Six Flags off in lackadaisical pre-holiday trading; OAO Gazprom plans $1 billion 10-year deal

By Paul Deckelman and Paul A. Harris

New York, Feb. 14 - Another mega-deal loomed on the horizon in the primary sphere as Russian energy operator OAO Gazprom was heard planning to bring a $1 billion 10-year offering to market. Assuming all goes well, it would be the fifth offering to hit the magic 10-digit mark this year, with barely a month and a half gone by.

In the secondary Six Flags Inc. bonds were quoted several points lower Friday, one of the few features seen during an otherwise dishwater dull, abbreviated pre-holiday trading session.

Just when it seemed that Friday's session could not get any sleepier, with sell-side sources yawning into the telephone, or creepier, with automatic weapons-toting National Guardsmen reportedly patroling the subways in New York City, Gazprom ignited the high-yield primary market with a new $1 billion deal.

Also on Friday ON Semiconductor Corp. flipped the "on" switch, sending a fresh $200 million through the junk bond circuits.

European and U.S. roadshows are set to take place during the four-day week of Feb. 17 for OAO Gazprom's $1 billion of 10-year high yield notes. The Russian gas producer and exporter's bullets, to come to market via Dresdner Kleinwort Wasserstein and Morgan Stanley, are likely to price by the end of the week, according to a syndicate source.

Sources who spoke to Prospect News in the wake of the OAO Gazprom announcement hardly seemed inclined to break out the champagne at the news that the company was bringing a billion.

"It's technically driven," one source commented. "It just seems as though the buy-side is willing to buy right now, maybe because they have cash. But it certainly isn't reflective of the state of the secondary market."

In particular this source pointed to the aftermarket performance of the $2.4 billion of notes in three tranches issued on Feb. 11 by Crown Cork & Seal Co. - the biggest high-yield deal since Lyondell Chemical Co. transacted $2.4 billion, also in three tranches, in May 1999.

The source said that Crown Cork's second lien notes had been quoted trading below par.

"They're not getting wrecked," the source added, "But they're feeling the weight that the whole secondary market is feeling.

"I think the third lien notes are hanging in there," the source added.

This sell-side official was hardly alone in reporting to Prospect News that high yield was trending down Friday and the secondary market was soft.

"It's definitely safe to say it has been down a point or two throughout the week and it's trending lower," another sell-sider said Friday.

"A lot of sectors are feeling it. Gaming especially has been hit quite a bit."

Nevertheless the expansive Gazprom deal was not the only new junk bond deal to come into the pipe on Friday. Phoenix-based ON Semiconductor announced it would bring $200 million of seven-year senior secured first priority notes, with the roadshow commencing Tuesday and pricing expected to take place Friday, via Salomon Smith Barney and Credit Suisse First Boston.

"Dell posted some pretty impressive earnings," one sell-side source conjectured when news of the Arizona-based company's new deal began to circulate. "It could be a rebound for the semiconductors.

"The semiconductor manufacturing base is Taiwan, South Korea and Japan," the source added. "With the North Korean situation hanging over Asia you're not going to see a robust comeback until that is resolved."

Hence a forward calendar that seemed to be thinning out as Friday's session got underway beefed up appreciably prior to the early close for the holiday weekend.

Including Gazprom's $1 billion, the forward calendar contains an even half dozen of deals totaling $2.235 billion that are expected to price during the abbreviated week of Feb. 17.

In the secondary market, activity mostly ground to a standstill, as skeleton crews manned many desks and the market headed for an early close (2 p.m. ET) ahead of the three-day Presidents' Day holiday weekend, which was also scheduled to completely close U.S. financial markets on Monday.

A trader said that "the AMG [outflow reported late Thursday], about $7 million, that was the biggest excitement I saw all day." Given that the outflow number was virtually flat, compared with the usual weekly fund flow numbers in the hundreds of millions, or even billions of dollars, that wasn't very much excitement.

He added that "other than that, my stuff didn't even open, and everything else [traded at his shop] was zero - housing and retail quiet, lodging nothing, energy zero. It was just a non-event."

With "no activity in the Street, and it looks like most of our accounts were already away," he said that by and large levels at which bonds were quoted, on minimal trading activity, were "nothing different from the levels [Thursday]. It was just an open and close - we came in, turned the lights on and just as we're walking out, we'll turn them off. Nothing of any consequence at all."

One of the few names which actually was quoted as having moved from Thursday's close was New York -based theme park operator Six Flags - the former Premiere Parks.

A market source quoted Six Flags' 9¾% notes due 2007 as having dropped to 89.5 bid from prior levels around 94.5, while its 9½% notes due 2009 fell to 88 bid from 92.75. Six Flags' 8 7/8% notes due 2010 moved down to 84 bid from 89.5

Six Flags shares lost 14 cents (2.74%) to $4.97. There seemed to be no fresh negative news out Friday which would explain the fall-off, although it should be noted that in a quiet market, even relatively small trades up or down carry exaggerated weight.

In fact, the company was trumpeting the fact that chairman and chief executive officer Kieran E. Burke will be presenting at Wednesday's Salomon Smith Barney leisure conference in New York - hardly a venue at which bad news or bearish guidance is likely to come out.

On investment-oriented internet bulletin boards, Six Flags shareholders debated whether the possibility that the nation might soon be at war would be good or bad for the investors. Optimists held out the prospect that such a war would not last very long and would be followed by a revived economy. In the interim, they said, even with a war on - maybe especially with one happening - people would want diversions and would turn to the amusement industry to get it.

On the other hand, bears said that since an amusement park full of people might appear to be a perfect target for terrorism people would likely stay away in droves. On top of that, they complained that even should things quickly return to normal, as one put it, "the management will still stink and the parks or product will still stink, less then expected revenues like the past four years, the same old debt load with no clear business plan for the future."

Elsewhere, one observer saw El Paso Corp. bonds "jump up three or four points," although he opined that it was probably the market adjusting itself after those bonds were pushed sharply lower earlier in the week. The bonds, and El Paso's shares, had fallen sharply in response to the executive suite bloodletting which saw the ouster of chairman and CEO William Wise (although he will stay on until a new CEO is found), combined with a five-notch ratings downgrade by Moody's Investors Service (senior unsecured falling to Caa1 from Ba2); the ratings agency doubted whether the Texas-based utility's planned asset sales would provide "sufficient and timely proceeds to help cover its larger-than-expected cash deficit," among a whole laundry list of problems.

But after having stabilized later in the week following a nearly 10-point drop, the bonds were quoted higher Friday, albeit in thin trading, with El Paso's 7¾% notes due 2010 up 2½ points to 73.5 bid and its 7¾% notes due 2032 up by a similar margin to 57.5 bid. On the equity side, shares zoomed 74 cents (21.45%) to $4.19 on New York Stock Exchange volume to about 26 million, more than double the usual turnover.

Looking around the troubled utility sector - in the dumps ever since the collapse of energy trading giant Enron Corp. in late 2001 and the increased regulatory scrutiny which followed - the observer saw Mirant Corp.'s 7.20% notes due 2008 about two to three points lower on the session, at 50 bid/52 offered, although there was no fresh news out on the company, whose bonds, he said had been "down the last couple of days."

Apart from those two names, he said, Friday "was mostly a non-event. It looked initially like there might be some activity, but it just fizzled out."

At another desk, CMS Energy Corp.'s 7½% notes due 2009 were quoted two points higher at about the 76 bid level; that follows the drop of anywhere from two to four points seen in the Dearborn, Mich.-based power producer's bonds on Thursday.

And Arlington, Va.-based power operator AES Corp. - which on Thursday had announced a sizable fourth-quarter loss but hopeful 2003 guidance, including plans to sell another $400 million of assets - was improved for a second consecutive session, its 8 7/8% notes due 2011 two points better at 63.5 bid. AES - looking to cut its overall debt by $1.3 billion in 2003 - said Thursday that it had lined up some $400 million to $800 million in asset sales, on top of the $1 billion to $1.5 billion in divestitures which the company had announced in 2002.

On Friday, AES announced completion of its sale of two Australian power generating properties for $173 million, from which AES will net proceeds of $59 million. The sales of the Down Under plants are part of its previously announced long-range plan to shed non-strategic assets.

Continental Airlines' 8% notes due 2005 were being quoted down as much as five points at around 50 bid. The Houston-based Number-5 U.S. air carrier warned in its annual report filed late Thursday with the Securities and Exchange Commission that while it expected that its liquidity and access to cash would be sufficient to fund its current operations through 2003 - barring any unforeseen negatives - "we believe that the economic environment must improve for us to continue to operate at our current size and expense level beyond that time. We may find it necessary to further downsize our operations, ground additional aircraft and further reduce our expenses."

The carrier further cautioned that while it anticipates that implementing its previously announced revenue generation and cost-cutting measures - along with the capacity reductions announced by rival airlines and capacity reductions that could come from restructurings within the industry - "should result in a better financial environment by the end of 2003, absent adverse factors outside our control such as a further economic recession, additional terrorist attacks, a war affecting the United States, decreased consumer demand or sustained high fuel prices," Continental still expects to incur "a significant loss in 2003, regardless of such adverse factors."

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