Idearc, Sabine Pass, SuperValu slate big deals; Salton, Delphi gain on buyout speculation

By Paul Deckelman and Paul A. Harris

New York, Oct. 23 - Idearc Media - the new name for the soon-to-be spun off Verizon Communications Inc. directory business - and Sabine Pass LNG, LP, a subsidiary of Cheniere Energy Inc., were heard by high yield syndicate sources Monday to have each begun the process of bringing a $2 billion-plus megadeal to the junk market in the not-too-distant future. Also heard slating was a considerably smaller offering - though at a half billion dollars, still substantial-from supermarket giant SuperValu Inc. Timing was meantime heard on Neenah Foundry Co. upcoming two-part notes offering.

Among the established issues, Salton Inc.'s bonds were described by several traders as the day's big movers, jumping some 10 points on news that the Lake Forest, Ill.-based small appliance maker said that it would consider a possible sale or merger of the company.

Buyout buzz was also seen lifting the bonds of bankrupt Troy, Mich.-based automotive parts maker Delphi Corp., though nowhere nearly as dramatically as the Salton advance. The Delphi developments, in turn, were seen having given a boost to such sector peers as the bankrupt Toledo, Ohio-based auto components maker Dana Corp.

But there was little negative fallout in the sector to Ford Motor Co.'s announcement that the Number-Two domestic carmaker had lost a yawning $5.8 billion in the recently completed third-quarter - Dearborn, Mich.-based Ford's parking lot full of red ink having been expected and fairly accurately estimated by the financial markets. However, Ford's statement that it may consider issuing secured debt to meet funding needs met with a cool reception from the major ratings agencies.

A sell-side official said that the broad high-yield market was strong on Monday although the Treasury market was off a bit.

This source added that it had been an active day in telecommunications, media and technology sector, with the bonds of Cablevision Systems Corp. especially active on rumors that Time Warner Inc. is considering buying the Bethpage, N.Y., cable operator.

Meanwhile, although no issues were priced during Monday's primary market session, the new issue forward calendar underwent a massive buildup, with a pair of companies appearing with mega-deals each sized over $2 billion.

Verizon directories to Idearc

The biggest prospective borrower to step forward as the last full week of October got underway was Idearc, Inc., a new public company formed by the spin off of Verizon Communications Inc.'s directories businesses.

Idearc began a roadshow Monday for its $2.85 billion offering of 10-year senior notes (B2/B+), a deal that is expected to price on Nov. 1.

JP Morgan and Bear Stearns & Co. are the bookrunners for the deal, proceeds from which, in addition to a $6.5 billion credit facility, will be used to finance the spin off, primarily by making a cash distribution to Verizon Communications.

Sabine Pass plans $2.15 billion

Also appearing Monday with a $2 billion-plus offering was Sabine Pass LNG, a wholly owned subsidiary of Houston-based Cheniere Energy, Inc.

The company began a roadshow for a $2.15 billion two-part offering of senior secured first-lien notes (expected ratings Ba3/BB).

As with Idearc, the Sabine Pass deal, which is being led by Credit Suisse, is expected to price next week.

Proceeds will be used to repay Sabine's existing $1.5 billion project finance facility and Cheniere LNG Holdings, LLC's $600 million of term debt, as well as to fund a reserve account for scheduled interest payments on the notes through May 2009.

Proceeds will also be used to fund completion of the phase 1 and the phase 2-stage 1 of the Sabine Pass LNG receiving terminal, and for general business purposes.

Supervalu call Tuesday

Supermarket operator Supervalu Inc. also showed up with half a billion, which it expects to complete as a quick-to-market transaction.

The company will host an investor call at 10:30 a.m. ET on Tuesday for its $500 million offering of eight-year senior notes (B1/B/expected B+).

The debt refinancing deal is expected to price later on Tuesday or else on Wednesday, via Merrill Lynch & Co., Banc of America Securities and Credit Suisse.

Also from the retail sector Michael's Stores Inc.'s $1.075 billion two-part notes offering was scheduled to conclude its roadshow on Monday and, like Supervalu, price in the early to mid part of the present week.

Last Friday the Texas specialty store company circulated price talk: its $750 million tranche of eight-year senior notes (B2/CCC) was talked at a yield in the 9¾% area, and its $325 million tranche of 10-year senior subordinated notes (Caa1/CCC) was talked at the 11¼% area.

Deutsche Bank Securities is the left bookrunner for the LBO deal.

Neenah launches $300 million

Finally, Neenah Foundry Co. started a roadshow on Monday for its $300 million two-part offering of senior secured notes (B2/B).

The company plans to sell 10-year fixed-rate notes and seven-year floating-rate notes.

Credit Suisse and Banc of America Securities LLC are joint bookrunners for the debt refinancing deal from the Neenah, Wis.-based foundry company.

AGY steady

A secondary trader said that the new AGY Holding Corp. 11% senior notes due 2014, which priced at par late Friday - too late in that session for any aftermarket activity - were little changed Monday, at par bid, 101 offered . However, another trader said that he "never did see" the new issue, describing it as "one of those deals that kind of slunk off into Never Never Land."

Salton soars on sale speculation

Back among the already established issues, Salton "was definitely the big mover," a trader said, quoting the company's 12¼% notes due 2008 at 91 bid - a gain of fully 10 points on the session and "almost 20 points from where they were on Thursday" when the notes were seen hanging around the lower 70s. Several other traders also pegged the bonds around a 91 context.

The bonds got a two-step boost in trading Friday and Monday when a large shareholder suggested that it combine with one of its competitors - and Salton responded by saying it might consider a sale or merger transaction.

Harbinger Capital Partners started the M&A talk last week when it wrote to Salton's board of directors, suggesting that Salton - which has struggled with heavy debt, slower-than-anticipated sales in some markets and higher raw materials costs - might benefit from a combination with competitor Applica Inc., which last Thursday agreed to be bought out for $88 million by Harbinger Capital, its largest shareholder. Harbinger is also a big Salton shareholder, its 30,000 shares of preferred stock eligible to be converted into a 15% stake in Salton common.

In its letter to Salton touting the benefits of a link-up with Applica, Harbinger declared that "we are enthusiastic about the small household appliance market and believe that a combination of Salton and Applica is compelling." It asked for access to Salton's books to conduct due diligence.

That was enough to push the bonds up to closing levels Friday around 81 bid from prior levels in the lower 70s.

Salton at that time had no public comment - but it said early Monday that it has hired Houlihan Lokey Howard & Zukin Capital Inc. as an advisor as it evaluates various strategic alternatives, possibly even including the outright sale of the company.

That news caused the bonds to gain another 10 points, traders said.

Salton said that the strategic review was needed because of consolidation in the small-appliances market, as well as overtures from potential suitors.

Salton separately announced that it had appointed Jason Mudrick to its board - a former Merrill Lynch & Co. M&A specialist who is now a portfolio manager at another major Salton shareholder, Contrarian Capital Management LLC, which owns 2.6 million shares, or about 18% of the outstanding float.

Those twin moves caused Salton's New York Stock Exchange-traded shares to shoot up 58 cents (24.68%) to $2.93 in Monday's dealings. Volume of 918.000 shares was about 15 times the usual turnover.

Ripplewood rumors boost Delphi

M&A speculation was also responsible for a rise in Delphi's bonds, which were seen up at least a point pretty much across the board. A trader said its 6.55% notes that were to have matured earlier this year moved up to 101 bid, 102, while its 6½% notes due 2009 rose to par bid, 101 offered, its 6½% notes due 2013 to 95 bid, 96 offered, and its 7 1/8% notes due 2029 to 92 bid, 93 offered.

The bonds rose - along with Delphi's Pink Sheets-traded shares, up 21 cents (8.71%) to $2.62, on volume of 12 million shares, more than triple the norm - after The Wall Street Journal reported over the weekend that Ripplewood Holdings LLC is preparing a likely bid for the bankrupt auto parts maker that could top $10 billion.

The paper reported that the buyout specialist's effort is being led by a former Chrysler Corp. president, Thomas Stallkamp, who is now a partner with the New York-based investment company. Neither Stallkamp nor Delphi would comment on the Journal's report.

The paper further said that although Ripplewood is considering a bid for the whole company, it might still just make a bid for part of it.

Ripplewood is the latest of several presumed possible suitors for Delphi who have emerged in the media over the last few months; other reports have linked Delphi with private equity group Cerberus Capital Management LP and hedge fund Appaloosa Management, which owns a 9.3% Delphi stake.

Ripple effect in auto sector

The news that Ripplewood is apparently preparing to make a bid for some or all of troubled Delphi translated into a generally firmer tone among the other automotive names, traders said, particularly Dana. One characterized the latter company's bonds as up "dramatically," with its 6½% notes due 2008 up as much as 2¾ points at 74.75 bid, 75 offered.

Another said that Dana was up "even more than Delphi," seeing both the 2008 6½% notes and the company's 6½% notes due 2009 two points better at 75 bid, 76 offered.

Also seen better was former Delphi parent company General Motors Corp., whose benchmark 8 3/8% notes due 2033 were up ½ point at 87.75 bid, 88.75 offered. GM is helping its problem child - spun off in 1999 - to pay for buyouts and early retirement incentives as Delphi tries to trim its workforce to bring its costs more into line with its lower sales. GM is also taking part in three-way talks with Delphi and the United Auto Workers union aimed at reaching a consensus agreement on drastically lowering Delphi's bloated hourly labor costs. GM hopes to thus deter Delphi from taking any unilateral action to impose a new salary and benefits structure on its unionized workers, which might produce a potentially ruinous strike at Delphi - GM's single largest parts supplier.

Ford losses don't drive bonds lower

Elsewhere in autoland, Ford Motor Co.'s bonds were seen steady to perhaps even a bit higher, investors shrugging off the news that the second-largest domestic carmaker lost $5.8 billion ($3.08 per share) in the third quarter, a much steeper loss than its year-earlier loss of $2.84 million (15 cents per share).

Analysts said that as scary as those huge numbers are, the latest quarter's mega-loss mostly consisted of $4.6 billion ($2.46 per share) in special charges; without those charges, the company's continuing operations loss of 62 cents was about in line with Wall Street's expectations.

Ford has been beset so far this year with higher raw materials costs and a steep falloff in sales, particularly its higher-margin sport utility vehicles. The company is in the midst of an ambitious turnaround plan, dubbed "Way Forward," which involves the closure of more than a dozen facilities over the next few years and tens of thousands of job cuts. Both most of the anticipated savings won't be realized for several years yet.

In the interim, Moody's Investors Service noted, "even if things go according to plan," in terms of Ford hitting its cost reduction, market share and new-product introduction objectives, "Ford will likely burn through a significant amount of cash during 2006 and 2007. The rate of cash consumption could improve in 2008, but cash flow could still be negative in that year."

Ford said that it would consider accessing the secured debt market in order to bolster its cash position. Moody's lead auto industry analyst, Bruce Clark, said that "given the extended time frame of the Way Forward restructuring plan and the level of cash that may be required through 2008, it will be important for Ford to increase its cash position in order to provide an adequate liquidity cushion.

"If Ford can't boost its liquidity through accessing the secured debt market, through asset sales or through some other strategic alternatives, there could be further pressure on its long-term and SGL ratings." Even assuming that Ford will be able to issue secured debt, Clark said, "the rating of the company's unsecured obligations would be subject to a downgrade from current levels."

Fitch Ratings also warned that it might cut the rating on Ford's unsecured bonds, which would be structurally subordinated to any new secured debt that the company issues.

Xerox unmoved on earnings

A trader said that Xerox Corp.'s bonds were little affected by the Stamford Conn.-based copier and office machines giant's better third-quarter earnings. He saw the company's 7 1/8% notes due 2010 steady at 103.5 bid, 104 offered.

Xerox reported quarterly earnings grew to $536 million (54 cents per share) from $49 million (five cents per share) a year earlier.

Xerox attributed the gain to a large tax benefit and better-than-expected sales.

Remington up on rumors

A trader saw Remington Arms Co. Inc.'s 10½% notes due 2011 at 97 bid, up ¾ point on the session and "up dramatically" from levels around 81 bid just a month ago.

The Madison, N.C.-based shotgun and rifle producer's bonds "have been going up every day," pushed higher, he added by "rumors of a possible joint venture with Smith & Wesson," another arms manufacturer.

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