Charter up on restructuring news, Sirius gains on DirecTV talks talk; funds gain $534 million, 11th straight inflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 12 - Charter Communications Inc.'s issues were seen pushing strongly higher on Thursday, their rise fueled by the news that the troubled St. Louis-based cable system operator had reached an agreement with certain of its debt holders to restructure its massive debt load via a pre-packaged Chapter 11 filing; most of its existing bond debt is planned to be taken out in exchange for a mixture of cash, new bonds, stock and warrants to buy shares.

Another upsider, also in the consumer communications arena, was Sirius XM Satellite Radio Inc., whose bonds had fallen on Wednesday on bankruptcy speculation about the company but then rebounded on Thursday on press reports that Sirius has held talks with DirecTV Group Inc., or with DirecTV's controlling shareholder, Liberty Media Inc. That could set up a battle of the billionaires between Liberty's John Malone and his arch-rival, EchoStar Corp.'s Charlie Ergen, for control of the financially faltering Sirius.

Faltering could also describe yet another big consumer communications company, Clear Channel, whose bonds were hammered down by multiple points for a third day this week, as investors continue to react badly to Monday's disclosure that the San Antonio-based radio station and billboard owner had drawn down the last of its revolving credit line.

With the primaryside having kept its momentum going admirably via Wednesday's pricing of three issues totaling over $1.3 billion of paper, new-deal players sat back to rest on their laurels and catch their collective breath, with nobody terribly anxious to do anything further in that regard, especially since Thursday was the last full trading day of the week, ahead of Friday's abbreviated session and Monday's full-market close for the Presidents Day holiday.

Meanwhile, the three deals that priced Wednesday - for Forest Oil Inc., HCA Inc. and an add-on offering for Chesapeake Energy Corp., as well as Tuesday's new deal from Denbury Resources Inc. - were seen down from the peak levels they reached after moving to the secondary side.

Funds gain $533.88 million

And 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 some $533.879 million more came into the weekly reporting funds than left them. It was the 11th consecutive inflow and the sixth inflow of 2009, against no outflows, and follows the $725.5 million cash infusion seen last week, in the period ended Feb. 4.

During that 11-week span of cash additions, dating back to the week ended Dec. 3, net inflows have now totaled $5.17 billion, according to a Prospect News analysis of the AMG figures.

A high-yield syndicate official said that the latest run of 11 flows is the biggest since another 11-week run commenced in late February 2003, a run of inflows that totaled $12 billion.

On a year-to-date basis, 2009 inflows now stand at $3.353 billion so far this year, up from the previous week's total of $2.819 billion, according to the analysis.

In contrast, 2008 began with several consecutive outflows, and such losses dominated the first part of the year, 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.

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, the week's inflows to domestic and foreign-based high yield funds totaled $686.97 million, on top of the previous week's $463.2 million, bringing the year-to-date total to $3.4 billion. EPFR also noted that inflows have now been seen in 11 consecutive weeks.

While the EPFR figures point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers usually differ due to EPFR's inclusion of some non-U.S. funds in its universe; for instance, in the latest week, its inflow total was considerably larger, the company said, because three of the 10 funds showing the largest inflows for the week were based abroad, including the single biggest gainer, domiciled in Luxembourg.

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 lower

The widely followed CDX High Yield 11 index of junk bond performance, which lost ½ point on Wednesday, continued in that same direction on Thursday, with a trader quoting the market measure off by ¼ point to 72.875 bid, 73.375 offered.

The KDP High Yield Daily Index was meanwhile down by 20 basis points on the day at 54.35, while its yield widened by 6 bps to 13.08%.

In the broader market, advancing issues fell behind decliners, by a more than four-to-three margin.

Overall market activity, measured by dollar-volume totals, fell by 12% from the levels seen in Wednesday's session.

A trader called the overall market down about ½ point to a full point. He suggested that "from what I saw, I think it's just that people are tired and ahead of the long weekend, they wanted to lighten up a bit."

That having been said, he added that "we continue to see better buyers of very defensive-type names like supermarket, food and things of that nature."

He said that on the other hand, "auto parts remain very heavy, and the auto [manufacturing] sector remains very heavy."

He opined that "we're seeing a kind of two-tiered market - anything distressed or headed that way is really feeling a [downward] push, but on anything better-rated, we're seeing people reach."

Charter bonds gyrate on Chapter 11 news

Among specific issues, the dominant name of the day was Charter Communications. News that the company will attempt to restructure its heavy debt burden via a pre-packaged Chapter 11 filing to be made by April 1 caused some of the bonds in the company's complex capital structure to gyrate sharply on the news, eventually turning solidly higher.

A trader said that Charter "really kept the guys busy" at his shop. Another agreed that "there's always activity in Charter - and then there was this news."

He saw the 10¼% notes due 2010 issued by the company's its CCH II LLC subsidiary as the big winner on the day, seeing it going out around the 75 level.

"It was very active today - everybody said they were trading Charter." He saw all of the company's bonds "higher across the board," although not all of the moves were as spectacular as the 10¼% bonds' rise was.

He saw another Charter 10¼% issue, this one due in 2013, "all over the lot," quoting them "up about 17 or 18 points" at 67 bid, 71 offered.

A market source saw the 2010s open about a point or so lower at 53 bid, then fall as low as the 50 level before zooming back up to end at 80 in heavy round-lot trading, the level steadily rising as the restructuring news was digested by the market.

A source at another desk saw the issue jumping more than 20 points on the day to end at 78 bid, on heavy volume, while the company's CCO Holdings LLC 8¾% notes due 2013 closed above the 76 level, up nearly 9 points on the session. Charter's 8% secured notes due 2012 were more than 5 points better at just below 90 bid.

Charter, which for years has struggled to get its debt levels and interest costs under control by a series of piecemeal debt exchanges and tender offers, announced that it had reached an agreement-in-principle with an ad hoc committee of certain of its debt holders on the restructuring deal, in the hopes of trimming the company's debt burden - estimated at some $21 billion - by around $8 billion.

The company envisions leaving its existing roughly $10 billion of bank debt in place, along with about $3 billion of its approximately $11 billion of bond debt

Charter said that it would exchange new CCH II debt for existing notes issued by that subsidiary and by Charter's CCH I LLC unit, with the CCH II holders to alternatively receive cash for their claims, while the CCH I holders would also receive newly issued common stock as well as notes.

Charter will fund the restructuring by issuing additional debt and having an equity offering, to be backstopped by certain of the noteholders.

Charter envisions leaving some of its bonds and bank debt, issued under its Charter Communications Operating LLC and CCO Holdings LLC divisions, outstanding.

As part of the deal, Charter also said that two other of its subsidiaries which had failed to make approximately $74 million in interest payments due on Jan. 15 on their various bonds, CCH I Holdings, LLC and Charter Communications Holdings, LLC, will make those payments within the allotted 30-day grace period. Holders of their notes will receive warrants to purchase the new stock.

Charter's current common stock - already nearly worthless, trading under $1 since mid-September and below a dime a share since mid-January - lost much of even that little remaining value on Thursday afternoon on the restructuring news, ending at 3.71 cents per share on the Nasdaq, down 3.44 cents, or 48.11%. Volume was 51.8 million shares, more than seven times the usual turnover. Much earlier in the decade, those shares at one time were worth as much as $23. The shares will be cancelled and company shareholders, presumably including Charter's largest investor, software billionaire Paul Allen, will receive nothing for their shares. However, Allen, who also owns a sizable portion of Charter's debt, will continue as an investor and will retain the largest voting interest in the company.

Sirius XM recoups Wednesday losses

Sirius XM Radio's debt regained most, if not all, of the losses it incurred on Wednesday after rumors began circulating that DirecTV was interested in buying the satellite radio provider.

A trader said Sirius' 9 5/8% notes due 2013 were back to levels seen on Tuesday around 41. The 13% notes due 2013 linked to former Sirius rival XM, now a subsidiary, were also better at 44 bid, 45 offered.

Another trader pegged the 9 5/8% notes at 41 bid, 42 offered and the 13% notes at 40 bid, 42 offered.

At another desk, the 9 5/8% notes were quoted at 42.5 bid, 43.5 offered. Yet another source placed the XM bonds at 45 bid, a gain of 1½ points.

The bonds bounced off Wednesday's lows in response to news reports indicating that DirecTV, the country's largest satellite-television provider, was in talks with Sirius about some sort of investment. There was some speculation that Calabasas, Calif.-based DirecTV would buy out troubled Sirius and repay all of its debt.

But with $175 million of convertible notes coming due on Tuesday - amid market buzz that the money-losing New York-based satellite radiocaster does not have the money to pay it - and with Sirius having reportedly already hired bankruptcy advisors, some investors are concerned that a possible Chapter 11 filing could get in the way, although one news article noted that a person involved called the preparations "procedural."

If Sirius does slide into bankruptcy, then EchoStar Corp., which recently made an unsolicited bid for the company - it was later rejected - would be the frontrunner in any sort of takeover deal. EchoStar already owns much, if not most of the $175 million in maturing debt, putting it in a powerful position in any restructuring scenario.

Sirius has rebuffed the unwanted overtures from EchoStar boss Charlie Ergen, and according to the news reports has turned to Ergen's main nemesis as a possible savior - John Malone of Liberty Media, which owns the majority controlling interest in DirecTV. Malone and Ergen are daily rivals who have long tangled for superiority out in space; Ergen, besides heading EchoStar, an Englewood, Colo.-based satellite operator and set-top box manufacturer, is also the boss of Dish Network Corp. formerly a part of EchoStar until its spinoff in late 2007 - and the nation's Number-Two satellite TV company behind DirecTV.

Clear Channel clearly falling

Elsewhere, Clear Channel Communications Inc.'s bonds continue to get pounded lower by bad investor reaction to news earlier in the week that the company had drawn the final $1.6 billion of its $2 billion credit line.

Clear Channel said that it borrowed the money to improve its cash flow amid continuing uncertainty in credit markets and economic conditions - but there have been some news reports raising the possibility that the big radio broadcaster - hard hit by the recession induced downturn in both radio and outdoor advertising -- may be positioning itself for a possible bankruptcy filing somewhere down the road, with the $1.6 billion replacing debtor-in-possession financing that it might not get in the currently dicey borrowing environment.

The company's 4.25% notes slated to come due on May 15, which on Monday slid 4 or 5 points into the high 80s from prior levels in the lower 90s, have continued sliding steadily downward and now languish around 72 bid.

The company's 6.25% notes due 2011, which initially cascaded down to the 25 level from prior levels in the mid-30s, were also on the slide on Wednesday and again on Thursday, coming to a close Thursday at 10 bid, in active dealings.

Terex topples on terrible numbers, covenant caution

A trader saw Terex Corp.'s 8% notes due 2017 "down a couple [of points] today," after the company reported a slide into the red during the last quarter, issued bearish sales guidance - and warned that it might violate its credit facility covenant obligations.

He saw the bonds fall as low as 76 bid, 78 offered during the session from prior levels around 80, then they "rebounded a little" to go out at 77 bid, 79 offered, which he called still down 2 or 3 points on the session.

The company's New York Stock Exchange-traded shares meantime plunged as much as 36% during the session before finally closing down $4.17, or 30.62%, at $9.45, on volume of 19.6 million, more than six times the norm.

Westport, Conn.-based Terex, which manufactures construction equipment as well as heavy machinery for the infrastructure, quarrying, mining, shipping, transportation, refining, and utility industries, reported after the close of trading on Wednesday that for the fourth quarter, it lost $421.5 million, or $4.46 a share, versus a year-earlier profit $174 million, or $1.67 a share. The loss was attributable to a non-cash charge of $459.9 million, or $4.84 per share, for the impairment of goodwill in Terex's construction, road-building and utility products businesses.

Terex predicted that its sales - which fell 20% from year-earlier levels in the fourth quarter - would be beaten down by another 30% to 35% for 2009. The company noted "increasing levels of cancellations in our backlog for crane and mining products, as well as delays in acceptance of deliveries."

Those problems, in turn, have put Terex on thin ice in regards to its covenant compliance. The company warned that it "may likely" violate a credit covenant as early as the end of the current quarter, since "despite the positive generation of cash during the fourth quarter, continued deteriorating business conditions...may likely cause the company to be in violation of the consolidated fixed charge coverage ratio covenant under its credit agreement as early as the end of the first quarter of 2009."

Terex further cautioned that it could not "reasonably estimate" how much money it would make or lose in 2009.

New energy issues trade softer

A trader said that the recent burst of energy-related new issues from Chesapeake Energy, Forest Oil and Denbury Resources, which had all firmed in secondary trading from their discounted respective issue prices "were actually a little softer today."

He said Forest Oil's 8½% notes due 2014 "gave back a point" from the highs they hit early in Thursday's session. They got as good as 97 bid, he said, but "then they drifted down to a low-96 handle, wrapped around almost near issue."

The Denver-based independent energy exploration and production company priced $600 million of the notes Wednesday, sharply upsized from the $350 million originally talked around the market. They priced at 95.15 to yield 9¾%.

He said that Denbury Resources' 9¾% senior subordinated notes due 2016 had gotten as high as 95.75 bid at Wednesday's close; however, in Thursday's dealings, they "gave back a little, -- they dipped down" to finish Thursday at 95.25 bid, 96.25 offered. The Plano, Tex.-based exploration and production company had priced $420 million of the bonds on Tuesday, upsized from the initially shopped $350 million, at 92.816 to yield 11¼%.

Another market source saw the Denbury notes trading at about 95.625 at mid-afternoon, on fairly busy volume of over $14 million, making it one of the day's volume leaders.

And the new Chesapeake 9½% notes due 2015 "gyrated - they dipped down at one point" to 97.75 bid, 98.5 offered, the trader said, but came off that low to end at 98.25 bid, 98.75 offered, ½ point above their issue price.

Chesapeake, an Oklahoma City-based oil and gas production company, priced $425 million of the bonds on Wednesday, upsized from $300 million originally, as an add-on offering to its $1 billion of identical bonds which had priced exactly two weeks earlier on Jan. 28. While the original bonds priced at 95.071 to yield 10 5/8%, and then had gradually moved as high as the 99 level, they came down a point or more when the news of the big add-on tranche hit the market on Tuesday, and ended up pricing at 97.75, to yield 10.004%.

He said that "the rest of the [Chesapeake] complex" was "still holding in pretty well. I think it's just waiting for this new issue to clean up and get the short-term investors out of the way, and then I expect to see these move back in line with the rest of the complex."

Another market source saw the Chesapeake bonds get as good as 99 before coming down from that peak level. Nearly $20 million of the bonds had changed hands by mid-afternoon, making Chesapeake as well one of the day's volume leaders.

Also in that energy arena, the source saw El Paso Corp.'s 8¼% notes due 2016 at 98.5 bid - down from 99 on Wednesday, but still well up from the 95.535 level at which the Houston-based natural gas company had priced $500 million of the bonds on Feb. 4, to yield 9 1/8%

New HCA bonds hang in higher

A trader saw HCA Inc.'s 9 7/8% secured notes due 2017 at 98.375 bid, 98.875 offered. That was down a little from the 98.5 bid level at which another trader had quoted those bonds earlier in the session - but well up from 96.673, where the Nashville-based hospital operator had priced its bounds on Wednesday, upsized slightly to $310 million from $300 million originally, to yield 10½%.

Wednesday's deals

The massive amounts of cash that have flowed into the high-yield asset class are one reason why issuers lately pricing deals may be leaving a little less upside for investors, according to a syndicate source.

Of the three deals that were priced during Wednesday's impressive $1.28 billion primary market session, only one continued to rally on Thursday, the official said.

To recap HCA Inc. priced a $310 million issue of 9 7/8% eight-year senior secured second-priority notes (B2/BB-/B+) at 96.673 to yield 10½%. Forest Oil Corp. priced an upsized $600 million (from $350 million) issue of 8 ½% five-year senior notes (B1/BB-) at 95.15 to yield 9¾%. And Chesapeake Energy Corp. did a $425 million add-on to its 9½% senior unsecured notes due Feb. 15, 2015 (Ba3/BB) at 97.75 to yield 10.004%.

Citing slightly different levels from the traders and sources quoted above, of the three, HCA was the only one that remained above issue price at Thursday's close, the sell-sider said, marking the new HCA 9 7/8% bonds up 2¼ points on the day.

Forest Oil, on the other hand, was 95 bid - not much lower than the 95.15 issue price, but nevertheless lower.

That's a new twist for a new deal market which has seen most of the issues priced since mid-December trade up decisively, the sell-sider said.

Chesapeake, meanwhile, ended the Thursday session flat.

"The HCA deal was many times oversubscribed, but they didn't upsize it," the syndicate official said.

"They didn't flood the book, which left demand high...which is probably why, among Wednesday's three deals, HCA is the only one that traded up."

Greased gears

A high-yield mutual fund manager also took note of a diminishing generosity on the part of HCA.

"We were seeing deals come with new issue premiums of 75 to 100 basis points," the buy-sider said.

This source, who admitted being severely cut back in the eventual allocation of new HCA bonds, reckoned the new issue premium in that deal to be only 25 basis points.

Syndicate sources, meanwhile, said that the premium was nearer to 35 to 50 basis points (one said 30 bps to 40 bps, another said 25 bps to 50 bps).

Nevertheless both these officials conceded that the mutual fund manager has a point: the new issue premium in HCA was less bountiful than those of deals that priced in late 2008 and earlier this year.

"Back then you had to pour a lot of oil on the gears to loosen them up and get the machine rolling," one syndicate source said.

"Now that the machine is rolling you don't have to be as generous."

Meanwhile there seems to be general agreement that the fact that the buy-side is now sitting on a lot of cash is no secret to issuers and their underwriters, who may, as in the case of HCA, be in position to drive a somewhat harder bargain.

Quieter ahead

In the wake of Wednesday's busy session, Thursday's primary market session passed quietly, according to a high-yield syndicate source who expects new issue activity to trail off significantly as companies enter their quiet periods prior to posting new numbers in order to comply with the Sarbanes-Oxley audit requirements.

Only one deal is in the market, sources say.

Precision Drilling Trust is scheduled to conclude a roadshow for its $250 million offering of 6.5-year senior notes on Friday morning.

Deutsche Bank Securities and RBC Capital Markets are joint bookrunners for the deal which the company is bringing in order to reduce debt under the bridge facility used to fund the acquisition of Grey Wolf, Inc., which closed on Dec. 23, 2008.

Although the roadshow is set to conclude on Friday, no information, such as price talk, surfaced on Thursday.

The bond market will close at 2 p.m. ET on Friday, ahead of the three-day Presidents Day holiday weekend in the United States.

In the four-day post-Presidents Day week which commences on Tuesday, there will likely be one or two deals, according to a high-yield syndicate source.

However the market is apt to quiet down, somewhat, sources say, because in order to comply with the Sarbanes-Oxley Act of 2002 a lot of potential issuers will need to spend the coming weeks providing fresh financial numbers.

Stephanie N. Rotondo contributed to this report.

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