Six Flags slides on poor numbers, outlook; Cricket off on Leap restatement; Sequa deal hits the road

By Paul Deckelman and Paul A. Harris

New York, Nov. 9 - Six Flags Inc. bonds and shares plunged Friday like the fearsome 456-foot high Kingda-Ka roller coaster at its Great Adventure theme park, one of the few definitive features seen in an otherwise largely becalmed, abbreviated pre-holiday session. The New York-based amusements operator's debt dived and its stock swooned, both on large volume, after it reported a big drop in third-quarter earnings versus even the previous year's less-than-spectacular results. Investor angst was compounded by somewhat bearish guidance from company executives.

Also on the downside was Cricket Communications Inc., the operating division of Leap Wireless International Inc., after the latter announced the need to restate several years of financial results due to accounting irregularities.

But the biggest loser on the day was seen in the distressed-debt precincts, where Delphi Corp.'s bonds were a car-wreck on investor fears that the bankrupt Troy, Mich.-based automotive components maker's prospective savior, Appaloosa Management LP, might be in a position to back away from its pledge as part of an group to invest several billion dollars into Delphi to help it restructure.

On the primary front, no new deals were seen having priced in the abbreviated session; however high yield syndicate sources heard that Sequa Corp. was beginning a roadshow to market its upcoming $700 million two-part offering of cash-pay and discount notes to potential buyers. Also heard hitting the road was Gastar Exploration USA, Inc., which is selling $100 million of five-year senior notes.

Market lower in light session before break

Back among the established issues, traders saw an overall heavier tone to the market, although volume was relatively light in deference to the approaching Veterans' Day legal holiday, which saw trading officially wrapped up by 2 p.m. ET - and unofficially long before that, with just skeleton crews in at some shops. Only a mere handful of people here and there were expected to be in on Monday, with the powers-that-be recommending a full market close.

Once again, there were considerably more declining issues than advancers, with losers outnumbering winners by about a five-to-two margin and a lot of issues seen down at least a point or more.

A trader saw the widely followed CDX junk bond performance index down ¼ point on the day at 95 3/8 bid, 95 5/8 offered.

Among other market barometers, the KDP High Yield Daily Index lost 0.29 on the day, ending at 78.62, while its yield widened out by 8 bps to 8.35%.

"Things are softer, I hear, today," a trader said. "The broader market was down, with the better-quality names probably down ¼ [point]. As you move down the credit scale [the losses were] ½ to in some cases, down 1 point, depending on the sector and name."

Ahead of the long weekend, he said, "people were trying to lighten up on some of the names that they're not so sure on before [the market's early close Friday and its full closure], 'in theory,' on Monday."

Six Flags falls

The trader saw Six Flags "banging around early" at lower levels after it announced its results and issued its guidance.

Its actively traded 8 7/8% notes due 2010, which had pushed up to just under 84 on Thursday, opened at around 83 Friday - and it was all downhill from there, with the bonds falling to a closing level around 80 bid, according to a market source.

The source also saw the company's 9 5/8% notes due 2014 falling some 2½ points on the day to 73 on relatively heavy volume, while its 9¾% notes due 2013 tumbled more than 4 points on the session to 73, also in busy dealings,

At another desk a trader pegged the 93/4s down 2½ points at 74.5 bid, 75.5 offered, while its 8 7/8% notes were seen at 81, down 21/2.

"Their numbers were poor," the trader said, "and they've had a bad fall season as far as revenue goes," since September is typically a seasonally soft month for the company. "And the attendance in July - normally a big month for them - was down, so they also missed out [then]."

The company's results dismayed equity investors as well, with Six Flags' New York Stock Exchange-traded shares plummeting 44 cents, or 16.36%, to $2.25, on volume of 6 million, more than five times the average daily handle.

Six Flags' 4½% senior convertibles due 2015, which are linked to the shares, plunged to 67.4125 from Thursday's 72.387 finish

The securities fell as the company reported that its net income fell 46% year over year to $89.7 million, or 61 cents per share, from $164.7 million, or $1.08 per share, a year ago, although it should be noted that the year-ago figures included a one-time gain from since-discontinued operations off $36.8 million, or 23 cents per share. Wall Street had been expecting the company to show a profit this time around in the $1.40 per share range.

Six Flags said that its revenue for the quarter fell 2% to $465.2 million from $474.2 million a year earlier, and attendance at its parks decreased 3% to 12 million paying customers.

Company executives said that the drop in attendance and revenues was primarily due to bad weather in July cutting attendance at its Texas and Georgia parks, as well as widespread national bad publicity from a particularly gruesome accident at its Six Flags Kentucky Kingdom park in which a teenage girl had both feet severed when a taut cable suddenly snapped.

Besides reporting the sharply lower numbers, Six Flags executives on the company's conference call projected having to take some earnings charges in the fourth quarter, and said that full-year 2007 attendance looks to come in flat from last year or perhaps up slightly, while per-capita guest spending - a combination of ticket and in-park spending - will be up by 2% in 2008. However, they also said that they anticipate being able to cut operating expenses next year by $50 to $60 million.

The major credit-rating agencies were as displeased by the company's results as the bondholders and shareholders were. Moody's Investors Service downgraded Six Flags' corporate family rating and its probability of default to Caa1 from B3, previously, and cut its senior unsecured bonds to Caa2 from Caa1. Meanwhile, Standard & Poor's cut the company's corporate credit rating one notch to CCC+ from B.

In downgrading Six Flags, Moody's declared that "Six Flags did not demonstrate meaningful progress in improving operational trends during the 2007 operating season," and warned that the agency expects the company to continue to consume cash next year - as it has every year since 2004 - and called its capital structure "unsustainable."

Cricket lower on Leap restatements

Elsewhere, Cricket Communications' 9 3/8% notes due 2014 were seen down more than 4 points on the session to 93 bid. Trading was seen as active.

That slide followed the announcement by Cricket's corporate parent, San Diego-based telecommunications operator Leap Wireless, that it will have to restate earnings from the 2004, 2005 and 2006 fiscal years and the first two quarters of fiscal 2007.

Leap said it was doing so to fix errors in previously reported service revenues, equipment revenues and operating expenses. The restatements are expected to result in reductions in service revenue and operating income of about $20 million each. Leap also said that the restatements may result in the default on a senior secured credit agreement, and is seeking a waiver from its lenders, including Bank of America, and amendments to the $1.1 billion senior secured credit agreement, which has about $890 million of current borrowings.

The possibility of a default in that agreement, and in the $750 million of outstanding Cricket bonds caused S&P to put Leap's ratings under scrutiny for a possible downgrade. The agency currently rates the bonds at CCC.

Besides dragging the bonds lower, the news caused Leap's Nasdaq-traded shares to nosedive by $21.38, or 36.80%, to $36.72. Volume of 11.3 million shares was nearly eight times the norm.

Delphi decimated by delay

In the distressed-debt market, the big loser was Delphi Corp., which announced that the U.S. Bankruptcy Court in Manhattan overseeing its restructuring had granted a request by the company that a court hearing on its plan of reorganization be pushed back to Nov. 29, giving the company additional time to negotiate elements of its plan with various stakeholders.

That prospect caused its bonds to gyrate around at lower levels on heavy volume. A trader, calling Delphi "the name of the day," quoted its 6.55% notes that were to have come due in 2006 as going all the way down to 69 bid, 71 offered before coming off that low to end at 74 bid, 76 offered - well down from Thursday's 79.5 bid, 80.5 offered close.

Another trader called the 6½% notes due 2013 down 6 points at 74 bid, 74.5 offered and the 6.55s down 4 points at 76 bid, 77 offered. The trader used such terms as "terrible," "awful," "nightmare" and "fugly" to describe the turn of events.

A third trader quoted the 7 1/8% notes due 2029 at 76 bid, 77 offered, while at another desk, a trader pegged that issue at 75.5. The trader also saw the 2013 issue at 74 and the 6½% notes due 2009 at 74.5.

The proximate cause of the market jitters appears to be the possibility that Appaloosa Management might take advantage of the extended negotiating window to find a way to back off from its previous offer of a multi-billion-dollar investment in Delphi.

According to a spokesperson for Delphi, the original investment deal - calling for an equity infusion of $2.55 billion - is still on. The courts approved that deal in August. What is up for grabs is an amended plan, which was filed in October. Appaloosa is not bound by that plan, as the hearing to approve it was pushed back to later this month.

However, Appaloosas has claimed that Delphi has not met certain terms of that deal, and therefore it is back to the drawing board.

"[Delphi] could hold them to it," said one trader. "They have that option. But whatever it was that caused Appaloosa to do that is probably listed as a material change so [Appaloosa] feels they have an out."

As announced, the parties have until Nov. 29 to iron out their issues.

Delphi's nearly-worthless penny stock shares also reacted badly to news of the delay, plunging 7 cents - or 25%- in over the counter trading to finish at 21 cents on heavy volume of 16 million, nearly twice the average activity.

Assorted issues seen easier

A trader said he "started to see some tech names come in late in the day," seeing Amkor Technology Inc.'s 9¼% notes due 2008 easing to 99.75 bid from prior levels at 100.25 bid, 100.25 offered.

Apart from the tech issues, he said, Thornburg Mortgage Inc.'s 8% notes due 2014 were at around 85.5 bid, down a bit from prior bid levels in the 85.5-86 range.

McMoRan trades up, Foxwoods steady

Among recently priced deals, the trader said, McMoRan Exploration's new 11 7/8% notes due 2014 which priced at par late Thursday, saw "a couple of 102 uptrades out of the chute this [Friday] morning" before the bonds finally settled in around 101 bid, 103 offered.

He saw the new 8½% deal due 2015 brought by the Mashantucket Pequot Tribal Nation, operators of Connecticut's popular Foxwoods gaming resort, which priced at par on Thursday, still "hanging around par," with a couple of trades around 100.125 or 100.25 bid.

He said that the new ReAble Therapeutics Inc. 10 7/8% notes due 2014, which priced at par on Wednesday but which then began to move lower after a failed upside flurry on the break, were continuing to struggle in the aftermarket at 98 bid, 98.5 offered.

"Every day, they kind of drift a little lower," he concluded.

Parsing the turbulence

No issues were priced in the primary market, where one deal was postponed and at least three others were pushed into the Nov. 12 week.

A money manager who focuses on both high yield bonds and leveraged loans told Prospect News on Friday morning that problems in the credit markets don't seem worse than they seemed during the summer, but added that Friday's news reports that a CDO managed by State Street Corp. will be liquidated - "and the implication that there are maybe 15 or 16 liquidations right behind it" - will re-conjure investors' fears of mass-dumping of securities.

"Stockholders and bondholders probably shouldn't care if a bunch of mortgage-backed securities get dumped onto the market," the manager reasoned.

"But to the extent that a bunch of big financial institutions have to take write-downs, that's bad, at least to the extent that lending officers will be inclined to make things even tighter."

This buy-sider said that the real worry continues to be the U.S. consumer who faces higher energy prices along with declining home prices.

The risk overhang

When Prospect News asked the money manager to comment upon recent news that the big investment banks have now significantly decreased the amount of leftover risk on their balance sheets resulting from the summer's stalled LBO financings in the debt markets, the source didn't seem overly congratulatory.

"The famous $300 billion number now seems to be $187 billion," the money manager said.

"But only God knows how people count this stuff.

"They are making progress, but someone said Thursday that the Chrysler Auto [bank loan] deal is dead in the water.

"And the Alltel loan is going to be tough sledding. It might come around 96 now, they're saying."

In the junk realm, the money manager said that Thursday's news that United Rentals Inc. revised the price talk for its $2.55 billion offering of seven-year second-priority senior secured notes got the buy-side's attention.

The company changed the talk to a coupon of 10 5/8% at an original issue discount of between 97.00 and 97.50.

Previous talk had those notes pricing at par with a yield of between 10½% and 10¾%.

"It's a big move," the investor commented.

"It says that the market is weak and the dealers are willing to live in that world in order to get the deal done."

That 'gobbling' sound

The money manager also said that it can't have escaped the attention of the investment banks that, even though Friday was only the 9th of November, the sands are rapidly draining through the hourglass with respect to the run-up to Thanksgiving.

The investor said that a lot of market participants customarily cross off the pre-Thanksgiving week, which begins Nov. 19.

Eliminating Veterans Day, which will be celebrated on Nov. 12, that leaves just four sessions before the pre-Thanksgiving week, the source tabulated.

"A lot of people are trying to ram things out the door before their year ends," the money manager said.

"There are four major investment banks that have Nov. 30 year-ends: Goldman Sachs, Lehman Brothers, Bear Stearns and Morgan Stanley.

"They'd love to get things off of their books by then if they can."

The coming week's business

Market watchers had been expecting the above-mentioned United Rentals junk deal to price on Friday. However late in the session sources were saying that the deal was pushed back into the coming week.

The same fate befell Novamerican Steel Finco Inc.'s $315 million offering of eight-year senior notes (B3/B-), which are talked at 12% to 12¼%.

Also expected Friday but believed pushed back is Apria Healthcare Group Inc.'s $265 million offering of 10-year senior subordinated notes (B1/BB-), talked at 8% to 8¼%.

Meanwhile another deal that was expected to price Friday, Energy and Industrial Utilities Co., LLC (DTE Energy Co.)'s $275 million offering of 10-year senior notes (B2/B), was postponed due to unfavorable market conditions.

The deals from United Rentals, Novamerican Steel and Apria Healthcare take places alongside several deals that were already in the market as anticipated business for the Nov. 12 to Nov. 16 week.

Most conspicuous among them is Alltel Communications and Alltel Communications Finance, Inc.'s offering of a portion of the $5.2 billion of cash-pay notes that are part of the LBO financing for the Little Rock, Ark., provider of wireless voice and data communications services.

Citigroup, Goldman Sachs, Barclays and RBS Securities are leading the deal.

The bookrunners have not disclosed how much of the $5.2 billion they will attempt to place.

However sources say the expected size is between $2 billion and $3 billion.

The money manager who spoke to Prospect News on Friday said that given present conditions the size is more likely to come around the $2 billion mark.

Also expected to price bonds before the Friday close is Key Energy Services, Inc., which is roadshowing a $400 million offering of 10-year senior unsecured notes (B1/B) via Lehman Brothers.

In addition, Connacher Oil & Gas plans to sell $600 million of eight-year second-lien senior notes via Credit Suisse, RBC Capital Markets and BNP Paribas before the Friday close.

And Gastar Exploration USA, Inc. began a roadshow on Friday for its $100 million offering of five-year senior secured notes via Jefferies & Co. That roadshow is scheduled to wrap up on Nov. 16.

Sequa markets $700 million

Also starting a roadshow on Friday was Sequa Corp., which plans to sell $700 million of eight-year senior unsecured notes (Caa2/CCC+) in two tranches - cash-pay notes and discount notes.

Lehman Brothers is the lead bookrunner for the LBO deal which is expected to price during the pre-Thanksgiving week. Citigroup and JPMorgan are joint bookrunners.

$2 billion week

With no issues pricing on Friday the week beginning Nov. 5 came to a close having seen just above $2.1 billion of issuance in five dollar-denominated tranches.

Although not exactly an anemic figure, it is $1 billion below the nearly $3.1 billion weekly average of dollar-denominated issuance since the beginning of August.

At Friday's close year-to-date issuance stood at slightly less than $145.3 billion.

Hence 2007 issuance remains nearly 17% above the issuance seen in the record-setting year of 2006, which had seen $124.2 billion of proceeds raised by the Nov. 9 close.

And at Friday's close, with $145.3 billion of year-to-date 2007 issuance, the primary market was a mere $11.3 billion from topping that record-setting 2006 total of $156.6 billion.

Heading into the Nov. 12 week, the Prospect News High Yield Daily forward calendar contains nearly $8.75 billion of deals believed to be in the market.

Stephanie N. Rotondo contributed to this report

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