no further details on structure or timing on the Lake Forest, Ill. agrichemical company's deal were available as Prospect News went to press on Friday.

Finally, Euramax International, Inc. announced in a Thursday press release that it would bring a new debt security offering to help fund the tender offer for its 11¼% senior subordinated notes due 2006.

The release identified UBS Investment Bank as sole lead dealer manager for the tender and Banc of America Securities LLC as co-manager.

When the new Western Wireless 9¼% notes were freed for secondary dealings, traders saw them move up to 101 bid, 102 offered from their par issue price, before easing from those peak levels to around 100.5 bid, 101 offered.

Also on the new-issue front, Calpine Corp.'s new 8½% second priority senior secured notes due 2010 and 8¾% second priorities due 2013 were both heard to be still hanging in just under their par issue price, as they had done on Thursday on the break.

Most of the recent new issues continued to trade within a narrow range straddling their par issue prices, although here and there strength was seen; tubmaker Jacuzzi Brands Inc.'s 9 5/8% senior secured notes due 2010, which had priced at par on June 30, were heard continuing to show buoyancy, floating up to 104.25 bid, 105.25 offered early on. Also strongly higher was Merisant Co.'s 9½% senior subordinated notes due 2013, seen at 103.75 bid, 104.75 offered, well up from their June 27 par issue price. Rockwood Specialties Group Inc.'s new 10 5/8% senior subordinated notes due 2011, which priced at par on July 9, were quoted Friday at 102.5 bid,103.5 offered.

Back among the established issues, Charter Communications outstanding debt "really spiked up" in the early going, said a trader, who quoted its 8 5/8% notes due 2009 as having jumped to 80.5 bid, 81 offered in morning dealings, well up from Thursday's closing level at 77 bid, 77.75 offered. By the end of the session, he saw those bonds come back down to end at 77.75 bid, 78.75 offered.

Sounding almost like Fed chief Alan Greenspan, the trader remarked that the Charters "hit the high and then traded back down, to end slightly better on the day, but well off the exuberant levels that we saw earlier."

He saw the Charter zero-coupon/9.92% senior discount notes due 2011ending the day at 72 bid, 73 offered, again off its day's high but above Thursday's 70,5 bid.71.5 offered close.

Another trader said that Charter "was up three points initially, but then they settled back in and went out essentially unchanged."

During the initial run-up, Charter's 10¾% notes due 2009 were seen having firmed to 85 bid, while its 10% notes due 2009 got as good as 82.5 bid, 83.5 offered.

Charter made two concurrent announcements- it would sell $1.7 billion of new bonds in a private placement and would use the proceeds to take out about $1.3 billion face amount of existing debt.

But when junk bond holders studied the company's announcement, they saw that the overall impact on high yield Charter debt would be minimal. The company - which is saddled with total debt burden of about $17 billion, plans to tender for just $285 total face amount of the straight junk bond debt issued by Charter Communications Holdings, with only small percentages of the outstanding amount of high yield senior notes and senior secured notes covered by the tender offer scheduled to be taken out. Meantime, Charter plans to spend the bulk of its money tendering for two issues of convertible debt totaling more than $1.1 billion.

At first reading, the Charter strategy seems strange, since it is mostly buying back relatively low- interest convertible debt - the coupons on the converts being bought are 4¾% and 5¾% - while making only token purchases of much higher-coupon bonds, such as the 10¾% senior notes due 2009 and 11 1/8% senior notes due 2011.

But a trader pointed out that the convertible debt being taken out matures in 2005 and 2006 - while the maturities on the fatter-coupon issues being tendered for range from 2009 to 2011.

"Maybe [Charter] figured to get a little more bang for their buck when it comes to cleaning up their balance sheet by taking out the converts," he said. And by opting to take out the low-coupon debt coming due in the next three years rather than the higher-coupon stuff that's not due till 2009 and beyond, "they're buying themselves a little more time to figure out what to do" to straighten out the company's tangled finances.

Some erosion was seen in the bonds of asbestos-exposure companies, which had run up for several weeks on expectations of an imminent agreement on a plan to create a $108 billion trust fund from which to play asbestos claims. But those bonds were on the slide Thursday and were again easier on Friday on signs that Democrats and Republicans in the Senate are having a hard time agreeing on anything.

Owens-Corning Corp. 7½% notes due 2005 were down to 47.5 bid, 49 offered from prior levels at 49 bid, 50 offered.

Georgia Pacific Corp.'s bonds were seen "down a point or so" on the lack of positive asbestos news.

Elsewhere, traders saw Calpine bonds - which had risen smartly in the run-up to Thursday's pricing of the San Jose, Calif.-based power producer's massive ($2.55 billion) three part issue - as coming back down now that the deal has priced and is proving to be something of a drag on the market, as shown by its inability to break out and rise.

A trader saw Calpine's 8½% notes due 2008 falling to 81.75 bid, 82.5 offered from 83.5 on Thursday. Its 8½% notes due 2011 likewise fell to 79 bid, 81 offered from 81 bid, 82 offered late Thursday.

Other than names like Charter and Calpine, "things were pretty darn quiet," a trader said, while another said things "just went to sleep" after the initial flurry of morning trading.

"It was a very quiet week," the second trader noted, "worse even than July the Fourth."

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