Conseco falls on Moody's warning, CFO exit; Sinclair, Dana price new deals

By Paul Deckelman and Paul Harris

New York, March 6 - Conseco, Inc. bonds were on the slide on Wednesday after Moody's Investors Service expressed new worries about the company and threatened a debt-rating downgrade, which was followed in short order by the resignation of the chief financial officer.

In the primary sphere, the new-deal parade rolled on, as Sinclair Broadcast Group priced a quickly shopped offering of 10-year notes and Dana Corp. brought a tranche of eight-year paper to market.

Athletics and politics comprise the good news for broadcasters, according to an official from the Sinclair Broadcast Group syndicate. The company sold $300 million of 10-year senior subordinated notes (B2/B) at a yield of 8% via joint bookrunners Wachovia Securities, Deutsche Banc Alex. Brown and J.P. Morgan.

The syndicate source, pointing to Sinclair as well as to Entercom Radio LLC's $150 million senior subordinated notes (Ba3/B+) which priced on Feb. 27 to yield 7 5/8%, said: "There are a lot of good things going on in the broadcasting sector right now.

"I think in particular with television, with all the potential deregulation, there is a lot of potential upside.

"And people are also saying that we are coming into a more favorable cycle for advertising. Last year you had three things hit the advertising sector - particularly television," the syndicate source continued. "You had the recession, it was a non-Olympic year and it was a non-political year. When you take all those hitting at one time it significantly impacted a lot of those players.

"As we come through this - this year's an Olympic year, it's a political year, and the economy seems to be starting to firm up a little bit - the advertising sector overall should pull itself out."

Bob Franklin, portfolio manager of the Neuberger Berman High Yield Fund, told Prospect News the he would put in for Sinclair.

"In the past I've shunned the broadcasting sector," Franklin said, "But I have changed my mind since, based on the expected economic strength and the recent real valuations of certain properties."

Franklin, noting that he had also put in for the Tembec and Park Place Entertainment deals which priced Tuesday, both yielding less than 8%, characterized the present high yield primary as a "hot market."

On the sellside, however, Prospect News encountered hesitancy with regard to embracing the adjective "hot."

One official from the Sinclair syndicate merely invoked superstition when asked if the high yield primary is presently hot.

"I don't want to give a comment on that because then you jinx it," this official said. "If you're the one who comes out and says the market's doing great and then it changes, you're the one who jinxed it."

Another sell-sider, meanwhile, while not avoiding sidewalk cracks or throwing salt, also seemed reticent to say that the market is hot.

"The market feels good," this official allowed. "People seem to have cash. They seem to be looking for good solid credits out there. I think companies will continue to do well in the market.

"I think people will look at the market on an historical basis and say 'Is this an attractive time to issue long-term capital? And will it be this way 12 months from now?'

"That's a question mark," this sell-sider said. "If you're going to do something, now is maybe the day."

Terms also emerged Wednesday on Dana Corp.'s new $250 million of seven-year senior notes via Salomon Smith Barney. Dana's deal priced at 98.659, to yield 10 3/8%, "through talk," according to a syndicate source who stated that official price talk had been of 10½%-10¾%.

And price talk of 9¾%-10% emerged Wednesday on Mail-Well Corp.'s $300 million of senior notes due 2012 (B1/BB), according to a syndicate source. Credit Suisse First Boston and UBS Warburg are joint books on that deal, which is set to price on Friday.

In the secondary market, Conseco "melted down a bit" on news of its CFO leaving said a trader, who characterized the credit as "the pig of the day."

He quoted Conseco's 8¾% notes due 2004 as having slid to closing levels around 59 bid/61 offered from 64 bid/65 offered earlier in the session. At another desk, a market source characterized the Carmel, Ind.-based insurers bonds as "down a couple of points, quoting the 8 3/4s having traded as low as 57 bid and the company's 10¾% notes due 2008 pushing down to 52.5 bid, off about three points on the session. The 9% notes due 2006 were seen as low as 50 bid, down about four points.

Moody's affirmed Conseco's B2 unsecured senior debt rating, but cautioned investors about the implications of a failure by the company to demonstrate the certainty of its cash generation plans by March 31. That's the deadline by which Conseco must file audited financial statements with the Securities and Exchange Commission - and in order for its independent auditors PriceWaterhouse Coopers, to issue an unqualified opinion on Conseco's financial statements for calendar 2001, it must give the accountants clear proof of a viable plan that shows its ability to meet all of its obligations due in 2002.

While acknowledging the progress which Conseco has made in trimming its $6.1 billion debt burden - just this week, Conseco announced that it had completed its tender offer for early retirement of $76 million of Conseco Finance public debt coming due in June - and also citing its progress in executing its plans for generating cash from alternative cash-flow sources, the ratings agency warned that "there remains little room for error should the plans not proceed according to schedule."

Moody's warned that if Conseco does not receive an unqualified opinion, it will "likely downgrade the company's credit ratings 2 or more rating notches." It further noted that market confidence - and hence, financial flexibility - "could potentially be impacted should the company be unable to attain an unqualified opinion in a timely manner from its auditor."

Against that already somber background, Conseco then announced - perhaps coincidentally, perhaps not - that its chief financial officer since last March, Chuck Chokel, is leaving the company "to pursue other interests," which were not specified. Until a new CFO is named, Conseco's president and chief operating officer, Bill Shea, will also assume the duties of acting CFO.

The unexpected news of Chokel's resgnation, on top of the earlier bad news from Moody's, pushed Conseco shares down 67 cents (15.16%) to $3.75 in New York Stock Exchange dealings. Volume of 12.7 million shares was almost four times the usual turnover.

By way of contrast, Amazon.com's bonds and shares were higher Wednesday, apparently unaffected by news that the CFO of that company, Warren Jenson, would be leaving at the end of the year. Jenson is the CFO who recently helped the Seattle-based Internet bookseller post its first-ever quarterly profit, and initial news of his coming departure was initially greeted with a share selloff . But perhaps buoyed by the thought that Jenson will remain on the job for some time until a replacement is found - or maybe by the feeling that Jenson will leave the company with fairly positive prospects, in contrast to the ominous situation facing whoever is the next Conseco CFO - the shares rallied to end higher, and the bonds were likewise on the rise. Amazon.com's zero-coupon/10% discount notes were quoted up three points on the session, at 83, while its shares bounced off their initial lows to end up 36 cents (2.25%) to $16.33 in Nasdaq trading, on volume of 14 million shares, a bit above normal.

Also on the upside, United Airlines bonds took flight on news that the Chicago-based Number-Two U.S. air carrier had avoided a potentially ruinous strike by its 13,000 mechanics and cleaning crew members, who ratified a new contract. UAL's bonds "really gapped up," one market source said, estimating the paper up five to seven points on the session. He saw United's 10.67% notes due 2004 trading at 77 and its 9 1/8% notes due 2012 at 65, both up seven points on the day.

"The issues that got really tagged on the way down" - when UAL's bonds dropped from nearly investment-grade debt ratings to their current Caa1/B- in the wake of Sept. 11 - "are doing well on the way back up, among investors looking for value." UAL's shares ended up 33 cents in NYSE trading, at $15.86. Volume of 2.5 million shares was somewhat heavier than normal.

The source also saw the bonds of Dillard's Department Stores "running and gunning" after the Little Rock, Ark.-based crossover retailling credit reported strong fourth-quarter numbers Tuesday. Net income in the quarter ended Feb. 2 climbed a better-than-expected 55% to $102 million ($1.21 a share), from $66 million (78 cents a share) in the year-ago quarter.

Dillard's Baa1/BB+ bonds "were depressed, but now they've come back," the source said, quoting the 6.43% notes due 2004 at 96 bid, up from 93.75 on Tuesday. Dillard's shares, after having risen on Tuesday, were up again Wednesday, closing up $1.45 (6.90%) on the NYSE, to $22.45.

Back among the the pure junk issues, AK Steel's 9 1/8% notes due 2006, which rose ¼ point on Tuesday, were up another half a point Wednesday to 104.625, a trader said, in the wake of Tuesday's announcement by the White House that the U.S. would impose tariffs of between 8% and 30% on steel products originating from a variety of nations whom the U.S. believes are engaged in unfair trade practices aimed at driving domestic steelmakers out of business.

But he saw little response elsewhere among the generally battered steel industry credits - equally unaffected by the seemingly good news out of Washington, the not-so-good news that there will apparently be no federal bailout of the industry's estimated $10 billion or more of "legacy costs" (pensions and benefits payable to the small army of retired workers who were in the U.S. steel industry back when it was considerably larger), and the downright depressing news that yet another major U.S. steel producer - Mishawaka, Ind.-based National Steel Corp., the fifth-largest U.S. steeler - has sought Chapter 11 protection from the holders of its junk bonds and other creditors. National's 9 7/8% notes due 2009 were most recently at 22 bid and its 8 3/8% paper at 25.75.

National was seen as one of the potential big losers from the Bush administration's apparent decision - reported in Tuesday's Wall Street Journal - to not proceed with the federal bailout of the legacy costs, since that essentially kills a proposed buyout of National, fellow bankrupt steeler Bethlehem Steel Corp. and several other troubled steelmakers by the financially solvent United States Steel Corp. That consolidation of the troubled companies under USS's banner was contingent upon federal assumption of the legacy costs.

National's bankruptcy "had pretty much been expected," said one observer, commenting on the lack of activity following the Chapter 11 filing, "and was really priced into the bonds' levels." He noted that the news was mixed for the rest of the sector, the tariff declaration sought by the industry balanced by the lack of federal action on legacy costs and yet another high-profile steel industry bankruptcy (National joins a long list of high yield steelers cut down by import competition and currently or recently restructuring in the courts, including Bethlehem, LTV Corp., Wheeling-Pittsburgh Steel, Geneva Steel and Gulf States Steel, to name the most prominent). "We really didn't see much of a change" in the other companies' bonds, he added.

On the upside, Williams Communications' benchmark 10 7/8% notes due 2009 were quoted up as much as three points on the session, at around 17 bid, buoyed by news that the Tulsa, Okla.-based long-haul telecommunications operator's former corporate parent, the Williams Companies, said it would pay the interest on $1.4 billion of WCG Note Trust's 8¼% senior notes due 2004 to keep the issue from immediately coming due. Williams Companies has also agreed to defer, until Sept. 15, certain payments due to it from Williams Communications.

Williams Communications also announced that it has agreed with its bank group to a formal extension of discussions toward the development of a balance sheet restructuring plan. The agreement to extend discussions until March 27 "is based upon the expanded restructuring alternatives the company announced last week," possibly including a Chapter 11 filing.

Also in the telecom sphere, Williams competitor Level 3 Communications Inc.'s 9 1/8% notes due 2008 got as high as 45 bid, a trader said, before coming slightly off that peak to end at 44 bid/45 offered, still up two points on the session.

Another trader said communications antenna tower company bonds "were running up," pegging the debt of such operators as Crown Castle International and American Tower Corp. up two to three points on the session. American Tower's 9 3/8% notes due 2009 closed at 75 bid, up about three points. High yield wireless giant Nextel Communications Inc.'s bonds were also seen higher, its zero-coupon notes due 2008 up about four points to 60 bid, and its 9 3/8% senior notes due 2009 up a point at 67 bid.

Among newly priced notes, Sinclair Broadcasting's freshly launched new bonds were heard closing at 99.25 bid/99.75 offered; Dana Corp.'s new issue closed at pad bid/100.5 offered; Park Place Entertainment Corp.'s new 7 7/8% notes due 2010, were around their par issue price, as were Tembec Industries Inc.'s 7¾% notes due 2012.

A relatively new issue which had priced at par back on Nov. 9, ResCare Inc.'s 10 5/8% senior notes due 2008, were quoted in the 91-94 region, well below issue level; the Louisville, Ky.-based healthcare company, in reporting fourth-quarter results, including $22 million of special charges, revealed that "as a result of the fourth-quarter charges, we were not in compliance at year end with certain covenants of our bank lending agreement; but have begun discussions that we believe will lead to a resolution of those variances."

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