World Directories prices two-part deal; Bombardier bonds fall as company is junked

By Paul Deckelman and Paul A. Harris

New York, Nov. 30 - World Directories' WDAC Subsidiary Corp. successfully priced the international telephone directory company's two-part, dual currency offering of 10-year senior notes Tuesday.

In secondary dealings, the bonds of Canadian-based transportation equipment manufacturer Bombardier Inc. were seen in retreat after Standard & Poor's lowered the company's ratings to junk-bond status, completing a two-step fall from investment-grade grace that began with a recent similar move by Moody's Investors Service.

World Directories, the international telephone book and Yellow Pages business, was the sole issuer during Tuesday's primary market session, bringing €545 million equivalent in two tranches, both of which came at the tight end of talk.

Meanwhile, as was the case with Monday's session, the forward calendar built up notably with junk bond deals that are expected to price before the end of the year.

Interestingly, among the primary market sources who spoke to Prospect News on Tuesday, some maintained that the window of opportunity remains open for issuers who want to get into a hot high-yield market and take advantage of still-low interest rates. However there were others who said that the post-Thanksgiving parade of prospective issuers may actually be hastening to the high-yield market and thinking more of a window that may be about to close.

And in the post-Thanksgiving primary market, hardly a conversation takes place in which the yield of the U.S. Treasury's 10-year note isn't mentioned, at least in passing.

A little pullback?

Late Tuesday one sell-side source told Prospect News that the 10-year Treasury closed the session with a yield of 4.36%, and added that at the end of October the yield was just above 4.00%.

"That's a substantial move for one month," the source commented.

Earlier in the session an investment banker conceded that the November sell-off in Treasuries could cause high yield bond investors to see the yellow light.

"The market has been quite active," said the banker. "Liquidity on the buy-side continues to be quite strong. But as interest rates start to creep up investors are going to be increasingly cautious.

"With regard to secondary levels, spreads have gotten very tight. Yields on the various indices have also gotten very low.

"I would not be surprised if we saw a little pull-back if we continue to see upward movement in the 10-year Treasury."

Mentioning an unremarkable $5 million outflow from the high-yield mutual funds for the week ending Nov. 24, as reported by AMG Data Services, this source asserted that whereas the funds flow number used to be a firm indicator of the liquidity of the asset class, lately the number may tell less.

"The funds flows numbers are good indicators of sentiment, but they are not necessarily great indicators of the liquidity of the asset class," the banker said.

"If you look at the pension funds, the money managers, the CDOs and hedge funds that are either getting into high yield or coming back into it, that's where most of the liquidity is coming from."

World Directories' two tranches

The only junk bond deal to price during the Tuesday session came from WDAC Subsidiary Corp. (World Directories) which priced €545 million equivalent of 10-year senior notes (Caa1/CCC+) in two tranches.

The company sold $200 million of dollar-denominated notes at par to yield 8 3/8%, tight to the 8 3/8% to 8 5/8% price talk.

The company also sold €395 million of euro denominated notes at par to yield 8½%, tight to the 8½% to 8¾% price talk.

JP Morgan, Goldman Sachs & Co. and Credit Suisse First Boston ran the books for the deal, proceeds from which will be used to repay debt incurred in funding the VNU acquisition.

Chesapeake Energy drive-by

Oklahoma City-based independent natural gas producer Chesapeake Energy Corp. announced the biggest deal to come into the market on Tuesday.

The company plans to sell $600 million of 10-year non-call-five senior notes (Ba3/BB-) on Wednesday afternoon, via Deutsche Bank Securities, Banc of America Securities, Credit Suisse First Boston, Lehman Brothers and UBS Investment Bank.

Proceeds will be used to fund the acquisition of Hallwood Energy Corp. and to repay debt.

Three for the road

Elsewhere, three companies announced roadshow starts.

The roadshow starts Thursday for Aventine Renewable Energy, Inc.'s $160 million offering of senior secured floating-rate notes due 2011 (B3), which are expected to price late in the week of Dec. 6.

Morgan Stanley and JP Morgan will have the books for the capital expansion and dividend funding deal from the Pekin, Ill.-based producer and marketer of ethanol.

A roadshow also starts Thursday for CasaBlanca Resorts' $160 million two-part offering via Jefferies & Co., with pricing expected to take place on Dec. 10.

The Mesquite, Nev.-based lodging and entertainment company plans to sell $120 million of seven-year non-call-four senior secured second lien notes.

CasaBlanca also intends to sell $40 million proceeds of eight-year non-call-four senior subordinated discount notes, which will come with a four-year zero coupon.

Proceeds will be used to repurchase stock.

And Hudbay Mining & Smelting, Inc, a subsidiary of Hudson Bay Mining & Smelting, Inc., will start a roadshow Wednesday for $200 million of seven-year non-call-four senior notes (B3/B), via Credit Suisse First Boston.

The Winnipeg, Manitoba-based zinc-mining company will use the proceeds to fund an acquisition.

Dividend deal from Kabel Deutschland

Elsewhere on Tuesday Kabel Deutschland was heard to be marketing a €400 million offering of 10-year senior floating-rate PIK notes, which are expected to price in early December.

Although the structure is tentative, according to one market source, the initial price guidance on the deal is Euribor plus 850 basis points.

Goldman Sachs & Co. and Deutsche Bank Securities are joint bookrunners for the dividend-funding deal from the Bonn, Germany-based cable TV and internet services provider.

Talk on SBA

In addition to the above-mentioned Chesapeake Energy $600 million deal, one other offering is expected to price during Wednesday's session.

Price talk of 8¼% to 8½% emerged Tuesday on SBA Communications Corp.'s $250 million of eight-year senior notes.

Lehman Brothers and Deutsche Bank Securities are joint bookrunners for the debt refinancing deal from the Boca Raton, Fla.-based operator of wireless communications infrastructure.

World Directories steady in trading

When WDAC's new dollar-denominated 8 3/8% notes due 2014 were cleared for secondary dealings, they were seen straddling their par issue price, at 99.875 bid, 100.125 offered, a trader said, also quoting the company's new euro-denominated 8 ½% notes due 2014 at 100.375 bid, 100.625 offered, up from their par issue price.

Bombardier drops on S&P cut

Back among the existing issues, a market source saw the Bombardier bonds about 1½ points lower on the session, although he said that the two-notch S&P downgrade to BB from BBB- "was already in the cards and had been pretty much expected by the market."

He quoted the company's 6¾% notes due 2012 at 96.375 and saw its 8 3/8% notes due 2013 at 108.

At another shop, a trader saw the company's bonds "down two points, give or take [a little]." He saw the 63/4s at 92 bid, 94 offered, down from prior levels at 95 bid, 96 offered, while the company's 6.30% notes due 2014 were at 88 bid, 90 offered.

Yet another trader saw the Bombardier bonds not much down from prior levels, especially later in the session; he pegged the 6.30% notes at 89.5 bid, 90.5 offered, down from 90.25 bid, 91.25 offered, while its 6¾% notes dipped to 93.75 bid, 94.75 offered, down from 94.5 bid, 95.5 offered.

He further estimated "the short end was actually up," with the 6 1/8% notes due 2006 firming slightly to 101.125 bid 101.625 offered.

In its downgrade announcement, S&P said cited what it said were "continuing weak prospects for some of its key business segments."

It kept the outlook negative.

S&P credit analyst Kenton Freitag said in his downgrade message that "the prospects for a near-term recovery in Bombardier's financial profile have been impeded by the continuing malaise in the U.S. airline industry, the expectation of reduced revenues at Bombardier's transportation division, and adverse currency movements."

S&P said the pressures on Bombardier's commercial aerospace and transportation divisions have increased through 2004 and are unlikely to be fully offset by improving markets for business jets. "

Calpine gains

Elsewhere, a trader said that the overall market was "moving a little sideways. The underlying tone was firm."

He saw, for instance, Calpine Corp.'s bonds were better, in line with the San Jose, Calif.-based power generating company's better share price (up 24 cents, or 6.59, to $3.88), which was aided by the company's announcement that Calpine is teaming up with General Electric's GE Energy unit for the joint construction of the world's first power plant based on the 60-Hertz version of GE's most advanced gas turbine technology, the H System.

The project site has yet to be announced.

The trader saw the Calpines up about two points, on average, with the 8¾% notes due 2007 firming to 83 bid. The 10½% notes due 2005, "which are the short ones, they're not going to move that much," were at 99.25 bid, 99.75 offered.

The 8 5/8% notes due 2010 were 1½ points better at 66.75, while the 9 7/8% notes rose to 80 bid, 80.5 offered.

MCI firm

He also saw MCI "still continu[ing] to be firm, with the Ashburn, Va.-based long-distance carrier's three-year notes at 101.5 bid, its five-year notes at 101.75 bid, and its 10-years at 102.5 bid, 103.

"I think they're close to getting their rating from the ratings agencies," he predicted, "which will happen any day now, maybe in the next week or so." He opined that "they'll probably get a single-B ratings, and that will really make the paper move."

All of this, he said, was again against a backdrop of the market having "a good tone to it," resulting in a sideways movement.

Another trader, however, took a contrasting view, declaring that he had seen things "lower all day," with representative indexes, such as the Dow Jones-compiled CDX junk index at 101.5 bid, 101.75 offered, down 7/16 on the day, and well down from the 103 bid, 10.25 offered several days ago.

"It's off quite a lot," he said of the market measure. "It's been giving ground."

He said that Tuesday was "the first day that it underperformed the government market," which was down ¼ point, versus the half-point fall in the CDX.

"So all of a sudden, the [new deal] supply is starting to weigh on the junk market, and spreads are starting to widen a little bit."

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