Global Crossing up on buyback talk, stock bounce; await Smithfield Foods deal

By Paul Deckelman and Paul A. Harris

New York, Oct. 16 - Global Crossing Holding Ltd. notes were quoted higher in otherwise generally quiet trading Tuesday, market participants said, as the Bermuda-based international telecommunications operator's shares shot up on heavy volume on news the company had settled a legal dispute. The notes also got a boost from news reports the company might swap some of its debt in exchange for an equity stake.

In the primary market, meanwhile, participants geared up for upcoming new deals, including meat processor Smithfield Food's offering, on which some price guidance was heard to have emerged ahead of its anticipated pricing.

Global Crossing's shares were up 22 cents, or 19.30%, to $1.36, and at one point during the session had risen to $1.50. Since closing at its all-time low of 38 cents on Oct. 9, Global Crossing's equity price is up 268%. Its New York Stock Exchange volume Tuesday was 37.8 million shares, about twice its average daily handle.

Market-watchers attributed the rise to the company's announcement that it had reached what it termed an "amicable" settlement with TyCom of all outstanding claims against each other. The claims, which had been brought in both federal court and in arbitration proceedings, related to agreements between the parties for the construction and operation of Global Crossing's Atlantic Crossing-1 and South American Crossing fiber-optic cable systems.

Global Crossing's bonds were quoted having risen to about 20 bid across the board from prior levels around 16, given a lift by the stock's resurgent strength.

One market watcher also mentioned talk that the company "may buy bonds," an apparent reference to a report Sunday in the Financial Times that it has held preliminary talks with potential investors about them purchasing some of its $9 billion debt load and then swapping it for equity in the company. The FT said Global Crossing had talked with unidentified private equity firms and other potential strategic partners, such as telecom companies, about the possible swap.

The British business paper also reported the Global Crossing had received firm offers for one of the two units which it is trying to sell - IPC Communications and Global Marine Systems - and has seen some preliminary interest in the other. Which unit has generated what interest was not specified. The Financial Times said Global Crossing had declined to confirm such discussions.

Elsewhere in the secondary market, a trader characterized overall activity as "pretty quiet. It looks like there was some Yankee game hangover," referring to the exciting baseball playoff contest Monday night which absorbed much of the attention of many New York-based participants, "and then it picked up around lunchtime, only to quiet back down again."

He saw a little bit of activity in airline bonds, which he characterized as up about a point across the board on "good retail (i.e. non-institutional) interest."

The retail sector of the market, he said was "still digesting the (bankruptcy) filings of Polaroid Corp. and Bethlehem Steel Corp. The former's 6.75% notes due 2002 were continuing to languish at around seven cents on the dollar. The latter's 10.375% notes due 2005 trade on the NYSE board, but trading was suspended Monday. The trader said they were heard to have reopened there at around 10 bid, well down from previous levels around 20 before the bankruptcy filing news. Bethlehem's 8.45% notes were meanwhile quoted around 16.5 bid/17.5 bid.

Chemical producer Huntsman Corp.'s 9.5% notes due 2007 were heard having traded down to levels as low as 10 bid from recent levels around 24 bid, while its 10.125% notes were at 82 bid, off from prior levels around 86.

A trader explained the discrepancy, noting that the 10.125s were issued by Huntsman ICI, an operating company with tangible assets and "about the only issue of Huntsman's bonds with any intrinsic value in them. All of its other paper is holding company paper, and the market thinks it's worth virtually nothing."

He said that Huntsman's troubles mirrored those of the whole chemicals sector, which has "gotten slammed," - even well-regarded names like Lyondell Chemical, whose 9.875% notes, trading around par prior to Sept. 11, fell into the mid-80s before regaining some of their strength and pulsing back up to around 90.

Overall, he said, the market "is just waiting for (third-quarter) earnings to roll out, and to give us a little bit of direction."

In the primary sector Tuesday, although some tentative voices were still being heard, players nonetheless seemed to be more persuasively getting ready to do some serious business, with investment bankers talking about deals on the table, deals ready to go on the table, deals waiting in the wings, and perhaps even one or two deals up those bankers' sleeves.

"It feels pretty solid today," one banker commented. "I think it's as good as it's felt in some time."

The deal that is on the table is Smithfield Foods, Inc.'s $200 million senior unsecured notes due 2008, via J.P. Morgan, and Goldman Sachs, which was heard set to price Wednesday afternoon. There was no official price talk, according to one syndicate official, who went on to specify that unofficial price guidance for the Smithfield, Va.-based meat processing company's offering is for a yield of 8%.

Two more new issues are currently on the road and are expected to price during the week of Oct. 22, according to market sources: Advance Auto Stores, Inc. $150 million add-on to their 10¼% senior subordinate notes due April 15, 2008, and DIMON Inc.'s private offering of $175 million senior

notes due 2011.

There were also rumors Tuesday that Tesoro Petroleum, and InSight Health could be coming with deals in the very near term.

Bob Rummelhart, investment vice president of the Equitrust High Yield Fund, commented Tuesday that one factor drawing the funds back in the direction of the high yield markets was the lack of attractive alternatives.

"I think the valuations are becoming compelling," Rummelhart told ProspectNews. "At some point people will start noticing that there's such a dearth of yield opportunities out there, that high yield is maybe going to start looking attractive again.

"If you consider the beating the market has taken," he added, "from this point forward it could have some pretty explosive returns."

Rummelhart's take on predictions by the major ratings agencies (see related story elsewhere in this issue) that the default rate for 2002 could equal or exceed the default rate experienced during the recession of 1990 is similar to the one that Barry Evans, chief fixed income officer of the John Hancock Funds, expressed recently in these pages: a high default rate is already factored into the market.

"The market's already pricing in some pretty horrendous default predictions. So it would appear that most of the bad news is factored in, barring another future catastrophe," Rummelhart said. "The default rate has gone up a point, but the spreads have widened by close to 200 basis points, on a new issue: in my view the market's just gotten more attractive."

David Eshnaur, portfolio manager of the Buffalo High Yield Fund, believes that part of what's sparking the high yield market into more vigorous activity is simply a reality check among investors.

According to Eshnaur, investors are realizing that the economy continues to operate, even in a crisis.

"I think the initial reaction was a flight to quality," Eshnaur said. "If you look at where the flows went, I think it bears that out: They were coming out of stocks, and they were coming out of high yield, and going into corporate high grades and government funds, which would be a natural reaction. You see a flight to quality whenever there's a natural disaster, or, in this case, an attack on our country.

"I think people are becoming more comfortable," the portfolio manager continued. "The week after (the Sept. 11 attack) happened everybody was sure that casinos were going to go out of business, and anything leisure-related was in trouble. I think people are getting comfortable with the reality that even though we're in a slowdown, it's not as dire as it appeared on Sept. 11. The economy is going to operate at a slower pace - there's no doubt about that. But some of these companies, even though they're high yield companies,

I think are in decent shape."

End

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