Teleglobe falls on chance parent may walk away; Standard Pacific lines up $150 million drive-by

By Paul Deckelman and Paul A. Harris

New York, April 9 - The bonds of troubled Canadian telecommunications operator Teleglobe fell sharply Tuesday after company parent BCE Inc. said that the unit's new management is conducting a comprehensive review of its operations - leading some investors to theorize that BCE may be getting ready to walk away from its problem child.

In the primary sphere, homebuilder Standard Pacific Corp. was heard by syndicate sources to be working on a quickly shopped $150 million bond offering; meantime, private prisons operator Corrections Corp. of America is hoping to lock up some investors for its upcoming $150 million bond deal, with a roadshow scheduled to start on Monday.

With the emergence of two new deals Tuesday, the forward calendar grew to 16 offerings totaling $3.96 billion.

Two sources from investment banks also told Prospect News on Tuesday that there is little doubt that high yield accounts will take an interest in Starwood's split rated (Ba1/BBB-) $1 billion two-tranche deal announced Monday. If added to the forward calendar, of course, Starwood would lift the total to $4.96 billion.

With or without Starwood, however, sources commented Tuesday that bigger deals seem to be surfacing. Presently five deals on the forward calendar are roadshowing at amounts of $350 million or greater: JohnsonDiversey's $500 million, Western Oil Sands' $425 million, Ventas' $400 million, Crescent Real Estate's $375 million and Beazer Homes USA's $350 million.

"It's hard to say why it is - whether people have a positive view of the market, or feel that liquidity is going to dry up - but we definitely are seeing some bigger deals," one sell-side official commented Tuesday.

"I'm sure you've been following the mutual fund flows," the official continued. "They've been getting smaller every week and I wouldn't be surprised if we had an outflow this week. The timer-money in the high-yield asset class has a pretty large equity component to it. And with the volatility at the end of last week and things continuing to be a little bit volatile, I wouldn't be surprised if the models are sort of pointing toward taking some money out of high yield right now.

"It's really just a hunch. And we have heard a little anecdotal evidence that some guys have had some outflows.

"But regarding the bigger deals I think people are still trying to take advantage of the fact that there are some big cash balances out there. And people are looking for debt product."

Although no terms emerged Tuesday, the market heard two new deals announced, one of which figures to price by the end of Wednesday's session. Standard Pacific Corp. carried out its conference call Tuesday for $150 million of 10-year senior subordinated notes (B1/B+) which are set to price Wednesday, according to syndicate sources.

Credit Suisse First Boston, Salomon Smith Barney and Banc of America Securities are joint bookrunners on the off-the-shelf bullets. Price talk is 9¼%-9½%.

Also on Tuesday, details were released on Corrections Corp. of America's $150 million of seven-year senior secured notes, which will start touring on Monday. Lehman Brothers is running that deal, which is expected to conclude its roadshow April 24.

Late in Tuesday's session Panavision announced it had downsized its offering of seven-year senior secured notes (Caa2/CCC+) to $200 million from $250 million and also terminated its tender offer for its outstanding 9 5/8% senior subordinated discount notes due 2006. Salomon Smith Barney is the bookrunner. A syndicate source told Prospect News after Tuesday's close that official price talk had not yet emerged. The official added that the deal could still price Wednesday, as planned, but that it could also easily be "pushed back."

Meanwhile Tuesday, price talk of 9 5/8%-9 7/8% emerged on Altrista, Inc.'s $150 million of 10-year senior subordinate notes (B-), via joint bookrunners Banc of America Securities and CIBC World Markets. A Wednesday pricing is expected.

Block Communications, Inc. upsized its offering to $175 million from $150 million. Price talk of 9¼%-9½% emerged on the seven-year senior subordinated notes (B2/B-). Banc of America Securities is bookrunner. A Thursday pricing is expected.

And price talk of 9½%-9¾% was heard Tuesday on Swift Energy Co.'s $150 million of 10-year senior subordinated notes via Credit Suisse First Boston. The deal is expected to price Thursday afternoon.

In the secondary arena, Teleglobe's bonds were heard to have slid badly Tuesday, for the second time within a week, after BCE said the unit's new managers would evaluate the company's operations - and said the strategic alternatives it may be considering included, but were not limited to, "a reassessment of its on-going funding under Teleglobe's current business plan and the possibility of renegotiating or restructuring Teleglobe's debt."

BCE, Canada's largest telecommunications company, further noted "the continued weakness in the global data and long distance telecommunications sector [Teleglobe's business areas] for the foreseeable future and the general turmoil in the industry, as evidenced by the restructuring of many of Teleglobe's competitors."

Teleglobe's bonds, including its 7.20% notes due 2009 and its 7.70% notes due 2029, which had already been beaten down to distressed junk-bond levels despite their nominally investment-grade status, were heard to have fallen 10 points, into the mid-to-upper 20s, last Friday, after Moody's Investors Service slashed the ratings three notches to leave them at Ba3, citing concerns that BCE might end its support of the money-losing unit.

The announcement by BCE late Monday that it was, in fact, considering such a possible abandonment sparked talk among investors, Bloomberg News reported, that BCE may be forced to use the money it might have otherwise spent on Teleglobe, to instead buy back a C$5 billion stake in its Bell Canada phone business from SBC Communications Inc., which bought the Bell Canada stake in 1999 and which has the option to put it back to BCE anytime between July 1 and Dec. 31, or in 2004.

Teleglobe's bonds were heard trading at around 20; a market source meanwhile heard that the bonds may have fallen as much as 17 points in the session, although he did not have a level and didn't know whether they had closed there. Teleglobe's prospects darkened anew when Standard & Poor's said Tuesday that it was putting the bonds' BBB+ rating on CreditWatch with negative implications, citing its concern about the company's near-term liquidity issues and its ability to refinance its US$1.25 billion bank loan - which comes due on July 22 - should BCE's support for its unit diminish. Teleglobe's stand-alone financial performance, S&P warned "has deteriorated significantly due to the continued weakness in the sector."

Another Canadian-based telecommunications-related company, equipment maker Nortel Networks Corp. - which last week was knocked off its investment-grade perch by Moody's - on Tuesday completed its fall from grace, as S&P lowered its ratings to pure junk.

The three-notch downgrade to BB- from BBB- previously, followed the Toronto-based company's announcement that its first-quarter revenues would come in at about US$2.9 billion - below analysts' expectations of US$3 billion, as customers have curtailed or delayed purchases. Nortel also projected that it would post a pro-forma loss from operations of US14 cents per share, about a penny larger than the per-share loss the analysts were expecting.

Nortel also announced at that time that it had decided to fully draw down its $1.75 billion bank credit facility - which was scheduled to expire on Wednesday - and to exercise its option to convert it to a one-year term loan, even though it said it does not have an immediate need for the funds. It noted that renewal of the facility in its current form would have required the unanimous support of all 27 members of its bank syndicate - but three of the banks, representing just 5% of the total - chose not to go along, putting Nortel in what amounted to a "use it or lose it" situation.

After the company's announcement, S&P downgraded the debt, noting the slow pace of recovery in the telecom equipment field.

Nortel's move had been widely expected in the market, a trader said, quoting its 6 1/8% notes due 2006 at 72.5 bid/73.5 offered, "not much changed on the day. This was no real surprise, although at another desk, the notes were considered to have fallen more than a point from Monday's levels, to around 73.

"They actually were down (Monday) and came back up (Tuesday)," yet another source said, "so net-net, they're unchanged," despite the S&P downgrade.

Little or no price movement was likewise seen in the bonds of long-time junk telecommers Level 3 Communications Inc. and Global Crossing Holdings Ltd., even after the newly face-lifted Wall Street Journal reported in its widely-read "Heard On The Street" column that Level 3 might emerge as a buyer for Global Crossing, which is currently in Chapter 11, in what would be a bold, though risky, move, to grow its way out of the current telecom slump by acquiring facilities from its fallen rival and taking some of the glut of fiber-optic network capacity out of the market.

The article quoted Level 3 CEO Jim Crowe as saying that his company has adequate financial resources for such a deal - but it also warned that it is "far from certain that a consolidation strategy would be a winning one."

A distressed-debt trader opined that he hadn't seen any activity in either credit, despite the Journal's buzz; he quoted Level 3's benchmark 9 1/8% notes due 2008 hanging in around 43 bid/45 offered, while Global Crossing's beleaguered bonds continued to languish at bid levels of two or three cents on the dollar. Another trader likewise saw Level 3 holding in a 44 bid/46 offered range, but said he had seen "no retail flow; not a hell of a lot is happening."

Outside the telecom sphere, Federal Mogul's bonds moved up to 22 bid from prior levels around 17 bid/18 offered, after it was reported by CNBC that the bankrupt auto parts maker's asbestos litigation plaintiffs and bondholders had reached agreement on settlement of the claims which drove the company into Chapter 11, which would allow it to soon emerge. But those bonds dropped back from their highs after the company clarified earlier news reports and said it had not yet reached agreement on its reorganization plan, and had presented no such plan to the bankruptcy court. The bonds were still up a bit on the day, closing at 19 bid/21 offered.

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