Seagate, four other deals price; Xerox dives on downgrade but recovers; Tesoro tanks

By Paul Deckelman and Paul A. Harris

New York, May 2 - Seagate Technology HHD Holdings led the way in a busy high yield primary market session Thursday, as it priced a $400 million tranche of seven-year senior notes. Also coming to market were scheduled deals for Britax Group plc and NMHG Holding Co., as well as a quickly shopped Tekni-Plex add-on offering plus an emerging markets transaction from a Turkish company.

In the secondary market, participants reacted to late Wednesday's announcement by Moody's Investors Service of a multiple-notch ratings downgrade for Xerox Corp., as the copier king's bonds first dropped, but then rebounded most of the way off its lows to end only a bit lower. Tesoro Petroleum bonds meantime slid, as the refiner admitted that its plans to buy a California refinery property could put it in violation of its bank financing covenants, which in turn caused a sharp downturn in its stock.

From the primary market, Prospect News heard terms Thursday on three U.S. offerings, one euro deal and one corporate credit from the emerging markets.

Thursday's tightest-pricing deal was Seagate Technology HDD Holdings, a subsidiary of Seagate Technology, the Scotts Valley, Calif. maker of computer disk and tape drives. Seagate priced $400 million of seven-year senior notes (Ba2/BB+) at par to yield 8%. Official price talk was 8%-8¼%, according to a syndicate source. Morgan Stanley and JP Morgan were joint bookrunners.

Earlier Thursday Somerville, N.J. packaging products-maker Tekni-Plex, Inc. unwrapped the terms of a drive-by $40 million add-on to its 12¾% senior subordinated notes June 15, 2010, which priced at 104.25 to yield 11.762%. Lehman Brothers was the bookrunner.

Terms were also heard Thursday on NMHG Holding Co., a subsidiary of Mayfield Heights, Ohio-based NACCO Industries.

It priced $250 million of seven-year senior notes (B3/B+) at 98.766, to yield 10¼%. On Wednesday market sources had reported hearing price talk of 10½%-10¾%. Credit Suisse First Boston and Salomon Smith Barney were the joint bookrunners.

The U.K.-based safety products manufacturer Britax Group, plc unbuckled the terms of its €145 million. The nine-year senior notes (B2/B-) priced at 98.613 to yield 11½%.

Also on Thursday a syndicate source reported that the emerging markets corporate credit Vestel Electronics Financing, Ltd. priced $200 million of five-year senior notes (Ba3/B-/B) at 99.333 to yield 11.68%.

ABN Amro ran the books on the offering from the Turkish corporation which manufactures television and monitor screens.

According to the source, Thursday's transaction represented a return of sorts for Vestel.

"It's a deal that had been put on the table two years ago due to allegations that Turkish manufacturers had been dumping electronics into the EU market," the source commented. "Those allegations were found to be unfounded.

"Investor demand was quite strong," the official stated, adding that a number of investors who were in the book when the original deal was pulled returned to play this time. The book, according to the source, was just under two times oversubscribed.

Aside from the Tekni-Plex drive-by, no new deals were announced on Thursday. However details circulated through the market on a deal that came onto the Prospect News radar screen on March 11 and has been situated on the forward calendar's horizon ever since. AmeriGas Partners, LP, a source reported Thursday, is headed to the high yield market with a $40 million add-on to its 8 7/8% senior unsecured notes due May 20, 2011. The source identified Credit Suisse First Boston as the dealrunner. The source said that the market is anticipating that AmeriGas will be transacted during the month of May.

Thursday's burst of business left only one credit remaining on the calendar for the week of April 29: Compton Petroleum Corp.'s $150 million of seven-year senior notes (B2/B). Price talk of a yield in the 10¼% area emerged Thursday on that the deal, which is expected to price Friday. BMO Nesbitt Burns, Lehman Brothers, Scotia Capital and TD Securities are the joint bookrunners.

In secondary dealings, players initially "beat the hell out of Xerox," one market watcher opined, as the full impact of the Moody's downgrade - largely lost in Wednesday's market preoccupation with WorldCom Inc.'s troubles - sank in.

"Gosh, that Moody's report was nasty," a trader exclaimed. The ratings agency, in dropping Xerox's senior unsecured debt to B1 from Ba1 previously and its subordinated debt to B3 from Ba2, cited its "concern about the level of free cash flow that Xerox's core non-finance business generates relative to the company's debt level, the large debt maturities over the next few years, its dependence on capital market access to refinance debt obligations and the need for continued cost reductions in the face of modest revenue growth prospects." All of these real and potential negatives outweigh what financial and operational progress the Stamford, Conn.-based office machines giant has made to date.

"It was almost as though people knew [what was about to happen] before the downgrade came out," the trader said. "Because [Wednesday] during the day there were no bids. Bids just disappeared."

In Thursday's early dealings, he continued, "people were a bit spooked right off the bat." Xerox's benchmark 5½% notes due 2003 initially fell as low as 87 bid/90.5 offered early Thursday from Wednesday's pre-downgrade levels at 90.5 bid/91.5 offered. However, he said, those levels "got a little better as the day progressed. It did recoup a little," rising most of the way back to close around 89.5 bid/91 offered near the end of Thursday's dealings.

But the rebound, he cautioned, was selective; while "the short stuff bounced a little bit, the long stuff stayed down. He saw Xerox's 9¾% notes due 2009, which had hovered around 93.75 bid/94.75 offered Wednesday before the downgrade news, going down to 89.5 bid/90.5 offered in Thursday's dealings, and then staying at those levels.

Xerox bonds "opened up wide and ridiculous," another trader noted, quoting the company's 8% notes due 2027 at early levels around 45 bid/55 offered, although that bid had come back up into the 50s by day's end. He saw Xerox's 5½% and 5¼% notes due 2003 falling into the mid-80s early on, before coming back to end at 90 bid/91 offered. "People kind of discounted [the bad news], thinking it was a little ridiculous that [Moody's] moved them down so much, and the bonds came back. They were pretty actively traded."

At another desk, Xerox's 7.15% notes due 2004 were seen around 90 bid going home; its 7.20% notes due 2016 were at 73 bid. The company's 6¼% bonds due 2026 "would have been much lower if they had been straight junk bonds," an observer said - but that particular issue has a feature letting holders put the bond back to the company. "That won't kick in for a while," he added, "but that gives them some value until the company really goes bad."

Xerox shareholders were suitably alarmed by the Moody's screed; its stock fell $1.08 (11.91%) in New York Stock Exchange dealings, to $7.99, not far from its intraday low of $7.82. Volume of 26.5 million shares was almost six times the usual level.

Elsewhere, Tesoro Petroleum's 9 5/8% senior subordinated notes due 2012 slid to 95.5 bid/96.5 offered from prior levels around 101.5 bid/102.5 offered, after the San Antonio, Tex.-based energy refiner reported a first quarter net loss of $55.6 million ($1.15 per share) Wednesday, versus a year-ago profit of $21.7 million (52 cents per share). Tesoro also warned during a conference call that it might have to scrub its $1.13 billion purchase of the Golden Eagle refinery in California from Valero Energy Inc., since the latest loss may leave it with too high a ratio of debt to earnings under one of its lending covenants. The Golden Eagle purchase - funded in part by Tesoro's recent issuance of $450 million in new junk bonds - would lift its overall debt to about $2 billion from prior levels around $1.25 billion.

Valero notes that if Tesoro backs out of the deal, it will be liable for a $53 million break-up fee on the purchase agreement.

News of the loss and the possible demise of the refinery deal caused Tesoro shares to meanwhile swoon $3.11 (30.019%) in NYSE dealings Thursday to close at $7.25. Equity analysts at several firms reduced their recommendations on Tesoro's shares in the wake of the latest developments.

Adelphia Communications Corp. bonds and shares were roiled Thursday, after the beleaguered Coudersport, Pa.-based cable television operator said that it expects to restate its 1999 and 2000 results, as well as its interim 2001 numbers, which would have the effect of moving $1.6 billion of off-balance-sheet debt onto its balance sheet, partly alleviating a situation which had caused its bonds and shares to drop precipitously over the past month and a half. But the Adelphia announcement left unsaid what is to become of yet another $700 million of off-balance-sheet debt, and it further warned that because of delays in reporting its results, it could be in default on some credit agreements. Further, analysts believe that the extra balance-sheet debt could also violate its existing debt covenants.

Adelphia revealed in March that it was carrying $2.3 billion of off-balance-sheet debt obligations, in the form of guarantees which the company issued for loans to partnerships controlled by its founding Rigas family, which also controls Adelphia itself. Not only did that cause an uproar among shareholders and bond holders in the wake of the Enron Corp. debacle - which also involved allegedly fishy accounting of off-balance-sheet partnership debt - but it sparked an investigation of Adelphia by the Securities and Exchange Commission.

Adelphia's 10 7/8% notes due 2010 were heard by one market watcher to have declined to 86.5 bid from prior levels around 88, after having traded as low as 82 earlier in the session. But at another desk, the company's debt was seen continuing that rebound off its lows to end a bit higher on the session; a trader saw the bonds about a point better going home, with Adelphia's 9¼% notes due 2002 ending at 92 bid/94 offered, up from Wednesday's 90.5 bid/91.5 offered. Adelphia shares dipped 94 cents (13.52%) in Nasdaq trading, to $6.01.

Conseco Corp. bonds were seen "off a bit," one observer said, after the Carmel, Ind.-based insurer reported a $96.9 million (28 cents per share0 first-quarter loss on Wednesday, versus a year-earlier profit of $80.2 million (23 cents per share).

Its 10¾% notes due 2008 eased to 59.5 bid from 62 on Wednesday, while its 8¾% notes due 2006 fell to 61 bid from 63.5, even though the loss was largely due to special charges taken for bad loans and poor investments, and without those charges Conseco actually turned a profit for the latest quarter of $39.9 million (12 cents per share).

WorldCom - whose slide to distressed junk bond-like levels has now landed it on the desks of the junk bond traders at most houses, despite its still nominally investment-grade ratings - was heard to have steadied Thursday, after several sessions of precipitous cumulative decline. While the downward spiral in the Clinton, Miss.-based telecommunications giant's bonds had monopolized secondary market attention earlier in the week, by Thursday, one trader ventured, "the Street seems to finally be looking at other credits besides WorldCom." He saw the company's short maturity credits up about a point from Wednesday's close, while its longer-dated paper was two points better.

At another desk, WorldCom's benchmark 7½% notes due 2011 were heard having traded as high as 47 bid during the session before ending 45.5 bid/46.5 bid, up about a point from Wednesday's close. Its 7 7/8% notes due 2003 were in the 70-73 range, while its long-dated 2028 and 2029 paper shuttled between 41 and 43.

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