Charter continues gains; Young, Ziff 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 (see story elsewhere in this issue).

Another company with tender news was Ziff Davis Media, which is in the process of exchanging a package of cash and new notes for its existing 12% notes due 2010; the New York-based magazine publisher said that more than the required 95% of the outstanding notes have now been tendered under that offer, fulfilling the previously outlined minimum tender condition. It also announced agreements in principle with the holders of 100% of the loans under its senior credit facility in transactions related to the note exchange offer (see "Tenders and Redemptions" elsewhere in this issue). Ziff's 12% notes were "up quite a few points" on the news said a market source, who quoted the notes at 34 bid, well up from previous levels in the mid-20s.

Qwest Communications International Inc. debt was quoted down about two points across the board, as Wednesday's editions of The Wall Street Journal reported that its attempts to sell its QwestDex telephone directory operation for as much as $8 top $10 billion have been slowed by regulatory probes of the Denver-based regional Bell operating company and by market fears that Qwest could be driven into bankruptcy by its debt, liquidity and accounting problems. A market source saw Qwest Capital Funding's 7¾% notes due 2006 dipping to 40 bid from prior levels around 42.

A trader also cited what he called "the underlying bankruptcy rumors about the company," in noting the fall of its debt around two points.

Another trader, however, said that that Qwest's 7½% notes due 2023 opened at around 65 bid/67 offered, half a point below Tuesday's close, but then inched their way up to as high as 68 bid/70 offered before coming down. He quoted them going home at 67 bid/68 offered - actually up slightly on the session.

Qwest is scheduled to report second-quarter numbers Thursday; equity watcher say investors will be scrutinizing the release to see if there is any hint that a Chapter 11 filing might be in the works on the presumption that the absence of such a caution might give the company's battered shares a boost. Qwest's shares - which on Tuesday had fallen sharply (20%) in busy late trading on the New York Stock Exchange - continued to retreat Wednesday, down another 15 cents (11.11%) at $1.20.

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.

Calpine Corp.'s 8 5/8% notes due 2010 lost a point to close at 41 bid.

A market observer said the big non-story in the junk bond market was the front-page Wall Street Journal expose of previously undisclosed payments made by embattled conglomerate Tyco International Ltd. to and on behalf of its former CEO, L. Dennis Kozlowski, now under New York State indictment for alleged tax evasion and evidence tampering. The Journal reported that the company spent some $135 million "to benefit Kozlowski, largely in forgiven loans and company payments real estate, charitable donations and personal expenses" - including such esoteric items as a $6,000 gold-and-burgundy floral-patterned shower curtain at the high-living corporate chieftain's luxurious Manhattan apartment. "Not a penny of those deals [forgiving millions of dollars of interest-free loans] was disclosed to Tyco shareholders," the Journal said. If true, that could put the already troubled company in further hot water with the Securities and Exchange Commission.

But the market observer said that "surprisingly, Tyco bonds were unchanged" on all of this bad news, its 6¾% notes due 2011 hanging in at 75 bid and its 7 7/8% notes due 2028 at 70 bid.

"It's a news story - but really, it's an old story," he opined, with questions about Tyco accounting and payments made to and for Kozlowski and the broad outlines of his luxurious lifestyle - if not the full details - having already surfaced at least a month ago. "The market," he said, "has already taken a lot of this into consideration."

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."

In light of the "penalty" which the buy-side, according to this source, seems to be presently exacting from companies issuing new junk bonds, this official concluded by saying that it would be interesting to track the fortunes of Newfield Exploration Co. - the second of the Aug. 5 week's E&P drive-bys - as it sets up to price Thursday.

No fear with regard to Newfield, various syndicate sources advised Prospect News Wednesday. Disclosing that the official price talk is 8 3/8%-8 5/8% on Newfield's $225 million of new 10-year senior subordinated notes (Ba3/BB-) via UBS Warburg and JP Morgan, sources intimated that interest in the Houston company's new paper is not isolated to high-yield investors.

"Newfield's almost crossover on a senior basis," one source commented. "They're almost investment grade."

The sources also suggested that investment-grade accounts are looking at Newfield.

The Houston E&P plans to use the money it raises from its off-the-shelf deal to fund the acquisition of EEX Corp.

Newfield director of investor relations Steve Campbell told Prospect News that EEX has reserves of a type with which Newfield is familiar in locations adjacent to assets that Newfield presently has in production.

"The assets overlap," Campbell said. "EEX had a very significant asset base that overlapped our asset base in south Texas, south Louisiana and in the Gulf of Mexico.

"It makes us a bigger player in those areas," he added. "It's profitable for us in those areas and gives us room to run."

When asked about the timing of Newfield's junk bond deal, Campbell merely stated that the acquisition, which is set to close at the end of September, was the determining factor in the deal's timing.

When the new Chesapeake bonds were freed for secondary dealings, trader said they did not budge much from their 98.389 issue price earlier in the session, with one trader quoting the new bonds about half a point higher, in the 98.75 bid/99.25 offered area. "It was not a very active issue, not a lot of activity," he said.

Another trader, quoting the new bonds at 98.625 bid/98.875 offered late in the day, noted that while the bonds "traded at a slight premium in the secondary, they had priced wide of pre-deal market price talk. He acknowledged that given the current market environment, many investors were sitting on their hands, even with a deal for Chesapeake, generally a well-regarded name in the high yield energy exploration and production sector. Chesapeake's outstanding 8 1/8% notes due 2011 were quoted down about a point-and-a-quarter, at 99.5 bid.

Late in Wednesday's session Prospect News learned of an offering from Dulles, Va.-based space technology firm Orbital Sciences which, according to a syndicate source, is bringing $135 million of Rule 144A units comprised of four-year (likely non-callable) senior secured notes and common stock purchase warrants. Jefferies & Co. is the bookrunner.

The company will use the money to redeem $100 million of convertible notes due in October 2002 and to repay a $25 million term loan.

According to information developed by Prospect News, Orbital Science's converts that mature in October yield 5%. The convertibles deal that the company had in the market in July - a deal that was pulled according to an informed source - came with price talk of 7½%-8%. Late Wednesday a market source told Prospect News that unofficial guidance on the new Orbital Sciences deal was heard to be in the 12% area.

A source from the company identified the offering as "converts," but would disclose no other information when contacted on the telephone. A syndicate source said that the Orbital Sciences deal will be worked off the convertibles desk.

Finally on Wednesday price talk of a yield in the 11½% area emerged on MedQuest Inc.'s $180 million of 10-year senior subordinated notes (Ba3/B-). Pricing on that deal is expected Thursday afternoon.

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