Citizens Communications prices greatly upsized deal; Portola bounces around at lower levels

By Paul Deckelman and Paul A. Harris

New York, Nov. 8 - Citizens Communications Co. priced a substantially upsized offering of 10-year notes in primary action Monday.

In secondary dealings, things were seen as generally quiet. There were, however, some gyrations in Portola Packaging Inc. debt after Moody's Investors Service downgraded the company's debt ratings, causing the San Jose, Calif.-based plastic packaging materials maker's bonds to bounce around at sharply lower levels, before coming off those lows to close essentially unchanged.

Paper-hungry high yield investors received an unexpected portion of bonds on Monday as a highly oversubscribed issue of eight-year notes from Citizens Communications Co. upsized to $700 million from $400 million and priced at the tight end of talk.

Elsewhere, however, the new issue market produced little news during the opening session of the second week in November - a four day week in the bond market owing to the observance of Veterans Day. The Bond Market Association is recommending a close on Thursday although with the equity markets open many high-yield players will be around.

A little quiet

A buy-side source, speaking on background, suggested that the present scarcity of new deals on the forward calendar might indeed be a harbinger of things to come as far as the remaining weeks of 2004 are concerned.

"It's a little quiet and it's hard to say exactly why," said the buy-sider.

"Seasonally the junk market tends to do well in November, December and January, in part because new issuance dries up.

"The feeling was that new issuance in high yield dried up as we were waiting for the election to be done. But certainly the election was done nicely," the investor observed, adding "in fact it was done 'happily,' for the market.

"And we also had the positive jobs numbers last week.

"It's hard to believe that someone who needs to do a deal wouldn't do it now. So it's possible that we're in for a dearth of deals through the end of the year. And the secondary will be bid up even tighter."

Ends in tears?

As to the celebrated run-up in the prices of bonds in the aftermarket, the investor seemed to be taking that in stride.

"It's true that secondary levels are incredible right now in junk," the source said. "But it's incredible in investment grade. It used to be that only Wal-Mart, at the top of the cycle, could issue at T plus 50. And now it seems like any single-A company can do that.

"If you're hungry for yield you are just going to keep buying stuff that yields more than Treasuries, since you think the chance of default is pretty darn low.

"And who cares about those rating agencies?" the buy-sider added sardonically.

"The trouble is, when the tide turns, and everything has a low coupon, it makes it pretty tough to price on the downside."

The investor said that a junk market trading to ever-tighter levels, such as the present one, can only lead to tears.

"This will end badly," said the source. "We just don't know when. Any little thing can tip it off.

"As long as you are keeping your eye on the economy, six to eight months out, you should be alright. And right now the news is good."

Citizens highly oversubscribed

The only issue to be completed on Monday came from Stamford, Conn.-based incumbent local-exchange carrier Citizens Communications Co., which priced a significantly upsized $700 million of senior notes due Jan. 1, 2013 (eight-year) at par to yield 6¼%, at the tight end of the 6¼% to 6½% price talk.

JP Morgan, Banc of America Securities and Morgan Stanley ran the books for the debt refinancing deal that was upsized from $400 million.

"It's a relatively good credit," the above-quoted buy-side source told Prospect News, adding that in the present market, in which paper is scarce and secondary market levels are being bid up to astonishing levels, the 6¼% print should surprise no one.

"You have to figure out what you think Treasuries are going to do in the next year or so in order to figure out what your returns are going to be," the investor commented.

"But there is little reason to believe that Citizens Communications is going to have any operational problems.

"This is an okay deal."

Talk on Elan's $850 million

The remainder of the primary market news, Monday, emerged from Europe, by one route or another.

Price talk emerged on Irish biotechnology firm Elan Corp. plc's dual-tranche $850 million offering of seven-year notes (B3/B-), which are expected price on Wednesday via Morgan Stanley.

The fixed-rate notes, which come with four years of call protection, are talked at 7¾% to 8%, while the floating-rate notes, which come with two years of call protection, are talked at talk three-month Libor plus 400-425 basis points.

And Hornbach-Baumarkt-AG announced in a Monday press release that it will present its €200 million offering of 10-year notes (Ba3/BB-) to investors in Europe through the present week.

Deutsche Bank Securities is the bookrunner, according to a market source.

K&F, Rockwood hold most gains

No aftermarket quotes were immediately available on the new Citizens Communications 6½% notes, which priced earlier in the session at par.

A trader did see two other recently priced offerings - for K&F Acquisition Inc. and Rockwood Specialties Group Inc. - trading around at levels slightly below where they went home on Friday afternoon - but still well above their respective issue prices earlier that session.

He quoted K&F's new 7¾% senior subordinated notes due 2014 as trading around 102.75 bid, 103.75 offered. That's below the 103 area where the bonds went home Friday, but was still well up from their par issue price.

The same held equally true for Rockwood's new 7¼% senior subordinated notes due 2014, which priced Friday at par and then floated up to around the 103 bid level area. The notes were trading a little below that on Monday at 102.5 bid, 103.5 offered, "but it was pretty quiet in that sphere," the trader said.

Portola plunges, rebounds

Back among the secondary issues, he said, Portola Packaging's 8¼% notes due 2012 had something of a wild ride after Moody's downgraded the company's debt ratings, dropping the bonds two notches to Caa1 from B2.

He saw those bonds - which went home at 77 bid, 79 offered Friday - drop down as low as 72 bid, 74 offered on their "initial move down" following the debt downgrade. After that, though, he saw Portola's bonds bounce off the lows, go back to where they had been and actually finish the day half a point higher, at 77.5 bid, 78.5 offered.

At another shop, another trader saw the Portola notes at 79 bid, up a quarter point on the session.

The first trader said that the downgrade "wasn't unexpected."

Moody's, in downgrading the Portola debt ratings, cited its "revised view that Portola's run-rate financial position is likely to remain at current depressed levels, relative to historical performance. The downgrades also reflect adverse price and product mix as well as poor visibility into Portola's earnings. The latter arises in part from fluctuating demand in certain products, such as cosmetics packaging sold by Portola Tech Industries," which accounts for about 11% of the company's consolidated revenue.

Moody's also cited its continued concern "about the company's inability to generate adequate levels of sustained free cash flow, which is pressuring Portola's already thin liquidity cushion" - the ratings service noted Portola's "minimal unrestricted cash on hand, no free cash flow, modest borrowing base availability under the committed revolver in the low teens."

Dimon, Standard Commercial little changed

Elsewhere, the news that two major leaf tobacco dealers - Dimon Inc. and Standard Commercial Corp. - plan to merge in an all-stock transaction, seemed to have little impact on the bond of either company.

A market source saw Dimon's 7¾% notes due 2013 at 99.375, down a quarter point on the session, while Standard Commercial's 8% notes due 2012 were unchanged at 103.

The companies said that they intend to explore financing for a new revolving credit agreement, which would supersede their existing bank debt facilities, and they said that they might seek bondholder consents in relation to some aspects of the merger. They also indicated that the coming transaction would likely not trigger the change-of-control provisions in the bonds' indenture and force the companies to offer to buy the bonds back (see separate story elsewhere in this issue).

Overall, a trader said, "there was very little" going on Monday, he said.

"The market felt like it came off the highs a little bit," he said. "For the first time in several days, there seemed to be some stuff for sale. But it was pretty quiet."

The whole market, he said, "seemed to be off a quarter to a half point on very light trading.

"Treasuries were weaker again, and stocks didn't really go anywhere. But this is the first day in many that we haven't seen high yield up half a point or a point right out of the chute. Maybe a lot of people are just trying to evaluate where the stuff is, it's been such a violent move in the last two weeks.

"So there's a lot of testing of levels and things like that, trying to figure out where stuff is."

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