Beazer bounces as company shops new deal; Blockbuster better on liquidity move; Freeport firm

By Paul Deckelman and Paul A. Harris

New York, Sept. 2 - Beazer Homes USA Inc. threw a curve ball to the junk bond market on Wednesday, with sources saying the Atlanta-based homebuilder was attempting to price the issue of senior secured eight-year notes which it had announced on Tuesday - this during the normally quiescent week leading up to the Labor Day holiday break when nobody was anticipating such a pricing. If that surprise pricing did take place, there still were no deal terms in the market well after the close.

Beazer's existing bonds were meantime being quoted by traders up multiple points from previous levels, although several of them said that there really had not been that much actual trading activity in the name.

Elsewhere in the primary, with no other domestic issuers seen doing anything until after the holiday break, overseas issuers were commanding attention, including Brazilian steel firm Companhia Siderurgica Nacional, heard to be getting ready to launch a benchmark-sized offering of senior notes early next week, and Hong Kong-based property developer Country Garden Holdings Ltd., which priced a $300 million issue of five-year senior notes.

Back in the domestic secondary market, there seemed to be a fair amount of activity in Blockbuster Inc.'s bonds, which were solidly higher, on the news that the DVD rental operator had moved to improve its liquidity by reducing the size of a letters-of-credit facility it maintains for former corporate parent Viacom Inc. It's the second such liquidity-improving measure announced by the Dallas-based company in the space of a week.

Blockbuster's neighbor in Big D's Downtown, the power generator and utility operator Energy Future Holdings Corp., was meantime seen continuing on the downside, still reeling from, among other things, Monday's outlook cut by Standard & Poor's.

Back on the upside, Freeport-McMoRan Copper & Gold Inc.'s bonds were very active, and holding recent gains, helped by rapidly rising gold prices.

Also among the mining names, bankrupt copper miner Asarco LLC's bonds surged for a second straight session in apparent response to a decision by the judge overseeing the company's reorganization allowing its former corporate parent to once again take control of the company, believing that to be in the best interest of its creditors.

Country Garden prices $300 million

The primary market produced a trickle of news.

Country Garden Holdings Ltd. priced a $300 million issue of five-year senior notes (Ba3/BB-) at par to yield 11¾%.

The yield was printed at the tight end of the 11¾% to 12% price talk.

JP Morgan was the bookrunner.

The Hong Kong-based property developer will use the proceeds to repay debt, to fund property projects and for general corporate purposes.

Market watchers in the United States tended to regard the deal as an emerging markets play.

Beazer marketing 12% notes

Elsewhere Beazer Homes USA, Inc. was heard to be marketing $160 million of 12% senior secured notes due 2017 via bookrunner Citigroup, according to market sources.

The Atlanta-based single-family homebuilder was believed to be attempting to price the notes on Wednesday. However well after the close no terms were available, market sources added.

Proceeds will be used to fund (or replenish cash that has been used to fund) open-market repurchases of the company's outstanding senior notes that it has made (or has agreed to make) since April 1.

Beazer bonds bid up on new-deal news

A trader said that Beazer Homes' paper was better on the news that the homebuilder was bringing its new issue of eight-year senior secured notes to market.

He said the company's "shorter issues certainly seem to be better-bid," initially calling the 8 5/8% notes due 2011 "up maybe a point or two," before adding "or maybe even more." Taking a second look at those bonds, he reported them going out at 86½ bid, 87½ offered, well up from 82-84 earlier, "so it looks like they're trading higher -- but there was not a lot of activity."

He meantime saw Beazer's 8 1/8% notes due 2016 trading at 66 bid, 68 offered, "up a couple of points" from prior levels, which he estimated at 62½ bid, 63½ offered.

However, another trader said that while Beazer's paper "was quoted higher, I didn't see many trades, so you can say it was up 2 points, or 4 points."

He did not see any trades in the 8 5/8s, while seeing the 8 1/8s "up a little bit," at 64, on $1 million traded, "so they're quoted up a couple of points, but we're not seeing much trading."

He saw the 6 7/8% notes due 2015 "up a point or so" at 64-65, "and that one had a couple of trades."

The paper "was quoted up, a couple of points higher, but not much trading."

A market source at another desk saw the 8 1/8s up a point at 64½ bid, on a couple of sizable trades.

Beazer's 8 3/8% notes due 2012 were likewise seen up about 2 points on the day at 78½ bid, on several big trades.

Watson bonds remain active

A market source saw Watson Pharmaceuticals Inc.'s recently priced 5% notes due 2014 continuing to firm in fairly active trading, quoting those bonds at just under 101 7/8, up from about 101 5/8 bid, 101¾ offered on Tuesday. Some $15 million of the Corona, Calif.-based drugmaker's paper had changed hands by mid-afternoon, pushing it to near the top of the Most Actives lists.

Traders said the $450 million issue, which priced on Aug. 18 at 99.589 to yield 5.095% and which then quickly firmed in the aftermarket to par and beyond, has attracted some interest from junk accounts looking for new paper, even though they could be considered quasi-junk at best, pricing off the investment-grade desks of the involved underwriters and carrying a split rating (Ba1/BBB-/BBB-) and what is, by traditional Junkbondland standards, a pretty low coupon.

However, even traders seeing junk players involved acknowledge that high-grade investors are also active in the new issue, and in the companion $400 million issue of 6 1/8% notes due 2019, which also priced on Aug. 18, at 99.796 to yield 6.153%, and which then firmed even more than the five-years, moving up to current levels above 103½ bid, although no real activity was seen on Wednesday.

And at one desk queries by Prospect News, a junk trader asserted that "we haven't really traded it -- I tried to get involved in it when it broke and it traded up a little bit, but it was really mostly in high-grade hands and I really didn't see much trading in it, and I still don't."

Market indicators seen mixed

Back among the established bonds, a market source trader saw the CDX Series 12 High Yield index - which had lost 5/8 point on Tuesday - dropping another ¼ point on Wednesday, at 87 1/8 bid, 87 5/8 offered.

The KDP High Yield Daily Index, which had gained 4 basis points on Tuesday, meanwhile was virtually unchanged on Wednesday, ending at 66.20, while its yield held steady at 9.46%.

In the broader market, advancing issues - which had finally fallen behind decliners on Tuesday, after having led them for the previous 10 sessions - moved back out in front on Wednesday, though by a slim margin of only a couple of dozen issues.

Overall market activity, reflected in dollar-volume totals, fell by nearly 12% from Tuesday's surprisingly strong level.

A trader opined that there was "not a lot" going on. "It's pretty quiet out there."

He said that "the market [felt] kind of unchanged, or maybe a little bit softer." He said that it was "difficult to tell," since "there's not enough real flow out there to get a real gauge."

He noted that "there's been no new issuance. Guys are still struggling to put money to work in certain areas, and certain names." So therefore, "you've got certain names with a decent bid to them, while other stuff just kind of flows with whether there's a buyer or a seller.

"I wouldn't say there's a strong conviction one way or the other."

He suggested that 'people are kind of nervous - but the dominating force, still, in the corporate market is the overwhelming technical [factor] of the cash that's around."

But despite there being no shortage of cash to be put to work, he pointed out that "rather than chase the market ever higher in the secondary," as was seen at various points earlier in the year, "guys are waiting for the calendar that's supposedly building for September."

Everyone, he declared "is waiting for next week."

Until then, a second trader chimed in, "you're going to hear 'no active trading' on most names from now through the end of the week, and into next week."

Blockbuster better on liquidity improvement

Among specific issues, a trader said that Blockbuster's 9% notes due 2012 "ended up pretty strong," at 58 bid, which he called a gain of 5 or 6 points on the day, on "a lot of volume," helped by the news that the DVD, Blu-Ray and video-game rental concern had cut the size of the letters-of-credit facility it maintains for its former corporate parent, Viacom, by $50 million, thus improving Blockbuster's own liquidity by that same amount.

"That was one of the big movers today," he added.

A market source at another desk said that Blockbuster bonds were among the most actively traded on the session, topping the $20 million mark, and going home around 58 bid, up more than 6 points from Tuesday's late levels and 5 points from the most recent prior round-lot transactions.

The bonds rose in tandem with Blockbuster's New York Stock Exchange-traded shares, which jumped as much as 47.2% at one point, before closing still up 29 cents, or 31.87%, at $1.20. Volume of 31.4 million shares was nearly nine times the norm.

Blockbuster said it had reduced the face value of the letters of credit to $25 million from $75 million previously. Blockbuster, which separated from Viacom in 2004, maintains the letters-of-credit to cover Viacom's potential liability under existing Blockbuster store leases in place prior to Blockbuster's 1999 initial public offering. However, since 2004, many of those leases have been renegotiated or renewed without reliance on Viacom's credit, allowing Blockbuster to reduce the face amount of the letters of credit.

Blockbuster - traditionally the dominant "brick-and-mortar" video-rental chain operator, with some 8,000 stores in the Americas, Europe, Asia and Australia, including about 5,000 in the United States - is trying to repair its balance sheet and strengthen itself financially as it tries to hold off the challenge of upstart rivals like Netflix Inc., which provides online movie rental subscription services, delivering its movies by mail. Over the past several years, looking to cut losses - it recently reported a second-quarter net loss of $36.9 million, although that was improved from $41.9 million a year earlier - Blockbuster has closed many of its underperforming stores. At the same time, it has been expanding into non-traditional subscription and delivery modes for its content, including the internet, mail-based - where Netflix currently holds sway - and automated kiosk-based, as it tries to preserve market share.

The letters-of-credit news is the second major announcement about liquidity-enhancing moves from Blockbuster in the past week; last Friday, it announced the sale of one of its overseas operations, Irish entertainment retailer Xtra-vision Ltd., to Birchhall Investments Ltd., for U.S. proceeds of up to $45 million in cash, subject to certain adjustments.

Blockbuster's chairman and chief executive officer, James W. Keyes, said Wednesday that the agreement with Viacom on the letters-of-credit reduction, "combined with strong cash from operations from our core business and proceeds from the sale of our Xtra-vision chain, will allow us to continue development of the multi-channel offering of Blockbuster."

Freeport firm as gold glitters

While Blockbuster's bonds were busy, they still paled in comparison with Freeport-McMoRan's 8 3/8% notes due 2017, with a market source estimating turnover in the credit at over $60 million by mid-afternoon.

Those bonds - which are usually among the most active junk issues - traded as high as 106 bid earlier in the day, before coming off that peak level to end a little under the 105 mark - still up at least ½ point on the day, or a ¼ point when considering only round-lot trades.

The Phoenix-based mining company's 8½% notes due 2015 were seen also trading around, although on considerably less volume than the 8 3/8s, before ending a little firmer at around that same 1041/2-105 level.

The bonds were seen getting a boost by the surge in gold prices, which had recently been anchored in a narrow range in the low $900s, but which have broken sharply higher over the last several sessions.

On Wednesday, gold for December delivery jumped $22, or 2.3%, on the New York Mercantile Exchange, closing at $978.50 an ounce - its highest finish since June 4 and the biggest one-day jump since March 19, when the precious metal jumped more than $69.

The recent rise has spurred some analysts to speculate that gold will soon pass the psychologically potent $1,000 per ounce barrier, with some suggesting that $1,200 an ounce by year-end is not an impossibility, especially given gold's traditional position as a hedge against a weaker U.S. dollar.

Asarco big mover after ruling

Out of that same sector, a market source saw Tucson, Ariz.-based copper producer Asarco's 8½% bonds due 2025 jump to 147½ bid from prior levels down around 121 - although there had been no trading in them for several weeks - with over $10 million of the bonds changing hands.

That followed by a day a similar, if larger jump, to the 138 bid level for the company's 7 7/8% notes due 2013, which had last previously traded around 102 in mid-August. The latter bonds meantime continued to rise on Wednesday, joining the 81/2s up around 147, with several million traded.

The two days of gains come on the heels of Monday's news that a U.S. Bankruptcy Court judge overseeing the company's restructuring had ruled that Asarco's former owner, Mexican mining concern Grupo Mexico SAB, should be allowed to regain control of the U.S. unit by giving Asarco's creditors almost $2.5 billion. He ruled that the plan was better for the company's creditors than a rival plan put forward by India's Sterlite Industries Ltd. However, the ruling by judge Richard Schmidt of the Corpus Christi, Tex., bankruptcy court is not the last word, since the final decision in the complex case will lie with a judge of the regular federal district court, and the parties on both sides are expected to file a new round of pleadings.

Foxwoods bonds firm on coupon payment

A trader said that Mashantucket (Western) Pequot Tribal Nation's 8½% notes due 2015 had moved up into "the low 30s," ending at around 31, up from prior levels in a 24-26 context, while its 5.912% notes due 2021 got as good as 50 bid, "so they seem like they're feeling better." He said that the '21s had been languishing in the upper 30s to around 40 previously, although he did not have any specific prior levels. "They have to be up a good bit, being at 50 - I just don't know exactly how much."

A market source noted that the bonds do not show up on the Trace bond-tracking service, making it difficult to get truly accurate levels on the paper.

The trader said both issues of bonds had improved solidly after the troubled tribe, owner of the big Foxwoods casino resort in Connecticut, had made a scheduled Sept. 1 debt payment, thus avoiding a possible immediate default.

However, the tribe still faces the challenge of restructuring its more than $2 billion of debt - at a time when the Mashantuckets also face a messy struggle for the leadership of the tribe, following a revolt against the chairman of the tribe's governing council by the body's other members, who have demanded his resignation and have accused him of mishandling the debt problem.

Texas utility's bonds continue tumble

On the downside, a trader said that the bonds of Energy Future Holding Corp. - the old TXU Corp. - continued to deteriorate on Wednesday, keeping the negative momentum seen for about the past week.

He saw the Dallas-based power producer's Texas Competitive Electric Holdings 10¼% notes due 2015 fall to 62½ bid, 63 offered, down from levels around 66-67 seen two days earlier, while the unit's 10½% notes due 2016 backpedaled to 55 bid, 55¼ offered from 59 bid, 60 offered on Monday.

He also saw the parent company's 10 7/8% notes due 2017 retreat to 67 5/8 bid, 68 offered from prior levels at 72 bid, 73 offered, while its 11¼% notes, also due 2017, went home at 58½ bid, 60 offered, down from Monday's 62 bid, 63 offered.

Market participants have cited the negative impact of Monday's news that Energy Future Holdings had its outlook cut to negative from stable by S&P, on the likelihood that it would use for the third time its payment-in-kind option for toggle notes during the October 2009 to April 2010 payment period

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