Energy/utility sector continues higher on recently renewed investor confidence

By Sara Rosenberg

New York, April 30 -The secondary bank loan market was labeled as strong overall with better bids generally being seen across the board. But one sector that has really been standing out from the crowd in recent times is the energy/utility group as more and more of these companies have either completed refinancings or have announced intentions to refinance.

"Everything in this market is better bid," a trader said. "The offering is king in this market. It's something that's difficult to get."

"The entire energy and utility sector is on fire," a second trader explained, remarking that positive investor attitude is still being attributed to successful refinancings of bank debt at many of these companies.

For example, Dynegy Inc.'s bank debt was slightly better bid on Wednesday with a 97½ bid, 98 offer, according to a trader. On Tuesday, the loan was bid at 971/4.

To further help matters, on Tuesday, Dynegy reported net income of $147 million, or $0.17 per diluted share, for the first quarter 2003, compared to a net loss of $247 million, or $0.91 per share, for the first quarter 2002. Operating cash flow, including working capital changes, was approximately $400 million for the first quarter 2003.

Management at the Houston energy company also raised its 2003 guidance to $0.10 to $0.18 per share from the previous guidance estimate given on Jan. 7 of $0.08 to $0.15 per share.

Mirant's bank debt traded stronger at 791/2, 80 on Wednesday, according to a trader, who added that he saw quotes at 83 bid, 85 offered later in the session but no trades at those higher levels.

The company announced that the annual audit of its 2002 financials, and the reaudits of its 2001 and 2000 financials have been completed. Mirant reported a $2.4 billion net loss for 2002, or a loss of $6.06 per share, compared to $409 million in restated net income for 2001, or $1.19 per diluted share.

"With the completion of the 2002 audit and reaudits of 2001 and 2000, we end a period that has been very frustrating for our stakeholders, employees and management. This is a critical step in restoring confidence in Mirant," said Marce Fuller, president and chief executive officer, in a news release. "Importantly, I am reaffirming that we have found no fraud associated with our prior financial statements. Now, we can turn our full attention to completing a successful refinancing of major debt maturities and returning Mirant to profitability and growth. I am optimistic that the aggressive actions we have taken over the last eighteen months position us to achieve these objectives."

As has been previously announced, the Atlanta energy company is currently in discussions with lenders regarding the refinancing of a substantial portion of its debt and temporary waivers have been obtained from the bank group.

Mission Energy Holding's term loan B traded higher on Wednesday, according to a trader. The loan traded at 61, moved as high as 65, and then came back down to 631/2, the trader said.

In other secondary news, Huntsman Corp.'s bank debt traded on Wednesday and was quoted at 95, 951/2, according to one trader. A second trader, however, said that he saw the debt trade at 94. "But, it's possible it traded as high as 95," he added.

The loan has been performing well all week since Monday's release of better-than-expected financial results for the first quarter.

"People are recognizing value. It's a discount. They have good numbers," the trader said in explanation of why the bank debt has been trading and moving higher.

On Monday, the combined Huntsman companies reported first quarter 2003 EBITDA of $106.6 million, compared to $134.7 million for the same period one year ago. More specifically, Huntsman International Holdings LLC reported first quarter EBITDA of $74.7 million, compared to $83.9 million in the first quarter of 2002 and Huntsman LLC posted first quarter EBITDA of $31.9 million, compared to $50.8 million for the same period one year ago.

Huntsman Corp.'s bank debt immediately responded favorably to the earnings announcement on Monday, moving up a couple of points to around 93 from the high 80s to 90 area.

Huntsman is a Salt Lake City chemical company.

Tyco International Ltd.'s bank debt was unchanged by the end of the day, after seeing a slight drop on the bid side on news of a possible $1.1 billion charge, according to a trader. The loan was quoted with a 95¾ bid, 96¾ offer.

"The stock is up on the day. The bonds opened a point lower and then bounced back. The bid dropped and then moved back up on the bank debt but the offer stayed the same. There were no trades."

On Wednesday, the Wall Street Journal reported that there might be some additional accounting problems at Tyco that could result in a $1.1 billion charge.

During the morning, Tyco announced that second quarter results would be announced after market hours on Wednesday as opposed to Thursday morning. The company also revealed that it would report a loss from continuing operations of 23 cents per share for the quarter and revenues of $9 billion.

"Second quarter 2003 results included 55 cents per share in after-tax net charges related to primarily non-cash adjustments arising out of the company's intensified internal audits and detailed controls and operating reviews, a change to an accelerated amortization method for its ADT dealer program account assets, and a change in the accounting for the connect fee associated with ADT's dealer program," a company release said.

After hours, the company announced that earnings per share from continuing operations for the six months ended March 31 were 8c per share, including 55c related to the after-tax net charges. By comparison for the six months ended March 31, 2002 the loss from continuing operations was 56c per share, including $1.65 related to the charges.

For the six months ended March 31 revenues were $17.9 billion, a 4% increase over the same period last year due to favorable changes in foreign currency rates.

The charges arising out of the ongoing program of intensified internal audits and detailed controls and operating reviews were $997.4 million pre-tax, including the $265 million to $325 million range of anticipated charges announced on March 13.

"I am disappointed that our intensified internal audit and review efforts have identified additional charges, but I believe at this point we have identified all, or nearly all, legacy accounting issues," said Ed Breen, chairman and chief executive officer, in a news release. "We have completed balance sheet reviews for all of our 2,154 accounting entities, and completed on-site verification of these reviews covering the vast majority of our assets. Additionally, the issues we have identified are almost entirely non-cash."

During the second quarter, Tyco issued convertible bonds with net proceeds of $4.4 billion, redeemed $3.9 billion in bank credit facilities and purchased $1.8 billion of its zero coupon convertible bonds due to the exercise of a put option by the holders of the security. The company also repurchased $1.4 billion par value of its outstanding zero coupon bonds that have a put exercisable at the option of the holders in November 2003, at a purchase price of approximately $1.1 billion. Approximately $2.5 billion of this security remains outstanding. Other debt repurchases amounted to approximately $38 million. In January, the Company entered into a $1.5 billion 364-day unsecured revolver, none of which has been drawn down.

Tyco's debt-to-capitalization ratio was 46.2% at March 31, compared with 48.3% at Dec. 31, 2002 and 49.4% at Sept. 30, 2002. The net debt-to-capitalization ratios were 37.8%, 36.9% and 36.8%, respectively, for the same periods.

Tyco is a Pembroke, Bermuda diversified manufacturing and service company.

In follow-up news, Cumulus Media Inc. closed on a new $325 million term loan (B+). JPMorgan Chase Bank was the lead bank on the Atlanta radio broadcasting company's deal.

Proceeds were used to o pay the consideration for the company's tendered notes and the consents that were delivered, to repay the $175 million term loan B, and to repay $15 million of the $30 million in currently outstanding revolver borrowings, under its existing credit agreement. The remaining proceeds, are approximately $34 million and remain available for general corporate purposes, including repayment of indebtedness and potential future acquisitions.

Ethyl Corp. closed on its $165 million credit facility, consisting of a $50 million five-year revolver with a 50 basis points commitment fee and an interest rate of Libor plus 400 basis points, and a $115 million six-year term loan with an interest rate of Libor plus 450 basis points.

Credit Suisse First Boston and UBS Warburg were the lead banks on the refinancing deal.

Ethyl is a Richmond, Va. developer, manufacturer, blender and marketer of fuel and lubricant additives technology and products.

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