Adelphia stable despite Moody's warning but Century falls; KC Southern upsizes deal

By Paul Deckelman and Paul A. Harris

New York, June 5 - Moody's Investors Service again cut the debt ratings of the beleaguered Adelphia Communications Corp. on Wednesday and warned that a bankruptcy filing could be "imminent", but the troubled cabler's bonds were little changed on the not-unexpected news. However, the bonds of Adelphia's Century Communications unit were sharply lower, as the ratings service painted a gloomy outlook for what noteholders would be likely to recover.

In the primary market, activity picked up as Kansas City Southern Railroad arrived at the station with a deal that priced to yield 7½% - one of three, and the only non-energy credit, to hit that low a yield so far in 2002.

Meanwhile talk widened on a downsized, reconfigured Wyndham International deal.

And the forward calendar continued to take on passengers Wednesday, with new offerings from Burns Philp, Gerresheimer Glas, Spartan Stores and Vertis, Inc.

"I tend to think we could see a little indigestion here," one sell-side source told Prospect News on Wednesday, alluding to the volume of business on the forward calendar which now includes an even one and a half dozen dollar-denominated high-yield deals totaling $4.65 billion set to price between June 6 and the end of July.

In addition, very late in the day, too late for more than sketchy details, AmeriCredit announced a deal for a further $300 million.

"People are trying to take advantage of the low rates because I think the expectation out there is that the Fed's going to raise interest rates come August," the official added.

"They are going to try to get their deals done before Treasury rates go up - not that that matters so much in high yield because it prices on a cash basis - but the people know that later in the year rates are going to be higher than they are now, so they might as well get their deals done now.

"Also they want to get their deals done before the June 30 quarter-end date. Consequently you have your half-year rush."

Kansas City Southern Railroad beat the rush Wednesday as it highballed out of the high-yield yard with an upsized offering of $200 million seven-year senior notes (Ba2/BB-) that priced at par to yield 7½%, via Morgan Stanley. The deal had been announced at $150 million.

One syndicate official, noting that KC Southern's new notes came at the tight end of 7½%-7¾% talk, said that the book was highly oversubscribed.

KC Southern hence becomes a part of what is now a triumvirate of 2002's tightest pricing deals, joining XTO Energy, which priced an upsized $350 million of 10-year senior notes (Ba2/BB) on April 18 to yield 7½%, and Pioneer Resources Co., which priced $150 million of 10-year senior notes (Ba1/BB+) on April 25, also to yield 7½%.

When the new KC Southern bonds were freed for secondary dealings, "they traded at a very small premium," a trader said, quoting the new bonds at 100.125 bid/100.375 offered, up slightly from their par issue price earlier in the session.

While KC Southern was coming tight, Wyndham International, the Dallas-based upscale hotelier, was heard widening talk, downsizing and lengthening the call protection on its $500 million six-year senior secured notes (Caa1/B-). The deal had previously been $750 million.

Initially expected to price during the week of May 27, market and syndicate sources have told Prospect News that Wyndham has faced hurdles it getting its story across to investors.

In addition to widening the talk on the deal to 11% from 10¾% area, a syndicate source said that the non-call period has been extended to four years from three.

A source said that the books are set to close on Wyndham Thursday morning, with pricing anticipated shortly thereafter.

JP Morgan and Bear Stearns & Co. are joint bookrunners on the Wyndham deal.

Sidney, Australia-based bakery yeast maker Burns Philp, which markets the Fleischmann's brand, announced Wednesday that it would start roadshowing US$450 million of 10-year senior subordinated notes (B) on Thursday. Credit Suisse First Boston is bookrunner. The deal is expected to price late in the week of June 10.

Grand Rapids, Mich. food wholesaler and retailer Spartan Stores, Inc. unveiled a deal for $200 million of 10-year senior subordinated notes (B3/B) on Wednesday. The roadshow starts Friday and the deal is expected to price during the week of June 17. Lehman Brothers is the bookrunner.

The Baltimore integrated marketing services provider Vertis, Inc. started roadshowing its $250 million of seven-year senior notes on Wednesday via joint bookrunners Deutsche Bank Securities and JP Morgan. That roadshow wraps up on June 13.

And more precise timing was heard Wednesday on Buffets, Inc.'s $260 million of eight-year senior subordinated notes (B3/B), which will hit the road during the week of June 10 and is expected to price late in the week of June 17, according to a market source.

The market also heard that the bookrunner is Credit Suisse First Boston. However that institution did not respond to attempts on the part of Prospect News to verify the information.

Finally on Wednesday price talk of 8% area emerged on AK Steel Corp. $550 million of 10-year senior notes (B1/BB). The Middleton, Ohio integrated steel producer figures to price its deal late Thursday, also via Credit Suisse First Boston.

And price talk was also heard on Haltom, Tex.-based waste collection co. IESI Corp. Its $150 million senior subordinated notes due 2012 (B3/B-) are being talked at 10¼% area and are expected to price Friday morning via joint bookrunners Credit Suisse First Boston and Salomon Smith Barney.

Among existing issues, Adelphia Communications' own bonds were heard little changed despite Moody's Investors Service having dropped its senior unsecured debt rating a notch to Caa2 from Caa1 previously - a not-unexpected move, given the Coudersport, Pa.-based cable television systems operator's deteriorating financial situation, with its shares delisted, $1.4 billion of convertible debt now putable back to the company, only bankers' temporary forbearance averting a default for late filing, a looming deadline (June 15) for making good on at least $45 million in overdue interest payments, several regulatory investigations going on, and disgruntled shareholders and bondholders filing suit.

"There was not a lot of movement in the bonds, said a trader who quoted Adelphia's 10¼% notes at 75.5 bid/77 offered and saw its 10 7/8% notes around the 74.75 bid level. "The downgrade news was kind of baked in already."

Moody's - noting that it had already moved twice to lower Adelphia's ratings since the company disclosed several billion dollars of previously hidden off-balance-sheet liabilities on March 27 - warned that "[Wednesday's] rating actions subsequently reflect our estimated relative expected loss severity for the company's many different instruments from the top to the bottom of its capital structure. Under the now much more certain bankruptcy scenario as currently anticipated, and on a potentially imminent basis, expected credit losses in general will likely be greater than previously anticipated. "

Moody's was particularly pessimistic in its assessment of the likely recovery for the holders of some $2 billion of Century Communications senior unsecured bonds, as it dropped them all the way down to Ca from Caa1 previously, which had been equal to the old rating on parent Adelphia's bonds.

"We believe that Adelphia noteholders can reasonably be expected to realize still good recovery value approximating as much as 75%-80% or more, while Century bondholders could suffer loss severity of as much as 50% or more," Moody's cautioned, citing such factors as the residual equity value that Adelphia holds in its Olympus, FrontierVision and Parnassos/Other operating subsidiaries, which Century does not share in, the "much more substantial amount of absolute debt obligations of Century (notwithstanding some valuable and readily saleable assets held therein)," and the "substantial amount" of intercompany obligations that may be pari passu with Century's senior unsecured noteholders.

Moody's further declared that "the Century bucket of assets and obligations arguably holds more uncertainty than most of the rest of the company does in our analyses."

Century's 9½% notes due 2005 "got crushed," in the words of one market-watcher, who quoted them as low as 62 bid during the session, well down from prior levels around 73. He quoted Century's 8 7/8% notes due 2007 as low as 63 bid from prior levels around 73.5, although at another desk, the 8 7/8% notes were only seen down around three points on the day, to 67 bid.

WorldCom Inc. bonds were heard firmer, on news that the ailing long-distance giant will end its wireless operations and cut about 16,000 jobs - some 20% of its work force - in an effort to control costs and to focus on its core businesses. Late in the session, there was additional positive news about the Clinton, Miss.-based No. 2 U.S. long-distance player. Reports said sources close to WorldCom's talks with its lenders on a $5 billion credit facility said that it had convinced four more banks - ABN-Amro, Westdeutsche Landesbank Girozentrale, Deutsche Bank AG and Bank of Tokyo-Mitsubishi Ltd. - to join its underwriting group, which already includes U.S.-based financial giants J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.

A trader said, however, that he had not seen "a whole lot of movement north [Wednesday]" in the name, and that after the late-day news about the bank group, he also hadn't seen "a whole lot of offerings - it was mostly bids without" any offerings.

He quoted WorldCom's 6¼% notes, which had been offered at 72 before the bank group news, and were at 72 bid without afterward. Its benchmark 7½% notes due 2011, which had opened around 48.25 bid/49.25 offered, had moved up to 49.5 bid/50.5 offered before the bank group news. Afterward, they held that bid, but the offers disappeared. "I don't know how dramatic of a move it's going to make north," he cautioned, given the fact that there's still a considerable way to go before the financing is cinched, "but we'll see.

Elsewhere in the communications sphere, the trader saw Nextel Communications Inc. "continuing to fall," its bellwether 9 3/8% notes due 2009 going down to bids in the 63-63.5 area from prior levels around 65-66.

Another trader concurred that there had been "a decent amount of selling" in the Reston, Va.-based wireless carrier's debt, quoting the 9 3/8% notes down a point at 63 bid/64 offered. "It was mostly the sellers that came out."

Wireless operators have recently been in retreat on investor worries that their revenue and new-subscriber addition projections might be overly aggressive; on Tuesday, the shares and debt of one such company, AirGate PCS Inc., had fallen back on on fears that it would not reach its projected subscriber -addition target of between 35,000 and 40,000 in the fiscal third-quarter ending June 30. On Wednesday, the bonds were not seen around, but the company said after the market had wrapped up that it now expects to add only 22,000 to 27,000 new customers in the quarter.

But while the wireless carriers have been having their problems, communications antenna tower operators - whose fortunes are linked, at least in part, to the health of the wireless operators - were seen firming. A trader said that SBA Communications in particular was "up a couple of points," with its 10¼% notes ending at 72 bid and its zero-coupon bonds at 66.

While acknowledging the link between the tower companies and the wireless providers, he also noted that SBA and several other tower companies had made well-received presentations at a Deutsche Banc Securities conference . "I heard that some people were quite impressed. They seemed to have it together."

Outside of the communications area, Magellan Health Services Inc.'s bonds were heard down several points, with its 9% notes due 2008 closing at 54.5 bid, despite a lack of fresh negative news about the company. AES Corp. was also lower, its 8 3/8% notes due 2007 down more than four points. And a trader saw Nortel Networks' 6 1/8% notes at 64 bid/65 offered, off from 68 bid/69 offered just last Friday.

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