Enron continues slide; new Vicar, Revlon bonds firm

By Paul Deckelman and Paul A. Harris

New York, Nov. 21 - The renewed deterioration in Enron Corp.'s finances and securities held center stage Wednesday in an otherwise quiet and abbreviated pre-holiday high yield secondary trading session. On the primary side of things, terms emerged on Vicar Operating Corp.'s successfully priced - and upsized - new deal and those bonds firmed smartly when they were freed for trading; Revlon Corp.'s new bonds also held to surprisingly firm levels.

Vicar Operating priced its deal late Tuesday via Goldman Sachs & Co.; the offering was increased to $170 million of 10-year notes from a planned $150 million and came to market at a yield of 9 7/8%, at the tight end of the 9 7/8%-10 1/8% price talk.

The company, sponsored by Leonard Green & Partners, also sold a simultaneous initial public offering of stock.

Also in primary activity Wednesday, before the market closed for Thanksgiving, a new euro deal emerged via Salomon Smith Barney. Findexa, sponsored by private investment firm Texas Pacific Partners, will sell €140 million of 10-year notes. The deal, which will roadshow in Europe only, is part of an LBO financing in which Findexa will acquire Telenor Media, the yellow pages operation of Norwegian telecom, Telenor.

Before the Wednesday session wound up for the Thanksgiving holiday - a four-day weekend for a significant number of high yield officials, according to an informal survey conducted by Prospect News - one syndicate official commented that the market should see considerable action as eventful 2001 winds down.

"The market's really white hot, right now, so people may slip in and get some things done," the official said.

"Last week there was $816 million of inflows," the official added. "Just looking at that you can tell that the buy-side has tons of cash that they want to put to work.

"I think you're going to see some smaller stuff get done, here and there - probably in the $100 million to $400 million range - with people looking for late liquidity."

When the market resumes, Monday, nearly a full week of November will remain, during which two deals figure to be priced on the primary market: Gary, Ind. gaming company Majestic Investor Holdings LLC is set to sell $145 million seven-year notes via Jefferies & Co. and Global Auto Logistics SA is on the calendar for €100 million of eight-year notes via CIBC.

In secondary activity Wednesday, Enron's bonds, which were quoted sharply lower on Tuesday, continued down that same path Wednesday, with the Houston-based energy marketer's 6 5/8% notes due 2003 quoted as low as 65 bid and the 9 1/8% notes due 2003 at 62 bid, both down from prior levels in the mid-to-upper 70s, while its 7 7/8% notes, also due 2003, dipped a point to 64 bid, after having fallen Tuesday.

But a trader said that "while there was a lot of noise going on" in terms of markets in different Enron issues being quoted back and forth, "there were no major trades" that he had seen.

Indeed, with the market having closed up shop early ahead of Thursday's Thanksgiving Day legal holiday (and what is expected to be a very quiet quasi-holiday Friday), precious few real dealings of any sort took place; if anything, most of the talk in the pits seemed to center around whether it's better to go to relatives or to a restaurant on Thanksgiving, whether the U.S. should keep its momentum going and bomb Saadam Hussein's Iraq once Osama bin Laden has been either captured or killed and the Afghanistan war won, or whether Miami or Nebraska would be the national champions of college football.

Enron, once a firmly investment-grade name, in recent weeks has come dangerously close to being downgraded into junk bond land (Moody's Investors Service took its bonds down to Baa3 on Nov. 9, while Standard & Poor's on Nov. 1 dropped them to BBB-, both ratings the last stop before a credit is ferried across the River Styx; the Fitch rating service also pegs the bonds at BBB-). Once quoted on a spread basis, like a normal high grade credit, it is now trading on a dollar-price basis like a real junk bond, and its prices are considerably below par. The company's troubles centered around a heavy debt load and questionable accounting practices; the latter led to a purge of some executives and prompted a full-scale probe by the Securities and Exchange Commission.

While earlier this month it appeared that Enron had found a life preserver in its sea of troubles in the form of a proposed buyout of the company by smaller (but more financially sound) rival Dynegy Inc., the latest developments in its saga may have called this scenario into question. Enron disclosed in an SEC filing this week that it must pay off or refinance $690 million in debt obligations by next Monday - or risk triggering nearly $4 billion in additional payments. That caused both the company's shares and its bonds to plunge over the past two sessions, leading some to speculate that Dynegy could use the latest bad news as a pretext to call the whole deal off. If that were to happen, Fitch warned, "Enron's credit situation seems untenable with a bankruptcy filing highly possible."

During Wednesday's session, there was some good news for its debt- and stockholders, as the company announced that its lenders had agreed to push back the deadline for making the $690 million payment to mid-December, giving the troubled company more time to get its financial house in order. It also said that it had secured the final $450 million of a badly needed new $1 billion credit line. Dynegy and Enron both reiterated their commitment to their planned merger.

The news had little effect on the generally inactive bond market, nor did it seem to impress the very active equity market, where Enron's shares swooned $1.98 (28.33%) on the New York Stock Exchange to $5.01 - half of the more than $10 per share that the Dynegy deal values the company at. The 115 million-share turnover in Enron made it the busiest issue on the Big Board.

Even so, a bond trader asserted: "I would argue with the perception that the deal is in trouble and could be canceled. Too many people have a vested interest in this deal going through."

Still, another market observer cautioned, the continued uncertainty over Enron's situation - really until the final "i" is dotted and the final "t" crossed - is a recipe for continued whipsawing around on the credit, which had initially slid into the 60s as its problems emerged last month, bounced back into the 80s when it looked like the Dynegy deal was a good bet to happen, and then eroded back down to the 50s and 60s on the latest bad news, the $690 million debt payment requirement.

"Once this stuff goes from investment grade-type paper to people who view it as trading more like junk paper, they no longer trade it inside parameters of an eighth or a quarter or a half-point spread - they widen it out to a spread of like five points, and these things can fluctuate five or 10 points in any given day.

"If they sneeze the wrong way on one day or (market players) don't like what one company is doing or something comes up that they don't know if they're going to make a payment now on a note - who knows what's going to happen? Consequently, these guys just duck. They don't even make bids sometimes," leaving traders and other participants to their own devices as far as guestimating the value of the bonds.

Another wild card, he adds, is what Dynegy might decide to do now, given the steep fall in Enron's market value from the levels it held when the deal was announced. He said the would-be suitor could revise its deal downward to reflect the market's valuation of Enron, or it could just walk away.

"So this stuff is going to fluctuate around until this situation resolves itself."

Elsewhere, "the highlight of the day," a trader said, was the warm reception given Vicar Operating's new seven-year notes, following their pricing at par. He said the deal had been "three or four times oversubscribed and very well received" when they were freed for secondary, pushing up to around the 102 bid level.

Meantime, the new Revlon Consumer Products 12% senior subordinated notes due 2005 were heard hanging in at the 99-par level they had zoomed to Tuesday after having priced at 96.569; a trader called this and the fact that the deal was highly oversubscribed "truly a miracle," given the credit's low rating (Caa1/B-) and the well-publicized problems the Ron Perelman-controlled cosmetics maker has endured over the past several years.

Back among already established bonds, The Great Atlantic & Pacific Tea Co.'s 7.70% senior notes due 2004 were hovering around the 104 bid area, well up from prior levels around 98, on the late-Monday announcement by the Montvale N.J.-based supermarket operator that it would tender for those bonds. A&P's 7¾% notes were up half a point at 97.

Lucent Technologies Inc.'s bonds were steady at recently improved levels, the Murray Hill, N.J.-based telecommunications equipment giant's 7¼% notes due 2006 at 88 bid, well up from the 85 levels they had previously held. A market source opined that playing in bonds like Lucent - a formerly investment grade name whose rating remains in the BB high junk area - "seems pretty lucrative" to high grade accounts dabbling in the upper-rated reaches of junk territory to pick up some yield without incurring too much risk.

Other firmer issues Wednesday, a trader said (albeit on very thin trading), included Conseco Inc. and Xerox Corp. The 10½% notes of Carmel, Ind.-based insurer Conseco were at 81 bid, its 6.40% paper at 72 and its 8 1/8% notes at 64, despite a three-notch downgrade Wednesday to B- from BB- by the Fitch ratings service, which said the rating cut "reflects primarily the deteriorating credit quality of (the) Conseco Finance (unit). Conseco is dependent on cash flow from Conseco Finance to meet holding company cash needs. Therefore, the ratings of Conseco are constrained by the stand-alone credit quality of Conseco Finance."

Xerox, meantime, continues to bask in the warm afterglow of late Monday's successful sale of an upsized $900 million issue of convertible debt, as well as this week's news of new equipment financing agreements with General Electric Capital, as well as company projections of a return to profitability next year.

He also said airline paper "remained well-bid for," and saw Royal Caribbean Cruises Ltd. trading "about three points off their highs" which the Miami-based cruise line operator had hit Tuesday on news it would merge with P&O Princess Cruises PLC of London in a $3 billion deal that will create the world's largest operator in the slumping cruise industry. Royal Caribbean's 6¾% notes due 2008 were quoted at 82.5 bid, still well up from their pre-news 78. Its 8¾% notes were around 89 bid; before the merger news, they had tread water around 82 bid.

End

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