WorldCom, wireless sector, retreat anew; Tesoro up on debt-cut plans; Durango prices

By Paul Deckelman and Paul A. Harris

New York, June 18 - It was another down day Tuesday for WorldCom Inc. debt and that of the beleaguered wireless telecoomunications sector, against a backdrop of generally restrained junk market activity. On the upside, Tesoro Petroleum Corp. gained as the company unveiled plans to cut expenses and debt, and Anchor Gaming firmed after announcing a tender offer for its outstanding bonds.

In the primary, with Spring 2002 rapidly drawing to a close, the forward calendar underwent another burst of growth Tuesday as offerings from Gristede's Foods, Lyondell Chemical and Solutia tacked on another $700 million.

And terms were heard Tuesday on an emerging markets corporate offering from Corporacion Durango.

St. Louis-based chemical company Solutia Inc./SOI Funding Corp. announced a Wednesday roadshow start for $250 million of seven-year senior secured notes (Ba2/BB-) via joint bookrunners Salomon Smith Barney and Banc of America Securities.

In assigning a BB- to Solutia's new notes Standard & Poor's lowered Solutia's senior unsecured ratings to BB- from BB+, and withdrew its short-term corporate credit and commercial paper ratings on the company. All outstanding ratings were placed on CreditWatch with negative implications.

Tuesday's ratings release from S&P went on to state: "The rating actions reflected the increasing pressure on the company's liquidity and financial profile due to the continuing delays in addressing near-term refinancing needs."

S&P added: "The proposed note issue is Solutia's first step in refinancing its $150 million notes due October 2002 and its bank credit facility, which matures in August 2002. However, Solutia is unlikely to complete the refinancing in the next few weeks, as originally expected, thereby increasing the pressure to complete this plan."

The roadshow on Solutia wraps up June 27.

New York City supermarket chain-owner Gristede's Foods, Inc. will also kick off its roadshow on Wednesday for $175 million of 10-year senior notes via Deutsche Bank Securities Inc. and Jefferies & Co. That roadshow is also set to conclude on June 27.

Also set for a Wednesday roadshow start is Lyondell Chemical Co.'s new offering of $275 million of 10-year senior secured notes via Salomon Smith Barney, JP Morgan, Banc of America Securities and Credit Suisse First Boston. The off-the-shelf deal expected to price on June 26.

Also surfacing Tuesday was a eurobond deal from Carmeuse Lime. Its €250 million of 10-year senior secured notes will start its roadshow during the week of June 24 via bookrunner BNP Paribas.

And its Baa3/BBB credit ratings notwithstanding, one syndicate source told Prospect News that a new offering of Aquila, Inc. $500 million will be "high yield" (see related story in this issue).

The market heard terms Tuesday on the emerging markets corporate deal from Corporacion Durango, which priced its $175 million of seven-year senior notes (B3/B+) at 95.673 to yield 14¾% via Morgan Stanley.

Terms on another emerging markets corporate, Copamex SA de CV, are expected Wednesday. Price talk of 12½%-12¾% emerged Tuesday on its $200 million of seven-year senior notes (B2/BB-/BB), via Salomon Smith Barney.

Official price talk is 8½% area on Encore Acquisition Co.'s $150 million of 10-year senior subordinated notes (B2/B), expected to price Wednesday afternoon via Credit Suisse First Boston.

And the market heard price talk of 8 3/8%-8½% on Stone Container Corp.'s $400 million of 10-year senior notes (B2/B), also expected to price Wednesday via joint bookrunners Deutsche Bank Securities and JP Morgan.

Finally, Los Angeles-based personal care products company Herbalife International combed a part in its euro/Rule 144A deal Tuesday in addition to issuing price talk. The tranche sizes on its eight-year senior subordinated notes (B3/B) are $150 million and €100 million. Price talk on both tranches is 11%-11¼%. And the deal is expected to price Friday morning.

In the secondary, Tesoro Petroleum's bonds were heard to have gained about four points across the board, after the San Antonio, Texas-based petroleum refiner and marketer announced plans to cut debt by $500 million by the end of 2003.

Its 9% notes firmed to 92 bid from 88.5 offered, and its 9 5/8% notes went from 89.5 bid to 93.5.

The company's program is a multi-pronged strategy, including adjustments in its working capital needs, cost reductions, asset sales, cuts in capital spending and realizing synergies from its recent purchase of the Golden Eagle refinery in California. Asset sales alone, it said, should generate about $200 million of net debt reduction, all of which would be realized this year, while the capital spending reductions should result in another $400 million of savings.

Anchor Gaming, the Las Vegas-based maker of slot machines and other forms of gaming technology, announced Monday that it had begun a cash tender offer for all of its remaining outstanding 9 7/8% senior subordinated notes due 2008, an offer that will expire on July 15. Some of the $250 million of the bonds which had been originally issued were bought in April by Anchor's new corporate parent, Reno, Nev.-based International Game Technology. Anchor will set the price at which it will sell the bonds on or around July 11, several days before the tender offer expires. Market players were estimating that it would likely be around the 117.5 bid level, as the bonds were heard to have risen to around that point in Tuesday's dealings, representing a gain of nearly six points on the session.

Otherwise, most of what activity there was continued to be focused in the communications sector. WorldCom's bonds, which had fallen back Monday in reaction to the Standard & Poor's two-notch ratings downgrade of the Clinton, Miss.-based telecom giant's debt, continued to head southward on Tuesday, traders said. One quoted its benchmark 7½% notes due 2011, which had fallen to about 48 bid/49 offered in Monday's action, as having declined further Tuesday, to 46 bid/47 offered, while another saw the bonds down even further, to around "45 and change."

Other WorldCom debt likewise went down, a trader quoting its 6.95% bonds due 2028 dropping to 38 bid/40 offered from 40 bid/42 offered, and its 8¼% notes due 2031 ending down a deuce at 42.5 bid/43.5 offered.

Wireless telecom operators meantime continued to erode, with Triton PCS the latest sector name to take its lumps. Its several issue of bonds - 8¾%, 9 3/8% and zero-coupon - were all being quoted as low as the lower 60s from prior levels above 80 bid. Unlike the stories of Alamosa PCS and AirGate PCS - both Sprint PCS affiliates whose bonds have recently slid drastically after they cut their respective quarterly targets for net new-subscriber additions - Berwyn, Pa.-based Triton, an AT&T Wireless affiliate, has not recently released any negative guidance.

But with Sprint itself on Friday cutting subscriber target numbers for the full year, and with Standard & Poor's release on Friday of a new report warning of continued wireless sector weakness (which S&P elaborated upon in a Monday conference call), the entire sector seems to have come in for negative scrutiny. The bonds of AT&T Wireless, for instance were also seen lower Monday; its zero-coupon notes due 2009 dropped to 73 bid from prior levels around 88, and its 10 3/8% bonds, formerly trading around 106 bid, were being quoted at or below par.

Alamosa PCS's 13 5/8% notes, meantime were down another two points on the session, falling to 37.

Qwest Communications International's new CEO, Richard Notebaert, hit the ground running on Tuesday, telling investors and analysts on a conference call that the embattled Denver-based telecommer will focus on cutting its debt and boosting its cash flow, seen by some observers as a signal that he will first and foremost look to shore up the performance of the company's core local and regional phone business in the Rocky Mountain states - something Notebaert's own prior experience as the former CEO of Midwestern "Baby Bell" Ameritech would seem to keenly suit him for.

He also said that his new company may look to speed up the planned sale of its Yellow Pages business by breaking the asset into two parts and selling each one relatively quickly rather than dragging out the process by selling the unit whole, and indicated that Qwest plans to review its assets outside the U.S. early next week, with an eye toward possible sales in light of diminished demand. Notebaert, with a reputation as a tough, no-nonsense manager, also hinted that further senior personnel changes may be in the offing at Qwest, which is struggling to pare down $26 billion of debt, regain the confidence of stock and bond investors and satisfy the inquiries of government probers looking at its accounting issues. Notebaert replaced Joseph P. Nacchio as CEO after the company's board persuaded Nacchio to resign over the weekend.

Qwest's shares and bonds jumped Monday on the news of the executive shakeup; on Tuesday, the stock boost moderated, and Qwest finished up a more modest 14 cents (2.80%) at $5.14. On the bond side, while its debt continued to have a positive tone, the gains of three to four points notched Monday fizzled out. A trader said that Qwest had "started strong, but then trailed off." He saw Qwest's longer paper, in particular, come off its early highs, with the 6 7/8% notes due 2033 ending at 80 bid/81 offered, off from its early highs of 81.5 bid/83.5; its 6 7/8% notes due 2028 dipped a point from its opening highs to end at 66 bid/68 offered. The company's shorter-dated paper, such as its 6 5/8% notes due 2005, "hung in there," ending at 91.5.

Also in the communications sphere, Adelphia Communications Corp. Bonds continued to firm despite Monday's announcement by the beleaguered Coudersport, Pa.-based cable-TV systems operator that it had missed interest payments totaling more than $55 million on two series of notes and the general market perception that a bankruptcy filing is all but a done deal.

A trader quoted Adelphia's 10¼% notes at 5 2.5 bid/55.5 offered, while at another desk, its bonds were seen around 3 points better on the day, its 10 7/8% notes at 51 bid. Adelphia's 9 7/8% notes due 2007 were seen up three points at 53.5 bid. The bonds of Adelphia's Century Communications subsidiary - currently in Chapter 11 - were also being quoted at better levels, its 8 3/78% notes firming to 40 bid and its 8 7/8% notes as high as 48 bid.

Back on the downside, XO Communications' 7½% notes - already trading in the depressed single-digits - were down more than a point to under three cents on the dollar following the Reston,, Va.-based telecommer's Chapter 11 filing .

And a trader saw United Airlines debt continuing weaker, despite Friday's announcement that the No. 2 U.S. air carrier had finalized a tentative contract proposal with its pilots' unions which could produce up to $250 million of savings, and Tuesday's announcement that the Chicago-based air carrier hoped to realize as much as $430 million in savings from its management cadre and other non-union workers.

He quoted UAL's 9 1/8% notes as offered at 57 after having traded as low as 53 bid/55 offered; a week ago, he said, they were around 63 bid/66 offered. UAL's 9% notes due 2003, which had been 84 bid/86 offered last week, were "a little lower" Tuesday, at 81 bid/83 offered.

Another trader noted that while United had reached a tentative agreement with the pilots, such a contract was by no means a done deal, requiring as it would, submission to the union's executive committee and, if it survived that hurdle, to the rank and file. News reports also pointed out that the airline is still locked in tough negotiations with its mechanics' union, which has so far balked at making any concessions.

But generally speaking, a trader said, apart from very specific story names, "zippo was going on. There was not a great tone, for sure, but overall activity was very lackadaisical."

Even though it's still a day or two away according to the calendar, "summer is upon us. People want to cut out early. Everything is abbreviated. It was just a very quiet day."

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