XM prices upsized deal, new bonds firm; Ford off after biggest-ever loss; funds see $26 million gain

By Paul Deckelman and Paul A. Harris

New York, July 24 - XM Satellite Radio Holdings Inc. priced an upsized $700 million issue of new notes Thursday; the new bonds, which priced at a steep discount to par to give investors the yield they were seeking, were seen having quickly moved up by more than a point after they were freed for secondary dealings.

The Washington, D.C.-based satellite broadcasting company's existing bonds, meantime, were seen hovering around the sharply higher levels to which they had moved on Wednesday on reports that a deal was in the works for the Federal Communications Commission to finally give its OK for XM's proposed acquisition by rival Sirius Satellite Radio Inc.

Ford Motor Co.'s bonds were seen all over the place, swinging between lows below 55 and highs as good as 61, before ending around their lows for the day after the Number-Three U.S. carmaker by sales posted a considerably wider-than-expected second-quarter loss of $8.67 billion - in fact, the biggest quarterly deficit in the iconic Dearborn, Mich.-based car manufacturer's more-than century-long history.

Funds rise by $26 million on week

And as trading was wrapping up for the day, 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 $26.4 million more came into the weekly-reporting funds than left them. That broke a losing streak of two straight outflows, including the $70.6 million cash exodus seen in the previous week, ended July 16.

Outflows have still been seen in four weeks out of the last six, dating back to the week ended June 18; during that time, the funds have lost a net of $787.276 million, according to a Prospect News analysis of the AMG figures. Before that had come a run of 11 consecutive weekly inflows, stretching from early April through mid-June, during which time some $3 billion of inflows were recorded, according to the Prospect News analysis. Before April, outflows had been recorded in most weeks.

With the year slightly more than half over, inflows, after that slow start, remain solidly ahead, with 17 inflows versus 13 outflows seen in the 30 weeks since the start of 2008, according to the analysis. According to market sources, net inflows from the weekly-reporting funds since the start of the year, excluding distributions but including previous adjustments and revisions, are now $1.146 billion, up from $1.119 billion the previous week. At its peak, the 2008 net inflow totaled some $1.933 billion in the week ended June 11.

A market source meantime said that in the week ended Wednesday, funds which report on a monthly basis, rather than on a weekly one, were unchanged, this following the previous week's $0.7 million outflow. The year-to-date total inflow for the monthly reporters thus remains at some $3.069 billion. On an aggregate basis combining the weekly- and the monthly-reporting totals, year-to-date inflows for high yield mutual funds stand at $4.216 billion, up from $4.189 billion the previous week.

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 only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, more recently, hedge funds.

XM prices at a discount

In Thursday's primary market XM Satellite Radio Inc. priced a massively upsized $778.5 million issue of 13% senior notes due Aug. 1, 2014 (Caa1/CCC) at 89.93 to yield 16%.

The notes were priced on top of price talk which was for a 13% coupon, priced at a discount to yield in the 16% area.

Under certain circumstances the notes will mature on Aug. 1, 2013.

JP Morgan, Morgan Stanley and UBS Investment Bank were joint bookrunners for the merger funding deal which generated slightly more than $700 million of proceeds, and was upsized from $400 million.

New XM bonds push higher

When the new XM 13% notes due 2014 were freed for secondary dealings late in the morning, a trader saw an immediate market take shape in a 90.5-92 context, up from the 89.93 level at which the bonds had priced a little while before.

A trader saw the bonds move up to 91.375, while a second soon afterward said the market had narrowed to 91.25-91.75, with most trades taking place around 91.5.

At the end of the day, that latter trader said that that was also the level at which he saw those bonds at the end of the day.

"The first trades on the break took place at 91.25, and then most of the trades took place at 91.5, and the market kept getting back to 91.25-91.75 and then they drifted in." He saw the bonds going out at 91 bid, 91.5 offered. "There may or may not be a 91.125 or 91.25 bid around."

He noted the fact that the deal had been upsized and then had traded up a point, characterizing its performance as "a good showing."

Another trader quoted the new bonds at 90.5 bid, 91.5 offered, while a third had them at 91.5 bid, 92.25 offered.

One of the traders said that he had seen "very few flippers on this issue," buying the bonds and then trying to quickly turn them over at a higher price.

A market source meanwhile saw the existing XM 9¾% notes due 2014 - which were seen up anywhere from 4 to 6 points on Wednesday on news that a deal was in the works under which the FCC would grant its approval of XM's $3.5 billion acquisition by New York-based Sirius, its smaller upstart competitor - as having moved around for a while at slightly easier levels before going out at 99 bid, unchanged on the day.

At another desk, the bonds were seen up a point on the day at 97.5 bid, 99.5 offered, while yet another quoted them at 98.75 bid, but called that a better than 2 point rise. A trader saw the bonds offered at 99.5, without a bid, speculating that the bid side might be at 97 or 98.

Sirius' 9 5/8% notes due 2013 gained 1½ points to close at 81.5.

The two companies on Thursday meanwhile said they were close to an agreement to pay $19.7 million in fines - $17.5 million from XM and $2.2 million from Sirius - to settle an outstanding case brought by the FCC against the two satellite broadcasters after conventional earthbound radio stations who compete against them complained that ground-based repeater stations used by XM and Sirius were interfering with their signals. Settlement of the case was seen as the key to getting Deborah Taylor Tate - the fifth and last FCC commissioner to vote on the planned merger of the two companies - to approve the controversial combination, which is opposed by the conventional broadcasters as well as by some politicians and consumer advocates who fear the creation of a satellite broadcasting monopoly. Once the case settlement is formally approved by the commission, Tate will reportedly cast her vote in favor of the merger, giving the "ayes" a 3-2 edge over the "nays".

Market indicators mostly lower

Looking at the overall market, a trader pegged the widely followed CDX junk bond performance index down 3/8 point Thursday, quoting it at around 93 5/8 bid, 93 7/8 offered. The KDP High Yield Daily Index lost 14 basis points to end at 71.80, while its yield rose by 3 bps to 10.33%.

In the broader market, advancing issues trailed decliners by a more than five-to-four margin. Activity, represented by dollar volume, fell about 20.5% from the levels seen in Wednesday's session.

A trader said that the market "started out strong during the day, but then kind of got weaker in sympathy with the equity markets," which were lower pretty much all day, with the bellwether Dow Jones Industrial Average retreating 283.10 points, or 2.43%, to end at 11,349.28, and broader stock indexes down by about the same magnitude.

"Everything was weaker, to some extent, during the course of the day, in all of the markets,"

he declared.

The market "definitely had an easier tone to it," a second trader agreed. "I think that some of the recent buyers are spooked, [fearing] that the worst is not yet over, as proven by the Dow and the financial sector specifically," the latter group leading stocks downward on Thursday.

He opined that the junk realm was down ¼ to ½ point, with "very little buying." However, he also said that "there wasn't widespread selling - it was more of a selective group of names that actually traded lower."

Ford skids lower after SUV-sized loss

Ford's 7.45% notes due 2031 were seen gyrating around at mostly lower levels after the carmaker reported its largest-ever quarterly loss - far more red ink than Wall Street was looking for.

A market source saw those bonds trading as low as 54 and as high as 61 mostly in small odd-lots, versus Wednesday's late level around 57. For a while during the afternoon, the bonds seemed to stabilize in a range between 56 and 57, but late in the session, were dragged down to finish at 54, their day's low point, in large-block trading.

At another desk, a trader saw the 7.45s down 4 points on the day at 54.5 bid, 55.5 offered.

However, another trader said the Ford bonds were down only 1 point at 55.5 bid, 57.5 offered. Its Ford Motor Credit Co. automotive finance unit's 7% notes due 2013 were likewise down 1 point at 76, while Ford Credit's 8% notes due 2016 were off by more than 2 points at 74.

Ford's New York Stock Exchange-traded shares meantime slid by 92 cents, or 15.26%, to finish at $5.11. Volume of 98 million shares was about 1½ times the norm.

Ford lost $8.67 billion, or $3.88 per share, in the second quarter, including $8.03 billion of write-offs - a stark contrast from a year earlier, when the company had actually earned $750 million, or 31 cents per share. That yawning deficit was considerably larger than the $6.7 billion which Ford lost in early 1992, the previous record.

Excluding the huge write offs - which are attributable to the slide in value of Ford's North American truck plants due to the sharp decline in U.S. truck and SUV sales, as well as the downturn in the value of its Ford Motor Credit Co. automotive financing unit's lease portfolio - Ford's per-share loss came out to 62 cents per share, more than double the 25 to 30 cents per share of red ink that analysts were looking for. Ford said that it had burned through nearly $11 billion of its cash stockpile over the past year, $2 billion in the most recent quarter alone.

Still, the company's chief financial officer, Don Leclair, said on a conference call with analysts following the release of the numbers that Ford has enough cash and credit - about $38 billion of liquidity, including $26 billion of cash-to make it through the current downturn. He said he didn't expect a domestic auto industry recovery to start until 2010.

Other auto bonds follow Ford lower

Ford's bad news cast a pall over the automotive sector, which had been steadily pushing higher for the past week on investor optimism that Ford and its larger domestic arch-rival, General Motors Corp. might be able to stanch their copious flow of red ink, obtain sufficient capital to stay in business while they ride out the current market downturn, and adjust their automotive output to bring it into line with what the car-buying public wants, and does not want, meaning more small, fuel-efficient cars and fewer large gas guzzlers. Both of the carmakers are, in fact, in the process adjusting their production, with Ford on Thursday announcing that it will retool two more plants that were formerly making SUVs and big trucks, so that they can produce the hot-selling smaller cars.

But that optimism hit a brick wall Thursday, as Ford towed the other auto names like GM lower. A trader saw the latter's benchmark 8 3/8% notes due 2033 down 1 point at 56.5 bid, 58 offered, while another saw them 2½ points lower at 56 bid, 57 offered, and a market source pegged them more than 3 points lower, at about the 57 area. Yet another source saw those bonds down as much as 4½ points, around the 56 area.

Among shorter-dated bonds, a trader said that GM's 7.20% notes due 2011 "continues to be a popular [i.e. busily traded] issue." He saw those bonds down a point at 73 bid, 75 offered, while its 7 1/8% notes due 2013 were seen down a deuce at 63.

GM's 49%-owned automotive finance arm, GMAC LLC's 8% bonds due 2031 were down 2 points to 62 bid, 64 offered, a trader said, while another trader saw them drop to 61 bid from prior levels at 63. Yet another source, also pegging those bonds down 3 points, saw them finishing at 62. GMAC's 6 7/8% notes due 2012 were seen off more than 2 points to just under 67.

Level 3 surrenders most gains

Apart from the autosphere, a trader said the junk market's inability to hang onto its early gains was evident in the movement of Level 3 Communications Inc.'s 9¼% notes due 2014, which he called "the most actively traded" of the Broomfield, Colo.-based telecommunications operator's issues.

He saw them opening the day at 94.75 bid, well up from Wednesday's finish at 92, because "it appeared they came out with good numbers."

Level 3 narrowed its second-quarter loss to $33 million, or 2 cents per share - 8 cents a share excluding a one-time gain from an asset sale - beating Wall Street's expectations of a dime per share loss and solidly improving from its year-earlier deficit of $202 million, or 13 cents per share.

Fueled by positive investor response to the numbers, he said that the bonds got as good as 95.75, "but then started drifting back down toward the 93 level," before finishing at 92.5, "which is practically unchanged after being up by 3 points during the course of the day, and on a fair amount of activity, too."

Gaming sector active on arbitrage activity

The trader also saw a fair amount of activity - most of it "capital structure arbitrage trades" - in the gaming sector, especially in names like Station Casinos Inc., Harrah's Entertainment Inc. and MGM Mirage, where "guys were trying to buy one and sell another." Station, he said "was pretty active."

A market source quoted Station Casinos' 6 7/8% notes due 2016 down 3 points on the session at 49.5, while its 6% notes due 2012 lost nearly a point to end at 75.5. MGM Mirage's 6 5/8% notes due 2015 were up nearly a point at just below 81.

Elsewhere among the casino names, Boyd Gaming Corp.'s 7¾% notes due 2012 were seen down a point at 81 bid, while another market source pegged the bonds ½ point lower on the session at just under 81.

A source called Tropicana Entertainment's 9 5/8% notes due 2014 one of the biggest losers on the session, down more than 5 points in fairly busy trading to finish at 28.5.

Sanmina-SCI shows strength

Amid a generally down market, Sanmina-SCI Corp. was seen as a beacon of strength after the San Jose, Calif.-based electronics manufacturer posted solid fiscal third-quarter numbers, swinging to a profit from a year-ago loss.

A trader said that he had seen "a fair amount of activity" in its 8 1/8% notes due 2016, noting that the bond was strengthened by "its good earnings."

At another desk, a market source saw those bonds up more than 2 points at 89.

Sanmina-SCI's Nasdaq-traded shares jumped 24 cents, or 17.52%, to end at $1.61 on volume of 19.5 million - more than three times the usual turnover.

The company said that in the fiscal quarter ended June 28, it made $15.3 million, or 3 cents per share, a solid comeback from its year-earlier loss of $27.6 million, or 5 cents per share. Excluding unusual items, its per-share earnings came out to 5 cents slightly above analysts' consensus expectations.

Elsewhere among the tech names, a trader saw NXP BV's bonds "kind of hanging in at the level [to which] they bounced" in trading Wednesday, when the Dutch computer-chip manufacturer's 9½% notes due 2015 had fallen about 8 points intraday into the mid-upper 60s after coming in with poor numbers the previous session, but then came off those lows to end Wednesday's dealings at 70 bid, still down 4 points.

He saw its 7 7/8% notes due 2014 open at 84 bid, 84.75 offered, but then retreat to 83.25 bid, 84 offered.

Park-Ohio bouncing back

A trader said that an issue which has recently been on the comeback trail is Park-Ohio Holdings Corp.'s 8 3/8% notes due 2014.

Those bonds had fallen as low as an 81-82 context from their previous trading level around 87 bid, but have since come back over the last few sessions and were being quoted around 84.5 bid, 85.5 offered. However, he acknowledged that activity in the credit was "very light - it really doesn't trade that much," and it's been a while since he's seen a round-lot trade in it, "so you never know what's real or imagined."

That comeback seemed to have coincided with an upturn in the Cleveland-based industrial equipment and automotive parts manufacturer's shares, which "have been on a very good run" of late, the stock going up to above the $17 per share level from a low of around $12 at the beginning of July, although he had no information "what the hell is going on" with them.

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