GM lower on Moody's downgrade; Level 3 continues climb; Rural Cellular deal prices, Chesapeake ahead

By Paul Deckelman

New York, Nov. 1 - Bonds of General Motors Corp. were seen markedly lower Tuesday after Moody's Investors Service cut the giant carmaker's ratings deeper into junk territory. On the upside, Level 3 Communications Inc. bonds were seen improving for a second consecutive session following Monday's news that Level 3 will acquire rival fiber-optic network operator WilTel Communications Group Inc. - but will not be acquiring the latter's debt and other unwanted liabilities.

In the new-deal area, Chesapeake Energy Corp. unveiled plans to sell $400 million of new bonds to help fund its recently announced acquisition of Columbia Natural Resources LLC.

In another acquisition-related deal, EPL Finance Corp. was seen doing a deal to help partly fund its acquisition of California-based grilled chicken restaurant operation El Pollo Loco.

And Rural Cellular Corp. successfully priced a $175 million drive-by offering of new senior subordinated floating-rate notes due November 1, 2012 (Caa2/CCC).

That deal was brought to market via joint book-running managers Lehman Brothers and Morgan Stanley with a Libor plus 575 basis points coupon and priced at 98.752.

The quickly marketed Rule 144A deal was only announced on Monday.

Rural Cellular, an Alexandria, Minn.-based provider of wireless service to 15 states in the Midwest, the Northeast, and the South, plans to use the proceeds from the offering to redeem its $125 million of outstanding 9 5/8% senior subordinated notes due 2008, with any left-over monies to go for general corporate purposes.

Compton Petroleum Corp. was heard by junk market sources to be preparing to market a new bond issue via Credit Suisse First Boston, with the proceeds slated to fund a tender offer for the Calgary, Alta.-based energy operator's $165 million of outstanding 9.90% series A senior notes due 2009. The timing and other details about the bond offering are still up in the air, a market source said.

Chesapeake, El Pollo line up acquisition deals

Acquisitions, rather than debt takeouts, were the stated rationale behind two deals that joined the forward calendar on Tuesday.

Oklahoma City-based independent energy exploration and production operator Chesapeake Energy Corp. said it would sell $400 million of 15-year bonds - considered a relatively unusual tenor in a junk bond world mostly populated by seven- and 10-year issues.

That deal is being brought to market via an underwriting syndicate consisting of Bear Stearns, Banc of America Securities, Credit Suisse First Boston, Lehman Brothers And Wachovia Securities, and is expected to price late in the session Wednesday, following an investor call earlier in the day.

Chesapeake will use the new bonds, as well as separate offerings of $500 million of cumulative convertible preferred stock and $600 million of senior contingent convertible notes to partially fund the $2.2 billion cash acquisition of Columbia Natural Resources, which will create the second largest independent producer of natural gas in the United States.

And EPL Finance, an affiliate of Trimaran Capital Partners, LP, will sell $150 million of eight-year notes to help finance the New York-based private asset management firm's previously announced planned acquisition of El Pollo Loco, which operates over 300 company-owned and franchisee-owned grilled chicken restaurants in the Western U.S.

The deal will be brought to market via joint bookrunners Merrill Lynch and Banc of America Securities, and will be marketed to potential investors via a roadshow that starts Wednesday, with pricing expected sometime in the middle to latter part of next week.

Besides the bond issue, EPL Finance is also working on a $125 million senior secured credit agreement to partly fund the estimated $400 million purchase price. The balance will consist of equity from Trimaran and from El Pollo Loco's current management.

Chukchansi steady in trading

Back in the secondary market, traders said that the new Rural Cellular floaters priced too late in the session for any kind of aftermarket activity.

And one said that Chukchansi Economic Development Authority's new 8% senior notes due 2013 were little changed from Monday's par issue price, quoted at par bid, 100.5 offered Tuesday.

"Things were quiet," another trader said of his markets. "We're dead today."

GM down on Moody's, sales

Also seen as dead was any supposed revival of consumer interest in buying cars in the United States, now that the "employee discount pricing" plans that all three of the major domestic producers used over the summer to clear their dealer lots of unsold 2004 and 2005 vehicles have run their course and have expired. GM and rival Ford Motor Co. each saw domestic total sales slide 23% in October from year-earlier levels, as high gasoline prices continued to sharply curb demand for big gas-guzzling sport utility vehicles that had been a mainstay of the two companies' sales and profit structure. GM and Ford each saw their sales of light trucks, including SUVs, plunge 30%.

Those sour figures caused Moody's to drop GM's senior unsecured ratings by two notches, from Ba2 to B1, with a negative outlook.

That, in turn, helped put GM's bonds into a tailspin, although they managed to bounce off their intraday lows.

A trader saw the 8% notes due 2031 of GM's finance arm, General Motors Acceptance Corp., fall as low as 102 bid, 103 offered, before coming off those lows to end the day at 104 bid, 105 offered, down about half a point on the day.

"There was a little volatility" in the carmaker's issues and those of its financing arm, he said, seeing GM's own corporate 8 3/8% notes due 2033 ending perhaps half a point lower at 73.5 bid, 74.5 offered.

Another trader saw the GM benchmark 8 3/8s dip half a point to 73.5 bid, 74 offered, before the sales data came out. After that, he said, the bonds eased another half point to end at 73 bid, 74 offered.

Yet another actually saw the GMACs higher on the day, with the 8s perhaps a point better at 104 bid, 104.5 offered. And GMAC's 6¾% notes due 2014 firming slightly to 96 bid, 97 offered.

"Everybody knew the [sales] numbers would stink," he declared, so the apparent rise in the bonds was "already baked in."

GM's continuing troubles threw another pall over an automotive supplier industry that certainly doesn't need one; former GM unit Delphi Corp.'s were seen down about a point on the session at 68 bid.

Level 3 keeps rising

Apart from the auto names, "it was a very slow day," a trader said, although he said he did see Level 3 "up significantly across the board" for a second straight session, as the Broomfield, Colo.-based telecom company continues to bask in the warm market afterglow following Monday's announcement that Level 3 will acquire WilTel's valuable assets, but not its debt.

He saw the company's signature 9 1/8% notes due 2008 open at 83 bid, then push up to 84 and go out still higher at 86 bid, 86.5 offered.

But while the conventional wisdom maintains that this is the market responding to the news that the Level 3 will continue its role as an industry consolidator with the WilTel deal, the trader said it was his view that "it was more of a short squeeze" that was driving up those bonds, which had been at 82 bid 84 offered on Monday.

He also saw the company's 12 7/8% notes due 2010 likewise move up from Monday's finish at 82.5 bid, 83.5 offered to Tuesday morning levels at 83.5 bid, 84 .5 offered and finally to Tuesday afternoon levels at 85 bid, 86 offered.

"It was all technicals," rather than fundamentals, he declared.

Tenet, Reliant lose on earnings

Several issuers were out with their latest earnings data, among them Tenet Health Care Corp., which had "horrible numbers," a trader said.

He saw the Dallas-based hospital operator's 6 7/8% notes due 2031 fall as low as 74.5 bid, 75.5 offered before bouncing off those lows to end at 77 bid, 78 offered.

He also saw the 7 3/8% notes due 2013 drop to 85.5 bid before springing back to 87.5 bid, 88.5 offered late in the day, effectively unchanged.

Bad numbers were also cited in the case of Reliant Energy. Its 9½% notes due 2013, ended at 102.5 bid, 103.5 offered, down four points on the session.

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