AMR down as employees move towards re-vote; Corrections Corp., Phillips Van Heusen hitting the road

By Paul Deckelman and Paul A. Harris

New York, April 21 - AMR Corp. bonds and shares were lower Monday as American Airlines flight attendants continued with their plans to hold a new vote on concessions they had agreed to earlier to help the troubled airline - incensed at the prospect that top executives might be able to float to earth on golden pension parachutes shielded from bankruptcy creditors if American does crash and burn. It was the major topic of interest in an otherwise sedate session as the market returned from the three-day Good Friday/Easter holiday weekend.

The high yield primary market began the week of April 21 with the sound of revving engines in the background as three junk bond issuers pulled up to the starting line.

Owens-Brockway Glass Container, Inc. will uncork its two-tranche $800 million offering when the roadshow gets underway on Wednesday.

Corrections Corp. of America will turn the spotlight on its off-the-shelf $200 million of eight-year bonds, also starting on Wednesday.

And high-yield accounts will get an opportunity to begin unbuttoning Phillips-Van Heusen Corp.'s $150 million 10-year deal on Tuesday.

Monday's news of three imminent roadshows - following a period in which issuers were said to be demonstrating a war-induced aversion to going on the road, according to some sources - may be a harbinger of things to come in the high yield primary, one sell-side official told Prospect News on Monday.

"Some of the geopolitical uncertainty seems to have dissipated," said the source. "The market feels more comfortable, to a certain extent."

However, the official added, present circumstances in the cash-soaked high-yield market continue to provide opportunities for some issuers to bring the quick-to-market deals that have comprised slightly less than 45% by number or 36% of the dollar value of business in the new issuance market since the beginning of March.

An analysis of data collected by Prospect News shows that since the beginning of March there have been 58 high-yield deals totaling $14.31 billion. Of these, 26 totaling $5.14 billion were drive-bys, while 32 deals totaling $9.17 billion, were not quick-to-market transactions.

The primary market source who spoke to Prospect News on Monday stated that even though there is less uncertainty now about the outcome of the U.S.-led military effort to oust Iraqi dictator Saddam Hussein than there was at the beginning of March, quick-to-market transactions may still be prevalent.

"So far we don't have anything scheduled to price this week," the sell-sider pointed out. "I think there will be a few drive-bys though. Issuers can do drive-bys right now. That's why the calendar's not so deep. We've gone into the past few weeks with relatively light calendars and business has built throughout the week based on drive-bys."

However the three deals announced during Monday's session each will be marketed to investors via roadshows, according to syndicate and market sources.

The roadshow starts Wednesday for Owens-Brockway's Rule 144A two-tranche $800 million offering.

The deal, via joint bookrunners Deutsche Bank Securities Inc. and Banc of America Securities, will be comprised of $450 million of senior secured notes due 2011, non-callable for four years, and $350 million of senior notes due 2013, non-callable for five years.

The company, a wholly-owned subsidiary of Owens-Illinois, will use proceeds to repurchase $300 million of its 7.85% senior notes due 2004 and permanently reduce its revolver.

Corrections Corp. of America also begins a roadshow Wednesday for $200 million of eight-year senior notes due 2011 (expected ratings B1/B) via Lehman Brothers.

Proceeds from that off-the-shelf deal will be used to finance the purchase of up to 90% of its series B preferred stock, to finance the redemption of its series A preferred stock, to repurchase 3,362,899 shares of common stock to be issued on conversion of the $40 million of convertible notes, and to pay down the Nashville-based private prison operator's term loan.

Finally, the roadshow is set to get underway Tuesday for Phillips-Van Heusen Corp.'s $150 million of 10-year senior notes due 2013 (BB-). Credit Suisse First Boston, JP Morgan and Lehman Brothers are joint bookrunners on the New York City-based apparel-maker's Rule 144A notes, proceeds from which will be used to repay a $125 million bridge loan issued by Apex Partners that was used to partially fund the acquisition of Calvin Klein, and for general corporate purposes.

All three offerings are expected to price during the week of April 28.

In addition to the three roadshow starts, news also circulated Monday on a new high yield offering from Cinemark USA, Inc., to fund the tender for up to $240 million of its outstanding $200 million 9 5/8% series B senior subordinated notes due 2008 and $75 million of its 9 5/8% series D senior subordinated notes due 2008. Lehman Brothers is dealer manager of the tender, which expires May 15, 2003.

No timing, structure or underwriters were heard, and the company did not return a telephone call Monday from Prospect News.

Back in the secondary market, American parent AMR's bonds - which had soared into the mid 40s last week after the flight attendants became the third and final union to endorse the carrier's $1.6 billion package of wage and staffing concessions - hit turbulence and began losing altitude in the wake of news, disclosed over the holiday weekend, that AMR had angered the flight attendants, pilots and ground workers who had voted for those concessions by not revealing its top-executive bonus plan and its executive pension protection plan until after the unions had voted to accept the cuts. Those cuts will mean sizable salary reductions and sharp cuts in the staffing levels at the Fort Worth, Texas-based Number-One air carrier, which has an estimated 100,000 employees.

The airline disclosed the existence of the bonus and pension protection plans in filings Friday with the Securities and Exchange Commission. When the spit hit the fan, the unions howled, and the airline hurriedly announced that it was scrapping the bonus plan - which would have paid CEO Donald Carty and five other senior execs retention bonuses equal to twice their salaries if they stayed with AMR through 2005. But while AMR apologized profusely to the unions for the way it looked and denied deliberately misleading them, it said it would keep the pension protection plan in place. The plan exempts a portion of the executives' pensions from being considered as assets in a bankruptcy, by establishing a separate trust not legally considered to be part of the airline.

Besides the flight attendants announcing plans for a re-vote, the ground workers and the pilots said they were studying the situation and either or both of those unions might also decide to open the concession question up again to their members, although there was some question over whether that could legally done. AMR has said that it needs approval of the concession package from all three employee unions or a bankruptcy filing was likely.

The sudden turn of events pushed AMR's 9% notes due 2012 down to quoted levels as low as 34 bid/38 offered on Monday from prior levels in the mid 40s, although one market source said that his shop had seen the bonds as having clawed their way back up to bid levels around 40-41 by the end of the session.

At another desk, AMR paper was seen around 38 bid/40 offered by day's end. Other airline paper was likewise seen easier in sympathy with the downturn in AMR debt, with Delta Airlines' 7.9% notes due 2009 a point lower at 59.5 bid/61.5 offered, and Delta's 8.3% bonds due 2029 also a point down, at 52 bid/55 offered.

AMR's shareholders were as flummoxed by the sudden unraveling of what had seemed to be a hard-won employee concession package likely to keep the airline from having to make an emergency landing in Chapter 11 the way rival carriers US Air Group and United Airlines had to last year. AMR's New York Stock Exchange-traded shares nosedived $1.15 (23%) to $3.85 on Monday, on volume of more than 25 million shares, nearly triple the norm.

Back on the ground, market participants were lamenting the slowness of activity following the holiday break, which had abbreviated trading on Thursday and closed the junk market and other U.S. financial markets completely on Friday.

Levi Strauss & Co. notes - which had been beaten down into the lower 80s from near-par levels last week on the possibility of tax accounting irregularities at the San Francisco-based apparel market, appeared to continue the steadying trend seen at the end of last week and actually managed to firm a little.

Its 11 5/8% notes due 2008 were seen a point better at 82 bid, while its 7% notes due 2006 were two points improved at 79 bid. Its 12¼% notes due 2012 were quoted unchanged at 81.

Conversely, Charter Communications Holdings LLC, whose bonds had firmed for most of last week on indications that principal owner Paul Allen was in talks with cable industry leader Comcast Corp. about transferring some Charter properties to Comcast as part of Allen's effort's to cut debt and get Charter's troubled finances back on track, appeared to have topped out, with its 8 5/8% notes due 2009 unchanged around 62 bid, although a market observer quoted the St. Louis-based cabler's 9.92% notes due 2011 as having improved slightly to 53.5 bid.

Also in the communications sphere, telecom equipment maker Lucent Technologies Inc.'s bonds were seen up about a point, after Murray Hill, N.J. based Lucent announced that it had received a contract from a unit of China Unicom to build a backbone network in China's Shandong Province. No price tag was attached to the announcement.

Lucent's 7¼% notes due 2006 firmed to 88.25 bid/89 offered.

And American Tower Corp.'s 9 3/8% notes due 2009 firmed to 95.25 bid from prior levels at 94, while its zero-coupon notes due 2008 were half a point better at 68.5.

Back in the distressed arena, WestPoint Stevens Corp. bonds - which had fallen last week after the Georgia-based textile maker was in talks with its lenders seeking covenant relief and would accordingly delay filing its annual report - managed to bounce a little from their lows Monday, although they remain well below their prior bid levels in the 28-30 range. WestPoint's 7 5/8% notes due 2008 "moved up a little," a market source said, to 22.5 bid from prior levels at 21. Its 7 7/8% notes due 2005 were likewise up somewhat, to 22.5 bid from Thursday's close at 23.

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