Trump plans $470 million notes; Teleglobe dives as parent abandons it

By Paul Deckelman and Paul A. Harris

New York, April 24 - Atlantic City's brashest gambler announced plans Wednesday to roll the dice on a new $470 million bond deal - even as some market players wondered just who Donald Trump will get to buy his company's latest junk bond issue. Elsewhere in primaryside happenings, Corrections Corp. of America sold $250 million of seven-year notes, while emerging market borrower Kazkommertzbank International sold a euro-denominated five-year deal.

In secondary market dealings, troubled Canadian telecommunications company Teleglobe Inc.'s already badly battered bonds lost more than half of their remaining value after its corporate parent announced plans to cut off further long-term funding, leaving Teleglobe to essentially fend for itself.

WorldCom Inc. bonds continued to weaken, although not at their recently dizzying pace. Calpine Corp. bondholders shrugged off the company's warning of lower earnings ahead.

Late in Wednesday's session a syndicate source confirmed that Deutsche Bank Securities Inc. is the bookrunner on the $470 million of first mortgage notes due 2010 to be jointly issued by Trump Casino Holdings, LLC and Trump Casino Funding, Inc. and that the roadshow will start Friday

In a press release Wednesday the company stated it will use the proceeds "to redeem, repay or acquire substantially all of the outstanding public indebtedness of Trump's Castle Associates and Trump Hotels & Casino Resorts Holdings, LP, the parent company of the issuers, and the bank debt of Trump Indiana, Inc." (see related story in this issue).

Pricing is anticipated during the week of May 6, according to the market source.

Also during the session, Muscle Shoals, Ala. aluminum can-producer Wise Alloys announced it will bring an offering of $150 million of seven-year senior secured notes (B3/B+) to be issued by Wise Alloys LLC and Wise Finance Corp. with a roadshow that also starts Friday. Merrill Lynch & Co. is the bookrunner, according to a syndicate source. Pricing is expected on May 7.

Terms were heard Wednesday on Corrections Corporation of America's new $250 million of seven-year senior notes (B2/B-), a deal that upsized Tuesday by $100 million. It priced at par to yield 9 7/8%, according to a syndicate source. Price talk had been for a yield in the 10% area. Lehman Brothers was the bookrunner.

News of a newly priced emerging markets deal also reached Prospect News Wednesday. Kazkommertsbank International BV of Kazakhstan priced €150 million of five-year senior notes (Ba2/B+/BB-) at 99.043 to yield 10 3/8%, according to a syndicate source. ABN Amro and JP Morgan were joint bookrunners on the Rule 144A bullets.

And although the market anticipated hearing terms as early as Tuesday on PCA International, Inc.'s $200 million of seven-year senior notes (Caa1/B-) via Goldman Sachs & Co., no terms had emerged by late in the day Wednesday.

However new price talk did emerge during the session. The deal is now talked at a yield of 12½%, increased from 12¼% to 12½% and the offering has been further sweetened by the inclusion of warrants for 5% of the company, according to a market source.

Price talk of 9 5/8%-9 7/8% was heard Wednesday on both the dollar and euro tranches of JohnsonDiversey, Inc.'s $500 million of 10-year senior subordinated notes (B3/B/B+) via Goldman Sachs & Co. Tranche sizes remain to be determined, according to a syndicate source.

Also from the realm of emerging markets, price talk was heard Wednesday on Philippine Long Distance Telephone Co.'s two-tranche $350 million of Rule 144A bullets, according to a syndicate source. The $100 million of five-year senior notes is being talked at 10 5/8% and the $250 million of 10-year senior notes is talked at 11 3/8%. That deal, via joint bookrunners Credit Suisse First Boston and Morgan Stanley, is expected to price Thursday morning.

In secondary dealings, Teleglobe's bonds "got murdered," a trader said, after corporate parent BCE Inc. said that it will cease further long-term funding to Teleglobe, a provider of Internet and data services. BCE said that after having weighed a number of factors, including Teleglobe's revised business plan and outlook with associated funding requirements, its prospects and the overall state of the industry, it has decided to conditionally provide only short-term periodic funding to Teleglobe, with a top limit of US$125 million, to allow its faltering unit to provide continuing customer service and fund other operations-related needs while it reviews its options for the future.

Teleglobe "was the big loser on the day," said the trader, who quoted its 7.20% and 7.70% notes as having swooned to the 8 bid/11 offered area from Tuesday's 23 bid/25 offered close.

After BCE made its announcement, Teleglobe said that it would pursue restructuring alternatives, including partnerships, alliances and business combinations. It said it had retained an investment banking firm to assist in evaluating possible options and plans to also hire the international consulting firm Crossroads LLC as an advisor. But BCE's new chief executive officer, Michael Sabia, said that the "most probable route" for the money-losing Teleglobe would be to restructure its US$2.7 billion of debt via a Chapter 11 filing; it would thus follow in the footsteps of fellow troubled Canadian telecom operator 360networks, as well as Global Crossing Ltd. and Williams Communications Group Inc. Williams sought Chapter 11 protection earlier this week.

Williams' senior notes - which had fallen to about the 15 bid level after its bankruptcy filing from 18 bid previously and from recent highs of 21 bid, was seen Wednesday having crept back up to around 16.5 bid. Williams bonds are now quoted as trading flat, or without their accrued interest - the usual development when a company goes into bankruptcy or otherwise defaults on its bonds. The changeover amounts to an additional loss of several points in the bond's real value beyond any nominal change in price levels.

WorldCom's bonds "got crushed Monday and Tuesday," a trader said, "but [Tuesday] afternoon, they bounced off the lows, as much as three or four points for the shorter maturities, and we saw some buying activity coming in. The longer maturities were still pretty much on the weak end."

With that kind of somewhat encouraging finish, it might have appeared that Wednesday might see a stabilizing effect for the bonds of the Clinton, Miss.-based parent of the No. 2 U.S. long-distance company, MCI, or perhaps even a rebound - but on Wednesday, the trader continued, "they never really bounced off the lows, although some bids did re-surface, probably around mid-afternoon." He saw the company's 7 3/8% notes due 2003, which had ended Tuesday bid around 83.5, as having been offered at 85 Wednesday. "I didn't see a bid level late in the day, but I would estimate that it was very similar. He saw the 8¼% notes due 2031 ending offered at 56, essentially little changed from Tuesday.

At another desk, a market observer said that WorldCom was about a point weaker on the session, although he characterized activity levels as "very quiet." He pegged the 8¼% notes due 2031 down a point, at 57, and saw the company's 7½% notes due 2011 and 8¼% notes due 2010 both a point easier at 59.

WorldCom's nominally investment-grade rated bonds (Baa2/BBB) have recently been trading down to junk bond levels and have been quoted in dollar prices like high yield bonds, rather than on a spread-versus-Treasuries basis the way high grade bonds normally are, in response to the company's deteriorating finances, which have been accompanied by credit ratings downgrades to near-junk levels by the major agencies. WorldCom sparked further investor angst late Friday, when it announced that its WorldCom Group unit's 2002 revenues would total between $21 and $21.5 billion, down from previous guidance of $22.2 to $22.6 billion, and its EBITDA (earnings before interest, taxes, depreciation and amortization, considered the key bond market measure of a company's cash flow generation potential and ability to service debt) would be between $7 billion and $7.5 billion, well down from prior forecasts in the $8.4-to-8.5 billion range, as the telecom industry slump deepens.

WorldCom bonds are down between 20 and 30 points over the last few sessions, and its stock has correspondingly collapsed as well; however, on Wednesday, after several sessions of double-digit percentage losses, WorldCom shares were up 69 cents (2.02%) in New York Stock Exchange dealings Wednesday, on volume of 159.7 million shares, triple their usual turnover.

Elsewhere in the communications sphere, troubled cable-television operator Adelphia Communications Corp.'s bonds - which have recently been sliding on investor concerns about mounting debt, recently disclosed off-balance-sheet transactions and regulatory scrutiny, and which dropped another three points on Tuesday - won back some of their lost ground Wednesday, its 8 1/8% notes rising a point to 90.5 bid, while its 10½% paper also a point better at 91.5.

Adelphia's Nasdaq-traded shares, which have similarly weakened badly recently, were better on Wednesday, ending up 48 cents (7.59%) at $6.80. Financial websites noted several interesting rumors making the rounds Wednesday about the Coudersport, Pa.-based cabler. Briefing.com reported market buzz that a leveraged buyout at $12.50 might be in the works (although it also noted that triggers built into Adelphia's $14 billion-plus of debt made this an unlikely scenario). It also touted talk of a possible bid for the company by a larger cable rival such as Comcast, and added that Adelphia could "more plausibly sell some subscribers to both CMCSK and COX (Cox Communications), given that CMCSK is in process of acquiring AT&T Broadband."

Outside of communications, traders were scratching their heads in startled bemusement over the announcement of the Trump Hotels & Casino Resorts impending new deal.

"This is lovely," a trader scoffed as he read over the news. "I'll believe that when I see it. This is absolutely incredible."

The key question on the lips of some in the market was "who is going to want to buy these bonds?" given the fact that just several weeks ago, the Atlantic City-based gaming and hotel operator - burdened with some $1.5 billion of debt - said that it has been holding talks with a committee representing the holders of its Trump Atlantic City Associates 11¼% first mortgage bonds due 2006 on possibly lowering the interest rate on the bonds and extending their maturity - neither idea considered particularly attractive to the bondholder community.

Noting that the proceeds from the new bonds will be used to take out the public debt of the parent holding company (its $116 million 15½% notes due 2005) and of its Trump Castle Funding arm (its $242 million of 11¾% notes due 2003), the trader opined that " I could see if they were going to try to do an exchange offer for the Castle holders, and cram something down their throats - but where does [THCR chairman Donald J. Trump] think he's going to find buyers for this issue?" given the more unfavorable terms that Trump is even now trying to get the Trump A.C. 11¼% holders to swallow. "Isn't this crazy?" "It doesn't look like he's going to try to take the Castle bonds and the THCR bonds out at a discount. Maybe he'll try to buy them back in the open market. This is very bizarre."

The Castle bonds are currently quoted in the mid-80s, and have recently been seen as high as 88, while the parent company bonds hover around 65. The 11¼% A.C. bonds, meanwhile - one of the most liquid of gaming issues, with well over $1 billion out there - have recently been steadily moving up, and were finishing up on Wednesday up a point at 77 bid. Trump shares have meanwhile lately been trading at or near their 52-week highs, establishing a new 52-week high close Wednesday at $2.75, up four cents on the day. During the session, those shares had reached as high as $3.12 before dropping back from that peak level. NYSE volume of 949,000 was over ten times the usual activity in the stock.

Trump was helped by favorable first quarter results - including what the company termed its "best ever" first-quarter EBITDA, which increased to $74.1 million - a 45.9% gain over year-ago EBITDA of $50.48 million. Revenues rose to $301.2 million from $281.5 million a year earlier. The company's net loss narrowed to $4.6 million (21 cents per share) versus $16.9 million (77 cents per share) a year earlier.

The improved results for Trump are in line with an overall strong trend for gaming credits, with almost all of them reporting solidly higher earnings from year-ago levels, as the sector - which initially took it on the chin in the weeks immediately following the Sept. 11 terrorist attacks on the U.S. due to travelers' reluctance to fly to Las Vegas, Atlantic City and other gaming destinations - appears to have bounced back to its old form.

That's been reflected in the debt of gaming issues, for example, the recent rise of Trump, considered one of the weaker credits in the sector due to its debilitating debt load, as well as the strong, par-area levels of such profitable gamers as Park Place Entertainment Corp., Harrah's Entertainment Inc, Mandalay Gaming Resorts, Boyd Gaming and MGM Grand, all of which have recently reported strong numbers for the latest quarter.

"These damn bonds are mostly trading north of par, with a lot of them trading at 4, 5, 8, 10-point premiums, if you want to know the truth," a trader declared. "In actuality, [gaming] bonds have traded so well for the past month or so, which is not that surprising. Gaming always trades well, because people will always gamble, no matter what's going on around them. It's more psychological than anything else."

He saw the high yield gaming bonds as recently "well bid for," although it was his opinion that much of the real activity has been on the better-rated bonds (the senior debt of some gaming companies is investment-grade rated, while their subordinated paper is high double-B); he noted that the bonds were trading very tight. Yields on some have actually been dipping down into the low 6% range for some credits, such as Park Place's split-rated (Ba1/BBB-) 7.95% notes due 2003.

On the other end of the credit spectrum, the Trump bonds - all trading at yields north of 20% may have been moving up, a trader surmised because "it's the lowest priced name in the group" and thus had the most potential upside.

The Trump bonds and stock may have also benefited from other developments involving the company, including news reports that it may consider making another attempt to get a gaming license in the potentially lucrative Detroit market, if a federal judge throws out the results of the 1997 licensing process and forces the city to begin a new process. The Detroit News reported Wednesday that Trump might team up on a bid with local businessman Don Barden, whom the paper described as a "virtual partner" of Trump in Gary, Ind. Where the two jointly own parking areas, restaurants and bars near Trump's riverboat gaming operation.

Also whetting interest in the company was Tuesday's announcement that Trump will be developing a $350 million "superluxury" condominium complex in Las Vegas - a venue which the colorful New York billionaire has long yearned to get into. Trump will partner with local casino operator Philip Ruffin on the new project, which will be located just off the famed Las Vegas Strip. The 60-story building, modeled after the glitzy Trump Tower in New York, will be the second-tallest building in Vegas - and as The Donald slyly noted, will be just a silver dollar's throw away from a nearby megaresort being developed by an old Trump rival, gaming baron Steve Wynn.

Elsewhere, Tyco International's nominally investment-grade rated debt (which, like WorldCom, has recently been quoted in dollars at below-par levels, like junk bonds) was lower Wednesday on news reports that the troubled conglomerate's planned sale of its plastics unit - a key component of its attempt to re-make itself on a more profitable basis - had stalled, reportedly because Tyco had failed to come up with financial data requested by potential buyers. Tyco's 6 3/8% notes due 2006, which had closed Tuesday at 91 bid, opened at 85 bid/88 offered, finishing at 86 bid/87 offered. Its two issues of 2011 bonds firmed slightly from their early lows at 84 to end at 85.5 bid/86.5 offered - still well down from Tuesday's 89 bid. But a trader said the company's shorter-dated paper, maturing later this year and in 2003, was generally unchanged, with investors apparently believing the bonds will remain money good, come what may.

Back among the pure junk bonds, Calpine Corp. bonds were quoted up for a second consecutive session, despite Tuesday's late announcement by the San Jose, Calif.-based independent power producer that it would fall short of analysts' first-quarter earnings projections, anticipating earnings of 10 cents a share, vs. the analyst's consensus forecast of 13 cents.

Even so, its bonds rose, the 8½% notes due 2011 trading as high as 88.5 bid on the session before closing at 86.5 bid/87.5 offered, well up from Tuesday's closing bid levels around 84-85.

Traders said that investors likely focused on the company's finally coming to an agreement with the state of California on renegotiated power contracts, after a lengthy bargaining process; although Calpine and the other companies covered by the agreement will see their revenues from the long-term contracts decreased from what they had been under the contracts before renegotiation, the settlement was seen removing a key element of uncertainty that had hung over the whole electric power generating sector.

They also noted Calpine's announcement of its intention of selling up to 69 million new shares - increased to 66 million plus a 9.9 million greenshoe at the pricing after the close Wednesday - as boosting the company's finances. However, equity holders, faced with a big dilution of their holdings, were less sanguine; they took Calpine's shares down $1.53 (11.48%) to a closing NYSE level of $11.80.

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