Xerox restates results but bonds little moved; Adelphia slides more as woes mount; primary calendar swells

By Paul Deckelman and Paul A. Harris

New York, April 1 - Xerox Corp. said Monday that it plans to restate its results for 1997 through 2000 and adjust previously announced 2001 numbers - but since the restatement was expected and comes as part of a final overall settlement of Securities and Exchange Commission concerns over its accounting practices, the company's bonds held steady. Not so, though, for Adelphia Communications Corp., whose bonds continued to erode in the wake of last week's revelations of off-balance-sheet accounting and its request, announced Monday, for additional time to submit its annual report to the SEC.

In the primary market, the second quarter opened with an add-on deal for Compass Minerals finding its way to market, while Fleming Cos. Inc., Russell Corp., Panavision Inc., Block Communications and Dura Operating Corp. all slated upcoming new deals.

In total Monday saw seven new deals amounting to $1.560 billion announced in the high yield primary.

"I think the forward calendar is going to build up huge," one sell-side official said Monday

"We've seen three- and four-digit inflows during recent weeks. That money needs to be put to work.

"People are telling issuers 'The time to come is now, and the levels are right.'"

Among the deals surfacing Monday was Compass Mineral Group, Inc.'s add-on to its 10% senior notes due Aug. 15, 2011. It had priced at 104.50 by the end of the session to yield 9.143%. Credit Suisse First Boston and JP Morgan were joint bookrunners. The original $250 million deal priced on Nov. 15, 2001.

First-time issuer Block Communications, Inc., a Toledo, Ohio-based diversified media company, announced an offering of $150 million of seven-year notes via Banc of America Securities. The roadshow starts Wednesday.

Fort Worth, Tex.-based REIT Crescent Real Estate Equities Co. said it will sell $375 million of seven-year senior notes and its roadshow also starts Wednesday. JP Morgan and Deutsche Bank Securities Inc. are joint bookrunners.

Minneapolis-based Dura Automotive announced it will offer through its Dura Operating Corp. unit $250 million of 10-year senior notes via joint bookrunners Banc of America Securities and JP Morgan. That deal figures to price Thursday

Another Lone Star State issuer, wholesale food distributor Fleming Cos., Inc., announced it will sell $260 million of 10-year notes, which also will price on either Tuesday or Wednesday following a brief regimen of marketing. Deutsche Bank is the bookrunner. Fleming will use the money to call its 10½% senior subordinated notes due December 2004 at 102.625.

Atlanta, Ga.-based apparel firm Russell Corp. undressed a deal for $200 million of eight-year senior notes via JP Morgan, which will likely price April 9 or 10.

And Panavision, the Woodland Hills, Calif. camera maker, announced it would bring $250 million of seven-year senior secured second lien notes via Salomon Smith Barney. The proceeds will be used to fund the tender and consent for its 9 5/8% senior subordinated notes. An April 10 pricing is expected.

Standard & Poor's issued a CCC+ rating on the new Panavision deal, making it the third "triple-hook" credit to appear thus far in 2002 (its predecessors were aaiPharma (Caa1), and AMC Entertainment (Caa3/CCC)).

One sell-side source commented that the huge mutual fund inflows reported during recent weeks are likely impacting the entire credit spectrum, and possibly opening the way for CCC-level credits to gain access to the market.

"There was a time where the market was favoring the double-Bs, and the double-Bs got priced so tight that they started reaching down into the single-Bs," the source said

"You had aaiPharma which came out Caa1/B-. That deal got done: 11 1/8% which isn't great.

"I'd hate to see the market opening up to triple-Cs, but I think it could."

In secondary dealings, Xerox bonds were generally little changed to perhaps a bit positive, amid very light post-holiday trading, after the Stamford, Conn.-based copier and office machines giant announced that it had settled its SEC problems, agreeing in principle to restate the affected results and pay a $10 million civil penalty.

A trader saw the company's bonds up half a point on the session across the board, but "nothing dramatic," with so many people still out following the three-day market holiday which saw dealings shut down on Good Friday.

"There will probably be a few more players in (Tuesday), so we'll see what happens with them." He opined that news of the settlement "was probably already baked in" to current price levels, "but just having that out of the way was cause for relief."

At another desk, Xerox was seen mostly unchanged to slightly firmer in what one market-watcher termed "deathly quiet activity, with most people waiting for the other shoe to drop." He quoted its 9¾% notes due 2009 as having pushed up to 95.5 bid from last week's ending levels around 94.75, while its 7.15% notes due 2004 gained a quarter of a point, to 93.75. Xerox's generally actively traded 5½% notes due 2003 held steady at 93.5.

The proposed settlement with the SEC would finally put to rest allegations of reporting irregularities which had dogged the company since June, 2000, when the agency said it would look into whether Xerox had prematurely booked some revenues over the previous several years.

As part of the settlement, which is subject to acceptance by the SEC, the world's largest copier maker agreed to restate results from 1997, 1998, 1999 and 2000, using more conservative revenue reporting standards. As well as an adjustment of previously announced 2001 results. "The restatement will primarily reflect adjustments in the timing and allocation of lease revenue recognition and could involve a reallocation of equipment sales revenue in excess of $2 billion from 1997 through 2000," Xerox said in a statement. Additionally, the deal involves an adjustment of previously announced 2001 results. The SEC would meanwhile file a complaint and a consent order in federal district court for injunctive relief and a civil penalty of $10 million. Xerox would neither admit nor deny the allegations of the complaint, which would include claims of civil violations of the antifraud, reporting and other provisions of the securities laws.

Xerox has sought a 15-day extension on the deadline for filing its 10-K annual report for 2001, and indicated in its statement that it may seek approval for a further 75-day extension.

Xerox shares rose 33 cents (3.07%) in New York Stock Exchange trading Monday, to $11.08, on slightly heavier than usual volume of 5.3 million shares.

While Xerox seems to be putting its accounting difficulties behind it, the same cannot be said for Adelphia Communications, which last week surprised investors with its announcement revealing $2.3 billion in off-the-books loans to partnerships controlled by its founders.

That sparked a slide in the Coudersport, Pa.-based cable television operator's bonds and stock Wednesday and during Thursday's abbreviated session, which continued when dealings resumed on Monday. A trader saw the bonds "weaker," quoting the 10¼% notes due 2011 at 87.25 bid/88.25 offered, and its 8 3/8% notes due 2007 at 83 bid, although he allowed that trading was very thin, with many people still out.

Looking at the roughly 20-point slide which the bonds have taken over the past three days, he declared that he was "not surprised. You have an off-balance-sheet surprise," in the wake of an Enron Corp. accounting debacle also sparked by revelations of off-balance-sheet transactions, "and you have some ugly stuff."

At another desk, Adelphia's 10 7/8% notes due 2010 dropped to 90 from 93 and the company's other issues were likewise quoted, on average, down three points. Adelphia's 10¼% notes were quoted having fallen four points to 86 bid.

But another trader felt that Adelphia had "stabilized, on limited volume," pegging the 9¼% notes due 2002 as having steadied around 93 bid/95 offered, still well down from levels around 97 bid/98 offered at the end of last week. But he acknowledged that "there just weren't that many players in today."

Adelphia's shares plunged $1.78 (11.95%) to $13.12 in Nasdaq dealings Monday, a new 52-week closing low. Volume of 23.1 million shares was almost four times the normal turnover.

Adelphia - which in addition to revealing the off-balance-sheet loans, also disclosed that it might be on the hook for a further $500 million of obligations related to its former telecommunications unit, Adelphia Business Solutions - on Monday asked federal regulators for more time in which to file its financial statements, contending the extra time was needed to allow its auditors to examine the impact of the off-balance-sheet loans to the partnerships controlled by the founding Rigas family, which controls the company. Separately, The Wall Street Journal reported that Adelphia is considering asset sales to cover the $2.3 billion debt off-balance-sheet debt balance and help pare down the $14 billion of debt it acknowledges as its own.

Another high yield cabler making news on Monday was NTL Inc., which said it would stop making payments on certain notes issued by its NTL Communications Corp. subsidiary, ostensibly at the request of an unofficial committee of its bondholders.

The Financial Times reported on Monday that the European cable giant Financial Times, is expected to default on $96 million in interest payments this week, triggering a restructuring of its $17 billion of debt with its 60 banks and hundreds of bondholders. The company has been in talks with its creditors on a restructuring since January, so the latest development was hardly unexpected in the financial community. Its bonds were quoted mostly unchanged Monday, its 9¾% notes due 2008 hanging in at 33.5 bid and its 11½% notes seen at 36 bid. NTL also said that said it would have to delay filing its annual report with the SEC.

On the upside, a trader said, Conseco paper was trading up after the Carmel, Ind.-based insurance and financial services concern "got some breathing room through '03" on last week's announcement that its bank lenders hd agreed to give it a bit more leeway, combined with its pending exchange offer (which expires April 12) that would extend the maturities of $2.54 billion of bond debt. Conseco's 8.70% capital securities due 2026 firmed more than a point to above 24, "a pretty good move for that bond," the trader said, while its 8¾% notes due 2004 were up a point at 54.

Conseco separately was reported to have agreed to sell its Manhattan National Life Insurance Co. to American Financial Group Inc's Great American Financial Resources Inc. unit for $48.5 million.

The trader also saw Greyhound Lines Inc. as "one name that's getting some play and seems to really be coming to life," as "people are starting to recognize that it's too cheap" at current levels. Over the last few sessions, he's seen the Dallas-based bus operator's 11½% notes up a point-and-a-half to about the 94 bid/94.5 offered level. The company is a unit of the bankrupt Burlington, Ont.-based transportation and waste disposal company Laidlaw Inc., but it was not included in the latter's Chapter 11 filing last year.

And he saw petroleum refiner Premcor - the former Clark Oil - firming on renewed rumors of the St. Louis-based company's approaching initial public equity offering and a widening out of crack spreads (the difference between the cost of a barrel of crude oil and the value of the products refined from that crude, such as gasoline or heating fuel).

He saw the company's 10 7/8% notes trade up to 95.5 bid, its 8 7/8% notes to 92 bid, and its 9½% notes to 100.5.

Also helping Premcor - and energy issues in general - has been the rise in rise in oil prices in the wake of the continued turmoil in the Middle East, and the possibility that such supplies might be interrupted. "The oils are being bid up across the board," he noted, "as a safe haven." Crude prices currently hover just under $27 per barrel - their highest level in six months, "and you can see that at the gas pump."

Overall, though, the trader pointed out, "activity was almost non-existent," with another trader agreeing that it seemed like "a lot of people were still out," attributing the thin levels to a combination of continued post-holiday lassitude and Opening Day for the Mets in New York. During the week, he projected, "people will just trickle back in."

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