Charter continues gains; Young up on tender news; Chesapeake sells 10-years

By Paul Deckelman and Paul A. Harris

New York, Aug. 7 - Charter Communications Inc. bonds continued to firm on Wednesday in the wake of positive second-quarter results and third-quarter earnings projections reported Tuesday; two other communications names, Young Broadcasting Inc. and Ziff Davis Media Inc. were higher as Young said it planned to tender for four series of bonds and Ziff announced bondholder agreement to an exchange offer taking place as part of its overall out of court financial restructuring.

In the primary market terms were heard on one of the two oil and gas exploration and production drive-by deals that showed up on Monday. Chesapeake Energy Corp. pumped out $250 million of new high-yield debt, in a deal that priced wide of talk.

Also on Wednesday Dulles, Va.-based rocket-maker Orbital Sciences Corp. was sighted on a trajectory to price a new notes and warrants offering, just as the vapor trail dissipates from Orbital's proposed convertibles deal that was pulled in July.

Back in the primary, Charter Communications continued its winning ways; the St. Louis-based cable operator's debt on Tuesday had risen several points after it reported a smaller loss of $202 million (69 cents a share) for the second quarter versus $273.4 million ($1.07 a share) a year earlier. Charter had also heartened investors by reiterating its forecasts that operating cash flow for the year, excluding interest payments, will range between $2.03 billion and $2.07 billion, on revenue somewhere between $4.6 billion and $4.7 billion. In the third quarter, operating cash flow will be between $520 million and $530 million on revenues of between $1.19 billion and $1.2 billion.

On Wednesday, Charter's bonds were being quoted up about two points on the session, its 8 5/8% notes due 2009 finishing just below 60 bid, up nearly two points on the session, although a trader did see its bonds "up a little, then they came down [from that peak] to hit their closing levels. Other cablers on the upside included Cablevision's CSC Holdings 8¼% notes due 2009, seen up a 1½ points at 80 bid, and the bonds of bankrupt Adelphia Communications Corp.'s Century Communications unit, two points improved at 18 bid.

Also in the communications area, Young Broadcasting's 10% notes due 2011 were more than five points improved on the session to 93 bid, while its 8¾% notes due 2007 firmed to 91 bid from 88 previously; the New York-based TV station group owner announced plans to begin tendering next week for its one issue of senior notes and three issues of subordinated notes, offering par plus accrued interest. Young will fund the tender using the net proceeds from the recent sale of its Los Angeles television station.

High-yield power generator AES Corp.'s debt firmed Wednesday, as the Arlington, Va.-based company outlined its plan to improve its near-term financial performance, including cost-cutting measures, increasing operating cash flow and reducing debt at the parent-corporation level.

AES told investors at a presentation that it expects cost-cutting measures, such as cuts in operational and capital expenditures and the capture of economies of scale within the organization, to yield annual savings of $200 million before taxes.

AES said it expects to garner about $800 million from the recently announced sales of its New Energy and Cilcorp units, and added that plans to sell $1 billion more in assets to increase liquidity.

The company further said that it has no intention of deferring the interest on its preferred shares as a cash-saving measure, feeling this would be inconsistent with its efforts to get its parent-company debt back up to trading levels around par.

While equity investors were not reassured - the stock dropped 16 cents (8.16%) to $1.80 - bond players were feeling quite differently. AES's 8 3/8% notes due 2007 were quoted up six points on the session to 29 bid while its 9½% notes due 2009 were two points better at 44 bid.

Another player in that recently battered power generation and merchant energy sector, CMS Energy Corp., announced plans to sell two pipelines valued at as much as $1.4 billion total, and to use the deal proceeds to pay down debt. Its 9 7/8% notes due 2007 were two points improved at 72 bid.

The asset sales took some of the sting out of the second-quarter earnings report, which showed Dearborn, Mich.-based CMS losing $75 million (56 cents per share) versus year-ago earnings of $53 million (40 cents per share). However, the red ink was attributable to a $141 million loss on discontinued items and other one-time costs; excluding that special item, CMS actually earned $59 million (44 cents per share) in the quarter, beating analysts expectations of 27 cents a share and topping the comparable year-ago profit of $35 million (27 cents per share).

CMS shares rose $1.10 (13.87%) to close at $9.03.

With the National Bureau of Economic Research expressing an unwillingness to whistle an end to the US recession Wednesday, activity in the primary market remained "seasonally slow." That is how sell-side sources have been describing what several insist will be the last purposeful week of business in the junk bond market until after the Labor Day respite.

Of the two oil and gas E&P drive by deals that appeared on the forward calendar Monday, Chesapeake wrapped up its pitch to investors the quickest. Chesapeake, which as some sell-siders have noted is no stranger to the capital markets, priced $250 million of 10-year senior notes (B1/B+) at 98.389 to yield 9¼%. Price talk was for a yield in the 8 7/8% area. Salomon Smith Barney and Lehman Brothers ran the books.

Asked about the Chesapeake transaction, one syndicate source noted that it came wide of the talk and commented: "I think this market just penalizes you no matter where you put the talk. I think they always tack on at least an eighth, if not more. The accounts just don't want to give it up because they don't have it."

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