WCI, Associated Materials, Forest deals price; WestPoint Stevens up on surprise profit

By Paul Deckelman and Paul A. Harris

New York, April 18 - Homebuilder WCI Communities Inc. and building materials maker Associated Materials Inc. sold their scheduled new high yield bond deals Thursday while Forest Oil Corp. took advantage of the sudden popularity of energy issues to slip in a quickly shopped $150 million offering. Hollywood Entertainment Corp. joined the forward calendar with a $200 million offering and ON Semiconductor got ready to take its planned $300 million seven-year note deal on the road.

In secondary dealings, troubled textiles maker WestPoint Stevens Inc. delivered a surprise when it reported a first-quarter profit - something nobody had been expecting - which sent both its bonds and its stock higher on the session. Xerox Corp. raised some eyebrows with a warning that it could possibly face its demise if it were unable to reach agreement with its lenders on renegotiating its revolving credit agreement, but later softened that ominous message by declaring that it was making progress in the talks and expected to have everything wrapped up by June.

Denver, Colo.-based Forest Oil Corp. was the second exploration and production company to transact a deal in as many days, as its $150 million of new 12-year senior notes (Ba3/BB) priced at 98.090 to yield 8% via Salomon Smith Barney.

Late Wednesday the market had heard terms on XTO Energy Inc., which priced its upsized $350 million of new 10-year senior notes (Ba2/BB) at par via joint bookrunners Lehman Brothers and Salomon Smith Barney.

The yield on XTO's new 10-year notes: 7½%.

"Too rich," said Waddell & Reed Advisors High Income Fund portfolio manager Louise Rieke when the terms of XTO came up during a Thursday conversation with Prospect News.

Rieke went on to say that she declined to play the recent E&P credits, which, in addition to XTO and Forest, include Swift Energy which priced April 11 at 9 3/8%.

"There are just certain sectors that people feel comfortable in and they are going to be priced on the rich side," she stated.

Thursday's primary market activity also included the pricing of WCI Communities, Inc.'s $200 million of new 10-year senior subordinated notes (B1/B). They came to market at par to yield 9 1/8% via UBS Warburg.

WCI was the fifth homebuilding credit - the others were Beazer Homes USA, Champion, D.R. Horton and Standard Pacific - to price since the beginning of April.

Rieke told Prospect News that she played WCI.

"That was the only one I was interested in," specified the portfolio manager. "The rest of them were just too rich.

"WCI does single-family homes as well as high-rise," she added. "And the high-rise can be very expensive, especially as you get to the top of the high-rise. There are some that they sell for over $1 million."

Rieke said that the upper tier of the homebuilding sector, which Bonita Springs, Fla.-based WCI Communities inhabits, demonstrates a pronounced resilience with regard to a choppy economy.

"The higher end has held up and has come back strong," she commented. "And historically the higher end is not as tied to interest rates as the middle- and lower-tier housing markets are."

Interest rates, Rieke added, are the key to the sector's going-forward performance.

"Housing continues to grow," she said. "Housing inflation keeps the price going up. Last year, other than high yield, it was about the only thing that went up.

"I haven't seen any signs that it's going to slow," she added. "One of the things you have to really watch is how high interest rates will go. But historically for housing interest rates are low. And I don't see them going up soon."

Terms were also heard Thursday on the offering from Simon Acquisition Corp., which will be rolled into Associated Materials, Inc. Its $165 million of 10-year senior subordinated notes (B3/B) priced at par to yield 9¾% via joint bookrunners Credit Suisse First Boston and UBS Warburg.

In new business, ON Semiconductor Corp./Semiconductor Components Industries LLC told Prospect News that it will hit the road next week with $300 million of new six-year senior secured notes via joint bookrunners Credit Suisse First Boston and Morgan Stanley. That deal, according to ON director of investor relations Rudy Garcia, will likely price during the week of April 29 (see story elsewhere in this issue).

Details also emerged Thursday on a new offering from NMHG Holding Co., a materials-handling division of NACCO Industries Inc. It will set out Monday roadshowing its new $250 million of seven-year senior notes (B3/B+), according to a syndicate source. Credit Suisse First Boston and Salomon Smith Barney are joint bookrunners on the deal, which is also expected to price during the week of April 29.

And the week of April 29 will also likely see the pricing of $275 million of new eight-year senior subordinated notes from Hollywood Entertainment Corp., the Portland, Ore.-based company that owns and operates Hollywood Video stores. UBS Warburg will run the deal for that company's new junk bonds (Caa1/B-).

Notably, at the end of Thursday's session the high yield primary market anticipated no further transactions to price during the week of April 15. Seven deals are presently stationed on the forward calendar as business to be transacted during the week of April 22. Of those six are U.S. dollar denominated and come to an even total of $1.5 billion.

When the newly priced bonds moved over to the secondary side, a trader said, "they all traded pretty well, although not exceedingly well."

He quoted the new Associated Materials' bonds at 102.25 bid/102.75 offered, up from their par issue price, adding that the bonds "pretty much traded in that context all day."

WCI Communities' new paper - a deal which he said had been "well received" - was meantime trading at 100.25 bid/100.75 offered, also up from par.

He saw XTO Energy's new 7½% notes due 2012 - which were heard to have come to market well after closing time on Wednesday - as trading at 100.5 bid/101 offered, up only slightly from their par issue price. Petroleum Helicopters Inc.'s new seven-year notes, which priced at par on Wednesday, had firmed smartly to around 103 bid/103.5 offered on Thursday.

The trader noted that the high yield energy patch is suddenly a hot area for new issuance, with three deals for exploration and production companies in as many days - XTO (the former Cross Timbers Oil), the new Forest Oil drive-by pricing, and Monday's sale of an upsized $450 million of 8 3/8% senior secured notes due 2012 by Canadian producer Western Oil Sands Inc. Throw in a fourth quasi-energy sector deal that's priced this week - the Petroleum Helicopters upsized $200 million offering (the Lafayette, La.-based company provides air transportation services to off-shore petroleum rigs), as well as a prospective new deal from Vintage Petroleum Inc. and a new shelf filed by Stone Energy, and "it looks like everyone [in this sector] is trying to price as much as they can, while they can."

This would appear to be a propitious time for energy players looking to raise money by floating bonds; crude oil for May delivery was up for a fourth straight session on the New York Mercantile Exchange on Thursday, climbing 24 cents a barrel (0.9%) to $26.18, well up from recent lows in the $23 region. Crude prices are up 32% since the start of the year, 12% in the past week alone, on market expectations of continued supply disruptions out of Iraq and Venezuela and increasing demand for crude from refiners.

Outside of the energy sphere, Prime Hospitality Corp.'s 8 3/8% senior subordinated notes due 2012 were up just a bit at 100.25 bid/100.75 offered, versus Tuesday's par issue price.

Among already established issues, WestPoint Stevens pulled off an upset Thursday when it reported first-quarter net earnings of $2.02 million (4 cents per share), versus a year-ago loss of $10.9 million (22 cents per share), or $5.1 million (10 cents a share) excluding a special $5.8 million restructuring charge in the year-ago quarter. Analysts had been looking for a loss of about five cents per share for the latest quarter.

First-quarter sales were $435 million, well up from $418 million last year.

The West Point, Ga.-based maker of towels and bed linens - including the well-known Martha Stewart line sold through troubled discount retailing giant Kmart Corp. - also said that it would stick with its previous full-year 2002 earnings projections of 45-50 cents per share, powered by an anticipated 4% year-over-year sales gain, even figuring in the expected sales decline in the Martha Stewart line arising from Kmart's bankruptcy-related difficulties. In 2001, WestPoint, the nation's largest maker of bed linens and bath towels, lost 31 cents per share for the full year.

On the equity side, WestPoint shares jumped $1.36 (56.67%) in New York Stock Exchange dealings, to $3.76. Volume of 3.7 million shares was almost 30 times the usual turnover.

The company's bonds "had pretty much disappeared" in recent weeks, a trader said, while an analyst said the struggling company had been "off the radar screens" at a lot of shops of late.

West Point's 7 7/8% notes due 2005 and 2008 were "up four to five points" Thursday to the mid-50s, the trader said. "They were not expected to make any money. When you make money when you're not expected to, your bonds should move up. If they don't, then there's a problem."

Elsewhere, the WestPoint 2008 notes were being quoted up four points at 55. At another desk, however, its 2005 bonds were heard up a more conservative three points to around 53 bid, while its 2008 notes were seen a point higher, at 51.

Xerox Corp. threw some investors for a loop with its late-Wednesday warning in a Securities and Exchange Commission filing that its future could be in doubt if it fails to refinance some $7 billion in revolving credit facility debt by an Oct. 22 deadline. The Stamford, Conn.-based copier and office machines giant is currently in talks with 57 banks on renewing the credit line - but raised the possibility that a failure to roll over the loans might produce a default. If the banks were to take legal steps to recover their money in that case, "we would be required to consider the full range of strategic measures available to companies in similar circumstances." Such a step, it further cautioned, would "raise substantial doubt about our ability to continue as a going concern."

During the morning, Xerox sought to allay any fears that it might imminently go under, reiterating that it was making "significant progress" in its talks with the banks and confidently predicting that the refinancing "is expected to be completed no later than the end of June," well before the Oct. 22 deadline.

Xerox shares did not collapse at the somberly worded initial announcement; they ended NYSE dealings at $9.25, down 34 cents (3.55%), although the 15 million-share volume was better than triple the normal handle. The debt market reaction to all of this was also pretty sanguine, with Xerox's 9¾% notes due 2009 seen little changed around 96 bid. Its 8% notes due 2027 were being offered around 59.

"Clearly the fact that Xerox's $7 billion bank revolver needs to be renegotiated before its October maturity is a material risk facto that must be disclosed in a public filing, and it was proper to do so," said George Kirchwey, high yield analyst for SAMCO Capital Markets in New York. On the other hand, he added, "it's not exactly news to people who follow Xerox - it's been overhanging their stock and bond prices for a long time now."

How will all of this play out? Kirchwey asserted that "the bank renewal will get done in some form, given the magnitude of the $7 billion bank loan and the consequences for all parties - Xerox and, particularly, the bank lenders in the syndicate if it isn't renewed."

That having been said, however, Kirchwey - parting company with some of the other analysts who follow the venerable company - is dubious about Xerox's long-term prospect. "I can't see what Xerox's core business can or will become."

The SAMCO analyst noted that while in the past, Xerox, for decades easily one of the most recognizable names in corporate America, "made its money not so much from manufacturing but from lease-financing its copiers." But now that lease-financing business has been transferred to General Electric's GE Capital unit.

"As I see it, Xerox's $11 billion lease portfolio is now rolling off to pay $12 billion in related debt," Kirchwey concluded. "If Xerox survives, it may well be as a far smaller company."

Qwest Communications International - whose nominally investment-grade bonds have traded down to junk-bond-like levels in recent months on the Denver-based local/regional telephone service provider's struggles with the general telecom industry slowdown - said Thursday that it will cut its workforce by an additional 2,000 jobs and reduced its 2002 financial guidance. It also warned that it will not meet analyst expectations of a penny-per-share loss when it releases first-quarter results on April 30.

But the prospect of the job cuts, a planned slowdown in 2002 capital spending to $3.1-$3.3 billion (from the previously expected $3.7 billion) and a Wall Street Journal report that the company is in talks to sell its Yellow Pages directories business for between $8 and $10 billion apparently convinced debt investors that CEO Joseph P. Nacchio may be on the right track in telling a conference call with analysts and investors late Thursday that the worst may be over for the telecom industry and better days may lie ahead.

Qwest's bonds, which are quoted in dollars like junk bonds these days rather than on a spread-versus-Treasuries basis like other high-grade issues, "were up five to seven points on the day," an observer said, "really boosting the market." He saw Qwest's 7% notes due 2009 at 85 bid, up five points on the session, while its 7.90% notes due 2010 jumped nearly seven points on the day to close at 87.

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