TerreStar deal prices, firms; Level 3 up on refinancing; tech names firm; funds see $101 million inflow

By Paul Deckelman, Paul A. Harris and Stephanie N. Rotondo

New York, Feb. 8 - TerreStar Networks Inc. priced an upsized and restructured offering of seven-year notes Thursday, according to high yield syndicate sources. Those new bonds were seen having firmed smartly once they were freed for secondary dealings.

Elsewhere in the primary arena, Level 3 Communications Inc. was heard getting ready to sell $500 million of new bonds in a two-part offering as part of a larger refinancing initiative by the Broomfield, Colo.-based telecommunications company, whose existing bonds were seen to have firmed marginally on the news.

And pre-deal market price talk emerged on Griffin Coal Mining Co. Ltd.'s upcoming $50 million add-on to its existing tranche of 2016 bonds, while revised price talk emerged on Seitel Inc.'s upcoming seven-year note issue

In the secondary market, apart from the gain in the new TerreStar bonds and the movement in Level 3, things were seen as generally quiet.

However, one pocket of strength seemed to be among the high-tech names, with MagnaChip Semiconductor Ltd.'s bonds higher and firmness also seen in Amkor Techonology Inc.

A high yield investor marked the broad market lower by as much as ¼ point on Thursday, in sympathy with the equity market.

The investor added that warning words in the financial press, holding that sub-prime lenders may face the prospect of writing off their lower quality loans, seemed to send a chill through the junk market.

Funds see sixth straight inflow

And after activity had wound down for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $100.7 million more came into weekly-reporting funds than left them.

That followed the $80.3 million net inflow seen in the previous week, ended Wednesday Jan. 31. It was the sixth consecutive weekly inflow.

That extends the year-to-date gains seen by funds that report to AMG on a weekly basis to $723.6 million.

Meanwhile funds that report on a monthly basis have seen $725 million of inflows during the most recent period, extending their year-to-date inflows to slightly more than $1.470 billion.

Hence the aggregate year-to-date flows, which tally both the weekly and monthly reporting funds, stood at $2.194 billion at Wednesday's close, according to AMG.

That positive note on which the new year has begun liquidity-wise, with inflows now seen in each of the six weeks since the year's beginning, stands in marked contrast to the way the old year ended, with outflows recorded over the last three weeks of 2006, as well as in 34 out of that year's 52 weeks, against just 18 inflows, for a total net outflow through the period ended on Dec. 27, the final reporting week of the year, of about $2.998 billion, according to a Prospect News analysis of the data.

But most of that 2006 outflow took place in the first half of the year, with the year's second half actually seeing a net inflow of some $638 million, the analysis indicated, with that positive trend clearly now carrying over into the new year as well.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

TerreStar upsizes

Meanwhile in the primary market one upsized $500 million issue was priced.

And as forecast throughout the week, drive-by business materialized. Level 3 Financing, Inc. is expected to price a quick-to-market deal on Friday.

More are likely to follow, sources say.

Thursday's sole bond deal came from satellite communications firm, TerreStar Networks Inc., a a majority-owned subsidiary of Motient Corp.

TerreStar priced an upsized, restructured $500 million issue of seven-year senior secured PIK notes at par to yield 15% on Thursday, on top of price talk.

The non-rated note issue was upsized from $450 million.

Meanwhile the structure of the notes was changed to seven-year senior secured PIK structure from an eight-year senior secured discount notes strucutre.

JP Morgan, Lehman Brothers and UBS Investment Bank are joint bookrunners for deal, which was also rejigged into a bullet from what have previously been marketed as a non-call-four note.

An investor who spoke to Prospect News in the wake of the TerreStar terms being circulated said that the proceeds would essentially be used to finance the build-out of one geo-stationary satellite.

This investor also told Prospect News that the TerreStar notes come with step-up provisions that hinge upon the company's ability to enter into contractual agreements with governmental and non-governmental entities.

For example, the investor said, within 60 days of the announcement of the Congressional budget resolution for the 2009 government budget if TerreStar does not have a bona fide binding agreement to provide the Federal government with telecommunications services the coupon steps up 50 basis points.

And if by Oct. 1, 2008 TerreStar has not certified that it has an agreement to provide telecommunications services to a non-governmental entity the coupon steps up by another 50 basis points.

Big savings for Level 3

Throughout the week sell-side sources have remarked upon the dwindling high yield calendar.

A consensus has emerged which holds that requirements for companies to report their financial numbers in accordance with the Sarbanes-Oxley legislation that came on the heels of the corporate scandals at the turn of the century may serve to slow issuance for the next several weeks.

However, sources say, the new issue market is open for quick-to-market opportunistic financings.

One of them materialized on Thursday.

Level 3 plans to price $500 million of senior notes (expected ratings B2/CCC-) in two tranches on Friday.

The Broomfield, Colo., communications and information services company is offering eight-year floating-rate notes, with two years of call protection. Price talk on the floating-rate notes is Libor plus 375 basis points area.

Level 3 is also offering 10-year fixed-rate notes, with five years of call protection. Price talk on the fixed-rate notes is 8¾% to 8 7/8%.

Tranche sizes remain to be determined.

Merrill Lynch & Co. and Credit Suisse are joint bookrunners.

In a Thursday press release Level 3 stated that following the completion of the notes offering, it intends to call for redemption its 12 7/8% senior discount notes due 2010 using cash on hand.

A buy-side source, volunteering to do the math, pointed out that if the fixed rate notes that Level 3 plans to price on Friday come at the wide end of talk, 8 7/8%, it will represent a 400 basis points savings in interest relative to the 12 7/8% notes the company intends to call.

Talking the deals

In addition to Level 3, two other offerings are expected to be priced before the Friday close.

Seitel revised the price talk on its $400 million offering of seven-year senior notes (B3/B-) to the 9¾% area from the 10% area on Thursday.

Morgan Stanley, Deutsche Bank Securities and UBS Investment Bank are joint bookrunners.

Also Australia's Griffin Coal talked a $50 million add-on to its 9½% senior notes due Dec. 1, 2016 (existing Ba2/confirmed BB-) at the 103.50 area on Thursday.

Merrill Lynch & Co. is the bookrunner.

The original $400 million issue priced at par in November 2006.

Mauser prices PIK loan

High yield observers also took note on Thursday that Trio Finance BV (Mauser Waldeck AG) put in place a €215 million senior PIK loan.

The loan, which sold at an issue price of 99.00, will bear interest at three-month Euribor plus 725 basis points, at the tight end of the Euribor plus 725 to 750 basis points price talk.

JP Morgan ran the books for the dividend funding deal from the German furniture and interior design company.

PIK loan deals typically bring into play both the bank loan and junk bond syndicates of the bookrunners.

TerreStar bonds break higher

When the new TerreStar Networks 15% notes due 2014 were freed for secondary dealings, a trader said, the bonds were lifted to 100.75 bid, 101.25 offered, up from their par issue price earlier in the session.

A trader at another shop saw the new bonds doing even better at 101 bid, 101.5 offered.

One of the traders also saw PGS Inc.'s new 9 5/8% senior subordinated notes due 2015, which had priced at par on Wednesday and which had then firmed solidly in initial aftermarket dealings, still hanging in around the 102 area to which the bonds had moved after they were issued.

Out of the emerging debt markets, GC Impsat Holdings I plc's new 9 7/8% notes due 2017 were seen by a trader having firmed to 101.5 bid, after pricing at par. The company - a wholly owned subsidiary of Bermuda-based international telecommunications operator Global Crossing Ltd. - issued $225 million of the bonds, upsized from their originally envisioned $200 million - to help fund its $367 million acquisition of Argentine telecom company Impsat Fiber Networks, Inc.

Level 3 gains on refinancing plans

Elsewhere, the news that Level 3 Communications plans a refinancing effort, which will include the sale of $500 million of new bonds and $1 billion of new term-loan bank debt, took some of the sting out of the company's announcement of a wider fourth-quarter loss.

Level 3, a trader said "was very active. Its numbers were not so exciting, but it is going to refinance." The trader saw the bonds initially up ½ point on the news, and then the notes "went back to [Wednesday's] levels during the conference call." Net-net, however, they were about ¼ point to ½ point better on the day, with the 11½% notes due 2010 seen around 108.25 bid, 108.5 offered, and its 9¼% notes at around 102.75 bid, 103 offered.

Another trader called the company's 12½% notes firmer at 114.5 bid, 115 offered, while its 9¼% notes had firmed 3/8 to 102.75 bid, 103 offered, and its 111/2s were up ½ point at 108.75.

Level 3 said its quarterly deficit increased to $237 million from $169 million a year earlier, although its per-share loss actually declined to 20 cents from 24 cents, because the number of shares rose. Sales more than doubled to $846 million.

The company, which has been a busy consolidator in the past year or so, gobbling up the remains of smaller, less-stable companies as it continues to grow its coast-to-coast fiber optic network infrastructure, announced plans to cut about 1,000 jobs, or 14% of its workforce, in hopes of generating $120 million of annual savings.

MagnaChip helped by others' news

Among the high-tech names, MagnaChip's 8% notes due 2014 were seen by a trader to have firmed by 2 points to 69 bid, 70 offered. He saw no fresh news out about the Korean semiconductor manufacturer itself, but speculated that the bonds had been lifted on positive news about a sector peer, Korean telephone handset producer LG Electronics. That company reportedly has won a contract organized by the GSM Association - a worldwide wireless industry trade group - to produce a low-cost handset for third generation mobile phone networks. The reports said that the winner of the potentially lucrative contract, which could produce orders for several million handsets from as many as a dozen mobile carriers, including industry powerhouses like Cingular, T-Mobile, Vodafone and Orange, will officially be announced next week at the 3GSM mobile communications trade show in Barcelona.

The trader said he had not seen any gains in the bonds of other semiconductor-liked names like Freescale Semiconductor, which makes computer chips, or Amkor, which produces packaging and test equipment for the industry.

However, at another desk, Chandler, Ariz.-based Amkor's bonds were seen better, following positive earnings news the company put out on Wednesday, and there were suggestions that this was the catalyst behind the MagnaChip move. Amkor's 7¾% notes due 2013 were seen up ¾ point at 96.75, while another source pegged those bonds at 96.25, still up ¾ point on the day.

Salton quoted up on merger news

The news that Lake Forest, Ill.-based small-appliance-maker Salton Inc. has agreed to merge with sector peer Applica Inc. caused the former's 12¼% notes due 2008 to be quoted higher - as high as 93.5 at some desks, up from prior levels in the 88-89 bid area previously.

But several traders said that they had seen little or no activity in the bond, with one flatly declaring "we hardly ever see those."

There were few financial details immediately available about the deal, which is being masterminded by large Salton shareholder Harbinger Capital Partners - a New York-based hedge fund that also now controls Applica, having recently won a takeover fight for the company.

Mixed bag of distressed names

Elsewhere in the distressed-debt arena, a trader saw Delta Air Lines Inc. down a point, its 8.30% notes due 2029 at 62 bid, 62.5 offered, while bankrupt rival Northwest Airlines Corp. was unchanged.

Among the auto names, he saw no change in Delphi Corp., while Dana Corp. was up a little, its 6 ½% notes due 2008 going from 76 bid, 77 offered to 77.75 bid, 78.75 offered, a gain of nearly two points. Remy International Inc.'s bonds unchanged, the senior bonds at 86 bid. 87 offered, the juniors at 37 bid,38 offered.

Unchanged after several sessions of gains, the trader said was Canadian forest products producer Tembec Inc., whose 8 ½% notes were at 77 bidm 79 offered, its 8 5/8% notes at 87 bid., 89 offered, and its 7 ¾% notes at 74 bid, 76 offered.

He saw Movie Gallery Inc.'s 11% notes due 2012 dipping to 83 bid, 84 offered from 85 bid, 87 offered previously.

AES bonds unmoved by late Venezuela news

Traders saw no movement in the bonds of AES Corp. to the announcement by the government of Venezuela that it had agreed to buy the Arlington, Va.-based global electric power producer's 82.14% stake in Electricidad de Caracas, the utility which supplies power to the capital city and the surrounding region, as the news came too late in the day.

Venezuela agreed to pay AES $739.26 million and post the usual yearly annual dividend to be paid in 2007. The memorandum of understanding between the company and the country runs through March 31.

The sale is contingent upon the negotiation and execution of a mutually satisfactory definitive agreement and the completion of satisfactory due diligence, among other factors.

AES' bonds had softened by several points last month after newly re-elected Venezuelan president Hugo Chavez announced that he intended to nationalize privately owned electric power and telecommunications networks, as part of his effort to turn Venezuela into a full-fledged socialist state.

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