Cablevision zooms as company dumps VOOM; Rayovac, Coventry, Poindexter deals price

By Paul Deckelman and Paul A. Harris

New York, Jan. 21 - News that Cablevision Systems Corp. has agreed to sell most of its money-losing VOOM satellite assets to EchoStar Communications Corp. sent the Bethpage, N.Y.-based cable operator's bonds - already hovering well above par - into an even higher orbit Friday. On the downside, RJ Tower Corp. bonds continued to tumble for a second straight session following the automotive components supplier's warning about the impact recent slowdowns in the industry will have on its liquidity picture.

In the face of overall declining junk bond prices the primary market trudged along on Friday, with just shy of three-quarters of a billion dollars pricing - most if it in Rayovac Corp.'s massively upsized $700 million sale which was oversubscribed and came at the wide end of talk.

Elsewhere, headlining what figures to be a $5 billion-plus week to come in high yield, price talk was heard Friday on Intelsat's rejigged $2.550 billion three-part offering that has been orbiting the junk market since post-Thanksgiving 2004.

Flight from low quality, spreads wider

Elsewhere on Friday, sources told Prospect News that investors appear to have had enough of low quality credits, especially those in the triple-C credit rating sector.

Bear Stearns & Co. high yield analyst Mike Taylor said that the triple-Cs significantly underperformed in the Bear Stearns High Yield Index during the week to Jan. 20 (see related story in this issue).

Meanwhile a high yield portfolio manager, speaking on background, more or less bore out Taylor's take.

"There's not a lot of conviction out there," the buy-sider said. "You are seeing some softness in the lower quality names and a gradual widening of spreads.

"Tower Automotive has really gotten hit today."

The portfolio manager went on to say that hedge funds are known to have positions in the lower quality credits and added that the resulting pressure on those funds "makes for better sellers in the high yield.

"And remember," the investor added, "the hedge funds are highly leveraged. So in a sense a dollar to a hedge fund is worth more than a dollar to a mutual fund.

"And hedge funds, of course, also undergo redemptions.

"Right now they're extra sensitive to any little blow up."

Oversubscribed Rayovac upsized

The lion's share of the action on Friday was turned out by Atlanta flashlight battery-maker Rayovac Corp., which priced an upsized $700 million issue of 10-year senior subordinated notes (B3/B-) at par to yield 7 3/8%.

That print was at the wide end of the 7 1/8% to 7 3/8% price talk but the deal was increased from $500 million.

Banc of America Securities, Citigroup and Merrill Lynch & Co. ran the books for the acquisition financing, which was said by one informed source to have been well oversubscribed.

Elsewhere during the session J.B. Poindexter & Co. priced a $45 million add-on to its 8¾% senior notes due March 15, 2014 (B1/B-) at 105, resulting in a 7.819% yield to worst.

The deal also came at the wide end of price talk of 105.0 to 105.25.

JP Morgan ran the books for the Houston-based truck body company.

The original $125 million issue priced at par on March 4, 2004, so J.B. Poindexter realized a 93 basis points interest savings with Friday's transaction.

On May 5, 2004 the company priced a $30 million add-on. The total issue size, following the $45 million transaction on Friday, stands at $200 million.

Two other deals of interest

Two other transaction that were of interest to some high yield accounts took place during the Friday session.

Mobile TeleSystems, the Russian cellular company, priced $400 million of 8% senior unsecured notes due Jan. 28, 2012 (Ba3/BB-) at 99.736 to yield 8.05%, just past the mid-point of the 7 7/8% to 8 1/8% price talk.

Credit Suisse First Boston ran the books for the deal, proceeds from which are going to refinance debt and fund possible acquisitions.

And Coventry Health Care, Inc. priced $500 million of split-rated senior notes in two bullet tranches (Ba1/BBB-) on Friday, with both the high-grade and high-yield syndicate desks participating.

The Bethesda, Md.-based managed care products and services provider sold $250 million of notes due Jan. 15, 2012 at par to yield 5 7/8%, in the middle of the 5¾% to 6% talk.

The company also sold $250 million of notes due Jan. 15, 2015 at par to yield 6 1/8%, at the tight end of the 6¼% area price talk.

Lehman Brothers and CIBC World Markets ran the books for the acquisition financing.

Talk on rejigged Intelsat $2.55 billion

One source told Prospect News on Friday afternoon that the market anticipates seeing terms emerge on approximately $5.3 billion of business across 11 deals during the week of Jan. 24.

Nearly half is expected to come from Intelsat Bermuda Ltd., which is in the market with a restructured $2.55 billion three-part offering (B1/B+/B+) that is expected to take place late Monday.

The new structure finds Intelsat having shifted $500 million to its seven-year floating-rate tranche from its eight-year fixed-rate tranche.

The company is now offering an upsized $1 billion of seven-year floating-rate notes, with six months of call protection. The tranche was increased from $500 million. Price talk is the six-month Libor plus 500 basis points area.

In addition the company is offering a downsized $800 million of eight-year non-call-four fixed-rate notes. The tranche was cut from $1.3 billion. Price talk for a yield in the 8¼% area.

Left unchanged at $750 million is the Intelsat's 10-year non-call-five fixed-rate notes tranche, which is talked at the 8½% area.

Deutsche Bank Securities, Credit Suisse First Boston and Lehman Brothers are joint bookrunners for the acquisition financing.

By now the story of Intelsat's misadventures with two of its satellites since last November - reportedly the only two it has had such difficulties with in two decades - are well known.

One sell-side source, mulling the restructured Intelsat deal late Friday, said that it should not surprise anyone too much that the company shifted $500 million to the seven-year floating tranche from the eight-year fixed tranche.

The source, who spotted six-month Libor, late Friday afternoon, at 2.795% bid, said that on a swap basis people seem to be feeling better about the floating-rate note, which, based on the Friday number, would be pay investors just five basis points shy of 8%.

"And you don't know how the Fed might move," said the source, adding that a 50 basis points hike in the short rate could impact Libor.

"It all comes down to demand," the source concluded, meanwhile noting that the floater comes with just six months of call protection.

"Right now it's obvious that the accounts want that floating piece."

Coventry up in trading

When the new Coventry healthcare bonds were freed for secondary dealings, both tranches - the 5 7/8% notes due 2012 and the 6 1/8% notes due 2015 - were heard to have firmed to 101 bid, 101.5 offered from their par issue price earlier in the session.

Rayovac's new 7 3/8% notes due 2015 were meantime heard to have been "essentially unchanged," a trader said, quoting the bonds at par bid, 100.5 offered, versus their par issue price. But another trader said that while those bonds traded down initially after they were freed, they "did a little better at the end," firming a bit to 100.5 bid, 101 offered.

Cablevision gains on sale

Back among the established issues, Cablevision's CSC Holdings' 6¾% notes due 2012, which had closed Thursday at 103.5, were ending up two points Friday at 105.5, while its 8 1/8% notes due 2009 were likewise up a deuce at 110.5. The company's shorter-dated paper showed somewhat smaller gains, with its 7 7/8% notes due 2007, for instance, up three-quarters of a point at 107.75. Conversely its 7 5/8% notes due 2018 were seen up nearly three points on the session at 109.75, while its 7 7/8% notes also due in 2018 finished at 111.5 bid, up from 109.

News of the deal "helped those bonds [Cablevision] about two points," a trader said, and "they helped Rainbow [National Services LLC] bonds by about three points." Rainbow is the corporate entity within Cablevision that includes VOOM. Its 10 3/8% notes due 2014 were seen up some 3½ points on the day at 117.5 bid while its 8¾% notes due 2012 were two points better at 112.25.

In a recent research note, analyst Aryeh Bourkoff of UBS Investment Bank in Stamford, Conn., said that getting rid of VOOM could be worth as much as $800 million to the Cablevision unit's valuation; he estimated that VOOM was a $300 million drag on Rainbow's finances, and said that cutting it loose, even at a loss, would free up some $500 million of cash that Rainbow had left over from last summer's two-tranche, $800 million bond deal, that it would now not have to invest in VOOM and would be free to spend otherwise.

Cablevision's New York Stock Exchange-traded shares were meanwhile also gaining altitude on the satellite sale, up $3.36 (13.19%) to $28.84, on volume of 16.1 million shares, about nine times the usual turnover.

Cablevision said late Thursday that it had entered into a definitive agreement for its Rainbow DBS Co. LLC to sell its direct broadcast satellite and certain other related assets to an EchoStar subsidiary for $200 million in cash.

Under the terms of the agreement, the Englewood, Colo.-based satellite broadcaster - which is trying to overtake larger rival DirectTV Group Inc. - will acquire the Rainbow 1 satellite as well as FCC licenses to construct, launch and operate DBS services over 11 frequency channels. EchoStar will also acquire the contents of Rainbow DBS's ground facility in Black Hawk, S.D., and related assets. The transaction is subject to regulatory approvals.

Cablevision, seeking to remove the costly satellite albatross from around its corporate neck in order to concentrate on its core cable business as well as its expansion into potentially lucrative areas traditionally dominated by telephone companies, such as voice service and internet access, said that it will "continue to explore strategic alternatives, including monetization, for its remaining Rainbow DBS related assets, including programming, equipment and spectrum." VOOM, meanwhile, "will continue to provide service to its current customers during a transition period."

Cablevision, which provides cable and other broadband services in the New York metropolitan area and owns Madison Square Garden and the professional hockey and basketball teams that play there as the cornerstone of its sports network programming, had decided to diversify into satellite TV in the mid 1990s, starting the VOOM service and ultimately managing to put one satellite - the one being sold to EchoStar - into orbit. But despite its much-hyped offering of high-definition TV as an attraction, VOOM never caught on, losing millions of dollars and, according to news reports, sparking a boardroom revolt against company founder, chairman and VOOM champion Charles Dolan by board members unhappy with the satellite service's constant drain on the rest of the company's finances - even including his son James, now the company's chief executive officer.

Late last year, Cablevision scrubbed its plans to spin off VOOM and certain other operations into a new Rainbow Media Services entity, and instead announced plans to divest itself of VOOM altogether.

EchoStar notes mixed

While VOOM never did fit in to the scheme of things at Cablevision, EchoStar is another story. The deal is a coup for the latter company - the $200 million purchase price for the already orbiting, only two-year-old satellite is less than what it would probably cost EchoStar just to put a similar satellite into orbit, with no guarantee that it would stay up there, and the other assets being acquired are just so much more gravy for EchoStar as it takes on El Segundo, Calif.-based DirecTV. VOOM's HDTV profile is also seen as a potentially valuable asset as EchoStar tries to differentiate itself from its bigger, more established rival.

EchoStar's bonds were mixed Friday, with its 6 5/8% notes due 2014 down half a point at 100.25 bid, while its 5¾ % notes due 2008 firmed a quarter-point to 100.75. DirecTV's 8 3/8% notes due 2013 were a quarter-point easier at 112.25.

RJ Tower plunges

Elsewhere, RJ Tower "got hammered" for a second straight day, a trader said, quoting its 12% notes due 2013 as ending "wrapped around 60," at 59 bid, 61 offered, down from Thursday's close at 67 bid, 69 offered, and well down from the levels around 79.5 bid that those bonds held going home on Wednesday before it issued its bearish guidance.

Another trader quoted Tower down several points on the day Friday following Thursday's swoon, although not quite that low, saying they fell to 61.5 bid, 62 offered "after their call," - presumably a hastily arranged conference call, which the company did not publicize on its website.

Tower's New York Stock Exchange-traded shares, which had fallen 27.12% on Thursday in response to its guidance release Thursday morning, were in absolute freefall on Friday, collapsing by 97 cents (56.40%) to end at 75 cents, on volume of 22.2 million - more than 11 times the normal daily volume.

RJ Tower's parent company, Novi, Mich.-based automotive components supplier Tower Automotive Inc., warned on Thursday that its ongoing initiatives to improve liquidity "were adversely impacted by the length of customer shutdowns over the holiday season," in that the shutdowns were longer than expected. Cumulatively it said, those shutdowns will adversely impact the company's liquidity by as much as $40 million during the current 2005 first quarter.

Tower said it continues to face "significant challenges in meeting its ongoing liquidity requirements" - especially in the wake of the elimination of early payment programs from the company's customers. For January, it said, those changes in payment terms will adversely impact liquidity by some $17 million.

Tower said it was continuing to work with its customers and suppliers to address its liquidity issues, and was also continuing to pursue a European factoring facility, the possible sale of certain equipment and other liquidity initiatives.

Auto sector lower

A trader said that he had seen no evidence of Tower's woes impacting other auto component companies - although others in the market took a different view, quoting that sector lower, maybe not so much due to Tower's meltdown as to just general angst among investors in view of the weak quarterly numbers posted by Detroit giants General Motors Corp. and Ford Motor Co. during the week.

On Friday, a market source said, Dura Operating's 9% notes due 2009 dipped to 94.5, down a point, but he saw its 8 5/8% notes due 2012 steady at 102. Collins & Aikman Products' 12 7/8% notes due 2012 retreated to 82.75 bid from 83.5 and its 10¾% notes due 2011 lost a quarter-point to end at par.

Also in that automotive sector, Goodyear Tire & Rubber Co.'s benchmark 7.857% notes due 2011 moved down to 100.25 bid from 100.625, while its 11% notes due 2011 lost a quarter point to 114.75.

The Akron, Ohio-based tiremaker was reported by Friday's editions of The Wall Street Journal to be considering various restructuring options for its North American operations, possibly including closing plants, shifting work overseas and eliminating an unspecified number of jobs. However, company executives told the paper that no decision has yet been made on anything, and no action is imminent.

Intelsat slips ahead of new deal

A trader quoted Intelsat Bermuda Ltd.'s existing 7 5/8% notes down a point on the session at 91 bids, 92 offered, and down about two points on the week, ahead of the Bermuda-based communications satellite company's scheduled issue of more than $2.5 billion of new bonds, now expected to take place on Monday.

He noted that although Standard & Poor's had cut the company's ratings by six notches, all the way down to B from BBB+ previously, the ratings change came fairly late in the afternoon, when "not that many people were around," and at any rate, had been expected, since "there was a big disconnect between S&P and Moody's [Investors Service]," which had the bonds at a much more modest B3. "S&P was way out there in left field," he said, before finally lowering the ratings on the bonds to a level more in line with Moody's assessment.

The bonds, he said, "had trailed off earlier in the day," before the S& P announcement, and although it had no impact on Friday's dealings, "we may see a little more weakness on Monday, when more people are in."

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