Charter active, higher, Sirius also up on debt revamp news; Precision Drilling price talk emerges

By Paul Deckelman and Paul A. Harris

New York, Feb. 13 - Friday's junk market was for the most part as sleepy as you might expect a shortened pre-holiday session to be - that is, once you got beyond the headline-oriented movements in Charter Communications Inc. and Sirius XM Satellite Radio Inc.'s paper.

Charter bonds traded in volume that would be considered heavy even on a normal day, but even more so when seen against the backdrop of Friday's thin, abbreviated pre-Presidents' Day trading, which officially ended at 2 p.m. ET, but which in actual practice had concluded long before. The bonds were mostly up solidly, building on Thursday's hefty gains notched on the news that Charter would restructure most of its bond debt. Thursday's biggest winner was Friday's busiest issue, but those bonds came off by several points from their highs.

Sirius' bonds - which had been lifted on Thursday on news reports that it was in debt talks with Liberty Media Inc. aimed at heading off either a bankruptcy filing or an unfriendly takeover by EchoStar Corp. - continued gaining altitude as the satellite radio broadcaster said it had restructured a large chunk of debt slated to mature at year-end. Meanwhile, the Liberty debt talks were seen continuing as Sirius raced to beat the clock on a considerably more pressing debt maturity, slated to come due on Tuesday.

Outside of those two headline-grabbing credits, traders saw only scattered activity going on. Downsiders included NOVA Chemicals Corp. and Amkor Technology Inc., upsiders included Nortel Networks Corp.

Recently priced issues from HCA Inc., Denbury Resources Inc. and Cablevision Systems Corp. were seen holding onto the gains which they have notched since their respective pricings earlier in the week; however, Chesapeake Energy Corp. and Forest Oil Corp.'s new bonds retreated from their post-pricing peaks and were hovering around issue.

Precision Drilling Trust is getting ready to bring yet another energy-related new-deal to market when participants come back from the three-day holiday break; price talk on the upcoming 6.5-year issue emerged on Friday.

Market indicators turn mixed

The widely followed CDX High Yield 11 index of junk bond performance was quoted by a market source at 73 bid, 73½ offered, little changed from Wednesday's reading at 72 7/8 bid, 73 3/8 offered.

The KDP High Yield Daily Index was meanwhile down by 11 basis points on the day at 54.24, while its yield widened by 1 bp to 13.09%.

In the broader market, advancing issues continued to trail decliners, by around a six-to-five margin.

Overall market activity, measured by dollar-volume totals, plunged by 42% from the levels seen in Thursday's normal-length session.

"Obviously, there was not much going on at the beginning of a three-day weekend," a trader said.

He saw only relatively light trading in the two issues thought by some to be accurate barometers for the overall junk market because of their great size and liquidity, Community Health Systems Inc.'s $3.021 billion of 8 7/8% notes due 2015, and First Data Corp.'s $2.184 billion of 9 7/8% notes due 2015. Franklin, Tenn.-based hospital operator Community Health's bonds were down 3/8 point to 98, though on volume of just $4 million, which he called "very light - but it doesn't surprise me on a day like today." Meanwhile, Greenwood Village, Colo.-based e-commerce processor First Data's bonds were ¼ point better at 59.25 bid, on $5 million traded.

Charter charges higher - mostly

By far the most active name in Junkbondland on Friday was Charter; the trader said that with the St. Louis -based cable operator having announced Thursday that it will make a pre-packaged Chapter 11 filing on or before Apr. 1 to implement a debt-restructuring agreement reached with a group of its big bondholders, "time is of the essence, to either get out of your position if you don't want to go through with this [the bankruptcy] - or some people may see there's an opportunity here, and opportunity always creates volume."

And volume there was.

A market source saw Charter's CCH II LLC 10¼% notes due 2010 as clearly the day's most active issue, with over $42 million of the bonds having changed hands heading into the last half hour of trading - a respectably heavy enough volume even for a normal day, but a tremendous volume when viewed against the backdrop of Friday's truncated pre-holiday session.

Other shorter issues showing up among the volume leaders include its CCO Holdings LLC 8¾% notes due 2013, with nearly $25 million traded, CCH II's 10¼% notes due 2013, with volume of about $10 million, and the company's CCH I LLC 11% notes due 2015, which saw over $5 million traded.

Most of the bonds throughout Charter's complex, multi-part capital structure, were higher, riding on the momentum on Thursday's announcement that Charter - which has about $10 billion of outstanding bank debt and $11 billion of current bonds - would take out about $8 billion of the latter by giving the holders a mixture of new bonds, cash, stock in the restructured company or warrants to buy stock.

However, one exception was the day's most active issue - and also Thursday's biggest gainer, the CCH II 10¼% 2010 notes, which had shot up to around the 80 mark that session from previous levels in the lower 50s. At trader, noting "very good activity in Charter," saw those notes having eased slightly to 77.5 bid, while another quoted them going home at 75 bid, 76 offered. A market source elsewhere pegged the bonds at 78, while at another desk, they were seen down about 1¼ points to just under 77.

Charter's other bonds were seen pretty much universally higher, with a trader seeing the CCO 83/4s having moved up to a round-lot level at 80 bid from 76.625 the day before. One of the other sources saw those bonds doing even better, going out up more than 6 points on the session, at 83 bid. The CCH II 10¼% 2013s were quoted by a market source, who had seen them going out Thursday in the mid-70s, at 79 bid Friday, up over 5 points.

A trader said the 11s - one of the least senior and worst-performing bonds in the capital structure, stuck in the mid-teens - moved up on the restructuring news, but "not by much;" he saw them finish at 16 bid, 18 offered, up perhaps 2 points on the session.

In contrast, one of Charter's best performing, most senior bonds also were up only a couple of points - but those 10 7/8% notes due 2014 went from 91 bid, 93 offered on Thursday to 94 bid, 95 offered Friday.

Some serious gains in Sirius

A trader saw Sirius XM's 9 5/8% notes due 2013 having jumped to a round-lot level of 46, well up from the 40.5 level where those bonds had ended on Thursday, although he saw only $2 million of the bonds having changed hands. He said that trading in the Sirius XM name had "mostly been in [that] one issue."

A second trader also saw those bonds "up a little," - quite an understatement, since he quoted them at 45 bid, 46 offered, which he guesstimated was up about 7 points on the session.

The bonds were up for a second consecutive session on the news that the troubled New York-based satellite radio operator - desperate to avoid either a bankruptcy filing or a takeover on unfriendly terms by satellite TV company EchoStar - was talking with EchoStar's chief rival, Liberty Media, which controls DirecTV Group Inc., the nation's biggest satellite-TV programming distributor.

EchoStar's chief executive officer, satellite TV pioneer Charlie Ergen, made an unsolicited offer, subsequently rejected, to restructure Sirius' debt and head off the bankruptcy, at the price of handing control of the company to him - a development which would be an anathema to Sirius CEO Mel Karmazin, an old broadcast industry adversary of Ergen's dating back to Karmazin's days as boss at Viacom, which had business disputes with Ergen's satellite TV programming service, DISH Network.

Unlike EchoStar, Liberty is not seeking control of Sirius; published reports say the talks between the two companies have been friendly and do not involve a takeover of Sirius or a buyout of its equity. Instead, Friday's online edition of the New York Post reported that Liberty had offered a bridge loan of several hundred million dollars to help pay off a looming $175 million of maturing convertible bond debt that Sirius must pay by Tuesday. The paper said that Liberty chief John Malone would front Sirius the $175 million to satisfy that debt - much of which is held by Ergen - giving Liberty and Sirius three months of breathing room - in theory, enough time to come up with a plan to help restructure roughly $600 million in Sirius debt coming due in May and December.

Sirius said Friday that it had refinanced some of the December debt, exchanging $172.5 million of 10% convertible senior notes for senior secured notes due 2011.

However, Sirius also cautioned that it might have to file for bankruptcy as soon as Tuesday if the question of the $175 million of debt maturing then is not resolved over the holiday weekend.

No relief - yet - for NOVA

A trader said that NOVA Chemicals Corp.'s short-dated 7.40% notes, which mature April 1 "got hit." He quoted the company's bonds at a round-lot level of 56.75, down from 60 on Thursday, on about $9 million traded.

However, another market source said that some smaller late trades had lifted the bonds back up to around a 63 close.

Those bonds had recently traded in the 70s on the hopes that the Calgary, Alta.-based chemical company would be able to come up with $100 million which it needs by the end of this month to keep its credit agreement in force. Press reports that financial arms of the Canadian province's government were in talks to provide that cash infusion turned out to be premature - Alberta officials explicitly denied that they will offer NOVA a bailout - and the bonds have retreated since then.

At another desk, the company's 6½% notes due 2012 were seen down a point at 36 bid.

However, NOVA's New York Stock Exchange-traded shares were seen up 14 cents, or 11.57%, to $1.35, on volume of some 3.7 million shares, more than twice the norm. Investment-oriented internet bulletin boards - whose anonymous postings must always be taken with a grain of salt - buzzed on Friday evening with the notion that some sort of financing deal had been "sealed" and would supposedly be announced shortly; one participant posted cryptically that a "presentation for Morgan Stanley will be on the website before the market opens on Tuesday. Refinance plans will be outlined in the presentation."

Amkor off on bad numbers, weak guidance

A market source saw Amkor Technology's 7.75% notes due 2013 down as much as 5 points on the session on a round-lot basis to 57 bid.

However, another source noted that such a level was only down about a point or so from prior-day late levels, which came on trades below round-lot size.

Chandler, Ariz.-based Amkor, which provides testing and packaging services to the semiconductor industry, reported late Thursday that in its fourth quarter, it lost $623,1 million, or $3.40 per share - a sharp reversal from a year earlier, when it had posted a profit of $93.7 million, or 46 cents per share. Revenue slid 27% to $548.7 million from $746.9 million in the year-ago period. The loss was largely due to a goodwill impairment charge of $671 million, or $3.67 per share.

Amkor also warned that it would suffer a first-quarter loss of between 34 cents per share - about what Wall Street is expecting - to as much as 49 cents per share due to tough business conditions. It expects its sales to plunge anywhere from 30% to 38% from the fourth quarter's $548.7 million, implying that sales will come in somewhere between about $340 million to $385 million - well under the $425 million composite analyst projection.

Nortel a gainer

Back on the upside, a trader said that "the one that's moved up" on the day was Nortel Networks; he quoted the bankrupt telecommunications maker's zero-coupon notes due 2011% at 14 bid versus 12 previously, on $5 million traded, calling it a "big percentage mover."

He also saw its 10 3/8% notes due 2013 at 14.5 bid, versus 13.5% earlier in the week, on volume of $3 million, and agreed with the theory that the bonds were most likely higher due to short-covering in the wake of the auction earlier in the week that set the settlement price for Nortel's credit-default swaps at 12.1%.

Most new issues hold gains

Among the recently priced issues, traders saw the new HCA Inc., Denbury Resources Inc. and Cablevision Systems Inc. bonds continuing to hold the gains they have notched since pricing.

A trader saw HCA's 9 7/8% notes due 2017 at 98 bid, 99 offered, up from the 96.673 level at which the Nashville-based hospital operator priced its $310 million of bonds on Wednesday

He saw Denbury's $420 million of 9¾% notes due 2016 closing at 95.25 bid, 95.75 offered, well up from the 92.816 level at which the Plano, Texas-based energy company priced the bonds last Tuesday.

And he saw Cablevision's CSC Holdings Inc. $526 million of 8 5/8% notes due 2019 finishing Friday at 97 bid, 97.5 offered, versus the 95.196 level at which the Bethpage, N.Y.-based cable TV operator priced its bonds on Feb. 9.

However, he saw Chesapeake Energy Corp.'s 9½% notes due 2015 having fallen back from peak levels earlier in the week as high as 99 to end at 97.75 bid, 98.75 offered, unchanged from the 97.75 level at which the Oklahoma City-based energy company priced its $425 million of bonds as an add-on to its earlier $1 billion of bonds, on Wednesday.

And another Wednesday deal, Forest Oil Corp.'s 8½% notes due 2014 were at 95.5 bid, 96.5 offered, only slightly higher than the 95.15 issue price for the Denver-based energy operator's $600 million of bonds.

A market source who specializes in energy-sector credits meantime told Prospect News on Friday that the recent proliferation of energy company deals like Chesapeake, Forest and Denbury, as well as recent issues from El Paso Corp., Petrohawk Energy Corp. and Inergy Finance Corp. is a sign that "the market has definitely opened for good energy companies - and they are acting fast, just in case the market closes again."

He said that he has no way of knowing whether the refinancing market stays open, "but it feels to me like the high-yield energy index has plateaued, somewhat," which could lead to a deterioration in the sector and a lessening of energy-oriented primaryside activity.

He warned that with the economy slowed to a standstill and oil prices way down from last summer's peak levels, second- and third-quarter results for the sector "are going to be awful, and we are going to see borrowing bases re-determined down."

Asset sales, he cautioned, "will follow as well."

But for now, he said, the inflows that the junk market have seen "have been impressive year-to-date, as a lot of people probably have re-adjusted their portfolio at the beginning of the year towards high yield credits."

Precision Drilling price talk

The only primary market news during Friday's abbreviated pre-Presidents Day session was price talk on Precision Drilling Trust's $250 million offering of 6.5-year senior notes on Friday, according to an informed source.

The notes are talked with a 13½% coupon at a price of 90 to 92 to yield 15½% to 16%.

The books are scheduled to close at noon on Wednesday, and the notes are expected to price after that.

Credit ratings remain to be determined.

Deutsche Bank Securities and RBC Capital Markets are joint bookrunners for the deal, proceeds from which will be used to reduce debt under the company's bridge facility used to fund the acquisition of Grey Wolf, Inc.

2009's biggest week of so far

During the Feb. 9 week the primary market turned out its highest dollar-amount of issuance for 2009, to date, as five issuers raised nearly $2.18 billion of proceeds.

It was the first week this year that topped the $2 billion mark.

The week's biggest deal came from Forest Oil Corp. which raised nearly $571 million of proceeds with its issue of 8½% senior notes due Feb. 15, 2014.

The week ahead

Sources expect a couple of more deals to surface during the week ahead.

The buy-side is perceived to have a lot of cash to put to work.

For the week to Feb. 11 AMG Data Services reported $533.9 million of inflows to high-yield mutual funds, the 11th consecutive positive flow.

Thus far in 2009 the funds have seen a total of $3.353 billion of inflows, sources say.

That 11 consecutive weeks of positive flows have seen a total of $5.17 billion come into the funds, the biggest run of inflows since early 2003.

However as the Feb. 9 week drew to a close, sources noted that the primary market is apt to quiet down somewhat in the weeks to come because a lot of potential issuers, in order to comply with the Sarbanes-Oxley Act of 2002, will need to spend that time providing fresh financial numbers.

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