WorldCom gyrates after Moody's downgrade; Giant, Sun price deals; Trump rejigs deal

By Paul Deckelman and Paul A. Harris

New York, May 9 - Just when junk market players thought it was safe to go back into the water with WorldCom Inc. bonds - up the past two sessions on reports that the troubled telecommer was working toward a resolution of its short-term liquidity problems via a possible bank loan deal - Moody's Investors Service on Thursday laid a three notch downgrade on the company, dropping its senior unsecured bonds to Ba2 from Baa2 and warning that a further downgrade was possible. That caused the bonds to gyrate around before ending somewhat lower on the session.

In primary market activity, the sun rose on a pair of new deals coming to market - Sun International Hotels Ltd. and Giant Industries Inc. each sold $200 million of new notes. And Trump Casinos restructured its $470 million eight-year deal, carving out a new second mortgage tranche that will be junior to the rest of the deal and carry a significantly higher yield.

WorldCom "has been volatile," said one distressed-debt trader, who saw its bonds yo-yoing around at bid levels as low as 49-50 and as high as 51-53. "Minute-to-minute, it's difficult to broker."

WorldCom "was bouncing up and down," said another trader "and closed mostly lower," while at yet another desk, a trader said the bonds "had gyrated up to five points" during the session.

He quoted the problem-plagued Clinton, Miss.-based long-distance telecom operator's benchmark 7½% notes due 2011 as having opened around 48 bid/49 offered - the level to which they had firmed on Tuesday and Wednesday on news reports WorldCom was negotiating with a J.P. Morgan Chase-led bank group on a big new bank credit facility.

But after the mid-morning Moody's downgrade, those bonds fell as low as 45 bid/46 offered, before bouncing off their lows late in the session to close down a point at 47 bid/48 offered.

Among its short-dated paper, he quoted WorldCom's 6¼% senior notes due 2003 as having dipped as low as 73 bid/75 offered from their opening levels at 76 bid/77 offered. By the end of the day, he said, they had "worked their way back" to around their opening levels to stand unchanged.

At the longer end of the maturity curve, the company's 8¼% notes due 2031, which opened at 44.5 bid/45.5 offered, dipped to 41 bid/43 offered after the downgrade, and then came part of the way back to finish at 42 bid/44 offered.

"Clearly, this was news and event driven," the trader opined, "and the bonds were pretty active." At his particular shop, dealings in WorldCom "took up the bulk of our day."

WorldCom's nominally investment-grade bonds have recently traded like junk bonds on its well-publicized problems, with some formerly near-par issues having been beaten down as low as the 40s on investor angst about the company's falling stock price, its mountainous debt load, a Securities and Exchange Commission investigation and executive suite instability, which led to the recent ouster of company founder Bernie Ebbers as CEO. Also roiling the picture has been the slowing telecommunications industry, which has seen one player after another run into brick walls and be forced to restructure, in or out of court.

In its downgrade announcement Thursday, Moody's noted that on top of all of its other problems, WorldCom now faces suspension of a $2 billion accounts receivable securitization program, which contains an investment grade ratings trigger - although later WorldCom said it had obtained a termporary waiver, allowing it to continue to use the facility.

The downgrades, the agency said "reflect the significant deterioration in the company's operating performance, expectations for continued weakness for the foreseeable future, the company's substantial debt load including sizable maturities over the next two years and its need to restructure its maturing bank facility."

WorldCom shares ended Nasdaq trading Thursday down 14 cents (6.51%), at $2.01. Volume of 128 million was some two-and-a-half times the usual turnover.

Also in the telecom sphere, a trader said it was "a huge day" for AT&T Canada, after bondholders took matters into their own hands and asked an Ontario court for protection before corporate parent AT&T Corp. buys out the company shareholders. The U.S. telecom giant had said that it would honor a commitment it made in 1999 to buy the 69% of the company it doesn't currently own for $3.2 billion, but at the same time has said it has no responsibility to make good on AT&T Canada's $2.9 billion of bonds. Noteholders had grumbled that they were not being treated fairly, and lawyers for institutional investors holding $458 million of the bonds filed suit. AT&T Canada said it would defend against the action.

The imbroglio over the seeming abandonment of the AT&T Canada bondholders has driven its formerly investment-grade paper down to the mid-teens in recent weeks; on Thursday, its 7.65% notes due 2006 jumped to 19 bid from 15.25 previously, "a huge gap upward," the trader said.

Also taking a trip up was Dan River Inc., whose 10 1/8% notes were seen five points better at 80 bid and at another desk were estimated to have traded as high as the mid-80s during the session, despite a lack of fresh positive news about the textile maker, which recently reported a narrowed first-quarter loss of 24 cents a share, versus 30 cents a year earlier). "The credit was skyrocketing," a trader said, "the bid just shot up."

Premcor Inc.'s 10 7/8% senior notes due 2005 pushed up to about the 104 bid level, a two-point jump, after the energy refiner announced that it would tender for those bonds and for its 9½% senior notes due 2004. The bonds are trading above the 10 7/8% notes' call price of 103.52, the trader said "because it's trading like a money market instrument."

Also on the upside, Adelphia Communications Corp.'s bonds continued to firm for a second consecutive session, in the wake of the the troubled Coudersport, Pa.-based cable TV operator's announcement that it has directed its financial advisors - Salomon Smith Barney, Credit Suisse First Boston and Banc of America Securities - to begin soliciting offers for certain of its assets, including cable systems in Southern California, Florida, Virginia and the Southeast U.S.

After having gained about three points on the news Wednesday, Adelphia's 10¼% notes due 2011 were up another point-and-a-half at 88 bid, while its 10 7/8% notes were likewise better at 90.5 bid. At another desk, however, Adelphia's 9 7/8% notes due 2007 were heard to have pushed up even more - almost five points on the day - to close at 89.

And Primedia Inc. bonds - which had tumbled around four points in Wednesday's dealings after Moody's Investors Service cut the New York-based magazine and electronic publishing company's senior unsecured notes to B3 from B1, citing a slower- and smaller-than-expected de-leveraging effort - were being quoted as having bounced a point off those lows. Its 8 7/8% notes firmed to 82 bid/83 offered, while its 8½% notes due 2006 were more than a point higher, at 86.

In primary action, a new structure emerged on Trump Casinos' $470 million eight-year deal now in the market via Deutsche Bank Securities Inc.

Originally announced as an offering of eight-year first mortgage notes, a syndicate source told Prospect News Thursday that the Trump deal now will be comprised of two tranches. The senior tranche of $340 million will retain most of the aspects of the originally announced structure: eight-year, non-call four first mortgage notes (B3/B-) guaranteed on a first priority basis by the subsidiaries. Price talk on the tranche is 9¾%-10%.

The junior tranche, the new component of the deal, will be comprised of $130 million of second mortgage notes, also eight-non-call-four. At press time Thursday ratings on the Trump second mortgage notes remained to be determined. Price talk on the second mortgage notes is 12¾%-13%.

An official from Deutsche Bank Securities declined to comment on the restructuring of the Trump Casino Holdings deal when contacted Thursday.

However, a sell-side source told Prospect News Thursday that the size of the junior tranche, $130 million, and the fact that it is being talked 300 basis points over the talk of the senior tranche conceivably bear the scent of an enticement to keep big accounts at the table.

"That junior piece is probably only going to be given to three or four guys," the sell-side official said.

"We're talking about the big guys who you really have to pay attention to, the Fidelitys, the Putnams, the Franklins...the guys who are going to put in the big orders. Those are the guys who drive your deal."

This sell-sider went on to comment that at $470 million Trump is a large deal compared to much of 2002's new issuance thus far. Such a deal, the official added, might easily require participation of big accounts. And in this official's experience that participation has been known to come at a cost.

"Let's say your price talk is 9¾%-10% and a guy comes and says I'm in for $100 million but at 11%.

"You say '11%?! No way.'

"But guess what, at the end of the day you find out you need that guy to get the deal done because he's a huge order."

However, Prospect News objected, aren't those big investors, in return for the higher return, taking a substantially greater risk?

Substantially, the sell-sider agreed, however the increase in risk between the junior and senior tranches of Trump does not appear proportional to the 300 basis points difference in price talk: 9¾%-10% for the first mortgage notes versus 12¾%-13% for the second mortgage notes.

Hence in this sell-side official's scenario the Trump restructuring would conceivably entice the large accounts and succeed in doing so without widening out talk on the entire $470 million.

Trump, after all, this sell-sider pointed out, is the author of "The Art of the Deal."

"He hit the market at the perfect time, other than interest rates, obviously," the official said, adding that the rate environment Wednesday didn't help things, with Treasuries "sawing off" 15 basis points.

"Overall, the market is in real dire need of some paper," the sell-sider added.

Trump's deal is expected to price Friday or Monday.

On Thursday the market also heard terms on Giant Industries, Inc.'s offering of $200 million of 10-year senior subordinated notes (B3/B). The securities priced at a discount to yield 11½% via Banc of America Securities.

And terms emerged Thursday on the drive-by add-on deal which surfaced Wednesday from Sun International Hotels, Ltd. The $200 million add-on to its 8 7/8% senior subordinated notes due Aug. 15, 2011 (existing ratings B2/B+) priced at 103.0 for a yield to worst of 8.31% via joint bookrunners Bear Stearns & Co. and Deutsche Bank Securities.

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