Conseco climbs on debt buyback; Enron improvement ends on financing questions

By Paul Deckelman and Paul A. Harris

New York, Dec. 6 - News that Conseco Inc., has continued to buy back its short-dated public debt proved to be a needed tonic for the troubled insurance company's bonds Wednesday, while Enron debt headed in the other direction as questions about its $1.5 billion of financing surfaced.

In the primary market, two more deals joined the calendar and Host Marriott upsized and priced its offering of four-year notes.

Back in secondary dealings, Conseco's bonds were quoted up about six points, with the Carmel, Ind.-based insurer's 8½% notes due 2006 advancing to 76 bid/77 offered, from 70 bid/72 offered on Tuesday. Conseco's 9% notes due 2006 firmed to around 53 bid from prior levels around 47

Conseco announced that it had repurchased an additional $108 million of bond debt scheduled to mature in 2002. This was over and above the $124 million of maturing debt which it purchased during the third quarter ended Sept. 30 and during October. The company said that of the $232 million of debt which had been bought back during the third quarter, October and November, $148 million was issued by Conseco itself, and $84 million by its struggling Conseco Finance Corp. unit - a total of 27% of all of the 2002 maturity debt which the two companies have outstanding.

The announcement of the debt buyback and the corresponding rise in Conseco's bonds were a welcome respite from the turmoil which engulfed the investment community Monday, when it was erroneously reported by The Wall Street Journal that Conseco had filed for bankruptcy. The report followed several weeks in which the company had reported disappointing earnings, and investor angst over its liquidity situation and the progress of its turnaround effort had surfaced. Even a retraction by Dow Jones of the mistaken bankruptcy reference later that same day failed to completely catch up with the original story, or appease financial community unease with Conseco, and both the stock and the bonds of the company fell. That was not the case on Thursday, however; besides the smart firming in Conseco's bonds, its shares were up 35 cents, or nearly 10%, to $3.95 in New York Stock Exchange trading.

Elsewhere, it was back to the downside for beleaguered Enron Corp. Thursday, after three straight sessions in which its stock rose following its weekend Chapter 11 filing and two consecutive days of better prices for its bonds and a third session during which the bonds hung onto those gains.

"Enron paper weakened all around, and was down about two points," a trader said; the bankrupt Houston-based energy trading company's senior debt, such as its 7 1/8% notes due 2007 and 6¾% notes due 2005, dipped to 22 bid from prior levels around 24.5, while its subordinated paper, such as its 8¼% notes due 2012 and 6¾% notes due 2005 eroded down to 2 bid from this week's peak levels around 5.

On the equity side, Enron shares, which had moved back up above $1 Wednesday from recent low levels around a quarter, dropped 35 cents, or 34.65%, to 66 cents on the NYSE. Volume of 130 million shares was more than four times the usual daily turnover.

For several days, Enron securities had benefited from the prospect that once it was under bankruptcy court protection, Enron could shed its debt and its non-core assets and emerge as a smaller, but more focused company, still engaged in its lucrative trading activities in energy and other commodities. In the meantime, it would restructure, funded by $1.5 billion of debtor-in-possession financing arranged by J.P. Morgan Chase and Citigroup. But on Thursday, those banks were reported to have indicated that the financing was by no means a done deal; while those two lead banks had committed to about $500 million of the financing, the other $1 billion remains to be secured by Enron.

Further potentially bad news emerged on reports that the Department of Labor is investigating the way Enron's pension and 401(k) plans, laden with the company's now-nearly-worthless stock, have lost most of their value. Besides the Labor probe, the Securities and Exchange Commission and several Congressional committees are probing other aspects of the company's spectacular fall from grace. Enron is not being aided in the court of public opinion - always a factor when it comes to governmental or political investigations - by new reports that senior managers were paid a total of $55 million in retention bonuses shortly before the company filed for bankruptcy and pink-slipped thousands of employees.

The demise of Enron so far has not had much ripple effect, but some questions are being asked about companies it may have dealt with or which may be in the same business. One of those is Calpine Corp., which said in a generally upbeat conference call last week that it had no net exposure to Enron's troubles. Still, critics of the San Jose, Calf.-based power plant company and energy trading firm note that it is increasingly dependent on trading natural gas and power as well as on hedging strategies - the kind of areas Enron was active in. But company officials have taken pains to make the case that Calpine is no Enron and is not likely to follow in the former's footsteps.

Still, its debt was quoted about two points lower Thursday, its 8½% notes closing around 95.5 bid/96.5 offered.

AES Corp. bonds "were all down a couple of points," a market observer said, even though the Arlington, Va.-based global power company said it has only $15 million of exposure to Enron.

On a more ominous note, the bonds of AES's U.K.-based AES Drax power unit were being quoted around 45 bid, a steep decline from recent levels around par, in the wake of this week's warning by Standard & Poor's that AES Drax Holdings Ltd.'s BBB- rated £200 million and $302.4 million senior secured bonds; and AES Drax Energy Ltd.'s BB- rated £135 million and $200 million subordinated notes were put on Credit Watch for a possible downgrade, which could affect one of its large contracts.

Outside of the power generating and trading sphere, a trader said Bethlehem Steel Corp.'s bonds "didn't rise any further" Thursday, after having gone up for several consecutive sessions on the possibility that Bethlehem and several other troubled steelmakers might combine with industry leader U.S. Steel Corp. in an effort to cut their costs and reorganize their production capacity. The bankrupt Bethlehem, Pa.-based integrated steel giant's 10 3/8% notes languished in the 10-13 bid area.

The trader saw "definite activity", but very little in the way of bond price movement in McLeodUSA's 11 3/8%notes due 2009, which hung around the 22.5 bid/23.5 offered area, though with over $110 million of the bonds reported by the FIPS market tracking service to have been traded by day's end.

Also in the telecom sphere, a trader saw Williams Communications Group Inc.'s 10 7/8% notes due 2009 "rebounding over the last few days," a beneficiary of a market trend toward "selective buying; he quoted them bid in the 46.5-47.5 area, up about three points.

Among newly issued bonds, the trader said Stone Energy's new 8 ¼% notes "were trading at a premium."

At another desk, the Stones were seen at about 101 bid/101.5 offered, Horizon PCS' 13¾% notes were at 99.55 bid/99.75 offered, and Ingles Markets' 8 7/8% notes were at 99.75 bid/100.25 offered.

In primary activity, two more deals emerged Thursday: International Specialty Holdings will sell $200 million of eight-year notes via bookrunners Bear Stearns & Co. and UBS Warburg in a drive-by offering set to price Friday, and MeriStar Hospitality Partnership LP will sell $200 million of seven-year notes via Lehman Brothers. That deal will be marketed Dec. 10-11 and price Dec. 12.

Also Thursday, Host Marriott priced its drive-by deal. The transaction was upsized to $450 million from $350 million and priced to yield 9½%. Joint bookrunners were Deutsche Banc Alex. Brown and Banc of America Securities.

Five deals are still scheduled to price in the one remaining session before the week of Dec. 3 comes to an end. In addition to the above-mentioned International Specialty Holdings drive by, Friday's business figures to include:

--Radiologix Inc.'s $160 million notes via Deutsche Banc Alex. Brown,

--OM Group Inc.'s $400 million notes via Credit Suisse First Boston,

--CSK Auto Inc.'s $225 million notes also from CSFB, and

--Sovereign Capital Trust's $75 million notes out of Janney Montgomery Scott LLC.

That makes for a total of $1.06 billion of high yield, for Friday.

End

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