AES up on debt-cut plans, new chief; WorldCom weakens again; four deals price

By Paul Deckelman and Paul A. Harris

New York, June 19 - AES Corp. - the latest in a growing number of companies to shuffle the cards at the top of the deck - was sharply higher on Wednesday after its new chief boldly promised to try to get the company's bonds back up to par level and, within a few years, to win an investment-grade rating. Dynegy Corp.'s almost-junk bonds were also up, on belt-tightening efforts and a change in chief financial officers.

In primary deals, four deals priced, as terms emerged on deals from Encore Acquisition, Stone Container, Riviera Holdings and a eurobond from Kronos International.

Two of those deals came at the tight end of talk, notable in light of a spate of wide-of-talk pricings over the past four sessions. However one observer told Prospect News that the tight pricings of Encore and Stone don't necessarily portend anything for the market.

In addition, the market heard news of offerings to come from LBI Media and, further down the road, from Berry Plastics.

Observers checking out Wednesday's high yield primary market action saw a somewhat novel occurrence in light of recent transactions, which have predominantly been coming wide of their price talk.

Encore Acquisition and Stone Container each priced 10-year deals to yield 8 3/8% on Wednesday. And both deals came at the tight end of price talk.

"It's a trend different from the last couple of days," a sell-side official allowed late Wednesday.

"I think the investors just liked these two credits. The reason I say that is because there is so much out there there's no reason that these things have to price at the tight end of talk.

"With regard to Encore, I think investors especially like the energy sector right now.

"But there is still so much on the backlog you don't know how it's going to price."

The energy deal this sell-side source mentioned was Encore Acquisition Co.'s $150 million of 10-year senior subordinated notes (B2/B), which priced at par to yield 8 3/8%, at the tight end of the 8½% area price talk, via Credit Suisse First Boston.

"The order book, comprised of over 50 accounts, was twice oversubscribed and the deal priced at the tight end of what was considered to be aggressive price talk," one informed source commented in the wake of the Encore transaction.

"Such strong execution for a first-time single-B rated oil and gas issuer is indicative of investors' overriding preference for stable cash flow producers in the current volatile market environment as well as their general positive views about the oil and gas sector," the source added.

Also pricing at the tight end of its talk was the Stone Container Corp. offering of $400 million of 10-year senior notes (B2/B). They priced at par to yield 8 3/8%, tight to the 8 3/8%-8½% price talk, via joint bookrunners Deutsche Bank Securities Inc. and JP Morgan.

Terms also emerged Wednesday on a slightly upsized offering from Riviera Holdings Corp. It sold $215 million - up from $210 million - of eight-year senior secured notes (B2/B+) at 98.50 to yield 11.289%. Price talk was 11%-11¼%. Jefferies & Co. ran the books

And there was also an upsized eurobond deal from Kronos International. It offering of seven-year senior secured notes (B2/BB-/BB) was increased to €285 million from €270 million and priced at par to yield 8 7/8%, in the middle of the 8¾%-9% price talk. Deutsche Bank Securities was the bookrunner.

Although some market observers were looking for terms Wednesday on offerings from Spartan Stores and the emerging markets corporation Copamex, late in the session no terms were available.

Spanish language media operator LBI Media, Inc. will start roadshowing its $200 million of 10-year senior subordinated notes on Thursday. The joint bookrunners are Credit Suisse First Boston and UBS Warburg.

And further down the road Berry Plastics Corp. appears headed toward a July pricing of its $275 million of 10-year senior subordinated notes (B-), via JP Morgan and Goldman Sachs.

Price talk of 11¼% area was heard Wednesday on Buffets Inc. $260 million of eight-year senior subordinated notes (B3/B). That deal, via Credit Suisse First Boston, is expected to price Friday morning.

The price talk is 9½%-9¾%, meanwhile, on Extendicare Health Services, Inc.'s $150 million of eight-year senior notes (B2/B-), which are expected to price Thursday afternoon via Lehman Brothers.

And finally, official price talk is 10 1/8%-10 3/8% on Mariner Heath Care, Inc.'s $150 million of eight-year senior subordinated notes (B3/B-), which are also expected to price Thursday, via joint bookrunners Goldman Sachs and UBS Warburg.

When the newly issued bonds were freed for secondary dealings, a trader said, the Stone Container's 8 3/8% notes firmed slightly to 100.625% from their par issue price earlier. But the big winner, he said, was Encore Acquisition's $150 million of 8 3/8% 10-year notes, which moved as high as bid levels of 101.25-101.5 from their par issue price.

"These are single Bs (B2/B) which came at a spread of 362 [basis points over the comparable Treasury issue]. For a B2/B, in general, I guess that might be a little expensive for what you would call junk, a single-B, but the type of business [acquisition, exploration and development of North American oil and gas reserves] is what they all like, and they traded around 101.25-101.5. It was very well received."

Back among the already established issues, AES's bonds firmed smartly in the wake of co-founder Dennis Bakke's resignation as chief executive officer and his replacement by longtime AES exec Paul Hanrahan. On a conference call Wednesday, the new chief wasted no time in outlining ambitious goals for the Arlington, Va.-based international power generating company, including raising $1 billion via a combination of asset sales and new equity by the end of 2003, with the proceeds to be used to pare down the company's debt load.

De-levering "will be our Number-One priority until our bonds are trading at par," Hanrahan declared, "which in our mind is the best way to gauge that our credibility [with investors] has been restored. Until we get there, there will be no new investments, or no new businesses, beyond what we are already committed to" until that goal is reached. Looking a little further down the horizon, Hanrahan said his goal was to continue to "dedicate a substantial portion of our cash flows" to de-lever, so that AES's ratings could be raised to investment grade in about three or four years. Its bonds are currently rated (Ba1/B+).

"Talk about putting yourself on the hook," a trader said of Hanrahan's boldly ambitious promises. Bond investors apparently are confident that the 16-year AES vet can deliver; they pushed the company's 8 3/8% notes due 2007 up three points, to 58 bid/59 offered. At another desk, AES's 9½% notes due 2009 were quoted up a more restrained two points to 74 bid. AES shares were up 26 cents (5.18%) in New York Stock Exchange dealings Wednesday, to close at $5.28.

Also on the upside, the bonds of another power generating company, Houston-based Dynegy Holdings Inc., were heard to have jumped anywhere from six to eight points on the session, after the company - a rival of the failed Enron Corp. and, for a while, its potential savior, until a rescue deal fell through last year - announced a key management change and cost-cutting moves in an attempt to win back investor credibility. Although Dynegy managed to avoid the dire fate of its erstwhile cross-town rival, Enron, which fled from its angry creditors and other stakeholders via a Chapter 11 filing late last year, its shares have still taken a pounding in recent months, while its nominally investment-grade (Baa3/BBB) bonds have been trading like junk bonds, quoted in dollar-price terms well below par.

But those bonds were higher Wednesday, Dynegy's 7.45% notes due 2006 rising to 84 bid, its 6 7/8% notes due 2011 firming to 79 bid, and its 8¾% notes due 2012 ending at 86 bid, all in that six-to-eight-point firming context, a market source said.

A trader saw the company's 8 1/8% notes due 2005 circulating at bid levels in the low 80s.

Dynegy on Wednesday announced that 340 employees - about 6% of the company's workforce - had been laid off, with most of the pink slips going out to people working at the company's headquarters.

Dynegy also announced that Louis Dorey, most recently the head of Dynegy's gas and power marketing business, had replaced Rob Doty as chief financial officer. Doty thus becomes the second senior Dynegy executive to abruptly leave the company in as many months, following in the footsteps of CEO Chuck Watson, who resigned under pressure last month after the company came under Securities and Exchange Commission scrutiny for allegedly bogus "round-trip" electricity trades and other issues.

The moves failed to help the company's sagging stock price, which finished Wednesday at $7.71, down 99 cents (11.38%) in NYSE dealings.

Elsewhere, WorldCom Inc.'s bonds continued to move downward in the wake of general investor pessimism about the outlook for the telecommunications sector in general and market perceptions that the Clinton, Miss.-based telecom giant is having trouble lining up its much-needed $5 billion of financing; company admissions that the financing deal would likely not be completed by the end of the month caused Standard & Poor's to drop its bond ratings two notches last week, with another downgrade seen as possible.

In Wednesday's dealings, WorldCom paper was "heavier by a couple of points," a trader said, pegging its benchmark 7½% notes at 44.5 bid/45.5 offered, down from prior levels in the 46 bid area. Since peaking more than a week ago above the 51 level on expectations that WorldCom would announce a successful completion to its funding efforts, those bonds have led the company's debt steadily downward. In addition to the delay in completing the funding, the ratings agencies have expressed concern over the company's slowing telecom business and its huge debt load - over $30 billion.

Another trader saw WorldCom's shorter-dated 7 7/8% notes ease to 79.5 bid/81 offered, down a point on the day, "while the longer stuff was off more," its 8¼% notes due 2031 down two points to 40.5 bid/42.5 offered.

Also in the communications arena, Qwest Communications International - which shuffled its CEOs over the weekend - was lower Wednesday, its 7¼% notes due 2011 falling to 76 bid/77 offered from 78.25 bid/79.25 offered.

Adelphia Communications, however, "still feels good," a trader observed, quoting the troubled Coudersport, Pa.-based cable operator's 10 7/8% notes due 2010 at 53, up half a point. Even though Adelphia has missed several bond interest payments and is expected to file for bankruptcy soon, the trader indicated that the real bad news seems to be behind the company, "unless we hear of more shenanigans, more problems coming out of the woodwork."

Another trader agreed with the 53-54 context for Adelphia's senior bonds, and saw its Century Communications Corp. debt - which had recently climbed back into the 40s after bottoming in the low 30s earlier in the month - hanging in around eight to 10 points behind the parent Adelphia paper. The bonds were being supported, he said, by market realization that "the parent will soon file, they're close to getting DIP [debtor-in-possession] financing" that will let Adelphia keep operating as it restructures and sells assets in an orderly, disciplined fashion.

Also on the upside, regaining some of the ground it lost in Tuesday's dealings, was Triton PCS Corp., whose 9¾% notes due 2011 - which had fallen to as low as 63 bid from prior levels in the lower 80s, on generalized investor angst about the PCS and wireless communications sector - moved back up to 70 bid, but was still more than ten points under recent levels.

Apple Computer's 6½% notes due 2004 dipped to 96 bid from prior levels around par, after the Cupertino, Calif.-based personal computer maker said it expects to generate revenues of about $1.4 billion-$1.45 billion in the fiscal third quarter ending June 30 - down from previous guidance of about $1.6 billion. The company blamed the lower-than-expected revenues are primarily due to weak demand.

Apple shares lost $3.03 (15.12%) Wednesday to close at $17.12.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.