Charter, Smurfit-Stone rebound from lows; Terra takeover bid boosts bonds; sleepless nights for Sealy holders

By Paul Deckelman and Paul A. Harris

New York, Jan. 16 - Charter Communications Inc. bonds and those of Smurfit-Stone Container Corp. were seen improved on Friday as each recovered from the lows they had experienced on Thursday, when Charter announced that several of its subsidiaries had failed to make scheduled interest payments and reports swirled that Smurfit-Stone was about to file for Chapter 11. The bonds of the week's other major disaster, the bankrupt Nortel Networks Ltd., were meantime unchanged to again lower.

Another downsider was Sealy Corp. , whose bonds fell after the Trinity, N.C.-based mattress maker reported an unexpected loss for the fiscal fourth quarter.

On the upside, Terra Industries Inc.'s bonds shot up dramatically - albeit in very limited trading - on the news that another maker of agricultural chemicals had made an unsolicited acquisition offer for the Sioux City, Iowa-based company.

After its busiest week in literally months - not since the early fall have there been as many as two new junk deals in the same week, let alone back-to-back - primaryside players began their three-day holiday weekend a little early; meanwhile the new Fresenius US Finance II Inc. bonds, which priced Thursday and then moved smartly higher later that session, continued to rise on Friday, reaching the par level. However, the new MetroPCS Wireless Inc. bonds that priced Wednesday and then moved up, eased from their post-pricing highs.

Market indicators mixed

The widely followed CDX High Yield 11 index of junk bond performance, which had lost a full point on Wednesday and then was unchanged on Thursday, dropped another 3/8 point on Friday, a trader said, quoting it at 75¾ bid, 76¼ offered. However, the KDP High Yield Daily Index rose by 15 basis points to 54.53, while its yield tightened by 3 bps to 13.82.

In the broader market, advancing issues regained their lead over decliners, by a four-to-three margin. Overall market activity dropped by 40%, in view of the early close ahead of Monday's full market close for the Martin Luther King Day observance.

A trader said that initially the junk market "started out stronger, in sympathy with the equity markets moving better and Treasuries were down - the long bond was down a couple of points to start the morning - so there was some activity and the market was better."

He noted that equities and governments were erratic during the session, with stocks squandering their early gains and moving into the loss column by early afternoon, while Treasuries steadied after their initial weakness. However, by the day's end, stocks had once again moved upward, helped by plans to restore banking majors Citigroup and Bank of America Corp. to profitability, and the bellwether Dow Jones Industrial Average closed modestly higher, up 68.73 points, or 0.84%, at 8,281.22. The Standard & Poor's 500 index rose 6.38%, while the Nasdaq composite index rose 1.16%. Treasuries - which, like junk bonds, saw an abbreviated pre-holiday session that was officially done by 2 pm. ET, though unofficially, things were over long before then - ended lower.

Junk bonds were likewise moving around, the market's early strength dissipated.

He said that away from the widely traded names, or the names with news attached, "the market has been not very active. There was a flurry of things going on out there, but I would say we're probably down from this morning's opening levels. It may be unchanged to only slightly better on the day with a few exceptions."

"It was a pretty slow day," another trader agreed, "with not much going on" amid the restrained volume during the truncated half-session. "It got quiet early. There were a couple of small things happening, but then things pretty much died down around 11 o'clock [ET] and didn't pick up after that."

Qwest bonds trade busily

One of the traders said that there had been "a fair amount" of dealings in Qwest Corp.'s 8 7/8% notes due 2012; he saw the Denver-based telecommunications company's bonds up ½ point to a point, around the 96 level, but he did not know why those bonds were better. "We're trying to figure out why."

He said he had seen no fresh news about the company that might explain the heavier volume - a market source at another desk estimated that at least $22 million had traded, probably the most of any bond, some at levels as high as 99 bid.

He said that "there had been some talk about a possible new issue" by Qwest, "but I don't know why" that would boost the bonds, particularly because "it doesn't seem like any of the other new issues are trading."

Healthcare bonds move higher

A trader said that "the bonds that are more in tune with the market, that are more market-sensitive" and that tend to move with the ups and downs of the general market, "have been active."

Among these have been healthcare issues such as Community Health Systems Inc.'s 8 7/8% notes due 2015 - seen by some as a sort of market benchmark because of the issue's large size, widespread distribution and easy tradability - which were at 93 bid, 94 offered.

He also saw HCA Inc.'s 9¼% notes due 2016 begin around 92 bid, 93.5 offered. "They looked like they were fairly active," moving between 93 and 94, "so it was kind of wide, with the bids at the lower end of that range."

New Fresenius bonds keep firming

The trader also saw the new Fresenius 9% notes due 2015 - $500 million of which had priced on Thursday at 93.076 and which then had moved up to around the 97 level by the end of that session - "up another couple of points" from Thursday at 99.75 bid, "so it;'s up almost 7 points from the new issue, so that sector seems to be OK."

He said that "investors who played in that deal got a nice package."

Later in the session, another trader said saw those bonds even better, quoting them at par bid, 101 offered.

Charter moves up from Thursday finish

A trader said that "it sounded like there was some activity in Charters," whose bonds had gyrated around in active dealings on Thursday on the news that two of the debt-laden St. Louis-based cable-TV operator's subsidiaries had failed to make interest payments totaling nearly $74 million of several issues of their bonds. While the Charter bonds had initially fallen on Thursday - with one issue, its 8% notes due 2012 sliding as much as 8 points to the 78 level - a number of the Charter bonds bounced off their lows before the end of Thursday's session and several actually ended higher.

On Friday, the trader said, "they seemed to be all over the lot. He quoted the company's 11% notes due 2015 at 16 bid, 16.75 offered, "up a tad from [Thursday]." The issue had traded on Thursday as low as 11¼ bid before finishing the day at 13.5, and then continuing to bounce back up during Friday's short session.

Charter, he said, "was a sort of improved situation." He said that "when [a company] misses a coupon, some people say 'they missed the coupon, I'm out.' They have to do that," explaining the initial drop, from which the bonds later rebounded. "It trades like equity anyway," he said, "so nobody should have been surprised."

At another desk, Charter's 8% notes due 2012, which had been quoted down sharply on Thursday, were seen having bounced back to the tune of 8 points Friday, ending at the 86 level. The 11s were quoted at nearly 17 bid, which the market source called a gain of more than 3 points on the day. Charter's 10¼% notes due 2010 were meantime seen having screamed upward by as much as 8 points to the 52 level.

Smurfit-Stone trades around

A trader said that Smurfit-Stone's Container's bonds were trading around, a day after they had fallen on reports that the Chicago-based corrugated packaging manufacturer is preparing a Chapter 11 filing. He saw its 8¼% notes due 2012 at 12 bid, 14 offered, unchanged on the day.

At another desk, however, those 81/4s while quoted around a similar level above 12, were 3 points better on the day.

Yet another trader, noting that the bonds had gone as low as 9 on Thursday before coming back up to 13, said that on Friday, it was at 12 bid, 13 offered, "one off from yesterday's close."

"I was seeing more quotes than actual trades," he said, with a day's high at 12.375.

Nortel continues to languish

Nortel Network's bonds meantime continued to languish at the lower levels to which they had moved since the Toronto-based telecom equipment maker's bankruptcy filing earlier in the week.

A trader saw Nortel Networks Inc.'s 10 1/8% notes due 2013 at 18 bid, 20 offered, unchanged on the day.

Another called them in "shifting around in a 17-18-19 range, without much action today."

And a market source at another shop pegged the company's 10¾% notes due 2016 down 1½ points on the session to 18.5.

However, yet another market source said that the 10 1/8s managed to bounce back and end up 1 point at 19, while the 103/4s gained ½ point to end at 18.5 bid.

Terra bonds take off

A trader said that he had not seen any movement in Terra Industries' 7% notes due 2017 on the news that the company, a manufacturer of nitrogen fertilizers, had received an unsolicited acquisition offer from an industry rival. CF Industries said that it will pay $20 per share in stock for Terra, or $2.1 billion total. The offer envisions Terra shareholders getting 0.4235 of a CF Industries share for each Terra share they hold, or a 34% premium to the company's recent stock price levels.

Deerfield, Ill.-based CF Industries said that its proposal was not contingent on financing, though it said it may have to refinance Terra's debt, including its $330 million of bonds.

While Terra's New York Stock Exchange-traded shares soared $4.20, or 25.78%, to $20.49 on volume of 19 million, almost five times the norm, the trader said that the bonds, which had traded between 73 and 74 in December and which had moved up around the 74 mark earlier in the month, "looked like they were relatively stable."

However, a little closer to closing time, another trader said that the Terra bonds had taken a "big jump" to around the 90 bid level, although he said they were "not heavily traded at all," saying there were perhaps one or two large trades, in the $1 million-plus range, at that higher level.

Yet another trader said he had heard quotes as high as 93 bid, 94 offered for the bonds.

Nightmare for mattress maker

A trader saw Sealy Corp.'s 8¼% notes due 2014 down 4 points on the day at 48 bid, 50 offered after the bedding company reported an unexpected loss for the fiscal fourth quarter ended Nov. 30. For the quarter, the company posted a loss of $42 million, or 46 cents per share, versus its year-earlier net income of $17.1 million, or 18 cents per share.

Another market source quoted those bonds at 54 bid, and called that down 6 points on the day.

Ford cruises higher

A market source saw some upside movement in Ford Motor Co.'s debt, quoting its 9.30% bonds due 2030 4 points better at 26 bid, and its 6 3/8% notes at 22 bid, as much as a 6 point gain.

Elsewhere in the autosphere, a trader saw General Motors Corp.'s 8 3/8% bonds due 2033 up 1 point at 16 bid, 18 offered, while Ford's 7.45% bonds due 2031 were up ¾ point to 25.75 bid, 27.75 offered.

Another trader meantime saw the GM benchmarks at 17 bid 19 offered, and said he thought the bonds were trading "sideways." He also saw the Ford long bonds little changed at 25 bid, 27 offered.

He also saw GMAC LLC's 8% bonds due 2031 at 52 bid, 54, also "trading sideways".

Among the supplier companies, Visteon Corp.'s 7% notes due 2014 lost ½ point to end at 9

MetroPCS off recent highs on price-war fears

A trader saw the new MetroPCS 9¼% notes due 2014, $550 million of which had priced on Wednesday at 89.5 bid and then moved up, continuing to trade somewhat below their post-pricing highs, which had taken the bonds up to a 91.5-91.75 bid range.

He noted that on Thursday, they dropped 1 to 1½ points, blaming the downturn largely upon the Dallas-based wireless carrier's larger industry rival, Sprint Nextel Corp., unveiling a new $50 unlimited service plan that takes direct aim at MetroPCS and another smaller wireless operation that has made name for itself in that particular niche of the telecom business, Leap Wireless International Inc. That move by Overland Park, Kan.-based Sprint, the third-largest U.S. wireless carrier behind Verizon Wireless and AT&T, has sparked industry fears of a wider and more financially destructive price war between the wireless companies.

He saw the bonds trade earlier in the day at 91.7 bid, 92.5 offered, but said they came off that peak level to settle at 91 bid, 92 offered around midday, so "they're still a little bit better than [Thursday], but well off their highs for the day."

Another trader saw the MetroPCS bonds at 92.5 bid. 92.5 offered, which he called down a point, and said that Leap subsidiary Cricket Communications Inc.'s 9 3/8% notes due 2014 were likewise down a point at 90 bid, 91 offered. Sprint Nextel's 6 7/8% notes due 2013 were off 1½ points at 47.5 bid.

$1.38 billion week

The primary market did not turn out any news during the Friday session, sources said.

Issuers priced three tranches of bonds during the Jan. 12 week - two dollar-denominated tranches and one euro-denominated tranche which was the first traditional high-yield euro tranche to price in almost a year and a half, sources said.

All told, the week saw $1.38 billion equivalent of exchange-adjusted issuance, according to Prospect News data.

Fresenius US Finance II Inc. priced the week's largest deal on Thursday, with an upsized two-part offer of senior notes due July 15, 2015 (Ba1/BB).

The Bad Homburg, Germany, pharmaceuticals firm priced $500 million of 9% notes at 93.076 to yield 10½%. JPMorgan led the dollar tranche.

Fresenius also priced an upsized €275 million tranche of 8 ¾% notes at 93.024 to yield 10¼%.

Deutsche Bank Securities led the euro-denominated notes tranche which was upsized from €200 million.

The dollar-denominated deal played to a $4 billion order book but was not upsized because the company did not need to issue any extra dollar-denominated bonds, according to a syndicate source.

The upsized euro tranche was taken down primarily by European accounts, the source added.

Fresenius was the first broadly marketed, euro-denominated high-yield issuance from a Europe- or United States-based company since July 26, 2007, when Intergen NV, priced €150 million of 8½% notes at 99.174 to yield 8 5/8%, part of an overall $1.875 billion equivalent three-tranche deal.

Also, the Fresenius deal provided an exception to one of the recent rules of the primary market because it was apparently not driven by reverse inquiry, as most if not all of the other late-2008 early-2009 deals have been driven by reverse inquiry, market sources say.

On the other hand the MetroPCS Wireless, Inc.'s upsized $550 million issue of notes mirroring its 9¼% senior notes due Nov. 1, 2014 (B3/B), which priced at 89.50 on Wednesday, was driven by $250 million of reverse inquiry, according to a buy-side source.

This investor contended that the book for the original $300 million offer was filled before Wednesday's investor call even got underway.

JPMorgan, Banc of America Securities and HSBC were joint bookrunners for the deal.

Continued inflows

The high-yield mutual funds continued to see formidable inflows of cash during the most recent week.

AMG Data Services reported that the funds saw inflows totaling $535.063 million for the week ending Wednesday, a market source said.

That represented the fourth consecutive week of positive flows of greater than half a billion dollars. The total for that four-week period is $2.84 billion, according to Prospect News analysis of data provided by market sources.

The most recent inflow is also the seventh consecutive positive flow. All told the seven-week period has seen $3.3 billion of cash come into the weekly reporting funds, the greatest cash swell since $4.4 billion came in during a two-week period ending in early September 2003.

"People aren't surprised because late last year the market was way oversold," a syndicate official said on Friday.

Looking ahead

The Jan. 12 week ended with a single deal on the active forward calendar.

Landry's Restaurants, Inc. will begin a roadshow on Tuesday for its $270 million offering of senior secured notes due 2011.

The deal could price during the week of February 2.

Credit ratings remain to be determined.

Jefferies & Co. is the bookrunner.

Elsewhere Intelsat Subsidiary Holding Co., Ltd., a subsidiary of Intelsat, Ltd., announced that it plans to fund a cash tender for two series of outstanding notes with an offering of new senior notes.

The size of the tender is $200 million, which is the likely size of the bond deal, Dianne VanBeber, Intelsat's director of investor relations, previously told Prospect News.

Goldman Sachs & Co., the dealer manager for the tender, is the likely underwriter for the new senior notes, VanBeber added.

Finally, one high-yield mutual fund manager expects HCA, Inc. to show up in the near term with a deal driven by reverse inquiry, and likely to be led by JPMorgan.

This buy-sider declined to hazard a guess to what size the deal might be.

However, this investor counseled, whereas in mid-to-late December the buy-side wanted to see deals from high-quality credits without a whiff of cyclicality, the new year has turned up one further requirement: size.

What the buy-side now wants to see are high quality non-cyclical names coming to the primary market with big liquid issues, the junk bond investor said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.