Conseco quiet despite debt restructuring plan; Metromedia Fiber nosedives; upsized Huntsman prices

By Paul Deckelman and Paul A. Harris

New York, March 18 - Conseco Inc. - which last week hinted that it would ask its bondholders to agree to some sort of debt exchange - dropped the other shoe Monday, formally unveiling a plan to extend its bond maturities by as much as two-and-a-half years - but there was little movement seen in its bonds in response. Not so for embattled Metromedia Fiber Network Inc., whose already depressed bonds lost half their remaining value on news it had skipped an interest payment, had withdrawn previously offered guidance, and might be forced into Chapter 11.

In the primary market, chemical maker Huntsman International LLC must have hit upon the right formula for its new issue of seven-year senior notes, upsizing the offering to satisfy increased demand. Isle of Capri Casinos Inc. was heard by market sources to be planning to shop a quickly emerging $200 million bond deal via a Wednesday conference call with potential investors.

Isle of Capri was one of three new deals - only one of them slated for a roadshow - materialized during Monday's primary market session, while in addition to Huntsman another offerings of trust preferreds priced.

"I think we are going to stay hot," one sell-side official told Prospect News Monday afternoon, alluding to the $1.228 billion of mutual fund money that was reported by AMG to have come into high-yield mutual funds during the week that ended March 13.

"I think you'll start seeing more deals being announced," the official added, "But on a volume basis it's still going to be low because you just don't have companies coming out here that will be taking $500 million to a $1 billion, like we did last year at this time."

Asked why the market is presently enjoying substantial inflows the official said: "I think people are happy about where the economy is going in general. They're a little bit afraid of the stock market so they've been putting money in the bond market."

A reasonable follow-up question thus seemed to be, given that "people are happy," will the Federal Reserve FOMC decide when it meets Tuesday that rate hikes may be in the offing?

"I hope not," this sell-side official said. "I think that would have an adverse effect on all the markets right now. Rate hikes symbolize that things are improving. But they also symbolize that the cost of capital is going to go up for a lot of these companies. And a lot of these companies aren't out of the woods, yet.

"I'm just kind of hoping that they stay quiet for the next six months."

In primary market activity Monday, K. Hovnanian Enterprises, Inc. announced it would bring a two-tranche drive-by deal amounting to $250 million of new high yield issuance. Joint bookrunners are Salomon Smith Barney, Credit Suisse First Boston and Banc of America Securities.

The deal is expected to price Tuesday morning (see story elsewhere in this issue).

Hovnanian currently has $150 million of 10½% senior notes due October 2007 and $150 million of 9 1/8% senior notes due May 2009 along with $99.747 million 9¾% subordinated notes due June 2005 outstanding, according to its 10-Q form filed with the Securities and Exchange Commission on March 7. The figures are as of Jan.31.

Also on Monday Biloxi, Miss.-based Isle of Capri Casinos, Inc. announced that it plans $200 million of 10-year senior subordinated notes. Dresdner Kleinwort Wasserstein, CIBC World Markets and Deutsche Banc Alex. Brown are joint bookrunners. An investor conference call is set for 12.30 p.m. ET, Wednesday.

Isle of Capri has $390 million 8¾% senior subordinated notes due 2009, and $75 million 13% first mortgage notes issued by Isle of Capri Black Hawk LLC due August 2004 and non-recourse to Isle of Capri Casinos outstanding, according to its most recent 10-Q, filed on March 11.

The only deal announced Monday that is roadshowing is The Hockey Co.'s $115 million of seven-year senior secured notes via Jefferies & Co., which started marketing on March 13 and is set to wrap up its roadshow on March 27.

Terms emerged Monday on Salt Lake City specialty chemical company Huntsman International LLC'S upsized offering of $300 million seven-year seniors (B3/B), which were increased from $250 million and priced at par to yield 9 7/8% via Deutsche Banc Alex. Brown.

And terms were also heard on Colonial BancGroup's $100 million of trust preferred securities due April 1, 2032. The offering, sold via Colonial Capital Trust III, was for 4 million shares priced at $25 each to yield 8.32%.

Rumors started making their way around the primary market late on Friday March 15, that Shop At Home had postponed its offering of $135 million seven-year senior secured notes via Fleet Securities. In a press release that reached Prospect News late Monday afternoon the company announced it had pulled the deal.

Finally on Monday price talk of 10¾%-11% was heard on Foamex LP, Foamex Capital Corp. $200 million seven-year senior secured notes via joint bookrunners Credit Suisse First Boston and Salomon Smith Barney. A Wednesday pricing is expected.

Back in the secondary, Conseco put out the twenty-first in its long series of "Turnaround Memos" updating the financial community on its status; Chief Executive Officer Gary C. Wendt said the Carmel, Ind.-based insurance and financial services company was asking the holders of six of its series of bonds to exchange their more than $2.54 billion of securities for new debt which would carry longer maturities, thus saving the company cash, but which would also rank higher up in Conseco's capital structure (see separate story in this issue for full details).

Despite the potentially adverse effect which such a restructuring might have on Conseco bondholders - particularly those holding short-maturity bonds scheduled to mature later this year or in 2003 - not much action was seen in Conseco's bonds Monday, traders said.

"Not much was happening with them today," a trader said, quoting the company's 9% senior notes due 2006 as having remained in the same 46-49 bid range at which they had finished last week.

Conseco bonds "got decimated last week," when news that the company was considering going to its bondholders to ask for concessions first surfaced, another trader said. "They moved down into the 40s," he said of the 9% notes and Conseco's 10¾% seniors due 2008, "but I didn't see much movement today (Monday)."

Far from sliding on the actual news of the restructuring plan, if anything, he saw the bonds a little firmer Monday, the 9s and the 103/4s improving modestly to around the 48-50 area from 46-49 on Friday.

"I think that the anticipation that something was coming was built in (to the pricing levels) to a certain extent," the first trader opined, noting the Conseco's 8½%senior notes coming due this October had firmed to bid levels as high as 94-96 earlier in the month, before dropping back around eight to 10 points in last week's trading, into the mid-80s, as news of Conseco's intentions hit the market. It was reported at that time that Conseco had sent out what one analyst termed "cryptic" letters to its bondholders indicating that it "is considering making a proposal" to certain of those holders. The bondholders were asked to indicate whether they could be considered qualified institutional buyers under federal securities laws, with Conseco assumed to be eyeing a transaction under which such holders of the public bonds would be offered the opportunity to exchange that outstanding debt for new privately placed Rule 144A securities, carrying longer maturities - essentially what the company announced in Monday's "Memo #21."

So what do the holders do about it?

Colin Devine, a Salomon Smith Barney equity analyst who has emerged as a frequent critic of Conseco, was quoted in various news reports as saying that the offer was, in effect, an admission that Conseco doesn't have the money to meet its obligations, that Conseco was essentially offering the bondholders nothing in exchange for letting it off the hook, and that the bondholders would probably be better off just demanding repayment when the October bonds come due, rather than going along with Wendt's plan.

On the other hand, said high yield analyst George Kirchwey of SAMCO Capital Markets in New York, "bondholders should accept the deal - reluctantly - for lack of choices. The bondholders can either extend their maturities by a year or two, collect the interest and hope it works, or they can face the future, which is going to be a very nasty reorganization or restructuring of debt. They don't have much choice about this."

Kirchwey told Prospect News that unlike an industrial company which finds itself on shaky ground and goes into Chapter 11 for protection and usually manages to restructure under the bankruptcy court's protective umbrella without too much disruption of its activities or excessive pain for its creditors, "an insurance company cannot as easily or conveniently file Chapter 11, because it is so heavily regulated."

In the event of an insurance company bankruptcy, the company would likely be forced to stop writing new policies, and state regulators would force it to sell part or even all of the insurance operations in order to protect the policy holders. In an extreme case, an insurer going belly-up might even face the seizure of its subsidiaries in individual states where it operates, as was the case last year when financier Saul Steinberg's Reliance Group insurance operation crashed and burned and Pennsylvania state regulators moved in to take control of the company.

For that reason, Kirchwey said, Wendt, unable to keep his promises about the amount of cash Conseco would be able to raise to pay off its impending bond maturities "has gone to this 'Plan B', which is to reschedule the maturities." The Conseco chief "is trying to reorganize outside Chapter 11, and this is the best way to do it."

The plan Conseco is proposing "of course favors the banks [who would be paid using the money Conseco wouldn't have to spend to redeem the bonds], and yes, it's being taken out of the hides of the short-maturity bondholders, the ones in '02 and '03, who really thought they were within spitting distance of being paid off," the SAMCO analyst acknowledged. Still, he reiterated, "this sort of restructure, as unpleasant as it is, represents what may be a workable alternative to get paid."

The major debt rating agencies were less than thrilled with Conseco's plans; Moody's Investors Service put Conseco's B2 rated senior debt on review for a possible downgrade, Standard & Poor's revised its outlook on the firm's B+ rated senior debt to "negative" from "stable," while the Fitch ratings service put all the company's debt on negative credit watch.

Equity investors were equally nonplused; Conseco shares lost 65 cents (16.05%) to $3.40 on heavy New York Stock Exchange volume of 10.1 million shares, about three times the usual turnover.

Elsewhere, Metromedia Fiber Network's bonds were heard having fallen about 10 to 12 points on the session, to around 12 bid, on what one trader termed "relatively active" dealings in an otherwise generally slow session. A trader said the company's bonds, which on Friday had ended bid around the 20-22 level, opened trading Monday offered in the 17-18 region, and then collapsed further, after the embattled New York-based fiber optic telecom network company announced that it had deferred payment of approximately $30 million of interest which came due Friday (March 15) on its $975 million of 6.15% subordinated convertible notes issued to Verizon Communications, Inc. Metromedia has a 30-day grace period in which to make the payment to avoid a default.

Continuing to pile on the bad news, Metromedia further announced that due to the general telecom industry slump, it had withdrawn its previously announced revenue and normalized EBITDA guidance for the quarter ended this past Dec. 31 and for the year ending this coming Dec. 31, as well as its capital expenditure guidance for the years ended Dec. 31, 2001 and 2002, and also pulled back its guidance that it would be normalized EBITDA positive for the quarter ending March 31 (EBITDA - earnings before interest, taxes, depreciation and amortization - is a key bond market measure of a company's cash flow generation potential and ability to service debt.)

The company added that it will seek to restructure its debt, and warned that it might have to seek protection under Chapter 11.

A Chapter 11 story which seems to be working out for bondholders, a trader said, is Chiquita Brands International Inc., whose reorganization plan converting $700 million of bond debt into equity was approved earlier this month by the U.S. Bankruptcy Court in Cincinnati, and which is scheduled to emerge from Chapter 11 this week, perhaps as early as Tuesday.

He saw the new Chiquita bonds that were issued as part of the reorganization quoted around the 104-105 area; the company's existing bonds, meanwhile, had proven to be "a nice surprise" by firming into the mid 90s.

Those bonds, he said, "had kind of ground their way up over the last couple of months, and had settled in around the mid-to-high 80s." He quoted the company's 9 5/8%, 9 1/8% and 10¼% paper as having pushed to around 85 bid/87 offered "before they made their run" over the last week or so to as high as 96 bid/98 offered, before having "closed off" around the 94-96 level."

Apart from such company-specific moves, however, he said, "it was not a really news-driven day today, on either the good side or the bad."

He saw little or no activity in such familiar high yield bond market names as Kmart Corp - recently the focus of much activity linked to takeover speculation which didn't pan out - Fleming Companies, Nextel Communications Inc., Trump Atlantic City Associates, Tricon Global Restaurants, Charter Communications and the like. "The go-go names were really pretty quiet. It was kind of a non-event today."

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