News on the LBO front...

Last week, Equity Office Properties announced the terms of tender offers for their outstanding debt. As I said was likely in a previous post, the tenders include consent from the tendering bond holder to eliminate certain bond covenants. The tender appears to be occurring at make-whole levels. Credit to commenter Fixed Income Guy who predicted that the tenders would be at or very near MW levels. So EOP's benchmark 4 3/4 '14 issue has gone from the +90 range before the LBO to +20. That's a 4.3% price increase. Wish I could say I made that trade.

As I predicted, the CDS were not invited to the party. EOP's 5yr CDS was quoted to me at 29/34 a couple days before the LBO was announced. Now 45/50. No hedge is perfect.

Meanwhile, the Times of London is reporting that Verizon Wireless is interested in acquiring Alltel. Without doing any complex analysis, I'd think that Verizon Wireless could offer more than any group of private equity buyers. I say this because if I'm a private equity fund looking to buy Alltel, my exit strategy would be to sell the stake to another telecom. If another telecom is willing to buy Alltel now, but a private equity fund bids more, what's the exit strategy?

As to what the bonds do in reaction to the latest story from the Times, we'll have to wait 'till tomorrow. A lot of people are out today due to President Ford's funeral. We really didn't get much read on how the Wall Street Journal article speculating on a LBO moved the bond anyway. It could well be that the market believes either a merger or LBO are possible, and so the spread volatility goes way up for the next few weeks while this all gets worked out. Before the hubbub, AT's 7 '16 issue was +190ish. Rumor was the CDS were out between 20 and 35 on Friday. I'll bet the bonds tighten to +180 or so by the end of this week. As I said before, I own the bonds, so I'm not completely unbiased here. But still, I think a buyout from another telecom is more plausible than private equity.