Xerox bonds firm after big deal; Levi lower; primary deals hitting road

By Paul Deckelman and Paul A. Harris

New York, June 20 - Xerox Corp.'s new bonds were heard having traded moderately firmer on Friday, dominating an essentially sleepy secondary market heading into the first official weekend of summer.

After the intense pace of the past week - more than a dozen new deals brought to market, culminating with Xerox's mammoth $1.25 billion offering on Thursday - the primary market took a breather. Several companies were, however, heard to be preparing roadshows for upcoming new deals, including Pacific Gas & Electric and Avondale Mills.

On Friday, for the first time since April, a session passed in the high yield market with no transactions being completed, one source told Prospect News shortly after the close.

The source characterized that color as "nothing significant, just an interesting little fact-oid."

Some observers had expected deals to price as the final session of the June 16 week opened.

One that had been mentioned was Huntsman Advanced Materials' offering of $345 million of five-year senior secured notes (B2/B). Early Friday, however, price talk of 11%-11¼% emerged on the new Huntsman offering, via Deutsche Bank Securities and UBS Investment Bank, which is expected to price late Monday.

Another pricing that sources said appeared to be imminent, going into Friday's session, was Gerdau Ameristeel Corp.'s planned $400 million of eight-year senior notes (B2/B+). Price talk of 10% area was heard on that deal on Thursday. Late Friday one informed source said that the deal, via JP Morgan and Banc of America Securities, is expected to price on Monday.

Hence Friday became an anomaly in the presently rallying junk bond market with no deals pricing.

However that just served to lengthen the already-extensive trail of prospective deals on the forward calendar, because three companies apparently decided to abide by the injunction now said to be issuing from investment banks to prospective issuers: "Strike while the iron is hot."

San Francisco energy firm PG&E Corp. will begin plugging into the accounts on Tuesday with an offer of $600 million of new five-year senior secured notes.

In developments late in the week of June 23, the company's subsidiary Pacific Gas & Electric Co. said late Thursday that it reached an agreement with the California Public Utilities Commission that will allow it to emerge from bankruptcy, ending nearly two years of litigation.

As part of the agreement PG&E Corp. and utility shareholders will forego dividend payments until July 1, 2004. After that there will be no restrictions. The total of missed dividends since payments were suspended in January 2001 is $1.7 billion.

In a statement Pacific Gas & Electric and PG&E said: "The proposed settlement would resolve the utility's Chapter 11 proceeding on acceptable terms. It meets basic goals we set for any reorganization plan: it would allow Pacific Gas and Electric Company to emerge from Chapter 11 as an investment-grade utility, pay all valid creditor claims in full, with interest, and do so without raising our customers' rates.

"PG&E has agreed to this proposed settlement because it is the quickest way to resolve the Chapter 11 proceeding, in a manner that is fair to our customers and our company."

Lehman Brothers is the bookrunner on the new five-year non-call-three notes from PG&E Corp., which are expected to price on Friday.

In other announcements Friday, Monroe, Ga. textile firm Avondale Mills, Inc. will attempt to sew up $150 million from high yield investors with an offering of new 10-year senior subordinated notes that will reportedly take to the road on Monday and price late in the week of June 23 via Wachovia Securities.

And the Mohegan Tribal Gaming Authority is expected to come with a quick-to-market high-yield notes transaction sometime during the week of June 23.

News of the Uncasville, Conn.-based tribal gaming operator's new junk was intimated in the text of a tender offer announced Thursday for $300 million of the company's 8¾% senior subordinated notes due 2009. Banc of America Securities and Citigroup are dealer managers on the tender.

One informed source who spoke to Prospect News on Friday said that while the deal size, maturity and precise makeup of the bookrunning team were still being hashed out, if the market appears receptive and the rates appear attractive, Mohegan will spin the wheel.

"It's next week's business," asserted the source. "There are probably four or five (banks), and they're still battling it out as to who is going to have the books.

"But this is a very well known issuer and they won't need a roadshow. They'll talk with a couple of guys on the East Coast and a couple of guys in Europe and be done with it."

Finally on Friday, in addition the above-mentioned developments on the Huntsman deal, price talk and timing emerged for Danka Business Systems plc's $175 million of seven-year senior notes (B2/B+). Talk is 11%-11¼%, with pricing expected on Monday. Bear Stearns & Co. is the bookrunner on the St. Petersburg, Fla. document services provider's offering.

The new Xerox bonds were the main focus of secondary dealings on a day as "a typical Friday in the summer - quiet as a cemetery."

At a number of desks, people had already long since headed for home by the time the "official" close rolled around at 4 p.m. ET.

"It was absolutely a horrible day," another trader lamented in talking about the level of overall inactivity.

When the new Xerox 7 1/8% senior notes due 2010 and 7 5/8% senior notes due 2013 opened for trading Friday morning, they quickly moved up to 101 bid from their late-Thursday par issue prices and mostly stayed around that level.

A trader said that after Xerox moved up "right out of the chute," he had been trading the bonds in a range of anywhere from 100.75 to 101.5, and said the company's new preferred issue had gone as high as 103.

Elsewhere, KB Home's 8 5/8% notes due 2008 were quoted a point higher at 115, after the Los Angeles-based homebuilder reported fiscal second-quarter earnings after the close Thursday of $81.4 million ($1.94 a share), a 27% jump from $64.1 million ($1.42 a share) a year earlier. The company absolutely blew through analysts' estimates of $1.64 per share.

KB credited the strong rise to the continued drop in mortgage rates and "strong price appreciation," and upped its estimates of full-year profits $8.20 a share, up from both its own January earnings projection of $8 a share, and analysts' consensus estimates of $8.04.

Also reporting better earnings late Thursday was Isle of Capri Casinos Inc., which swung back into the black with net income of $18.2 million (60 cents per share) in its fiscal fourth quarter ended April 27, compared with a loss of $22 million (78 cents per share) in the year-ago quarter. Analysts had projected earnings of 52 cents per share.

The Biloxi, Miss.-based gaming operator credited its advertising campaign with having brought in gamblers - particularly those who had been to Isle before - even in an uncertain climate.

The company's 9% notes due 2012 firmed half a point to 107.5 although its 8¾% notes due 2009 actually eased slightly to 107.

Level 3 Communications Inc.'s 9 1/8% notes due 2008 were seen up two points at 90.5 bid.

On the downside, Levi Strauss & Co.'s 7% notes due 2006 were being quoted down as much as four points at 78.5 bid while its 11 5/8% notes due 2008 were down around three points to the 85 mark. No fresh negative news was seen out on the closely held San Francisco-based apparel maker.

Ratings downgrades - actual or possible - apparently helped to drop the bonds of Solectron Corp. and Playtex Products.

Solectron's 9 5/8% notes due 2009 were down about a point or two, after the Milpitas, Calif.-based contract electronics manufacturer posted a huge net loss for its latest quarter, prompting Standard & Poor's to put its BB- rating on CreditWatch with negative implications. Moody's Investors Service also indicated that it might cut the company's Ba3 bond rating and its other ratings as well.

The company reported a fiscal third-quarter loss of $3.1 billion, or $3.74 a share, far wider than last year's $284.4 million, or 35 cents a share third-quarter deficit. Solectron blamed its latest restructuring effort, and forecast unexpectedly weak performance in the current quarter.

Playtex's 9 3/8% notes due 2011 fell two points to 103.5 after S&P cut its B rating to B-, citing "soft operating performance and high debt leverage, which have led to credit protection measures that are weak for the current rating, including debt to EBITDA (adjusted for nonrecurring charges and the accounts receivable securitization program) of 6.1x for the 12 months ended March 29, 2003."

The ratings agency also noted that consumer products maker Playtex is in discussions with its bank group to loosen its leverage covenant, "as it does not expect to be in compliance for the next few quarters."

In the distressed area, Kaiser Aluminum's 10 7/8% notes due 2006 were heard four points lower, at 67, but with no news out on the Houston-based metals maker.

And reports that Amerco - corporate parent of the U-Haul rental system - would likely file for Chapter 11 Friday caused little movement in its 8.80% notes due 2005 and 6.71% notes due 2008, both quoted unchanged around 76 bid. The reports proved right however as the company filed after the market close.

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