WorldCom said close to bankruptcy filing; NCI Building slates add-on deal

By Paul Deckelman and Paul A. Harris

New York, July 18 - WorldCom Inc. appeared to be finally approaching the end of the line Thursday, as news reports speculated that the troubled telecommunications giant could file for Chapter 11 protection from its creditors as soon as Monday. The company's already badly depressed bonds softened further on the latest developments.

In the primary market, Houston-based NCI Building Systems, Inc., a maker of metal products for the building industry, unveiled plans to sell a $50 million add-on to its existing 9¼% senior subordinated notes due 2009.

And although the market heard Wednesday that Gristede's Foods Inc. had pulled its deal to fund the acquisition of Kings SuperMarkets, a Gristede's press release that Prospect News received on Thursday specified that Gristede's is still standing in the checkout line, although as they do so they are keeping a weather eye out for other means of raising the bread.

Gristede's Foods stated that although its exclusivity period to buy Kings Supermarkets from Marks & Spencer, PLC has now expired it will continue its attempt to price $175 million of 10-year senior notes (B2/B+) via Deutsche Bank Securities and Jefferies, while concurrently looking at alternatives to the junk bond financing.

NCI Building announced Thursday that it will bring a $50 million add-on to its 9¼% senior subordinated notes due 2009 (outstanding ratings B2/B) sometime in August.

NCI executive vice president Kenneth Maddox told Prospect News that Banc of America Securities and Wachovia Securities will run the books.

When asked what he made of conditions in the present high yield primary, Maddox preferred to keep his own counsel.

"We're only doing $50 million," he said. "The existing notes are selling a little above par, and we're hoping that we can come out slightly above par with this one."

Asked if he thought NCI stood a good chance of bringing the add-on in at a yield of less than 9¼% he said that the company has its sights set on 9%.

Price talk of 12½%-12¾% emerged Thursday on Mobile Systems Group, Inc.'s $160 million of seven-year senior notes (B2/B). The La Crescenta, Calif. diversified storage provider's new seniors, via Lehman Brothers and Credit Suisse First Boston, are set to price on Monday.

In on conversation with one sell-side official Thursday Prospect News recalled that in the run-up to Memorial Day - with each week bringing reports of sizable inflows into high-yield mutual funds and the forward calendar building at what some characterized as a precipitous rate - some on the buy-side held that the investment bankers were coming with "aggressive" price talk.

Was that true then? Prospect News asked of this official. And if so, are things different at present?

"If we were just being aggressive then it was because demand was outstripping supply," the sell-sider said. "You have to ask yourself, 'What were the levels in the secondary market for comparable companies?'

"It was aggressive because there were so many guys out there trying to buy paper and they couldn't get their hands on any. They were bidding up levels in the secondary market. So you priced off of comparable companies in the secondary market.

"Now," this official conceded, "the leverage has shifted to the buy-side from the sell-side."

Finally for primary action on Thursday the market learned details on the timing of Mothers Work, Inc. $125 million of eight-year senior notes (B3/B+). The roadshow for the Philadelphia-based maternity apparel-makers new junk bonds kicks off Friday, with delivery expected sometime after its July 30 conclusion.

In the secondary, WorldCom was reported by several news services on Thursday to be approaching the brink of bankruptcy. Quoting unidentified people familiar with the Clinton, Miss.-based Number-2 U.S. long-distance operator's situation, they said a filing could take place as soon as Monday. The company declined comment on the speculation.

Standard & Poor's late Wednesday had cut WorldCom's senior unsecured ratings to D from C, citing its non-payment of more than $70 million of coupon interest that came due on several issues of its bonds on Monday, as well as the likelihood of a Chapter 11 filing or other restructuring.

WorldCom's debt "moved down a bit," a distressed-debt trader said, citing the speculation about the impending bankruptcy filing. He quoted its 7½% senior notes due 2011 as having begun the day around 15.25 bid/15.5 offered, before dropping down to 14 during the day, and finishing the session at 14.375 bid/14.875 offered.

The trader also cited market speculation that WorldCom - which last month revealed that it had improperly categorized some $3.9 billion of expenses as capital expenditures rather than operating costs - allowing it to spread them out over a period of years and thus show better earnings and cash-flow figures than were justified in reality - might have to raise the amount it is restating from $3.9 billion to as much as $5 billion, "pretty big," he observed.

A trader noted that as WorldCom moved ever closer to restructuring, its various issues of debt are trading at closer levels to one another. He noted, for instance, that while WorldCom's shortest dated issues, due in 2003, had previously traded higher than its widely quoted 2011 paper, the issues seemed to be converging and all trading now around that 14 bid level. "There also seems to be a little more convergence between MCI's debt and WorldCom's," he added, although the long-distance unit's paper is still trading at a substantial premium to its corporate parent's paper. The trader saw the MCI bonds in the 37-40 bid area; that, though, is notably weaker than its recent levels around 45 bid.

Another trader saw the parent company's bonds having opened around 14 bid/15 offered, and quoted them going home around 13.5 bid/14 offered, but said that the news reports really didn't play a role in it. "We know they're going to file," he asserted - indeed, speculation that WorldCom's troubled saga would end up in the bankruptcy court dock has been rife in the market for weeks and even recently appointed CEO John Sidgmore said the company was weighing whether to restructure its $30 billion debt load through the courts.

WorldCom, which had been working on trying to get new funding from its banking group to help it stay out of bankruptcy - the $5 billion it initially sought had been cut to $3 billion earlier this month - now appears to have shelved those financing efforts in favor of lining up debtor-in-possession financing, which would allow it to continue operations during the restructuring . Earlier in the week, it was reported that Citigroup Inc., J.P. Morgan Chase & Co. and General Electric Co.'s GE Capital financing arm had agreed to front WorldCom as much as $2 billion of DIP funding.

Also on the financing front, WorldCom and a group of 25 banks reached agreement late Thursday on a deal to allow the company to make full use of some $2.5 billion in funding it had lined up before its recent revelations of big financial problems; in return WorldCom agreed not to sell off holdings in its wholly-owned subsidiaries for 80 days. The deal, approved by a federal judge in New York, does not affect the company's efforts to sell its wireless subsidiaries in Latin America and Japan, according to news reports.

WorldCom's almost-worthless shares were down slightly in busy trading on the Nasdaq Thursday, dropping a penny - 10% of their value - to close at 9 cents. Volume of 234.9 million shares was more than double average recent daily activity of about 99 million shares.

Outside of the WorldCom soap opera, market players noted the continued rebound of Qwest Communications International Inc.'s bonds, despite its raft of troubles, including investigations by the Securities and Exchange Commission and the Justice Department, a multi-notch S&P downgrade Wednesday, and just the usual troubles besetting the embattled telecommunications industry. Even so, a trader said, Qwest's bonds "ran up a bit" Thursday; he saw the longer dated paper of its operating company subsidiary tacking on two points on the session to close at 74 bid/76 offered, while its considerably weaker holding company paper (divorced from Qwest's assets by one level and thus likely worth less than the operating company debt in the event of a restructuring scenario) "holding flat [i.e., unchanged]" in the 46-49 range. "There was not much change, and not much trading there," he added.

A market source at another desk categorized Qwest's bonds as "up some" on the day, pegging its 7¼% notes due 2011 as having risen a point to 48 bid and estimating that its other issues were all up a point to a point-and-a-half "across the board."

Equity investors also appeared to shrug off Qwest's problems, taking its New York Stock Exchange-traded shares up 35 cents (14.64%) to close at $2.74. Volume of 26 million shares was about double the usual daily handle.

Elsewhere in the telecom sector, Nextel Communications Inc. Was largely unchanged at the higher levels to which it had moved on Tuesday after reporting unexpectedly strong earnings and better guidance and at which it had stayed Wednesday, with its benchmark 9 3/8% senior notes due 2009 hanging in at around 67-68 bid. Its zero-coupon notes due 2008 were seen a point better, at around 65, while fellow junk telecom bellwether Level 3 Communications Inc.'s 9 1/8% senior notes due 2008 were likewise a point improved, to about 59 bid.

On the downside, Telewest Communications plc bonds were in retreat Thursday, following the decision by Liberty Media Corp. to scrub its tender offer for some of those notes, citing "the deterioration in the US and UK securities markets and the significant fall in the trading price of Liberty Media's common stock since the commencement of the Offer on June 12."

Telewest's 11% senior discount debentures due 2007 and 11¼% senior notes due 2008 were both quoted as having fallen to 32 bid from prior levels around 38 notes. At another desk, the London-based cable and broadband operator's 9 5/8% senior debentures due 2006 were seen down seven points at 30.

Lucent technologies Inc.'s bonds were a little weaker, its 6½% bonds due 2028 and 6.45% bonds due 2029 down a point at 52 bid, although its 7¼% notes due 2006 were unchanged at 69. Charter Communications Holdings Inc debt was also lower, its 8 5/8% notes due 2009 down three points, to 65.

Outside of the communications sphere, battery-maker Exide Technologies, currently in Chapter 11, was seen having lost nearly half of the remaining value of its bonds, its 10% notes due 2005 swooning six points to end at 7.

But AES Corp., whose bonds had fallen sharply into the mid-to-upper 30s on Wednesday amid new investor angst over its Latin American holdings, seemed to be on the rebound, its 8 3/8% notes due 2007 quoted up five points to around the 40 level.

Conseco Inc. debt continued to languish at lower levels Thursday, its 8½% notes due 2002 hanging in at 65 bid and its 10¾% notes due 2009 seen at 27.5 bid. The Carmel, Ind.-based financial services company's stock - which has been steadily sliding since last Friday, when A.M. Best Co., an insurance industry ratings service, cut the financial-strength ratings of Conseco's insurance units - continued to swoon, dropping another 13 cents in NYSE trading (11.30%) to close at $1.02, after having briefly dipped below $1, to an intra-day low at 97 cents.

Investment-oriented Internet bulletin boards were filled with buzz Thursday from angry investors predicting an imminent bankruptcy filing for the company and expressing disdain for CEO Gary Wendt, who recently called the company's stock "undervalued" when it was still at $1.48.

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