Junk market buoyed by stock, Treasury gains; Sensata downsizes deal

By Paul Deckelman and Paul A. Harris

New York, April 18 - Junk market players pretty much took their cues from the equity and Treasury markets Tuesday, with the gains in those markets on more dovish interest-rate talk coming out of the Federal Reserve helping to keep the high-yield secondary floating along.

But even though the junk bond market felt firmer, few issues were actually breaking out, with most names content to join what one trader facetiously termed "the up half a point club." One of the few exceptions to this generally bland trend came out of the distressed debt markets, where bankrupt Linwood, Pa.-based foam rubber products manufacturer Foamex International Inc.'s bonds were seen solidly higher - quoted up as much as four or five points.

Not everybody was riding the wave higher; airline issues, led by industry giant AMR Corp., were seen falling in response to news that world crude oil prices had continued to escalate, passing the $71 per barrel mark in Tuesday's dealings.

A high-yield syndicate official said that against a backdrop of rising stock prices the broad junk bond market showed strength on Tuesday.

The source marked junk up three-quarters of a point to a point on the day.

In the primary, meanwhile, for the second consecutive session no new issues were priced while the new issue calendar continued to build.

Cumulus Media plans $325 million

Cumulus Media Partners, LLC, a newly formed Atlanta-based private partnership created by Cumulus Media, Inc., Bain Capital, The Blackstone Group and Thomas H. Lee Partners, announced plans on Tuesday to raise $325 million of proceeds with a two-tranche offering.

CMP Susquehanna Corp., the operating company, plans to sell $275 million of eight-year senior notes while CMP Radio Holdings Corp., the holding company, plans to raise $50 million of proceeds with the sale of 8.5-year senior discount notes.

Merrill Lynch & Co., Goldman Sachs & Co., Deutsche Bank Securities, UBS Investment Bank and Banc of America Securities are joint bookrunners for the acquisition financing.

MTR Gaming to launch $125 million

Elsewhere MTR Gaming Group, Inc., a Chester, W.Va.-based owner, operator and developer of gaming, horseracing and hotel properties, will begin a roadshow early next week for its $125 million offering of six-year fixed-rate senior subordinated notes.

Jefferies & Co. is the bookrunner for the deal, proceeds from which will help to pay for the construction of MTR's Presque Isle Downs facility as well as the $50 million slots license fee, to repay debt and for general corporate purposes.

Finally, on Tuesday evening Chemtura Corp., a Middlebury, Conn., manufacturer and marketer of specialty chemicals, announced that it intends to sell $400 million of 10-year senior notes to refinance debt.

Sensata rejigs financing

In other primary news Tuesday, Sensata Technologies BV downsized its multi-tranche notes offering to $750 million from $900 million, shifting $150 million to its term loan B.

The structure of the downsized notes offering remains unchanged, however.

The Attleboro, Mass., supplier of engineered sensors and controls plans to offer dollar-denominated and euro-denominated senior notes (B2/B-), as well as dollar-denominated senior subordinated notes (Caa1/B-).

Tranche sizes remain to be determined. Price talk is expected on Wednesday. The notes are expected to price on Friday.

Morgan Stanley, Banc of America and Goldman Sachs are joint bookrunners for the acquisition financing.

A source said that the bond deal is going very well despite the shift of proceeds into the bank loan. The source said that the bank deal is seeing strong demand, despite its tight pricing, and added that given those factors it just made sense for the company to shift the $150 million of proceeds.

Elsewhere Mariner Energy Inc. talked its $250 million offering of seven-year senior notes (B3/B-) at a yield of 7½% to 7¾%.

Lehman Brothers and JP Morgan are joint bookrunners for the debt refinancing deal from the Houston-based independent oil and gas exploration, development and production company.

Deal flow could pick up

A high-yield syndicate official said that deal flow in the primary market has picked up over the past couple of weeks.

The source cited factors including the completion of year-end financial filings on the part of prospective issuers and a halt - although perhaps a temporary one - in the sell-off in U.S. Treasuries, and said that given those circumstances opportunistic issuers might be lured into the market.

However with the forward calendar nearing the $3 billion mark at Tuesday's close the official also said that it is apt to remain in that vicinity for the time being.

High yield firm with Treasuries, stocks

Back in the secondary sphere, a trader remarked that "the rally we had in Treasuries and stocks precluded any dramatic [junk bond] movements on the downside."

The financial markets got a much-needed boost from the Fed, which released the minutes of the March 27-28 meeting of the central bank's policy-setting Federal Open Market Committee. The minutes showed that most FOMC members "thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy."

The Fed has been steadily tightening the interest-rate screws on the economy for nearly two years with a series of 15 incremental rate hikes - the most recent one last month - as a means of heading off potential inflation. The news that the tightening process may finally be just about over served to push stocks up, with the bellwether Dow Jones Industrial Average zooming 194.99 points, or 1.76%, to close at 11,268.77. Those gains were replicated in the broader equity markets, with the Standard & Poor's 500 index up 22.32 points (1.74%) to 1,307.65, and the Nasdaq composite index jumping 44.98 points, or 1.95%, to end at 2,356.14.

The Fed's less-hawkish position on interest rate increases also proved to be popular with investors in the Treasuries market, where the benchmark 10-year note rose 5/32 as its yield declined to 4.98% from an even 5% on Monday. While worries about the impact of higher oil prices limited the gains on the long end of the curve, on the short end, two-year note yields, for instance, tightened by 6 basis points to 4.84%, down from 4.90% on Monday. That also helped to steepen the two-year/10-year yield spread to 14 bps from 10 bps on Monday.

With both stocks and Treasuries up - and many junk bond issue movements tend to follow one or the other - the high yield secondary had a firm tone to it, traders said. One, for instance, quoted General Motors Corp.'s 8 3/8% notes due 2033 as "feeling better" as they moved up to 72 bid, 72.5 offered, which he saw as a ¾ point gain on the day.

At anther desk, the GM flagship bonds were seen up a point at 72 bid, 73 offered, and the underperforming carmaker's General Motors Acceptance Corp. financial unit's 8% notes due 2031 were up ¾ point at 94.75 bid, 95.75 offered, while GMAC's other issues - its 6¾% notes due 2014 and its 6 7/8% notes due 2011 - were each also up ¾ points, at 90.75 bid, 91.75 offered and 93.75 bid, 94.75 offered, respectively.

Traders saw only small movements in the bonds of other automotive-related names, including GM rival Ford Motor Co., whose 7.45% notes due 2031 were unchanged at 72.5 bid, 73 offered, a trader said, while the Ford credit arm's 7% notes due 2013 were half a point better at 88 bid, 88.5 offered.

Also up half a point, he said, were the bonds of bankrupt former GM subsidiary Delphi Corp., with its 6.55% notes scheduled to come due this year and its 7 1/8% notes due 2029 each at 66.5 bid, 67.5 offered. And he saw Delphi Corp.'s 6½% notes due 2008 also up half a point at 78.5 bid, 79.5 offered.

Lear strong

One name in the sector that did firm more than a point, the trader said, was Lear Corp., whose 8.11% notes due 2009 were up 1¼ points to 96 bid, 96.5 offered. He cited the news making the rounds of the market that the automotive interior components maker and its lenders had agreed on a $1 billion bank loan package "with more favorable rates than [the market] was looking for." However, he saw the company's 5¾% notes due 2014 unchanged at 81.25 bid, 82 offered.

Foamex jumps

Sometime-automotive supplier Foamex's bonds were meantime substantially higher, with a trader quoting the company's 9 7/8% subordinated notes due 2007 as having moved up as much as five points on the session to 50, while its 10¾% senior secured notes due 2009 were three points better at 106 bid, 108 offered.

He noted that it was not so long ago that the junior bonds "were trading as low as 7 or 9 and now they're up to 50 bid." The senior secured bonds' holders, he said, "maybe feel they're going to get the whole ball of wax" - i.e. a fully valued recovery when the U.S. Bankruptcy Court in Wilmington, Del. decides who gets what.

Another trader saw the 103/4s up perhaps a point to 105 bid, 107 offered, and saw the 9 7/8s at 51 bid, with no offerings, "up roughly six points" from Monday's finish.

Traders said that they had not seen any news out on the company, which sought protection from its junk bond holders and other creditors last September. However, there was news happening in Wilmington, even as they spoke; Foamex sought court approval to assume a key supply agreement for polyester polyols - one of the key ingredients in the manufacturing process.

Foamex currently gets its supplies of polyester polyols from Inolex Chemical Co. - anywhere from 60% to 95% of the chemical, it said in a filing Monday with the court.

Foamex, in arguing for being able to assume the supply contract, called polyester polyols "one of the fundamental building blocks for Foamex's foam products; without it, Foamex's manufacturing operations would grind to a halt."

A hearing on Foamex's motion is set for May 3. It is some $1.22 million behind in its payments to Inolex, which agreed to give Foamex four weeks to cure the amount owed under the contract, and has not asked for assurance of Foamex's future ability to pay under the contract.

Airlines down as oil rises

Also out of the distressed portion of the high yield universe came the day's other major story - the retreat of airline sector bonds in the face of escalating world crude oil prices. Those prices pushed past $71 per barrel in Tuesday's dealings, sending a shudder through investors who had been counting on lower oil prices in calculating the prospects of major airline names to preserve - or to regain - their financial health.

Crude price movements often serve as a reliable leading indicator of future price trends for distillates produced from crude, particularly jet fuel - whose sharply rising prices over the past several years helped to drive several major airlines into bankruptcy and threatened the stability of many others.

Industry leader AMR, parent of Fort Worth, Tex.-based top carrier American Airlines, is perhaps the largest single user of jet fuel in the world. Tuesday's oil price rise pushed AMR's 9% notes due 2012 down half a point to 96.5 bid, 97.5 offered.

Meantime, the bonds of bankrupt Delta Air Lines and Northwest Airlines were also seen losing altitude, a trader said, with Delta's 8.30% notes due 2029 down 1½ points at 25 bid, 26 offered, while Northwest's notes were at 42 bid, 43 offered, down a full two points on the session.

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