AK Steel, Loral trend higher; WorldCom steadily rises; Dan River drops as Moody's cuts rating

By Carlise Newman

Chicago, Oct. 27 - AK Steel Inc. managed to grab back some slight gains Monday after falling to lower levels Friday on a wider third-quarter loss. In other news, the usual suspects dominated distressed debt trading, such as WorldCom Inc. and Loral Space & Communications Inc.

AK Steel reported the loss and said it would eliminate 475 salaried jobs in a move to cut costs. The company posted a quarterly loss of $277.5 million, or $2.56 per share, compared with a loss of $3.3 million, or $0.3 cents a share, a year earlier.

AK cited high energy and raw material costs for the wider deficit. Excluding two charges, AK Steel reported a loss of 82 cents a share.

The 7 7/8% notes due 2009 were seen at 68 bid, ½ point higher; while the 7¾% notes due 2012 were quoted at 66 bid, up 1 point, said a trader.

The bonds "opened lower but by the end of the day they were higher on the session," he said.

On Friday, the 7 7/8% notes dropped only ½ point after the release of the earnings report, while the 7¾% notes fell 1 point.

AK said Friday in a conference call that negotiations with unions have improved since acting chief executive James Wainscott took over the position full-time a week ago.

Wainscott answered a caller's question about formerly "hostile" union negotiations with AK Steel by saying the union officials have embraced the changes and approaches made within the company.

"The news that they'll be doing better soon seems to have mattered more than the earnings, at least in the short term," one trader said.

AK said it expects to be cash-flow positive during the upcoming quarter, excluding the impact of possible payments to its former top executives. The steelmaker also said it intends to sell two of its assets, snow and ice control products manufacturer Douglas Dynamics as well as an industrial park on the Houston ship channel. The company said it expects the sales to generate about $300 million in proceeds.

Meanwhile, it was a relatively quiet day, traders said.

"We were kind of busy in the morning, but later in the day everything just dried up. Aside from Loral and WorldCom we didn't do much more," one trader said.

Loral edged upward Monday after obtaining court approval for the sale of its satellites to Intelsat Ltd.

Loral's 10% notes due 2006 were up 2 points on the session at 75 bid, one trader said. Last week, the bonds jumped around at all levels; down 10 points on Tuesday, up 3 on Wednesday, and ending the week 4 points lower on Friday at 73 bid.

The New York-based satellite operator on Friday said the U.S. Bankruptcy Court for the Southern District of New York has approved the sale of Loral's North American satellites for up to $1.1 billion to Intelsat.

The agreement with Intelsat provides for the sale of the in-orbit Telstars 5, 6, 7 and 13, as well as Telstar 8, which is scheduled to be launched in mid 2004. The agreement also includes rights to the 77 degrees West longitude orbital slot, formerly occupied by Telstar 4.

The sale to Intelsat remains subject to Federal Communications Commission approval and is expected to close in early 2004.

Last Wednesday Loral subsidiary Space Systems/Loral obtained court approval to sell satellites to DirecTV Inc. the court approved the construction of two satellites DirecTV, and one satellite for PanAmSat Corp. PanAmSat also has an option to order an in-orbit spare for one of its existing satellites from Loral.

Elsewhere, WorldCom Inc. was quoted "just a tad higher" at 35½ bid, 36 offered, up from 35 7/8 bid on Friday.

"In the next few days before the hearing you'll see WorldCom paper really get up there," one trader said, referring to the Oct. 30 confirmation hearing date.

The bankrupt Ashburn, Va.-based telephone company has been rising slowly but steadily, even when it released lower income figures for August a few weeks ago. WorldCom said its net income totaled $132 million in August, compared with $207 million in July. Revenues fell to $2 billion, down from $2.1 billion in July.

Elsewhere Dan River Inc. fell further after Moody's Investors Service downgraded the company. Moody's cited the company's preliminary third quarter update on Oct. 17, in which it disclosed lower sales expectations for the third and fourth quarters of fiscal 2003, as well as the company's recent violation of a financial covenant under the $200 million senior secured credit facility due 2008 as reasons for the move.

The affected ratings include Dan River's $157 million of 12.75% senior unsecured notes due 2009, lowered to Ca from B3. The rating outlook was revised to negative from stable.

Dan River's bonds fell to 27 bid, one trader said, down 3 points.

"They took a hit today but just back to levels they were trading at about a week ago," he said. "But the bonds haven't really recovered since the news about the covenant violation."

On Oct. 14, Dan River amended the facility, waiving the maximum leverage ratio covenant violation that existed at the end of the third quarter and revising requirements during the fiscal fourth quarter, including the minimum levels of excess availability under the revolver and monthly operating EBITDA, according to a filing with the Securities and Exchange Commission.

As for the third quarter violation, net sales declined to $104 million, down $44 million or 30% from the third quarter of fiscal 2002, causing EBITDA to be less than expected and in excess of specified levels of indebtedness to EBITDA.

Dan River is a Danville, Va. designer, manufacturer and marketer of products for the home fashions and apparel fabrics markets.

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