MCI bonds gain on Leucadia interest in company; Amkor off; Heckler & Koch prices upsized euro deal

By Paul Deckelman

New York, July 12 - News that Leucadia National Corp. wants to take at least a 50% stake in MCI, Inc. sent the Ashburn, Va.-based long-distance telecommunications company's bonds up about two to three points across the board Monday, traders said. On the downside, Amkor Technology Inc. - whose bonds had been on the slide on Friday - continued to head lower Monday, after Moody's Investors Service revised its outlook for the high-tech manufacturer to negative from stable previously.

In the primary market , German armaments company Heckler & Koch GmbH was heard by high-yield syndicate sources to have priced a slightly upsized offering of euro-denominated seven-year notes. Roadshows were meanwhile heard getting under way for offerings from Loews Cineplex Theaters, Building Materials Corp. of America and Refco Finance Holdings.

But overall, a primaryside source said, "it was a pretty slow day. Everyone must have been off fishing or playing golf. Our market wasn't closed - but it was quiet," with much of the attention of participants diverted to the MCI story.

MCI was certainly "the bond du jour" on the Leucadia news, as one secondary trader put it, quoting the company's bonds "up a couple of points. He quoted MCI's 7.735% notes due 2014 going home at 93 bid, 93.5 bid - a bit off their highs for the day in the 94 vicinity but still up a solid three points from Friday's level

A market source was a little more conservative in his estimate of the bonds' movement; he pegged the 7.735s at 92 bid, up from 89.875 on Friday, while the company's 5.908% notes due 2007 were only marginally better at 97.5 bid, up from 97.25. He quoted MCI's 6.688% notes due 2009 at 94.375 bid, up from 92.875.

MCI was "moving around a little bit," said another trader. "Other than that, things were quiet - but MCI was whipping around."

He saw the company's bonds having actually been above their closing levels, "the news caused the bonds to settle in. It was still up on the day.

He saw the 2014 bonds at 93.25 bid, the 2009s at 95, and the 2007s at 98.5

Leucadia is a New York-based investment company known for taking stakes in troubled companies - MCI, the former WorldCom Inc., emerged from Chapter 11 in April after a massive multi-year restructuring. In an announcement Monday, MCI said Leucadia plans to request permission to buy at least 50% of MCI's stock from the Federal Trade Commission and the Department of Justice, which could raise antitrust objections to such an arrangement.

MCI's Pink Sheets-listed shares were up $2.45 on the session (16.8%), to close at $17.05. At current market prices, MCI would be worth about $5 billion.

Leucadia's 7% notes due 2013 meantime "melted down a little bit" over the prospect that it might be paying such a big chunk of cash to acquire control of MCI, a trader said, quoting those bonds at 97.5 bid, 98.5 offered, well down from Friday's levels at 99.5 bid, par offered.

Amkor is day's big loser

But the major downside of the day was Amkor, down significantly for a second straight session.

On Friday, the West Chester, Pa.-based semiconductor assembly and test services provider's 9¼% notes were heard down nearly two points on the session to finish at 97.5 bid, while its 7¾% notes due 2013 were likewise down a deuce to close at 87.5 No fresh negative news was seen out on the company, which on July 1 had surprised Wall Street with bearish guidance for the up-coming quarter. The earnings warnings had caused both the company's bonds and shares to fall at the time.

On Monday, those bonds and shares were again in the red - as they had been on Friday - after Moody's said it was lowering its outlook on the company to negative from stable previously.

A trader saw the 73/4s dipping to 85.75 bid, 86.75 offered from 87 bid, 88 offered on Friday.

At another desk, a market participant said, with no small degree of understatement, that Amkor "seems to have dropped a bit."

He saw the 73/4s finishing at 85 bid, well down from 88.75; the 91/4s at 96.5 bid, down from 99; and the company's 7 1/8% notes due 2011 and 7¾% notes due 2013 both dipping to 85 bid from around 88.

Amkor's Nasdaq-traded shares were off 30 cents (5.38%) to $5.28.

Moody's lowered its outlook on Amkor following the recent announcement that it would "unexpectedly report a net loss from regular operations in the second quarter."

Although the July 1 announcement did not say so in as many words, a quick check of the company's math - predicting a net profit for the quarter of 6 cents per share but noting that the figure includes an after-tax gain of 11 cents a share from the sale of stock in a Korean company Amkor had helped to bail out - shows, in effect, an operations loss of about a nickel a share.

Moody's said the change in outlook "reflects the potential for debt ratings to drop if a business trends continue in subsequent quarters. An inability to improve revenue growth and margins to a level consistent with recent and future committed capex investment could reduce Amkor's liquidity cushion and operating flexibility."

Moody's affirmed Amkor's existing ratings, including the B1 on its senior unsecured debt and B3 on its senior subordinated debt and convertibles debt.

While investors took the bonds down several points, a trader took a dissenting view.

"Maybe I'm stupid," he said facetiously, "but this credit behind [a yield of 10%] makes sense to me. The ratings agencies are behind the curve, as usual. It's time to buy."

J.C. Penney up on Moody's comments

Moody's statement that it may upgrade J.C. Penney Co. Inc.'s debt ratings, meanwhile, pushed the Plano, Tex.-based department store operator's notes "up today," a market source said, quoting Penney's 6½% notes due 2007 as having firmed to 106 bid from 104.75, while its 7 3/8% notes due 2008 jumped to 109.25 bid from 108. Moody's cited strong sales, better margins and expected reduced borrowings after the company sells its Eckerd drugstore chain for over $4 billion.

Heckler & Koch only new deal

In the primary market, Heckler & Koch was the sole deal heard to have priced by the time activity had wrapped up for the day.

The Oberndorf, Germany-based defense contractor's offering was upsized slightly to €120 million from €115 million previously.

The bonds priced at par via sole bookrunner Citigroup to yield 9¼%, at the tight end of pre-deal talk of 9¼% to 9½%.

The company plans to use the proceeds of the offering to repay loans, pre-fund capital expenses and to provide working capital for its U.S. plant.

Loews on the road

Loews Cineplex Theaters was heard to have begun a roadshow Monday for a proposed $415 million offering of 10-year senior subordinated notes, being brought to market via bookrunning managers Credit Suisse First Boston and Citigroup.

The bonds are expected to price after the roadshow, which will run through the beginning of next week. The bond deal is part of other financing to be used to partly fund the planned buyout of the New York-based motion picture theater operator by a consortium consisting of Bain Capital Partners, The Carlyle Group and Spectrum Equity Investors.

Three deals line up

Refco Finance Holdings and Building Materials Corp. of America each have new deals hitting the road Wednesday. Refco - a New York-based financial services company - was heard by high yield syndicate sources Monday to be preparing to sell $600 million of eight year senior subordinated notes, to help fund its acquisition by Thomas H. Lee Partners. Credit Suisse First Boston, Banc of America Securities and Deutsche Bank Securities are running the books on the offering.

And Building Materials Corp. will be selling $150 million of 10-year secured notes to market, probably around the middle of next week via joint book-running managers Citigroup and Deutsche Bank Securities.

The Wayne, N.J.-based manufacturer of asphalt roofing products and accessories plans to use the proceeds from the bond deal to call its outstanding 8 5/8% senior notes due 2006, repay current credit facility borrowings and for gewneral corporate purposes.

From Europe meantime comes word that Moscow-based natural gas producer OAO Gazprom will roadshow a dollar-denominated benchmark bond offering there, starting Tuesday. After that, the roadshow moves to the United States, with pricing expected some time next week.

ABN Amro Holding NV, Merrill Lynch & Co. and Morgan Stanley are running the books

(Reshmi Basu contributed to this article.)

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