Host Marriott prices upsized quickie deal; Lucent firmer on Verizon contract news

By Paul Deckelman and Paul A. Harris

New York, Oct. 27 - Host Marriott Corp. announced plans to sell $500 million of new 10-year senior notes - and then priced an upsized, quickly shopped offering later in Monday's session.

In the secondary market, Lucent Technologies Inc. - whose bonds had firmed last week as the Murray Hill, N.J.-based telecommunications equipment maker posted its first profit in three years - was again on the upside, pushed higher on the news that Lucent will supply optical networking equipment to Verizon Communications for the telecom giant's next-generation Sonet network.

The week of Oct. 27 got underway with Host Marriott showing up by surprise at the front desk and then checking out before the session's close with $725 million in its luggage, courtesy of a junk bond sale that upsized by $225 million.

"We're hearing there is huge demand for that paper," said a sell-side source not involved with the Host Marriott transaction, early in the session. As he spoke, price talk of 7%-7¼% circulated the market on what was then a $500 million offer.

However at checkout time, Monday, the drive-by deal had upsized to $725 million, with the 10-year senior notes (Ba3/B+) pricing at par, in the middle of that talk, with a 7 1/8% yield.

Banc of America Securities and Deutsche Bank Securities ran the books on the Bethesda, Md. lodging and real estate company's refinancing deal.

Meanwhile on Monday the market heard news of one roadshow start.

Stratus Technologies Inc., a Maynard, Me. provider of communications services and technology, will begin the roadshow on Tuesday for $170 million of five-year senior notes (B2 expected/B) via Goldman Sachs & Co. and JP Morgan.

Also during the session Triad Hospitals, Inc. announced in a press release that it intends to bring a senior subordinated notes offering of $450 million to fund a tender for $325 million of its 11% notes due 2009.

However Triad chief financial officer Burke Whitman told Prospect News that the figure in the press release should be regarded as the minimum amount of the intended offering.(see related story in this issue).

Merrill Lynch & Co. and Banc of America Securities are dealer-managers on the tender. The consent solicitation expires on Nov. 4.

Ondeo Nalco Co.'s four-tranche note offering was downsized to $1.6 billion equivalent from $1.8 billion equivalent and price talk emerged Monday. Talk is 7¾%-8% on $700 million equivalent of eight-year senior notes in dollar and euro tranches (B2/B), reduced from $900 million equivalent. Meanwhile talk on the $900 million equivalent of 10-year senior subordinated notes (Caa1/B-), also in dollar and euro tranches, is 125 basis points behind the senior notes. This tranche was unchanged in size. Dollar and euro breakdowns within the senior and subordinated pieces remain to be determined.

The deal is expected to price on Wednesday via joint bookrunners Citigroup, Banc of America Securities, Deutsche Bank Securities, Goldman Sachs, JP Morgan and UBS Investment Bank.

The $200 million that was taken off of the senior note tranches was added to the seven-year B tranche of Nalco's $1.85 billion credit facility. The B tranche was increased to $1.3 billion from $1.1 billion.

"Their bank deal was two times oversubscribed," a capital markets source commented to Prospect News, regarding the $200 million shift from bonds to band loan.

"Why pay 8% or 9% for senior sub notes when you can get bank debt for less?" the source asked rhetorically. "The bank debt represents cheaper capital. They had the book to support it so why not?"

Price talk of 8 1/8%-8 3/8% emerged Monday on Gaylord Entertainment Co.'s upcoming $225 million of 10-year senior notes (B3/B-), which are expected to price Tuesday.

Banc of America Securities, Deutsche Bank Securities and CIBC World Markets are joint bookrunners on the Nashville-based hospitality and entertainment company's offering.

One high yield sell-side official told Prospect News late in the session that Host Marriott's quick-to-market deal might be an indicator of things to come in the primary market.

This source said that Nashville hospital operator HCA, Inc. is expected to show up in the near term with a drive-by deal.

Another source said that HCA is expected to issue on a "senior" basis, with the new paper carrying "five or six Bs" from the credit rating agencies. Hence, said the source, HCA figures to be crossover business.

"The secondary is still quiet as can be, and the primary market is doing fine," said the official. "People are still looking for paper."

"We'll continue to hum along and have about $2 billion per week get done."

When the new Host Marriott 7 1/8% senior notes due 2013 were freed for secondary dealings, "they traded like crap," a trader said. "Guys were looking to get out." He quoted the new bonds as having gone as low as 99.5 bid from their par issue price, before finally stabilizing around 99.625 bid, par offered.

Generally there wasn't a lot of activity going on - one trader called it "painfully" slow, while another said that there "wasn't a super-duper level of activity," although he characterized most names as "holding their own."

One such name, certainly, was Lucent, buoyed by the news that Verizon had awarded it a three-year equipment supply deal. Financial terms were not disclosed, but Lucent termed the contract "significant." Verizon will deploy the Lucent Metropolis DMX portfolio of metro optical networking products, and its LambdaUnite MultiService Switch, a high-capacity, multi-service switch which will manage traffic from many metro access networks.

Lucent said this will "dramatically" increase the capacity of Verizon's network and make it possible for the regional Bell operating company to offer a wide variety of high-speed services to its customers.

The Verizon contract was just the latest of several pieces of good news for Lucent, which last week reported its first quarterly profit in three years, and said that it had bought back $500 million of debt at a discount during the third quarter, for a savings of $50 million in annual interest expense.

That caused the Lucent bonds to firm smartly on Wednesday and Thursday; after taking a breather Friday, they were again better on Monday on the latest news, "just when you thought they couldn't go any higher," a trader said.

He quoted Lucent's long-term paper, like its 6.45% bonds due 2029, as having firmed a point from Friday's levels to end at 77.5 bid, 78, and pegged Lucent's benchmark 7¼% notes due 2006 as high as 101 bid, 101.375 offered, "not on huge size, but definitely better."

A second trader agreed that Lucent was "up pretty good," adding that the telecom gear sector - which had been beaten down soundly over the past few years, falling along with the telecom sector to which it sells its equipment "is starting to raise its head" again.

Another trader, however, was not so impressed, quoting the 6.45s having gone home as having gone home around 76.25 bid.76.75 offered, as "sellers appeared at the end of the day." He did not see the 7¼% notes as having advanced much beyond Friday's close around 100.25 bid, 101.25 offered, but acknowledged that the bonds "were up five, six points in the last week."

Another telecom name making news was Level 3 Communications Inc., which announced customer agreements to provide America Online, Inc. with a range of additional services in the U.S. and Europe.

The Broomfield, Colo.-based fiber-optic network operator said that in a new agreement America Online had expanded its use of Level 3's colocation services in the U.S. and Europe - on top of recent agreements under which Level 3 is now providing AOL with high-speed 10 gigabit-per-second wavelength circuits in the U.S. and Europe, which will be integrated into AOL's internet protocol network. In addition, America Online purchased metropolitan dark fiber in the U.S. from Level 3 earlier this year.

Level 3 did not disclose the financial value of the latest contracts from AOL, the world's largest interactive services company, nor of the previous contracts.

A trader quoted Level 3's benchmark 9 1/8% senior notes due 2008 half a point better Monday on the AOL news at 90.5 bid, 91.5 offered, and saw its 11% notes due 2008 up a point at 97 bid.

Outside the telecom sphere, Cummins Inc. announced that it had extended its exclusive supply agreement with DaimlerChrysler Corp.'s Chrysler Group for diesel engines used in the Dodge Ram heavy-duty pickup truck.

Cummins, a Columbus, Ind.-based engine manufacturer, did not disclose specific financial terms of the Chrysler contract, although it did say that the engine system agreement includes consideration of Cummins as a supplier for the diesel engine after-treatment system, and additionally paves the way for collaboration on diesel engine technology beyond the length of the contract.

Cummins shares were up $1.01 (2.10%) to $49.20 in New York Stock Exchange trading, while on the bond side, a trader quoted its 9½% notes due 2010 up at least half a point to 115 bid, 116 offered - although he noted that the Cummins bonds, like the bonds of other industrial sector companies, had recently been moving up anyway.

Other industrial names heading upward, he said, included agricultural and construction equipment maker AGCO Corp., whose bonds, he said had been "creeping up, with a sneaky bid, up a quarter, up a half," as well as such heavy machinery makers as CNH Case and Joy Global Inc.

He saw Manitowoc Co. Inc.'s 10¾% notes at 113 bid, 115 offered, but said the quote was "probably too low, people are trying to buy them." On Friday, the bonds of the Manitowoc, Wis.-based maker of cranes and other industrial machinery had been at 112 bid, 113.5 offered.

Another sector gainer, he said, was Fastentech Inc.'s 11¼% notes, which had been progressively rising to their current levels around 105.5 bid, 106.75 offered from Friday's 105.25 bid, 106.25 offered and Thursday's 104.5 bid, 106.5 offered.

And the bonds of automotive sector names - which had fallen sharply last week in the wake of weak results posted by components maker Tower Automotive, but which had bounced back Friday from their oversold state, continued to rise Monday. Tower's 12% notes due 2013 were up nearly two points on the session, while Tenneco Automotive Inc.'s 11 5/8% notes due 2009 were two points better at 102. Dura Operating Corp.'s 8 5/8% notes due 2012 were nearly two point better at 101.75, although Collins & Aikman Products Co.'s 11½% subordinated notes due 2006 were half a point down at 72.5 bid and its 10¾% senior notes were also off half a point at 82 bid.

Tenet Healthcare Corp., whose bonds had fallen Wednesday and Thursday after the company released bearish guidance and warned it might fall into a credit facility covenant violation, which brought a Standard & Poor's downgrade of the Santa Barbara, Calif.- based hospital operator's debt a notch to BB-, had been on the rise Friday and they continued to rebound Monday after the company's lenders agreed to loosen loan restrictions; the amended revolving credit terms lets Tenet remain in compliance with all the terms of its debt agreement.

Tenet'as 7 3/8% notes due 2011 were seen Monday at 97.5 bid, 98.5 offered, up about half a point although at another desk those bonds were being quoted at one point as high as 98.25 bid, 99.25 offered. Its 5% notes due 2007 firmed to 94.5 bid, 95.5 offered, while its 5 3/8% notes due 2006 advanced to 96.5 bid, 97.5 offered.

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