Charter bonds gain as Allen talks with Comcast; Rite Aid, XTO, Equistar slate deals

By Paul Deckelman and Paul A. Harris

New York, April 14 - Charter Communications Holdings LLC debt was higher Monday, as news reports indicated that principal owner Paul Allen was in talks with cable industry leader Comcast Corp. about transferring some Charter properties to Comcast, with Allen then compensating Charter for those assets - essentially, a roundabout sort of asset sale.

In the primary market, the green flag went down on four junk bond deals - all of them drive-bys - as activity got underway Monday in the high yield primary market. Although early in the day some observers anticipated hearing terms on two of them, by the time the session closed none appeared to have priced.

Rite Aid Corp. - which on Friday announced the launch of a new $2 billion secured credit facility - was heard by primary market participants to be quickly shopping a $350 million offering of seven-year senior notes. The prescribed price talk is 8½% area on the Camp Hill, Pa. drug store company's senior secured notes, expected to price on Tuesday, via Citigroup and JP Morgan.

And talk is 7 3/8%-7½% on an upsized, restructured $125 million deal from Susquehanna Media Co. The York, Pa. media company's 10-year senior subordinated notes were originally expected to be a $100 million add-on to its 8½% senior subordinated notes of 2009. Joint bookrunners ate Banc of America Securities and Wachovia Securities, Inc.

"They're going to do a stand-alone deal as opposed to an add-on," one informed source explained. "The reason is that the market demand is very strong, and this will allow them to better stagger their maturities."

Early in Monday's session sources told Prospect News that terms could emerge on both Rite Aid and Susquehanna before the session's close, however late Monday both were reported to be Tuesday's business.

The market also heard news that Equistar Chemicals, LP and XTO Energy, Inc. are bringing quick-to-market deals. Equistar's $325 million of eight-year senior notes (B1/BB/B) are expected to price on Wednesday. Joint bookrunners are Citigroup, Banc of America Securities and JP Morgan.

The issuer, a Houston-headquartered joint venture between Lyondell Chemical Company and Millennium Chemicals Inc., intends to use the proceeds to prepay $300 million of 8 ½% bonds due 2004.

Terms are also expected on XTO Energy $300 million of 10-year senior notes (Ba2 expected/BB), around the middle of the week.

An investor conference call took place Monday on the new deal from Fort Worth, Tex.-based natural gas producer, which will price its offering via Lehman Brothers and JP Morgan.

Finally on Monday, price talk of 9%-9¼% emerged on Ethyl Corp.'s $150 million of seven-year senior notes (B2/B). The deal, via bookrunner Credit Suisse First Boston, is expected to price Tuesday afternoon.

The $1.1 billion of quick-to-market business announced Monday reflects a trend that market sources had been advising Prospect News to look for as geopolitical tensions rose in the run-up to the U.S.-led war to oust Iraqi dictator Saddam Hussein.

Issuers, said a variety of sources on both the buy- and sell-sides, do not want their credit stories over-run by newspaper headlines - particularly negative ones - while their junk bond deals are on the road. Also, sources said, the drive-by market would largely be open to issuers with familiar names that are core holdings of a number of the accounts.

A sell-side source who spoke Monday with Prospect News said that with the situation in Iraq beginning to achieve some clarity things could change in the high yield primary.

"I think you've seen a lot of drive-bys because of the geopolitical volatility," the source acknowledged. "People have not wanted to be out there for long periods of time. Also people wanted to know how the markets were going to shake out.

"The deals that have come have generally been deals that are very easy for people to hit on very short-window time frames. Now that things are settling down I think you will see more people that can be out there on a longer roadshow start to hit the market."

This official also said that activity in the new issuance market thus far does not seem to have risen proportional to the amount of cash that high-yield accounts are perceived to have to put to work.

"The liquidity picture is very strong," the official stated. "New issuance is starting to pick up but it's still not as robust as it could be. People have got liquidity. People are looking for names that they like and that they think are going to perform well in this market.

"You've seen the secondary market levels tighten," the sell-sider added. "You've also seen new issues get good execution in this market."

Back among the established issues, a trader said that the emergence of the quick-draw deal from Rite Aid "essentially precluded the [existing] bonds going very much higher."

Those notes had firmed smartly on Friday, after drugstore operator announced its first round of financing news - a $2 billion credit facility.

Proceeds from that new facility, which matures in 2008, will be used to repay Rite Aid's existing $1.37 billion senior secured credit facility and its $107 million synthetic lease, both due in March, 2005, and to replace the company's existing $500 million revolving credit facility.

But at another desk, a trader quoted Rite Aid's 7 1/8% notes due 2007 as having pushed up half a point Monday, to 94 bid. At another desk, a trader said those bonds had gone home around 92.5 bid on Friday, and were about a point better Monday, trading in a 93.5-94.5 context. He saw Rite Aid's 7 5/8% notes due 2005 as having firmed close to a point to 98 bid/99 offered from Friday's finish at 97.25 bid/9825 offered.

Also continuing to push upward, market participants said, was Calpine Corp., whose bonds had been taking a beating for most of last week before showing some life on Friday, when they bounced off their lows for the week on investor assumptions that the San Jose, Calif.-based independent power operator would indeed follow the lead of industry peers such as AES Corp., El Paso Corp., Reliant Resources Inc. and Dynegy Inc. and would soon be able to announce a refinancing deal.

On Monday, Calpine's paper "was better," a trader said, pegging the company's 8½% notes due 2011 a point higher on the session, as 63.25 bid/64.25 offered.

But much of the secondary's attention was focused on Charter, whose 8 5/8% notes due 2009 pushed up to 59 bid/60 offered from Friday's levels at 57 bid/58 offered.

A market observer quoted the St. Louis-based cable operator's 9.92% notes due 2011 as having firmed to 50.25 bid from prior levels from 48.75 on Friday, "up again."

Charter - faced with trying to deal with a $20 billion debt load and under a federal probe of some of its reporting issues - could use some help, and investors are looking to its controlling shareholder, billionaire Microsoft co-founder Paul Allen, as the man on the white horse. Allen proposed a $300 million loan to the company earlier this month, which sent its bonds and shares up.

Now, according to news reports, Allen's investment vehicle, Vulcan Inc. is in talks with cable-industry leader Comcast Corp. to transfer Charter properties in Texas or New England to Comcast as part of a plan to help Charter get back on its feet.

Comcast agreed to a one-month delay in exercising certain put options on Charter ownership interests back to Allen, which would have required Allen to pay $725 million. The Dow Jones News Service reported late Monday that according to sources familiar with the situation, Vulcan and Comcast are in preliminary negotiations on an arrangement under which Comcast, instead of getting $725 million for its put, would get either a cable system in Texas or New England that is in the same area of systems that Comcast already owns.

The story indicates that the deal "also probably would involve a payment by Mr. Allen to Charter to make up for the system it is losing, people say."

Charter shares were up five cents (4.63%) to $1.13 in Nasdaq trading.

Elsewhere in the communications business, XM Satellite Radio - which has set as its goal having a million subscribers for its satellite radio broadcast service by the end of this year - said that it is half-way there, having passed the psychologically significant 500,000 mark.

XM's 14% notes due 2009 were heard having firmed to 59.5 bid from 58 on Friday.

A trader didn't really see much movement in XM - but he said that satellite operator PanAmSat's debt "keeps moving up," its 8½% notes due 2012 pushing to 107.5 bid, versus 105.5 bid/106.5 offered on Friday, and 104.5 bid/105.5 offered a week ago, "up quite a bit in that time." He said he had seen no corresponding movement, meanwhile, in the bonds of other satellite TV players like Echostar or DirectTV.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.