Kaiser little changed on bankruptcy; TV station sale talk lifts Young; Mohegan upsizes

By Paul Deckelman and Paul Harris

New York, Feb. 12 - Kaiser Aluminum's not-unexpected bankruptcy filing Tuesday had little impact on the widely traded credit's bonds, traders said. Meanwhile Young Broadcasting's debt was being quoted up on news reports that the TV station group owner is in talks to sell its Los Angeles station for as much as $600 million.

In the primary market, Mohegan Tribal Gaming Authority rolled the dice with a 10-year issue and was able to upsize it, advance the pricing and come to market at the tight end of talk.

Mohegan increased its offering to $250 million from $200 million and priced the senior subordinated notes (Ba3/BB-) at par to yield 8%.

That was "at the tight end of the 8%-8 ¼% price talk," according to a syndicate source.

The source characterized it as "a 24-hour type of deal," adding that the drive-by was initially expected to price Wednesday.

Joint bookrunners were Banc of America Securities and Salomon Smith Barney.

And while the high yield primary market saw one gaming credit raked off green baize, another was placed on.

Eldorado Joint Venture/Silver Legacy Capital Corp. announced a new offering of $160 million 10-year mortgage notes (B1/B+) via joint bookrunners Banc of America Securities, Dresdner Kleinwort Wasserstein and Merrill Lynch & Co. The roadshow starts Wednesday and runs through Feb. 21, according to a syndicate source.

Mike Difley, vice president and portfolio manager of the American Century High Yield Fund, told Prospect News on Tuesday that he would keep an eye on the new Silver Legacy deal, although he does not anticipate that it will represent the big jackpot.

"I will look at it," Difley commented. "But I think the pricing is not going to be all that exciting.

"It's first mortgage notes," he added. "And a lot of single-B gaming paper trades well inside of 9% yield. So I'm not expecting great things.

"But for people who have money to put to work, and just don't want to worry about a credit, that's the kind of thing they will buy."

Difley, who also said he would be looking at Collins & Aikman Floorcoverings' upcoming offering of $175 million eight-year notes, said he expects the gradual pace of new issuance seen in the high yield primary market thus far in 2002 to continue.

"We had a lot of money come into the high yield market early in the year. I still think a lot of it is still sitting on the sidelines. But some of the hot money, the timer money, has gone back out. And the market isn't rallying. It's going sideways at best. And I don't think accounts are excited about buying new deals in that kind of environment."

Margaret Patel, high yield fund manager for Pioneer Capital Management, also told Prospect News Tuesday, that she did not anticipate new issuance to intensify in the near term.

"I think that's because there probably aren't the kind of names that people would like to buy," Patel said. "They aren't coming to the marketplace, for whatever reason. And for the people who would like to come, there's no demand for their paper because they're too speculative.

"So I think in a market where people are risk-averse you have a standoff, and you buy what you know.

"If there's a single-B in the secondary market that hasn't gone bankrupt, then you're inclined to buy what you know. I think that's what has caused the spreads to narrow.

"But it's self-correcting," Patel added. "When the spreads get narrow compared to their trend-line something happens and they tend to widen out."

Patel said the only deal she is presently looking at on the primary market forward calendar is Graphic Packaging International Corp.'s $250 million, to price Thursday via joint bookrunners Credit Suisse First Boston and Morgan Stanley.

"They have a nice value-added non-commodity niche," she said. "They have long-term customer relationships. They have what seems to be a good management team."

Price talk of 8¾% area was heard Tuesday, on that deal from the Golden, Colo.-based consumer products container manufacturer.

Price talk was also heard on American Achievement Corp.'s $175 million offering via Deutsche Banc Alex. Brown: 11¾%-12%. That deal is also expected to price Thursday.

On Wednesday the market anticipates hearing terms on Kamps AG's €300 million, via J.P. Morgan. Price talk is 8½% area.

In secondary action, Kaiser sought protection from the holders of its $799 million of outstanding junk bonds and other creditors via a Chapter 11 filing with the U.S. Bankruptcy Court in Wilmington, Del. The Houston-based metals producer said that it was faced with "significant near-term debt maturities at a time of unusually weak aluminum industry business conditions, depressed prices, and a broad economic slowdown that was further exacerbated by the events of September 11."

Echoing themes which have become distressingly common with old-economy "smokestack" industry companies, Kaiser also noted that it "has become increasingly burdened by asbestos litigation and growing legacy obligations for retiree medical and pension costs." The confluence of these factors, it continued, "has created the prospect of continued operating losses and negative cash flow, resulting in lower credit ratings and an inability to access the capital markets."

Kaiser's bonds continued to hold in the same 68-72 range they've recently occupied, a trader said, even after the filing, which had been generally expected by the market following Kaiser's announcement Jan. 15 that it would begin talks on a potential restructuring over the next few weeks with the holders of its $174 million of outstanding 9 7/8% senior notes coming due later this year, its $225 million of 10 7/8% senior notes due 2006 and its $400 million of 12¾% senior subordinated notes due 2003. Kaiser further telegraphed the kind of trouble it was in on Jan. 30, when it announced that it would not make the Feb. 1 interest payment on the 12¾% notes, and likely would also not make the Feb. 15 coupon payment on the 9 7/8% notes and the April 15 payment on the 10 7/8% notes.

"Not much was happening there," the trader said, "even though they filed. It didn't really pummel the bonds too much. They were in that same 70ish handle."

Another trader agreed that while he had seen Kaiser bonds, such as the 9 7/8s, quoted below the 72 bid level at which those bonds have recently been, he didn't see any actually trading down. The trader noted that the bonds were trading flat, or without the accrued interest, a typical phenomena for bonds whose issuers have missed coupon payments, gone into bankruptcy or otherwise defaulted on obligations.

The Kaiser news was pretty much a non-event, he noted because overall, "it was a slow day on Wall Street," with many market players occupied with the Morgan Stanley Global Leveraged Finance Conference in Boca Raton, Fla. and others choosing to take the traditionally slow pre-holiday week off. Apart from watching the Kaiser bonds go nowhere and seeing such recently lagging telecommunications issues such as Williams Communications Group trade slightly softer, "staying awake was our main challenge."

There was some excitement, however, among holders of Young Broadcasting Inc., as the Hollywood Reporter, an entertainment industry trade journal, and The Los Angeles Times both reported Tuesday that the New York-based television station operator might sell its KCAL-TV station in Los Angeles, the nation's Number-Two television market, to CBS owner Viacom for as much as $600 million. Young's 8¾% and 9% notes were seen having moved up about four points on the session to around the 91 bid level from prior levels around 87. Its shares were up $1.45 (8.03%) to $19.50 in Nasdaq trading.

Late in the day, Young said it would hold a conference call around 4:15 p.m. ET to clarify the situation, but that never did take place.

Elsewhere, cable TV giant Charter Communications' bonds, which a trader said had been drifting lower over the past few sessions, were seen a bit softer again, with its 8 5/8% paper due 2009 at 92 bid/93 offered, and its 9.92% notes due 2011 likewise easier at around 68. Standard & Poor's revised the company's ratings outlook from stable to negative, citing the delay in improvements in its financial parameters.

While the paper was softer, a trader said, "it was no major move. These developments had been anticipated and were priced in."

On Monday, the St. Louis-based cable-TV giant reported fourth-quarter 2001 results and forecast slower first-quarter 2002 revenue and cash-flow growth. On a conference call with investors and analysts, Charter projected that revenue in the first quarter would grow 11%, somewhat below the 12% to 14% increase expected for all of 2002. It also estimated that operating cash flow should show single-digit percentage growth in the first quarter, below the 11% to 13% gain it expects for the full year.

The Number-Four U.S. cable operator further cautioned that it would likely add about 550,000 to 600,000 digital cable subscribers in 2002 - below industry estimates in the 600,000 to 660,000 new subscriber range.

Also in the communications sphere, Qwest Communications International paper, which was quoted Monday as having widened out anywhere from 30 to 50 basis points, were another 30 to 40 wider on Tuesday, after the Denver-based telecommunications giant said that the Securities and Exchange Commission had issued a subpoena ordering Qwest to provide documents related to bankrupt telecommer Global Crossing Ltd., whose collapse is currently under investigation by the federal regulators, as well as by the FBI.

Qwest, which had bought and sold fiber-network capacity in a number of deals with the failed Global Crossing, said it was cooperating with the authorities. Bids on its Baa1/BBB+ 7¼% notes due 2011 widened out to 380 basis points over Treasuries from 330 over previously, while the bids on its 7¾% notes due 2031 ballooned out to 390 basis points over the governments from 350 basis points.

Another nominally investment-grade telecom issue whose debt has recently struggled in the market, WorldCom Group, was heard having widened out 15 to 20 basis points on Monday, and then widened another 30 basis points Tuesday, its 8¼% notes due 2031 bid at about 375 basis points over Treasuries, versus 345 over previously.

On Monday, Standard & Poor's revised its outlook on the Clinton, Miss.-based company's BBB+ debt ratings to negative from stable, cautioning that the action "reflects the current economic and competitive telecommunications environment, which could challenge the company's ability to deleverage its balance sheet near term," Moody's Investors Service last week cited similar concerns in putting WorldCom's A3 ratings on review for a possible downgrade.

"Traders are keeping a low profile out there," a market source said, "because they're getting killed. People are just hitting bids, and whipsawing them around."

Navistar International Corp.'s 9 3/8% senior notes due 2006 were quoted down a point at 104.5 bid, after Standard & Poor's said Monday that it had put the Warrenville, Ill.-based heavy truck maker's debt ratings on Credit Watch with negative implications, including those of its BBB- rated senior notes and its BB+ rated subordinated bonds.

A trader saw Dillard's Department Stores paper up about half a point to one point, as the death of 87-year-old company patriarch William Dillard - the Little Rock, Ark.-based retailer's founder and chairman - raised speculation that the family-run company he started with a borrowed $8,000 back in 1938 might now be sold. The Dillard 6.43% notes due 2004 hovered in the 93 bid area. When news of the elder Dillard's passing due to natural causes was released on Friday, Dillard's shares shot up $2.56 (nearly 20%) on sale speculation, even though some analysts cautioned that the rise might be short-lived, since the family - whose members occupy all of the top executive positions - have given no indication they are interested in selling. The shares rose another 6% in Monday's NYSE dealings, to $16.26, although they were off slightly on Tuesday.

Another retailer on the upside was J.C. Penney, whose paper was quoted up about a point across the board.

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