Dole, El Paso plunges attract much junk attention; Jefferson Smurfit prices big two-parter

By Paul Deckelman and Paul A. Harris

New York, Sept. 23 - While the usual high yield names such as Fleming Cos. and Qwest Communications International Inc. continued to meander around lower levels in mostly featureless trading Monday, the focus of many players shifted over to the other side of the investment-grade/junk bond divide, where high-grade utility credit El Paso Corp. was getting pounded down to junk-like price levels as a federal administrative judge recommended that the biggest U.S. pipeline owner should be punished for restricting natural-gas supplies during last year's California's energy crisis; meanwhile split-rated fruit giant Dole Food Co.'s bonds took a dive after the company's CEO offered to take Dole private - raising bondholder fears that he may pile on the leverage to fund the buyout.

In primary-side action, Jefferson Smurfit Group plc brought a two-part, dollar-and euro-denominated mega-offering to market on Monday, drawing attention on both sides of the Atlantic.

Terms emerged early in the session on Jefferson Smurfit's two-tranche €905 million equivalent senior notes offering. The new 10-year notes (B2/B) came via bookrunner Deutsche Bank Securities and joint lead Merrill Lynch.

The $545 million dollar tranche priced at par to yield 9 5/8%, within the 9 ½%-9 ¾% price talk, while the €350 million piece priced at par to yield 10 1/8%, at the wide end of the 10% area price talk.

When the new Jefferson Smurfit bonds were freed for secondary dealings, the dollar-denominated notes traded up to 101.25 bid from their par issue price; however, a trader quoted the new issue as having come off that peak level to finish with a more modest gain, at 100.5 bid/101 offered.

Although some market observers were expecting terms to be announced Monday on Chukchansi Economic Development Authority's $135 million of seven-year senior notes via Dresdner Kleinwort Wasserstein and Banc of America Securities, late in the session no terms were available. However one informed source told Prospect News that the Rule 144A transaction, being used to finance the construction of a tribal gaming and lodging facility in Coarsegold, Calif., near Yosemite National Park, is quite close to completion, and terms will probably surface Tuesday morning.

"I don't know about the other guys but we're pretty busy around here," one official from an investment bank told Prospect News on Monday, adding that his institution figures to bring new high yield issuance possibly later in the week.

Although no new business was announced during Monday's primary market session, sources told Prospect News that the $2.5 billion LBO of Dole Foods being pitched by board chairman and CEO David H. Murdock could involve new high yield notes and bank debt to help finance the more than $1.2 billion cash portion.

Murdock has hired Deutsche Bank to advise on the LBO and the bank has given him "a 'highly confident' letter with respect to the financing for the proposed transaction," a news release said. Deutsche declined to comment on the financing for the buyout, saying that "there has been no formal announcement and at this point [the acquisition] is just an offer."

Under the proposed acquisition, approximately valued at $2.5 billion, Murdock made a cash bid upwards of $1.2 billion, offering to purchase 76% of the outstanding shares of common stock at $29.50 per share, and agreed to assume all company debt and obligations. The offer will be withdrawn if an agreement is not executed by Nov. 6.

And a few more leaves turned on the "yellow pages" sales.

Sources have been advising Prospect News since before Labor Day that several conspicuous telecoms, including Qwest, BCE and Sprint, figure to raise cash by selling yellow pages operations in deals that will likely be funded in part by new junk bond issuance.

Sprint announced that it will sell its yellow pages directory business - the fifth-largest in the U.S. - to R. H. Donnelley, a pioneer of the business, for $2.23 billion.

In a Monday conference call R.H. Donnelley announced it received a "firm commitment" for approximately $2.4 billion in debt financing from Bear Stearns & Co., Deutsche Bank and Salomon Smith Barney. The debt financing is anticipated to consist of $800 to $900 million in high-yield bonds and $1.5 billion in bank debt.

No timing was heard (see related story in this issue).

Nearer at hand than the possible Donnelley business is the QwestDex deal, said to involve approximately $1 billion of notes as part of $2.33 billion of debt financing for the $2.75 billion first stage of an eventual $7.05 billion LBO sponsored by Carlyle Group and Welch, Carson, Anderson & Stowe. The QwestDex bookrunners are Banc of America Securities, Deutsche Bank Securities, JP Morgan, Lehman Brothers and Wachovia Securities, and the deal is being watched as business to possibly be transacted toward the middle of October.

Last week BCE, Canada's largest telecommunications company, agreed to sell its phone book unit for about $1.9 billion to a group of investors led by Kohlberg Kravis Roberts. That financing, sources said, will also likely include new junk bonds.

In addition to the Chukchansi deal mentioned above, two other Rule 144A junk bond deals are expected to price during the week of Sept. 23.

TI Automotive Finance plc's $215 million of 10-yaer senior notes (B) via JP Morgan and Salomon Smith Barney is expected to wrap up its roadshow on Thursday. Also on Thursday Resource America Inc. is expected to conclude the marketing of its $125 million of eight-year senior notes (B3/B) via Bear Stearns and Friedman Billings Ramsey. That deal is expected to price Friday.

Also in new-deal related secondary activity - or perhaps, more properly in this case, in NON-new deal related activity, Allied Waste Industries Inc.'s were being quoted lower on Monday, following the company's decision Friday to pull its planned new deal due to unfavorable market conditions.

One trader quoted Allied's 7 7/8% notes due 2009, which had traded around the 96 bid/97 offered area on Monday, to have retreated about two points Monday, to close at 94 bid/95 offered.

He said that at his shop, "we were kind of expecting it [Allied's withdrawing the deal]" in the wake of continued speculation Thursday and Friday that investors were not willing to buy the deal at the levels the company wanted and kept pushing the yield that they were demanding ever northward. He also scoffed at the talk that the deal was actually done, or close to being done, and had fallen apart at the last minute. "We're not so sure that they had that deal done, as they claimed, at 9 %. You're not going to [fiddle] around for a quarter of a point in this kind of market to raise money."

Allied Waste's 9 3/8% notes dipped to 60 bid from 62.5 on Friday.

Back among the established issues, El Paso Corp. "was down big," one market source exclaimed, quoting its Baa2/BBB+ 7½% notes due 2006 as having plunged to 72.5 bid from prior levels around 88.5, while its 7¾% notes due 2010 were 11 points lower on the day, at 74 bid.

He said that it seemed the bonds had "gotten hit in the morning - and then got hit again late in the day, a sort of double dip." At another desk, its 7 7/8% notes due 2012 were seen having fallen 10 points, to 71 bid. Its stock meanwhile plunged $4.16 (35.65%) in Monday's New York Stock Exchange dealings, to end at $7.51 on volume of 50.8 million shares, more than six times the normal turnover.

The bonds and stocks tumbled after a Federal Energy Regulatory Commission administrative law judge ruled that the company had shut California-bound pipelines for non-essential maintenance in order to boost gas prices from November 2000 to March 2001, when the Golden State was already reeling from a related electricity price crunch. Judge Curtis L. Wagner Jr., recommended that the company face penalties for its actions, although the ruling did not specify particular punishments. El Paso denounced the FERC judge's ruling as "unsupported," and vowed to answer the allegations in briefs it will submit to the agency.

A trader said that junk energy generator Calpine Corp. was lower in sector sympathy with El Paso, quoting Calpine's 8½% notes due 2011 as having declined to 41.5 bid/42.5 offered from 45 bid/46 offered last week. Its 8 5/8% notes due 2010 were three points lower on the session, at 41 bid.

The other big noise coming from investment-grade territory involved split-rated (Ba1/BBB-) pineapple king Dole Foods, whose bonds were being quoted down on the news that CEO David Murdock is offering to buy the 76% of the company he and his family don't already own for $29.50 per share, or more than $1.2 billion.

That caused the shares to jump $4.50 (18.37%) to $28.99, on NYSE volume of 7.4 million shares - over 20 times the norm. But while the equity side was delirious, the reaction was decidedly different in the debt community, which fears the billionaire investor will borrow - big-time - to fund the deal. Dole's 7¼% notes due 2009 plunged to 87 bid from 100.5 bid previously; a trader saw Dole's 7 7/8% notes due 2013 six points lower on the news, allowing that "there will be plenty of heavy leverage there."

Standard & Poor's put the company's debt ratings on Credit Watch with negative implications, while Moody's Investors Service, warning that the transaction, "if it occurs, could result in Dole significantly increasing its leverage in order to finance the transaction, and could place downward pressure on the ratings," put its Dole ratings under review for a possible downgrade.

Back among the purely junk issues, Fleming, whose bonds have been on the slide for several weeks on a combination of investor worry about its links to bankrupt Kmart Corp., its biggest customer, allegations that the company and its vendor community are at loggerheads over unilateral discounts Fleming has imposed, the recent departure of several key executives and the weak performance of its retail store unit, continued to languish Monday. A trader quoted them "a little softer - but there was no real trading in them," while another trader quoted the 10 1/8% hovering in the 67-69 area. "They traded lower in the morning, and then a little higher in the afternoon." Another market source, however, saw the notes as having moved up a point on the day, to about 67.

Another shop had Fleming's subordinated 10 5/8% notes due 2007 having fallen as low as 40 bid from prior levels in the mid-to-high 40s.

Fleming shares lost 23 cents (5.05%) to $4.32 in NYSE dealings, after having briefly fallen as low as $4 - a new all-time low. Equity analysts said the stock was being knocked progressively lower by short sellers.

Qwest Communications said that it would restate $950 million of improperly booked revenues for 2000 and 2001; a trader said that its shares "hung in there, even with the restatement, with its 7.90% holding company notes due 2010 off just a deuce at 49 bid/50 offered, while another market source quoted its 7 5/8% operating company notes due 2003 unchanged at 95 bid.

After investment-grade steel industry leader Nucor Corp. lowered its third-quarter earnings estimate, warning that profits would fall well below previous projections due to weak demand for nonresidential construction and higher mill start-up costs, high yield steelers were seen softening up.

AK Steel Corp.'s 7¾% notes due 2012 eased from par bid to 98.5, while U.S. Steel's 10¾% notes were half a point lower, at 98.

But a trader noted that the once-active high yield steel sector has largely fallen idle, like much of the once-powerful Rust Belt-based industry itself, as many issuers either went into bankruptcy, such as LTV Corp. and Bethlehem Steel Corp, or are approaching it. "There's just not that much activity there

anymore," he said.

WCI Steel's 10 % notes due 2004 meanwhile dropped to 35 bid from 42 previously, in apparent response to Friday's ratings downgrade by S&P, which cut the bonds to CCC+ from B-.

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