Conseco gains on agreement with lenders; Lucent off; Avaya, Wolverine Tube deals price

By Paul Deckelman and Paul A. Harris

New York, March 22 - Conseco Inc. bonds were higher Friday, after the struggling insurance and financial services concern managed to win itself a little more breathing room via an agreement with its bank lenders. Lucent Technologies Inc. debt was headed the other way, after Moody's Investors Service dropped its ratings by two notches.

In primary market activity, Lucent spinoff Avaya Inc. brought an upsized offering of seven-year senior secured notes to market, while Wolverine Tube Inc. also sold a seven-year note issue.

Those two offerings brought the total for the week of March 18 to eight high-yield deals pricing for a total of $2.018 billion face value.

Basking Ridge, N.J.-based business-to-business communications company Avaya's substantially upsized offering of $440 million seven-year senior secured notes (Ba2/BB-) was increased from $300 million. The new notes priced at 98.812 to yield 11 3/8% via Salomon Smith Barney.

A syndicate source, commenting that Avaya's off-the-shelf notes priced "right in the middle" of 11¼%-11½% price talk, said that demand for the company's new paper was considerable.

Also pricing Friday was an offering of $120 million seven-year senior secured notes from Huntsville, Ala. based Wolverine Tube, Inc. The notes priced at 98.788 to yield 10¾%.

Credit Suisse First Boston ran the books on the Wolverine deal.

Adding to the calendar, Houston wastewater residuals management firm Synagro Technologies, Inc. announced a deal for $150 million seven-year senior subordinated notes via joint bookrunners Lehman Brothers and Banc of America Securities. The roadshow starts Tuesday, and runs until April 9.

Also, Boyd Gaming, Inc. of Las Vegas rolled out a $200 million 10-year senior subordinated deal (B1/B+), which will have a two-day roadshow on Monday and Tuesday, and is expected to price late Tuesday or early Wednesday.

Biovail, the Mississauga, Ont.-based integrated pharmaceutical company, had been generating considerable discussion around the high yield market Thursday and Friday, as observers speculated where talk would come on its $275 million of eight-year senior subordinated notes (expected ratings B2/B+). The answer emerged Friday morning: 8%-8¼%.

Diane Keefe, portfolio manager of the Pax World High Yield Fund, told Prospect News that she had been taking a look at the credit. She said that the talk seemed rich, but probably not disproportional.

"Health care is tight," Keefe said. "Their leverage is low. There aren't very many pharmaceutical-related companies in the high yield universe."

However, Keefe continued, at 8%-8¼% it may be difficult for some investors to summon vast enthusiasm.

"I can see why people might be interested in the mid-eights," she said. "I think that underwriters are squeezing the new issues so that there's not much left to these eight-handle deals."

Also on Friday news circulated around the market that The Hockey Co. had upsized its offering of seven-year notes to $125 million from $115 million. Price talk of 11¼%-11½% was heard on the Jefferies & Co. deal, which is expected to price Tuesday.

Meanwhile investors who spoke with Prospect News Friday expressed various opinions as to the possible impact upon high yield bonds of the March 19 Federal Reserve meeting, as it shifted its assessment of risk to the economy to one that is balanced between slow growth and inflation.

Mike Difley, vice president and portfolio manager of the American Century High Yield Fund, believes that a possible end to the Fed's historically aggressive interest rate easing and the prospect of higher rates, could impact the upper tier of high yield credits.

"I was just saying, today, to some of our investment-grade guys out there that I look to buy some higher quality bonds in the high yield market, and I don't do it because every time I look up the Treasury market's backing up," Difley said.

"Some of the lower dollar, lower value bonds in high-yield land don't really trade with Treasuries," Difley added. "But higher quality ones certainly do get some impact. So I've been sort of waiting because of what's going on in the Treasury market.

"But I think it is having an impact on the higher quality bonds."

Ed Schriver, portfolio manager of the ING Pilgrim High Yield Fund, commented that what emerged from the Tuesday Fed meeting reflected a "neutral bias," which accords with his present reading of the U.S. economy.

"I don't see the economy taking off," Schriver said. "Or at least I don't see it happening quickly.

"We just see some slow, steady growth," he added. "That's probably good for high yield."

When Avaya's new bonds moved into secondary dealings, a trader said, they were "not trading so well," going home quoted at 98.125 bid/98.625 offered, down from their 98.812 issue price earlier in the session. Friday's other new deal, wolverine Tube, "traded up nicely," he said, firming to 100.25 bid/101 offered, from an issue price at 98.788.

Among the other issues of recently priced debt, Isle of Capri Casinos' new 9% senior subordinated notes due 2012, which had priced Thursday at par, "were probably hovering right around there," while the new Penton Media 11 7/8% senior secured notes due 2007 were heard having moved up from their initial 99.503 price. Dresser Inc.'s new 9 3/8% senior subordinated add-on notes due 2011 were up to around 103 bid/103.5 offered from Wednesday's 102.5 issue price. Magnum Hunter Resources Inc.'s 9.60% senior notes due 2012 continued to be hold at the lofty levels north of 104, well up from their par issue price earlier in the month.

Back among already existing issues, Conseco "was up two or three points right off the bat" a trader noted, buoyed by the news that the Carmel, Ind.-based company had managed to renegotiate terms for repaying $1.5 billion of bank debt. The banks agreed to ease the covenants and liquidity requirements on the company's outstanding bank debt, giving it greater cash flow flexibility. The lenders cut Conseco's liquidity requirement to $50 million from $100 million previously, and dropped an requirement that it allocate half of the proceeds from any asset sales toward paying off its bank debt (see related story in bank loan section of this issue).

The trader saw Conseco's 6.40% notes due 2003 go from levels around 72 bid/74 offered before the news hit the tape, to levels as high as 75.5 bid/77 offered later on, although he acknowledged that there was "not tons of movement," in a generally sleepy Friday session. "There was a little pop on the news, then things settled down, and they finished about a point off their highs, but about two points stronger (than Thursday's levels) at the close."

At another desk, Conseco's 9% notes due 2006 were heard to have firmed to 48 bid from Thursday's close at 46.5; its 8¾% notes due 2004 rose to 56.5 bid from 54 previously; and its 10¾% paper ended up a point at 49.5 bid.

It was the second consecutive strong finish for Conseco, whose bonds had firmed several points on Thursday after having fallen a few points at midweek on apparent investor wariness over the company's effort to extend the maturities on some of its bonds as a cash-conserving measure by offering institutional investors new Rule 144A bonds with maturities pushed back a year or more, in return for assuring those bonds a higher place in the capital structure pecking order than the rest of its bonds (including those held by retail investors) in the event of a bankruptcy proceeding. Conseco shares were meanwhile up 16 cents (4.44%) to $3.76 in New York Stock Exchange dealings Friday.

Elsewhere, a trader saw good movement in the bonds of Sea Containers Ltd., after the Bermuda-based transportation and hotel operator reported a smaller fourth-quarter loss from a year earlier ($9.1 million, or 49 cents a share, versus $15.8 million, or 85 cents a share, a year earlier). The company attributed the narrowed loss to its improved leased cargo container and European ferry operations, and further reaffirmed its plan to sell a $100 million stake in its Orient-Express Hotels Ltd. unit. Its shares rose $1.05 (6.42%) to $17.40 on the NYSE.

The trader saw strength particularly in the company's shorter-dated paper, such as its 9½% notes due 2003, up a point-and-a-half to 95.5, its 10½% notes due 2003, up a similar amount to above 96 bid, and its 12½% subordinated notes due 2004, up a pair to 93. On the other hand, the company's intermediate paper was mostly unchanged, with the 10 ¾% notes due 2006 holding steady at 81.5 bid/82.5 offered, and its 7 7/8% notes due 2008 "pretty much unchanged" at 63 bid/65 offered.

The movement "was mostly on the short end, because people are confident that the shorter maturities, up through '04, will be paid off - the company has enough funds to take the '03 and '04 maturities out, but their rail contract [with the British government, to provide passenger service on a number of routes, including a key revenue generator for Sea Containers, the lucrative London-to-Edinburgh trip] only goes out to 2005."

Also on the upside, the trader saw B/E Aerospace Inc. "really humming," its 8% notes up a point to 91 bid, its 8 7/8% notes up two points, to 92 bid, and its 9½% notes due 2004 half a point better at 931/2.

The Wellington, Fla.-based maker of aircraft interior components and structures said Friday that it will focus aircraft seat production at a single plant in Northern Ireland, as it tries to cut costs in the aftermath of the Sept. 11 terrorist attacks, which badly affected the airline industry and related sectors, such as aerospace manufacturing.

Another name which the trader saw moving up - even while admitting that his firm's analyst "doesn't much like it" - is Buckeye Technologies Inc. (the old Buckeye Cellulose) whose 8½% notes due 2005 have recently moved up to around 90.25 bid/9.25 offered from previous-week levels around 85, and whose 9.25% paper due 2008 has likewise firmed to around 88 bid/90 offered, also from the 84-85 level, which the trader called "a pretty nice, hefty run. The Memphis, Tenn.-based maker of cellulose and specialty absorbent products announced earlier in the week that it had reached agreement with its bank group on amending its existing $215 million revolving credit facility, so that financial covenants will be loosened through June, 2003, in exchange for a 50 basis point rise in the facility's interest rate.

And "everyone was scrambling to buy the paper" of Boyd Gaming," he said, whose existing 9¼% bonds due 2009 and 9½% bonds due 2007 - expected to be taken out with the proceeds of the casino operator's upcoming new deal - have recently hovered north of 103 bid.

A trader at another desk meantime saw Revlon's bonds "continuing to tick up and grind north" despite a lack of fresh news about the New York based cosmetics company, which is controlled by billionaire financier Ronald Perelman. He saw Revlon's 8 5/8% notes at 47 bid/50 offered, up from 45.5 on Thursday.

On the downside, he said, Lucent's 7 1/8% notes due 2006 dipped to 81.5 bid/82.5 offered, after Moody's Investors Service dropped its senior debt two notches to B2 from Ba3 previously. Moody's said the rating action reflects "the continuing cutbacks in capital spending plans by Lucent's core customer base and the expectation that the downturn in demand will be more protracted and deeper than we had previously anticipated."

As a result, the ratings service warned, "the company's return to profitable operations, even at the EBITDA level, will be delayed and cash outflows will continue for an extended period. Moody's acknowledges that the recent trust preferred issue and pending asset sales will provide the company with significant liquidity to fund its cash burn rate. However, breakeven cash flow from operations is not likely to be attained in the near future. "Lucent's 7¼% notes eased a point to 83.75. Its 5½% notes went to 7.5 bid from 73. On the equity side, Lucent fell 20 cents (4.18%) to $4.59, on NYSE volume of 67 million shares, more than double the usual.

But apart from credits with stories attached to them, such as Lucent or Conseco, overall activity was restrained, traders said. There was scant reaction to the news that high-yield mutual funds showed their fifth consecutive weekly inflow, as $393.5 million more came into the funds than left them in the week ended March 20, according to statistics compiled by AMG Data Services, which are viewed by many market participants as an accurate measure of overall liquidity trends. In the prior week, $1.228 billion came into the funds, the second straight week in which inflows had topped the magic billion-dollar mark. With inflows recorded in nine of the first 12 weeks of 2002, total net inflows stand at a hefty $4.1 billion.

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