Williams soars on credit facility, asset sale news; Mikohn continues fall

By Paul Deckelman and Paul A. Harris

New York, Aug. 1 - Williams Cos. - which some market players had feared might be looking at bankruptcy scenario last month as its ratings fell and its shares and bonds slid - was sharply higher on both the debt and the stock side Thursday, after it announced that it had lined up some $2 billion of new secured financing and had arranged nearly $2 billion of asset sales.

Meanwhile late Thursday Prospect News learned from a sell-side source that the tide continued to go out on US high-yield mutual funds, which reportedly posted the eighth outflow in as many weeks. Aside from that not a whiff of news blew through the primary market, sources said.

"Bad news," was the judgment of the sell side official who told Prospect News that AMG Data Services has reported a "week only" outflow of $313.0 million from the high yield mutual funds for the week ending July 31. It represents the eighth straight outflow reported by the Arcata, Calif. financial information service, representing a sum of approximately $2.307 billion in negative funds flows over the course of the past two months

"Basically it's quiet and it's bad across the board," the official continued.

"Up to June 5 there was cash coming in. Around June 10 or June 12 was really the breaking point. Not only were you seeing money outflows but you started seeing deals downsizing, deals pricing wide of price talk and deals getting postponed."

Trailing the wake of this news, the second of two deals scheduled to price during the week of July 29 - The Manitowoc Co.'s $175 million of 10-year senior subordinated notes (B2/B+) via joint bookrunners Deutsche Bank Securities Inc. and Credit Suisse First Boston - is scheduled to price on Friday.

Price talk of 10¼%-10½% was heard Wednesday on the Manitowoc, Wis.-based crane-maker's new 10-year paper.

The first of the week's two deals, Mothers Work, Inc. $125 million of eight-year senior notes (B3/B+), priced on Wednesday at 98.719 to yield 11½% via Credit Suisse First Boston.

Back in secondary trading, Williams, whose debt was downgraded to junk bond territory last month after it failed to renew its $2.2 billion unsecured credit line, announced early Thursday that it had it closed on a new $1.1 billion credit agreement with its banks, which calls for an amended $700 million secured revolving credit facility, and a new $400 million line of credit.

Williams - which was reported yesterday to be in talks with Lehman Brothers on a new credit facility - also announced that it had lined up a $900 million senior secured credit line with Lehman and with Berkshire Hathaway, the investment company controlled by legendary Wall Street billionaire stock-picker Warren E. Buffett.

That secured facility will be backed by nearly all of the oil and gas interests that the Tulsa, Okla.-based pipeline operator and energy trader got last year with its acquisition of Barrett Resources.

Williams did not disclose the assets backing the other credit agreement.

Williams also announced a package of four asset sales for total proceeds of $1.8 billion, which will yield net proceeds of at least $1.5 to $1.6 billion, minus certain transaction costs and various other deductions.

With all of that cash, Williams is expected to have no trouble in meeting its near-term debt obligations for the remainder of this year and on into next year. When Williams was strapped for cash, there had been some speculation it might not be able to meet those debts, which helped grease the skids under the formerly investment-grade-rated company's fall into junkbondland.

Williams shares were up as much as 44% during the session before going home at $3.80, a still-impressive gain of 85 cents (28.81%) in busy New York Stock Exchange dealings of 33.4 million shares, about five times the usual.

In the bond world, Williams was "clearly the big mover" Thursday, a trader said, "while most everything else was flat or moving the other way" in line with weaker equities.

The trader quoted Williams' bonds as having moved into the mid-60s from prior levels in the 40s on Wednesday - which in turn had risen from levels in the 30s at the end of last week.

He also saw the company's Transco Pipeline bonds - which have first dibs on the cash-flow from the pipelines and thus trade at a considerable premium to the basic Williams holding company bonds - as also trading "much better," and moving up to the mid-to-upper 80s.

At another desk, Williams was "up anywhere from 12 to 18 points," an observer said, quoting its 7 1/8% notes due 2011 14 points higher, at 62 bid, while its 7½% bonds due 2031 were at 53 bid, although he said those bonds had already been trading somewhat higher and Thursday's dealings only tacked on about five points or so. He furthermore saw the Williams 9¼% notes due 2004 almost 20 points higher on the day, at 68 bid. Williams' 8 1/8% notes due 2012 rose to 61 bid from 45.5 on Wednesday.

Williams had some further good news for investors late in the day, when CEO Steve Malcolm reportedly said that Williams may be able to reach a final settlement with the state of California on claims arising from last year's power crisis there within 30 days. Bloomberg News quoted Malcolm as having said during a conference call that "while we have no signatures, we have a handshake that says we've agreed to terms," which he did not elaborate on.

Williams and a number of other merchant energy firms that produce power and trade energy contracts have come under fire from the state for allegedly manipulating power supplies and driving electricity prices to unprecedented high levels during the power crunch that hit the Golden State in late 2000 and early 2001. A settlement could defuse a potential ticking time bomb consisting of thousands of private and public lawsuits brought against Williams and other energy traders in the wake of the power shortage.

Another formerly investment-grade power producing and energy trading firm criticized for its role in the California fiasco is Dynegy Inc., whose bonds and shares got a boost from the good news about Williams. Houston-based Dynegy's shares climbed 35 cents (14.58%) to $2.75 on the NYSE on volume of 43 million shares, about six times the norm.

A market source saw Dynegy's bonds a point or two better, amid a generally firmer energy sector that also included investment-grade rated El Paso Corp., whose debt was up about three points.

Back among the purely junk-rated energy issues, AES Corp. "was better bid," a trader said, quoting the Arlington, Va.-based international power producer's senior debt at 43 bid/45 offered, up a point from their opening and two points up from Wednesday's close. But some AES issues were stronger than others. While the company's 9 3/8% notes due 2010 were seen two points better, at 41, its 8 3/8% subordinated notes due 2007 - which had recently fallen as low as the mid-teens on investor angst about the company's debt load and Latin American exposure - were five points higher, at 26.5 bid.

Calpine Corp.'s 8 5/8% notes due 2010 were up more than three points, to end at 52 bid, while its 8½% notes due 2011 were a point-and-a-half better, also at 52. CMS Energy Corp's 7½% notes due 2009 were a point-and-a-half better at 68 bid, while a trader saw the Dearborn, Mich.-based utility's 9 7/8% notes due 2007 "maybe a point better" at 72 bid/73 offered - still up solidly from the 66 bid/68 offered levels it held a couple of days ago.

Outside of the energy companies, Charter Communications - whose debt had firmed over the past several sessions on speculation that the St. Louis-based cable company's billionaire founder and principal owner, Microsoft Corp. co-founder Paul Allen, might either take it private, but a big chunk of its debt or both - finally seemed to run out of steam. A market-watcher quoted its 11 1/8% notes due 2011 as having dropped to 61 bid from prior levels at 63, while Charter's 8 5/8% notes due 2009 were down a deuce, at 60 bid.

Also on the downside, Mikohn Gaming Corp., whose 11 7/8% notes due 2008 were seen down 15 points on Wednesday, to around the 75 bid level on negative results, lost another five points on Thursday, to end trading at 70.

On Tuesday, the Las Vegas-based gaming systems company had reported a second-quarter loss of $5.8 million (45 cents per share) versus net income of $1.8 million (16 cents per share) a year earlier.

Fleming Cos. Inc. bonds "got crushed," a trader said, quoting the Dallas-based wholesale grocery supplier's 10 5/8% notes due 2007 as having gone from offered levels around 97 to 93, while its 9 7/8% notes went from offered levels in the lower 90s to as cheap as 87.

At another desk, Fleming's 10 5/8s were being quoted as having gone as low as 87.5 during the session.

On Tuesday, Fleming reported second-quarter results that were in line with analysts' expectations. The company had net income of $2.2 million (5 cents per share), well up from a loss of $13.5 million (31 cents per share), a year earlier. Excluding a big charge for early retirement of debt, Fleming's operating earnings were even better - $10.1 million, or 21 cents per share. But market participants expressed unease about the company's prospects in a tough retailing environment that's already seen Fleming's largest customer, Kmart Corp., file for Chapter 11 protection earlier this year.

"The numbers weren't that bad," a trader opined. "I read them, and they didn't seem bad enough to warrant going down three, four, or five points in a day. Maybe people are just afraid to buy them."

Fleming's shares were down $1.32 (9.60%) to $12.43, on NYSE volume of 5.1 million shares, about six times the usual turnover.

Back on the upside, Qwest Communications International Inc.'s bonds "got stronger," the trader said, with both the short-term paper and the longer-term bonds alike up a point or two. He quoted Qwest's 7.20% bonds due 2026, which had gone home offered at 67 on Wednesday, as being bid around the 68 mark. The short end paper, meantime, "was stronger whether it was operating company or holding company."

Qwest's bonds had firmed Wednesday on a CNBC news report suggesting that Warren Buffett may have been buying millions of dollars of the Denver-based telecom operator's bonds at distressed levels in recent weeks, a market rumor so far neither confirmed nor denied.

The Wall Street Journal, meanwhile, reported that Qwest has begun efforts to reach a settlement with the Securities and Exchange Commission over alleged accounting irregularities that included the misstatement of at least $1.1 billion of revenues, which will force the company to restate several years of earnings.

Qwest shares climbed 22 cents (17.19%) on the NYSE, to $1.50. Volume of 38 million shares was almost three times normal.

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