UCAR, ON Semiconductor price deals; WorldCom slide dominates secondary

By Paul Deckelman and Paul A. Harris

New York, May 1 - ON Semiconductor Corp./ Semiconductor Components Industries brought a scheduled $300 million offering of six-year notes to market Wednesday, syndicate sources said. Meantime, UCAR Finance Inc. - whose $150 million add-on to its 10¼% senior notes due 2012 was on market players' radar screen but which was not expected to imminently price - did so, taking advantage of cash-laden junk players' desire to put their money to work at a decently robust yield level.

In secondary dealings, "if you weren't trading WorldCom Inc. bonds [Wednesday], you weren't trading, period," said one junk market trader - a sentiment echoed at other desks as well. The bonds of the once high-flying telecom giant - laid low by market concerns over its huge debt load and the abrupt ouster of its founder and long-time chief executive officer, Bernard J. Ebbers - continued to flail around, their still nominally investment-grade status belied by the distressed levels to which they have collapsed over the past few sessions.

Sources on both the buy- and sell-sides were watching for the terms from ON Semiconductor Corp./Semiconductor Components Industries, LLC's new $300 million offering. The Phoenix, Ariz.-based company's six-year senior secured notes came discounted to 96.902 to yield 12¾%, according to a syndicate source. Talk had been 12½% to 12¾%.

The new ON Semiconductor bonds carried the "triple-hooks" - a CCC+ rating from Standard & Poor's. Some observers were keen to see how the transaction would fare in the wake of Tuesday's postponement of Hollywood Entertainment deal, which had a Caa1 rating Moody's.

Sources have noted that in addition to Hollywood Entertainment, deals from PCA International and Panavision - both of them carrying a triple-C rating from one agency - recently disappeared from the calendar without pricing.

Mike Difley, vice president and portfolio manager of the American Century High Yield Fund, told Prospect News Wednesday that the postponement of Hollywood Entertainment's deal was mostly a reflection of the fact that the company didn't like the price.

"I don't think it was a function of people's dislike for the deal," Difley said. "The company apparently just wasn't quite in agreement with pricing it where investors thought it should come. They wanted to price it around 9½% or so and investors were probably looking for at least 10%.

"Given the call premium that the company had to pay, it didn't make sense unless the interest rate was lower on the new issue."

Nevertheless, Difley specified, the abundance of cash presently reported to be on the sidelines of the high yield market has not resulted in a less cautious buy-side. Clear stories and familiar companies remain the order of the day, he said.

Of course some of the clearest stories and most familiar companies to come to the high yield primary recently are the energy companies. Difley told Prospect News that especially with the 7½% yields with which XTO Energy and Pioneer Natural Resources deals priced in the latter half of April those are not especially appetizing either.

"With Cross Timbers I already owned the bonds," he said. "And where the new one was talked didn't give me much of an incentive to own it."

The American Century High Yield Fund portfolio manager commented that these tight pricings were a function of the market's present comfort with the energy sector, as well as a reflection of a lot of money chasing a relative shortage of new deals.

"The outlook for energy is pretty good over the coming months," he explained. "And Cross Timbers is one of the darlings of the high yield energy market, so people are very comfortable with the name.

"That, coupled with a lot of cash on the sidelines combined for the underwriter being able to price it that way."

So what credits have been of interest to Mike Difley? Prospect News inquired.

"I did play the JohnsonDiversey deal," he said. "That was an absolute blowout, so it's not like I got much."

The deal's appeal, Difley explained, was its technical factors "and what people viewed as a solid, straightforward credit."

A sell-side source told Prospect News Tuesday that the present equity market seems "jittery," and Difley said he concurs with that take, somewhat.

As to what that jitteriness might portend for high yield he said: "I'm feeling a little uneasy with all that is going on in investment-grade land - with the WorldComs. Even today you're seeing the other wireline guys getting beaten up like Sprint and AT&T.

"It makes me a little bit nervous if we're going to have more spillover effect into high yield.

"But at this point everything away from telecom in high yield has shrugged off what's happening there. And the technicals are still pretty strong with all the positive inflows and a lot of cash on the sidelines."

In Wednesday's activity in the primary market Wilmington, Del.-based UCAR returned with an upsized $150 million add-on to its 10¼% 10-year senior notes (B2/B). The original deal priced early in February.

And while the original deal priced at par, the additional notes yielded 9.415%, more than 100 basis points less.

Credit Suisse First Boston and JP Morgan were joint bookrunners.

Also on Wednesday a source from London told Prospect News that the roadshow on Russian petroleum company JSC Tyumen Oil's offering of $300 million-plus of five-year eurobonds (Ba3) will wrap up on May 14.

Credit Suisse First Boston and Salomon Smith Barney are joint bookrunners on the Rule 144A deal.

Finally in primary action Wednesday, price talk of 10 ½%-10 ¾% was heard on NMHG Holding Co.'s $250 million seven-year seniors (B3/B+), which are expected to price Thursday afternoon. Credit Suisse First Boston and Salomon Smith Barney are joint bookrunners.

In secondary dealings, "other than WorldCom, nothing was doing anything," a trader declared - reiterating a pattern which has held true all this week. "The market has pretty much been dominated by WorldCom."

He saw the troubled telecommunications operator's bonds "all over the market." He said that the message he had gotten from the various accounts which he talked to was that "everybody is just trying to figure out what's going on in the whole case."

The $64,000 question, of course, is "will they file or won't they?" This particular market-watcher thinks the latter is the more likely scenario for the Clinton, Miss.-based long-distance giant, which has an estimated $29 billion of bonds outstanding, making it one of the largest U.S. corporate bond issuers.

"Basically, they're saying their free cash flow will be $1 billion this year, $1.2 billion next year," he explained. "They've got a $2.7 billion line of credit, which they can draw down at any time. If they got downgraded [by the major ratings agencies], they'd have to refinance $2 billion, and you've also got $1.2 billion in cash. The bottom line is they seem like for the short-term, they're OK, but what happens say, two years out, that's the big question there."

In the meantime, he continued, "the talk [in the market] is 'let me try and figure this whole thing out.' Everybody is trying to trying to figure out the nuances. I know that [WorldCom] stuff is trading but the guys I've talked to are trying to figure the whole thing out."

Another trader, at a distressed-debt shop, took a more wary view of WorldCom's likely ability to restructure its huge debt load without the courts.

"People don't know and we don't know. Based on the price levels on its bonds, it looks like there's a 60-40 chance that this company is going to file" for Chapter 11 protection. "If you're going to buy something, you buy it at a lower dollar price," he said, explaining his own desk's reluctance to get involved with some of the WorldCom issues which were still being quoted in the lower 70s and not too far down from there.

If Chapter 11 turns out to be the fate for WorldCom - which went public in 1989 when Ebbers merged his LDDS Communications with Advantage Cos., and which continued to rapidly bulk up to giant size in the years that followed as its acquisitive chief bought one rival telecom operator after another - it would make the company the latest - and probably the largest - telecom operator to give up the ghost and seek court protection from its bondholders and other creditors while it tries to straighten out its finances. Others in the industry taking that route have included Global Crossing Holding Ltd., Williams Communications Group Inc. and PSINet Inc.

The trader saw most of WorldCom's bonds having opened down about four or five points from Tuesday's levels, and then having firmed from those lows, while still having ended down several points on the day.

He also noted that the company's bonds were "compressing" - a frequent phenomena when a credit is in freefall the way Worldcom now. The normally much better-bid-for shorter-maturity credits move sharply down to bring their prices in the direction of eventual convergence with the lower-priced longer-dated stuff. He quoted WorldCom's 7 7/8% notes due 2003 as having fallen six points on the session, from 76 bid/78 offered on Tuesday, to 70 bid/72 offered Wednesday, while its 8¼% notes due 2021 actually gained a point to end at 43 bid/45 offered.

At this juncture, WorldCom - which for the moment retains its investment-grade ratings - has now passed into the hands of junk bond traders at many houses.

"We traded a ton of their bonds [Wednesday], another trader said, quoting the activity level in the name as "ridiculously" heavy. "If you weren't trading WorldCom, you just weren't trading."

He saw the 7 7/8% notes ending at 71 bid/73 offered. Its widely traded 7½% notes due 2011 dipped sharply at the open, firmed off their lows, and ended at 44.5 bid/46.5 offered, down at least two or three points on the session. WorldCom's 7¾% notes due 2007 dropped to 45.5 bid/47.5 offered, while its 6.40% notes due 2005 - a "very active issue", he called it - eased to 47 bid/49 offered. Bonds issued by WorldCom's MCI Group long-distance unit, such as its 6½% notes due 2010 and its 7¾% notes due 2023, ended at 44 bid/46 offered and 40 bid/42 offered, respectively.

Outside of WorldCom, one market observer said that the still high-grade bonds of other large telecom operators such as AT&T, Sprint and Qwest Communications International - the latter recently trading down to junk-like levels amid questions about its own heavy debt load and possible regulatory problems - were all "significantly lower" on the session, although accurate price quotes were particularly hard to come by because everybody was fixated on WorldCom's spiraling nosedive. Ma Bell's bonds, he noted, had "widened out quite a bit - but it was very difficult to get markets in anything [other than WorldCom]."

Back among the pure junkers, "there was nothing going on beyond WorldCom," a trader asserted. "Nobody gave a damn about anything other than that. When you have a WorldCom, with over $20 billion in bond debt - well, that's a lot of issues, a lot of debt, and a lot of price action."

Another trader noted that while the bonds of Williams Communications Group and Level 3 Communications Inc. had been easier on Tuesday, dragged down by news of Ebbers' resignation and the difficult task facing his successors, they seemed to stabilize on Wednesday, with Level 3's benchmark 9 1/8% senior notes due 2008 quoted around 46 bid, and the Williams bonds languishing around 13 bid.

Outside of the communications sphere, the trader saw Kmart Corp.'s senior debt down two to three points "on their own ineptitude," after the Troy, Mich.-based discount retailing giant - in bankruptcy since January - said it would have to delay filing its annual 10-K earnings report with the Securities and Exchange Commission while it reviews its accounting practices. Kmart also said it was looking at a possible restatement of quarterly result for fiscal 2001.

Kmart's senior unsecured bonds, which had recently traded in the 48-50-bid area, dropped back to around 44-46, he said.

The ongoing WorldCom soap opera completely overshadowed the news that Moody's Investors Service laid a three-notch downgrade on Xerox Corp., dropping the rating on its senior bonds to B1 from Ba1 previously. Moody's cited the impact of the Stamford, Conn.-based copier giant's slowing sales, in an environment of increasingly burdensome debt obligations. With market attention centered on WorldCom, activity in Xerox was limited; its 9.75% notes due 2009 continued to hover in the lower 90s.

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