Charter slides as COO put on leave; Nevada Power prices seven-year deal

By Paul Deckelman and Paul Harris

New York, Oct. 22 - Charter Communications bonds and shares tumbled on Tuesday after the troubled cable TV operator said that it had put its executive vice president and chief operating officer, David G. Barford, on paid leave status - but revealed little else. Lucent Technologies Inc. bonds continued to bask in the afterglow of Monday's announcement that Lucent had won a contract to provide several hundred million dollars of telecommunications equipment to China's second-largest mobile network operator.

In the primary market, Nevada Power Co. sold $250 million of seven-year bonds, although at a substantial discount.

Charter's initial cryptic two-sentence announcement that its COO had been put on paid leave did not offer any further details about the abrupt personnel move, other than the information that Barford's duties had been assumed on an interim basis by Charter's president and chief executive officer, Carl Vogel. That left the market guessing for the remainder of the session although well after the close the company added a further statement saying Barford had been put on leave pending the results of a previously announced grand jury investigation.

With Charter's shares already trading near the bottom of their 52-week range and its once-robust bonds having fallen to around half of their par value on concerns about the St. Louis-based cable giant's heavy debt load, lagging performance and the federal grand jury probe of its accounting, investors automatically assumed the worst, and clobbered the debt and the stock once more.

Charter "was getting its [rear end] kicked," a trader declared, quoting the company's benchmark 8 5/8% notes due 2009 as having fallen as low as 43 bid/46 offered, a 10 point loss on the session.

"There's not a ton of trading going on" in the name, the trader noted. "One of two sellers emerge and it really pushes it down."

He quoted the bonds, which had finished Monday's session around 53 bid, as having traded down to around 50 in the morning. "Then they were offered at 50, which pushed it down into the high 40s, around 47-49, and then another couple of sellers again emerged and leaned on them a little harder and had paper at 43-6, and that's how they stayed."

At another desk, Charter's 9.92% notes were quoted as having fallen to 31 bid from prior levels around 39.5.

Charter was "down quite a bit," said another trader who also saw the 8 5/8% bonds sliding down to around the 43 area, in what he called "pretty active trading."

He also noted that Charter's shares "were down quite a bit on a percentage basis (they lost 55 cents, or 31.43%, to end at $1.20 on Nasdaq volume of 15.2 million shares, more than double the usual turnover) and its convertible issues "got crushed.

"Nobody knows what's behind this business with the COO," he added, pointing out that "three or four weeks ago, there was a rumor about some resignations at the top of the management tree. The firm itself denied anything was going on and now this is going on, so they're going to lose some credibility, I suppose."

After watching its shares and bonds get creamed all day as financial market speculation ran wild as to why Barford had been sidelined, and why now, Charter responded to what it termed the "close scrutiny and speculation" sparked by its initial announcement and belatedly issued an additional news release, after the market had closed.

Charter said: "Due to the pendency of a previously announced grand jury subpoena, the company determined that the most appropriate course of action at this time is to place Mr. Barford on paid leave pending the result of the investigation, after which this status would be reviewed.

"We continue to cooperate fully with the grand jury subpoena and reiterate our belief that Charter's financial statements comply with generally accepted accounting principles, in all material respects, and they, and the related SEC filings, provide an accurate picture of the company, its financial condition, results of operations, and the assumptions underlying them," the Charter missive asserted.

Charter, the fourth-largest U.S. cable operator, said back on Aug. 16 that it had received a grand jury subpoena from the U.S. Attorney's Office for the Eastern District of Missouri requesting documents relating to the company's current and disconnected customers, as well as to its policies and procedures relating to the capitalization or expense of various costs and related matters.

Charter said at the time that it believed that the issues under investigation "are similar to those raised in previously reported class actions pending against the Company, and certain individual defendants, " and said that it would "cooperate fully with the subpoena.,"

Other cable names seen lower Tuesday in line with Charter's woes included Cablevision's CSC Holdings Inc. 7 7/8% notes due 2007, quoted half a point lower at 80.50 and bankrupt Adelphia Communications Corp.'s 9 7/8% notes due 2007, down 2½ points at 31 bid.

But bonds of another bankrupt communications company - WorldCom Inc. and its MCI long distance unit - were being quoted solidly higher Tuesday.

A distressed-debt trader said WorldCom "was moving around a bit" after the troubled telecommer released its financial operating reports for July and August, with the debt up anywhere from a point to a 1½ points.

Another trader called the move "huge," quoting parent WorldCom's bonds as having moved up to 15 bid from prior levels around 12.75 bid/13.25 offered, "where they had been forever," or at least since the stricken Clinton, Miss.-based telecom giant filed for Chapter 11 protection in July - the largest bankruptcy filing in U.S. corporate history.

He saw the MCI bonds as having pushed up to levels around 38 bid/40 offered from around 30 previously. With the company in bankruptcy, all of the bonds of WorldCom and MCI now trade on top of one another at their respective current levels, regardless of coupon or maturity.

At first blush, the financial data would seem to have little good news for investors - World Com told the bankruptcy court that it had a loss of $331 million on revenues of $2.464 billion in July, and a loss of $98 million on revenues of $2.403 billion in August. It also reiterated its previous caution that it might take a charge of up to $50 billion to write down the value of goodwill and other intangible assets, and could further write down the value of existing property, plant and equipment, and increase its allowance for doubtful accounts receivable.

But the trader noted the financial data seemed to indicate that WorldCom "had cash flow that was better than anticipated, so now they are annualizing it and saying that cash flow [on an annual basis] would be around $5 billion. In a workout [of distressed debt], that would make the bonds worth 50 cents on the dollar - supposedly."

WorldCom reported that its EBITDA for July was $359 million, and it was $417 million in August.

The trader added with some skepticism that such projections "depend on them continuing to earn this kind of revenue going forward, month-over-month" - something that even investment-grade telecom companies not currently in bankruptcy would have a hard time guaranteeing, given the current negative climate in the telecom industry.

Still, he said. "There were some buyers out there, I'll tell you that."

Also in the telecom sphere, Qwest Communications International Inc.'s bonds were firmer, in line with a rise in its shares (up 15 cents, or 5%, to $3.15), after the Denver-based regional Bell operating company received the blessing of Justice Department antitrust regulators for its proposal to offer long-distance service, in addition to local and regional telecom services, in nine Western states.

A trader quoted Qwest's holding company paper, which trades anywhere between 45 bid and 70 bid, based on the coupon and the maturity, as having gained two to three points on the session, while its operating company debt, which trades between 68 and 95 based on tenor and coupon, as having firmed by about a point.

A market source quoted Qwest's 5 7/8% holding company notes due 2004 as having pushed up to 71.5 bid from 71.5 bid previously.

A trader saw Qwest's debt as "having firmed up a little - but there was not much trading activity." He pegged its 6 7/8% bonds due 2003 as trading at 66 bid/68 offered, up about a point.

Two names which had moved up on Monday continued to firm on Tuesday. Xerox Corp. bonds - which rose on Monday after the Stamford, Conn.-based copier king announced it had reached agreement with General Electric Co. to borrow up to $5 billion over eight years, with the financing to be secured by equipment leases - were again on the rise Tuesday, its benchmark 5½% notes due 2003 quoted bid around 90-91, up a point or so from Monday's finish at 89.

And Lucent - whose bonds had risen Monday on the news that the Murray Hill, N.J.-based telecom equipment maker was one of four Western telecom firms that were chosen to collectively sell $1.2 billion of gear to China Unicom (Lucent's share is over $400 million) - was also on the upside Tuesday. Its 7¼% notes due 2006 were quoted at 46 bid, a gain of about two points on the day, while at another desk, its 2029 bonds were seen as having firmed to 35.5 bid from prior levels around 34 and from week-ago levels around 29 bid/30 offered.

Well after the markets had closed, Lucent unveiled potentially lucrative equipment supply contracts with two telecom providers in yet another large, emerging Asian market - it will sell networking equipment to India-based Tata Teleservices. and Reliance Infocom, also in India. Lucent did not disclose financial details of the agreements.

Tuesday's session in the primary market produced no surprises.

Investors took the juice from Nevada Power Co. which priced $250 million - a deal that came within talk but at a significant discount.

And one portfolio manager told Prospect News that Steve Wynn lowered the price range and increased number of shares in his IPO because its completion is critical to the bond deal.

"I don't see a lot of anything going on right now in the high-yield market," Louise Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund told Prospect News on Tuesday.

"I see underwriters trying to bring deals but I don't see big buying on the part of the buy-side."

The conversation with Rieke took place shortly before terms emerged on Nevada Power's deal. The Las Vegas-based regulated utility priced $250 million of seven-year 10 7/8% general and refunding mortgage notes (Ba2/BB) at 94.245 to yield 12 1/8%, via Lehman Brothers and Credit Suisse First Boston.

Rieke, who specified that she had been looking at the Nevada Power deal, commented that the 12% area price talk was notable but perhaps not exorbitant.

"It may be wide but you still have the risk that in a year or so that if something goes wrong you're still not out of the woods," she said.

"Is it wide? Yeah. Should it be wide? I think yes."

Another deal that Rieke disclosed she was eyeing is Wynn Las Vegas, LLC/Wynn Capital Corp.'s $240 million of eight-year second mortgage notes (B3/CCC+), with proceeds to build the $2.4 billion Le Rêve project. Bookrunners are Deutsche Bank Securities Inc., Banc of America Securities, Bear Stearns & Co. and Dresdner Kleinwort Wasserstein. Wynn is the only remaining deal on the forward calendar for the week of Oct. 21.

Early in Tuesday's session Wynn Resorts modified its IPO, increasing the number of shares to 23.685 million, up from a prior 20.5 million shares, with the anticipated share price dropping to $18-$20 apiece, from the previously talked $21-$23 per share.

"I think that's telling you that he can't do the bonds without doing the equity," Rieke commented on Wynn's rejigging of the IPO. "He'll take what he can get on the equity to get the bonds done because he needs to finance it."

Rieke also specified that she is scoping out the only deal currently parked on the forward calendar for the week of Oct. 28, Dex Media East LLC/Dex Media East Finance Co.'s $1.05 billion of notes via JP Morgan, Banc of America Securities, Deutsche Bank, Lehman Brothers and Wachovia Securities, Inc.

The deal, which will help fund the first phase of the acquisition Qwest Communications' yellow pages/directories business by the Carlyle Group and Welsh, Carson, Anderson & Stowe, comes in two parts: $350 million of seven-year senior notes (B2/B) and $700 million of 10-year senior subordinated notes (B3/B).

Rieke told Prospect News that Dex might have to dig deeper into its pockets, relative to the current whispered talk on the subordinated notes, if it wants investors to take the call.

"Originally the scuttlebut was one price," she said, "and now they're saying that the pro forma is something else.

"On the senior side it's tighter than where we'd heard. But I think on the senior sub it's going to take more to get that done. That's going to be the difficult one."

Rieke added that the "scuttlebut" on the Dex seniors is 10%, while the subs are being whispered at 11½%.

She also said that she anticipates that the subs will have to widen from 11½% in order to get done.

Earlier in Tuesday's session a sell-side source told Prospect News that Dex does appear to be digging deeper.

"As everyone has heard the pricing is pushing out wider," this official said. "Everyone expects the bank side to push out to almost 400-plus.

"Before the bond deal was even technically launched people were talking about where pricing would be. It didn't seem to be an issue as to whether it would get done - more where it would get done at.

"It kind of sounds like it will get done but at a price premium."

This official told Prospect News that, much as sources have been saying since the Columbus Day recess, the market seems quiet and may remain so on a relative basis until 2003.

"This market changes so quickly and so often," the sell-side official said. "But certainly since the July Fourth weekend we haven't seen any consistent momentum, particularly in a positive direction. What you get is fits and starts.

"Coming up in November you're going to see the market start winding down because next thing you know you're in the holiday season. The rest of this year is coming quick."

As to the $206.7 million inflow into high-yield mutual funds for the week ending Oct. 16, which stemmed three successive weeks of outflows that included the record-setting $1.4 billion outflow that was reported during the last week of September, this official is taking a wait-and-see attitude.

"One week of positive flows certainly reverses three weeks of outflows, but it doesn't give us a strong indication going forward that it's going to continue," the sell-sider said.

"A lot of investors still seem a little bit wary, and you can see it on the forward calendar, which is relatively light.

You can also see it in the levels at which deals are coming, which is not particularly tight relative to talk."

Rieke, meanwhile, lent her voice to the uninterrupted chorus of buy- and sell-side sources who have been telling Prospect News since late summer that the flow of money into and out of high-yield mutual funds can be attributed to market timers.

"I think this past inflow was market timers sticking their toes back in the water because we see that if you have a couple of up-weeks they start coming back in. And if you have a down week or two they're going to leave.

"That's where I think this money has been coming from - both the inflows and the outflows."

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