Toll, Nextel Partners deals price; Conseco slides as Enron hangs in

By Paul Deckelman and Paul A. Harris

New York, Nov. 27 - As expected, the high yield primary sector saw a pair of quickly shopped "drive-by" deals come clattering down the chute Tuesday, as Toll Brothers Inc. and Nextel Partners brought new deals to market. In secondary activity, battered insurer Conseco Inc. was once again heading south, but beleaguered almost-junker Enron Corp.'s slide was halted.

Both of the deals priced in Tuesday's busy primary session had been announced just one day earlier; meanwhile three new offerings joined the calendar of upcoming new issues.

Sell side sources told Prospect News that this level of activity reflects a high degree of liquidity. There is a lot of cash coming into the high yield, presently, they say. And those inflows are driving new deals into the market.

Asked if the state and local pension fund money that is rumored to be headed into the already liquid market wouldn't exacerbate the current supply-demand imbalance, one syndicate official said: "'Exacerbate' is not the word. 'Improve,' is the word you're looking for.

"There have been a lot of inflows, and there has not been a ton of new paper for people to buy," the official added. "So I think the market's a lot better right now. I think people are still being somewhat cautious about the deals they are bringing. But liquidity feels very strong right now."

The three deals added to the slate Tuesday are:

* Horizon PCS $175 million, via Credit Suisse First Boston, to price Dec. 4,

* OM Group Inc. $400 million, also via CSFB, to price during the week of Dec. 3, and

* Appleton Papers Inc. $250 million, via Bear Stearns, to price during the week of Dec. 10.

During the session Nextel Partners Inc. upsized its drive-by offering of eight-year notes to $225 million from an announced $200 million. The 12½% securities priced at 93.521 for a yield of 13 7/8%, at the tight end of talk in the 14% area.

And Toll Corp. priced $150 million of 10-year notes at a yield of 8¼%, in line with the 8 1/8%-8¼% price talk.

In the secondary market, the new Toll bonds were quoted as high as 100.5 bid before falling back from that peak to go home straddling their par issue price, at 99.75 bid/100.25 offered. A trader said the new deal was "pretty well received," although he noted that the "people bought the bonds, took them down and put 'em away."

The new Nextel Partners bonds, meanwhile, "were thinly traded" in secondary, he said, with "not much activity." After having priced at 93.521, they opened quoted at 94 bid/95 offered; after getting as good as 94.25-94.5 on the bid side, they were heard late in the day essentially little changed at 93.5 bid/94.25 offered.

Among already established bonds, Conseco Inc. "got killed," in the words of one market source, who saw its 8.5% notes down around 73.5 bid from prior levels in the mid-80s; its 9% notes had dropped to 47 bid, a nine-point slide, while its 10¾% notes were down seven points at 47 bid.

Conseco was "one of the more heavily quoted issues today" and its short paper "got hit pretty hard" a trader said, pegging its 8½% notes due 2002 down seven points on the day, left at 76 bid without any offers, while its 9% notes due 2006 lost five points to close around 50 bid.

The Carmel, Ind.-based insurer's paper continues to get clobbered on investor unease about the company's cash-flow situation in the midst of its turnaround effort - concerns which found new fuel this week after The New York Times reported Sunday that the company's troubled Conseco Finance unit, formerly Green Tree Financial Corp., used an accounting loophole to report $2 billion in profit in the 1990s that didn't exist. That caused the stock to fall 10% on Monday, although it had rebounded off those lows in Tuesday's dealings.

But even when Conseco comes out "with some decent news," he noted, "the bonds get absolutely hammered and then they come back." The other day, for instance, after the company basically assured investors that their 2002 paper would be paid off, "bonds were down about eight points, then the next day, they were up 15, so people were saying 'what's going on here'?"

What was going on, he said was that "any company having any sort of potentially bad news, investors are punishing them," citing the situation with Enron, whose nominally investment-grade bonds are now trading like badly performing junk bonds at dollar-price levels down in the 40s and 50s on concerns about accounting problems, liquidity and the deterioration of its once-mighty energy trading franchise. "That's a nightmare situation," he asserted. "Any chance of any more bad news on the company and the market just crushes the bonds, absolutely."

Another worry for Enron investors (the trader marveled that it seemed unbelievable to him that "some high grade guys are still trading it, even in the 40s") is whether its proposed acquisition by smaller, but more financially sound, energy trading rival Dynegy Inc. might fall apart. If that happens, it would leave Enron little option but to declare bankruptcy, in the opinion of many observers.

The New York Times reported Tuesday morning that Enron and its would-be rescuer are renegotiating the terms of their deal, which was originally estimated at $9 billion but which is now worth considerably less because of the nosedive which Enron's stock has taken since the initial announcement, and the drying up of its energy trading business as the company's troubles have multiplied (the Times reported that some of Enron's trading partners are reluctant to deal in electricity or natural gas with Enron for fear of being left holding the bag in the event of a bankruptcy filing; others are still doing deals, but charging costly premiums which Enron can ill-afford).

Enron's bonds had slid sharply in the previous several session as the Dynegy deal appeared jeopardized (its 6½% notes due 2002 and 7 5/8% notes due 2004, for instance, closed Monday at 61 bid and 50 bid, respectively while its 6.4% notes due 2006 were being quoted as low as 48 bid). But they were quoted by a trader to have gained as much as three or four points across the board Tuesday morning on hopes the merger would somehow be salvaged.

However, he said, "after that, it sold off a point or so in the afternoon, on the same old news (i.e., lack of a definitive deal and worry about possible additional negative developments) but net-net, from Monday to today, Enron was up maybe a point to a point and a half."

A market-watcher, however, cautioned that "with Enron and Dynegy in the middle of apparent renegotiation of their deal, there's no way of knowing what the bonds will be worth until the new terms of the deal emerge." Another observer said that "some people are jumping the gun, saying this development or that is positive for the company, when that's just speculation. We'll just have to wait and see."

Things continued to look murky for Enron late Tuesday, as Bloomberg reported that the company's bankers, J.P. Morgan Chase and Citigroup, had been rebuffed in their efforts to bring other investors into a potential $2 billion financing deal for the cash-strapped company; among the high-powered players reported to be staying on the sidelines were billionaire Saudi investor Prince Alwaleed Bin Talal, the Carlyle Group Inc. and Blackstone Group LP.

Elsewhere, Level 3 Communications Inc.'s benchmark 9 1/8% senior notes due 2008 were up some two points on the session to 59 bid/60 offered, given wings by the news that Internet giant AOL announced that it had expanded an agreement to use Level 3's fiber-optic communications network in a move to broaden its services and global reach.

The terms of the agreement between AOL and the Broomfield, Colo.-based long-haul telecom network operator were not disclosed, but equity investors as well as bond players guessed they would spell profits for Level 3, as its shares gained 84 cents (14.74%) to $6.54 in heavy trading on the Nasdaq.

Elsewhere, Kmart Corp. reported that it lost $224 million (45 cents per share), in the third-quarter ended Oct. 31, triple its year-ago loss of $67 million (14 cents a share). But excluding a hefty restructuring charge, the nation's No. 3 retailer lost $127 million (25 cents per share), coming in under the 27 cent-per-share loss analysts had been looking for.

A trader said Kmart "got cut by S&P, but believe it or not, its bonds were up about a point or so across the board, which kind of defies logic a little bit. You would have thought that they would have dropped a little bit, considering that its retailing, but they didn't"

He quoted Kmart's 9 3/8% notes at 94 bid and its 9 7/8% notes at 92.5 bid, both up a point on the session, although he stressed that this was after the numbers came out but before the downgrade. Post-downgrade, he said, "nothing was really seen" in the way of trading.

The trader also said that energy bonds found some support in the wake of stronger crude prices as "it looks like OPEC's quasi-price war may be avoided." Crude ended the day in New York trading up 83 cents a barrel. "It didn't (make the energy junk bonds jump), it really just buoyed them," he said. "I wouldn't say that any particular E&P or oilfield service issue traded up on it - they just stayed put from yesterday's level. They opened a little softer but then held in there."

End

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