Surging stocks, Charter help market improve; Qwest off on late bankruptcy buzz

By Paul Deckelman and Paul A. Harris

New York, Aug. 6 - Charter Communications Inc. bonds firmed smartly on Tuesday after the cable company reported second-quarter results and held a conference call during which it outlined its revenue and earnings projections for this year. That, plus the suddenly resurgent stock market helped give a firmer tone to many high-yield market names.

But one name which was not helped - in fact, its bonds retreated late in the session - was Qwest Communications International Inc., whose stock also staged a late slide from its peak levels of the day amid what was reported as renewed market speculation - strictly unconfirmed - that the troubled telecommunications operator might be nearing a Chapter 11 filing.

In the primary market, Prospect News learned that first-time issuer Chuckchansi/Gold Resort & Casino is dealing its $135 million offering of seven-year senior notes to high-yield investors.

Meanwhile price talk surfaced on Chesapeake Energy Corp.'s latest deal.

And Swift & Co. was heard to have gotten a warm reception as it marketed its credit facility, kindling confidence that its junk bond deal may not have perished beneath the weight of Con Agra's 18.6 million pounds of E. coli-tainted beef.

Back in secondary action, Qwest's bonds "were in a couple of points at the end of the day, a little easier" a distressed-debt trader noted, broadly quoting its operating company debt in the low 80s while its holding company bonds (which trade at a sharp discount to the operating company paper, because they are further removed from the company's assets) were in the 40s.

Late in the day, Qwest shares, which had traded as high as $1.92 during the session and which were still hovering around $1.80 as late as 2 p.m., began heading south on what the Briefing.com investment advisory service cited as "bankruptcy fears," although there was no new information out on the problem-plagued Denver-based regional Bell operating company that would indicate that such an event was imminent. That caused the shares to careen down to a closing price of $1.35, down 34 cents (20.12%) in New York Stock Exchange dealings on the day.

Such bankruptcy rumors - which have been heard recently, ever since Qwest was revealed to have the accounting problems which led to the current investigations by the Securities and Exchange Commission and federal prosecutors in Denver - are "meaningless," the trader said. "The shorts (i.e., people trying to short Qwest stock) start these rumors. Who the hell knows?" He added that at his distressed-debt shop, "we like the bonds. We don't think there's any problem (with the Qwest operating assets), but who knows?"

At another desk, a trader said that with all of the selling in Qwest stock at the end of the day, which he attributed to the rumors they might be filing, "bids were pulled back, two, three, four points from where they had been before all of that, as word rumbled around the Street. It will be interesting to see what happens [Wednesday]."

He saw the operating company longer-dated paper in the mid-to-upper 60s, with relatively short paper in the upper 70s and really short paper, coming due within the next several months, still hanging in at 92 bid, 94 offered.

After the markets had closed, CNBC reported that Qwest isn't likely to close the bidding for its phone-book business by Thursday, when it is scheduled to report quarterly financial data. Some analysts had expected an announcement on the sale at that time.

Citing an article slated to appear in Wednesday's Wall Street Journal, the TV news channel reported that the sale - expected to fetch Qwest between $8 and $10 billion of badly-needed liquidity - has been delayed by the SEC probe into the accounting issues and the executive suite shuffle that saw CEO Richard Notebaert come on to replace former chief Joseph Nacchio. CNBC also noted that bidders for the QwestDex phone-book unit are also awaiting a report from Qwest's auditor, KPMG LLP, on the company's accounting.

Elsewhere, Charter Communications reported results Tuesday and posted a loss of $202 million (69 cents a share). Although that was more than the general expectations of analysts of a loss in the 63-66 cents per share area, it was still a notable improvement from the year-ago loss of $273.4 million ($1.07 a share). Revenue rose to $1.16 billion from $928.5 million a year ago, and slightly exceeded analysts' forecasts of $1.14 billion.

Looking ahead, Charter reiterated its forecasts that operating cash flow for the year, excluding interest payments, will range between $2.03 billion and $2.07 billion, on revenue somewhere between $4.6 billion and $4.7 billion. In the third quarter, operating cash flow will be between $520 million and $530 million on revenues of between $1.19 billion and $1.2 billion.

Charter also indicated during its conference call that it was considering selling some of its non-strategic cable systems, hoping to raise $1.9 billion for use in lowering its sizable debt load, estimated around $17 billion.

Charter bonds "were up two or three points on the day" the trader said, in the wake of the earnings figures and company optimism about being able to stick to its earlier revenue and cash -flow estimates, even in the face of an industry-wide slowdown.

He quoted Charter's 8 5/8% notes due 2009 as having opened around 56 bid, up somewhat from their Monday closing levels, and then having moved as high as 59 during the day, before easing slightly from their highs to still end higher on the day around 57 bid/59 offered.

"The numbers weren't actually that bad. The conference call seemed to go pretty well, from what I understand. It went OK."

Charter "was moving around, up a couple of points" after the earnings report and the conference call," another trader said, although he also noted that "it looked as though Charter was going to go right back up to where they were a week ago, but they didn't - they got about halfway there."

Charter's bonds had risen into the lower 60s around a week ago on the speculation that Charter's founder and 55% owner, billionaire Paul Allen, might take the St. Louis-based cable giant private and/or buy a big chunk of its debt at current cheap levels. But after the Allen talk - first reported in a New York Times article - had boosted Charter's bonds into the lower 60s, the bonds had been dropping into the mid 50s in recent days as the speculation appeared to fizzle out.

Charter stock had likewise gotten a big boost from the Paul Allen news reports, and had similarly fallen back when nothing more came of it. But on Tuesday, the positive financial data and hopeful projections pushed the company's Nasdaq-traded shares up 33 cents (12.50%) to $2.97. Volume of 11.4 million shares was nearly double the norm.

Charter's firm tone also helped other sector names, including Cablevision, whose 7 7/8% notes due 2007 gained a point to 78 bid, and Mediacom Communications, whose 9½% notes due 2013 were two points better, at 67 bid.

However, Century Communications - a unit of the bankrupt Adelphia Communications Corp. - remained on the downside, its 8 7/8% notes due 2007 quoted down four points to 16 bid.

Despite the Paul Allen talk and Charter's confident predictions, a market source said that the industry remains the focus of investor angst, even though he still likes such names as "the Charters and the MediaComs and those kinds of names because it's cable. They're real assets."

First off, he said, "some of these names are 'guilty by association,' [in the wake of the Adelphia debacle], some of the smaller companies like Insight Midwest, or Mediacom."

Apart from the Adelphia fallout, he cautioned that "it's such a capital intensive business, and these guys always need money. And that's what's killing them."

The source further explained that "all of these companies have funding gaps somewhere down the line, even Cablevision. So who's going to give them money? These things have not changed from a year ago when these things were trading around 8%. Nothing's really changed - except the fact that the capital markets are closed to them. And these companies will die without the capital markets."

He noted that even though Adelphia was able to successfully access the capital markets with "a huge convert, two other deals" in the last 18 months, "that's not paying down debt. That's just capex, and extending digital networks. That's the one thing you've got to worry about."

On top of that, the source concluded, "subscriber values have gone down, per sub, because Adelphia's going to dump how many hundreds of thousands of subscribers onto the market?"

Also reacting to news Tuesday, Dynegy's bonds were seen three points higher, its 8¾% notes due 2012 closing at 35 bid, even as its shares jumped 49 cents (34.75%) to $1.90 The company said it expects to close the $1.8 billion sale of a pipeline unit by month's end.

Outside of those selected sectors which had some news, such as the cables and the telecommers and some of the merchant energy players, things were generally seen pretty quiet in most other sectors.

"We continued to see just a ton of bid list repositioning of accounts, whether institutional or retail," a trader said. "They're trying to dump that paper on you and you try to get them to buy something else, which usually isn't the case, or they're putting it into cash, while they try to figure out where to dip into next. "

From the primary point of view, one sell-side source told Prospect News Tuesday that the deals positioned on the forward calendar to price during the week of Aug. 5 likely represent the only kinds of credits probable of undergoing successful transactions in the summer of 2002 which, the source said, is rapidly coming to a close as far as high yield is concerned.

"Anything coming into the market right now is from the defensive sectors," the official said, alluding to the two drive-by deals now in the market from oil and gas exploration and production firms Chesapeake Energy Corp. and Newfield Exploration Co. and from diagnostic imaging service provider MedQuest Inc.

"Obviously with the technicals in this market being what they are right now the new issuance market is reserved for the higher quality credits in defensive sectors."

Asked if the succession of eight straight reported outflows from high-yield mutual funds totaling $2.307 billion might pose a threat to the deals now in the market, the sell-sider said: "It's not good, but there's no real supply in the market right now. I think these deals will get done."

On Tuesday details emerged on Chuckchansi's Rule 144A offering of $135 million seven-year senior notes via Dresdner Kleinwort Wasserstein. The Coarsegold, Calif. tribal gaming concern will use the proceeds to construct a new $167 million casino and hotel resort in close proximity to Yosemite National Park.

The notes will not be rated, according to an informed source. And the first three coupon payments, totaling approximately $30 million, will be parked in an escrow account.

Price talk emerged on one of the two E&P drive by deals that are expected to price before the end of the Aug. 5 week. Talk of 8 7/8% area was heard on Chesapeake's $250 million of 10-year senior notes (B1/B+) via Salomon Smith Barney and Lehman Brothers.

The market was anticipating that terms on the new notes might be heard as early as late Tuesday afternoon. However when Prospect News went to press no terms were heard, according to market sources. Hence those terms are now expected early Wednesday morning.

Finally, an informed source told Prospect News on Tuesday that if market conditions should improve Swift & Co.'s $400 million seven-year notes deal to help finance the acquisition of 54% of ConAgra's US and Australian beef, pork and lamb operations by Hicks, Muse, Tate & Furst could still happen in spite of the 18.6 million pounds of beef that the US Department of Agriculture ordered Con Agra to recently recall.

Swift & Co. "asked people to recommit on the (bank loan)," the source said. "They got an audience with lenders who asked for clarification of the meat recall. People liked what they heard and from what I understand they have the bank side done."

As for the bonds, the source added, they may bring those if the market improves.

"If the term loan B of the bank deal is highly oversubscribed it's possible Swift will downsize the bonds and upsize the loan," the source added.

The Swift & Co. deal, which was reported to have started roadshowing on July 16, came off the road around July 19 when the market learned of the scope of the Con Agra recall.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.