Adelphia gains after hiring banks; Teleglobe falls on funding uncertainty; Pliant deal prices

By Paul Deckelman and Paul A. Harris

New York, April 5 - Adelphia Communications Corp. bonds were heard to have firmed a point or so in quiet dealings Friday after the big cable television operator announced that it had hired a trio of high powered investment banks as financial advisers as it explores possible cable asset sales and other ways to reduce debt. On the downside, uncertainty about future funding, coupled with a ratings downgrade, pushed Teleglobe Inc. debt sharply lower.

In the primary market the simmering first week of April 2002 concluded with relative quiet. Friday was the only day of the week in which no new deals were announced although details emerged on Johnson Diversey's deal, talk of which has circulated through the market for the past 10 days.

Late in Friday's session a market source told Prospect News that Johnson Diversey will sell $500 million in two tranches, one U.S. dollar-denominated, the other in euros. The deal will be 10-year non-call five senior subordinated notes (B2/B). Goldman Sachs & Co. is the bookrunner. The roadshow starts Thursday and will run until April 25 or 26, the source said.

Last November Johnson Wax Professional, a privately held company based in Racine Wis., announced it had signed a deal to acquire DiverseyLever, Unilever's institutional and industrial cleaning business. Johnson announced it would compensate Unilever with a combination of cash and a note and a one-third interest in the combined company. Unilever placed a valuation of approximately $1.6 billion on the transaction. Additionally, the agreement provides for Unilever's full exit from the combined business after five years, according to a press release.

The tranche sizes on Johnson's new bond deal have yet to be determined, according to the source who added that the dollar tranche figures to be larger than the euro.

Meanwhile Friday terms emerged on Schaumberg, Ill.-based plastic packaging firm Pliant Corp.'s $100 million of senior subordinated notes due June 1, 2010 (Caa1/B-).

Pliant, formerly known as the Huntsman Packaging Corp., sold its notes at 103.752 for a 12 1/8% yield to worst. Price talk had been for a yield to worst in the 12% area. JP Morgan ran the books.

While Pliant was in the primary market, several sell-side sources noted that its new deal, comprised of notes identical to the $220 million of 13% senior subordinateds that it priced on May 20, 2000, was much like an add-on. However a syndicate source who spoke with Prospect News when the deal launched specified that the new offering is not an add-on because of restrictions on the original deal.

Friday's only other primary market news concerned Synagro Technologies, Inc.'s offering of $150 million seven-year senior subordinated notes, on which price talk of 9½%-9¾% was heard.

Lehman Brothers is running that deal which will price Monday afternoon, according to a syndicate source.

Hence Synagro, a waste water residuals management company, will kick off the week of April 8 in which an even 10 deals totaling $2.325 billion of business are expected to price.

Banc of America Securities is bookrunner or joint books on three of those deals. Credit Suisse First Boston, JP Morgan and UBS Warburg are bookrunners or joint books on two deals each, and CIBC World Markets, Deutsche Bank Securities Inc., Merrill Lynch & Co. and Salomon Smith Barney are bookrunners or joint books on one apiece.

The largest of the 10 deals comes from Louisville, Ky.-based health care REIT Ventas Realty LP/Ventas Capital Corp. which will bring $400 million in two tranches - seven- and 10-year maturities - (Ba3/BB-). The joint bookrunners on the Ventas deal are UBS Warburg and Merrill Lynch.

All told 16 deals amounting to $3.445 billion were announced during the first week of April 2002.

And 10 deals, totaling $1.82 billion priced - perhaps most notably Dura Operating Corp., whose 10-year senior notes upsized to $350 million from $250 million and priced at par on April 4 to yield 8 5/8% via joint bookrunners Banc of America Securities, and JP Morgan.

Among the recently priced new deals, a trader saw American Seafood Group's new 10 1/8% senior subordinated notes due 2010 swimming around at bid levels of 101-101.25, after having priced on Thursday at par. D. R. Horton Inc.'s new 8½% senior notes due 2012 "didn't do much," holding at around 99.25 bid/99.75 offered all day, little changed from Thursday's 99.171 issue price. Dura Operating Corp.'s new 8 5/8% senior notes due 2012 ended the day at 101.375 bid/101.625 offered, up just an eighth of a point from Thursday's finish, but still well up from its par issue price earlier Thursday.

Back among already established bonds, the trader said, Adelphia Communications paper was "relatively firm," its 10 7/8% notes due 2010 gaining two points to 92 bid/93 offered. "I guess hiring investment bankers got people a little bit interested," he observed in response to the news that the Coudersport, Pa.-based cable operator had retained Salomon Smith Barney, Banc of America Securities and Credit Suisse First Boston as its financial advisors. "Adelphia and those advisors will together explore opportunities to reduce Adelphia's debt, strengthen the Company's balance sheet and, in turn, build value for Adelphia shareholders by various means including, in particular, potential cable asset sales," the company said in a statement, which also announced the hiring of a fourth firm, the smaller Daniels & Associates, as a "special advisor."

Adelphia's announcement that it will enlist the aid of the three Wall Street powerhouses to sell some of its assets followed by about a week its startling disclosure that in addition to the more than $14 billion of debt that investors already knew about, the nation's sixth-largest cable operator also had another $2.3 billion of off-balance-sheet debt, related to loans made to partnerships involving members of the founding Rigas family, which controls Adelphia. Coming as it did at a time when the accounting of many high-yield companies is under investor, credit agency and regulatory scrutiny, the disclosure triggered a 20-point slide in Adelphia's bonds from prior levels well above par, and sliced 50% off its stock price in a matter of days. The Securities and Exchange Commission also began a probe, which Adelphia said it was cooperating with.

Another trader said Friday that Adelphia's debt - which appeared to have halted its slide earlier in the week and shrugged off news of the SEC inquiry, "was up two points cross the board" Friday on the news that the investment banking troika will be out beating the bushes for possible buyers for Adelphia cable assets, although he qualified this by noting that "no one was around, and there was not much activity." Another market source said that Adelphia's debt was "up a bit," quoting its 8 1/8% notes due 2003 at 94 bid and its 7½% notes due 2004 at 92, both up more than a point. He said that the company's other issues were also up a point or more.

Adelphia's shares were meantime up 42 cents (4.20%) in Nasdaq dealings Friday, to $10.42. Volume of 16 million shares was about twice the normal turnover.

Nortel Networks shares, however, slid 49 cents (11.56%), to $3.75 on the New York Stock Exchange, as investors reacted to the Thursday downgrade of the Toronto-based telecommunications equipment maker's debt by Moody's Investors Service, which cut it three notches, to Ba3 from Baa3 previously. Volume of 35 million shares was triple the usual. The ratings agency cited " the continued decline in spending by telecom carriers, which is expected to be deeper and more protracted than previously anticipated."

But despite the steep ratings decline and the equally pronounced erosion in the company's share price, Nortel's bonds were seen essentially holding to their previous levels. "There was nothing different today," one market-watcher opined, in quoting Nortel's 6 7/8% notes due 2023 as holding steady at 60.25 bid, while its 6 1/8% notes due 2006 remained in the 74 bid range. "These bonds had [already] been beaten down so much," to junk bond-like levels in the previous weeks as the telecom industry slowed and companies cut back their capital expenditures, "that I don't think this [downgrade] is a surprise."

Several traders noted that with Nortel's notes continuing to cling precariously to their last shreds of investment-grade respectability via Standard & Poor's BBB- rating, the company's bonds were still being traded off the high-grade desks at most shops. "Nortel should be here [at his company's junk bond desk] but it's not here yet," one observed.

Another now split-rated telecom credit (Ba3/BBB+), following a Moody's downgrade, was Teleglobe Inc., which was lowered three notches to Ba3, on concerns that its corporate parent, Canadian telecom operator BCE Inc., might end its support of the Montreal-based long-haul telephony and Internet service provider.

The downgrade "reflects Moody's continuing concern with respect to Teleglobe's ability to improve its operating performance and its impact on BCE's willingness to provide the additional funding required until Teleglobe is self-financing. The debt of Teleglobe is not guaranteed by BCE, and without additional support from BCE, Teleglobe is highly unlikely to meet its obligations."

Teleglobe bonds "really crumbled," a trader declared, quoting the company's 7.20% notes due 2009 down 10 points at 28 bid/32 offered, and its 7.70% notes due 2029 languishing at 26 bid/28 offered, likewise down 10 points.

The trader pointed out that BCE had pledged $500 million of support for its struggling subsidiary last year - but that pledge was only for two years. After that, "if BCE were to walk away, their earnings would probably improve - but Teleglobe could go bankrupt."

Moody's cautioned that the long-haul telephony sector "has been adversely affected in the last few years by a reduction in expected demand and subsequent overcapacity, and visibility remains extremely weak. Although there are fewer operators now than a year ago, it is unclear what impact the redeployment of the assets of the failed competitors will have on the economics of the sector. Moody's remains concerned that the sector continues to be weak, and that BCE may reconsider its willingness to invest additional monies in the company. "

The agency further warned that Teleglobe's ratings "remain under review for further downgrade, and Moody's is likely to take further significant rating action soon, absent near-term material support from BCE. "

Another nominally investment grade telecom-related issue (Baa3/BBB) which has lately attracted the attention of the junk world, Qwest Communications International, was quoted four points wider after the Securities and Exchange Commission's announcement that it would launch a formal investigation of the Denver-based local telecom carrier. Its 7¾% notes due 2006 were seen at 77 bid, its 7¼% notes due 2011 at 75 bid and its 7¾% debentures due 203 at 67 bid.

Back among the purely junk telecom issues, a trader saw Williams Communications Group Inc.'s 11 7/8% notes due 2010 up a point at 17 bid/17.5 offered, despite a very rough week in which the Tulsa, Okla.-based telecom operator wrote down the value of its fiber-optic networks, widened its previously reported 2001 loss, and scrapped its 2002 financial forecasts. The Wall Street Journal also reported that the company came under scrutiny by the SEC. "I don't know why, but they're up," the trader mused.

Outside the telecom sphere, he saw Xerox Corp. notes up a point on the session and two points on the week, with its 9¾% notes at 97 bid/98 offered. The Stamford, Conn.-based copier giant announced earlier in the week that it had reached an agreement with the SEC on the agency's questions about its accounting.

Conseco Inc. paper was "firmer across the board," a trader said, as the Carmel, Ind.-based insurer continued to reap the benefits of the clean bill of financial health from its auditors, PricewaterhouseCoopers LLC, which issued an unqualified opinion on the company's annual report. Conseco's 8½% notes due 2002 ended at 96 bid/97 offered; its 6½% notes due 2002 were at 98.5 bid/99.5 offered; its 8¾% notes due 2004, which had traded as low as 54 on Thursday rose to 56.5 bid/57.5 offered; and its 8.70% trust preferred notes due 2026 and 8.796% trust preferreds of 2027, which had traded into a 24 bid Thursday, went home Friday at 26.

In what has become a recurring pattern, high yield mutual fund inflows, considered by many to be a key measure of market liquidity, totaled $113.6 million in the week ended Wednesday, according to statistics released by AMG Data Services. It was the seventh straight week of inflows, although the size of the inflows has fallen steadily since peaking at $1.228 billion in the week ended Mar. 20. Still, so far this year, inflows total a hefty $4.456 billion.

Market response was muted, as it has been for weeks on end. A trader - who lamented that he was "all alone" at his company's junk desk but still might as well not have even been there, for all of the dealings he actually took part in - noted that in many areas schools remained closed and many market players remained on vacation. "Combine that with it being a Friday and the Yankees playing their home opener and it made for a wonderfully slow, boring day."

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