Xerox firmer; new Corus, Entercom issues move up in secondary dealings

By Paul Deckelman and Paul Harris

New York, Feb. 28 - Xerox Corp. debt was being quoted higher Thursday, traders said, although there was a lack of concrete news about the giant copier maker. Also on the upside were the newly issued bonds of several companies which brought deals to market this week. One of those issuers was broadcaster Corus Entertainment Inc., which sold a solidly upsized issue of new 10-year notes in the Rule 144A private placement market.

One informed sell-side source told Prospect News that Corus's upsized deal for $375 million of new senior subordinated notes due March 1, 2012, which priced Thursday at 99.186 to yield 8 7/8%, was massively oversubscribed. The deal started off at $200 million.

This sell-sider added that soon after the Toronto-based media company's notes priced they were heard trading up at 102.5 in the secondary. Some investors "flipped" them, this source conjectured. And in doing so they made out very well.

Noting that Corus priced at 99.186 in the primary, the source simply commented "Three points in a day, in the bond market - that's pretty decent."

This sell-side official pointed to Entercom's $150 million of senior subordinated notes due 2014 (Ba3/B+), which priced Wednesday to yield only 7 5/8% as the transaction that may have set the stage for Corus's reportedly-splendid reception.

"Entercom is why everyone and their mother played Corus," the source said. "It's a bit surprising that the deal didn't price below (9% area) talk."

Merrill Lynch & Co. was bookrunner on Corus.

Entercom's bonds were also quoted higher in secondary trading Thursday. After pricing Wednesday at par, they were seen moving up to 101 bid/101.5 offered.

Mike Difley, vice president & portfolio manager of the American Century High Yield Fund, told Prospect News Thursday that he also had taken a look at Entercom on Wednesday. He liked what he saw but left his wallet in his pocket.

"I didn't play that one," Difley said. "We thought it was a solid credit but we could just not get excited about where it was coming in terms of pricing. You could buy a lot of investment-grade companies, and double-B companies that have a lot better yield than that, and are probably not that great a risk.

"People are very comfortable with some of these media plays, like Entercom," Difley added.

Difley said his fund's strategy at present involves focusing on high single-B, and low double-B credits.

Of the deals presently parked on the March forward calendar, the investor said he would probably look at Mail Well Corp.'s $300 million offering (B1/BB) via Credit Suisse First Boston and UBS Warburg.

"We know it as a firm," he said. "I guess they only have senior subs outstanding. Given the structure of the bonds, and the rating - and it looks like it could come with some decent yield - it might be a decent play."

United Auto Group's $225 million of 10-year notes via Banc of America Securities and J.P. Morgan is also of interest to him.

"I own a couple of the auto retailers already, and I like their business models," he said. "I think they work. I probably will look at United Auto Group."

In addition, Difley expressed an interest in the deal announced Wednesday, for Santa Monica, Calif. media company Entravision's $200 million of seven-year senior subordinated notes via UBS Warburg.

"That's one I'm intrigued by," he said. "I think the Hispanic media market is a growing market.

"The media companies are in big demand, so it might get a decent reception from the market," Difley also noted.

"I think it's new to the market and somewhat unfamiliar so I think there will be some concession for that."

In addition to Corus, the primary market heard terms Thursday on a drive-by from Frisco, Texas-based exploration and production company Comstock Resources. The company priced a $75 million add-on to its 11¼% senior notes due May 1, 2007 (B2/B-), yielding 11.537%. Morgan Stanley was bookrunner.

One full-roadshow deal was announced Thursday, from, coincidentally, another Texas-based E&P. Magnum Hunter Resources, Inc., of Irving, Tex. The company will bring $250 million of new 10-year senior notes, via Deutsche Banc Alex. Brown, with the roadshow starting Monday, and with pricing expected during the week of March 11.

Hence February 2002 came to a close on the primary market. The month had seen $5.162 billion worth of new dollar-denominated issuance, based on deals delivered during the month (see details elsewhere in this issue).

One sell-side source when asked by Prospect News Thursday whether March figured to see more new issuance than February said: "Absolutely, especially given what's happened in January and February and with the kind of demand we've been seeing.

"People talk about a lot of things - about how they can get good yields on these fallen angels, and stuff like that. But I think at the end of the day investors are looking for some better supply."

Among already outstanding issues, Xerox "was on the rebound" Thursday, a trader said. He quoted the Stamford, Conn.-based copier and office machines maker's generally actively traded 5½% notes due 2003 at 89.75 bid/90.75 offered, up about two points from prior levels. At another desk, Xerox's 9¾% securities due 2009 were quoted as having gained three points on the session, to 89 bid. No fresh news was heard out on Xerox, which is locked in a bitter patent infringement dispute with handheld computer maker Palm Inc., and the latter's former corporate parent, 3Com Corp., revolving around Xerox's patent on handwriting-recognition technology. That technology allows users to enter letters and numbers into personal-data units - such as those made by Palm - with simple, one-stroke motions. A lower court recently upheld Xerox's patent - Palm has vowed an appeal - but the court also refused a Xerox motion that would have stopped the sale of Palm units pending an appellate decision.

Also in the technology sphere, Lucent Technologies Inc. bonds "went the other way," a market source said, quoting the Murray Hill, N.J.-based telecommunications equipment maker's 7¼% notes due 2006 down two points at 84, while its 5½% notes due 2008 were off a point-and-a-half to 75 bid. Separately, Denver-based billing and customer-care services provider CSG Systems International Inc. announced the completion of its $260 million purchase of Lucent's billing and customer-care assets, primarily consisting of software products and related consulting services acquired by Lucent when it purchased Kenan Systems Corp. in 1999.

Embattled software distributor Computer Associates International's nominally investment-grade bonds - which were knocked down to junk-bond like levels last week on accounting concerns - were described at one desk as "a tad better" Thursday, its 6¼% notes due 2003 firming a point to 92 bid and its 6 3/8% notes due 2005 up almost a point at 83.75.

After falling sharply last week on news that the Long Island, N.Y. company was the object of a Securities and Exchange Commission probe, a trader said this week that the bonds had been oversold and were up somewhat from last week's depths on short covering. He described the debt's recent gyrations as "a typical roller coaster." Even though the sharp swoon seems now to have abated, the bonds remain quoted in dollar prices, as if they were junk bonds, rather than on a spread-versus-Treasuries basis the way high grade issues are normally quoted.

A trader saw Comdisco Inc.'s 9½% senior notes due 2003 up a 1.5 points at 82.5 bid/83.5 offered. There seemed to be no firm news out about the troubled Rosemont, Ill.-based technology solutions provider, which filed for protection from its junk bond holders and other creditors via a Chapter 11 filing with the U.S. Bankruptcy Court in Chicago last July 16. Earlier this month, the company - which has been selling off some of its assets through the court - was given an extension through April 15 to file a reorganization plan.

Outside of the technology names, the trader saw Rite Aid Corp.'s debt higher for a second consecutive session, following the Camp Hill, Pa.-based pharmacy chain operator's announcement that it had amended its $1.9 billion secured senior credit facility and its release of positive guidance for the coming quarter.

He saw Rite Aid's 7 5/8% notes due 2005 - which on Wednesday had firmed two points to around the 66 bid level - jump to 70 bid/72 offered Thursday. Rite Aid amended the terms of the credit facility, it said, to allow it to issue new senior notes to pay off the remaining portion of a lawsuit settlement, rather than pay in cash or stock. Rite Aid also reaffirmed its previously announced earnings guidance, projecting EBITDA (earnings before interest, taxes, depreciation and amortization, a key measure of cash flow generation and potential ability to service debt) of $140 million for the 2002 fiscal fourth quarter, which ends March 2, and $530 million for the new fiscal year which will begin on March 2. Rite Aid shares, up 40 cents (15.21%) on Wednesday, gained another 31 cents (10.23%) in New York Stock Exchange dealings, to close at $3.34.

In the communications constellation, the trader saw Williams Communications Group Inc.'s 10 7/8% bonds - now languishing in the low teens after falling sharply earlier in the week on the possibility of a bankruptcy filing - unchanged from Wednesday. But Williams long-haul telecom rival Level 3 Communications Inc. - ostensibly affected by many of the same negative industry dynamics as Williams - continued its recent pattern of relative strength, its bellwether 9 1/8% notes due 2008 up a point at 41.25 bid/42.5 offered, "a semi-surprising showing given the situation with Williams," he mused.

Reston, Va.-based wireless telecommer Nextel Communications bonds remained strong, its zero-coupon notes up three points on the session and six points in the last two days to around 56 bid. Nextel's benchmark 9 3/8% senior notes due 2009 were a point-and-ahalf better on the day at around the 64.625 bid level.

Satellite broadcaster Echostar Communications' debt and stock gained altitude Thursday, after the company dished up a narrower quarterly loss from a year ago, with better-than-expected revenue and new subscriber additions numbers.

On the debt side, Echostar's 9 3/8% notes were up a point, at 102.5 bid/103.5 offered. Its shares meantime rose $2.52 (10.68%) in Nasdaq dealings, to close at $26.12. Volume of 11.6 million shares was nearly quadruple the usual turnover.

Littleton, Colo.-based Echostar lost $42.9 million (9 cents a share) in the fourth-quarter, a sizable improvement from the year-earlier deficit of $184.2 million (39 cents per share).

EchoStar added 400,000 net subscribers during the quarter - down 19% from the 495,000 figure seen a year ago but 11% better than the third quarter's 360,000-subscriber total. The fourth quarter net new adds were at the high end of analysts' estimates of between 350,000 and 410,000 new customers. Echostar ended the year with 6.83 million subscribers.

Those fatter customer rolls translated into healthier revenues. For the quarter, revenues beat analysts' estimates of a range of $1.06 billion to $1.1 billion, coming in at $1.15 billion - up 43% from $805.4 million a year ago.

In the industrials, Calpine Corp., whose debt had been firming over the past two sessions on company indications that it was nearing an agreement with its lenders on more than a billion-and-a-half dollars of new senior secured financing, backed off a little Thursday, its 8½% notes due 2011 ending at 68.5 bid/69.5 offered, off from 70 bid/71 offered Wednesday. The San Jose, Calif.-based independent power generator's 8 5/8% notes due 2010 lost half a point to finish at 71.

Calpine said its chief executive officer, Peter Cartwright, will exercise options to sell 2.5 million shares of the company's stock, worth about $18 million at current prices, on the open market. The options were set to expire at the end of the year, the company added. The shares traded down 40 cents (5.16%) to $7.35 on Thursday.

And Bethlehem Steel's 10 3/8% bonds dipped a point to 12 bid, as buyout firm WL Ross announced a plan to purchase bankrupt steelmaker LTV' Corp.'s assets and resume production at its now shut-down mills as soon as possible - raising fears in the industry of a possible glut in production. U.S. steel industry output had come down when No. 4 integrated producer LTV shut down last year. Stocks of several other domestic steelmakers were also lower on the LTV news.

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