Xerox job cuts, Charter restatement lift bank debt; Conseco dips on third quarter loss

By Sara Rosenberg

New York, Nov. 19 - Xerox Corp.'s bank paper moved up in the secondary as investors were pleased with news of cost-cutting initiatives despite an anticipated relatively large fourth quarter pre-tax charge. Charter Communications Inc.'s debt also improved, as people were relieved to find the restatement of financial results was not as bad as was previously thought. Conseco Inc. was not as lucky, as its bank debt headed lower on third quarter losses.

Xerox's revolver was up about two points on Tuesday following news of job cuts. The loan was quoted around 82, 83, according to a trader.

Over the past two weeks, the Stamford Conn. document company has announced programs in the U.S. and Canada that are expected to reduce employment by more than 2,400 over the next three months.

This restructuring is expected to contribute to the company's target of $1 billion in annualized cost savings. Over the past two years, Xerox has implemented cost-reduction programs that have already accounted for more than $1 billion in annualized savings resulting in improved margins and lower selling, administrative and general expenses.

In the fourth quarter, the company is expected to take a fourth-quarter pre-tax charge in the range of $350 million to $400 million due to restructuring actions. Included in these charges is severance costs for workforce reductions and about $50 million associated with facility consolidations and closings.

"For Xerox to continue building momentum in this uncertain economy, we need to accelerate our drive to improve efficiency while delivering competitive products and services to our customers," said Anne M. Mulcahy, chairman and chief executive officer, in a news release. "Today's difficult economic challenges require difficult decisions. To serve Xerox best in the long term, we are further aligning our cost structure with the company's leaner, faster and more flexible business model. And, we're doing so in a manner that preserves the strength of our direct sales force and the focus of our research and development investments."

Charter Communications' bank debt was up about two to three points with quotes around 83, 84 following the company's restatement of financial results, according to a trader.

"It was better news than people expected," the trader explained. "They expected the restatement to be worse."

On Tuesday, the St. Louis cable company reported that an additional $1.4 billion of franchise costs and $1.2 billion of deferred income tax liability should have been recorded in connection with 18 cable businesses acquired throughout 1999 and 2000.

"None of the changes described below are expected to have any cash impact on the Company and do not impact previously reported revenue, operating cash flow or past or future cash tax obligations," a company news release said.

Overall the adjustments increased the net loss for the three months ended Sept. 30, 2001 by $8.9 million or 3 cents per share. The net loss for the nine months ended Sept. 30, 2001 was increased by $25 million or 9c per share. The adjustments also increased the accumulated deficit at Dec. 31, 2001 by $54.2 million.

KPMG LLP has been appointed to perform reaudits as of and for the years ended Dec. 31, 2001 and 2000 as part of the restatement process.

Conseco's bank debt "was down a couple of points" following the release of third quarter results, a trader told Prospect News. However, he was unable to give a firm quote on the bank paper. The loan was quoted with a 57 bid and a 59 offer on Tuesday morning, prior to the announcement, a second trader said.

The Carmel, Ind. financial services holding company announced a consolidated net loss for the quarter ended Sept. 30, 2002 totaling $1.769 billion, compared to a net loss for the same period in 2001 of $410.6 million. This loss was mainly attributed to an impairment charge of $701.3 million, a goodwill impairment charge of $500 million, realized investment losses of $277.8 million, an adjustment to reserves for long-term care insurance of $110 million and a loss on discontinued operations totaling $140 million.

As was previously announced, Conseco is currently pursuing a restructuring of its capital structure and has been in discussions with bank lenders, holders of senior notes and holders of preferred securities regarding a restructuring plan.

In primary news, NDCHealth Corp.'s senior credit facility was upsized by $25 million to $225 million. Currently the loan consists of a $100 million five-year revolver and a $125 million six-year term loan B. Initially, the revolver was sized at $75 million.

As of the launch date, the revolver was priced with an interest rate of Libor plus 300 basis points and the term loan B was priced with an interest rate of Libor plus 350 basis points.

Merrill Lynch and Credit Suisse First Boston are the lead banks on the transaction, which is expected to close before the end of the month.

Besides increasing the credit facility, the company also increased its bond deal by $25 million to $200 million from $175 million. The private offering due in 2012 priced on Monday at par to yield 10½%.

Credit Suisse First Boston and Merrill Lynch & Co. were joint bookrunners on the bonds and Goldman Sachs & Co. and U.S. Bancorp Piper Jaffray were co-managers.

Proceeds from the bank and bond deals are being used by the Atlanta healthcare information services provider to help redeem convertibles, replace the existing revolver and for general corporate purposes.

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