FelCor prices add-on; Xerox up on financing, positive outlook; Jazz shows pizzazz

By Paul Deckelman and Paul A. Harris

New York, Nov. 19 - FelCor Lodging LP became the second lodging company to successfully bring a quickly shopped add-on offering of high-yield bonds as terms emerged Monday on its late-Friday pricing.

In the secondary arena, Xerox Corp. debt was up about two points across the board as the Stamford, Conn.-based copier and office machines giant, in the midst of trying to turn around its fortunes, peppered the market with a rapid-fire barrage of positive news. Jazztel meanwhile gained on takeover speculation.

Terms surfaced early Monday from the pricing late in Friday's session of FelCor Lodging's $100 million add-on to its 9½% senior notes due Sept. 15, 2008 (Ba3/BB). The yield of 9.96% was within the 9 ¾%-10% price talk.

Speculation surfaced late Friday that FelCor's deal could have been halted by a downgrade to Ba3 from Ba2 by Moody's Investors Service. However, a syndicate source told Prospect News that the market had already factored in the Moody's action, and indeed the FelCor paper priced prior to the weekend.

"This deal was well sold, priced within the talk of 9 ¾%-10%, despite the rating getting notched down," the same source said Monday morning. "It was well done."

Also in Monday's primary, Revlon Consumer Products Corp. priced $363 million of four-year senior subordinated notes (Caa1/B-) at 96.569 for a yield of 13 1/8%. The deal, which sparked abundant and lively conversation on both sides of the fence, was upsized from the originally-announced amount of $250 million.

The deal, according to a syndicate source, priced at the tight end of the 13¼% area price talk.

With the Thanksgiving holiday approaching, one high yield market official in London noted that although there would be no day off on that side of the Atlantic, the clock is unmistakably ticking on the high yield market of 2001, without a lot of euro or sterling new issuance on the radar screen. The only non-dollar deal on the calendar at present is €100 million for Global Automotive Logistiques SA, scheduled to price next week.

The official allowed that perhaps four- to five billion could emerge on the US high yield before year's end. However, he said, those figures are not really so impressive, when viewed in an historical context.

"In the old market, when we had the telecoms on the wire, that would not have been so much," the official said.

"It's hard to say whether there will be much activity over here between now and Christmas," he continued. "The US can do more drive-by deals than we can because the market is bigger and broader, and there are more bonds outstanding.

"Over here you're looking at a seven-to-10 day roadshow. So if anything is going to happen between now and Christmas, it better start to happen quickly."

Tuesday's primary market awaits the pricing of the Vicar Operating Inc. $150 million, via Goldman Sachs & Co., coming with a concurrent equity offering. The company is sponsored by Leonard Green & Partners.

In secondary dealings, Xerox's bonds firmed as the company, in quick succession released positive news on several fronts: a pair of new equipment-finance deals totaling $800 million, the completion of another previously announced financing deal, and a rosy assessment by the company of its prospects, including a return to profitability next year. Xerox was also heard by market participants to have decided to upsize its sale of 20-year convertible securities to $750 million from $500 million. Pricing was scheduled after the market close Monday, having been moved up from Tuesday on strong demand.

All of this good news helped boost Xerox's bonds, with its widely traded 5½% notes due 2008 moving up to 88.75 bid, its 7.15% notes due 2004 rising to 86.75 bid, and its 7.20% notes due 2016 closing at 72 bid. Xerox's 6 ¼% paper due 2026 was quoted also up a deuce at 87.75.

Xerox first announced that the company and General Electric Capital Corp.'s Canadian unit had agreed on the principal terms of a financing arrangement under which GE Capital Canada will provide Xerox with about $350 million, secured by portions of Xerox's lease receivables in Canada. GE Capital and Xerox also completed an agreement for GE Capital's European Equipment Finance business to provide Xerox with approximately $450 million. This financing - which Xerox could receive as early as this week - is secured by Xerox's lease receivables in the United Kingdom.

Xerox and GE capital further said that the closing on the initial funding of a similar U.S. financing agreement announced in September is expected this week. When this funding is completed, Xerox will receive approximately $825 million from GE Capital, secured by portions of Xerox's U.S. lease receivables, and that amount will grow to beyond $1 billion when GE Capital provides Xerox with additional financing next month and in February 2002.

GE Capital is not Xerox's only source of funding these days; market participants reported that Xerox had increased the size of its offering of 20-year convertible securities to $750 million from the originally proposed $500 million, to meet increased investor demand for the issue's expected 7.5% yield (considered relatively fat for a convertible issue) and 20% to 24% initial conversion premium, itself raised from earlier guidance of 15% to 20%. At least one market observer cited the evidence of increased demand for the converts as a factor behind the rise in the junk bond prices.

On top of that, Xerox confidently asserted that it expects to return to profitability in 2002. "We are focused like a laser on restoring our financial strength to pursue growth opportunities now and in the future," chief executive officer Anne Mulcahy told attendees at the company's 2001 Investor Conference on Monday in New York. "I'm 100% confident in this company's ability to return to financial health and build a growth trajectory."

Mulcahy said Xerox, trying to bounced back from the losses it has suffered over the past year, would continue with its three-pronged recovery strategy, which includes ensuring its liquidity by transferring equipment financing to external partners and renegotiating Xerox's revolving

credit agreement, for which discussions have already begun; capturing productivity savings and redefining the business model for the company's developing markets group from a market share focus to a cash-and-profit focus; and investing in growth by strengthening the company's products and services businesses, broadening sales coverage and building the Xerox brand.

Even as Xerox's bonds firmed, Xerox shareholders also gave the company a vote of confidence, as the stock rose 72 cents (10.94%) to $7.30 in New York Stock Exchange trading; volume of 44 million shares was more than 14 times the usual daily turnover.

Elsewhere, Jazztel plc's 14% bonds pushed up to 50 bid from 45 previously, mirroring an earlier rise in Europe and a gain in its ADR shares in New York, which jumped 35.48%, or $1.65, to $6.30 on the Nasdaq; France Telecom SA indicated it may buy a minority stake in the Spanish telecommunications company. A spokesman for the Paris-based Eurotelecom giant said it had held preliminary talks with Jazztel that could lead to a combination of its own Spanish unit with Jazztel. The latter, meanwhile, has said that it has been in talks with France's largest company and other possible partners, to cut debt.

Also in the telecom sphere, Global Crossing Holdings Ltd., which acknowledged on Friday that it had indeed made the scheduled Nov. 15 coupon payments on its junk bonds (there had been some market speculation that the company might instead opt to blow off the payment, conserve the precious cash and restructure) had some further good news for investors.

It announced that it had agreed to sell its IPC Trading System units to an investment group led by Goldman Sachs Capital Partners 2000 for $360 million in cash, in a transaction expected to close by year-end. The Hamilton, Bermuda-based international long-haul telecom company said it was selling the company to help improve its cash position and strengthen its focus on telecommunications services.

Global Crossing's 7¼% notes were up two points to 18 bid, while its 8.70% paper and 9 1/8% debt each rose a point to 15 and 16 bid, respectively.

Exodus Communications Inc.'s several issues of junk debt were pegged around 27 bid, up from 24 previously. Nextel Communications Inc.'s benchmark 9 3/8% notes due 2009 had hung in essentially unchanged from Friday at 80.5 bid/81.5 offered.

Even including the telecommers, a trader saw "not much activity" overall, as the market begins winding down ahead of this week's Thanksgiving holiday, which will see an early close Wednesday, a complete shutdown Thursday and a virtual holiday Friday.

"If today was a prelude to what's going to happen this week, maybe I should just bring my turkey in now and start carving it up," he quipped. "It was painfully slow. If we did a hundred trades today, we did a lot."

Here and there, he said, there was light trading in a little bit of this and that, with Kmart's 8 3/8% notes due 2004 creeping up to around the 96 level from bid levels in the 93-95 region last week, and Host Marriott's 7 7/8% notes due 2005 and 7 7/8% notes due 2008 moving up a bit to the 93.5-95.5 area. The firmness in the Washington D.C.-based lodging REIT's bonds was seen as one sign of renewed confidence in the lodging sector (others include the good reception given to new deals by lodgers Vail Resorts Inc. and, as mentiond, FelCor. The sector had taken a tumble in the wake of the airborne Sept. 11 terrorist attacks, which greased the skids under the airlines first and foremost and, secondarily, the travel and lodging industries, which depend heavily upon people who fly to their destinations.

But the trader sounded a skeptical note: "What we've been saying here is that everyone seems to think that things are now dandy and the Dow continues to move (up). Everyone's trading the stuff like the holidays are here and everything is great. But we've still got a long way ahead of us. We may be seeing a bear in a bulls' costume. Let there be one act of terror," he warned, "and this market could fall on its face."

The junk market, he opined "is fragile. Short-covering is moving the stuff up, but there's a lack of involvement and liquidity is reduced, which exaggerates the upside, which is definitely not concrete. It's like a house of cards right now."

Two high yield steel issues which have recently shown some strength were seen continuing that trend into the new week, as Oregon Steel Mills Inc. and AK Steel Corp. (the latter considered the star of an otherwise mostly beleaguered high yield steel sector) firmed again.

Oregon Steel Mills Inc.'s 11% notes due 2003 tacked on a point-and-a-half to close at 97.5 bid; they were 96 bid Friday, 92 on and about 87 a week ago. The rise is part of a larger move which has seen them heading up in the last month or so.

Meanwhile, AK's 9 1/8% notes due 2006 pushing as high as 104 bid from last week's end-of-week levels around 102. But the strength in those two bonds did not translate into any help for the beleaguered bonds of the most of the rest of the sector; many of those companies are either already in bankruptcy or at best are just a few steps away.

End

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