JohnsonDiversey, Western Financial price; WorldCom down again; interest in Trump

By Paul A. Harris

St. Louis, Mo., April 29 - Two deals priced Monday in the high-yield primary market - a two-tranche offering from JohnsonDiversey in dollars and euros totaling approximately $500 million and a new issue of subordinated capital debentures from Western Financial Bank, which upsized by a third, and yielded 9.70%.

And details on one new deal swam into focus, as details emerged on $150 million of notes from Cleveland, Ohio spectacle-seller Cole National Group. Its deal will come to market via Lehman Brothers and CIBC World Markets.

Meanwhile in the secondary market, WorldCom, the number two long distance carrier in the U.S., had stations all along the high yield line singing fresh choruses of the "Telecom Blues."

"Today was brutal," one trader stated flatly during a conversation with Prospect News.

"As went WorldCom, so went the market," the trader added. "People were just bailing out of the sector."

As the level of doubt mounted regarding WorldCom's ability to meet its debt obligations, its share prices plunged $0.92 or almost a third Monday to a new all-time low of $2.35, sources noted. In fact, since WorldCom truncated its growth outlook on April 19, its stock has fallen almost 61%.

On the debt-side of the beleaguered telecom's capital structure the news Monday was no more encouraging: the trader said that the company's 7½% bonds of 2004, which were traded around 71 on Friday, were traded as low as 65 on Monday.

Another secondary market source said that WorldCom bonds were trading down 7-10 points, depending upon the issue. The 6.40%s of 2005 were heard 47-bid, and the 7 ½%s of 2011 were 48.75-bid, the source added.

"The other bond that got hammered here today was Navistar," the trader said. "I don't know why. The stock continues to go down."

The trader said that the Warrenville, Ill.-truckmaker's 9 3/8% bonds, which traded as high as 106.25 on Friday, were "freely offered" Monday at 105.25. Its stock dropped $1.32 to $38.53.

Meanwhile it was good news in the secondary market for paper from the various corporate enterprises of Donald Trump.

The roadshow started last Friday for the joint issue from Trump Casino Holdings, LLC and Trump Casino Funding, Inc. of $470 million first mortgage notes due 2010, the proceeds of which will be used to repay or acquire substantially all of the outstanding debt of Castle Associates and Trump Hotels & Casino Resorts Holdings LP, and the bank debt of Trump Indiana, Inc.

That deal is expected to price during the week of May 6.

"The question is 'Can they get the deal done?'" commented the trader. "Everybody's looking for the 15½%s of 2005, which are up because the rumor is if Trump gets the deal done they get taken out.

"Those bonds were as low as the 60s, a month or two ago."

Good news was also reported by a secondary market official on the bonds of Charter Communications, which were up on a positive earnings report. This trader said that Charter's 10¼% notes of 2010 were 94.75-95.75 "which was up a little."

Meanwhile, secondary market sources said, the tight-yielding energy credits that recently priced in the primary market continue to hold firm in aftermarket trading. In particular, they mentioned oil and gas exploration and production companies XTO Energy and Pioneer Natural Resources, both of which priced in the second half of the month to yield 7½%.

Noting that XTO's new 71/2s were at 100.5 bid, 101.5 offer this morning, a trader said that the strength of the E&P credits reflects a shortage of alternatives.

"There's so much cash that even if you don't like the deal, I'm hearing a lot of guys say they have to put in for some of it because there's so much cash they have to put to work," the trader said.

"It's probably not the best scenario. You probably don't like to put cash to work just because you have it. But it seems like secondarily when this stuff is issued it hangs in there pretty well. There are just not a lot of alternatives.

"It's a frustrating thing because where else do you look? Telecom? Nobody wants to touch telecom because nobody knows what the assets are worth.

"But the cash-flow names definitely don't have a lot of yield in them," the source continued, adding that the statement holds reasonably true for most of the recent new issuance.

"It's kind of the same story we've seen for the past four weeks: the stuff on the calendar isn't real exciting but it trades well in the secondary. Everybody avoids problem companies and telecom."

Ditto the home building credits which recently priced in the primary market: Beazer, Champion, D.R. Horton, et al. these secondary sources added.

"That seems to be the safe haven," a trader said.

"They're almost obnoxiously overpriced but they hold steady because these people don't have to worry about missing a coupon payment like they do in the telecom sector.

"Everybody in the telecom sector is worrying mostly about refinancing right now: 'Can this company reduce its debt, and come to market?' And in most cases it just seems like a resounding 'No.'

"The whole complexion of the market's changed dramatically."

With $311 million having flowed into the high yield mutual funds for the week ending April 24, Monday was a notably quiet day on the primary side of high yield. Only one new deal was announced.

Cole National Group, Inc., the Cleveland-based company whose franchises include Sears Optical, Target Optical and Pearl Vision, told Prospect News Monday that it would bring $150 million of senior subordinated notes via joint bookrunners Lehman Brothers and CIBC World Markets. The deal, according to company treasurer Joseph Gaglioti, will close sometime during May.

A syndicate source subsequently told Prospect News that the Cole bonds will have a ten-non-call-five structure and will start roadshowing late in the week of May 6.

Meanwhile Monday terms emerged on JohnsonDiversey, Inc.'s approximately $500 million of 10-year senior subordinated notes (B2/B/B+) in two tranches. Both the $300 million and €225 million priced at par to yield 9 5/8%, "at the tight end" of the 9 5/8%-9 7/8% talk, a syndicate source said. Goldman Sachs & Co. ran the books.

Also on Monday, Western Financial Bank priced an upsized offering of $300 million 10-year subordinated capital debentures (B1/B-), raised from a planned $200 million. The Irvine, Calif.-based independent auto finance company's new notes priced at 99.518 to yield 9.70%. Price talk was 9¾%-10%. Credit Suisse First Boston was the bookrunner.

As the equity markets continued their descents Monday, with the Dow Jones Industrial Average dropping by 90.85 or by 0.92% of its value, Prospect News asked two primary market sell-side sources what sustained softness in equities could portend for the high yield.

"It depends," one official commented. "There's certainly a portion of the high-yield mutual funds that is what I'll call 'timer money.' When their financial models tell them that one asset class should get cash over another, the money goes there. If those models tend to have a large equity component, when the equity markets start doing poorly those models can be affected.

"The influences seem to be defying what's happening in the equity markets right now and it's kind of hard to tell why," this source added. "The high yield asset class is attractive right now for a variety of reasons. I think that's why it's attracting cash."

Another sell-sider said that the recent decline in equities would likely maintain the stream of cash seen flowing into high yield during the past 2½ months.

"I would think it's going to keep the money coming in," this official said. "You're getting some decent returns on some of these names. And you can clip a coupon. The equity market's not returning anything.

"Some of these guys - even if they're only making 4%, 5%, or 6% - at the end of the day I'd much rather have that versus the loss that you're seeing in the equity markets right now."

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