D.R. Horton leads housing sector higher; metal prices boost Freeport; more Sirius gains; Dole seen in coming week

By Paul Deckelman and Paul A. Harris

New York, Feb. 6 - The high yield market closed out the week Friday in an upbeat mood, taking a cue from equities, which rallied strongly on expectations that the Washington politicians would get their collective act together and pass a stimulus package aimed at reviving the economy - whose weakness became even more evident with the morning release of worse than expected job-loss and unemployment-rate figures.

Housing issues were seen stronger, with D.R. Horton Inc. leading the way, helped by expectations that a homebuyer's tax credit in the proposed economic stimulus package will boost demand.

Rising metals prices, particularly for copper, helped make Freeport-McMoRan Copper & Gold Inc.'s bonds the most actively traded junk issues of the day, at higher levels along with most of the rest of the market.

Sirius XM Radio Inc.'s bonds - given a boost Thursday on news reports that satellite TV technology company EchoStar Corp. had bought a chunk of its maturing debt - continued to gain altitude Friday; Sirius and EchoStar have been in talks on this, although there has been no clear result yet of those discussions.

NOVA Chemicals Corp.'s bonds continued to come back down from the peak levels they hit around mid-week on speculation that the Canadian province of Alberta would help the Calgary-based company raise the funds it needs to satisfy the conditions of its credit facility, now that the province has said "no" to that idea.

In the new-deal arena, with the pricings of new issues for El Paso Corp. and Landry's Restaurants Inc. having been completed, participants took a step back and readied themselves for an expected offering form Dole Foods Co., possibly as early as the coming week.

Meanwhile, the new El Paso bonds, which had begun moving up on the break after their pricing Wednesday, continued to firm - but traders report having seen neither hide nor hair of the new Landry's issue.

Market indicators rise

The widely followed CDX High Yield 11 index of junk bond performance, which lost 5/8 point on Thursday, got back on the beam Friday, with a trader quoting the market measure up ¾ point at 73½ bid, 74 offered.

The KDP High Yield Daily Index was meanwhile up 24 basis points on the day at 54.70, while its yield tightened by 8 bps to 13.13%.

In the broader market, advancing issues continued to lead decliners, by a nearly five-to-four margin.

Overall market activity, measured by dollar-volume totals, rose about 16% from the levels seen in Thursday's session.

"We saw good demand for paper pretty much across the board, a trader said. "Builders were up, financials, things of that nature. It was kind of strong."

He said that "there was a lot of real-money buying, as accounts were looking to put money to work," with the market flush with cash after the fifth consecutive weekly inflow of the new year to junk mutual funds - a key measure of market liquidity trends - against no outflows, and the 10th straight weekly gain since early December. EPFR Global, a Cambridge, Mass.-based fund-tracking service, said that in the latest week net inflows to U.S.-domiciled and international high yield funds totaled $463.2 million. That follows the previous week's reported inflow of $257.4 million, and brings the year-to-date total to $2.727 billion.

The EPFR figures point essentially in the same direction as the fund flow statistics generated by AMG Data Services of Arcata, Calif., although the precise numbers differ due to EPFR's inclusion of some non-U.S. funds in its universe; inflow patterns to these latter funds have not been as intense and pronounced as to the domestic funds, and foreign outflows have tended to bring the overall totals down. Market participants familiar with the AMG numbers meanwhile reported a $725.5 million net inflow to the junk funds in the latest week, for a year-to-date inflow of $2.819 billion. Counting the fund flows seen over the last five reporting weeks of 2008, inflows since that surge began total $4.63 billion, according to a Prospect News analysis of the AMG figures.

The flow of money into and out of the junk bond funds is seen as a generally useful and reliable market barometer of overall high yield market liquidity trends because there is no real reporting mechanism to accurately track the movements of cash to and from the junk market from other, larger sources such as insurance companies and hedge funds.

The trader called it "a very busy day - it seems like after early in the week, with all of the conferences and the month-end, it felt like activity picked up every day of the week - and today, we definitely saw that follow-through again."

While he saw automotive names like General Motors Corp. and Ford Motor Co. "relatively quiet," and auto supplier names like Visteon Corp. "fairly quiet - other than that, it was pretty busy today."

Another trader said that there was "definitely a generally better tone; I wouldn't say that the whole market was running, per se, but definitely on the back of the strength in equities" - which shrugged off the bad employment numbers to rise on hopes for a workable stimulus plan and changes to the financial bailout package, carrying the Dow industrials up over 200 points on the session - "there were better buyers around today."

Community Health Systems Inc.'s 8 7/8% senior notes were at 98 bid, a high-yield syndicate official.

"It feels pretty good," the banker said. "Equities are providing a lift.

"People are very focused on what's going to happen next week, around the government's stimulus program."

Horton heads higher

Senate passage Wednesday night of a tax credit of up to $15,000 for homebuyers, aimed at boosting moribund home sales, had an electric effect on some building-sector names, while builder shares were also up solidly.

Among the bonds, a trader saw D.R. Horton's 6½% notes due 2016 at 81 bid, well up from 76 earlier in the week, on volume of $9 million.

The Fort Worth, Tex.-based homebuilder's issue "could be the gainer of the day," he observed.

A market source at another desk saw those bonds up 4½ points to that same 81 level.

Horton's New York Stock Exchange-traded shares meantime shot up as much as 21.5% before coming off that peak level and finishing at $9.14 - still up by $1.07, or 13.26%, on volume of 24 million, almost three times the norm.

However, sector peer Hovnanian Enterprises Inc.'s bonds were little changed, with the 11½% secured notes due 2013 steady at 82.5 bid and its 6½% notes due 2014 likewise unmoved.

Freeport firms as copper climbs

As has been the case so often over the past several weeks, the most active name was Freeport-McMoRan - in fact, a market source said that mid-afternoon, Freeport had three out of the four busiest issues in Junkbondland.

One of the traders saw its 8 3/8% notes due 2017 trading at a round-lot level of 85 bid, which he said was up 1½ points on the day, with $42 million of those bonds having changed hands.

"Now that's volume!" he exclaimed.

He also saw the company's floating-rate notes due 2015 also up around that same amount at 71.5 bid, on turnover of $31 million, while its 8¼% notes due 2015 firmed ½ point to 88 bid, with $15 million traded.

Freeport has gained some days in busy dealings and has lost some days, but the gains have outnumbered the losses recently on expectations that the stimulus packages being rolled out in the United States and various other nations of the world will boost industrial demand for the company's main product, copper, while its other major product, precious metals, will benefit from interest by investors seeking to hedge against inflation or currency fluctuations.

On Friday, copper for March delivery traded at an intraday high of $1.6345 per pound, and ended the day up 12.85 cents, or 8.6%, at $1.6285 a pound on the New York Mercantile Exchange's Comex division

That capped a surge for the week of some 11%, powered by hopes that China - the world's largest single user of copper - will soon start reaping the benefits from a Chinese government stimulus package, spurring new demand for the shiny red-brown metal. On the year, copper prices are up more than 15%.

Gold meantime also stayed strong, and silver surged for a third straight session; Freeport is a major producer of both. Gold futures for April delivery rose 10 cents to $914.30 an ounce on the Comex, while March-delivery silver climbed 41 cents, or 3.2%, to $13.16 an ounce, finishing the week with a 4.7% rise.

Sirius seen higher for second session

A trader said that Sirius XM Satellite Radio' 9 3/8% notes due 2013 firmed to 36.5 bid from 34.5, on volume of $10 million, as The Wall Street Journal reported that Sirius had been in talks for months with EchoStar Corp. on the latter's recent accumulation of Sirius debt, but there had been no resolution of the matter.

A market source at another desk saw Sirius subsidiary XM Satellite Radio's 13% notes due 2013, which had also gained on Thursday, continuing on their upward flight path, rising another nearly full point to 39 bid.

The New York-based satellite radio broadcaster's bonds had shot up solidly on Thursday on a report in the Journal that EchoStar, which operates communications satellites used for former subsidiary DISH Network's TV broadcasting, had bought a sizable chunk of the $300 million of Sirius convertible debt slated to mature on Feb 17. There was market speculation that Echo Star, run by wily satellite industry veteran Charlie Ergen, might try to use its stake in the Sirius debt to angle for control of the radio company, either outside of the bankruptcy process, or if the occasion arose, by using its growing debt position to force Sirius into a court-supervised restructuring, with Ergen presumably in the driver's seat.

Neither Sirius nor EchoStar had any comment on the media reports and the attendant market speculation.

No more rise for NOVA

NOVA Chemicals' 7.40% notes slated to come due on April 1 fell to a round-lot level of 66.5 bid from prior levels at 68.5, on volume of $10 million, as hopes that a government-run bank or government-run pension fund in the Canadian company's home province of Alberta would put up the $100 million NOVA needs to satisfy its bankers, faded after government officials said they would not provide any financing.

Those bonds had begun the week languishing in the mid-50s, after having fallen to those levels the previous week from the mid 80s on investor concerns whether they will be paid off, and on generalized worries about whether the company would be able to abide by its credit facility covenants.

At mid-week, though, those bonds had soared into the 70s, even brushing the 80 mark at one point, on news reports that the Canadian company might be able to raise funds required by its lenders with the help of Alberta's provincial government. But by Friday, the bonds had come back down to the mid-60s after Alberta said it would not be involved in any such bailout.

The company's 6½% notes due 2012 dropped more than a point to 35.25, though on paltry volume of less than $1 million, a trader said.

"Their whole capital structure is lower, by about a point or so," he said, but on not a lot of volume."

However, another source called the 6½% paper up more than a point at 37.50.

Charter chokes on turnaround expert hire

From deep in distressed-debt territory, Charter Communications Inc.'s bonds fell anywhere from 2 to 6 points on the day following news that the company had hired a turnaround expert.

A trader quoted the 10¼% notes due 2010 at 57 bid, 58 offered, calling that a 3 to 4 point decline. The 8¾% notes due 2013 dipped 2 to 3 points to 72 bid, 73 offered and the 11% notes due 2015 closed at 15 bid, 16 offered versus 17 bid, 18 offered on Thursday.

Another trader saw the 10¼% notes at 54 bid, 55 offered, a loss of 5 to 6 points. He added that there was "not a lot of volume" in the name.

The St. Louis-based cable provider hired Greg Doody, a lawyer who had previously helped Calpine Corp. cut its debt in half. Charter has already said it was working with bondholders on a restructuring effort, but so far no deal has been made.

But the news of the hiring likely boosted chatter that the company was very close to filing for Chapter 11 protection. Doody's addition to Charter's staff is in addition to the hiring of Kirkland & Ellis and Lazard Ltd., both of which are bankruptcy and restructuring experts.

Charter currently has more than $20 billion in debt and recently missed a coupon payment.

El Paso continues rise, Landry's nowhere

Among the recently priced deals, a trader saw the new 8¼% notes due 2016 issued by Houston-based natural gas operator El Paso Corp. to have traded up to 99 bid, 99.5 offered. The company priced the $500 million issue on Wednesday at 95.535, to yield 9 1/8%, and it began moving up right from the get-go - to 96-97 on the break, 97-98 later Wednesday, and then up to around 97.75 bid on Thursday.

At another desk, a trader saw the bonds going out more at the 98 bid, 98.5 level, but still called that a ½ point rise on the day.

However, the whereabouts of Landry Restaurants' new 14% secured notes due 2011 remain a mystery - none of the traders at several different shops queried by Prospect News over the several days since its pricing on Wednesday have seen any trading at all in the issue. The $295.5 million face amount of the bonds priced at a deeply discounted 88, to yield an astronomical 20.346% - believed to be the highest yield for any junk bond since at least the end of 2001.

With an already-fat coupon to begin with and priced for an even juicer yield, the bonds, market players believe, are not going to circulate. "Jefferies [& Co., the underwriter] must really have it tight," one trader said. "Who knows? - maybe they took down half the issue."

Another agreed that "the boys at Jeffries have got that one locked up. They have them put away and they're not going to show anything [to] anyone."

Chesapeake Energy Corp.'s recently priced 9½% notes due 2015, on the other hand, have been trading around quite actively, and at higher levels, since their Jan. 28 pricing at 95.071 to yield 10 5/8%.

The Oklahoma City-based independent oil and gas exploration and production company's $1 billion of new bonds - the largest junk issue so far this year - began aftermarket trading at higher levels right out of the box, eventually pushing up to par and beyond. A market source saw the new bonds trading Friday as high as 101.063, on volume of around $7 million.

Deals expected

Although the primary market remained dormant on Friday, there are deals on tap for the week ahead, according to market sources.

Dole Food Co., Inc. is expected to sell bonds during the coming week, according to a buy-side source.

The Westlake Village, Calif.-based produce company is expected to bring a $500 million maximum offering of notes, according to market sources, who cited an 8-K document that the company filed on Thursday with the Securities and Exchange Commission.

Dole disclosed the notes when it announced that it has launched an amendment to its senior secured credit facility, which is being led by Deutsche Bank.

Another name bandied about on Friday was HCA, Inc.

Sources saw the Nashville-based health care provider's bonds trading better.

"The bonds are trading better because their numbers were better and because people are expecting a deal," said a high-yield mutual fund manager.

"But the market is trading better as well."

The company would probably show up with a second-lien deal, said the investor, who recounted that the word on the Street is that HCA is rate-sensitive, and reticent to print paper with a double-digit yield.

A single-digit yield might not be impossible, the buy-sider said, adding that the Hercules Holding II LLC/HCA Inc. 9 1/8% senior secured second-lien notes due November 2014 were trading in a yield context of 10% bid, 9¾% offered, while the 9¼% senior secured second-lien notes due November 2016 were trading at 10 1/8% bid, 10% offered.

"Their basket at the second-lien level is not infinite," the buy-sider said.

"They only have the room to do $1 billion to $1.5 billion."

$15 billion to $20 billion in view

A potential HCA deal, having been talked for weeks, failed to stir a great deal of enthusiasm during Friday conversations.

"That's been chattered for a long time," said one banker.

However, the source added, issuance indeed appears to be on the way.

"We're hearing that the backlog is pretty sizable," the banker said.

"One of the accounts sized it at $15 billion to $20 billion."

Certainly the demand for bonds is there, this and other sources said on Friday.

While AMG Data Services reported the 10th straight inflow to high-yield mutual funds for the week to Wednesday, an infusion of $725.5 million, buy-side sources have confided that a great deal of cash is now coming in, and the pace is accelerating.

The logical place to put that cash to work, they reason, is in the primary market.

"The only real way to get invested in size, is to play the new issue calendar because you're not going to be able to go out into the secondary market and put $50 million to $100 million to work without driving up the price, particularly in an environment where the dealers might be light in inventories," an investment banker said.

Meanwhile a hedge fund manager seemed to be more or less on the same page.

"You can't really buy anything in the secondary," the source said.

"The dealers don't really carry it anymore.

"To go in and try to buy a substantial position you're just working against yourself.

"You have to wait for supply to come, and jump in there and take it down."

$738 million week

With no issues pricing, on Friday the Feb. 2 week came to a close having seen two issuers raise $738 million of proceeds, the lowest dollar amount of issuance for any week thus far in 2009.

To recap, El Paso Corp. priced $500 million ($477.675 million proceeds) of 8¼% seven-year senior unsecured notes (Ba3/BB-) at 95.535 to yield 9 1/8%, and Landry's Restaurants, Inc. priced a $295.5 million ($260.04 million proceeds) of 14% senior secured notes due Aug. 15, 2011 (B3/B) at 88.00 to yield 20.346%.

The second lowest week thus far in 2009 was the Jan. 5 week which saw a single issuer, CSC Holdings, Inc. (Cablevision Systems Corp.), raise just over $750 million.

The biggest week thus far in 2009 was the Jan. 19 week during which three issuers combined to raise nearly $1.66 billion of proceeds.

Year-to-date issuance is $5.6 billion in 11 tranches, well behind 2008 issuance of $7.4 billion in five tranches to the Feb. 6 close.

Stephanie N. Rotondo contributed to this report.

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