Satellite TV, radio bonds firmer; Royal Caribbean, Oxford price new deals; US Steel, Primedia slate

By Paul Deckelman and Paul A. Harris

New York, May 6 - Satellite TV and radio broadcasters' bonds gained some altitude Tuesday on favorable earnings from EchoStar Communications and encouraging news from satellite radio rivals XM Satellite and Sirius.

Although primary market sources seemed to concur Tuesday that the market was taking a bit of a breather, three deals, two of them upsized, priced during the session. And two new deals were announced by Primedia Inc. and United States Steel Corp.

Atlanta apparel-maker Oxford Industries Inc. added a few extra layers for the cash heavy accounts, pricing an upsized $200 million of 8 7/8% eight-year senior notes (B2/B) at 99.287 to yield 9%. The deal, with Merrill Lynch doing the bookrunning, came at the inside end of the 9%-9¼% price talk and was increased from $175 million.

One source told Prospect News that the upsized deal was significantly oversubscribed, and that early after they broke into the aftermarket Oxford's new notes were seen trading at 102.5.

Basking Ridge, N.J. voice and data software maker Avaya Inc. amplified the amount of its add-on to $200 million from $175 million, pricing it at 108 for a 9.06% yield to worst. Citigroup and Credit Suisse First Boston were joint bookrunners on the public offering, an addition to its 11 1/8% senior secured notes due April 1, 2009 (B2/B+).

And Miami cruise line operator Royal Caribbean Cruises Ltd. hoisted up $250 million from junk investors who purchased its new 8% seven-year senior notes (Ba2/BB+) at 99.339 to yield 8 1/8%. The deal, via Goldman Sachs and Citigroup, came at the tight end of the 8 1/8%-8 3/8% price talk.

Meanwhile the accounts that are said to be swamped in cash trained their periscopes on two new high-yield offerings which surfaced Tuesday.

Primedia announced plans to sell $300 million of new 10-year notes on Wednesday via JP Morgan, Banc of America Securities and Citigroup.

And the roadshow starts Wednesday and runs until May 14 for United States Steel's $350 million of seven-year non-call-four senior notes (B1), via JP Morgan and Goldman Sachs.

And on Tuesday Diane Keefe, portfolio manager of the Pax World High Yield Fund, told Prospect News that contrary to the contentions of some on the buy-side - who hold that new deals in the note-starved market are coming with yields that are too low - high yield continues to represent solid value.

"The 10-year Treasury note is at 3.92%," Keefe said. "But the average high-yield bond portfolio has a duration under five years, which is more like a five-year Treasury. And the five-year Treasury is at a 2.90%. So you can get more than two times the amount of interest out of a high-yield bond than you can from a Treasury bond."

Keefe said that she had just looked at a market summary on May 1 in which 1,224 issues were tallied to have an average yield to worst is 9.59%. With the 10-year Treasury at 3.92%, that is 567 basis points over the curve, she said.

"Average spreads in the 1990s were 450. And for the period 1993-1998, before the Asian debt crisis, they were below 400.

"But we live in risky times. You should expect some higher spread than the good old days.

"It's not a tremendously cheap time to jump into the market if you've never been in it before. But relative to stocks I still think it's probably better valued than stocks, because I'm not bullish on the economy."

Keefe, whose fund submits credits to a series of social issues screens, said that even if the average yield came in another 100 basis points it would still be above average.

When Prospect News pointed out that on Monday two deals, LIN Television and Flextronics, came with 6½% yields, Keefe maintained that at least one of them, LIN, was a decent print.

"That's the least-levered of the broadcasting companies," she said. "I was actually in for those bonds and I'm glad I didn't get a big allocation of them. But on the other hand I think it's correctly priced relative to the secondary names in broadcasting. It has five-times leverage and a management that is committed to deleveraging. If they were to get acquired the acquirer would more than likely be an investment-grade company.

"I would much rather own it than Allbritton 7¾% at 103, or wherever they are."

When Prospect News ventured that LIN Television Corp.'s deal had been pegged with B2/B ratings, the Pax World manager shot back that the rating agencies, in the wake of accounting scandals at Enron and WorldCom, have exhibited itchy trigger fingers.

"There are plenty of names in the single-B universe that I would consider to have double-B risk," the Pax World portfolio manager said.

Asked whether she is having a look at anything that is in the present forward calendar, Keefe nodded toward Thornburg Mortgage's $150 million of 10-year senior notes (Ba1/BB-), talked at 8% area and set to price Thursday via Credit Suisse First Boston.

"I thought that was interesting," she said. "I'm not sure 8% is getting paid for a finance company, though."

When the new Royal Caribbean bonds were freed for secondary dealings, they were heard to have moved to a high-water mark of 101 bid, before dropping back to close at 100.25 bid/100.5 offered, still up a bit from their 99.339 issue price earlier in the session.

A trader dismissed the recent new issue names as "some major pigs," noting that Amkor Technology Inc.'s 7¾% senior notes due 2013, which had priced at par just last Thursday, were now wallowing around 96.5 bid/97.5 offered.

Another trader said that the Amkors had actually traded as high as 101 bid/102 offered following their pricing, "but they just got hammered after that," he declared, quoting them as having fallen to 97 bid Tuesday.

The first trader, meantime, hung the "pig" label around Flextronics International Ltd.'s new 6½% senior subordinated notes due 2013, which had priced Monday evening at par, but which had slipped to 97.5 bid/98.5 offered by Tuesday afternoon.

The new LIN Television 6½% senior subordinated notes due 2013, which had also priced at par on Monday, were straddling that mark Tuesday, at 99.5 bid/100.25 offered. Compared to the way the other recent new deals were performing in secondary on Tuesday, LIN "didn't break too badly," the trader said. "They showed relative strength."

Over recent weeks, new deals have come clattering down the chute at a frantic pace and most have traded upward after pricing, with the surplus of cash in the market and the relative shortage of new paper - even with several megadeals of more than $1 billion - pushing prices up. The same dynamics have been dragging established bonds up to very tight levels, even if they wouldn't deserve that kind of pricing in a "normal" market."

One market observer, noting that Revlon's CCC-rated 12% notes due 2005 are traded in the mid-90s, said that such a level for a bond with that kind of rating was "weird, crazy," and "ridiculous." The observer also noted that the cosmetics maker's 8 1/8% notes due 2006, were some 30 points below that, in the lower 60s, owing to the notes' C rating - still a pretty high price from a bond whose rating would indicate that it is at best a step or two away from default.

But on Tuesday, at least, the trader quoted previously said, the relentless push upward seemed to abate somewhat. "It was the first day in a while - the first in over a week, really - when we've seen some weakness. Bids were getting hit, instead of offers being lifted."

In the recently powerful merchant energy sector, for instance, he saw AES Corp. debt retreating, even though the Arlington, Va.-based power generator is continuing to tender for much of its outstanding bond debt, albeit at a discount from par value (the tender offer for portions of four series of senior subordinated notes is scheduled to conclude on Wednesday, although the offer for portions of five series of outstanding senior debt continues through May 15). Still, the trader quoted AES' 8¾% seniors due 2008 as having dipped to 93.5 bid/94.5 offered from prior levels around 98.5 bid/99.5 offered - perhaps because the company's latest announcement on Monday, upping the amount of bonds it will purchase and extending the offer, carried no increase in the price to be paid for the bonds.

He also saw AES's new 8¾% second priority senior secured notes due 2013, which priced last week at par and then moved above 102 bid, as having come back down to par bid/100.75 offered from Monday's levels at 101.75 bid/102.25 offered. At another desk, AES's existing 9½% notes due 2009 were seen at 98 bid/ "down a bit," someone there said.

Independent power generator Calpine Corp.'s bonds "were volatile," the trader added, quoting the San Jose, Calif.-based company's 8½% notes due 2008 as having firmed to 76 bid/77 offered in the morning, and then having dropped back to 73 in the afternoon, before closing at 73.25 bid/74.25 offered, essentially unchanged.

Contributing to the issue's volatility - Calpine warned investors that it expects to post a 12-cent per share first-quarter loss because of unexpected equipment repair costs and foreign exchange losses. Wall Street had been expecting a profit in the four-cent-per-share range. Calpine also cautioned that it would not be able to file its quarterly report by the May 15 deadline, citing its recent change in auditors. Calpine shares dropped 60 cents (10.91%) to $ 4.90 in Tuesday's New York Stock Exchange dealings, on volume of 25 million, more than triple the norm.

Not everybody was a downsider on Tuesday, however. Echostar's bonds were quoted up about a half a point across the board, after the satellite TV broadcaster reported that it earned $58 million (12 cents per share) in the first quarter ended March 31, versus a year-ago loss of $35 million (20 cents per share). Of particular interest to bondholders, EBITDA totaled $277 million, an improvement of $100 million from $177 million for the corresponding period in 2002. Free cash flow from operations totaled $125 million for the quarter, an improvement of $36 million from the $89 million for the corresponding period in 2002.

Echostar also announced that it had added some 350,000 new customers during the period, versus the 250,000 net subscriber additions analysts were expecting.

Echostar's 9 3/8% notes due 2009 rose to 108.25 bid from prior levels 107.875. Its 10 3/8% notes hovered at 111.375 bid/111.75 offered, while its 9 1/8% notes remained above 112.

Satellite radio broadcaster XM Satellite Radio Holdings Inc. announced that Wal-Mart, the world's largest store chain, will sell Delphi Corp.'s receivers for XM's SKYfi service in its over 2,100 outlets. XM's zero-coupon notes were two points better, at 73 bid, while its 14% cash-pays due 2010 likewise moved up to 99 bid. XM shares jumped $1.69 (17.42%) in Nasdaq trading to $11.39, on volume of 16.8 million shares, more than triple the usual.

XM rival Sirius Satellite Radio, meanwhile firmed; one market source noted that Sirius "usually trades off XM. Sirius also had its own good news; brokerage firm Sander Morris Harris upgraded its shares to a "buy" from a "sell," citing the company's claims that its surveys of retail channels where its receivers are sold indicate that sales are improving - and will likely improve further as more product becomes available.

Sirius' 9 1/8% notes due 2007 gained a point to end at par; meantime, its shares were nearly 31 cents better (34.33%) to $1.209, on Nasdaq volume of 136 million, more than four times the norm.

The sharp upturn in airline bonds, powered by Merrill Lynch's Friday upgrade of the shares of several major air carriers and its more hopeful assessment for the industry seemed to stall Tuesday; while nothing plunged to earth, a trader said the sector was mostly unchanged to slightly weaker.

But while Continental Airlines' 8% notes due 2005 lost a point to end at 82, ending a spectacular recent run-up, AMR Corp's 9% notes due 2012 actually continued to gain, rising another three points to 56 bid/57 offered. And a trader also saw even United Airlines' 9% notes due later this year jump to 8.5 bid/9.5 offered from prior levels at 6 bid/7 offered. "For a bond trading in the single digits," he concluded "that's a pretty good move."

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