Dex Media two-part deal prices, trades up; OM Group falls again

By Paul Deckelman and Paul A. Harris

New York, Oct. 30 - Dex Media East LLC and Dex Media East Finance Co. brought their eagerly awaited $975 million two-part bond deal to market Wednesday. After pricing, the new bonds began secondary trading and firmed smartly, market participants said.

Elsewhere in the secondary sphere, OM Group shares and bonds were on the slide for a second consecutive session, with the bonds - which days ago traded not far from par - now quoted in the upper 30s.

Back in the primary arena sources told Prospect News that the Dex Media deal was two times oversubscribed. Both tranches of the offering priced within talk.

The $450 million tranche of seven-year senior notes priced at par to yield 9 7/8%, within the 9¾%-10% price talk, while the $525 million of 10-year senior subordinated notes (B3/B) priced at par to yield 12 1/8%. Price talk on the subs was for a yield in the 2% area.

Bookrunners for the offering were JP Morgan, Banc of America Securities, Deutsche Bank Securities Inc., Lehman Brothers and Wachovia Securities, Inc.

Stating that the QwestDex deal was two times oversubscribed, one informed source told Prospect News late Wednesday that once investors saw the price talk they appeared to develop an appetite for the new paper - especially the senior tranche - in short order.

"People want some yield and they want to do it in a fairly conservative way," the source said, adding that the size of the deal seemed to address the buy-side's liquidity concerns.

A syndicate source, who also said that the books on both tranches were oversubscribed, said that the infusion of an additional $75 million of equity from sponsors the Carlyle Group and Welsh, Carson, Anderson & Stowe certainly caused the eyes of the bond investors to brighten, as did the involvement of George Soros Funds, which took down $100 million of the subordinated notes.

With Dex done, sell-side sources expressed the hope that the way would be clear for deals stationed on the shadow calendar to step into the light.

"Everybody's been watching and holding their breath," one syndicate official conceded, adding that numerous prospective junk bond deals have now been hovering on the horizon for over two months.

One syndicate source told Prospect News in the wake of the QwestDex terms that Wednesday's success almost certainly paves the way for the deal to fund the acquisition of the Sprint directories business by R.H. Donnelly Corp. for a reported $2.23 billion.

"They were basically waiting to see what would happen with Qwest," the sell-side official said. "Now that there was such strong demand for Qwest it should bode well for Sprint. It seems like there is plenty of capacity out there for people to pick up this kind of paper, presuming the terms are equally good.

"The loan should be coming shortly," the source added. "The roadshow I think is starting in a couple of weeks.

"Sprint is publicly traded so there is a lot more information out there. There are a lot more people following it already. With Qwest everyone still had a lot of diligence to do."

This official said that the market is anticipating approximately $700-$800 million of bonds from the Sprint/Donnelly deal, and $1.5-$1.6 billion on the bank side.

Meanwhile on the new issuance front details emerged Wednesday on NDCHealth Corp.'s $175 million of senior subordinated notes due 2012 (B2) via Credit Suisse First Boston and Merrill Lynch & Co. The roadshow starts Tuesday on the Rule 144A deal and is scheduled to conclude on Nov. 14.

Finally on Wednesday a market source told Prospect News that emerging markets corporate credit Tyumen Oil is expected to price $400 million of five-year loan participation notes (upsized from $300 million) on Thursday. Price talk is for a yield in the 11% area.

When the new Dex East bonds were cleared for secondary dealings, a trader said, "they did pretty well," with the 9 7/8% senior notes due 2009 trading up to 102.5 bid/102.75 offered from their par issue price, and the 12 1/8% senior subordinated notes due 2012 moving as high as 102 bid/102.5 offered, also up from a par issue price.

Back among already established issues, OM Group shares and bonds got rocked for a second consecutive day, continuing to reel in the wake of Tuesday's announcement by the Cleveland-based specialty chemicals maker that it had posted a sizable third-quarter loss and that things would not get any better during the final quarter of the year.

OMG's 9¼% notes due 2011, which on Tuesday had fallen to around the 48-50 bid area from prior levels near 90, plummeted as low as 36-37 bid during the session, although they seemed to get a small bounce off those lows and were quoted going home at around 43 bid/45 offered.

A distressed-debt trader noted that his desk had only gotten hold of the formerly well performing bond on Tuesday, but with the latest continuing erosion, "now it's firmly in the land of distressed."

He noted that prior to its big move downward, the bonds really hadn't traded around that much, even though it's a fairly sizable, liquid issue at $400 million. The bonds were sold last Dec. 7, pricing at par.

"It came [down] so fast that most accounts don't know exactly what it is yet, but they'll find out really quick," he observed. "It really wasn't on a lot of people's radar screens at all - then all of a sudden, BOOM, and they had to deal with it."

"OMG stands for 'oh my God,'" another trader quipped, noting that the bonds had dipped down to ending levels around 40-42 bid from Tuesday's going home price of 50-51. At another desk, yet another trader opined that "this is really ugly," quoting the bonds as low as 36.5 bid, while the shares - which on Tuesday had lost $22, or 71% of their value in hectic New York Stock Exchange dealings - dropped another $1.46 (16.31%) to $7.49 on volume of 15.9 million shares - about 22 times the normal turnover. The equity move over the two sessions, he said, "was huge."

OM Group's troubles began on Tuesday, when it reported a third-quarter earnings loss of $71.2 million ($2.52 per share) in the third quarter, versus a year-ago profit of $20.5 million (84 cents per share). The loss for the latest period included a charge of $93.7 million, or $3.31 per share, related to inventory write-downs. Without that charge and certain other special items, OM showed an operating profit for the quarter of $22.6 million, or 79 cents per share - but that was sill a nickel below Wall Street analysts' consensus estimate.

OM Group projected that cobalt, a key component of its specialty chemicals, will stay at levels between $6 and $7 per pound through 2003, due to the continued weak economy, and no foreseeable improvement in the demand for super-alloys. With its fourth-quarter results likely to be impacted by the weak cobalt prices, higher nickel material costs, a 20% reduction in production at its Kokkola facility, continued weak cobalt prices and the strong euro, OM predicted that it would report a fourth-quarter operating profit of $15 million to $20 million, EBITDA of $32 million to $37 million, and cash flow available for debt repayment of $24 million to $29 million - all considered relatively weak numbers.

Elsewhere, a trader said that Tyco Corp. bonds "were a little better," with the troubled Bermuda-based conglomerate's 6 3/8% notes having improved to 89 bid/91 offered from prior levels around 86 bid/90 offered, while its 5.80% notes due 2006 were 1½ points improved, at 86.5 bid/87.5 offered.

He saw Nextel Communications Inc.'s 9 3/8% notes due 2009 rising to 85 bid/85.5 offered from 83.5 bid/84.5 offered, and saw continued improvement in Levi Strauss & Co. bonds, whose recent strength has been baffling traders wondering why the bonds have been steadily going up despite a lack of concrete news on the San Francisco-based apparel company.

The trader suggested that "maybe it's CBO buying - Levis looks like a CBO-type bond." But anyone's guess is as good as the next.

On Wednesday, Levis 11 5/8% notes due 2008 were quoted at 95.5 bid/96 offered, up from prior levels 93.75 bid/94.75 offered.

"Somebody must like them," another trader marveled, quoting the 11 5/8s in the mid-90s and Levi's 6.80% notes due 2003 around par. "They've been on an upturn; they had been trading in the 70s just a couple of weeks ago, but have been steadily moving upward."

Another San Francisco-based name linked to the apparel industry, retailer The Gap, was "on a mini-tear," a trader said, quoting its 6.90% notes due 2007 as having firmed to 89.5 bid and "looking for offers" from prior levels at 87 bid/90 offered.

Qwest Communications International Inc. bonds "were grinding higher" Wednesday, a trader reported - even as the troubled Denver-based telecommunications operator was reporting a $214 million (13 cents per share) loss in the third quarter, widening from $142 million (9 cents per share) a year ago. But Qwest actually beat analysts' forecasts by a slight margin and the company's shares were up 21 cents ($6.60) to $3.39.

On the bond side, the trader said, Qwest's holding company paper "had moved the most," while its operating company paper also firmed a little. He quoted Qwest's intermediate-dated issues in the 50s, while its 2004 notes were in the 70s.

"Everything had lost 10 or 12 points" as the company struggled with a flood of bad news, "but it's pretty much made it all back."

He saw "better buying interest," from "distressed accounts, [mainstream] high yield accounts and equity players."

He also saw better buying helping to lift the bonds of Lucent Technologies Inc. The Murray Hill, N.J.-based telecommunications equipment maker's bonds 'were pretty strong," he said, with its benchmark 2006 bonds "back in the mid 50s."

"Good buying took out the distressed sellers in the 30s and 40s," he said, although he also speculated that "there might be some short covering going on. It feels a little technical to me, not a lot of bonds to be bought or borrowed. That's why it snapped back violently, the way it did."

The general market, he said, "was doing better. Most people thought they were going to do worst at the end of the year. People are actually getting agitated that the market is going up in their face a little bit."

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