WorldCom trades higher on profits; Mirant, Dynegy down after FERC ruling

By Carlise Newman

Chicago, March 26 - Worldcom Inc. was back in the spotlight in the distressed debt markets Wednesday - and moving upwards - as the company revealed it had returned to the black in January, even as net sales fell. Energy companies such as Mirant Corp. and Dynegy Inc. fell after the Federal Energy Regulatory Commission ruled that a group of energy providers owe California more than the $1.8 billion previously announced. But AES Corp. rebounded for the second day after announcing asset sales Tuesday.

In other news, distressed names such as Centennial Communications Corp., Adelphia Communications Inc. and Tyco International Ltd. resurfaced after being absent recently and auto companies Federal-Mogul Inc. and Hayes Lemmerz Inc. firmed up across the board.

WorldCom moved ½ point to a point higher Wednesday. Its bonds were seen closing in the 24¾ to 25 range, and bank debt trailed bond prices, also in the 24-25 range and seen about a point higher than Tuesday.

"We did a number of trades in that range, based on their good numbers out today," said a distressed trader.

WorldCom said sales in January fell to $2.16 billion from $2.2 billion in December 2002 but its net profit was $155 million compared with a net loss of $580 million the previous month, and the first monthly gain since it declared bankruptcy last July. The Clinton, Miss.-based telecommunications company's sales have been sliding downward since its Chapter 11 bankruptcy filing in July, when it had $2.46 billion in monthly sales.

The profit stemmed mostly from declining network spending and a large reduction in bankruptcy-reorganization costs. During January, WorldCom slashed its reorganization expenses to $37 million from $514 million in December. WorldCom devoted $34 million to capital expenditures, down sharply from $108 million in December.

"The gains (in WorldCom) were limited because we don't know how long the profitability will last," said the trader.

Another event the distressed markets had been waiting for was the Federal Energy Regulatory Commission meeting Wednesday. On Tuesday, energy companies experienced a minor upsurge in anticipation of the meeting, when analysts had been saying that the commission most likely would not order significantly higher refunds.

On Wednesday, the energy sector weakened - unwinding those gains - after the commission ruled that energy providers owe California more than the $1.8 billion in refunds previously announced.

Houston-based Mirant's 7 5/8% notes due 2006 were seen at 53 bid/55 offered, down from 56.5 bid/54.5 offered, according to a distressed debt trader, and slightly lower than Monday's prices of 53.5 bid/55.5 offered.

Dynegy's 7.45% notes due 2006 fell to the "low 70s" after rising to 75 bid/77 offered Tuesday. The company's bonds had been trading at levels of 72 bid/75 offered Monday

The Federal Energy Regulatory Commission determined that there had been widespread manipulation of California's electricity and natural gas markets during the state's energy crisis of 2000 to 2001, upholding an earlier ruling by an administrative law judge. However, the commissioners didn't specify how much more the state is owed, saying this amount will be determined over the coming months.

But another energy company saw some gains Wednesday.

AES Corp.'s bank debt "was stronger today," up by about a half point, still feeling the effects from Tuesday's news of asset sales. Its term loan B and term loan C were quoted around 96 to 97, according to a trader.

Another distressed debt trader saw AES Corp.'s 9 3/8% notes due 2010 unchanged at 68.

AES Corp., an Arlington, Va.-based independent power producer battling to improve its credit quality, said Tuesday it would sell its stake in a company that owns power plants in the Middle East for about $150 million in cash. Under the terms of the deal, which is expected to close in the second or third quarter, AES will sell its 32% stake in AES Oasis Ltd. to the IDB Infrastructure Fund, which is managed by Emerging Markets Partnership.

AES also said it plans to spend $105 million in 2003 to comply with environmental laws and regulations and to prepare for any future regulations, according to the company's annual report filed Wednesday with the Securities and Exchange Commission.

"We saw a lot of names today that we haven't seen in a while, like Centennial," said a distressed trader. "Yesterday and today were two of our busiest days."

The source quoted Centennial Communications Corp.'s revolving bank debt as trading at about 77.5, while another desk quoted it trading at a slightly higher price of 78, up from 76½ Tuesday.

Adelphia cropped up in distressed trading as well. A trader quoted the Coudersport, Pa.-based cable company's bonds about a ½ point higher. Its 10 7/8% notes due 2010 were seen at 44 bid/46 offered.

Elsewhere, auto companies were stronger across the board.

Southfield, Mich.-based Federal Mogul Corp., a supplier of automotive parts, saw its bank debt bid at 75 and offered at 77, up "about a point" from Tuesday. Following suit, Hayes-Lemmerz International Inc.'s bank debt was quoted at 61 bid/63 offered after at a closing price of 60 bid/62 offered Tuesday. Hayes-Lemmerz is a Northfield, Mich. supplier of automotive accessories such as wheels and brakes

And like a VH1 "Where are They Now" episode, Tyco traded in the distressed markets Wednesday. A distressed trader quoted its 2006 revolver as trading at 93, basically in line with previous levels.

A trader said there was little real activity in the bonds of HealthSouth Corp., despite the news that chief financial officer William Owens had decided to plead guilty to charges arising from a government investigation of alleged accounting fraud at the Birmingham, Ala.-based provider of diagnostic imaging and outpatient rehabilitation services.

"This news was kind of out there from the beginning," he said, quoting the company's senior debt - which had gyrated as high as bid levels near 49-50 on Tuesday - as falling back Wednesday to close at 46 bid/47 offered, about where they had closed Friday and had spent most of Monday.

"People are anticipating a Chapter 11 filing. They have their fingers in the air, trying to figure out a valuation, and seem to feel it's around 45-50 for the senior bonds, while the subordinated debt and the convertibles are zero."

"HealthSouth," he said, "is a mess. It's going to be a long workout with a lot of losses. The situation is worse than people think," with all kinds of accounting problems likely to be uncovered.

He said that in all probability, "this company is going to have to be broken up and sold in pieces if the bondholders are to get much of a recovery - as a going concern, it's finished." The bonds, he said, "are probably trading too high. The situation is worse than people think,"

Among airline issues, a trader said there were "buyers, but no price gyrations. It was pretty quiet."

Northwest Airlines' 7 7/8% notes due 2008 were quoted down a point, at 49 bid.

At another desk, a trader said that "despite all of the bad news out on Delta" and the airline sector in general, "people are still looking" for the Atlanta-based carrier's bonds. He saw the company's 8.30% bonds due 2029 at 48.5 bid, up a point from Tuesday's close. "Go figure," he said.

(Paul Deckelman contributed to this report.)

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