Sirius, Domtar, Acco price deals; Delta bonds dive on renewed bankruptcy fears

By Paul Deckelman and Paul A. Harris

New York, Aug. 2 - Sirius Satellite Radio Inc. picked up some serious money Tuesday, high-yield syndicate sources said, as the upstart satellite broadcaster brought a quickly shopped offering of eight-year notes to market - and then solidly upsized that issue to meet increased investor demand, and, presumably, to ensure that there's plenty of cash in the till with which to amply pay such high-profile broadcast industry veterans as controversial shock jock Howard Stern, beloved broadcasting legend "Cousin Brucie" Morrow and highly acclaimed radio programming genius Mel Karmazin, all of whom have signed contracts with Sirius in recent months.

Overall, the primary market the drive-by activity that marked the Monday session carried over into Tuesday.

Three tranches totaling $1.25 billion from three issuers were priced. Two of those tranches came in quick-to-market deals.

In addition to Sirius, those going to the well on Tuesday with a big drive-by issuance included forest products producer Domtar Inc., while office products supplier Acco World Corp. completed a scheduled calendar offering.

In the secondary arena, Delta Air Lines Inc.'s bonds rapidly descending, pulled earthward by renewed bankruptcy fears about the troubled Atlanta-based Number-Three U.S. airline carrier, and rival Northwest Airlines Corp.'s bonds were also lower, partly on sector sympathy, and partly because some of that bankruptcy buzz is also swirling around Eagan, Minn.-based Northwest, the fourth-largest U.S. airline operator.

Apart from those two angst-ridden airlines, though, traders saw a generally firmer market in most areas, even including other air carriers.

Sirius returns, upsizes

In the primary, Sirius Satellite Radio, which had been orbiting the high-yield investor roadshow stops with a junk offering in the spring - but fired the retrorockets when the market got choppy - lifted off once again Tuesday.

The New York-based satellite radio broadcast company priced an upsized $500 million issue of eight-year senior unsecured notes (CCC) at par to yield 9 5/8%, in the middle of the 9½% to 9¾% price talk. The deal was increased from $400 million.

Morgan Stanley and Goldman Sachs & Co. ran the books for the deal, proceeds from which the company will use to take out high-coupon debt.

An informed source told Prospect News that the deal had gone well.

Domtar comes tight to talk

Elsewhere Tuesday Domtar Inc., a Canadian paper and packaging company, priced a $400 million issue of 7 1/8% 10-year senior notes (Ba2/BB+) at 99.904 to yield 7.138%.

The Domtar transaction priced at a 280 basis points spread to Treasuries, on the tight end of the 280 to 285 basis points price talk.

Citigroup and JP Morgan ran the books for the debt refinancing deal.

Domtar's deal was also a drive-by.

Acco prices mid-talk

The only one of Tuesday's trio of issuers to do the investor rounds was Acco World Corp., the Lincolnshire, Ill.-based supplier of branded office products that is being spun off from Fortune Brands Inc. and will be merged with General Binding Corp. to form a new entity called Acco Brands.

The company priced a $350 million issue of 10-year senior subordinated notes (B2/B) at par on Tuesday to yield 7 5/8%, in the middle of the 7½% to 7¾% price talk.

Citigroup and Goldman Sachs & Co. ran the books for the deal, proceeds from which will be used to repay special dividend notes issued to the company's stockholders and to repay existing debt of General Binding Corp. and Acco related to the spin off and merger.

Basell, Cardtronics talked

No new roadshow starts were heard during the Tuesday session. However price talk did emerge on two offerings that have been on the road meeting investors, and are expected to price by the end of the week.

Basell Polyolefins talked its €1.1 billion equivalent offering of 10-year senior notes, to be issued in dollar- and euro-denominated tranches (B2/B-), at 8½% to 8¾%, with pricing expected on Friday.

Merrill Lynch & Co. and Credit Suisse First Boston are the bookrunners.

And Cardtronics Inc., an ATM network operator, talked its $150 million offering of eight-year senior subordinated notes (Caa1/B-) at a yield in the 9½% area, with pricing expected on Wednesday afternoon via Banc of America Securities.

Finally on Tuesday, Mac-Gray Corp. chief financial officer Mike Shea took a minute to return Prospect News' telephone call.

Mac-Gray, a Cambridge, Mass., contractor of coin- and card-operated laundries in dorms and apartment buildings, is in the market with $125 million offering of 10-year senior notes (B1), via JP Morgan.

Shea said that he is advised by the investment bank that the high-yield market is presently perceived to be a relatively friendly place for issuers, and that the company hopes to get the debt refinancing deal done around 8%.

Acco edges up in trading

When the new Acco World 7 5/8% notes due 2015 were freed for secondary dealings, a trader said that the bonds firmed to 100.5 bid, 100.75 offered, up from their par issue price.

The new Sirius and Domtar issues apparently came too late in the session for very much aftermarket activity, participants said.

Delta plunges

Back among the existing issues, Delta's benchmark 7.70% notes due 2005 "were a complete disaster," said a trader, who quoted those bonds as trading in the lower 50s, down about 12 to 14 points on the day, "but no real market," before ending at an estimated 50 bid, 54 offered, a "pretty ugly result."

He said that "people were looking for offers in short protection, and there were none to be found."

He also saw the company's 10% notes due 2008 down five points at 24 bid, 25 offered, while its 7.90% notes due 2009 were three points lower at 22 bid, 23 offered, and its 8.30% notes due 2029 were off 2½ points at the end of the day at 20.5 bid, 21.5 offered.

Another trader saw the 7.70s 10 points lower on the session at 53 bid, 55 offered, while the 10s had lost four points to 24 bid, 26 offered, the 7.90s were also four points off at 22 bid, 24 offered, and the 8.30s were at 20 bid, 22 offered, down two points on the session.

Delta's New York Stock Exchange-traded shares were down 44 cents (14.81%) to $2.53 - a 43-year low. Volume of 17.7 million shares was more than triple the norm.

The bonds and shares began swooning amid renewed speculation that Delta - which insists that it is trying to avoid such a fate - might have to declare bankruptcy, pushed into the courts by a combination of high fuel costs, mounting pension obligations and heavy debt burdens.

Those fears gained more currency last week when the airline's chief executive officer, Gerald Grinstein, said in a company memo to his employees that Delta's current transformation plan, which includes cutting annual costs by $5 billion by the end of next year, just won't be enough to save the struggling carrier - not without Washington's help on moderating the pension costs and an easing of fuel costs.

The bankruptcy talk sprang up anew Tuesday, after The Washington Post carried an article suggesting that either or both Delta and Northwest - which is also burdened with big pension costs and is being eaten alive by escalating fuel costs - might have to seek court protection and might do so as early as mid-September in order to have a case already before the courts before a more restrictive, less debtor-friendly federal bankruptcy law takes effect the following month.

The first trader said that the prospect that Delta and/or Northwest might choose to file sooner rather than later because of the change in the law "is not any news. They've said this [bankruptcy speculation] a million times. I've seen the story repeated plenty of times - and it's a crap shoot. Sometimes it doesn't do anything to the market, and sometimes, people start chattering and the bottom falls out of it - and that's what happened today.

"There's no [new] news - just renewed bankruptcy fears, that was the only catalyst. [Airline] stocks started tumbling, and then bonds started going down as a result of going back and forth, and people were tripping all over each other to try and hit bids."

He said that Delta was "the main driver, and that finally Northwest down at the end of the day."

He saw Northwest's 8 7/8% notes due 2006 down two points at 66 bid, 67 offered, while its 10% notes due 2009 were down a point, "all because of Delta." However, there was no contagion to the other airline names, he said, with American Airlines parent AMR Corp.'s bonds and Continental Airlines Inc.'s quiet and unchanged.

Dynegy higher on sale

Outside of the airline sphere, Dynegy Inc.'s 8¾% notes due 2012 were half a point higher at 109.5 bid, 110.5 offered, following the announcement by the Houston-based energy company that it has agreed to sell its natural gas business to Targa Resources Inc. for $2.48 billion so that it can focus on its wholesale power business.

A trader said that the sale price "wasn't as much as expected - but the bonds still went up," lifted by the generally firm tone in the market.

Tenet, Cenveo up on earnings

Among companies that reported earnings on Tuesday, Tenet Healthcare Corp.'s 6 3/8% notes due 2011 were seen up more than a point at 97 bid, while Cenveo Corp.'s 7 7/8% notes due 2013 were nearly two points higher at 99 bid.

Charter Communications' 8 5/8% notes due 2009 were "pretty much unchanged" at 79 bid, a trader said, although he did see the St. Louis-based cabler's 8¼% notes due 2007 a point up at par. But he added that "you can't judge [other issues] by the '07s, because they're just too short."

Primus lower

Another trader saw Primus Telecommunications Group Inc.'s 8% notes closing at 46 bid, 48 offered, well down from prior levels in the lower 50s, after the McLean, Va.-based telecommunications operator's announcement at the end of the day of its second-quarter numbers.

Qwest rises after results

Also on the earnings front, Qwest Communications International reported that its loss for the second quarter was considerably smaller than its year-earlier deficit had been.

At the same time, company executives noted on a conference call following the release of the results, that Qwest - which has gross debt of over $17 billion - continued its debt-cutting efforts during the most recent quarter, and managed to cut its net debt "down significantly," to $14.7 billion in the quarter, versus some $15.5 billion a year ago. The company was "on track" in its efforts to generate free cash flow, and will use that cash flow for investing in the growth of the business, and for debt reduction (see related story elsewhere in this issue).

A trader saw Qwest's 7.90% notes due 2010 up 1½ points following the release of the results, at 100.5 bid, 101.5 offered.

"I think the market feels kind of firm," a trader said. He noted that "the last time you and I spoke," which was some time ago, "I made a comment that we had seen the lows," and now, he said, "our market is firm, and growing stronger.

"I don't care about Treasuries, don't care what they're doing. Oil is around $60 [per barrel]. It doesn't matter. Our market is firm."

That echoed the comments made by several other traders, who compared trying to buck the market to "standing in front of a speeding train."

The first trader acknowledged that "it's not like people are lifting offerings left and right - but there's still a lot of money on the sidelines, and people are putting money to work."

He opined that "people are rushing to the high-yield market right now in the belief that Treasuries are going higher - the 10-years are around 4.35%. If you believe we are in a rising-rate environment, you'd better come to market now - because paper is cheap, and I think the market is feeding on that.

"We have no inflation. Oil is not really affecting anybody. The dollar's not affecting anybody. " he continued, ticking off all of the factors sometimes given as excuses for why the fixed-income markets go one way or the other. "And Treasuries are not affecting anybody" - leaving the junk market to continue its rise, at least for now.

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