Williams bounces on contract news; Tyco continues to erode; TSI, CGG price deals

By Paul Deckelman and Paul Harris

New York, Feb. 5 - Williams Communications Group Inc.'s battered bonds were on the rebound Tuesday, after the troubled telecommunications company gave its investors some good news, in the form of an announcement about a potentially lucrative contract. But there was no good news in sight for Tyco Corp. bondholders, whose securities continued to erode in value, even as the company clung to its nominally investment-grade status.

In primary market dealings, the offering to finance TSI Telecommunications, Inc.'s leveraged buyout finally priced and Compagnie Generale de Geophysique came to market with an upsized add-on issue to its existing 10 5/8% senior notes due 2007, while United Auto Group was heard by junk marketeers to be revving up a planned $200 million senior subordinated note offering.

Williams - whose bellwether 10 7/8% notes dropped into the upper teens Monday from prior levels around 28 bid on its warning that its banks might consider it in default on its credit facility before coming back late in that session to close out around 25 - "initially got smacked around" in Tuesday's dealings, a trader asserted. "Bids were being hit, but then they came out with some news and they rebounded a little bit."

At another desk, the company's notes were quoted going home "up a couple of points," bid around the 27 level. During the morning, Williams announced that it has signed an agreement to provide long-distance services to Verizon Global Networks Inc., a subsidiary of Verizon Communications. Financial terms of the arrangement were not disclosed, although Tulsa, Okla.-based long-distance carrier Williams praised Verizon as "a high-caliber customer."

The giant local phone service provider's choice of Williams as a partner in helping to provide domestic long-distance service to customers in 40 states can be viewed as a welcome endorsement at a crucial time for the embattled company; the ratings on Williams' bonds were knocked down to weak junk levels just last week, and it was forced by market conditions to defend the status of its credit facility as not being in default and to declare Monday that it does not envision a bankruptcy filing or massive equity dilution as likely options as it attempts to restructure its debt.

Williams is reported to have held a meeting with its employees in Tulsa - something it routinely does following the release of quarterly numbers (the company reported fourth-quarter 2001 results Monday, posting a narrower loss from last year and beating analysts' expectations). At the meeting, company executives looking to rally the troops were said to have reiterated Williams' position, which was enunciated Monday in the earnings release. They challenged assertions by some of their bankers that Williams might be in default on the credit facility, they noted that the company is current in its obligations and said that the whole question of default is not based upon any problems in making payments, but rather, springs from the banks' nervousness over whether Williams will be able to live up to its financial projections, given the slump in the overall telecom industry. At the same time, the Williams executives said the company intends to vigorously defend itself against class-action litigation filed against Williams and former corporate parent The Williams Cos., relating to the Tulsa-based pipeline and energy trading giant's recently completed spin-off of the telecom company.

While bondholders seemed reassured by news of the new deal with Verizon and the company's assertions regarding the possibility of default and or bankruptcy, shareholders remained skeptical; Williams shares dropped 15 cents, or 15%, in New York Stock Exchange trading, to 85 cents. Volume of 27.7 million shares was more than four times the usual daily turnover.

The dichotomy between debt and stock investors was also evident Tuesday in Nextel Communications Inc., whose bonds firmed after the Reston, Va.-based wireless operator - fifth largest in the U.S. - announced preliminary net new subscriber totals for the fourth quarter. Nextel said it added a net of 501,000 new customers, beating analyst forecasts of between 460,000 and 490,000. It said new subscribers for the full year totaled 1.99 million, at the top end of expectations. For 2002, Nextel confidently predicted that it would add another two million domestic subscribers.

"The headlines (about Nextel's projections) did help, a trader said, noting that the company's benchmark 9 3/8% notes moving up to 66.5 bid/67.5 offered by mid-afternoon, versus levels earlier in the session around 63 bid/64 offered.

Even so, the trader said, "the stock got slammed," with Nextel shares dropping as low as $4.31 - an all-time intraday low - before bouncing part of the way back from those depths to still end down $1.73 (25.52%) in Nasdaq dealings, at $5.05. Volume of 103 million shares was nearly eight times the usual handle.

Outside of the telecom sphere, "the paper that was really strong today was Navistar International," a trader said, helped by strong earnings among other companies in that sector.

He quoted the Chicago-based truck maker's 9 3/8% notes as having moved up to 105.5 bid from 104.75 previously; its 8% notes due 2008 went from 96 bid to 97.5; and its 7% notes due 2003 advanced to bid levels around 100.375-100.5. "Anybody that's related to that industry was pretty strong" Tuesday, he said, adding that automotive parts was another strong sector "across the board," with Mark IV paper "up pretty big." He saw the parts maker's 7½% notes trade as high as 73 bid, from prior levels in the 68-69 bid area.

Also on the upside was Rite Aid Corp., after the Camp Hill, Pa.-based drugstore chain giant - third largest in the U.S. - reported an 8.3% rise in same-store sales and a 6.8% total sales increase in the four weeks ended Jan. 26.

Rite Aid's 11¼% notes due 2008 were quoted up six points on the session to 67 bid, a market observer said, while its 7 1/8% notes due 2007 were up a pair to 60 bid.

On the downside, however Charter Communications debt dropped two points, after the St. Louis-based cable giant's shares broke through their previous 52-week low at $10.49 and plunged all the way down to an intraday low of $9.53. Late in the day, however, they bounced off that low point to end at $10.55 - still down 91 cents, or 7.94%, in Nasdaq trading. Volume of 17.5 million was more than triple the usual. Charter's 8 5/8% notes due 2009 dropped a deuce to 94 bid.

Lucent Technologies Inc.'s bonds were weaker Tuesday, the 7¼% bellwether bond due 2006 dipping more than a point to 87.25 bid.

And it was another down day for Tyco Corp., as the embattled Bermuda-based diversified manufacturing holding company continues to reel from questions about its accounting practices - a major investor concern in the wake of the Enron Corp. fiasco

Tyco "absolutely got clobbered and traded down," a trader said, although he said that the issues managed to rebound somewhat off their intraday lows. Despite the company's nominally investment-grade debt ratings, he said (A2/BBB after a three-notch downgrade Monday by Standard & Poor's), "they are absolutely now quoted in dollars," just like a junk bond, rather than on a spread-versus-Treasuries basis, as investment-grade issues usually are.

Tyco "got hit again today," someone at another desk said, quoting the company's 6 3/8% notes due 2006 as having dropped to 78.5 bid from late Monday levels around 82-83; its 6¾% notes due 2011 were at 76.5 bid, down from 84.

Back among the pure junkers, a trader saw weakness in natural gas-related paper; he quoted Magnum Hunter's 10% notes at 97 bid, down from 98.25.

He also saw "a lot of interest, but no direction," in B/E Aerospace paper. "An inordinate amount" of the Wellington, Fla.-based aircraft cabin components maker's debt changed hands, he declared, although there was not much price movement; he saw its 9½% notes hanging in at 88-89 bid; its 8 7/8% notes around 84.5-85 range, and its 8% debt around 84.5. "I'm not saying whether it was up or down, but there was a lot more activity in that bond than I've seen in many moons," he continued, noting that the company recently gave an apparently well-received presentation at a Bear Stearns & Co. high yield conference.

Overall, another trader said, though, the market was "very quiet," with weaker issues, particularly in the telecom sector, getting hit. "We definitely had a heavier, weaker tone today," he concluded.

In the primary market, observers noted that the TSI Telecom deal - $245 million senior subordinated notes due Feb. 1, 2009 (B3/B-) sold via TSI Merger Sub, Inc. - represents the first LBO deal of the new year. The Tampa, Fla.-based company priced its deal Tuesday at 97.784 to yield 13¼%.

Official price talk of 12% area came out on Tuesday, Jan. 29. And around the market observers noted that TSI had first been slated to price last Thursday.

One sell-sider told Prospect News that any difficulty TSI may have encountered in getting its story across to investors does not portend badly for LBO deals, in the present market.

"The LBO market is wide open," this official asserted. "It's going to be white hot. There just haven't been any deals coming to market except for a very tough credit story that portends nothing."

Terms also emerged Tuesday on Compagnie Generale de Geophysique's offering, which was upsized to $55 million from $50 million. The add-on to CGG's 10 5/8% senior notes due Nov. 15, 2007 (Ba3/BB) priced at par, to yield 10.617% - "right on top of price talk," according to a syndicate official. RBC Capital Markets, and Salomon Smith Barney were joint bookrunners on the Rule 144A deal.

Details were heard late Tuesday about a new offering from American Media Operations, Inc. The publishing company will sell hit the road Wednesday to market a $150 million add-on. J.P. Morgan is running the deal, which will increase the size of American Media's existing 10¼% series B senior subordinated notes due May 1, 2009. The deal is expected to price Monday.

Rudimentary details were heard Tuesday on two further deals: Detroit-based United Auto Group, Inc. announced a proposed new issuance of up to $200 million of senior subordinated notes. And Moody's Investors Service assigned a B2 rating to "the proposed issue" of McMillin Cos. LLC, a $60 million offering of senior secured notes due 2009. No further information on either of these deals was available at the end of Tuesday's session. McMillin is a real estate company located in National City, Calif.

Of the deals that remain to price during the week of Feb. 4, the one that is of most interest to Prescott Crocker, portfolio manager of the Evergreen High Yield Bond Fund, is UCAR International, Inc.'s offering of $250 million 10-year notes (B2/B-) via its UCAR Finance, Inc. unit. Joint bookrunners are Credit Suisse First Boston and J.P. Morgan.

"We like UCAR," Crocker said. "It's a 'razor-blade' company to hot-melt steel companies, and that's the most efficient way to make steel.

"Their (carbon electrodes) are razor blades," Crocker continued. "They've got a total monopoly on the industry. It's a good cash cow company. Low capital expense. Low capital investment requirements."

Asked if the softness of the international steel industry, which represents UCAR's customer base, caused him to fret over the credit, Crocker was unswayed.

"Steel is being produced," he stated. "And these are providers to the lowest-cost methodology of producing steel. So through thick and thin this company's business demand will be there."

Finally, one sell-side official told Prospect News late Tuesday that the dynamics of the high yield primary market ought to seem attractive to issuers.

"There's tons of cash in the market," the official said. "The year-to-date calendar has not been significant. There's only been $7 billion issued, year-to-date, which is small. That's 'mice nuts.'

"The calendar's at $2.5 billion. That's nothing. The calendar can handle a lot more than that. A lot of insurance companies, a lot of the pension funds are devoting a lot more cash to the market.

"I think right now it's an issuer's market for the right credit."

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