Lyondell bonds up on merger news, Millennium down; Cablevision plans huge deal, Cinemark prices

By Paul Deckelman and Paul A. Harris

New York, March 29 - News that Lyondell Chemical Co. will acquire joint venture partner Millennium Chemicals Inc. in a $1 billion stock-swap deal helped to boost Lyondell's bonds on Monday - but Millennium's notes were lower on the session - particularly after Standard & Poor's said it might downgrade the company's ratings should the merger go through.

In the primary sector, Cablevision Systems Corp. announced plans to sell $2 billion of new fixed- and floating rate notes, in tranches at both the operating company and the holding company levels, possibly as early as Tuesday. And Cinemark Inc. priced an offering of new 10-year senior discount notes.

The big news on the session in the secondary market was the Lyondell-Millennium deal and the impact it would have on the bonds of the two companies.

The news was definitely a plus for Lyondell; a market source said "in general, all of these went up," including its 9 5/8% notes due 2007, which were heard to have firmed to 103.75 bid from 102 and its 9 7/8% notes due 2007, which closed at 104 bid, up from 102.75 previously. Lyondell's 9 3/8% notes due 2005 tacked on two points to close at 103 bid and its 10 7/8% notes due 2009 showed notable strength, up four points to 101 bid.

On the other hand, he said, Millennium's 9¼% notes due 2008 were seen down two points at 106.5 bid and its 7 5/8% bonds due 2026 were three points down at 95.5.

With Houston-based Lyondell clearly the weaker credit of the two - S&P rates its corporate credit at B+, while Hunt Valley, Md.-based Millennium is at BB- - the combination is seen as a step up for Lyondell from a credit perspective and a step downward for Millennium, which was reflected in S&P's warning that there is a "strong likelihood that it might downgrade the latter's ratings should the merger go through.

Lyondell has relatively high borrowings, the ratings agency said, and it might make moves that would result in lower ratings for Millennium.

The Lyondell-Millennium combination wasn't the only M&A activity that high yield market denizens were talking about Monday; Arch Wireless Inc., of Westborough, Mass., and Metrocall Holdings Inc. of Alexandria, Va., announced plans for a merger that would give Metrocall shareholders 27.5% of the newly combined paging company plus $150 million of cash in exchange for their holdings.

That helped send the bonds of Arch higher, with its 12% notes due 2009 quoted at 117 bid, up from 113.

Hollywood Entertainment gains

A market source quoted Hollywood Entertainment corp.'s 9 5/8% notes as having firmed to 104 bid from prior levels at 99.25 on the news that the Portland, Ore.-based video rental chain operator will be taken private in a management-led buyout that includes the private equity firm of Leonard Green & Partners.

However, another trader said that he had seen the bonds staying around the 99.5 bid range, with "buyers looking for paper. There were no bonds around - just buyers."

Cablevision's bonds were being quoted little changed from levels they ended at on Friday, despite the buzz about its coming new deal. Its 11¾% notes due 2007 were quoted at 104.5 bid and its 7 7/8% notes due 2007 were at 107.5.

News of Cablevision's prospective big deal produced "a lot of activity" in the Long Island, N.Y.-based cable operator's bonds, a trader said, "but at the end of the day. I can't say that they moved a hell of a lot. They may have been a little bit firmer across the board - but basically, it was a wash."

Low rates draw issuers

As the investment banks kept up their months-old incantation, "Rates are still low...Rates are still low," prospective high yield debt issuers from both sides of the Atlantic elbowed for space on the booming forward calendar during Monday's session.

Leading the pack in terms of size was Cablevision Systems, which plans to unload $2 billion of paper in three tranches on Tuesday.

"Even though we have seen some outflows there is still money out there to be put to work," said one sell-side official on Monday.

"And the rates continue to be extremely attractive for these companies," this source added.

"Things may not be as frothy as they were back in January, when you were seeing a lot of triple-C deals and dividend-payment deals and first-time issuers.

"Now the triple-C deals and the weak single-B deals may be starting to give way to stronger credits. But for those (stronger) credits the high yield is still very much open."

Cablevision coming with $2 billion drive-by

Monday's headline grabber was Bethpage, N.Y. entertainment, media and telecommunications company Cablevision Systems, which announced plans to sell $2 billion of bonds in three tranches on Tuesday.

CSC Holding, Inc. (the operating company) is offering $500 million of eight-year non-callable senior notes (B1/BB-), with price talk putting the yield in the 6¾% area.

Citigroup, Banc of America Securities, Bear Stearns & Co., Merrill Lynch & Co. and Wachovia Securities are joint bookrunners.

Cablevision Systems Corp. (the holding company) will offer $1 billion eight-year non-callable senior notes (B3/B+), with price talk of 7¾%-8%.

Citigroup, Banc of America Securities, Bear Stearns & Co. and Morgan Stanley are joint bookrunners.

Cablevision Systems Corp. will also offer $500 million of five-year non-callable senior floating-rate notes (B3/B+), with price talk on that tranche at Libor plus 425-450 basis points.

JP Morgan and Credit Suisse First Boston are joint bookrunners on the floaters.

The company will use the money to refinance debt.

Cinemark discount notes raise $360 million

One deal priced during the opening session of the March 29 week.

Cinemark, Inc., the Plano, Tex.-based theater chain owner operator, sold $577.173 million of 10-year senior discount notes (Caa1/B-) at 62.373 to yield 9¾%.

The deal, led by Lehman Brothers and Goldman Sachs & Co., came at the tight end of the 9¾%-10% price talk, and generated approximately $360 million of proceeds.

Half dozen issuers move into pipeline

Counting Cablevision, half a dozen companies made purposeful moves to get aboard the booming high yield forward calendar on Monday.

As with Cablevision, Fort Worth, Tex.-based oil and gas exploration and production firm Encore Acquisition Co. intends to price a drive-by deal on Tuesday afternoon.

The company plans to sell $150 million of 10-year senior subordinated notes (B2/B), with an investor conference call scheduled for 11 a.m. ET Tuesday.

Goldman Sachs is the bookrunner for the acquisition financing deal.

AGCO Corp. is expected to launch an offering of €200 million of senior subordinated notes during the week of April 5, although the tenor and call structure of the offering remain to be determined.

Morgan Stanley and Bear Stearns & Co. will run the books on the debt refinancing deal from the Duluth, Ga.-based manufacturer of agricultural equipment and related replacement parts.

Ashtead Group plc is expected to launch an offering of £130 million of 10-year senior secured second priority bonds late this week or early in the week of April 5 via Citigroup and Banc of America Securities.

The Surrey, U.K. equipment rental company will use the proceeds to repay debt.

A roadshow is expected to get underway during the present week for Essex Communications LLC and Essex Group Inc.'s offering of $275 million of eight-year senior notes (B), which are expected to price in the middle of the week of April 5.

JP Morgan, Lehman Brothers, UBS Investment Bank and Wachovia Securities are underwriters for the offering from the Atlanta-based manufacturer and supplier of copper and fiber optic communications wire and cable products to telephone companies, distributors and system integrators.

And a roadshow is set to run March 31-April 2 for Williams Co.'s $400 million of five-year senior unsecured certificates of beneficial ownership.

Citigroup has the books for the offering from the Tulsa-based natural gas transportation and storage company.

Prestige, Sealy talked, Warner downsizes

Price talk of 9% area emerged Monday on Prestige Brands's upcoming $210 million of eight-year senior subordinated notes (Caa1/CCC+), which are expected to price Tuesday afternoon via Citigroup and Banc of America Securities.

And the price talk is 8¼%-8½% on a downsized offering from Sealy Mattress Co. of $390 million of 10-year senior subordinated notes (Caa1/B-), which are expected to price on Tuesday. The deal was reduced from $490 million.

Goldman Sachs & Co. and JP Morgan are joint bookrunners.

The $100 million amount by which the bond deal was decreased was shifted to the company's new credit facility.

Finally, Warner Music Group decreased its U.S. 10-year non-call five bond deal (B-) to $465 million from $615 million in response to the decision to increase its term loan B to $1.2 billion from $1 billion on strong loan demand, according to market sources.

Pricing is expected on April 1 or 2 .

Cinemark steady in trading

When the new Cinemark notes were freed for secondary dealings, they were heard "pretty much wrapped around their issue price" of 62.3730, a trader said, quoting the bonds at 62.25 bid, 62.5 offered.

Another trader quoted the bonds around those same levels and declared that "there were buyers nosing around - but not a whole lot of real activity."

The first trader said that "the book" of prospective customers for the company's new issue "was pretty good, but it didn't perform very well in the aftermarket."

The new deals, he said "wasn't a big blowout by any stretch of the imagination."

He opined that in the current market climate, "I don't think that people are too anxious to buy zero-coupon paper. People like the coupons - and the bigger the coupon the better."

Also on the new-issue front, he saw U.S. Concrete Inc.'s new 8 3/8% notes due 2014 - which on Friday had priced at par, then shot as high as 103.125 bid, before coming down to finish at 102.125 bid, 102.875 offered - continuing to gain, closing Monday's dealings at 102.5 bid, 103.25 offered.

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