Charter to bring $1.5 billion mega-deal; Boyd prices; aaiPharma falls on 10-K delay, resulting default

By Paul Deckelman and Paul A. Harris

New York, March 31 - Gigantic deals continued to dominate the high-yield primary market on Wednesday, as just a day after Cablevision Systems Corp. sold a quickly shopped $2 billion multi-tranche offering Charter Communications Inc. unveiled plans to sell $1.5 billion of new 10-year junk bonds.

The Charter deal is part of a larger refinancing agenda that will see the St. Louis-based cable operator also enlarge its bank credit facility to $6.5 billion and use the borrowings to refinance existing bank debt at several of its subsidiaries.

Elsewhere on the new-deal front, French chemical company Rhodia laid out plans to launch a big (€600 million) bond issue, again as part of a larger refinancing effort, price talk emerged on NTL Inc.'s upcoming £800 million multi-currency deal, and Boyd Gaming Corp. priced an upsized offering of 10-year notes.

In the secondary sphere, aaiPharma's 11% notes due 2010 - which had been heard to have firmed earlier in the week as the embattled pharmaceuticals company changed chief executive officers amidst an internal accounting probe - gave back all of their gains and then some on Wednesday, sliding in response to the news, reported after the close Tuesday, that it was not able to file its 10-K report with the Securities and Exchange Commission, was therefore in default on a credit facility and may miss its April 1 bond interest payment. This caused both Standard & Poor's and Moody's Investors Service to weigh in with ratings downgrades.

Charter roadshow starts Wednesday

The last primary market session of March 2004 got underway with one sell-side source singing a belated chorus of "Auld Lang Syne," as St. Louis cable TV firm Charter Communications showed up with a $1.5 billion 10-year offering.

"Charter Communications used to be the first issuer to kick off the high yield market in the new year with a billion dollar bond offering," the official recalled.

"It's not surprising to me that they came again. And I think the deal will get done."

Charter Communications Operating LLC/Capital Corp. will run an April 7-14 roadshow for its $1.5 billion offering of 10-year senior secured second lien notes, with JP Morgan, Banc of America Securities, Citigroup and Credit Suisse First Boston acting as joint bookrunners.

During Wednesday's conversation with the above-quoted sell-side official - who had expressed confidence that the cable firm would complete the new transaction - Prospect News pointed out that last August the company postponed a $1.7 billion two-tranche notes offering (CCC-), citing market conditions.

The sell-sider, nonplussed, retorted that conditions in the high-yield market last August truly were weak.

Also, the source said, the company returned to the market in early November, at which time, sailing on more favorable winds in the high yield, CCO Holdings, LLC and CCO Capital Corp. priced $500 million of 10-year senior notes (B3/CCC-) at par to yield 8¾%.

"They came back to the market with a private deal, which took care of their problem," the source added.

The sell-sider did mention, however, that the new deal's April 7-14 roadshow timing, straddling the Easter holiday - with the bond market closed on Good Friday - is interesting in and of itself.

"That's the week where, if you're lucky, you get hold of people, but you're not always lucky," the source said.

Boyd prices session's sole deal

The only terms to emerge during the mid-week session came form Boyd Gaming Corp., which sold $350 million of 10-year senior subordinated notes (B1/B+/B) at par to yield 6¾%, at the wide end of the 6½%-6¾% price talk.

Deutsche Bank Securities, Banc of America Securities and CIBC World Markets ran the books on the debt refinancing deal from the Las Vegas-based owner and operator of gaming entertainment properties in Nevada, Mississippi, Illinois, Indiana and Louisiana.

Talk on Aearo, Exco, Vicorp

The price talk is 8¼%-8½% on Aearo Co.'s planned offering of $175 million of eight-year senior subordinated notes (B3), expected to price on Thursday via Deutsche Bank Securities.

Meanwhile Vicorp Restaurants talked its $150 million of seven-year senior notes (B3/B) at 10% area and added one year of call protection to those notes.

The deal is expected to price late Thursday via JP Morgan and CIBC World Markets.

And the price talk is 103.25 on Exco Resources' $100 million add-on to its 7¼% senior notes due Jan. 15, 2011. Terms on the quick-to-market deal are expected to emerge Thursday.

Credit Suisse First Boston is the bookrunner.

The Dallas-based oil and gas exploration and production company priced the original $350 million issue at par on Jan. 14.

European junk continues to heat up

NTL Cable plc added a dollar-denominated floating-rate notes tranche to its £800 million equivalent high yield offering (B3/B-), which is expected to price Friday.

The company intends to price 10-year non-call-five senior fixed-rate notes. The dollar- and euro-denominated tranches are being talked at 9%-9¼%. The sterling tranche is being talked at 75 basis points more than the dollar tranche.

The company also plans to sell dollar-denominated six-year non-call-one senior floating-rate notes. Price talk is Libor plus 500 basis points.

Tranche sizes remain to be determined.

Deutsche Bank Securities and Goldman Sachs & Co. are in the lead.

Prospect News also heard that French specialty chemical manufacturer Rhodia is expected to price €600 million equivalent of high-yield notes in mid-April via Credit Suisse First Boston, BNP Paribas and Goldman Sachs & Co.

One sell-side source is Europe told Prospect News that several big names are in the works, in the European high yield.

"Vendex announced today that it is in discussion to be acquired by KKR," the source said, making reference to the Dutch retailer.

U.S. buyers bring long memories to Titan

One senior sell-side official told Prospect News Wednesday that a recently postponed Rule 144A/Regulation S offering from Malaysia's Titan Petrochemicals - $300 million of six-year notes that had been talked in the 8½% area - had garnered some inspection from U.S. high yield names.

The Goldman Sachs & Co. and JP Morgan-led deal, which came with credit ratings of Ba3/BB-, seemed to still be alive early in the week but may ultimately have "required more flexibility from the company on the pricing side.

"The book was sufficient to get the deal done but the company decided to wait and to continue to reduce leverage and come back a little later," the official commented.

U.S. junk accounts, the source added, brought long memories to the market with them as they eyed the Malaysian company's offering.

"The issue seemed to be that the U.S. accounts - which aren't big buyers of international bonds in the first place - were not ready to put their arms around a petrochemical company in Malaysia.

"With a lot of guys on the high yield side, the last time they bought anything out of Asia they did so before the Asian financial crisis [1997-1999]. And a lot of that stuff is either still in restructuring or is trading at 10 cents on the dollar.

"People will tell you that they will get involved in another Asian deal when some of that distressed paper trades at par," the sell-sider quipped.

"In emerging markets, Malaysia is a great credit," the official added. "People love it. It's highly rated.

"But Titan is pretty credit-intensive, even for Malaysia. You have to factor in the complexity surrounding China and what it means for the market.

"Let's face it, China is a big black box for a lot of investors."

Cablevision strong in trading

When the new Boyd Gaming 6 ¾% senior subordinated notes due 2014 were freed for secondary dealings, a trader quoted the Las Vegas -based casino operator's paper at 101 bid, without any offers, and said he hadn't seen any real trades in it.

He saw the new Cablevision bonds "trading well. There was a lot of trading right around the par level on all [three] of the issues."

He quoted the Bethpage, N.Y.-based cable operator's new CSC Holding Inc. 6¾% senior notes due 2012, which had priced Tuesday at par, "trading up out of the chute," going to 101 bid, and "trading at 101.25-101.5 pretty much all day, up and down."

He saw the new Cablevision floating-rate notes due 2009 also opening at par bid, 101 offered, little changed from Tuesday's par issue price, and saw those bonds going home at 99.75 bid, 100.25 offered, while Cablevision's new 8% senior notes due 2012 bid in the par-100.25 area.

"There seemed to be a mad rush to buy them and then there were sellers. It's going to take a couple of days to clean them up - but my sense is they get cleaned up and move higher."

The trader saw Service Corp. International's new 6¾% senior notes due 2016 at 100.5 bid, up a point from Tuesday's 99.5 issue price, but saw "no real trading" in the Houston-based deathcare giant's new bonds.

"They traded up a point - and then they were left there," he declared.

Another recently priced offering, Trinity Industries Inc.'s 6½% senior notes due 2014, which priced at par earlier in the month, were still hovering around there in a 100.25 bid, 100.75 offered context.

Charter old bonds mostly up

Among Charter's existing bonds, he said, "the existing secured paper traded off a point. The outstanding unsecured paper traded up about a point-and-a-half, and ended up a point on the day."

Another trader agreed, characterizing Charter's existing issues as "all up," aided by the prospect that the debt-laden cable operator's credit picture should brighten if it can successfully sell its bond issue, get additional bank financing and then turn around and use the money to get rid of higher-interest and closer-maturing bank or bond debt.

Charter's zero-coupon notes due 2011 were seen up a point at 72.5 bid, while its 8¼% notes due 2007 were likewise up a point at 94. Its 10% notes due 2011 went up to 84 bid from 82.75 bid previously, while its widely held benchmark 8 5/8% notes due 2009 did the same.

aaiPharma plunges

A trader quoted aaiPharma's 11% notes as having fallen back about five points, quoting them as having fallen to 81 bid, 83 offered from prior levels around 86 bid, 87 offered. At other desks - which had seen the Wilmington, N.C.-based pharmaceutical company's notes firm even higher on Tuesday in response to the company's CEO shuffle, seen as a positive development in the light of its sales accounting problems - the drop seemed even more pronounced, with one market source quoting the bonds as having fallen 80.5 bid from Tuesday's close at 89. Another trader saw them offered at around 90 on Tuesday, then plunge as low as 74 bid, 76 offered during the session, before coming off the lows to end at around 81 bid, 83 offered.

The bonds were sliding in response to the company announcement, released late Tuesday, well after the market had closed, that it would be unable to file its 10-K annual report with the Securities and Exchange Commission on Tuesday, as it had previously expected, due to the ongoing work of an internal committee that is scrutinizing apparently strange sales figures from the second half of 2003 for two of its products.

The company had previously gotten a 15-day extension of its original March 15 deadline to March 30, but said Tuesday that it couldn't even say when it thought the internal review of the sales data - now expanded to all 2003 - any earnings restatements that might come about and the 2003 10-K might be completed.

That delay, in turn, put aaiPharma in default on the terms of its $100 million bank credit revolver, blocking access to the money - and it has a $9.6 million interest payment on the bonds due Thursday and is talking about negotiating with its lenders to allow that payment to be made by April 30, within the 30-day grace period.

The latest problems caused S&P to lower its corporate credit rating on aaiPharma CCC from B+ and to cut its senior secured debt rating to CCC+ from BB- previously. The subordinated debt rating was slashed four notches, to CC from B- and could be cut again, as the ratings remain on CreditWatch with negative implications.

S&P said it has "significant concerns regarding aaiPharma's short-term liquidity, especially given the looming $9.6 million interest payment."

Moody's meantime weighed in with a credit downgrade of its own, lowering aaiPharma's senior implied rating and bank facilities ratings to Caa2 from B2, cutting the senior subordinated notes to Ca from Caa1 and reducing the senior unsecured issuer rating to Caa3 from B3.

The company got another headache when Nasdaq said it was looking to de-list aaiPharma's shares because of the delayed 10-K. The stock tumbled $1.55 (18.95%) in Wednesday's trading on the Nasdaq to $6.63, on volume of 6.7 million shares, about six times the norm.

HealthSouth steady

Elsewhere, there was little movement seen in HealthSouth Corp.'s bonds, even on the news that the Birmingham, Ala.-based operator of outpatient diagnostic and surgery centers had won a 10-day extension of a temporary restraining order that keeps its bondholders from being able to accelerate the company's debt repayment obligations.

"They were actually unchanged [Wednesday], a trader said, "maybe down only a quarter [point]." He quoted HealthSouth's 7 5/8% notes due 2012 at 98.5 bid, 99.25 offered, its 8½% notes due 2008 at 99.5 bid, 100.25 offered, and its subordinated 10 ¾% notes due 2008 at 98 bid, 99 offered.

Another trader shrugged off the legal news, saying, "I didn't really see much in Healthsouth."

He opined that "most of the news on this stuff is not really new news and it's not enough to shake the market at all. People are pretty comfortable with [them] - they're worth what they're worth. That's it. So these minor announcements are not going to move anything."

Trump down again

Trump Hotels & Casino Resorts Inc. paper was seen softer for a second straight session, in apparent response to a "going concern" warning from auditors Ernst & Young included in the Atlantic City, N.J.-based casino operator's 10-K report to the SEC.

A market source quoted the Trump Atlantic City Funding 11¼% first mortgage bonds due 2006 as having retreated to 82.5 bid, from 84.75 offered, and saw Trump Holdings and Finding's 11 5/8% notes due 2010 as having dipped to 99.5 bid from previous levels at 100.5.

The "going concern" caution was predicated on the possible failure of the company to complete a widely ballyhooed debt restructuring and equity infusion deal with Credit Suisse First Boston, which is conditional on the company first reaching a debt restructuring with bondholders.

Overall Wednesday, "the market continues to be firm." a trader said. "There there's been a lot of quarter-end buying that's been going on the past week or so and I would anticipate that this would come to an end. But there's a good amount of cash around and we've seen people in, trying to put money to work.

But they're very selective - which is kind of a contrast to how they were say two or three months ago, where it was just 'buy anything'."

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