Airlines firm on United warning; refiners, chemical companies gain; SBA up on tower sale

By Paul A. Harris

St. Louis, March 18 - Airline paper firmed in secondary high-yield trading Tuesday as reports circulated that bankrupt United Airlines had warned the bankruptcy court it might never take off again.

And softening oil prices generated interest among investors in the existing paper of refiners and chemical companies as the capital markets braced for war and digested the Federal Open Market Committee's announcement that it would let present interest rates stand.

Also investors were taking calls, Tuesday, from cellular telephone tower company SBA Communications Corp., on the news that it would shed assets and raise dough.

Meanwhile bond buyers were heard to be tuning out Charter Communications Corp., which has lately taken to surfing the executive channels to replace its recently vacated treasurer slot.

In the primary market Nexstar Finance priced an upsized offering of 10-year discount notes. And in London Norwegian pharmaceutical firm Nyco Holdings' deal for €225 million of 10-year notes priced wide of talk.

"It's been pretty quiet," one bond trader told Prospect News in the wake of Tuesday's session, which was conducted amid the near-certainty of an outbreak of hostilities in a U.S.-led war to displace Iraqi dictator Saddam Hussein. On Monday night president George W. Bush issued an ultimatum to the Iraqi president, giving him 48 hours to go into exile or face invasion.

"The high-yield market still maintains a pretty positive tone, thus far, as have the equity markets," the source added. "But a couple of surprises in this war effort will change things pretty quickly."

As far as this trader was concerned the day's "big gainer" was Boca Raton, Fla.-based SBA Communications. The communications tower owner, which announced that it intends to reduce debt using the proceeds from the sale of as many as 800 towers to AAT Communications Corp. beginning in May, received a nod of approval from fixed income investors.

The trader quoted the company's 10¼% notes due 2009, which had been at 63.5 bid, 64.5 offer on Monday, finishing Tuesday's session at 70 bid, 72 offer, while the 12% notes of 2008, which were 64 bid, 65 offer Monday, finished Tuesday at 74.5 bid, 75.5 offer.

This source, among others, also had paper of the airline sector firming, in spite of warnings from the ratings agencies that war, rising fuel prices and the lingering fallout from the events of Sept. 11 2001 will likely continue to register negative impacts upon the commercial carriers.

"They were all firmer even though Moody's had that commentary last night, and S&P came out today," the trader commented. "I think they're deriving some strength on the news that UAL might liquidate, which would take out a major competitor."

In documents filed Monday with the U.S. Bankruptcy Court in Chicago, UAL Corp. stated that if it were not allowed to reduce overhead by voiding labor contracts, liquidation is "a distinct possibility," according to a Reuters news report.

The news may have cleared a patch of sky for Delta Air Lines, the sell-side source theorized, noting that Delta's 6.65% notes due in 2004, which had been 70 bid, 72 offer, closed Tuesday at 73 bid, 74 offer.

"Delta had some buying interest on the short end of the paper," the trader noted.

Meanwhile the alarm raised by the rating agencies appeared to do no immediate damage to the debt securities of some other carriers. Northwest Airlines 8 7/8% paper of 2006 closed unchanged at 50 bid, 52 offer. Also unchanged was the paper of Continental Airlines, whose 8% notes of 2005 were seen at 43.5 bid, 44.5 offer, the source said.

Another secondary market source also told Prospect News that in spite of the warnings the airlines held in well on Tuesday. "It looks like they were all better today," this source said. "Delta paper was up a couple of points, and American Airlines was up a couple of points on the heels of Delta."

Secondary market sources also said that energy companies, particularly refiners, fared well in Tuesday's trading, in spite of the fact that oil prices have recently been seen softening.

"Denbury Resources came yesterday with a 7½% coupon," one trader noted. "They traded today around the 100.125-100.5 level." That was about a point better than the 99.135 at which Denbury had priced its $225 million 10-year offering on Monday.

This trader also noted significant positive movement in the notes of Comstock Resources. "They did not hedge so they're making a fortune right now," the source commented. "They have an 11¼% coupon outstanding, and as soon as Denbury priced (Comstock) went from 106.75 bid to 107.75-108 bid. They're just coining money right now.

"This sector is a good place for mutual funds to put their money," the source added, commenting on oil and gas producers and refiners. "It's a relatively safe sector. Their exploration costs are cheap if they don't hedge. And where are you going to put you money right now, in high yield? Airlines? Telecom? Lodging?

"You don't want to put money into hotels; that's why La Quinta had to pay 8 7/8%, whereas a month ago La Quinta could have probably come at 8%."

Also faring well, this time because of softening crude oil prices, were chemical names, the source said.

"There was good buying interest in Lyondell Chemical," noted the trader who quoted Lyondell's 10 7/8% notes "up about two points" by session's end from their opening level of 91 bid, 92 offer. He also saw Avecia's 11% notes closing at 83.5 bid, 84.5 offer, 2 ½ points better than their opening level of 81 bid, 82 offer.

And the automotive sector was seen to "take off," Tuesday, one trader noted, reporting improvement in the paper of Collins & Aikman, which closed at 85.5 bid, 86.5 offer and Tenneco Automotive Inc.'s debt up 1 to 1.5 points at 74.5 bid.

Among the recent new issues, the news also was good, owing, one trader said, to the steady stream of cash that has been reported to have recently come into the high yield mutual funds.

The new paper from Dole Foods Co., Inc., which priced Monday at 8 7/8%, finished at 102.375 bid, 102.675 offer. The $475 million of notes had come to market at par.

"That's traded pretty well," the source said. "There's a lot of cash to go into that stuff."

Also the new notes from Peabody Energy was seen trading at par bid, par and three-quarters offered, up about a quarter.

The one singularly sour note sounded Tuesday among secondary sources had to do with the notes of St. Louis-based cable operator Charter Communications Inc. on news that Ralph G. Kelly, the company's senior vice president and treasurer, resigned on March 14, 2003 to pursue other career interests.

"Charter was very volatile this morning," one source said. He said the 8 5/8% notes due 2009 were down half to three quarters of a point on the day at 44.75 bid, 45.25 offered after having sunk as low as 44 during the session from Monday's close of 45.5 bid, 46 offered.

Meanwhile during Monday's session in the primary market a lot of eyes were focused on CNN, as Wall Street girded for the first impact of the coming conflagration in the Middle East.

Nexstar Finance brought an upsized $74.67 million proceeds of 10-year senior discount notes (Caa1/B-) Tuesday via Banc of America Securities and Bear Stearns & Co. It had been announced at $50 million proceeds. The notes priced at 57.442 for a yield of 11 3/8%, in the middle of the 11½%-11¾% price talk.

And Nyco Holdings, a subsidiary of Norwegian pharmaceutical firm Nycomed, priced €225 million of 10-year senior notes (B3/B-) at par to yield 11½%, wide of the 11%-11¼% price talk.

Credit Suisse First Boston was the bookrunner. HVB Corporates & Markets was co-manager.

Finally on Tuesday price talk of 100-101 emerged on Swift & Co.'s upcoming $150 million of 12½% senior subordinated notes due 2010 (B2/B). The notes, which are being sold by Con Agra Foods Inc. via Salomon Smith Barney and JP Morgan, are set to price Wednesday.

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