Western Resources sells upsized offering; WorldCom bonds up on bank loan buzz

By Paul Deckelman and Paul A. Harris

New York, May 7 - Western Resources Inc. brought a slightly upsized two-tranche high-yield bond deal to market Tuesday, with at least one of those tranches heard to have traded fairly well once it was freed for secondary dealings. Among established secondary market names, almost-junker WorldCom Inc.'s paper staged a late rally, propelled, traders said, by market rumors and news reports that it might be nearing an agreement on a big bank loan that would certainly help its liquidity situation.

Of Western Resources' two tranches totaling $765 million, the split-rated and upsized first mortgage notes (Ba1/BBB-) managed to price at the tight end of talk. The five-year securities were upsized to $365 million from $350 million and priced to yield 7 7/8% compared to talk putting of the 8% area talk.

The Kansas utility's junk-rated five-year senior notes (Ba2/BB-), meanwhile, priced to yield 9¾%. Price talk on the seniors had been 9½%-9¾%.

Salomon Smith Barney was bookrunner.

Also on Tuesday a syndicate source told Prospect News that independent steel distributor Earle M. Jorgensen Co., Inc. would hit the road Wednesday with $250 million of 10-year senior secured notes via joint bookrunners Credit Suisse First Boston and Deutsche Bank Securities.

The Brea, Calif. company will likely price its new Rule 144A notes late in the week of May 13 or early the following week, according to the source.

Also on Tuesday timing details emerged on an emerging markets corporate credit that Prospect News began tracking late in April. The roadshow on the JSC Tyumen Oil $300 million eurobond deal (Ba3/B+/B+), which started Tuesday, runs through Thursday in the U.S. before heading for Europe, where it will be shopped from Friday through Tuesday, May 14.

Credit Suisse First Boston and Salomon Smith Barney are joint bookrunners on the Rule 144A-eligible deal.

On Tuesday the market also heard official price talk of the 11½% area on Scottsdale, Ariz.-based oil refiner and marketer Giant Industries, Inc.'s upcoming offering of $200 million of 10-year senior subordinated notes (B2 existing/B). Banc of America Securities is bookrunner on that deal which is expected to priced Thursday afternoon, according to a syndicate source.

Finally, although Wise Alloys, LLC/Wise Finance Corp. was expected to price its $150 million of seven-year senior secured notes (B3/B+) via Merrill Lynch & Co., late in the session no terms were heard. Price talk on that deal is 11¼%-11½%, according to a syndicate source.

When the new Western Resources notes began trading, the new 7 7/8% first mortgage notes were quoted at 101 bid/101.5 offered, up from their issue price earlier at par. The 9¾% senior notes, which also priced at par, were little budged in secondary trading, quoted at 100.125 bid/100.375 offered. "There wasn't a lot of activity in them, but they did hold their price once they came," a trader said.

"The buyers seemed to be on strike," he continued. "Either they wanted the new issue [and initially bought it] or they didn't want it - but nobody was chasing it [upward once it began trading] .

"It's got a nice coupon," he said of the 9¾% notes, "but it just didn't rally upward, and stayed there."

He said, however, that investors might come to see some value in the $400 million senior note tranche, noting that Moody's Investors Service only rates the two issues a notch apart (Ba1 for the first mortgage bond versus Ba2 for the senior note), even though there's almost a 200 basis point difference between the two bonds' yields. "That's kind of interesting," he noted, contrasting it with the three-notch difference in the two bonds' ratings from Standard & Poor's (BBB- on the first mortgage bond and BB- on the senior note).

"It looks strange. But at 200 basis points for one notch on Moody's, I think there's probably some value with these 9¾%s, even though it was the mortgage notes that rallied a point."

Among already existing bonds, "it seems like WorldCom is catching a bounce here," the trader said. He noted that earlier in the day, the company's 7½% notes due 2008 were trading around 45 bid, but by the end of the day were seen around 48.5 bid/50.5 bid. "It's a very fast-paced name," he observed.

WorldCom's bonds were being quoted late in the session up anywhere from three to six points, depending on the maturity, a distressed-debt trader noted, citing rumors that the troubled Clinton, Miss.-based telecommunications giant was close to icing a bank debt deal, "which would alleviate the short-term liquidity pressure." He said he had seen no firm data on the expected terms of the supposed bank deal. Apart from WorldCom, he said, his market "had nothing. It was all WorldCom."

Another trader said that CNBC had reported that WorldCom - whose nominally investment-grade bonds have recently been roiled by ratings downgrades to near-junk levels, a management shakeup, and investor angst over the company's huge debt load and the telecom industry's continued funk - was nearing an agreement on a bank loan. The TV network named J.P. Morgan Chase & Co. as the likely lead bank on such a facility, and said that the company's board was considering two possible options - a $2 billion unsecured loan, or a secured loan for $5 billion. Neither J. P. Morgan Chase nor WorldCom itself would comment on news reports about the supposed bank talks. CNBC also said that board members had discussed how WorldCom might minimize, or even eliminate, any risk that a debt downgrade might cause some $2 billion of off-balance-sheet receivables to immediately come due.

The trader noted that most of the gain in WorldCom "was just in the last hour." He expressed some skepticism about the accuracy of the CNBC story, although he acknowledged that it was enough to push the bonds up.

He quoted WorldCom's 2011 bonds up four points, to around the 49 bid/50 offered level, and saw other liquid issues up around a similar amount. The 7 3/8% notes due 2003 ended at 83 bid/85, its 6¼% notes also due 2003 closed at 71 bid/73 offered, and its 2031 bonds were at 44.5 bid.

"A lot of people may have been short the paper and decided that if they get this bank deal in place, or even if there's any credence to the rumor [that they might be trying to arrange financing], that with added liquidity, the company makes it, so you've got to cover your shorts," he opined. "It's entirely possible that the Street would have shorted this name - which would not surprise me at all. If they make that deal, it's going to give the bonds some lift."

The possibility that the troubled company might be on the verge of resolving its liquidity problems - for the short-term, anyway - also gave a lift to its battered stock price, which likewise saw a last-hour surge that lifted the shares to $2.21, just a touch off their day's high of $2.30. The shares finished up 37 cents (20.11%) in busy Nasdaq dealings of 151.9 million shares, about three times the usual turnover.

Elsewhere, the trader saw little or no activity in the bonds of Venetian Casino Resorts LLC/Las Vegas Sands Inc., which announced Monday they will tender for their outstanding 12¼% mortgage notes due 2004 and their 14½% senior subordinated notes due 2005, using the proceeds of an upcoming new issue of eight-year second mortgage notes and a new senior secured credit facility.

"You don't see Venetian all that often to begin with," he said, "and because of the tender, they've essentially disappeared off the face of the earth. If anyone's even bidding, it's right around the tender price," slightly north of 107 for the senior subs and 106-plus for the mortgage notes. "If anyone even cares, there will be a bid out there around 107 - but there's nothing out there that's real."

There was also no movement seen in the 10¾% notes due 2007 of LDM Technologies Inc., which announced an offer to exchange an issue of new 10¾% notes with certain modifications in their terms for the existing notes, at a ratio of $700 of the new notes per $1,000 principal amount of the existing paper. The currently outstanding bonds were last being quoted around the 75 bid area.

Overall, a trader concluded "for us, it was just a brutally quiet [Tuesday]."

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