Michaels Stores, Level 3 price upsized deals; Trump continues climb

By Paul Deckelman and Paul A. Harris

New York, Oct. 25 - Michaels Stores Inc. and Level 3 Communications Inc. were each heard by high yield syndicate sources to have successfully priced upsized bond offerings Wednesday - Michaels' being a two-part $1 billion-plus mega-deal.

Traders said that when the new bonds began aftermarket dealings, they were little changed from their respective par issue prices.

Price talk meantime emerged on two other deals on the forward calendar, for Hexion Specialty Chemicals Corp. and Cablecom Luxembourg, while HCA Inc. was heard getting ready to hit the road next week with its massive nearly $6 billion multi-part bond deal.

Among the established issues, Trump Entertainment Resorts Inc.'s bonds gyrated around at mostly higher levels, up for a second straight day on news reports that the Atlantic City, N.J.-based gaming operator is in talks with Las Vegas gamer Wynn Resorts Ltd. about possibly selling one of its three hotel casino complexes to Wynn, which is looking to get a toehold on the seaside resort city's famous Boardwalk.

Elsewhere, Delphi Corp.'s bonds - already enjoying momentum from market talk and news reports that buyout specialist Ripplewood Holdings LLC is preparing a bid for the bankrupt Troy, Mich.-based parts maker, got a further boost from indications that its ongoing labor-cost talks with its unions and former parent company General Motors Corp. may be moving closer to producing an agreement. GM's bonds were bouncing around as the giant carmaker reported a smaller loss for the latest quarter than a year ago.

On the other hand, Abitibi-Consolidated Inc.'s results clearly deteriorated, as the Montreal-based paper and lumber company swung into the red, and its bonds moved lower. Also coming along for that downside ride were sector peers Bowater Inc., Tembec Inc. and Stone Container.

Overall a senior high yield syndicate official said that the broad market was pretty firm on Wednesday, but added that some "slippage" is being seen in the secondary market as the accounts make way for the new issues.

And with Wednesday's announcement of timing for the massive Hercules Holding II/HCA Inc. $5.70 billion three-part deal, the forward calendar of junk bond offerings in the market has pushed well above the $12 billion mark.

Of course the Wednesday session itself saw robust issuance as two issuers upsized their deals, pricing an overall total of three tranches worth $1.750 billion.

Michaels stores upsizes

Wednesday's big deal came from Michael's Stores.

The Irving, Tex., specialty retailer priced an upsized $1.150 billion two-part notes transaction.

Michael's Stores priced a $750 million tranche of eight-year senior notes (B2/CCC) at par to yield 10%, 12.5 basis points beyond the wide end of the 9¾% area price talk.

The company also priced an upsized $400 million tranche of 10-year senior subordinated notes (Caa1/CCC) at par to yield 11 3/8%. The subordinated notes tranche was upsized from $325 million. It priced at the wide end of the 11¼% area price talk.

Deutsche Bank Securities was the left bookrunner for the LBO financing.

A sell-side source not in the Michael's deal spotted the 11 3/8% bonds trading just above par and commented that it appeared to have been a good deal for the issuer.

Level 3 massively upsizes

Elsewhere Wednesday Level 3 Financing, Inc. upsized its quick-to-market transaction by more than 30%.

The Colorado-based internet backbone company priced an upsized $600 million issue of eight-year senior notes (B2/CCC-) at par to yield 9¼%.

The yield came at the tight end of the 9¼% to 9½% price talk.

Merrill Lynch & Co. was the bookrunner for the deal, which was upsized from $400 million.

Proceeds will be used to fund the construction or acquisition of assets for the company's communications business.

A source close to the transaction said that it had gone very well and had obviously been oversubscribed.

Hercules comes forth

Hercules Holding II, the equity consortium that plans to acquire Nashville-based health care services company HCA, will run a Thursday-Friday roadshow in Europe for its $5.70 billion three-part bond offering.

A U.S. roadshow will begin on Tuesday and conclude on Nov. 7, after which the transaction is expected to be priced.

The deal will be comprised of $4.2 billion of senior secured second-lien notes with expected maturities in 2014 and in 2016, and $1.5 billion senior second-lien "toggle" notes expected to mature in 2016.

A source close to the deal said that the "toggle" feature refers to the company's option at the beginning of the interest period to elect whether to pay with cash or pay in kind. If the company pays in kind the bondholder will receive an additional interest, the increment of which remains to be determined but will likely be 75 basis points.

Citigroup, Bank of America Securities, JP Morgan, Merrill Lynch, Deutsche Bank Securities and Wachovia Securities are joint bookrunners for the LBO deal.

Thursday, Friday in the primary

Meanwhile there was news on deals expected to price before the end of the present week.

Hexion Specialty Chemicals Inc. has talked its $825 million two-part offering of eight-year senior secured second-priority notes (B3/B-).

The Columbus, Ohio-based maker of thermoset resins has talked its tranche of fixed-rate notes at a yield in the 9½% area, and its tranche of floating-rate notes at the Libor plus 425 basis points area.

Tranche sizes remain to be determined.

Credit Suisse and JP Morgan are joint bookrunners.

Elsewhere Cablecom Luxembourg SCA talked its €300 million offering of 10-year senior notes (confirmed B3/expeced CCC+) at 8%.

JP Morgan has the books for that debt refinancing deal.

Also expected to price before the end of the week is the downsized MetroPCS Wireless deal.

The company cut to $900 million from $1.1 billion its offering of eight-year senior notes (Caa2/CCC+), electing to raise the $200 million in the bank loan market.

On Tuesday MetroPCS talked the notes at 9¼% to 9 3/8%. It is expected to price Thursday via Bear Stearns & Co., Merrill Lynch and Banc of America Securities.

Finally, Encore Medical Finance LLC is expected to price its $215 million offering of eight-year senior subordinated notes (Caa1/CCC+) before the Friday close.

As of press time Wednesday no price talk had been heard on the deal, which is being led by Banc of America Securities and Credit Suisse.

An informed source, noting that Encore Medical is poised to report its third quarter earnings early on Thursday, suggested that more information on the bond deal would surface following the conclusion of the 10 a.m. ET conference call.

New bonds little changed

When the new Michaels Stores notes were freed for secondary dealings, "they didn't really move a whole hell of a lot," a trader said, describing the new 11 3/8% subordinated notes due 2016 as wrapped around their par issue price at 99.875 bid, 100.125 offered, and saw the new 10% senior notes due 2014 at an even tighter 99.875 bid, par offered, also versus a par issue price.

"The Michaels bonds traded a lot," a trader said, adding that they started out on the break at 100.25 bid, 100.75 offered, then traded down as low as 99 bid, 99.5 offered "on flippers" who just bought the bonds and then just as quickly moved out of them, "but they ended up wrapped around par" at 99.75 bid, 100.25 offered for both tranches.

The new Level 3 Communications 9¼% notes due 2014 "were not as active" as the Michaels issue, the trader continued. While the bonds "pretty much were above par [the issue price] the whole day," at one point getting as good as 100.75, at the end of the day, they were back down to par bid, 100.5 offered.

The new SuperValu 7½% senior notes due 2014 likewise did not travel very far from their par issue price, winding up at 100.25 bid, 100.75 offered. The company's existing Albertson's 7.45% notes due 2029 - which the Eden Prairie, Minn.-based Number-Three U.S. supermarket chain assumed when it acquired Albertson's earlier this year - were seen ½ point better at 95 bid, 96 offered.

A trader said that Level 3's existing bonds "traded up a little; they had been knocked down a little [Tuesday]," when the news of the upcoming bond deal for the Broomfield, Colo.-based telecommunications company first surfaced. Level 3's 11½% notes due 2010, which had eased to around 104.5 bid on Tuesday, were seen hovering just below 105 on Wednesday.

The trader said that HCA's existing bonds were "a little lower on the day," in apparent response to the coming $5.7 billion worth of new bonds. He saw the Nashville-based hospital industry leader's 6.95% notes due 2012 half a point lower late in the session at 88 bid, 88.5 offered.

Trump continues gains

Among established bonds not impacted by primaryside dealings, Trump Entertainment Resorts' 8½% senior secured notes due 2015, which on Tuesday had risen a point, "were up today [Wednesday] by as much as 2 points" to 98.25 bid, a trader said, "then they came all the way back [down] to where they started, and then bounced up a point" to close at 97 bid, 97.5 offered. "It was a real roller coaster ride."

In contrast, the Wynn Resorts 6 5/8% first mortgage notes due 2014, after closing Tuesday unchanged, were seen up ½ point Wednesday at 97.75 bid, 98.75 offered.

The bonds of both companies have been moving around following a report Monday in The Newark, N.J. Star-Ledger that they have been holding talks about the possible sale of a Trump property in Atlantic City to Wynn. Specifically, Wynn was said to be eyeing the Trump Plaza gaming resort, which is located on a 12-acre site right on the Boardwalk at the foot of the Atlantic City Expressway, where Wynn is interested in building his own casino resort.

The paper reported that a possible deal might include a parcel of Wynn-owned land in Vegas being swapped to Trump, which is as eager to break into Vegas as Wynn is to get back to Atlantic City, which company founder Steve Wynn had left in disgust over official red tape when he sold his Boardwalk resort, the Golden Nugget, nearly 20 years ago, vowing to "never return," as he headed for Las Vegas and became a major casino developer there, first with the glitzy Bellagio and later with the eponymous Wynn Las Vegas resort.

Delphi keeps motoring up

In the automotive arena, Delphi's bonds - already recently trading up on the reports that Ripplewood could bid for the company - "looked strong" again on Wednesday, a trader said, quoting the company's 6.55% notes that were to have come due earlier this year up another 1½ points on the session at 102.75 bid, 103.25 offered.

Another trader, who said the Delphi bonds were "trading high enough as it is," saw the '06s up ½ point to the 102.5 bid,103.5 offered level. Yet a third trader saw them essentially unchanged on the day at 102.625 bid, 103.125 offered.

Delphi was helped by indications that it may finally be nearing a deal with ex-parent GM and its unions on consensually bringing down its labor costs.

GM, which reported its results Wednesday, said it expected its total liability from Delphi in a worst-case scenario would be between $6 billion and $7.5 billion - narrowing from its prior estimates of anywhere from $5.5 billion to $12 billion. GM chief financial officer Fritz Henderson said on the company's conference call that the revised estimate, which was accompanied by a $500 million charge in the third quarter, reflected progress in the talks between GM, Delphi and its unions.

GM is helping its problem child - spun off in 1999 - to pay for buyouts and early retirement incentives as Delphi tries to trim its workforce to bring its costs more into line with its lower sales. GM is also taking part in the three-way talks with Delphi and the United Auto Workers union, aimed at reaching a consensus agreement on drastically lowering Delphi's bloated hourly labor costs. GM hopes to thus deter Delphi from taking any unilateral action to impose a new salary and benefits structure on its unionized workers, which might produce a potentially ruinous strike at Delphi - GM's single largest parts supplier. Such a strike would disrupt GM's production, just as the carmaker is trying to get back on track financially.

GM loses early gains

GM's bonds firmed initially Wednesday as the carmaker reported improved numbers, with a lot less red ink, for the third quarter, but came back down later in the day.

"GM traded up initially on the earnings," a trader said, seeing its 8 3/8% notes due 2033 firm as much as a point to 89.5 bid, before retreating to end down ½ point at 88 bid, 88.5 offered. "They traded up and then traded back down."

GM reported that in the third quarter, it lost $115 million (20 cents per share), much less than its loss of $1.7 billion, or $2.94 per share, a year earlier. GM said the reduced red ink reflected the benefits of its turnaround plan. The world's biggest automaker said that excluding special charges, it would have earned $529 million (93 cents per share) in the period, beating Wall Street's 49 cents per share projection.

Abitibi lower on bad numbers

Also on the earnings front, Abitibi-Consolidated "didn't do so hot" after its numbers, a trader said, as the company's 7½% notes due 2028 lost more than a point to close at 76.625 bid, 77.625 offered, while its 7¾% notes due 2011 were likewise off about a point, at 89.25 bid, 90.25 offered.

Abitibi "had poor numbers, and the whole sector traded off," another trader declared, quoting Abitibi's own 8 3/8% notes due 2015 down 2 points on the session to 86.5 bid, 87.5 offered.

The paper and lumber company recorded a net loss of C$48 million (11 cents per share) in the third quarter ended Sept. 30 - a sharp reversal from its year-earlier profit of C$99 million (23 cents per share), as revenues fell to C$1.181 billion from C$1.355 billion a year ago. On an operating basis, the company made C$2 million in the latest quarter, down from C$8 million a year earlier.

The results were also a marked deterioration from the numbers posed for the second quarter, when Abitibi earned C$157 million (36 cents per share) on C$1.253 billion of revenues, with an operating profit of C$48 million.

Abitibi executives acknowledged its disappointing results on a conference call with analysts and journalists, during which they reiterated the company's intentions of continuing to try to reduce its C$3.7 billion of total debt (see related story elsewhere in this issue).

Down in sympathy with Abitibi, meantime, were such names as Bowater, whose 7.95% notes due 2011 eased to 94.5 bid, 95.5 offered; Tembec, whose 8 5/8% notes due 2007 closed at 57 bid, 58 offered; and Stone Container, whose 8 3/8% notes due 2012 finished at 96.75 bid, 97.75 offered, all three down a point on the day.

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