Enron crashes and burns; Sinclair slates drive-by deal

By Paul Deckelman and Paul A. Harris

New York, Nov. 28 - Enron Corp. bonds were in freefall on Wednesday, after the major rating agencies knocked the faltering energy trader's debt ratings squarely down into junk territory and would-be savior Dynegy Inc. scrapped its planned $9 billion buyout of its troubled rival. In the primary market, two new deals surfaced, including a "drive-by" offering from Sinclair Broadcasting which could price as early as Thursday's session.

But the major focus of the junk bond market - and indeed, the broader financial markets as well - was the meltdown by Enron, the Houston-based energy marketer. Its senior bonds fell into the 20s from prior levels in the mid-50s, while its subordinated paper careened downward into the mid-teens from the 40s, as Standard & Poor's and Moody's hit the company with multiple-notch downgrades to the single-B region, and Dynegy scrubbed the bailout deal (see related story below).

Elsewhere, traders said that there was not much real activity going on, with the market's attention so squarely focused on the Enron debacle. One of the few other names heard around was Trump Atlantic City Associates, after parent Trump Hotels & Casino Resorts Inc. announced that it would make $91 million in interest payments which came due on Nov. 1 on several series of its bonds, including the widely traded Trump A.C. 11¼% senior notes due 2006. (See related story elsewhere in this issue).

The company's announcement noted that the decision to make the interest payment was based on the establishment of a bondholders committee for talks with the Atlantic City, N.J.-based gaming and hotel operator, which had announced on Oct. 31 that it was withholding payment in order to convince the bondholders to agree to negotiate modifications to the company's debt. Wednesday's announcement came just before the end of the standard 30-day grace period in which the payment could be made in order to avoid a default.

The market "anticipated that he (company chairman and 42% owner Donald J. Trump) was going to make that payment anyway or lose his hotels," said a trader who quoted the 111/4s essentially unchanged in the 62-64 bid area. Those bonds "made their move when they dropped off into the low 50s (on the original announcement that the payments would be withheld) and then came back, and that's where they've stayed. I don't see them running (on this latest announcement) because it was anticipated that they were going to pay the coupon anyway."

Another trader acknowledged that The Donald is "a master of never admitting defeat who describes every deal he strikes as 'fantastic', his favorite word". But he added that whatever kind of spin the colorful New York billionaire might try to put on the bondholders' agreement to form a negotiating committee, "you can't take on people whom you owe several billion dollars to, with your hotels as the collateral that you're going to have to give up if you default. The guy underestimated the resolve and intelligence of these bondholders, or maybe knowing the way Donald Trump thinks, he was just playing his usual cat-and-mouse game. $90 million? He could write a check for that if he wanted to."

Conseco Inc. bonds, which were down anywhere from five to eight points across the board Tuesday on continued investor worry over the Carmel, Ind.-based insurer's cash-flow situation and long-term prospects, continued their retreat Wednesday, albeit on very restrained dealings. A distressed-debt trader saw some of its senior bonds move down to 47 bid/49 offered from closing levels Tuesday at 53 bid, but said "not much is really going on in them in the way of trading."

A trader saw AK Steel Corp. bonds improved on news that Korea and other non-U.S. producers, are likely to go along with U.S.-endorsed plans to reduce worldwide steel output, plans which would see the beleaguered American steelers also reducing their output by 22 million tons, or about one fifth.

AK's 9 1/8% notes due 2006 firmed to 104.25 bid/104.75 offered, and its 7 7/8% paper went to 99.5 bid/100.5 offered.

A Korean Foreign Ministry official was quoted in news reports as saying that his government "cannot force private companies to do this and that, but we expect Korean steelmakers to adjust output in line with the supply-demand situation." The statement followed a visit to Seoul by a delegation of U.S. Commerce Department officials, who are making the rounds of various steel-producing nations in an effort to achieve consensus on the scheme to bolster world steel prices by eliminating a glut of the metal caused by over-production.

AK and Oregon Steel Mills Inc., are virtually the only high yield issuing U.S.-based steel producers whose debt has not been eroded down to distressed levels by the problems of the domestic steel industry, which center on high production costs and legacy (i.e., retiree pension) expenses and a flood of cheaply priced steel coning in from overseas. Oregon's 11% notes due 2003 "were hanging in" around 98.5 bid, the trader said, but the news out of Korea was little help to the battered bonds of most of the rest of the sector, "which is either in Chapter 11 or headed there" he said. Bankrupt Bethlehem Steel's 10 3/8% notes continued to languish around 7 bid.

Also on the bankruptcy front, Chiquita Brands International, as expected, officially filed for Chapter 11 in order to implement a previously outlined debt restructuring aimed at cutting $700 million of its $949 million of public debt. Senior debt holders will receive almost 88% of the restructured company's equity.

News that such a plan was in the works had first surfaced in October, handsomely boosting the Cincinnati-based banana importing giant's bonds above 80 bid from lows in the lower 40s. With the formal announcement, though, the bonds "just hung in" around the 80-82 bid level, a trader said. News of the filing of the package "was neither positive nor negative for the bond's price. It didn't really jolt it one way or another."

Anyway, he added "anyone who trades distressed debt, which is what that is, was trading Enron today."

The primary market saw a further $435 million of new business emerge Wednesday in two newly announced deals - a drive-by from Sinclair Broadcast Group, Inc. for $310 million to price Thursday and $125 million from Wheeling Island Gaming, Inc. to hit the road Dec. 4 with pricing on Dec. 12. Talk on the Sinclair deal is for a yield of 8 7/8% to 9%.

That brings the total new issuance announced during the week of Nov. 26 - with two full days remaining - to $1.795 billion.

One sell-side official told Prospect News that the market could easily see activity continue at this pace as 2001 winds down.

"It will probably continue as it has," the official said. "This time of the year the funds are seeing more money coming in, and as a result of that there will be more money coming into the high yield market."

Sell-side sources also continue to confirm to Prospect News that rumors are circulating that state and local pension funds may be looking to bring significant additional cash into the high yields.

"You have very strong inflows into high yield over the past couple of weeks," a sell-side source commented. "There has been discussion that everybody has been taking a hard look at high yield. And typically, coming into the end of the year, people start to evaluate those types of asset-allocation decisions.

"They're starting to look at it as an alternative asset class to things that are out there."

Price talk of 11½%-11¾% emerged Wednesday on Global Auto Logistics' offering of €100 million of eight-year notes expected to price Thursday or Friday.

And sources close to the deal told Prospect News that price talk is expected Thursday on Majestic Investor Holdings LLC's $145 million of seven-year notes via Jefferies & Co.

End

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