WorldCom up as Washington ends contract ban; four issuers join calendar

By Paul A. Harris

New York, Jan. 7 - WorldCom Inc. debt was quoted solidly higher in trading Wednesday after the federal government decided the bankrupt telecommunications giant is once again eligible to receive lucrative federal contracts - a right it had lost in the wake of its accounting scandal.

Meanwhile, although no new junk bonds priced during the mid-week session, the primary market pipeline continued to fill, as four aspiring issuers divulged intentions to sell notes - including what will likely be the year's first European high-yield deal.

In the U.S. the roadshow starts Thursday and runs through Jan. 13 for Primus Telecommunications Holding Inc.'s planned sale of $200 million of 10-year senior notes.

The McLean, Va.-based telecommunications company expects to price the deal in the middle of the Jan. 12 week.

Lehman Brothers and Morgan Stanley Dean Witter will run the books on the refinancing deal.

San Jose, Calif. container maker Portola Packaging, Inc. will start its roadshow Friday for $180 million of eight-year senior notes. The refinancing deal will be led by JP Morgan and UBS Investment Bank.

Meanwhile, Boston information management services company Iron Mountain Inc. will have a roll in the sterling market. Iron Mountain plans to sell £125 million of 10-year senior subordinated notes (existing ratings B2/B) sometime during the Jan. 12 week.

The Europe-only roadshow is expected to begin this week, with Bear Stearns & Co. running the books.

On Dec. 4 Iron Mountain priced an upsized $170 million add-on to its 6 5/8% senior subordinated notes due Jan. 1, 2016 (B2/B) at 96.50 to yield 7.06%.

Stephen P. Golden, Iron Mountain's director of investor relations, told Prospect News on Wednesday that the company anticipates paying a somewhat higher interest rate for the notes it sells in Europe.

"We're a first-time issuer in that arena, so we don't have a good handle on what the interest rate will be," Golden said. "It will probably something in the range of 7½%, or a little higher than that, depending on where the market is going.

"We have not built up the good will over there that we have over here," he added. "We're talking to brand-new investors, as opposed to folks who are rolling over our paper. With the interest rates going the way they are it is a tougher place to sell than it is here.

And very late in the day, many hours after trading had ended, ASAT Holdings Ltd. announced plans to sell $125 million of seven-year senior notes.

The Hong Kong and Pleasanton, Calif.-based provider of semiconductor assembly, test and package design services will use proceeds to redeem its 12½% senior notes due 2006 and for general corporate purposes, additional working capital and capital expenditures, which may include costs incurred in relocating manufacturing operations to Dongguan, China and the purchase of assembly and test equipment to expand capacity.

No information was available on timing or the bookrunner.

Elizabeth Arden set to price Thursday

Meanwhile on Wednesday the primary market heard news of offerings already in the market.

Price talk of 8%-8¼% emerged on Elizabeth Arden, Inc.'s upcoming $150 million of 10-year senior subordinated notes (B-), expected to price Thursday via Credit Suisse First Boston and Morgan Stanley Dean Witter.

Some observers reported that they had not been expecting the transaction until Friday.

Likewise, CSK Auto Corp. was heard to be moving its $200 million 10-year senior subordinated notes offering up to Friday from early in the week of Jan. 12. Credit Suisse First Boston, Lehman Brothers and JP Morgan are the bookrunners for the Phoenix-based automotive aftermarket retailer's deal.

One sell-side source, not concerted with either the Elizabeth Arden deal or the CSK Auto deal, told Prospect News that the most likely factor inducing companies to price their deals sooner than later is the fact that at present high yield is a "hot market."

In addition to the straight junk-rated business above Prospect News also heard terms on Indianapolis Power & Light Co.'s split-rated $100 million issue of 6.6% first mortgage bonds due Jan. 1, 2034 (Baa2/BB+/BBB). The deal, which was transacted from the high-grade desk at Lehman Brothers, priced at 99.977 to yield 6.602%. At a spread of 150 basis points it came at the tight end of the 150-155 basis points price talk.

One sell-side official who spoke to Prospect News on Wednesday, counseled that the waters off the high yield bow presently appear notably smooth.

"The momentum is still going strong in the high yield," the official commented.

"The fundamentals are still here. We have a low default rate and a low interest rate environment. We could be talking about low rates for at least another three quarters.

"Also the equity market turned in a spectacular performance in 2003. The S&P 500 returned 26%. And the high yield class in general, if you look at the indices, returned 30%, plus or minus.

"That was spectacular.

"I don't believe you are going to see that kind of return in 2004. It will be more moderate. Nevertheless, high yield continues to be the compelling asset class in the fixed income arena."

Back in the secondary, WorldCom was grabbing attention, a trader said, pegging the Ashburn, Va.-based telecom operator's corporate bonds at 37.125 bid, 38.125 offered, up about two points on the session.

He noted that the bonds had been trading around 33.75 bid, 34.125 offered last Friday, the first official trading session of 2004. On that basis, he said, the bonds "are up 10% since the start of the year, a pretty good move."

He saw the bonds of WorldCom's MCI subsidiary holding steady in an 81.5 bid, 82.5 offered context, "pretty much where they had been."

Helping the debt are expectations that the company will soon emerge from Chapter 11 as well as the announcement from the federal government's General Services Administration that WorldCom will once again be able to bid on government contracts, including the renewal of contracts it currently has with Washington.

The temporary ban was announced at the end of July although WorldCom said at the time it did not affect existing contracts totaling about $1 billion a year.

But the timing was helpful for WorldCom, since an almost $400 million a year contract under which MCI supplies phone services to various government agencies is scheduled to expire on Jan. 10 - although the GSA had previously indicated that it was leaning toward extending the contract, provided WorldCom showed proof that it would be a responsible corporate citizen. In that case, the agency had indicated that it would lift the contract ban, which it had imposed back in July, as WorldCom wallowed in an $11 billion accounting scandal.

Since then WorldCom - which replaced the old management under which the scandals took place - has put procedures in place to ensure that such a fiasco could not be repeated, including appointing an ethics officer, putting its entire work force through ethics training and adding various internal checks and balances.

As part of the GSA's conditions for lifting the contract ban, WorldCom agreed to close government scrutiny of its internal controls, accounting practices and corporate ethics for a three-year period.

Adelphia Communications Corp.'s Century Communications unit's bonds were seen "a little stronger," a trader opined, its 8¾% notes due 2007 pushing up to 102.5 bid from 99, although parent Adelphia's bonds, such as its 10 7/8% notes due 2010 were easier, finishing at 96.25 bid, down from 97 previously. Adelphia's 10¼% notes due 2011 were likewise easier, going to 96.5 bid from 98 previously, thus giving back some of the strong gains that had been notched over the past few sessions on investor hopes of an upcoming exit from Chapter 11 of the Denver-based cable television operator.

Also on the downside, Levi Strauss & Co. bonds continue to fall back, with the San Francisco-based blue jeans maker's bonds down another point on Wednesday, to 63.5 bid, 64.5 offered.

In the emerging markets corporates asset class, timing was heard Wednesday on the Telemig deal.

The roadshow will start Thursday for Telemig Celular Participacoes SA's $100-$125 million of bonds due 2009.

Bear Stearns & Co. will run the books on the offer from the wireless telephone company which is headquartered in Brasilia.

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