New deals seen for Land O'Lakes, ResCare; Kmart, Conseco retreat in secondary

By Paul Deckelman and Paul A. Harris

New York, Oct. 30 - New primary-side deals emerged Tuesday from Land O'Lakes, and ResCare, while price talk was heard on Westport Resources Corp.'s coming $200 million offering of 10-year notes. In secondary dealings, Kmart Corp. bonds were lower as consumer confidence continued to shrivel, and Conseco Inc.'s debt retreated on news of a sizable third-quarter loss.

Kmart was one of the more active secondary names Tuesday, its debt quoted lower in the wake of bearish consumer sentiment data from The Conference Board, which reported that its index of consumer confidence plunged for the fourth straight month to 85.5 in October - the lowest it has been since February, 1994.

That triggered a slide in the stocks of a number of retailers, and was felt on the bond side too, with Kmart's 7¾% notes dipping slightly to 85.5 bid and some of its other issues showing bigger declines.

The Troy, Mich.-based discount retailing giant's 8 3/8% notes were heard off three points on the session, at 83 bid, as were its 8 ¼% notes.

A trader said that Kmart paper "was down big," quoting the company's 9 3/8% notes offered at 91, down about six or seven points from their recent highs.

He opined that while the consumer confidence numbers were daunting enough, "maybe there's something else there, something more fundamental," although he couldn't quite put his finger on it.

According to published reports, analysts who follow the retailing sector saw Kmart's same-store sales as trending lower than expected in the third week of October. Some were said to have lowered their earnings expectations for the company.

Reuters quoted equity analyst Bob Buchanan of A.G. Edwards & Sons as saying in a research note that Kmart's central problem "has been and remains its relatively low sales productivity and related relatively high expense-to-sales ratio." Buchanan now believes Kmart will post a 31-cent-[per-share loss for the third quarter, wider than his earlier 19-cent-per-share deficit projection.

Conseco Inc. meanwhile reported a large loss for the third quarter, which sent its bonds into retreat. The Carmel, Ind.-based insurer "looked like it was getting better after the conference call on earnings, but now it's come in," a trader said, quoting its 10¼% notes bid around 85-86, down a point or so, and its 8½% notes due 2002 going home offered around 78 after having traded earlier in the day above 80.

At another desk, Conseco's 9% notes were heard bid at 50 and its 10¾% notes at 51.5, both down a point-and-a-half on the session.

Conseco lost nearly $411 million for the quarter, or $1.21 per share, after having taken $471 million in previously announced charges, mostly for marking down investments and taking a loss on selling some bonds. Charges included $23 million in reserves to cover bad loans in the quarter.

In the year-ago quarter, Conseco lost $489 million, or $1.50 per share.

High yield players were also watching the descent of Enron Corp. While still nominally an investment-grade issue, the Houston-based energy operator's debt "is trading like junk bonds now, just going down and down," one market source said. "It's really ugly."

Enron's 9 7/8% notes due 2003 were quoted, in dollar values, as a junk bond would be, at 86 bid/90 offered, its 6.40% notes due 2006 were at 74 bid/78 offered, and its 6.95% notes due 2028 were at 67 bid/72 offered.

Activity got underway on Tuesday's primary market with the pricing of an upsized IMC Global Inc. add-on. The deal was increased to $100 million from a planned $75 million via bookrunners Goldman Sachs, and J.P. Morgan. The deal priced at 101, the rich end of price talk of 100.5 to 101 for a yield to maturity of 11.074%.

IMC Global's vice president of investor and corporate relations David A. Prichard told Prospect News the chemical company was pleased with the deal's execution.

"The underwriters gave us some good insight into the market conditions, and suggested that the timing and the climate were good for an issuer like IMC to access this market," Prichard said.

"We think that what happened today bears that out."

Prichard said that after IMC weighed the decision as to whether to head to market now or hold out in hopes that the economy might improve in early 2002, the decision to move now was predicated upon a perceived "appetite," on the part of investors for the company's Ba1/BB paper.

"We thought this was an opportune time, and we could add a little on to the deal of $75 million," he said. "And we thought that it was better to do it now than wait. It was a judgment call."

Also in the primary Tuesday, word of two new upcoming deals spread. Adding a total of $450 million to the forward calendar are:

--Land O'Lakes Inc. with $300 million of senior notes due 2011 (Ba3), via J.P. Morgan, to price Nov. 8, and

--ResCare Inc. $150 million of notes due 2008 (B2/B) via UBS Warburg and Lehman Brothers to price Nov. 9.

And price talk of 8¼%-8 ½% surfaced on Westport Resources Corp.'s $200 million of senior subordinated notes due 2011 (Ba3/BB-), set to price Wednesday. One market source told Prospect News that investors were still being advised that the $200 million amount was a "minimum" figure, and that there appears to be a good chance the Westport's new issuance (Ba3/BB-) would upsize.

The news of new issuance notwithstanding, one investment banker took a moment to consider the road ahead, as the markets head into the final two months of a turbulent 2001, and held forth with a few dire prognostications.

"It's going to be touch and go for the rest of the year," the syndicate official said.

"The primary market is flush with cash. They didn't have the ability to put it to use in September because there was no September market after the 11th. And they went into September with 10-15% cash, in anticipation of a huge primary calendar in September and October. That obviously, due to events, did not occur.

"So the question now is, do they put that cash to work in the primary market for select credits or do they put cash to use in the secondary and buy depressed credits and try to ride them back up when this thing turns around? They're not going to sit there at year-end with 15% cash balances in their portfolios, because people aren't paying them to do that."

As to what kinds of credits would come to the primary market during the final two months of 2001, this official was unequivocal: good credits, with lesser credits only included if they hail from recession-proof sectors.

"B3/B- is as low as you can go," the official said. "It's going to be sector- and credit-specific.

"Do I think a B3/B- energy deal can get done? Absolutely," the official continued. "Do I think that a B3/B- health care deal can get done? Sure, if it's in the right sector. Do I think that another B3/B- auto parts retailer is not going to have to pay through the schnozola?"

He also wondered about how much of a 2001 high yield primary market season actually remains.

"The question is, What's going to happen after Thanksgiving?" the official said. "Are we going to have a market for two- or two-and-a-half weeks? Or are we going to be done after Thanksgiving, and everyone's just going to call it a year?

"I can't tell my issuer, or my accounts on the buy-side that we're going to bring a deal when we don't know if there is going to be demand," the official said. "The last thing I want to do is, after having a good year crumble into ashes, and then having the market resurrected through a lot of hard work by a lot of different underwriters, is to go out on a sour note, with a failed deal, because our timing was off."

But, he added: "I'm going to try to bring some deals, God willing."

End

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