New Tesoro deal prices; Trump, Allied Waste, Conseco continue retreat

By Paul Deckelman and Paul A. Harris

New York, Nov. 1 - Tesoro Petroleum Corp's offering of seven-year senior subordinated notes priced tight to talk on Thursday and new deals were heard emerging from Chesapeake Corp. and Compass Minerals Group. The secondary arena, meanwhile, continued to be roiled by the problems of Trump Hotels & Casino Resorts Inc. and Allied Waste Industries Inc., two of Wednesday's bigger losers, as well as the beleaguered Conseco Inc.

Tesoro's $215 million deal made it two energy deals in two days for the high-yield primary. The offering priced via Lehman Brothers at par to yield 9 5/8%, the tight end of talk.

One syndicate source, alluding to Wednesday's pricing of an upsized - and signficantly oversubscribed - $275 million offering for Westport Resources noted that investors unmistakably harbor an appetite for new energy paper.

"This is actually a very good time to be bringing energy deals," the source said, "because there's not a lot of issuance compared to the amount of cash that the accounts have accumulated. And the energy sector is one that has performed pretty well for them, this year. It's viewed as an attractive place to put their cash.

"There was a Who's Who list of high yield accounts that were in the Westport deal," the source added. "It was frankly quite consistent with the experience we've seen on all the energy deals this year: the investors almost can't get enough of them."

This source told Prospect News that the "technicals" of the high yield primary market were such, at present, that considerably more new energy paper could price in the weeks to come.

"I would only be surprised if we didn't see more of them," the source said.

Details of three new offerings also emerged on Thursday's primary market:

* Woolworths Group plc is on the road in Europe with £100 million of senior notes due 2006, with pricing to take place the middle of next week;

* Compass Minerals Group is set to price $200 million of 10-year senior subordinated notes Nov. 16; and

* Chesapeake Corp. announced an offering of £90 million senior subordinated notes.

In the secondary market, Trump Atlantic City Associates' 11¼% first mortgage bonds due 2006 - the company's most liquid and most widely traded issue - swung wildly back and forth between bids as low as 48.5 and as high as 60, with one market source quoting them going home around 59 bid, up from their levels late Wednesday, when they had fallen to the 55-56 bid area from 61-62 previously after the company said it would withhold interest payments pending the conclusion of negotiations on more favorable debt terms which the gaming company will demand of its bondholders.

But a trader saw those bonds in the 56.5 bid/58.5 offered area, about where they had been Wednesday. He saw "big blocks of that paper" trading at various levels. Activity was not as intense as it had been Wednesday, when the FIPS market tracking service showed some $303 million of the A.C.'s trading, one third of the $934 million turnover of the FIPS Nasdaq 50 index. Still, FIPS showed a hefty $156 million of the bonds having turned over as of 5 p.m. ET Thursday, a still-sizable chunk of the index's $757 million total reading. "Trump, obviously, was the name of the day again," he said.

"It remains to be seen whether he (company chairman and 42% owner Donald J. Trump) can pull off what he's trying to pull off," he continued. "Considering that the bonds are first mortgage bonds on properties, if the bondholders say no (to revising the debt terms) and he decides not to make the payment, intuitively, he could lose the properties."

The A.C. bonds are secured by mortgages on the Trump Plaza and Taj Mahal hotel/casinos, while the company's several issues of Trump Castle Associates bonds are secured by mortgages on the company's third Atlantic City gaming palace, the Trump Marina.

"He's making a huge bet (that the bondholders will give in). I personally think he's underestimating the bondholders."

The trader meanwhile said that there had not been much trading in the Trump Castle issues, such as the 11¾% notes, which held steady in the 74-75 bid range.

Allied Waste Industries' bonds continued to reel for a second consecutive session, although its losses were smaller than they had been during Wednesday's trading; its 10% notes due 2009, which on Wednesday had fallen to about 101 bid from 105 previously, lost another point or so Thursday to end bid around 99-par, which was also where its 7 5/8% notes due 2009 ended up after dropping a 1½ points. Its 7 7/8% notes lost half a point to close at 99.

Nearly $79 million of the benchmark 10% bonds showed up in FIPS trading - well down from the nearly $220 million of notes which turned over Wednesday, but a sizable amount nonetheless. Some trades were heard as low as the 97 mark during the day.

The Scottsdale, Ariz.-based refuse-hauling company's bonds have been on the slide following news earlier in the week of a management shakeup which saw the company's president and chief operating officer, Larry Henk, suddenly resigning to pursue other interests.

The Allied Waste carnage was "horrendous," a trader said, although he noted that it was mostly confined to the hardest-hit issue, the 10% notes. "It's a fairly volatile bond and the only bond of its nature out there in high yield land, so everyone has to own it - but when news comes out, it definitely trades on good volume and pretty good price swings."

As for the rest of the company's debt structure, he said, "it pretty much hung in there. We didn't see much of the 7 5/8% or 7 7/8% trading."

The other major downsider on Thursday was embattled Carmel, Ind.-based insurer Conseco Inc., whose bonds were seen down around eight points on the session from Wednesday's close. Its 9% notes due 2006 swooned as low as 36.5 bid. Conseco's 6.80% notes were quoted at levels as low as 42 bid, down around 10 points from recent levels, as were its 10¾% notes. Its 6.40% notes were heard at 50 bid, down nine points on the session.

Conseco on Tuesday posted a net loss after taking charges for writing down the value of some investments and covering the cost of bad loans.

On the upside, Williams Communications Group Inc. bonds continued to firm for a second consecutive session, helped by Wednesday's announcement that the company had negotiated a favorable amendment to its bank credit agreement.

Williams' various issues of senior notes, which had pushed up to around the 43 bid area on Wednesday from the 38-39 area previously, tacked on another point or so to end at 44.5 bid, although at one point in the day, the 10 7/8% notes due 2009 were heard quoted as high as 47 bid.

Outside of the purely junk area, Enron Corp. bonds were once again on the slide on Thursday, the gains they notched in Wednesday's session erased by the Houston-based energy operator's admission late Wednesday that what had been an informal inquiry by the SEC has now evolved into a full-fledged investigation of allegedly questionable financial dealings.

Those developments, which followed Enron's disclosure Oct. 22 that the SEC was looking at its finances, have sent the company's stock careening downward, while its bonds - still nominally investment grade - are being quoted trading in dollar levels rather than on a spread basis, a sure sign to many traders that the credit is likely to become a "fallen angel" soon.

"I can't believe how Enron has come down," a trader said. "It looks pretty bad."

Another market observer said that being formally reclassified as a junker "is coming closer and closer. Eventually, they'll be there."

He saw Enron's debt down at least five to seven points across the board on the session, with its Osprey Trust 6 3/8% and 8.31% notes due 2003 both falling to around 66 bid from prior levels at 75, as did its Yosemite Trust 8¼% notes due 2004.

Another observer said he had seen "no markets, and no specific trades - just offerings" at estimated levels at least five points below Wednesday's close.

Early in the session, Enron announced that it had received a $1 billion secured loan from J.P. Morgan Chase and Salomon Smith Barney. It said it would use the loan proceeds to make debt payments and supplement its cash reserves. Enron said the loan would be secured by the assets of its Northern Natural Gas Co. and Transwestern Pipeline Co. operations. But some investors warned that the fact that the once high-flying company had to pledge its pipeline assets to secure the new loan was worrisome, seeming to suggest that the lenders were unwilling to front Enron the money on an unsecured basis.

Back in the high yield arena, Enron's Azurix water supply subsidiary - already a bona fide junk bond - followed its corporate parent lower, the company's 10 3/8% and 10¾% notes both seen down three points at 86 bid.

Among newly issued bonds, traders said that Westport Resources' new 8¼% senior subordinated notes due 2011 hung in around the 102 bid area, well up from their par issue price. IMC Global's 11¼% senior notes due 2011, which had an add-on priced earlier in the week at 101, were also hovering about the 102-103 bid area.

End

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