WorldCom continues to crumble; Williams in Chapter 11; Silgan brings $200 million

By Paul Deckelman and Paul Harris

New York, April 23 - WorldCom Inc. bonds continued to careen downward Tuesday as the ratings agencies weighed in - unfavorably - on the troubled telecommunications giant's deteriorating financial situation. Also in the faltering telecom sphere, Williams Communications Group Inc. bonds turned lower after the long-haul fiber optic network provider sought Chapter 11 protection.

In the new-deal arena, Silgan Holdings Inc. priced a quickly shopped $200 million add-on to its existing 9% senior notes due 2009.

Word also circulated that two issuers currently in the market with deals expected to price during the week of April 22 have increased their offerings by $100 million apiece.

Stamford, Conn.-based Silgan priced a $200 million add-on to its 9% senior subordinated notes due June 1, 2009 (B1/B) at 103 for an 8.119% yield to worst, according to a syndicate source who commented that the deal was well over-subscribed and that it priced better than the 102.5 area price talk. Morgan Stanley, Deutsche Bank Securities Inc. and Salomon Smith Barney were joint bookrunners.

A syndicate official confirmed Tuesday that Corrections Corp. of America upsized its new seven-year senior notes to $250 million from $150 million. Price talk on the notes is 10% area and the deal is expected to price Wednesday afternoon. Lehman Brothers is running the books.

Late Tuesday, according to a market source, Vintage Petroleum, Inc. upsized its offering of 10-year senior notes (Ba3/BB-) to $350 million from $250 million. Earlier in the day a syndicate source told Prospect News that price talk is 8¼%. Deutsche Bank Securities and BMO Nesbitt Burns are joint bookrunners on the Tulsa, Okla.-based exploration and production company's new notes.

In the wake of XTO Energy's 10-year notes offering on April 18, which upsized by $50 million to $350 million and priced at par to yield 7½%, sources on both the buy- and sell-sides have commented to Prospect News that the present high-yield market seems notably open to E&P credits.

Price talk of 11½%-11¾% was heard Tuesday on Stoneridge, Inc.'s $200 million of 10-year senior notes (B2/B) via Deutsche Bank Securities. The deal is expected to price Thursday.

And preliminary price guidance emerged Tuesday on Philippine Long Distance Telephone Co.'s $350 million two-part Rule 144A senior notes deal (Ba3/BB-): guidance is 10¾% area on the five-year maturity and 11½% area on the 10-year notes. Credit Suisse First Boston and Morgan Stanley are joint bookrunners. Official price talk is expected on Wednesday and the deal is expected to price on Friday.

Finally, Wilmington, Del.-based UCAR Finance, Inc., which manufactures carbon electrodes for steel mini-mills, announced that it is soliciting noteholders' consents to bring an add-on of up to $150 million to its 10¼% senior notes due Feb. 15, 2012. The original $400 million deal priced in February via Credit Suisse First Boston and JP Morgan.

The new Silgan bonds were heard to have moved up about a quarter point from their 103 issue price when they were freed for secondary dealings, which a trader called "nothing big."

He acknowledged, however, that at $200 million, the deal was "a pretty big-sized add-on," and at 361 basis points over the comparable Treasury issue, was trading at quite a tight spread for a high yield bond, particularly one with just a single-B rating.

But then again, "these [Silgan bonds] have always traded pretty well, though. After they got out of the low 90s, about a year ago, these guys rocketed right up," he added, "they've always traded pretty well." Silgan's outstanding 9% notes due 2009 were recently quoted as having firmed slightly to the 103.625 level, for a yield of just under 8%. The new bonds were priced Tuesday to yield 8.119%.

"A lot of the better-quality stuff is trading up there," the trader continued. "Granted, it [the new Silgan offering] has a B1/B rating, but the whole container sector - regardless whether it's metal, glass, paper or plastic, it doesn't matter - they're all trading exceedingly tight. So this is no surprise."

Silgan "is a good credit, I'll tell you," another trader remarked. The 361 basis points spread was "not bad at all" for just a single-B rated junk issue. "Those better credits have been coming lately at a premium," he added.

Back among already established issues, the trader continued, WorldCom bonds - nominally investment-grade rated but trading like junk bonds in recent weeks - probably were "the most active name of the day, lower by points," as the downgrade parade continued.

On Monday, Standard & Poor's had cut the Clinton, Miss.-based telecom company's long-term corporate credit rating to BBB from BBB+, and said another downgrade was possible, in the wake of Friday's warning by the company of expected lower revenues and cash flow for 2002 at its WorldCom Group data and Internet services unit.

On Tuesday, Moody's Investors Service weighed in with a two-notch downgrade, cutting WorldCom's senior unsecured rating to Baa2 from A3 previously, with all ratings still under review for a possible further downgrade.

Commenting on WorldCom's projection that the WorldCom Group unit's 2002 revenues would total between $21 and $21.5 billion, down from previous guidance of $22.2 to $22.6 billion, and its EBITDA (earnings before interest, taxes, depreciation and amortization, considered the key bond market measure of a company's cash flow generation potential and ability to service debt) would be between $7 billion and $7.5 billion, well down from prior forecasts in the $8.4-to-8.5 billion range, as the telecom industry slump deepens, Moody's said the revised guidance was "significantly below Moody's expectations." (The previous earnings estimates, which the company announced in February, had themselves been lowered from guidance released late last year).

The ratings agency's screed further worried that "the telecommunications industry, particularly the long distance segment, is facing intense pressure from existing overcapacity and a severe business spending recession. WorldCom's credit position is further weakened by high levels of operating and financial leverage. Moody's remains concerned by the uncertain outlook for the industry and believes that further revisions to WorldCom's projected operating performance could occur before year-end as pricing pressure continues. While the company has experienced growth in new services, it has not been enough to offset combined declines in pricing and downsizing in network grooming, and Moody's does not see a reversal of this trend in the near term."

Fitch Ratings chimed in with its own downgrade on Tuesday, dropping the bonds to BBB- from BBB+ previously.

All of this caused WorldCom paper - which had fallen several points late Friday after the release of the lower earnings projections and which then nosedived anywhere from a dozen points to 17 points in Monday's session as the market digested the full impact of the late-Friday news and the S&P downgrade - to continue eroding badly in Tuesday's dealings.

"The bonds were getting hammered again," a trader said. Although WorldCom was still mostly being traded off the investment-grade desks at most houses, he said that junk desks such as his own were actively tracking it, figuring it would be only a matter of time before WorldCom crossed over the Great Divide and landed in Junkbondland. "We're not trading it yet - but yes, soon, soon," he predicted.

He quoted the company's 7 3/8% notes due 2003 as trading at 88.5 bid/90 offered, down several points on the session. WorldCom's 7½% noted due 2011, which on Monday had fallen more than a dozen points to around 68 bid, were now around 60.5. Its 8¼% notes due 2031 had moved down to about 58 bid/59.5 offered from Monday's close around 62. The 8% notes due 2006 were trying to hang on at 64.5 bid/66.5 offered, while the 6.40% notes due 2005 had fallen to 66 bid/68 offered.

At another desk, the 7½% notes were heard trading as low as 57 bid, while WorldCom's 8¼% notes due 2031were at 58.75.

On the equity side - where shares had swooned nearly 33% in Monday's dealings - the carnage continued, as WorldCom's Nasdaq-traded shares fell another 59.9 cents (14.94%) on Tuesday, to $3.411. Volume of 265 million shares - almost identical to Monday's turnover - was five times the usual daily handle.

Asked if anything else was going on, the trader opined that "apart from WorldCom, not really." While he saw Williams Communications Group's bonds trading at bid levels of 15-16, down from prior levels around 18 bid, following the news that the Tulsa, Okla.-based long-haul telecom fiber optic network operator had filed for Chapter 11 status, he said that given Williams' well publicized struggles, this was "not unexpected." The Williams bonds were being quoted flat, or trading without accrued interest - the usual development when a company goes into bankruptcy or otherwise defaults on its bonds. The changeover amounts to an additional loss of several points in the bond's real value beyond any nominal change in price levels.

Williams filed its bankruptcy petition after striking a deal to distribute all of its equity to its bondholders and to its former corporate parent, Tulsa, Okla.-based pipeline operator Williams Companies Inc.

"The market, particularly the telecom sector, feels heavy with Williams' bankruptcy filing and WorldCom" dragging it down, another trader said.

But there were a few brighter glimmers in the otherwise depressed phone patch. Williams competitor Level 3 Communications Inc.'s benchmark 9 1/8% senior notes due 2008 were quoted up a point at 49 bid, while its 11% notes were likewise a point higher at 51, after the Broomfield, Colo.-based long-haul telecommer reported better-than-expected results for the first quarter. While it still reported a sizable net loss for the quarter of $90 million (23 cents per share), it was well down from the $535 million of red ink ($1.45 per share) Level 3 lost a year ago.

It should be pointed out that the sharply reduced loss figure included a $130 million gain from debt repurchases and a $119 million tax refund; without those one-time items, the company loss was $339 million (87 cents per share) - still far smaller than the year-ago loss, and considerably smaller than the $1.12 per share loss analysts had been expecting.

And Nextel Communications Inc. debt was up half a point to a point after larger industry rival AT&T Wireless Services posted a first-quarter net loss - but also reported a 15% rise in revenues on stronger-than-expected new-subscriber totals. AT&T Wireless also reaffirmed its previously announced expectations for revenue and subscriber growth for the full year.

Nextel - which itself recently reported positive quarterly results, particularly in the all-important new-subscriber area - "was up a little" on the AT&T unit's news, its 9 3/8% notes gaining half a point to 67.5 bid and its 9½% notes a point higher at 66.5. Its 10.65% notes were about a point higher at 68.5.

Outside of the telecoms, Calpine Corp. bonds were quoted up about two-and-a-half points across the board, after the San Jose, Calif.-based independent power producer announced that it had come to terms with the state of California on renegotiation of power contracts. Calpine's 8½% notes due 2011 finished at 84 bid.

While the renegotiated terms of the contracts with Calpine and several other producers California buys power from will save the state $3.5 billion, amounting to a 23% drop in price, uncertainty over whether the state and the producers would reach accord on renegotiating the contracts had hovered over the sector for some time. The state had signed those contracts with Calpine and the other producers a year ago, at the height of the power crisis, and had complained that the producers "had a gun to our heads," in the words of the chairman of the state power authority.

California had responded by filing lawsuits and claims against Calpine and the other producers; as part of the agreement announced late Monday, all state claims for alleged electricity pricing violations were settled and the state's public utility commission agreed to drop a lawsuit it filed against Calpine with the Federal Energy Regulatory Commission.

Separately, Calpine warned late Tuesday that it would fall short of analysts' first-quarter earnings projections (it saw earnings of 10 cents a share, vs. the analyst's consensus forecast of 13 cents), and announced plans to issue up to 69 million new shares. Calpine shares had gained $1.42 (11.92%) in regular-session New York Stock Exchange trading to close at $13.33, although this was before the late-session announcement about the expected lower earnings. The shares were seen having dropped back to $12.25 - still above Monday's close at $11.91 - in Tuesday's after-hours trading session.

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