Sirius orbits on reported EchoStar purchases; NOVA tempers gains as bank, fund deny deal; funds gain $725 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 5 - Sirius XM Radio Inc.'s bonds were flying high Thursday, along with the New York-based satellite radio broadcaster's shares, on news reports that another satellite communications company, EchoStar Corp., has been accumulating Sirius XM's near-maturing debt, fanning market buzz that EchoStar's chief executive, Charlie Ergen, may be angling to try to acquire Sirius, either in or out of bankruptcy.

NOVA Chemicals Corp.'s bonds, and its shares, retreated by several points from the strong gains seen Wednesday, after officials of the Canadian province of Alberta denied earlier media reports that financial arms of the provincial government might step forward to lend the troubled Calgary-based chemical company $100 million it needs to satisfy conditions of its bank credit agreement.

Another Canadian company, Domtar Corp., was also on the downside, as the Montreal-based paper company announced plans to cut its output, after reporting a wider fourth-quarter loss.

Traders saw continued brisk interest in the bonds of Freeport McMoRan Copper & Gold Inc., helped by speculation of stronger prices for its key products, copper and precious metals.

In the primary market, Dole Food Co. Inc. said in a regulatory filing that it may sell as much as $500 million of new secured bonds to refinance existing debt.

Funds see $725 million inflow on week

As trading was winding down for the session, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday, $725.5 million more came into the weekly reporting funds than left them. It was the 10th consecutive inflow and the fifth inflow of 2009, against no outflows, and follows the $352 million cash infusion seen last week, in the period ended Jan. 28.

Throughout the week sources in mutual funds reported seeing a great deal of cash coming in.

Also bank loan mutual funds saw $135 million of inflows for the week that ended Wednesday, AMG said - the biggest positive flow since the week ended July 4, 2007, according to a market source.

During the past 10-week span of cash additions, dating back to the week ended Dec. 3, net inflows have now totaled $4.63 billion, according to a Prospect News analysis of the AMG figures.

On a year-to-date basis, 2009 inflows now stand at $2.819 billion so far this year, up from the previous week's total of $2.093 billion, according to the analysis.

That healthy inflow figure means the year is certainly off to a better start than was 2008, which began with several consecutive outflows, although last year ultimately ended with a cumulative net inflow total of $2.123 billion, its peak level for the year. It should be noted, however, that most of that total gain was recorded in the final weeks of the year, the surge of funds coming in reflecting the junk market's upturn after the Federal Reserve announcement of a sharper-than-expected interest rate cut and the central bank's pledge to take other measures to stabilize and revive the credit markets and the overall economy.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash to and from the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

Market indicators turn mixed

The widely followed CDX High Yield 11 index of junk bond performance, which gained ¼ point on Wednesday, reversed direction on Thursday, with a trader quoting the market measure down 5/8 point at 72½ bid, 73 offered.

The KDP High Yield Daily Index was meanwhile up 13 basis points on the day at 54.46, although its yield widened by 2 bps to 13.21%.

In the broader market, advancing issues continued to lead decliners, by a nine-to-seven margin.

Overall market activity, measured by dollar-volume totals, rose about 2% from the levels seen in Wednesday's session.

A trader said that "the volume numbers look moderate, and the changes were about even, the same number up as down."

Another trader, noting the relative falloff of activity - both in terms of overall volume and less of the kinds of volatile movements seen earlier in the week, in issues such as NOVA Chemicals, for instance, commented that "I think a lot of [the reason for the cooling off] is probably focused on what this bank [bailout] bill is going to look like, and I think people are kind of watching a lot of the financials."

He said that trading in junk and distressed names - the two seem to have more and more in common these days - has recently "been in those patterns where you get some days where a lot of stuff happens," as opposed to other days, when not much is going on.

"The new-issue stuff has a little bit of action to it - although the price swings are not particularly wide." He said he had not seen the new Landry's Restaurants Inc. issue that priced Wednesday "at all," but the new El Paso Corp. bonds that also priced Wednesday have been "reasonably active," as had the new investment-grade rated Altria Group Inc. bonds that came to market on Tuesday. However, even with such interest in those new bonds, "it's pretty spotty, compared to what I would have expected."

He said that he was "just writing it off to people watching the equity tape and waiting to see what [the government officials in Washington] are going to spill before the weekend."

Some serious gains for Sirius bonds

Sirius Satellite Radio's bonds, and those of its former rival, XM Satellite Radio Holdings, now a part of Sirius, were seen gaining altitude, as The Wall Street Journal reported that EchoStar Corp. had bought a stake in the satellite broadcaster's maturing debt.

A trader saw Sirius' 9 5/8% notes due 2013 jump to 33.75 bid from 25.25 on Wednesday, on volume of some $17 million.

He said that if the Journal story - which was based on information from unidentified sources - turned out to be correct, "that's pretty significant news."

Another trader said that Sirius "was busy for a while," estimating that about $20 million of the bonds traded "as high as 34ish" in response to the EchoStar story, while XM's 13% notes due 2013 were up as much as 10 points on the day, at 37 bid, 38 offered.

Another market source saw those XMs do even better, pushing as high as 38.5 bid, a gain of more than 12 points, while the Sirius '13s gained more than 9 points to close at 34.5.

The Journal reported that EchoStar had acquired a portion of a $300 million tranche of Sirius convertible debt slated to mature on Feb. 17. Sirius recently did a debt-for-equity exchange that brought the amount of the outstanding converts down to around $180 million. The Journal said it was not clear whether EchoStar had participated in that exchange offer.

As to EchoStar CEO Charlie Ergen's motive for buying the Sirius debt, the paper said that EchoStar might be pursuing a strategy to use the debt as a way to gain control of Sirius XM and its satellite assets - or at least exert considerable influence in possibly negotiating to buy them from Sirius - either outside of bankruptcy, or perhaps, if need be, by forcing the radio broadcaster into a filing. Neither Sirius nor EchoStar would comment on the story, or the speculation.

Sirius is facing a total of some $925 million of debt repayments this year, including $400 million of 10% converts due Dec. 1 which were issued by XM back when it was an independent satellite radio provider, before last year's merger with Sirius. Those bonds were seen having gained over 6 points on the day to the 44 level, and 14 points from levels they held earlier in the week.

Englewood, Colo.-based EchoStar - formerly the operator of what is now known as the DISH Network satellite TV broadcaster - is now a satellite TV technology company since its split last year from DISH, with EchoStar operating the satellites that DISH, the Number-Two U.S. satellite TV broadcaster after rival DirecTV, uses to beam its programming to its customers. EchoStar also makes and sells the set-top boxes and other hardware used in the reception of the DISH broadcasts. Although the two companies are now officially separate, their respective headquarters are near one another in Englewood, a Denver suburb - and Ergen is the chairman, CEO and president of both of them.

Motorola bonds move up

Also among the technology names, a trader saw Motorola Inc.'s 6% notes due 2017 pushing up to a round-lot level of 64 versus prior levels at 63.25 bid, with $24 million traded.

He noted that the Schaumburg, Ill.-based electronics manufacturer - whose bonds had struggled earlier in the week on weak numbers - "went as low as 61.5 today - they initially got hit, but then had a nice rebound" back up to their closing levels.

He saw no news developments on them.

Freeport McMoran off, but still a market favorite

A trader saw Freeport McMoRan Copper & Gold's floating-rates notes due 2015 trading down to 70 bid from 71.5 on Wednesday, on volume of $19 million , and observed that "all of the Freeports were weaker" by that same 1 to 1½ points range.

While he did see the company's 8¼% notes due 2015 unchanged at 87.5, on $12 million traded, he pegged its 8 3/8% notes due 2017 at 84.5 bid, down from 85.625 previously, on $12 million of turnover, "lots of it in odd lots," and saw its 6 7/8% notes due 2014 dip to 95.5 bid from 97 on Wednesday, with $6 million of the bonds changing hands.

At another desk, a trader, referring to the movement in the Freeport 2015 floaters, agreed that "another $20 million of the Freeport McMorans traded today," saying that the name "manages to trade between $20 million and $75 million bonds every day." When asked how long this consistently strong volume in the Phoenix-based metals mining company's paper has been going on, he exclaimed "gosh, it feels like almost a month at this point."

He noted that "they trade [just about] every day in bigger size than a lot of the other stuff" - whether there are specific news developments pushing them up or down, or not. "It's maybe the only bond that has been consistently trading, day in and day out.

"With a lot of stuff, we'll get a day or two where people care - and then it will disappear for weeks on end. But that one has been pretty steady."

The credit seems to have benefitted from recent analyst opinion that its main products - copper and precious metals like gold and silver - would see a rebound in their prices. For instance, UBS analyst Brian MacArthur, in a research note on Wednesday, upped his forecast for gold by an average of 30% for 2009 to 2011; he forecast that the price would reach $1,000 an ounce this year.

No aid for NOVA; paper pushed lower

Back on the downside, NOVA Chemicals' 7.40% notes slated to come due on April 1 were seen having partially retreated from the strong gains they had posted on Wednesday on speculation that the company was close to an agreement to raise $100 million it needs to meet the requirements of its bankers.

The two potential sources for the additional money identified in media reports Wednesday, both arms of the Alberta provincial government, subsequently denied that any deal to provide NOVA funds was in the works.

A trader saw the 7.40s having retreated to 68.5 bid - a 322% yield to maturity - from Wednesday's closing level at 70, but he saw only $1 million of the bonds traded, in sharp contrast to Wednesday's action, when some $30 million of those bonds changed hands, making it one of the day's busiest issues, as they shot up to 70 from Tuesday's finish around 55-56.

A second trader, also seeing the notes in a 68-70 context, said the day's activity was "no big deal."

Another trader quoted the bonds at 65 bid, 67 offered, down from 70, but said that while "decent size had traded" on Wednesday, "today, I don't see much of anything" in them.

He also saw its 6½% notes due 2012 around 35-36, although he acknowledged that it was "really the short one that had run up."

A market source at another desk said the 7.40% bonds had actually traded up during the day on smallish odd-lot transactions, even reaching an early zenith of 80 before coming off that peak, and then finally finishing around a point or two higher on the session. However, on more substantial trades better representative of market action, the bonds lost several points.

Meanwhile, the 61/2s, another trader said, had closed at 36 bid, which he called up 1½ points, "so one is up and the other is down."

But a different market source said the 36 price represented a 2 point retreat from Wednesday's highs.

NOVA's New York Stock Exchange-traded shares, which on Wednesday had more than doubled at one point during the session before still ending up nearly 50% on 16 times their usual volume on the chance that NOVA had solved its near-term financing problem, came back down to earth on Thursday; they initially plunged nearly 21% from Wednesday's close, before bouncing off that low to eke out a gain of 5 cents, or 3.09%, to $1.67, on volume of 6.8 million shares, or nearly five times the norm.

Nova's bonds have recently been on a wild roller-coaster ride, with the 7.40s plunging from levels in the mid-80s just a week ago down to the mid-50s earlier this week, and the 61/2s swooning from around 40 bid down to 27, on investor anxiety over whether the $250 million principal amount of the April 1 bonds will be paid off when they mature, and more immediately, whether NOVA will be able to raise the $100 million it needs by the month's end to comply with its covenant and keep the bankers at bay. Major ratings-agency downgrades, citing the overall problems of the beleaguered chemical industry as well as NOVA's own weaknesses, did not help matters any.

However, it appeared on Wednesday as though NOVA's short-term problems, at least, would soon be over, as the Canadian newspaper The Globe and Mail reported that NOVA might be close to a deal on borrowing the needed $100 million, either from AIMCo - Alberta Investment Management Corp., a $75-billion pension plan owned by the Alberta provincial government, or ATB Financial, a lender, also owned by the provincial government, having $23.3 billion of assets.

The paper also reported speculation that the company's lending group would then be willing to waive or rework covenants on other loans that come due in coming months, while investment banks were already proposing stock-sale deals to NOVA, on the assumption that resolution of its near-term financial problem would push the shares up and make put it in a position to raise more cash via an equity sale.

However, on Thursday, hopes for a quick resolution to NOVA's funding problem were dashed, as Alberta provincial authorities turned thumbs down on the notion of bailing NOVA out. Officials of both AIMCo and ATB said late Wednesday after the financial markets had closed that speculation of their respective companies' involvement in a NOVA rescue was false, while Ed Stelmach, the provincial premier - roughly equivalent to a U.S. state governor - answered in the negative when asked on Thursday by reporters if his administration might help NOVA out with its funding. Alberta officials, echoing NOVA executives, have in the past expressed confidence in NOVA's ability to work with its lenders on modifying the loan terms to fit the company's current situation.

Under the terms of its credit facility, which the company and the lenders recently amended to relax its terms, NOVA must raise $100 million by Feb. 28 to remain in compliance with its covenants and keep access to its credit line, and then must come up with another $100 million by the end of June.

Domtar down after loss, output cuts

Another Canadian company whose bonds were trending lower Thursday was papermaker Domtar, after it posed a wider-than-expected fourth-quarter loss and announced output cuts.

A trader called the credit "definitely weaker," with its 7 7/8% notes due 2011 dipping more than a point to 92.25 bid, on $6 million traded, while its most active issue, its 7 1/8% notes due 2015 dropped to 73.25 bid from 74, on $13 million traded.

Domtar announced that its fourth-quarter loss widened to $676 million, or $1.31 per share, versus a deficit of $26 million, or 5 cents a share a year earlier. Excluding unusual items, Domtar showed a 4 cents per share loss, versus the nickel per share profit Wall Street had been expecting.

The company - which had already been cutting back its operations - also announced further reductions in production capacity to contend with falling paper demand, idling a paper production line in Plymouth, N.C., a move that will affect about 185 employees, and cut output by 293,000 tons.

New El Paso bonds hold gains

Traders were quoting the new El Paso Corp. 8¼% notes due 2016 in a 97.5-97.75 context, around where the bonds had finished on Wednesday after having been freed for dealings. The Houston-based natural gas operator priced $500 million of the bonds at 95.535.

Several traders said they saw no sign of the Landry's Restaurants 14% secured notes due 2011. The Houston-based restaurant and gaming operator priced $295 million of the bonds at 88 to yield 20.346%.

Dole refinancing

The primary market sat still, save for an announcement from Dole Food Co., Inc. that it intends to refinance existing bond debt by issuing an expected $500 million of new notes.

Dole Food is expected to bring a $500 million maximum offering of high-yield notes, according to market sources who cited an 8-K document that the company filed on Thursday with the Securities and Exchange Commission.

Proceeds are expected to help refinance $345 million of 8 5/8% notes due 2009 and $400 million of 7¼% notes due 2010.

Dole disclosed the notes when it announced that it has launched an amendment to its senior secured credit facility that would allow for the issuance of notes secured by junior liens on certain U.S. assets.

The amendment would permit the company to sell the greater of $500 million of new notes or an amount that, when added to the outstanding senior secured debt, equals 3.75 times the last 12 months' EBITDA.

In addition, the amendment would add a senior-lien leverage ratio covenant and increase pricing.

Furthermore, the amendment would allow the company to provide for up to €45 million of the European Commission's competition decision requirements without using the existing debt basket capacity.

Deutsche Bank is leading the amendment, a market source told Prospect News.

Where's the real junk?

One high-yield syndicate official professed satisfaction on Thursday at hearing the terms of Landry's Restaurants, Inc.'s $295.5 million issue of 14% senior secured notes due Aug. 15, 2011 (B3/B), which priced Wednesday at 88.00 to yield 20.346%, via Jefferies.

"That's the first hairy deal that has gotten done this year," the official asserted.

The source conceded that Landry's new 2.5-year bond represents a fair amount of risk, especially in a down economy, but countered that the paper is secured with a first-lien, and added that the company has about $100 million of EBITDA.

"If it goes belly up you still might be money-good," the banker said.

"The actual value of the underlying assets could be sufficient for the investors to be covered."

More to the point, the banker insisted that recent deals from Chesapeake Energy Corp. (Ba3/BB) and El Paso Corp. (Ba3/BB-) don't serve as true barometers for the present high-yield primary market.

"Guys are just playing it safe in those deals," the banker said, adding that 2009 issues from CSC Holdings, Inc./Cablevision Systems Corp. (B1/BB), MetroPCS Wireless, Inc. (B3/B) and Nielsen Finance LLC and Nielsen Finance Co. are more in the classic high-yield mold.

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