OM Group dives on loss, earnings warning, NDCHealth, PerkinElmer join calendar

By Paul Deckelman and Paul A. Harris

New York, Oct. 29 - OM Group shares and bonds were in freefall Tuesday after the specialty chemicals maker posted a sizable third-quarter loss and warned that things would not get any better during the final quarter of the year. Elsewhere, Qwest Communications International Inc. debt firmed after the company said it would take as much as $40 billion in charges as it attempts to get its financial house in order. And Charter Communications Holdings LLC bonds held steady despite a threat by Standard & Poor's of a possible downgrade in the troubled cable operator's debt ratings.

Meanwhile the primary market heard news of two new offerings - from NDCHealth Corp. and PerkinElmer, Inc. - that will join the crowd of extras waiting in the wings, hoping that improving market conditions will soon bring them to center stage. But most attention was focused on the Dex Media East LLC offering.

OM Group, a Cleveland-based chemical company was "definitely the disaster of the day." a trader said. "They got murdered." He quoted OM Group's 9¼% notes due 2011 as having fallen to a wide 48 bid/52 offered late in the session from their prior levels 89 bid/91, "almost cut in half."

And "that's a big issue, with a lot of money ($400 million par value) out there," he said. He said that he had not seen OM's slide putting pressure on any of the other high-yield chemical names. "It was a pretty isolated. Lyondell held up, Millennium held up."

A distressed-debt trader whose shop hadn't been trading in OM's bonds previously for the simple reason that before Tuesday they weren't a distressed issue, noted that the company's New York Stock Exchange-traded shares got hit even worse than the bonds did, swooning $21.95 (71.04%) to end at $8.95, on volume of 22.8 million shares - a whopping 70-fold increase over the usual daily turnover of about 326,000 shares.

The bonds "did better," he quipped. "They only went down 50%, while the stock was down 70%, 22 points. And I thought CIGNA [Corp.] was bad the other day," referring to the nearly 40% fall in the insurance and financial services concern's shares Friday after it warned that third-quarter and full-year earnings would be lower than expected due to higher costs. He said that while traders at his desk had been watching the breathtaking plummet of its bonds and "some people have been telling us to buy, we resisted," - a sign that his shop thinks the bonds might have still further to fall.

OM Group reported a third-quarter earnings loss of $71.2 million ($2.52 per share) in the third quarter, versus a year-ago profit of $20.5 million (84 cents per share). The loss for the latest period included a charge of $93.7 million, or $3.31 per share, related to inventory write-downs. Without that charge and certain other special items, OM showed an operating profit for the quarter of $22.6 million, or 79 cents per share - but that was sill a nickel below Wall Street analysts' consensus estimate.

OM projected that cobalt, a key component of its specialty chemicals, will stay at levels between $6 and $7 per pound through 2003, due to the continued weak economy, and no foreseeable improvement in the demand for super-alloys. With its fourth-quarter results likely to be impacted by the weak cobalt prices, higher nickel material costs, a 20% reduction in production at its Kokkola facility, continued weak cobalt prices and the strong euro, OM predicted that it would report a fourth-quarter operating profit of $15 million to $20 million, EBITDA of $32 million to $37 million, and cash flow available for debt repayment of $24 million to $29 million - all considered relatively weak numbers.

OM Group said it said plans to close or sell unprofitable businesses, cut spending, and realign its management team in a bid to shore up its balance sheet. It also put out a news release in which it attempted to allay investor concerns by clarifying some statements which it had made on an earlier conference call. Of interest to debt investors, the company said in the release that it has $25 million to $30 million that could have been borrowed on Sept. 30 under terms of its senior credit facility, including leverage tests.

It said that as of Oct. 1, the amount available to be borrowed prior to the next covenant measuring (which will take place on Dec. 31) is $170 million. OM Group also said that it is meantime continuing discussions about its situation with its lead bank.

Elsewhere, Qwest Communications bonds "were very active, going up and down, but staying within their trading range," a trader said.

Another trader said that the bonds had rallied in the morning by as much as three points, depending on the coupon and maturity, but had dropped back from those peaks later in the session to go home with a point gain.

Yet a third trader said that the Denver-based telecommunications operator's debt was "up a couple of points," even as its shares lost 28 cents (3.09%) to close at $3.18. "It was the only really active issue that I've seen" Tuesday, he said, opining that the bonds were better even after Qwest announced late Monday, after the market had closed for the day, that it will take as much as $40 billion of earnings charges, because this was a sign that "they will try to clean up their books. They're saying let's take all of the hits we need to take" to put accounting questions that have dogged the company for weeks behind them.

The $40 billion of charges will include a goodwill-impairment charge of about $24 billion following an accounting review as called for by new accounting rules, as well as another $10.8 billion in charges due to the reduced value of long-lived assets. Qwest will additionally restate a total of $1.48 billion in optical capacity deals done since its June 2000 acquisition of local telephone operator U S West.

Qwest's bonds "held up OK," said another trader, who quoted its 7.90% notes due 2010 up about two points, at 52.5 bid/53.5 offered.

Also in the communications sphere, Charter Communications Holdings, - whose debt ratings were downgraded Monday by Moody's Investors Service - managed to hang in around the same levels they held Monday, despite S&P changing its outlook on the company's debt to negative from developing and warning that a downgrade could be possible.

The rating agency cited Charter's "weak operating performance." The change "means that the ratings will not be raised in the near term," it said, adding that "further negative developments, either related to operating performance, liquidity, or legal issues, could trigger a downgrade."

S&P rates Charter's senior unsecured bonds at B - while Moody's on Monday cut them to B3.

A trader said the Charter bonds "started to move [up] a bit in the morning, but S&P changed its outlook to negative, and that was enough to send people running to the exits. He said the St. Louis-based No. 4 U.S. cable operator's benchmark 8 5/8% notes due 2009 ended at 42 bid/43 offered, down about a point from its day's highs but essentially unchanged on the session.

Navistar International Corp.'s 9 3/8% notes due 2006 eased two points, to 87 bid/88.5 offered, after the Warrenville, Ill.-based truck manufacturer announced plans to take up to $456 million in fourth-quarter earnings charges relating to its restructuring and cost-cutting efforts. Navistar's NYSE-traded shares lost $1.90 (8.78%) to close at $19.75.

"Step aside for Dex" was the advice that circulated the high-yield primary market on Tuesday as sources told Prospect News that the leaner deal, beefed up Monday with an infusion of additional equity, is commanding all due respect among investors.

"They rejiggered the Dex financing to get the deal complete," one capital markets source told Prospect News on Tuesday, making reference to the downsized, restructured offering from Dex Media East LLC and Dex Media East Finance Co. The leveraged buyout deal is coming via joint bookrunners JP Morgan, Banc of America Securities, Deutsche Bank Securities Inc., Lehman Brothers and Wachovia Securities, Inc.

On Monday syndicate sources had told Prospect News that the whopper yellow pages deal had decreased to $975 million from $1.05 billion, with price talk of 9¾%-10% on the $450 million of seven-year senior notes (B2/B) and the 12% area on the $525 million of 10-year senior subordinated notes (B3/B).

In addition to downsizing the bond deal, equity sponsors the Carlyle Group and Welsh, Carson, Anderson & Stowe committed an additional $75 million.

"There's nothing but good news for debt-holders," added the capital markets source, who is close to the Dex financing.

"That deal has been well received in both the bank market and the bond market."

The transaction, according to one informed source, could conceivably be priced by the time readers sit down over Wednesday's Prospect News High Yield Daily. However others added that a Wednesday pricing, or even a Thursday one, is more likely.

Dex notwithstanding, two issuers on Tuesday crept up to the pool with sufficient resolve to stick toes into the icy waters of the new issuance market.

NDCHealth Corp., an Atlanta-based healthcare information services provider, will bring $175 million in new junk bonds and a new $200 million credit facility before the end of 2002, company spokesperson Betty Feezor told Prospect News on Tuesday.

A market source said the bookrunners on the Rule 144A senior subordinated notes due 2012 (B2) will be Credit Suisse First Boston and Merrill Lynch & Co.

In a Tuesday press release the company said it intends to use the proceeds to redeem its outstanding 5% convertibles due November 2003 and to pay off its existing revolver.

Feezor said that the new financing also figures into the healthcare information services provider's two-stage acquisition of TechRX. "The second step will be occurring in May, 2003," Feezor commented. "We expect this refinancing plan to also provide liquidity for the second step of the acquisition."

News also surfaced Tuesday from PerkinElmer, Inc., which announced it plans to bring $225 million of 10-year subordinated notes, although the company declined to specify timing beyond saying the offering will close in 90 days.

PerkinElmer also said it has a commitment for a new $445 million credit facility led by Merrill Lynch.

Late in Tuesday's session one syndicate official said that it is conceivable that Dex Media will clear out some of the underbrush that is impeding the progress of an assortment of deals parked on the horizon of the forward calendar.

"I think there's more stuff in the pipeline and once Dex clears they will come in behind that," the official commented.

"I think people are being selective, and are trying to hit these windows. With the Dex deal out of the way the Donnelly deal (for the Sprint directories) is floating around out there. So is Burger King.

"It's a question of how quickly the forward calendar is going to build. It has been so light and the accounts have cash. So the people who have good deals will think about bringing them.

"I think Dex will be a good barometer," the official added. "If you have a billion dollars of bonds clear for one issue - a first time issuer! - people will say that that's a good sign overall."

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