WorldCom firms, Adelphia steady, as Vegas conference stills market

By Paul Deckelman and Paul A. Harris

New York, May 21 - WorldCom Inc. debt firmed further Tuesday, as the troubled phone giant continued to work toward a new credit line and took action to save money by simplifying its capital structure. Meantime, the beleaguered Adelphia Communications Corp.'s debt was generally steady, despite signs that its controlling family may not be on the same page as stakeholders trying to reform the company.

In primaryside happenings, The Big Food Group was heard preparing to sell a new £150 million deal.

But whether in the primary or the secondary markets, activity was generally described as slow and sleepy, with many portfolio managers and other buyside decision makers said to be in Las Vegas for Banc of America Securities' high yield conference, which runs through Wednesday. That, plus the fact that The Bond Market Association has recommended a 2 p.m. ET close Friday ahead of the three-day Memorial Day weekend (which will close U.S. financial markets Monday) combined to put a damper on junk dealings, traders said.

"There's very little going on," one opined. "I hear the Banc of America conference is extremely well attended, with Las Vegas being the perfect locale for something of that nature." Given the abbreviated trading week, he wondered aloud whether things would pick up after the conference ended - or whether participants would merely choose to hang out for the remainder of the week in the gaming capital rather than rush back east (or wherever) for just one more full day of trading.

Another trader, acknowledging that "it's been quiet," with the conference and the holiday-shortened week, noted that telecom "still seems to be the main focus, whether its Nextel, or Level 3 or WorldCom," although the activity level was "not as busy" as recently.

He saw "a little rally" Tuesday morning in some of WorldCom's paper, quoting the company's benchmark 7½% notes due 2011 as having pushed as high as 48 bid/49 offered from Monday's closing levels around 45, before dropping back from those peaks to end at 46.5 bid/47.5 offered, still up a point-and-a-half on the day. Its 6.95% bonds due 2028 got as good as 41 bid before coming off that high to finish at 39, and its 8¼% bonds due 2031 went as high as 46 before closing at 42 bid/44 offered, essentially unchanged on the day. "They all took a little run, and then gave some of it back," he declared.

WorldCom - which continues to negotiate with its lenders on a $1.5 billion receivables facility which it hopes to have in place by Thursday and a $5 billion bank credit line which it hopes to clinch by next month - moved to cut its expenses by streamlining its equity capital structure. It announced that it would eliminate its WorldCom Group/MCI Group tracking stock structure, subsequently eliminating the MCI group dividend, a projected savings of about $284 million.

Elsewhere in the telecom sphere, a trader said that he didn't think Metromedia Fiber Network Inc's Chapter 11 filing announced late Monday "was any great surprise," given that the New York-based builder of fiber optic telecommunications networks had announced a week ago that it had not made the approximately $32 million interest payment which came due May 15 on its $650 million of 10% senior notes, instead invoking the 30-day grace period.

Following the bankruptcy filing, Metromedia's bonds were heard to have dipped a point to six cents on the dollar. A distressed-debt trader quoted the bonds offered at 6.5, well down from bid levels more than a week ago around 9, although he noted that even then, "there was no two-sided market," and the bonds weren't seen trading around much after that.

Another deeply distressed telecommer now trading in the single digits is Global Crossing Ltd., whose bonds have hovered around or below two cents on the dollar for the last few weeks and which remained there, amid the news that the bankrupt Hamilton, Bermuda-based international fiber optic network operator planned to seek an extension of Tuesday's deadline to let its would-be buyers - Hutchison Whampoa Ltd. and Singapore Technologies Telemedia - continue their eligibility to buy the company for $750 million or to receive a $30 million breakup fee if Global Crossing is sold to someone else. News reports meantime said that its creditors - less than enthused about the Hutchison/Singapore bid - bankers and management were expected to continue talks aimed at keeping a revamped Global Crossing as an independent company.

A trader, quoting the company's bonds at 2¼ cents on the dollar, allowed that they were "not very liquid, not very active."

Adelphia Communications debt was seen mostly unchanged to a bit higher in lackluster trading Tuesday after having gained several points Monday, with its 10 7/8% notes due 2010 continuing to hover around 74 bid, while its 10¼% notes due 2011 were seen a point-and-a-half better at 75.5 bid. A trader called dealings "pretty orderly."

At one desk, the 101/4s were quoted as high as 76, a two-point gain, while Adelphia's 9 7/8% notes due 2007 and the 8 7/8% notes due 2007 of its Arahova Communications Inc. unit were both three points higher, at 73 bid/and 77 bid, respectively.

Adelphia continued to hold its Monday gains - or even improve upon them - even as The Wall Street Journal reported that the company, now being led by its newly appointed outside director chairman and with a special outside director panel investigating its finances, was requesting that the founding Rigas family transfer assets to the company's balance sheet to help offset some of the $2.3 billion that the family members borrowed - a request that the Journal says the Rigas clan is so far refusing, despite the company's severe liquidity crunch, which led to non-payment of over $40 million of interest payments which came due last week. The New York Times separately reported that the Rigases are also refusing to give up their five seats on Adelphia's nine-member board.

Adelphia's shares and bonds started to tank in late March, following the disclosure of $2.3 billion of off-balance-sheet obligations related to loans extended to partnerships controlled by the Rigas family and guaranteed by the company. Since then, there has been a steady barrage of bad news, including lawsuits, delayed and restated earnings results, ratings agency downgrades and reported separate civil and criminal investigations by federal regulators and prosecutors. Against that backdrop, company founder John J. Rigas stepped down last week as chairman and chief executive officer, while his son Timothy J. Rigas gave up his post as chief financial officer.

In the primary, more business from the eastern side of the Atlantic docked on the forward calendar Tuesday, as U.K.-based chilled foods retailer The Big Food Group announced it would bring a £150 million deal.

And price talk emerged on four of the five deals that figure to price during the remainder of the week of May 20, including Venetian Casino Resort LLC/Las Vegas Sands, Inc.'s $850 million offering, which was talked at 10 7/8%-11 1/8%.

With Venetian in the market with second mortgage notes (Caa1/B-) - and just days after Trump Casinos' $130 million of second mortgage notes, (CCC) which was postponed last Friday - Prospect News has been asking sources on both the buy- and sell-sides why such a small percentage of 2002 new issuance is comprised of so-called "bottom-tier" credits even though historically high amounts of cash are flowing into high-yield mutual funds (Merrill Lynch's Martin Fridson told Prospect News on Monday that the ratio of such issuance during the first quarter of 2002 was 5.96%, compared to 8.01% in 2001, and greater than 20% in every year from 1994 to 2000).

And why are a significant number of those bottom-tier credits, Trump being a case in point, struggling to complete their transactions?

A sell-side source told Prospect News Monday that the reason may have to do with a reduced amount of pressure on the buy-side to put the cash to work at present, owing to the underperformance of other capital markets, particularly equities, relative to the high yield.

Ed Schriver, portfolio manager of the ING Pilgrim High Yield Fund, pointed to a "strong positive correlation between high yield and equities," and allowed that there may be some merit to that sell-side source's observation.

"If no one is very positive on equities, there is probably little reason to be positive on highly leveraged, bottom-tier credits since improved earnings are a positive in the outlook for both markets," Schriver said.

"On a simpler level, if the buy side only expects an 'earn the coupon return'-year in high yield, there is little reason to reach for yield. This is especially true if all other capital markets are perceived to be in narrow trading ranges with no big upside. The current return in high yield is still the most attractive.

"Another reason may be bottom-tier credits are in the trough of a credit cycle, and everyone is always fighting the mistakes of the recent past," Schriver added. "So even though there is lots of yield in the B-/CCC areas, why stretch and risk it?"

Last Friday afternoon before the dust completely settled on the Trump two-piece, a sell-side source told Prospect News that even though one of the Trump pieces was the above-mentioned tranche of second mortgage notes, and the Venetian deal is comprised entirely of second mortgage notes, distinctions between the two credits are not difficult to draw.

"Venetian will probably get done," the sell-side source said when asked if the Venetian second mortgage notes deal faced any peril in the wake of Trump.

"They may have to pay a little more to get it done," the official added of Venetian. "But it shouldn't be a problem. They've never missed a coupon payment. They're a pretty quiet operator."

Goldman Sachs & Co. is the bookrunner on Venetian's $850 million. The deal is expected to price Wednesday.

Factoring in Venetian, the Wednesday before the Memorial Day break figures to see an even $1.25 billion price in the high yield primary.

Price talk of 8¼% area was heard Tuesday on Sybron Dental Specialties, Inc.'s $150 million of 10-year senior subordinated notes (Ba3/B) via joint bookrunners Credit Suisse First Boston and Lehman Brothers.

And the price talk is 8¾%-9% on Trico Marine Services' $250 million of 10-year senior notes (B1 expected/B). Lehman Brothers and Bear Stearns are joint books.

Both of those deals are expected to price Wednesday afternoon.

Price talk also surfaced Tuesday on the bond deal from the Pewaukee, Wis.-based Roundy's Supermarkets. Its $200 million of 10-year senior subordinated notes (B2/B) are talked at 8 7/8%-9%, a market source told Prospect News late in Tuesday's session.

Bear Stearns is the bookrunner. The Roundy's deal is expected to price Thursday afternoon.

And as mentioned above, on Tuesday the market learned of a new Sterling deal, The Big Food Group, plc's £150 million of 10-year senior notes via joint bookrunners Barclays Capital and UBS Warburg, which will be shopped one day only, June 3, in the US, then roadshow through Europe from June 4-12, and price the following day.

In a press release Tuesday the company announced that it has conditionally agreed to effect a sale and leaseback of 31 its properties to AXA for a total cash value of approximately £129.3 million. The sale and leaseback will be effected by selling Montwell Limited, a Jersey subsidiary of The Big Food Group, which owns the portfolio of 31 properties and leases them to operating subsidiaries of The Big Food Group, the release added.

As part of its financing the company is also doing a £300 million bank loan.

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