Eurocablers up on restructuring; Kaiser off on missed coupon; Solectron sells $500 million

By Paul Deckelman and Paul Harris

New York, Feb. 1 - The debt of troubled European-based cable companies NTL Communications Inc. and United Pan-Europe Communications NV was quoted at somewhat firmer levels Friday in the wake of plans by both companies to restructure their heavy debt loads. Back in the U.S., Kaiser Aluminum debt was lower in the wake of a missed interest payment and delayed financial results.

In the primary market, Solectron Corp. was the highlight of the session's activity with a $500 million offering that priced at the tight end of talk. And American Achievement Corp. added a new $175 million offering to the calendar.

Back in secondary trading, United Pan-Europe's zero-coupon notes were quoted as having firmed to around 10 bid from prior levels around eight cents on the dollar, while its coupon debt was seen also rising two points, to 12 bid. But that was still well below levels in the mid-30s for the cash-pay bonds seen just a couple of weeks ago.

That slight improvement from very distressed levels followed the news that the Amsterdam-based cable operator - a 53%-owned unit of Denver-based international cable operator UnitedGlobalCom Inc. - will swap debt for equity in an effort to clean up its beleaguered balance sheet. UPC aims to convert debt totaling €6 billion and €1.5 billion of preference shares into new equity.

The company did not indicate the ratio at which the debt would be swapped for equity - that remains to be worked out in negotiations with its bondholders. But analysts estimated that assuming bondholders get somewhere in the area of 30 cents on the euro, the debt-for-equity swap would likely dilute the holdings of current shareholders by 90%.

However, besides being UPC's majority stockholder, UnitedGlobalCom - now 72% owned by Elnglewood, Colo.-based Liberty Media - is also UPC's largest bondholder. Even with the expected stock dilution, that would still give it (and by extension, Liberty Media) a solid hold on UPC, Europe's largest cable operator in terms of the number of customers served.

In connection with the proposed recapitalization, United Pan-Europe also announced that it would not make the Feb. 1 net interest payment of €113 million due on its outstanding 10 7/8%, 11¼% and 11½% senior notes. Under the terms of the notes, UPC has until March 3 to cure the non-payment. It further said that it was in talks with its bankers to seek a waiver of any credit facility default that might be triggered by the company's non-payment of the note interest.

UPC's cross-Channel rival, British cable-giant NTL' s bonds were quoted up for a second straight session, in the wake of its announcement Thursday that it had appointed Credit Suisse First Boston, J.P. Morgan and Morgan Stanley to advise it on strategic and recapitalization alternatives aimed at strengthening the company's balance sheet and reducing its $17 billion debt load. NTL gave no specifics as to how much of its debt it hoped to restructure, how or within what time frame.

Its 11½% notes due 2006 were seen having firmed to about 36 bid Thursday from prior levels at 34.5, and they improved slightly Friday to close around 36.5 bid; a market observer said that "the same was true for all of their coupon bonds," which have firmed to that level north of 36 on news of the company's restructuring hopes.

But a trader elsewhere saw NTL's paper actually quoted down during the session. "They're definitely under pressure," he noted, while not giving specific levels. "Everybody was looking for the bid side. I don't know where it traded."

The ratings agencies took a similarly jaundiced view of NTL's plans; Moody's Investors Service on Friday lowered NTL's debt ratings, including that on its senior unsecured bonds (which fell to C from Caa3 previously, warning that "the weak recovery prospects for bond and preferred stockholders are reflected in the adjusted ratings." Standard & Poor's meanwhile put the ratings, including a B- corporate credit rating, under review for a possible downgrade.

The week's steep slide in bellwether high yield telecom names such as Williams Communications Group Inc. and Level 3 Communications Inc. seemed to run out of gas on Friday, with the bonds of the two debt-laden long distance operators hanging in not much changed from the same levels they held Thursday; Williams' 10 7/8% notes due 2009 were heard around 28.5 bid, while Level 3's 9 1/8% senior notes due 2008 held steady at around 39 bid. Both had slid sharply during the week from previous-week levels on multi-notch debt downgrades and concerns about their ability to continue attracting and keeping customers in the face of an overall slowdown in the telecommunications industry.

Also helping to dampen the spirits of telecom investors during the week were the bankruptcy filings of not one, but two well-known but money-losing, debt-laden junk telecommers - Global Crossing Ltd. and McLeodUSA Inc.

Fears that Level 3 might eventually have to go the same way were stoked by the company's cautionary note when it released its results Wednesday, to the effect that if the same level of lagging sales and rising customer cancellations seen during the fourth quarter were to continue into the new fiscal year, the Broomfield, Colo.-based long-distance operator might find itself in violation of a credit facility covenant requiring it to maintain a certain level of revenues.

To calm investor angst, Level 3 took pains Friday to reassure them, issuing a statement that this should not be interpreted to mean Level 3 would have any difficulty paying its credit obligations; chief executive officer James Crowe said in the statement that the company did not "envision any scenario whereby Level 3 would have a payment default with respect to not only our senior secured credit facility, but also any other Level 3 debt. As a consequence, we also do not anticipate a scenario under which Level 3 would expect to seek protection from its creditors under the bankruptcy statutes."

The company further said that it was in talks with the administrative agent for its $1.775 billion credit pact, J.P. Morgan Chase, on modifying the terms of the agreement so as to avoid even the appearance of a default. A trader said that the clarification of Wednesday's remarks had probably been already built in to its current price levels, and thus gave the bonds no lift Friday. "They said everything they were expected to say," he asserted.

Also on the downside, a trader said he had seen Lucent Technologies Inc.'s bonds down about half to three-quarters of a point, although he added that he "didn't see any significance to it" as there were no trades in size. He quoted the Murray Hill, N.J.-based telecommunications equipment maker's 7¼% notes due 2004 dipping to 87.25 bid from prior levels around 88.

Outside of the telecom sphere, a trader saw Allied Waste North America's bonds "down two or three points over the last day or so," falling to below 101 bid from prior bid levels around 103.375/103.5.

While the Scottsdale, Ariz.-based trash hauler reaffirmed its previous guidance for 2001 on Friday, saying it still anticipates reporting EBITDA (earnings before interest, taxes, depreciation and amortization, considered a key bond market measure of cash flow generation and ability to service debt) of between $1.93 and $1.94 billion, a year-end debt balance of under $9.3 billion and over $400 million in adjusted free cash-flow as of Dec. 31, 2001, that was overshadowed by the gloomy predictions of its larger rival, Waste Management Inc.

The latter, Houston-based and the biggest trash company in the U.S. (Allied Waste is No. 2), warned that fourth-quarter earnings, before one-time items would come in at 30 or 31 cents a share - down a bit from the 34 cents analysts had forecast. After figuring in all of the special items (including $16 million of pretax costs relating to its dealings with the failed Enron Corp.), Waste Management said fourth-quarter net earnings would total 24 or 25 cents a share.

Moody's cut its outlook on the company's split-rated Ba2/BBB bonds to negative from positive following the company's forecast. On the equity side, its shares nosedived $3.69 (12.80%) to $25.13 on the New York Stock Exchange. Volume of 20.6 million shares was more than 12 times the usual daily turnover.

Another Houston-based high yield issuer, Kaiser Aluminum, was quoted ending the week at sharply lower levels than it had held when the week started, after the aluminum maker said at mid-week that it would not make the $25.5 million interest payment on its $400 million of outstanding 12¾% senior subordinated notes due 2003 which was to have been made on Friday, citing current and anticipated business and capital market conditions. Also contributing to the slide was Kaiser's consideration of restructuring alternatives that could result in the non-payment of principal and interest due Feb. 15 on its $174 million of 9 7/8% senior notes due 2002 and the interest due April 15 on its $225 million of the 10 7/8% senior notes due 2006.

Kaiser's 9 7/8% notes, which had opened the week trading around 85, after having fallen there from around 90 the week before, eroded down to 65 bid by Friday. The 10 7/8% paper went from 80 bid to 75, and from there down to 65.

On the upside, B/E Aerospace Inc.'s bonds were quoted having moved up as much as two points on the session, its 8% notes firming to 85.5 bid and its 9½% notes ending at 92. A trader noted that the Wellington, Fla.-based maker of aircraft cabin interior products and other aircraft components, had delivered a presentation at Bear Stearns' annual aerospace and defense conference, at which management reportedly expressed confidence in their ability to generate cash this year.

During the presentation, company executives said they hoped the company's backlog of orders would pick up later this year and they called B/E Aerospace a leading indicator of the health of the overall airline industry economy.

Relating to the company's debt picture, B/E reportedly said that its first use of cash would be to pay down the company's revolving line of credit, followed by bond buybacks, although the latter probably wouldn't take place this year. The company had, in fact, already bought back some of its bonds at distressed levels in the aftermath of the Sept. 11 terrorist assault on the U.S., which dropped the whole airline industry and related equipment manufacturers into a deep freeze.

The trader also noted that there were rumors making the rounds - strictly unconfirmed at this point - that B/E might be looking to raise capital for debt reduction, possibly via a convertible equity offering.

Elsewhere, it was more of the same Friday for Conseco, Inc. whose bonds have recently been firming on news that it has been quietly buying back large chunks of its 2002 maturity debt in private transactions. The Carmel, Ind.-based insurer's 10.25% senior notes due June 1were quoted up five-eighths of a point Friday to 99.625 bid, aided by Thursday's news that Conseco plans to tender for the all of the remaining $110.5 million of the 10.25% notes. Its 8 1/8% notes due 2003 meanwhile climbed to 90.75 bid from 89 previously. Since last June 30, Conseco has so far bought back $266 million (30%) of the $864 million of debt maturing in 2002.

Six Flags Inc.'s 9¼% senior notes due 2006, which on Thursday were reported unmoved from its recent 102 level after the company announced plans to redeem those notes, were quoted as high as 105 bid, around the price they are expected to be called at. The New York-based theme and amusement park operator plans to redeem the notes, and the 8 7/8% senior notes due 2006 of its principal operating subsidiary, Six Flags Operations Inc., using the proceeds of Thursday's $480 million placement of new 8 7/8% senior notes due 2010.

Those new Six Flags bonds, which had priced at 99.644 on Thursday, were heard Friday to be trading around their issue price. The same was seen for MeriStar Hospitality's new 9 1/8% senior notes due 2011, which made their debut Thursday at 98.125.

Overall, traders said, activity was relatively sparse. "It was an uneventful day. Nothing moved around a lot," one opined.

There was not much reaction to the news that high yield mutual funds were back in the black in the latest week, as $240.5 million more came into the funds in the week ended Wednesday than left the, according to market participants who track the weekly fund flow statistics compiled by AMG Data Services. Many market participants see the statistics as a reliable barometer of overall liquidity trends.

In the previous week, the market had seen net outflows of $266.4 million, the first weekly outflow number of the year after three straight weeks of inflows to start 2002. With inflows having now been seen in four of the first five weeks of the year, inflows have totaled $1.761 billion so far, up from a $1.521 billion cumulative total the week before.

In the primary, besides Solectron's $500 million offer, two other deals priced. The Scotts Co. brought an $70 million add-on its 8 5/8% notes due 2009 and Jacobs Entertainment sold $125 million of new senior secured notes.

Also on Friday the market learned that American Achievement Corp. would start a roadshow Monday on a $175 million offering.

Meanwhile there were still no terms on TSI Telecommunications, Inc.'s $245 million deal.

Solectron's $500 million seven-year senior notes (Ba1/BB+/BBB-) priced via Goldman Sachs & Co. to yield 9¾%. A syndicate source told Prospect News that level was "at the tight end" of the 9¾%-10% price talk

The Scotts Co.'s $70 million add-on came at 102.50 to yield 8%, via J.P. Morgan. A syndicate source said that it price "right in the middle" of the 8% area price talk.

Terms also emerged Friday on Jacobs Entertainment, Inc.'s offering (B2/B), which priced at a discount of 96.04 to yield 12¾%. Although the size was increased to $125 million, the $120.05 million of proceeds was in line with the originally announced amount. Bookrunner was CIBC World Markets.

And late Friday a syndicate source informed Prospect News that TSI Telecommunications, Inc. $245 million senior subordinated notes due 2012 (B3/B-) via Lehman Brothers will now price Monday. Some market observers told Prospect News that they had anticipated terms on the deal last Thursday.

Also on Friday a new deal was announced. American Achievement Corp. will start the roadshow Monday on its $175 million offering of new five-year senior notes via Deutsche Banc Alex. Brown, according to market sources, who added that the deal is expected to price on Feb. 14.

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