Werner Holding on the slide; ON Semiconductor terms emerge

By Paul Deckelman and Paul A. Harris

New York, Dec. 22 - Action in high-yield trading Monday was going on among such distressed credits as Werner Holding Co., whose bonds tumbled many rungs after the ladder maker announced that Number-1 customer Home Depot would no longer be carrying its products; and Italy's Parmalat, in the grip of a rapidly metastasizing scandal that's being compared to the Enron Corp. fiasco in the U.S.

Otherwise things were described as "absolutely dead" among mainstream names.

Meanwhile terms emerged on a new deal from ON Semiconductor, Inc., which threw the switch on a quickly shopped $98 million offering Friday.

Back among the secondary issues it was "extremely dead," said a trader who said the only thing he'd seen was Parmalat's bonds, "knocked down a little more."

He quoted the Italian dairy products maker's dollar denominated 6 5/8% notes due 2008 as having fallen to 25.25 bid. 26.25 offered from prior levels around 29 bid. 30 offered, and saw its euro-denominated bonds in that same context, around 25.5 bid, 27 offered.

At another desk, Parmalat's bonds were seen to have gone even lower, to as low as a 22 bid, 24 offered context, one trader said.

Another said that the bonds had "opened in the lower 20s, gotten back into the mid-to-upper 20s, and then went back down to the low 20s.

All of the news Monday was bad for the company, Italy's largest foods producer, whose bonds have been careening downward for much of the month on liquidity concerns raised when it failed to pay off a maturing bond on time. Those concerns grew to epic proportions Friday when the company admitted that some €3.95 billion supposedly on deposit with the Bank of America - wasn't.

On top of that, an Italian newspaper reported Monday that another €2.9 billion of bonds which supposedly had already been bought back by the company, hadn't been, meaning its total debt burden is a larger than originally reported €9 billion.

Prosecutors meanwhile were looking at company founder and former chief executive officer Calisto Tanzi and other present and former executives as possible targets for investigation in a false accounting scandal that has easily dwarfed the €1 billion of irregularities found earlier this year in a U.S. unit of Dutch-based supermarketer Royal Ahold NV and which is now being compared with the $5 billion scandal that virtually destroyed Enron Corp.

The company's new leader, turnaround expert Enrico Tanzi, has been meeting with government officials and bankers in hopes of crafting a reorganization package. A bankruptcy filing could follow Tuesday's special board of directors meetings, European newspapers said.

Back in the States, the disaster du jour was Werner Holding, whose 10% notes due 2007 fell from last week's closing levels around 70 bid to as low as 43 bid early in the session, before bouncing off those lows to end in a 55-56 context.

The bonds fell in apparent response to the company's Friday filing with the Securities and Exchange Commission, announcing that The Home Depot - the nation's largest retailer of home improvement supplies and equipment and Werner's biggest customer - will no longer sell its line of metal and fiberglass extension ladders.

Werner's bonds had fallen into the 70s from around par back in October when Home Depot first said that it would no longer sell Greenville, Pa.-based Werner's step-ladders and would review all of its other ladder product lines.

Home Depot made up 31% of Werner's sales last year, and loss of such a huge customer is bound to hurt - although Werner also said that it had signed a new agreement to be the sole ladder supplier to Lowe's, Home depot's major rival.

Elsewhere, a trader said that Calpine Corp. debt had moved up a little, quoting the San Jose, Calif.-based independent power producer's 8½% notes due 2011 as having moved up to 77.75 bid. 78.75 offered from prior levels at 76.5, "a nice little move," as he called it.

Otherwise, though, he saw "not much going on - just odd lots, and guys cleaning their positions up. The major moves last week - like Adelphia Communications Corp. [whose bonds firmed a good five or six points] pretty much stayed status quo."

Other market participants echoed that general theme, with many names unmoved in the dull, pre-holiday market despite the presence of real news.

For instance, EchoStar DBS bonds held steady, its 9 3/8% notes due 2009 at 105.25 bid, and DirecTV's 8 3.8% notes due 2013 didn't budge from their 115.5 perch, even on the news that the Federal Communications Commission had okayed the acquisition of DirecTV's corporate parent, Hughes Electronics, by media giant News Corp. - a deal that DTV competitor EchoStar had been hoping wouldn't happen and had tried to head off, unsuccessfully.

There was also little bond market reaction to the news that Pennsylvania's legislature had agreed on a budget package that included no mention of raising revenues by allowing slot machines to be installed at racetracks in the Keystone state. That's seen as a setback for Penn National Gaming, which owns several tracks and was hoping to get the approval to begin converting them into "racinos", and International Game Technology, the leading manufacturer of the one-armed bandits who likely would have gotten a big share of any racino business that might come up.

But even though Penn National's Nasdaq-traded shares slid $2.20 (8.73%) to $23 on volume of two million shares, about five times the norm, and IGT's New York Stock Exchange traded shares eased $1.42 (3.88%) to $35.17, their bond prices were essentially steady.

IGT's 8 3/8% notes due 2009 were unchanged at 118.5 bid, while Penn's 6 7/8% notes due 2011 were actually half a point better on the day at 99.

The opening session of the holiday-abbreviated Dec. 22 week saw no activity in the primary market, sources reported on Monday.

There are at present no U.S. or European high yield issues, nor emerging markets corporates expected to be priced during the remainder of 2003, they added.

Nevertheless word spread Monday among the thinned-out ranks of high yield observers that late last Friday Citibank led a seller notes transaction.

Semiconductor Note Participation Trust, a subsidiary of Phoenix semiconductor supplier ON Semiconductor, Inc., priced $97.825 million proceeds of zero-coupon junior subordinated accretion notes at 107.50, representing an approximately 70% discount to their 153.739 accreted value as of Dec. 30, 2003.

The non-rated notes have a 10% accretion rate and were priced to yield 15.003% yield.

The original notes, due Aug. 4, 2011, were sold at par on Aug. 4, 1999 to Motorola, Inc. by ON Semiconductor as part of the acquisition of Semiconductor Components Group, a Motorola subsidiary.

The originally issued notes are held by the trust. The terms of the seller notes are identical to those of the original notes due Aug. 4, 2011.

Meanwhile, David Bitterman and Andrew W. Van Houten, co-heads of high yield research at Deutsche Bank Securities, commented that the hot primary market finished the year at a pace that may be too hot to be sustained over the longer course.

Writing last Friday in Deutsche Bank's high yield research organ, the One Stop Weekly, Bitterman, Van Houten and their associates took note of the $170 million inflow to the high yield mutual funds for the week ending Dec. 17, and tallied it as the 12th inflow in 13 weeks.

"It is a much slower pace than the $500 million-plus weekly flow numbers we used to see during summer," they stated. "Considering how active the primary market has been, it is surprising that the returns have been so satisfactory.

"During the most recent week, for example, 15 new issues priced for a total of $4.4 billion, whereas the mutual funds supplied less than 5% of this amount in new funds during the same period. Nevertheless, the market managed to finish the week higher, just as it did in 41 weeks so far this year. "This points to a lot of underlying strength but may not be a sustainable situation over the long-term. Therefore, we would like to see a moderate slowdown in the primary market in 2004."

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