Reliant, Charter, jump on financing news; AMR continues gains; Dan River prices

By Paul Deckelman and Paul A. Harris

New York, April 1 - Reliant Resources Inc. debt and shares zoomed on Tuesday, after the utility company announced that it had lined up $6.2 billion of financing, allowing it to dodge the bankruptcy bullet. Financing news also played a role in the rise Tuesday of Charter Communications Holdings LLC's debt, despite a wider fourth-quarter loss for the company and a restatement of earnings. AMR Corp. - which has also managed to for now avoid going bankrupt - was skyborne for a second consecutive session. But Fleming Companies Inc. ran up the white flag and finally filed, although the bonds were little moved on the widely anticipated development.

In the primary sector, Dan River Inc. priced its $150 million offering of six-year notes, although the fabric maker was forced to bring the deal to market at a considerable discount to par in order to entice investors into buying it.

Back among already established issues, Reliant Resources' Orion Power Holdings Inc. 12% notes due 2010 were quoted as having powered up to around the par level from prior levels around 85 bid, after the Houston-based unregulated utility company announced that it had cinched $6.2 billion in financing from a consortium of 24 lenders.

The agreement came just before a midnight ET Monday-into-Tuesday deadline, by which time the company had to refinance $5.9 billion of debt coming due, or face the prospect of bankruptcy.

Besides paying off that existing debt just in the nick of time, the agreement gives Reliant another $300 million of new cash. In order to get the loan, Reliant posted nearly all of its available assets as collateral, and gave the banks warrants for 2.5% of its outstanding equity.

Reliant shares rose 50 cents (14.04%) in trading on the New York Stock Exchange to end at $4.06, although the shares came substantially off their opening levels at $4.75 after the company said that it had made three "improper" power trades in 2000 with BP plc.

Reliant's good news on the funding front was the latest instance of merchant energy companies being able to refinance loans despite sector problems that include a decline in U.S. electricity prices and a collapse in the energy trading system following the Enron Corp. debacle. Other sector players recently able to put through refinancings have included AES Corp., which did so in December; Allegheny Energy Inc., which refinanced in February; and El Paso Corp., which signed its deal last month. El Paso Corp. Closed on $1.2 billion of new financing last month.

News of the Reliant refinancing "pushed all of that [merchant energy sector] stuff up," one market-watcher said, quoting CMS Energy Corp.'s 7½% notes due 2009 as having firmed to 86 bid from prior levels around 83, while its 7 5/8% notes due 2004 were also up three points, at 94.5 bid. CMS' 9 7/8% notes due 2007 firmed to 94.5 bid from 92.

Besides benefiting from the overall merchant energy sector in the wake of the Reliant refinancing, Dearborn, Mich.-based energy producer CMS said Tuesday that it expects ongoing net income for 2003 to be somewhere in the 80 to 90 cents per share range, which would be an improvement on the average analysts' consensus projection of 79 cents per share.

CMS also reported a sizable loss for 2002 ($620 million, or $4.46 per share, versus a consolidated net loss of $448 million, or $3.42 per share, in 2001). However, that wider loss was mostly due to a series of one-time special items; excluding those items, CMS' 2002 operating net income was $213 million ($1.53 per share), well up from $9 million (eight cents per share) in 2001. Analysts had been looking for $1.51 a share.

CMS also said that it had completed its restatements of earnings for 2000 and 2001. And on Monday, CMS had announced that it had procured $850 million of financing from a bank group.

CMS's NYSE-traded shares were up 50 cents (14.04%) to $4.06 on Tuesday, on volume of 14.9 million shares, about four times the usual.

The market-watcher also saw Calpine Corp.'s 7 3/8% notes due 2008 going to 56 bid from prior levels at 52.75, while its 7¾% notes due 2009 were two points better at 55 bid. At another desk, a trader saw the San Jose, Calif.-based power generator's 8½% notes due 2011 going out at 57 bid/58 offered, up from 55.5 bid/56.5 offered in the morning. He pegged its 6¼% notes due 2006 at a wide 91.5 bid/94.5 offered, while its 8¾% bonds due 2032 were at 84.5 bid/87.5 offered.

AES's 9½% notes due 2009 were a point better, at 87.5 bid, while its 8 7/8% notes due 2011 rose to 82.5 bid from 80.75.

A trader said that Dynegy Inc. bonds were "really running," with the Houston-based energy company's 8¾% notes due 2012 tacking on five points to close at 76 bid/77 offered, while its 8 1/8% notes due 2005 went all the way up to 88 bid/89 offered from 82.5 bid/83.5 offered, despite the lack of any fresh Dynegy-specific news. On Monday, Dynegy said it had agreed to sell its North American communications business to Canadian-based telecommunications operator 360Networks Corp. for an undisclosed sum, which should allow Dynegy to focus on its core energy business. The company also said that it would seek a 15-day extension of the March 31 deadline for filing its annual report with the Securities and Exchange Commission, which would give it more time to complete its revisions of data for 2000 and 2001.

Away from the merchant energy names, Charter "was up big," one trader said, quoting the St. Louis-based cable operator's 8 5/8% notes due 2009 as having firmed to 50.5 bid/51.5 offered from 46 bid/47 offered on Monday, "a nice pop."

At another desk, an observer called Charter "one of the big ones today, seeing its zero-coupon/9.92% discount notes due 2011 three points better, at 44, while its cash-pay bonds were all around the 50 bid level.

Charter's Nasdaq-traded shares were up 20 cents (24.22%) to $1.03, on volume of 30.3 million shares, about four times the norm.

The bonds and the shares rose even though Charter reported that its fourth-quarter net loss widened to $1.87 billion ($6.36 a share), from $303 million ($1.03 a share) a year earlier. The wider loss was due to the writedown of the value of its acquisitions.

Charter - mired in accounting problems - also said that it would restate three years of revenues.

But offsetting those negatives, the company reported that revenues rose 13% to $1.2 billion from the restated year-ago revenue of $1.1 billion, while adjusted EBITDA rose 14% to $457 million from the restated year-ago $402 million.

Even more important, from a bondholder point of view, Charter said that it had $450 million in cash as of Monday, which would let it pay interest that came due on its public debt on Tuesday, and make the scheduled April 15 interest payment on its convertible debt, while also having enough to fund operations. And Charter stands to realize $300 million should it accept a funding offer from its largest shareholder, billionaire Microsoft Corp. Co-founder Paul Allen. Charter said it had formed a special committee to evaluate the Allen offer.

A trader said that Charter's positive news also helped the debt of another, even more troubled, cabler, Adelphia Communications Corp., whose 10 7/8% notes due 2010 firmed to 42 bid/43 offered, from 40.5 bid/41.5 offered.

Other cable issues such as Cablevision Corp. Insight and Mediacom were quiet Tuesday, he said.

Among the airlines, AMR Corp., parent of troubled American Airlines, was up for a second consecutive session, its 9% notes due 2012 jumping to 27 bid/29 offered from 21 bid/23 offered on Monday, "up pretty good," the trader said.

Another trader noted that the bonds of the Fort Worth-based carrier "had doubled over the past two sessions," pointing out that they had closed Friday at 13 bid/15 offered.

"If you had cojones of steel, you made money on that one," he opined.

AMR's bonds and shares have been heading skyward over the past two sessions on the strength of its announcement that it had reached agreement with its unions on a $1.8 billion package of cost-cutting measures, staving off an immediate bankruptcy filing.

The Number-One air carrier said Monday that it had achieved concession deals with the leadership of its mechanics union and pilots group, as well as its flight attendants. Under terms of the concession agreement, which covers about half of the company's 100,000 person workforce, those unionized workers would take pay cuts of between 15% and 20% following the expected ratification of the deal.

Traders said, however, that the AMR news did not provide much lift to the bonds of other carriers, who are also struggling with high labor costs, rising fuel bills and big debt loads.

In fact, Air Canada was forced to make an emergency landing in the bankruptcy courts Tuesday. Its 10 ¼% notes fell as low as 15 bid/18 offered post-news, although these had firmed to 21 bid/23 offered by day's end, still down from 23 bid/25 offered on Monday. The filing had been widely expected.

Also widely expected was Fleming's bankruptcy filing, so much so that news of the Chapter 11 case had little impact on its bond; its 10 1/8% senior notes due 2008 were unchanged around 19 bid/21 offered, although its subordinated bonds fell to about a penny on the dollar from prior levels around two or three cents.

The Fleming news caused no real ripples in the supermarket sector, with most bonds holding steady and one - Pathmark Stores - rising for presumably unrelated reasons; its 8¾% notes due 2012 were at 95, up from prior levels at 90.

Fleming competitor Nash Finch's 8½% notes due 2008 were unchanged at 81 bid.

Quiet continued to pervade the high yield primary market on Tuesday, sources said. Fabric-maker Dan River sewed up its junk bond deal, selling $150 million of seven-year notes at a significant discount. The deal came with a 14% yield.

In its wake Richmond, Va.-based Ethyl Corp. announced it will bring a Rule 144A offering of $150 million of seven-year senior notes.

Louise D. Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund, told Prospect News Tuesday that the conditions which presently prevail in high yield - lots of cash coming into mutual funds, a secondary market that is being bid up as a result and a skimpy new issuance calendar - might cause a portfolio manager to look deeper into and farther along the credit spectrum.

"You just have to go back to the research and try to come up with things that are safe," the Waddell & Reed manager said. "Maybe they are at a discount. Maybe they are quasi-distressed. But you have to start looking at those, as well as some of the quality names.

"You make that judgment based on the fact that you think things for that specific company are turning for the better."

With the history-making inflows that were reported to have come into high-yield mutual funds through the latter half of the first quarter, Prospect News quizzed Rieke on how important it is for a fund manager to determine the derivation of the cash.

"That would be critical," she responded. "But unless you called each specific mutual fund it would be impossible to know.

"I would assume that the market timers were in at the beginning," Rieke added. "They usually are. And what you are seeing now is more individual money into the mutual funds.

"What we don't have a gauge on is all the reallocation to high yield from institutions that have separately-managed accounts, because that's not captured in (the funds flows) number. The AMG number is only mutual fund numbers.

"You sort of get a glimpse of it, though, if you have your ear to the ground. When you saw that the Evergreen Fund did their $900 million closed-end fund the market jumped a couple of points. All of a sudden you knew there was a pile of a billion dollars coming in, and prices moved.

"That's what happens when you know that it's out there."

Although Rieke did not specify which - if any - of the deals on the forward calendar she might be looking at she told Prospect News that Allied Waste Industries, which was heard to be bringing an off-the-shelf $300 million of 10-year senior notes (BB-) along with a $3 billion credit facility led by JP Morgan, Salomon Smith Barney, Credit Suisse First Boston, Deutsche Bank Securities and UBS Warburg, is a name familiar to the buy-side and therefore is typical of an issuer who can get a deal done in the present market.

"The Allied Waste deal has been anticipated since last fall when they tried to do one though Deutsche Bank, and it didn't get done at the price they wanted," commented the Waddell & Reed portfolio manager. "So they have just been sitting in the weeds waiting to do it. They're doing high yield as well as some equity, to try to pay down the banks, and get that '05 bank line extended. So I think it will be a positive.

"They're doing a roadshow for the equity investors because those people haven't seen it for a while.

"If you do a roadshow I think you're going to get a better execution," Rieke added. "Maybe that's old-fashioned of me, but that's what I think. If they're going to be out there telling a good story it's going to help because the equity's down just in anticipation of them doing some sort of equity deal. So they have to tell the story."

When asked about navigating the present high yield market with respect to geopolitical events, Rieke said she is positioning herself not for the war but for the peace to follow.

"I'm not so much investing for the war, I'm investing because of what I think the economy is going to do now and after the war" she explained.

"The war is going to play some part in the psyche of consumers, going forward. You have to take that into account because you can't separate it from what the economy is going to do."

During Tuesday's session, terms emerged on Dan River's $150 million of 12¾% seven-year senior notes (B3/CCC) which priced at 95.305 to yield 14%, wide of the 13½% area price talk.

Deutsche Bank Securities was the bookrunner for the Danville, Va.-based fabric-maker's offering.

Subsequently a trader said that the new Dan River notes - which had priced at 95.035 in order to produce what he called "an astronomical yield" of 14% to get the deal done - were being quoted late in the session offered at 98. "But I didn't see a bid or hear a trade," he declared.

Late Tuesday Ethyl Corp. announced a Rule 144A sale of $150 million of seven-year senior notes.

The fuel and lubricant additives company will also obtain a $165 million credit facility to be led by Credit Suisse First Boston and UBS Warburg. Prospect News has learned that the bank meeting is set for Wednesday.

Also on Tuesday, price talk of 9¼%-9½% emerged on the dollar tranche of Vivendi Universal's €1 billion of notes in dollar and euro tranches due 2010 (B1/B+). Price talk on the euro tranche is anticipated when the market opens Wednesday in London, according to syndicate sources who added that the deal is expected to price on Thursday.

Goldman Sachs, JP Morgan, Banc of America Securities, Royal Bank of Scotland and Salomon Smith Barney are joint bookrunners on the Rule 144A/Regulation S notes.

News had circulated the market on Monday that Houston oil refiner Frontier Oil would bring $200 million of 10-year senior notes (B2/B+) via Bear Stearns & Co. to help fund acquisition of Holly Corp.

On Tuesday a market source told Prospect News that the deal is expected to price on Thursday.

Finally on Tuesday a syndicate emerged on the high yield note-piece of the $1.5 billion merger financing for the combination of Riverwood Holding Inc. and Graphic Packaging International Corp. According to a syndicate source the joint bookrunners will be Deutsche Bank Securities and JP Morgan.

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