PanAmSat/Intelsat slate big deals; NRG, other power names up on Mirant move

By Paul Deckelman and Paul A. Harris

New York, May 31 - PanAmSat Holding Corp. and its PanAmSat Corp. affiliate on Wednesday announced plans to sell more than $1 billion of new bonds in two tranches to help finance the pending acquisition of the Wilton, Conn.-based communications satellite operator by its Pembroke, Bermuda-based sector peer, Intelsat Ltd. The latter also unveiled plans to offer nearly $2 billion of its own new bonds, in two tranches, as part of the transaction.

No deals were seen to have priced Wednesday, but several other prospective issuers were seen getting ready to launch new deals. One was Pogo Producing Co., expected to bring a quickly-shopped issue of seven year notes to market, perhaps as soon as Thursday. Details on the size of Interline Brands Inc.'s prospective new senior subordinated note offering, as well as the upcoming issue's tenor, were also floating around the market.

While the calendar was thus building, the sources also reported that one expected deal will not be taking place, as Perini Corp. was heard to have withdrawn its planned seven-year senior note offering.

In the secondary arena, Atlanta-based Mirant Corp.'s unexpected, and apparently unwanted, offer to acquire sector peer NRG Energy Inc. was seen giving a modest boost to the Princeton, N.J.-based power generating company's bonds - as well as a big boost to its stock - and also helped some other names in the power sphere also firm, such as Dynegy Inc. and even the bankrupt Calpine Corp., to rise on industry consolidation buzz.

The latter's notes - which on Tuesday had risen several points, though no one knew at the time what, if anything was going on with the bankrupt San Jose, Calif.-based power producer - were again seen up several points across the board on Wednesday, with no real news again seen that might explain that rise, other than sector sympathy on the Mirant-NRG news.

Also from the distressed-debt precincts came the word that Avondale Mills Inc.'s bonds - which had already shot up last week in response to news that the company would receive a big insurance settlement - added about another eight points Wednesday in belated repose to the news that the Monroe, Ga.-based textile manufacturer plans to close its factories, liquidate its assets and pay off its bondholders and other creditors.

Overall sources marked the broad high-yield market unchanged to slightly higher on Wednesday.

A buy-side source said that junk was unchanged to up perhaps an eighth of a point to a quarter of a point.

Meanwhile a high yield syndicate official said that the broad market was "fairly mixed," but a bit more active than the last couple of days.

"The tone was definitely better on the back of strong equity markets," on Wednesday morning, the source said, adding that on the day junk was mostly unchanged.

Calendar builds dramatically

Although no issues were priced in the primary market during the last session of May 2006, the forward calendar underwent a dramatic build up to over $5 billion - most of it anticipated issuance from the merger of PanAmSat Holding Corp. with Intelsat (Bermuda) Ltd.

PanAmSat's acquisition of Intelsat will generate a combined $3.2 billion of high-yield bond issuance in multiple tranches.

A roadshow is expected to get underway on Tuesday, with pricing expected late in the week of June 12.

Deutsche Bank Securities, Citigroup, Credit Suisse and Lehman Brothers will be joint bookrunners.

PanAmSat Holding Corp. will offer $725 million of 10-year senior notes, and PanAmSat Corp., the operating company, will offer $575 million of 10-year senior notes.

Meanwhile Intelsat (Bermuda) Ltd. will offer $1.9 billion of seven-year and 10-year senior notes. The tranche sizes remain to be determined.

Pogo driving through

Elsewhere Pogo Producing Co. showed up Wednesday with a $400 million offering of seven-year senior subordinated notes (B2/B+) which it expects to price on Thursday.

Price talk is expected Thursday morning, however a buy-side source said that the notes are pro-formaed in the mid-7% range.

Goldman Sachs & Co. has the books for the debt refinancing deal from the Houston-based oil and gas exploration and development company.

West LBO to bring bonds

Also on Wednesday Prospect News learned that West Corp. will issue approximately $3.2 billion to $3.3 billion of new debt including high yield bonds to help fund the buyout of the company.

Deutsche Bank Securities and Lehman Brothers will be leading the bond offering, the size of which remains to be determined.

The financing will also include a new credit facility.

On Wednesday, Omaha, Neb.-based West Corporation announced that it has entered into a definitive agreement to recapitalize the company in a transaction sponsored by an investor group led by Thomas H. Lee Partners and Quadrangle Group LLC. The deal values the company at approximately $4.1 billion.

A buy-side source involved in both the bond and bank loan markets considered Wednesday's build up of the high yield forward calendar shortly after the session's close, but did not seem overly impressed.

The buy-sider conceded that there are some big bond deals out there, but asserted that the bank loan market remains robust, and is expected to see a lot of new deals surface during June.

"Over the past year that has been taking a lot of supply from the bond market," the source said.

Asked to comment on the liquidity of the high yield asset class in light of the continued news of outflows from the high yield mutual funds, as reported by AMG Data Services, this source insisted that there is still plenty of cash to put to work in junk.

"This market has not been driven by retail flows," the buy-sider said. "It's leveraged money and money from foreign investors and real-money investors."

Perini pulls the plug

Finally on Wednesday, Perini Corp. announced that it has withdrawn its $100 million offering of seven-year senior notes (B2/BB-).

Ronald N. Tutor, chairman and chief executive officer of the company, said the decision to withdraw the offering was based on several factors including the negative perception of the proposed issue by the equity market.

Jefferies & Co. was the bookrunner.

NRG jumps on Mirant bid

Back among the established issues, NRG's bonds "popped up this [Wednesday] morning on the Mirant news, said a trader, who quoted the company's 7¼% notes due 2014 and 7 3/8% notes due 2016 each about a point higher at 99.875 bid, 100.375 offered.

Another trader also saw the bonds up a point, quoting those two issues at par bid, 100.5 offered and noting that the bonds have a provision for a change-of-control put at 101, should NRG be acquired by Mirant - or by some other suitor who might now emerge, since the company is in play. Yet another market source saw a one-point gain in both issues to 100.125 bid.

NRG's New York Stock Exchange-traded shares meantime jumped $6.74 (15.67%) to $49.75 in busy trading of 18.7 million shares - more than 13 times the usual turnover.

Atlanta-based power generator Mirant - which, like NRG, had to restructure via Chapter 11 during the post-Enron Corp. shakeout of the power generating and trading industry (NRG emerged from bankruptcy in December 2003, Mirant in January of this year) - offered to acquire NRG for cash and Mirant shares valued at $57.16 per NRG shares, or around $8 billion total. NRG rejected the offer, saying that it undervalues NRG. It also noted that a portion of the offer is in Mirant shares, which NRG considers to be a weak currency, given that the stock has only been trading for four months since Mirant's Chapter 11 emergence, and is only worth about half of what an NRG share is worth. NRG also said that with current market conditions pointing to a stronger power industry, this is not the time to be selling out.

Mirant on Wednesday sued NRG in Delaware, claiming it wrongfully rejected its bid out of hand.

While NRG's bonds were better, and its shares were sharply improved, many in the market were skeptical about Mirant's audacious effort to acquire its more well-established target.

"I think this whole Mirant thing is bogus," a bond trader declared. "I don't see how they could have even dreamed of pulling this off" given the fact that Mirant just recently got out of bankruptcy and its shares aren't terribly attractive currency.

"And then Mirant turned around and tried to sue them [NRG], because they didn't present it to their shareholders," he added, trying to suppress laughter. "So that might have thrown some cold water on the whole deal."

Other power names rise

Even, so, he said, holders of bonds from other sector names took them up on the news.

"It's on the Mirant offer," he said. "Maybe I'm wrong, but if Mirant figures that NRG is a good deal, then it means that all of these [power sector names] are undervalued."

Houston-based Dynegy's 8 3/8% notes due 2016, for example, were up ¾ point at 99.5 bid, par offered.

A market source, who also saw those Dynegy bonds at that level, quoted Reliant Energy Inc.'s 6¾% notes due 2014 a point better at 90.5.

Calpine higher too

And Calpine's bonds "moved up" by several points for a second straight session, a trader said, seeing its 7¾% notes due 2009 up two points to 64 bid, 66 offered, and the Calpine Canada Energy Finance II ULC 8½% notes due 2008 likewise up a deuce at 65 bid, 67 offered. However, he said, "the ones that moved the most" were Calpine's 8 5/8% notes due 2010 and 8½% notes due 2011, each up five points at 45 bid, 47 offered.

Calpine, another trader said, was "up another two points [from Tuesday's gains] on the Mirant news, which points to possible sector consolidation, and perhaps even someone going after Calpine's assets. At that shop, the 8½% notes due 2011 were seen at 46 bid, 47 offered.

Yet another trader saw Calpine's 8½% notes due 2008 up 1½ points at 65 bid, 66 offered, the 8½% '11s up two points at 45.5 bid, 46.5 offered, and the 8½% notes due 2010 up ¾ point at 95 bid, 96 offered.

About the only name in the junk-rated power sector which was not higher Wednesday was the company that kicked off the whole ruckus, Mirant. The third trader saw its 7 3/8% notes due 2013 down ¾ point at 98.5 bid, 99.5 offered, and its 8.30% notes due 2011 down 1¼ points at 100.25 bid, 101.25 offered.

Bon-Ton strong

Elsewhere, Bon-Ton Stores Inc.'s 10¼% notes due 2014 were up more than 1½ points at 93.25 bid after the York, Pa.- based retailer affirmed its previously issued full-year earnings forecast of $2.15 to $2.35 per share. That hopeful guidance apparently more than offset disappointing quarterly results - its net loss more than doubled to $10.8 million (66 cents per share) for the fiscal first quarter ended April 29, widening from a loss of $4.4 million (27 cents per share) a year earlier. Bon-Ton's revenues, however, got a boost over a year earlier, since the latest figures include sales from what used to be Saks Inc.'s Northern Department Store group. Bon-Ton bought the 142 stores, which operate under the Carson Pirie Scott, Younkers, Herberger's, Bergner's and Boston Store names, from Saks late last year. Bon-Ton's Nasdaq-traded shares rose an even $2 (8.19%) to $26.42, on volume of 724,000, triple the usual activity level.

Camp Hill, Pa.-based drugstore operator Rite-Aid Corp.'s 6 7/8% notes due 2013 were up 1½ points at 87.5, although no news that might explain the rise was seen.

Finlay lower

But another retailing name, Finlay Fine Jewelry Inc., saw its 8 3/8% notes due 2012 down 1¾ points at 86.5 bid, 87.5 offered. A market source at another desk also saw the bonds down 1½ points, though at 87.25 bid.

The first trader cited the news that the Belk Inc. department store chain has chosen not to renew its agreement with the New York-based jewelry marketer, which leases space in many major department stores for its jewelry counters. The 75 Belk stores last year generated about $43 million of the company's $990 million of sales.

Granite steady on use of grace period

Granite Broadcasting Corp.'s 9¾% notes due 2010 were seen by a trader to be little changed at 92 bid, 92.75 offered following the not totally unexpected announcement that the New York-based television station group owner has elected to invoke the standard 30-day grace period on paying $19.7 million in coupon interest on the bonds. Granite said it expects to make the payment within the grace period, upon the closing of its previously announced sale of its San Francisco and Detroit TV stations.

Avondale Mills soars

In the distressed realm, Avondale Mills' 10¼% notes due 2013 were seen having jumped to levels around 96 bid, 98 offered - up around eight points from previous levels.

The rise followed Tuesday's news that it will cease its operations and liquidate in order to maximize value for its creditors and shareholders, although it does not plan to file for any form of bankruptcy protection. The company also on Tuesday disclosed to Prospect News its plans to repay its creditors, including its bondholders, using proceeds from the liquidation and from a $215 million insurance settlement stemming from a disastrous railroad accident that occurred last year near an Avondale plant in South Carolina. The resulting toxic chemical spill killed nine people, six of them Avondale employees, and made the plant unusable, plunging the already struggling company into further turmoil.

Earlier in May, news of the insurance settlement caused the bonds to shoot up to its prior levels in the upper 80s from the lower 60s.

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