UPDATE: CSC Holdings Plans $500 Million Senior Notes Due 2014 - Source
January 08 2009 - 3:23PM
Dow Jones News
Cablevision Systems Corp.'s (CVC) CSC Holdings Inc. is in the
market with a $500 million offering of new senior notes, according
to one investor who is looking at the deal, in what will mark the
first deal this year and the first transaction in three weeks.
The bonds are seen pricing at a deep discount to yield more than
11%.
Conditions in the junk bond market have been inhospitable for
months, but small signs of improvement in recent weeks have
improved prospects for companies looking to raise money.
The investor said proceeds of CSC's new deal, which is
non-callable for life, are earmarked to refinance the company's
floating rate note that matures in April. There is $500 million
outstanding on this bond, the investor said.
The news sent shares Cablevision higher Thursday as concerns
eased about its $1.7 billion in maturities coming due this
year.
The new bonds mature in 2014.
With Treasurys offering exceptionally low yields, investors have
begun to turn their attention back to corporate bonds as they look
for yield, opening the door for companies, which have been shut out
of the market for many months to raise cash.
Risk premiums, or spreads over risk-free Treasurys for
high-yield bonds stood at 16.42 percentage points on Wednesday,
according to the Merrill Lynch Master II High Yield Index. That is
still historically high, but well below the peak seen in
mid-December when they hit 21.82 percentage points. Meanwhile,
average yields have fallen to just below 17%. That is still just
short of triple the 7% threshold that used to determine the term
junk bond, but it is down from highs of more than 20% last
year.
CSC is one of the more solid junk-rated companies, rated BB by
Standard & Poor's and B1 by Moody's Investors Service. It is
also a core holding for most high-yield investors, according to
Kingman Penniman, president of KDP Investment Advisors.
Holders of CSC's floating rate notes, which will be refinanced
by the new bonds, are likely to roll their exposure into the new
notes.
The bonds are expected to come with a yield around 11.375% and a
coupon of 8%, according a second investor. The bonds are expected
to price to give a coupon of 8%, the investor added. The bonds
could price somewhere between 87%-90% of face value, a third
investor said.
Although this will raise the company's cost of financing, Craig
Moffett, an analyst with Sanford C. Bernstein & Co., said it is
a reasonable rate given credit markets are still hostile. That
would also be just above where some of the company's other
outstanding bonds are trading in the secondary market. CSC's 7.875%
notes due 2018 were quoted around 82.5 cents on the dollar Thursday
morning for a yield of around 10.9%, according online trading
platform MarketAxcess. Similarly, the company's 8% bonds due 2012
are quoted at 93 cents for a yield of 10.59%.
"While the yield is higher than [the company's] outstanding
debt, the positive datapoint is that [the company] has access to
capital at prices that while high, are not absurd," Richard
Greenfield, an analyst at Pali Capital, wrote in a note.
The offering should alleviate concerns surrounding the company's
2009 liquidity position, Greenfield added.
Even so, Standard & Poor's Media & Entertainment Analyst
Tuna Amobi isn't ruling out near-term refinancing challenges for
the company. This could conceivably jeopardize modest quarterly
dividends, he said in a note.
CSC's new deal is being led by a group of underwriters including
Banc Of America Securities, Citi, Credit Suisse, Deutsche Bank and
JPMorgan, according to the investor. It is expected to price later
Thursday.
The success of CSC's deal will likely to be watched by other
issuers that have been waiting for conditions to improve for
months. They will likely move to take advantage of any windows of
opportunity as they arise, Penniman said.
"A lot of companies will want to take advantage while there is
liquidity because as we find out more about the state of the
economy and look at earnings, no one knows how long the liquidity
will last," he said.
Shares of Cablevision were recently up 15.5% to $19.18. The
stock dropped precipitously last fall after Cablevision backed off
its plans to explore a restructuring of its assets due to the
global financial crisis, leaving it down 30% for 2008.
-By Kate Haywood, Dow Jones Newswires; 201-938-2348;
kate.haywood@dowjones.com (Nat Worden contributed to this
report).
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