Lucent, Xerox firmer; Levi slates new notes, Lyondell leads rush of opportunistic deals

By Paul Deckelman and Paul A. Harris

New York, Nov. 25 - Lucent Technologies Inc. debt that of Xerox Corp. was seen to have firmed as each company was out with news Monday - Lucent announcing extension of its pact with Sun Microsystems and Xerox confidently predicting a threefold increase in per-share earnings for 2003.

And the high-yield primary market was "on fire" Monday, in the words of one syndicate source, as five deals priced for $847 million, led by $337 million for Lyondell Chemical Co.

Out of the total, four deals were quickly shopped offering that weren't even on the calendar when the day started.

And despite the holiday-shortened week, Tuesday looks set to be another busy session. R.H. Donnelley Corp.'s delayed deal is scheduled to price -at a bigger size than previously planned - and a new offering from Levi Strauss & Co. is also on the calendar.

Biggest among the deals pricing Monday was a $337 million drive-by offering for Lyondell. An add-on to its 9½% notes due 2008 (Ba3/BB), the transaction was increased by two thirds from its planned size of $200 million and priced at 10.004%, in line with talk of 10%. Credit Suisse First Boston and JP Morgan were joint bookrunners.

Next in order of size was $175 million from Grant Prideco, Inc., the only offering that went through a full roadshow. The Houston oil and gas service provider priced its seven-year notes (Ba3/BB-) at 9%, at the tight end of talk which had put the yield at 9% to 9¼%. Deutsche Bank Securities Inc. was the bookrunner.

The session's remaining three deals were all announced and priced during the session.

Denver homebuilder MDC Holdings Inc. priced $150 million of 10-year 7% notes (Ba1/BB+) at 98.942 to yield 7.15% - although the offering was more generally quoted like an investment-grade deal at a spread of 297 basis points over Treasuries. Salomon Smith Barney was bookrunner.

Vertis Inc., a Baltimore provider of marketing services, sold a $100 million add-on to its 10 7/8% notes due 2009 at par to yield 10 7/8% via Deutsche Bank and JP Morgan Securities.

And TriMas Corp. priced an $85 million add-on to its 9 7/8% senior subordinated notes due 2012 at 101 to yield 9.684%. The company originally priced $352.773 million of the notes at 99.214 on May 23 to yield 10%. Credit Suisse First Boston and JP Morgan were again joint bookrunners.

While the total of five deals pricing during the day was the most seen in the high-yield market since April 25, according to Prospect News data, Tuesday looks set to eclipse Monday's $847 million by dollar value.

Indeed, a single deal scheduled to price during the session will pass that total.

Donnelley's deal saw its size fattened up during Monday's session to $925 million from $750 million previously and its price talk slimmed down.

The explanation for the delay in pricing the deal - it had originally been expected Thursday - also emerged. Preparation of paperwork for the offering revealed that Donnelley was in fact in technical violation of covenants on its existing $150 million of 9 1/8% senior subordinated notes due 2008.

To resolve that problem, additional subsidiaries were added as guarantors on the notes and Goldman Sachs Capital Partners 2000, LP put up early $70 million out of its planned $200 million investment in Donnelley's convertible preferred stock.

In addition, Donnelley expanded the size of the senior subordinated portion of its deal by $150 million and will use proceeds to tender for the notes.

In a reflection of the strength of the high-yield market, a further $25 million was taken from the planned bank financing and added to the senior note portion of the deal.

The offering is now $325 million of eight-year senior notes (B1/B+) talked at a yield of 8 7/8% to 9%, versus $300 million talked at 9% to 9¼% previously, and $600 million of 10-year senior subordinated notes (B2/B+) talked at 10 7/8% to 11%, versus $450 million talked at 11% to 11¼%. Bookrunners are Salomon Smith Barney, Bear Stearns & Co. and Deutsche Bank Securities Inc. Proceeds will be used to help finance R.H. Donnelley's $2.23 billion acquisition of Sprint's directory publishing business, to repay senior debt and to finance the note tender.

Also planned for Tuesday is a quickly shopped $300 million from Levi Strauss & Co. The San Francisco clothing company held a conference call Monday for the offering, which will be 10-year notes (B3/BB-/B+) and is talked at a yield in the 12½% area. Salomon Smith Barney and Banc of America Securities are the joint bookrunners.

Of the proceeds, $115 million will be used to repay bank debt; the rest, subject to obtaining bank waivers, will be used to refinance the company's $350 million 6.80% notes due Nov. 1, 2003, or to repay other debt, or for general corporate purposes.

After several months with the new-deal market largely becalmed, the last few sessions have market a sharp turnaround in issuance.

If the Donnelley and Levi Strauss deals price as planned, the three trading days Friday, Monday and Tuesday will have seen $2.75 billion of issuance, more than the total recorded for any single month since June.

"Who would have guessed this in October? It was a pretty tough market," one source commented.

With six straight weeks of flows into mutual funds, as measured by AMG Data Services, this source speculated that "underwriters are telling their origination people to take a look at everybody who has something maturing, or high revolver balances, or anything like that - to take a look at the market now because there are some pretty compelling opportunities again."

When the new Grant Prideco bonds were cleared for secondary dealings, they moved up to 102.5 bid/103.5 offered, a trader said.

Meantime, Stena AB's 9 5/8% senior notes due 2012, which priced at par on Friday, continued to hover at the 101.5 bid/102 offered levels to which it had moved later that same session, while D.R. Horton's new 7½% senior notes due 2007, which had risen to 100.5 bid Friday after pricing at par, retreated to 99.75 bid/100.25 offered.

Back among the already established bonds, Levi Strauss's 6.8% notes due 2003 were being quoted up at least a point, at 98.5 bid/99.5 offered, on news of the blue-jeans maker's upcoming new 10-year bond deal; part of the deal's proceeds will be used to refinance a portion of the $350 million of the 6.8s outstanding, whether through payment at maturity, repurchase or otherwise, with $115 million of the proceeds earmarked for bank debt.

But Levi's other bonds were seen essentially unchanged on the bond deal news.

Lucent's recently firming bonds continued on the upside Monday, as vague speculation about a possible takeover by General Dynamics Corp. (which had spurred Lucent's shares and bonds higher last week) gave way to some concrete news; the Murray Hill, N.J.-based telecommunications equipment maker, along with Sun Microsystems, Inc., jointly announced the global expansion of their long-term strategic alliance "to deliver comprehensive, reliable and scalable business solutions to wireline and wireless service providers and enterprise customers."

Lucent said that the two companies "will now work together in Asia, Europe and Latin America [as well as North America, where the initiative started] and have put in place sales resources and other operational practices to make the selling of solutions more efficient and effective for service providers. In turn, this joint effort allows service providers to accelerate the deployment of advanced services to their customers."

There was no immediate word as to the likely dollar value of the expanded business relationship between Lucent and Santa Clara, Calif.-based Sun.

But Wall Street apparently liked what it heard; Lucent's shares, continuing to bounce back from lows of 55 cents that they hit just a few weeks ago, jumped 33 cents (21.85%) in New York Stock Exchange dealings, to $1.84, on volume of 104.5 million shares, more than double the usual.

On the bond side of the ledger, Lucent's 7¼% notes due 2006 were seen 1 1/8 point better at 68.5 bid/69 offered. A trader noted that the bonds' price "has practically doubled in the past few months," coinciding with the rebound in the equipment maker's shares.

"The Nasdaq rally," he said, paraphrasing the punch line ("beisbol been berry, berry good to me") made famous by 70s "Saturday Night Live" comedian Garrett Morris, "has been very, very good to Lucent."

Elsewhere, Xerox Corp. bonds were better bid for Monday, as the Stamford, Conn.-based copier and office machines giant said its 2003 earnings would come in at between 50 and 55 cents, well up from the 14 cents a share the company earned this year; it cited the effects of cost-cutting and expected sales from new products that it has introduced.

"I didn't see a lot of change in the Xerox bonds today," said the trader, who acknowledged, however, that they have recently "rocketed up" on investor perceptions of an improved outlook for the company. He quoted the 5½% notes due 2003 at 97 bid/98 offered, while Xerox's 5¼% notes and 7.15% notes due 2004 ended at 94.5 and 95 bid respectively, both issues being bid without any offers - a sign that current holders are hanging on to their Xerox paper in expectations that it will continue to appreciate.

At another desk, meantime, a trader saw the 7.15s a point better, at 94.5 bid/95.5 offered.

Bankrupt Oakwood Homes Corp's 8 1/8% notes due 2009 were being quoted at 22 bid/24 offered, up from prior levels of 18 bid/22 offered seen in the immediate aftermath of the Greensboro, N.C.-based homebuilder's Chapter 11 filing last week. "There are some accumulators out there," a trader noted.

The company said Monday that Berkshire Hathaway Inc., Greenwich Capital Financial Products, Inc. and Ranch Capital LLC had agreed to provide a total of $415 million of credit as it works out its problems, including a $215 million debtor in possession facility. Berkshire Hathaway, controlled by legendary investment guru Warren E. Buffett, is already Oakwood's largest unsecured creditor, and will become its largest shareholder when the reorganization is completed.

Conseco Inc.'s bonds were a bit firmer, as its unexchanged 9% notes due 2006 firmed to 10 bid/11 offered from prior levels at 8.5 bid/9.5 offered. Its extended bonds were also a point better, at 22 bid/23 offered (the troubled Carmel, Ind.-based insurer and financial services concern exchanged most of its old short-maturity bonds for extended-maturity debt that ranks higher in the company's capital structure earlier this year). Separately, The Wall Street Journal reported Monday that Lehman Brothers faces losses of as much as $1 billion as it tries to turn around Conseco's underperforming mobile home unit, to which Lehman has lent hundreds of millions of dollars, secured by Conseco's customer loans.

Also in the sub-prime financial area, Metris Companies shares jumped $1.26 (36.63%) to $4.70 Monday, although its 10% notes due 2004 were quoted unchanged at 75 bid. Market watchers cited takeover rumors about the company; that whole sector has been the subject of acquisition speculation in the wake of the recent announcement that international banking giant HSBC would buy a Metris rival, Household International Inc.

Calpine Corp. bonds were firmer on the session, with its 8½% notes due 2011 having pushed up to 45.5 bid before coming off those levels to end around 44.5 bid/45.5 offered, up around a point or so. Another power producer, AES' 9½% notes due 2009, firmed a bit to 45 bid/47 offered, with "buyers out there" for the bonds.

WorldCom Inc. bonds, which had firmed smartly over the previous week or so as the bankrupt Clinton, Miss.-based telecommunications giant announced the hiring of a respected new chairman/CEO and was rumored to be near a favorable settlement of its problems with the Securities and Exchange Commission, appeared to have plateaued for now, with the parent company's bonds hanging in at 26.75 bid and those of its MCI long distance unit holding steady at 55 bid.

Little movement was seen in the bonds of Qwest Communications International Inc., which had risen, along with the company's shares, last week after Qwest announced plans for a massive debt-for-debt exchange aimed at taking out almost $13 billion principal amount of its existing debt.

That sparked grumbling by many bondholders, upset that they were being asked to exchange their current bonds for new debt at a discount to their par value; even though coupons on the new debt are essentially double that on the old, some of the longer-dated issues are already trading at a steep discount to par, to they gain little or nothing from the exchange in the way of actual yield, while taking a steep haircut of anywhere from 17% to over 40% of their par value.

Large bondholders got together for a conference call Monday, on which they heard presentations from five law firms seeking to counsel the bondholders as they challenge the Denver-based telecom company to demand better terms, possibly including an equity component. They chose the law firm of Fried, Frank, Harris, Schriver & Jacobsen, whose lead attorney, Brad Scheler, had represented creditors in the $23 billion bankruptcy of NTL Inc.

A Qwest spokesman declined comment on the growing bondholder revolt, citing SEC limitations on what the company can say now that its exchange offer is underway.

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