Cables rebound, Calpine retreats; Stoneridge to hit road with $200 million issue

By Paul Deckelman and Paul A. Harris

New York, April 15 - Cable television operators showed a little resiliency Monday, after having been punished over the previous few sessions on debt level, accounting and subscriber concerns. On the downside, power producer Calpine Corp.'s bonds were several points lower.

In the primary market, automotive electronic components maker Stoneridge Inc. was heard to be preparing a roadshow this week for its upcoming $200 million bond issue, about the only development in an otherwise restrained new-deal arena.

In secondary dealings, the cable television sector - whose shares and bonds have been recently reeling on investor concern over mounting debt levels, slowing subscriber growth and possible accounting issues (particularly following high yield cable stalwart Adelphia Communications Corp.'s disclosure of sizable off-balance-sheet debt obligations) - seemed to find its legs, made a stand and actually ended higher on the session.

"All last week, they got kicked around," a trader said about Adelphia's junk bonds, "but it looks like a lot of the bad news has been factored in by now, and they got a bounce." He quoted the Coudersport, Pa.-based cabler's 10 7/8% notes due 2010 as having pushed back up to around 89.75 bid from Friday's closing levels at 88 bid/89 offered, although he cautioned that "there was not tons of trading going on" in the context of a generally very quiet market.

At another desk, Adelphia's 9¼% notes rose a point to 95 bid, while its 9 7/8% notes due 2007 jumped more than three points, to 87.5.

Rival cable operator Charter Communications Inc. - which may not have Adelphia's off-balance-sheet debt problems, but which is also subject to the same general industry dynamics of mounting overall debt levels and slowing subscriber growth - also got kicked around last week, although not to as great an extent as Adelphia, and also was on the rebound Monday. The St. Louis-based cable giant's 9 5/8% notes were up half a point to 91.5, while its 8¼% notes were a point better at 95. Its 8 5/8% notes were heard having improved more than two points to 88.75.

Elsewhere in the communications sphere, Nextel Communications Inc. Bonds "seemed like they were a little better," a trader said, quoting the Reston, Va.-based No. 5 U.S. wireless operator's zero-coupon/10.65% notes due 2007 up a point on the day, at 64.5 bid.

He noted news reports - as yet unconfirmed - of possible merger talks between two of the larger industry players, Cingular Wireless and AT&T Wireless Services Inc. and indicated that consolidation within the sector seemed to be within the air.

Elsewhere among the telecoms, Level 3 Communications Inc.'s 9 1/8% senior notes due 2008 were up about a point-and-a-half, to 45 bid/47 offered.

"We're so used to recently seeing Nasdaq spit up," he explained, that on Monday, when the tech- and telecom-heavy equity index fell a relatively moderate 2.41 points (0.1%), there was a feeling that perhaps things could get better.

Traders saw little immediate junk energy sector impact to the tumultuous weekend events in key oil producer Venezuela, where ousted President Hugo Chavez suddenly regained power as his supporters forced his replacement to resign. Chavez, considered a thorn in the side of the Bush administration due to his close ties with Cuba's Fidel Castro, had also been one of the most vociferous advocates of maintaining iron discipline over output within the Organization of Petroleum Exporting Countries. While his departure initially was seen signaling that Venezuela and other OPEC nations would likely take a much more relaxed stance toward adhering to the official output quotas set by the cartel, causing world oil prices to slide, his quick return to power pushed crude oil for May delivery up as much as 92 cents (3.9%) to $24.39 a barrel on the New York Mercantile Exchange.

While that was not seen boosting the bonds of high yield energy exploration and production companies - most of which have already been trading at or above par on the recent sharp rise in crude prices - it was seen possibly affecting energy-sensitive sectors of the economy. A trader quoted airline bonds weaker Monday, seeing the debt of such carriers as Continental Airlines and Delta airlines down about half a point.

He also saw B/E Aerospace lower on the day, its 9½% notes dipping a point to 97. But he noted that the bonds of the maker of airliner cabin components - whose fortunes depend on a healthy airline industry - "have already had a pretty good run," rising for several sessions last week in reaction to fourth-quarter earnings data.

The Venezuela situation caused the shares of AES Corp. to fall $1.10 (12.94%) in New York Stock Exchange trading, to $7.40. There was little activity seen however, in the bonds of the Arlington, Va.-based independent power producer, which has sizable exposure in Venezuela.

Industry rival Calpine Corp.'s bonds, however, dipped about three points across the board, to 79 bid, although there was no fresh news out on the San Jose, Calif.-based power producer. Calpine is currently in talks with the state of California to renegotiate some $43 billion of long-term power contracts signed last year, during the state's power crisis, but a state official last week characterized those talks as "close to unraveling." Calpine shares were down 60 cents (5.48%) Monday on the NYSE to $10.35.

Conseco Inc. bonds were being quoted firmer, after the Carmel, Ind.-based insurer announced the successful completion of its tender offer for its outstanding $166 million of Conseco Finance 6.5% notes due this Sept. 26 and for its $3.65 million of outstanding Conseco Finance 6.52% notes due next April 7. Almost all of the bonds were tendered. Conseco's 8¾% notes due 2004 were up about a point or two to the 63 bid/64 level. Parent Conseco also extended until Wednesday its exchange offer to extend the maturities of up to $2.5 billion of its own debt and said more than half had already been tendered in the exchange.

Elsewhere, a trader said Navistar International Corp.'s bonds were off a point or so on the session, quoting the Chicago-based truckmaker's 8% subordinated paper as having gone from 99.25 bid to 98, and its 9 3/8% senior notes down to 104 from 105.5.

But overall on the session he said, it was like "a semi-holiday," particularly among financial firms in the Boston area, where Monday marked the annual Patriots' Day festivities, including the Boston Marathon and the yearly 11 a.m. Red Sox game at Fenway Park.

Another trader agreed, characterizing the day's activity level s "day-after Christmas-like. It was just dead."

Meanwhile the high yield primary market heard two new deals announced Monday in a session that produced little other news.

Stoneridge, a Warren, Ohio company that manufactures electrical components for automobiles, announced that its new deal for $200 million of 10-year senior notes would start its roadshow on Wednesday. Bookrunner is Deutsche Bank Securities Inc.

Also on Monday U.K.-based child safety seat-maker Britax Group plc announced an offering of €145 million nine-year senior notes, also headed on the road starting Wednesday. The market source who informed Prospect News of the Britax deal specified that Lehman Brothers and ING Barings are syndicate-members, although inquiries to those institutions were unanswered late in Monday's session. The deal is expected to price during the week of April 12.

And late in Monday's session a market source reported hearing price talk of 10.45%-10.60% on Vimpelcom's $200 million Rule 144A notes with a three to five year maturity (B3/B) via JP Morgan, set to price during the week of Sept. 15.

Diane Keefe, portfolio manager of the Pax World High Yield Fund, told Prospect News on Monday that she had taken note of the market's recent abundance of homebuilding credits. Since the beginning of April the market has heard terms on junk bond deals from D.R. Horton, Standard Pacific, Beazer and Champion. It anticipates a Wednesday pricing by Bonita Springs, Fla. upscale homebuilder WCI Communities, Inc. of $200 million of 10-year senior subordinated notes via UBS Warburg.

Asked if she detected a unifying dynamic underlying the sudden appearance of these homebuilding credits, Keefe suggested that it could merely be a case of follow the leader.

"I think some of them saw the first few executions and said 'This is the time to lock in,'" said the Pax Fund portfolio manager.

"They are capital-intensive businesses because they are going through a boom right now in terms of how many new homes are being built. So I think it is a good time for them to come to high yield, relative to keeping bank debt."

Keefe, whose fund screens credits with regard to the company's performance on a range of environmental and social issues, said that she has gotten involved in the recent burst of homebuilders.

"I bought the Beazer deal," she said. "Beazer's a great company. Their leverage is low and they've got great management. They don't overpay for things.

"Most of the companies that you knew from the prior recession - in '90 and '91 - are in so much better shape than they were when the economy weakened the last time around: Kaufman & Broad, Hovnanian, Beazer, D.R. Horton.

"It's mostly because they've got their leverage down.

And, she added: "If the economy really slows and demand really slows they would stop purchasing land and generate cash flow by building out the land that they already own."

As to the seeming resilience of the homebuilding sector thus far into the downturn in the US economy, Keefe said you can chalk it up to an ever-expanding market and to low rates.

"Housing affordability is so attractive, with interest rates at a 40-year low," she said. "And immigration is creating new demand all the time. And there's also a different demand going on, from baby-boomers wanting the architectural amenities of a new home.

"The real story is the entry level and mid-level, though," Keefe added. "Do you realize a conventional loan right now is up to $300,000? That's a conventional loan, not a jumbo. That's extraordinary! Ten years ago when I bought my house it was only $202,000, I believe.

"Having your home mortgage be able to fit into one of those Fannie Mae or Freddie Mac mortgage-backed securities gets the interest rate pretty darn low off the Treasury curve.

"So it's another gift from Uncle Alan."

Prospect News also asked Keefe her opinion on the issue of deal-size, upon which a number of sources have recently commented in these pages.

Early in the month a sell-sider got this ball rolling by commenting that the average deal size, year-to-date, is down significantly compared to the first quarter of 2001 - largely owing to the absence from the market of the telecom credits which brought land office business to the high yield in the first quarter of 2001. The average deal size in the first quarter of 2001 was $350 million whereas the first quarter of 2002 saw a significantly shrunken average deal size of $255 million, according to data compiled by Prospect News.

Does liquidity remain an issue for the buy-side, in light of the reduced average deal-size through the first part of 2002?

"With double-B rated companies it's not as much of an issue because you've got that cushion of lower leverage before a company really gets in trouble," Keefe responded.

"With single-B issues you have to be careful," she added. "Because if they go south the bid can evaporate from the underwriter and then you've got no bid."

Keefe declined to specify that Pax Fund was playing any of the deals presently parked on the forward calendar. The Pax Fund does not participate in mining or petroleum deals, because of environmental issues that come into play with respect to "extractive" industries.

However she did say that she and her colleagues were having a closer look at Petroleum Helicopters' upcoming offering of $170 million seven-year senior notes (B1/BB-) via UBS Warburg.

The company, Keefe explained, provides air transportation for the petroleum industry.

"I'm putting it up to our (social issues) screeners because we are looking for some exposure to energy," she commented.

"As energy prices go up energy companies typically profit. Since they are providing helicopters it's an ancillary service, not directly drilling."

Keefe also said that the Pax Fund might submit JohnsonDiversey, Inc.'s $500 million of 10-year senior subordinated notes (B3/B/B+) via Goldman Sachs & Co. to similar scrutiny.

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