Charter slide continues; Wynn deal awaits IPO completion

By Paul Deckelman and Paul Harris

New York, Oct. 23 - Charter Communications bonds continued to head south on Wednesday, in the wake of the cable company's having placed its chief operating officer on paid leave pending a grand jury probe. WorldCom and MCI debt again climbed on expectations the bankrupt telecom giant would be able to produce a respectable level of cash flow.

In the primary market, players awaiting Wynn Resorts Ltd.'s $340 million bond offering cooled their heels, awaiting the completion of the Las Vegas-based gaming company's initial public offering. That IPO was originally supposed to have already taken place by now - but has been delayed and modified in the face of investor skittishness.

Meanwhile billionaire George Soros changed the landscape on the QwestDex deal, syndicate sources said Wednesday, by coming in with a $150 million investment, including $100 million on the bond side.

Steve Wynn, who reduced the share price range on his IPO on Tuesday, ratcheted down that range even further down on Wednesday as sources advised Prospect News that Wynn would have to successfully woo equity investors in order for the junk bond deal to get done.

Wynn Las Vegas, LLC/Capital Corp.'s $340 million of eight-year second mortgage notes (B3/CCC+) via Deutsche Bank Securities Inc., Banc of America Securities, Bear Stearns & Co. and Dresdner Kleinwort Wasserstein, along with the equity piece and $1 billion of credit facilities will be used to build the $2.4 billion Le Rêve casino on the Las Vegas strip.

"They're circling up with the equity holders right now," one syndicate source told Prospect News on Wednesday.

"They're going to try to get it done at $15 a share, and it looks like there will be some people putting some more equity in the deal - Steve Wynn and a couple of his other investors.

"That should put it over the top."

This source said that price talk on the bonds would not come out until the IPO was completed, possibly Thursday morning.

"If the bond deal gets done I think it will get done a little wider than where Venetian is trading at this point," the source said. "The last time I saw it I think Venetian was trading around 11¾%. So you're looking at something like a 12% area."

Provided the equity piece falls into place, the source added, the bonds should be in for a fairly easy ride.

"I think the equity deal is tougher because what is the upside to being an equity-holder here?" the source asked rhetorically. "It's going to be three or four years until you start making any money. If you hear news that the construction is on-plan or that the project is within budget, is that going to cause the equity to rally? So I think that's a fairly tough sell.

"I think the bond deal is easy: you're buying the largest hotel-casino in Vegas, and possibly in the world. You've got a guy running the company who's done a bunch of these things in the past, and you're earning 12%. And more importantly you've got a billion dollars of equity beneath you if anything goes wrong."

The other source of news on Wednesday bore upon a deal that is positioned to price next week: Dex Media East LLC/Dex Media East Finance Co.'s two-part $1.05 billion via JP Morgan, Banc of America Securities, Deutsche Bank Securities, Lehman Brothers and Wachovia Securities, Inc. to fund the first phase of the $7.05 billion LBO of QwestDex, Qwest Communications' yellow pages/directories business in Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota by the Carlyle Group and Welsh, Carson, Anderson & Stowe.

George Soros, a syndicate source told Prospect News, is going to buy $100 million of the offering's $700 million of 10-year senior subordinated notes (B3/B) through his Soros Fund Management LLC. The senior subs, according to sources, are the piece that is generating the most "noise" among investors (see related story in this issue).

Back in the secondary market, Charter bonds "came down a bit more" on Wednesday, a trader said, after a headlong slide Tuesday dropped them by almost 10 points from prior levels. That precipitous drop followed the St. Louis-based Number-Four U.S. cable operator's announcement that it had put its executive vice president and chief operating officer, David G. Barford, on paid leave status. The initial company announcement gave no explanation for the abrupt personnel move, and Charter's bonds and shares nosedived. Finally, the company explained late Tuesday that Barford was being sidelined pending the completion of the previously announced federal grand jury probe of certain of Charter's operations.

The trader quoted Charter's benchmark 8 5/8% notes due 2009 as having retreated to about 41 bid/43 offered, down from Tuesday's levels at 44 bid/45 offered. "Over two sessions, they've dropped 10 points," he said. "That was a disaster."

Another trader, however, noting that most of the drop down to around 42 bid/43 offered from prior levels in the lower 50s had occurred on Tuesday, opined that Charter "may have stabilized" at those lower levels.

Charter shares, which had swooned more than 31% on Tuesday, lost a further 13 cents (10.83%) to close at $1.07 on Wednesday.

Charter's bonds were under "continued pressure" Wednesday in the aftermath of the Barford announcement, an analyst said, "and I think you see a continued speculation and skepticism about the direction of that credit."

He said that with Charter clearly the dominant bellwether for the cable sector, that whole sector as a group was getting continued pressure. "At this point, it's really a spillover from Adelphia [Communications Corp.]," which slid into bankruptcy earlier this year amid allegations that the founding Rigas family had systematically looted the once high-flying Coudersport, Pa.-based cabler of hundreds of millions of dollars.

After the Adelphia debacle and the subsequent troubles of Charter, "investors are looking for some better news in the cable sector," he said.

The analyst further projected that the cable sector is "a segment of the market that's probably going to attract a lot more interest from financial sponsors as they look to perhaps pick up some assets that are for sale, in order to redeploy some capital into cable at lower prices than where it had traded.

"It's obviously still a very viable business segment, and I think one that once we get beyond the recent problems, including the most recent problems with Charter, will continue to be an important part of high yield. I think we're going to see, after this repricing, a recovery taking hold in cable, as we look ahead over the next year."

The analyst noted that he hadn't really seen the rest of the sector slide long with Charter. Insight Midwest Communications, for instance, "has held in better than Charter has at this point. It has not had the same sort of questions swirling around it."

Still, at another desk, Insight's 10½%notes due 2010 were seen down 1½ points at 83 bid, while Mediacom Broadband LLC's 11% notes due 2013 were also at 83 bid, off more than two points on the session. Adelphia's 9 7/8% notes due 2007 were quoted down 1½ points at 29.50, while Cablevision unit CSC Holdings Inc.'s 8 1/8% notes due 2009 lost 1½ points to close at 80.50 and its 7¼% notes due 2008 likewise eased to 77.50 bid.

Outside of the cable sphere, WorldCom Inc. debt continued to trade at firmer levels, a day after the bankrupt Clinton, Miss.-based long distance giant submitted July and August financial data to the federal judge overseeing its reorganization. While, predictably, the company continued to notch huge net losses - $331 million in July and $98 million in August - it also reported what one trader termed better-than-expected EBITDA of $359 million in July and $417 million in August. On the strength of those numbers, WorldCom's bonds, such as its 7½% notes due 2011, continued to move up; after firming to 14.625 bid/15 offered Tuesday from earlier levels around 12-13, the trader said that the bonds moved as high as 16.625 on Wednesday, before coming down from that peak to end at around 15.5 bid/16 offered. With the company in bankruptcy, all of the WorldCom bonds trade at the same level, regardless of coupon or maturity.

Likewise the MCI bonds, which trade at a sizable premium to those of its corporate parent. Its 6½% notes due 2010, for instance, rose to a close of 41 bid on Tuesday, although the trader saw them having "weakened up a little bit" to end Wednesday's dealings at 37 bid/41 offered.

Also among the telecom names, a trader saw Qwest Communications International Inc.'s bonds "up a bit this morning," with its 7% notes due 2009 moving up to 50.5 bid/51.5 offered. "But then as the day progressed, they gave it back," he said, and closed essentially unchanged at 48.5 bid/49.5 offered.

Telecom equipment maker Lucent Technologies Inc. - given a boost Monday and Tuesday on news of a potentially lucrative new equipment supply contract with China - seemed to stall on Wednesday after the Murray Hill, N.J.-based manufacturer reported its 10th consecutive quarterly loss. Sales also continued to fall, and Lucent said revenue could decline another 10% in the first quarter of 2003.

But while Lucent recorded a fourth-quarter net loss of $2.81 billion (84 cents a share), it was well down from the year-ago loss $8.8 billion ($2.59 a share) and actually beat Wall Street estimates by a penny per share.

Lucent "gave back some ground" on the earnings data, a trader said, quoting its 7¼% notes due 2006 a point or two easier at 44 bid/46 offered. But another trader said the bonds were "maybe a little bit weaker - but they hung in there," only a little below Tuesday's levels.

United Air Lines said it would reapply for $1.8 billion in federal loan guarantees for the $2 billion in new financing it is seeking, officially adding to its application its plans for $5.8 billion of labor cost savings over five-and-a-half years, plus another $1.4 billion in non-labor savings annually. The troubled airline will also cut capacity by 12% and shave capital expenditures another $1.2 billion.

UAL'S 10.67% notes were quoted at 20 bid/22 offered, up from prior levels in the mid-teens, although the bonds trade flat, or without accrued interest.

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