Williams bonds jump, but investors dump Trump; Westport upsized, prices tight

By Paul Deckelman and Paul A. Harris

New York, Oct. 31 - Williams Communications Group Inc. bonds were up solidly Wednesday on news the company had negotiated a favorable amendment to its bank credit agreement. But Trump Hotels & Casino Resorts Inc. rolled a snake eyes with its warning that it seeks to negotiate new debt terms with its bondholders and will withhold interest payments until such talks are "successful," the bonds taking a sizable dive on heavy volume.

In the new-deal arena, Westport Resources Corp. priced an upsized 10-year issue tight to pre-deal market price talk, and American Restaurant Group Inc. was heard late in the session to have served up a new offering of five-year secured notes. Price talk meantime emerged on Tesoro Petroleum Corp.'s pending seven-year senior subordinated note deal.

Williams Communications' various issues of senior notes climbed to bid levels around 43-44 from the 38-39 area previously, after the Tulsa, Okla.-based long-haul telecommunications company said it had amended the covenant in its bank credit facility agreement which required it to raise additional capital by end of year. Williams had been required to issue $225 million of additional debt and equity by the end of the year, but that deadline has now been extended to July 1, 2003.

CFO Scott E. Schubert said in a statement issued by Williams that the company had enjoyed success in executing every part of its financing plan, and that Williams thus "has a fully funded business plan and does not need to raise additional capital at this time" - which is no small potatoes in a troubled industry where many operators either face unfavorable market conditions or other daunting hurdles in funding their business plans or have already run up the white flag and declared bankruptcy.

Williams additionally announced that to date, it has purchased approximately 18.3% of its outstanding publicly traded senior notes in the open market, starting in the third quarter, at an average cost to the company of 43 cents on the dollar. Williams utilized excess liquidity for the note purchases.

It also said that along with its lenders, Williams will undertake a comprehensive review of its existing credit agreement, in light of the company's reduced capital spending needs and the overall market environment. During the 60-90 day review period, Williams said it would not make any additional cash purchases of its publicly traded debt.

While Williams is eyeballing its bank credit agreement to make sure it continues to serve the company's needs, Trump Hotels & Casino Resorts proposes overhauling the terms of its roughly $1.8 billion of outstanding public debt - an announcement which caused the Atlantic City, N.J.-based gaming operator's bellwether issue, the Trump Atlantic City 11¼% first mortgage bonds due 2006, to slide badly.

The notes, which had closed around 61 bid/62 offered Tuesday, opened around 57 bid/59 offered Wednesday as The New York Times reported that company chairman and 42% owner Donald J. Trump had indicated he might not make $90 million of interest payments due Thursday on several issues of the company's bonds. The payments include $73 million due on the $1.3 billion of 111/4s, secured by Trump's Taj Mahal and Plaza casinos on the Boardwalk, and $15 million due on $242 million of Trump Castle Associates bonds secured by the company's Marina casino.

In his interview with the Times, Trump indicated that he has enough money to make the payments, but was considering not doing so in order to bring the bondholders to the negotiating table for talks on changing the terms of the debt in light of the changed environment for companies such as his own.

"The world has changed greatly since Sept. 11," Trump declared, noting that in its aftermath, New York legislators okayed plans for half a dozen new casinos and for slot machined gambling at racetracks, both of which could cut deeply into Atlantic City's gaming revenues.

Later in the day, the company issued a statement essentially reiterating the points which Trump had been quoted on in the Times story, and confirming that interest on its bonds would be withheld "until such time as discussions between the Company and the bondholders have been finalized. The Company intends to pay interest upon completion of a successful negotiation."

A trader said that the Trump bonds briefly rebounded to around 61-2 during the session before falling back once again to end at 55 bid/56 offered, trading flat, or minus accrued interest. "That's a real high yield roller-coaster for you," he asserted.

The FIPS market tracking service showed that as of 5 p.m. ET, some $303 million of the Trump A.C.'s had traded, almost one third of the $934 million turnover of the FIPS Nasdaq 50 index, with prices ranging between a low of 50 and a high of 60.

The 11¼% Trump A.C. bonds, easily the company's most liquid issue, were clearly the focus of market activity in Trump paper Wednesday; little price movement was seen in the Trump Castle 11¾% first mortgage notes due 2003, which remained at 74 bid.

Investor-oriented Internet bulletin boards seethed Wednesday with scathing denunciations of The Donald, mostly by disgruntled shareholders who had seen their stock decline in recent months to barely over $1 per share and who darkly warned that the interest moratorium and bondholder talks were a prelude to some kind of debt restructuring which would leave the shareholders holding the bag. Contrary opinions, however, suggested that was an unlikely scenario, given the flamboyant billionaire's own 42% equity stake in the company. They saw the gun being pointed at the heads of the bondholders, not the equity investors. "The more open market prices decline for the bonds, the more incentive there is for the bondholders to agree to a settlement" said one poster, suggesting the developments would turn out to be favorable from a shareholder point of view.

Wall Street apparently did not agree; Trump stock was down 25 cents on the session, or 20% of its value, to $1.

Elsewhere on the downside Wednesday, Allied Waste Industries Inc.'s bonds got trashed following the Scottsdale, Ariz.-based refuse-hauling company's late-Tuesday announcement that its president and chief operating officer, Larry Henk, had resigned to pursue other interests. Tom Van Weelden, chairman and CEO, will assume his duties effective immediately.

Allied's 10% notes due 2009 and its 8 7/8% notes were quoted having fallen to 101 bid from prior levels at 105 and 104.75, respectively. Still, a trader opined, "relatively speaking, the bonds turned in a pretty good performance" versus the company's shares, which fell $2.53, or more than 20%, to close at $9.93. Turnover of more than 5 million shares on the NYSE was eight times the normal volume. "That's a huge move," the trader said of the stock decline, versus only a few percentage points on the bond side. "Relatively speaking, the bonds are a champ."

With $219 million of the 10% notes traded, he added "that was a very significant amount of bonds." In fact, he continued, "take those two (Allied Waste and Trump) out of the equation, and it was an otherwise pretty quiet day."

Among other names moving around, a trader saw some upside movement in XM Satellite's 14% notes, which finished around 49 bid, and CD Radio's paper, which was in the mid-20s. He saw bankrupt Federal-Mogul Corp.'s notes "actively" trading in a 10-11 bid range.

Kmart Corp., one of Tuesday's more active movers, remained on the slide on Wednesday amid investor angst about how the Troy, Mich.-based discount retailing giant would fare in an increasingly difficult sales environment. Its 8 3/8% notes and 8¼% notes, which both lost three points Tuesday to end at 83 bid, retreated another three points in Wednesday's dealings to close around 80. Kmart's 8 1/8% notes dropped two points to 90 bid, while its 9 7/8% notes dipped a deuce to 87.5 bid/88.5 offered.

Enron Corp. bonds remain precariously perched in investment-grade territory, but are attracting more and more looks from high yielders who suspect that the Houston-based energy operator may be the next notable "fallen angel."

"People have jumped into Enron," a trader said, although he said that this was by no means universal, depending on how a particular desk views the credits, which are now being quoted on a dollar basis, like a junk bond, rather than on a spread-vs.-Treasuries basis. "But there are high yield accounts in it, definitely."

On Wednesday, however, he said, the company's bonds, perhaps taking a cue from its shares, staged a rebound of a couple of points, at least in the short-dated paper. That would put Enron's 9 7/8% notes due 2003 back up to around the 90 level, and its 6.40% notes due 2006 near 80.

Among newly issued debt, traders said, Westport Resources' new 10-year bonds firmed to 102.5 bid. But fellow junk oiler Chesapeake Energy Corp.'s recently sold 8 3/8% senior notes due 2008 remained below their 99.871 issue price Wednesday, at 98.75 bid/99.25 offered.

Westport Resources' strong performance in the secondary reflected heavy demand in the primary. Rumor had it that the book was nearly three times the amount of the upsized issuance.

Westport was able to raise its deal to $275 million from the planned $200 million and still price it at a yield of 8¼%, at the tight end of talk. The offering generated considerable conversation among primary market players with several investment bankers, on and off the deal, making complementary remarks about the execution.

"There was a very healthy demand out there for this credit," one syndicate source confirmed.

"The upsizing of the Westport deal was going to depend on whether people took up that change-of-control offer on the Belco notes," the source continued. "Subsequent to the announcement of the deal, the market really strengthened, so it looks like probably the take-up on that will not be very strong.

"But (Westport) did go in and get a bank amendment to allow for more subordinated debt so that they were able to do a bigger deal anyway, because the terms were so favorable to them; at the time we launched, obviously, the market was not quite as good as it is now, by any stretch. So they probably benefited 50-75 basis points."

Also on Wednesday's primary, American Restaurant Group priced $30 million of five-year notes at par for a yield of 11½%, according to market sources.

News surfaced Wednesday of issuance from Vicar Operating: $150 million of senior subordinated notes due 2008 (B3/B-) via Goldman Sachs & Co. The junk bonds will come concurrently with an equity offering, a source told Prospect News, adding that Leonard Green & Partners, one of the backers of recent bond-issuer Petco, is sponsoring the deal.

There was also talk of a sterling-denominated deal from U.K. retailer Woolworths, which could price next week, sources said. Further details could not be obtained by press time.

And paper from Gary, Ind. gaming firm, Majestic Investor Holdings LLC - $140 million of senior secured notes due 2008 (B) via Jefferies & Co. - is also headed to a pricing sometime during the week of Nov. 5, sources said.

End

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