Junk moves up again, though Magnachip moves down; gaming rebound continues; XM plans bond issue

By Paul Deckelman and Paul A. Harris

New York, July 21 - The junk market rally seen the last few days of last week was continuing on Monday, traders said, although the market was not surging as it had, say, last Thursday.

But while most high yield names were being quoted at better levels, traders saw a slide in Magnachip Semiconductor Ltd.'s bonds, as investors digested the South Korean high-tech manufacturer's quarterly earnings report released on Friday.

Back on the upside, gaming names continued to rebound from previously oversold levels, particularly the bonds of Isle of Capri Casinos Inc.

Baseline Oil & Gas Corp.'s bonds continued to push upward - even as its shares gave up some of the big gains notched on Friday on news of a takeover run against the Houston-based independent oil and gas exploration and production company.

XM Satellite Radio Holdings Inc.'s bonds continued their upward path, even as the Washington, D.C.-based satellite broadcasting company announced plans for a new bond issue that will help to fund its planned merger with smaller rival Sirius Satellite Radio Inc.

High-yield syndicate sources told Prospect News that the secondary market was quiet on Monday.

One official said that junk was firmer in the morning, only to fade late into the afternoon on very little trading.

Another syndicate source said that if the secondary market doesn't soon start to pick up a little the primary market is apt to remain quiet.

And with August approaching it could be a protracted period of quiet, the source said.

"Everybody is focused on earnings, right now, and today's earnings were horrible," the official recounted.

"American Express missed earnings terribly. Apple reduced their forecast. Merck did not do well.

"It doesn't look good for tomorrow's start."

XM Satellite to bring deal

No issues were priced on Monday.

One new deal was announced, however.

XM Satellite Radio Holdings Inc. plans to price a $400 million issue of five-year senior bullet notes on Wednesday, via JP Morgan, Morgan Stanley and UBS Investment Bank.

Proceeds will be used to refinance debt in connection with the pending merger of XM with Sirius Satellite Radio, Inc., which is subject to FCC approval and other conditions.

Market indicators point upward

Back among the established issues, a market source pegged the widely followed CDX junk bond performance index up 3/8 point on Monday, quoting it at around 93¾ bid, 94 offered. The KDP High Yield Daily Index rose by 19 basis points to end at 71.69, while its yield tightened by 4 bps to 10.38%.

In the broader market, advancing issues led decliners by an almost two-to-one margin. Activity, represented by dollar volume, rose 17.5% from the anemic levels seen in Friday's session.

A trader said that the market "tried to open better," although he said that he "definitely" noted some selling into strength.

"There wasn't any real downward pushing of issues, but as bid-sides improved, I did see offering come out of the woodwork." He theorized that it could be "a combination of guys who took a shot when the market was getting hammered last week and took down some long positions, just going for the quick flip here, selling into strength, or it could be guys who still feel that there is additional downside, that this is just like a bear market bounce that we've experienced over the last couple of days."

He added that although some issues were inclined to ride the momentum of the last few sessions still higher, "there's no real follow-through, without direct news on a specific credit, there's no follow-through to any pricing. It's fragmented - and liquidity is still thin."

Another trader, who saw "not a ton" of activity going on, "not much happening today. There were a couple of little bursts, with some activity in the morning, but it was pretty quiet."

He noted that "there were a lot of numbers out - people need to digest all of the different reports and the earnings that came out today." He suggested that "maybe we'll see some more stuff going on [Tuesday]."

Magnachip gets mauled

While the overall market did seem what a trader called "slightly firmer," and the numerical indicators seemed to point in that direction, a big loser on the day was Magnachip Semiconductor.

A trader saw its 8% notes due 2014 down 10 points at 30 bid, while its 6 7/8% notes and floating-rate notes, each due 2011, were each quoted at 53, which he called down 14.

However, other traders, while acknowledging similar late-day levels, said some, if not most of that movement took place on Friday and then just continued into Monday. One said the 6 7/8s had fallen to 53.5 bid from prior levels at 61. He saw no sizable trades in the FRNs, and said that the 8% notes were at 33, also with no large trades during the day. Last Wednesday of Thursday, he saw the latter notes offered at 42, with no bid, "so clearly they are down."

Yet another trader, who saw the 6 7/8s off 5 points on the day to 54 bid, 56 offered, suggested that Magnachip may have declined like it did because the earnings data "weren't bad - but they could have been a little bit better."

While the company said that its sales for the quarter rose to $194.7 million from $194.1 million a year earlier, while operating expenses fell, both nominally and as a percentage of revenue, and while it also said that its liquidity position was adequate, Magnachip's net loss did increase to $59.6 million for the fiscal second quarter ended June 29, versus $45.3 million the year before, although the company attributed the decline to a foreign currency loss of $31.1 million.

The trader noted the fact that Advanced Micro Devices paper "got killed" after the Sunnyvale, Calif.-based computer-chip manufacturer recently reported weak earnings data.

"The tech sector is a tough one right now" - he even pointed out that even Apple Inc.'s stock dropped despite "all of their good stuff going out," including fiscal third-quarter earnings that jumped 31% from year-ago levels and beat Wall Street's expectations," as investors chose to focus on soft guidance. "It could just be that people are bearish on the sector."

LSP energy a loser

Also strongly on the downside - an anomaly in Monday's generally "up" market - was LSP Energy LP, whose 7.164% secured notes due 2014 were seen by a market source as having fallen more than 4 points from an almost-par level down to the mid-95s , in active trading including several big-block transactions.

Nobody knew what was pushing down the bonds of the East Brunswick, N.J.-based company, which operates a big gas-fired electric generating facility in Batesville, Miss. LSP operates as a subsidiary of Complete Energy Holdings, LLC.

Autos' upside ride continues

Back on the upside, the widely held automotive issues like General Motors Corp. and its domestic arch-rival Ford Motor Co. were continuing to cruise, bouncing back from their recently oversold condition on a combination of overall better market feeling and hope that the measures the carmakers have announced - GM's ambitious turnaround plan unveiled at mid-week last week, and Ford's announcement Monday that it will expand its buyout plan for hourly workers - will help stanch some of their heavy losses.

A trader saw GM's 8 3/8% benchmark bonds due 2033 unchanged at 58 bid, 59 offered, while its 49%-owned GMAC LLC unit's 8% bonds due 2031 gained 2 points to 65 bid.

Another trader saw the GM bonds unchanged at 57.5 bid, 58.5 offered, while Ford Motor Co.'s 7.45% bonds due 2031 were a point better at 57.5 bid, 58.5 offered.

However, another trader quoted the GM benchmarks up 1¼ points on the day at 58, and saw the Fords get as good as 58.75 before ending at 57.5, still up 1½ points.

Another market source called the GM '33s 1½ point gainers to just over 59, while the GMAC 8s jumped 4 points to about 66.

Among the shorter-dated automotive issues, a market source pegged GM's 7 1/8% notes due 2013 a point better at 63, saw GMAC's 6 7/8% notes due 2011 up nearly 3 points at 70, while its 6 7/8% 2012 notes were a little better around 67, and Ford Motor Credit Co.'s 7% notes due 2013 were up a point at 77.

However, another source called the 6 7/8s nearly 4 point winners at around 72.

Isle, other gamers float higher

Gaming issues were better, continuing to bounce back from the downturn they recently took in reaction to poor casino revenue numbers from key gaming jurisdictions Nevada and New Jersey.

Leading the way was Isle of Capri Casinos' 7% notes due 2014, seen up as much as 3 points on the day before closing up 2-and-change at about the 72 level, a trader said.

Another trader saw them go as high as 73 bid, before coming in to finish at 72.125, still up 1½ points on the day.

Trump Entertainment Resorts Inc.'s 8 ½% notes due 2015 were a point better at 54 bid, 55 offered.

Station Casinos Inc.'s 6 7/8% notes due 2016 were seen up more than 2 points at 51.

On the other hand, MGM Mirage's 7 5/8% notes due 2017 were seen off 1 point at 80 bid.

Baseline Oil up again

Baseline Oil & Gas - whose bonds had firmed more than 4 points on Friday in fairly active dealings, helped by the news that an investor is making a takeover run on the company - continued to firm on Monday, with those 12½% notes due 2012 seen up another ¾ point on Monday to 98.5.

However, while the bonds were seen pushing higher, the company's over-the-counter-traded penny stock, which had zoomed more than 26% on Friday, gave back some of those gains, finishing down 7 cents, or 10.45%, to 60 cents. Volume of 416,000 shares was a bit more than four times the norm.

Baseline's bonds and shares have been in play since last week's disclosure in a Securities and Exchange Commission filing that Third Point LLC, a $3.5 billion hedge fund run by manager Daniel Loeb, holds a 66.9% stake in Baseline and said it plans to contact the company to discuss obtaining majority control of the board.

Third Point currently owns about $49.2 million of Baseline's 14% senior convertible notes, which are convertible into 68.27 million common shares, according to the filing.

XM touts subscriber growth, offers new bonds

XM Satellite Radio's 9¾% notes due 2014 were seen by a trader at 94.75, up perhaps ¼ to ½ point on the session. A second source pronounced them up ½ point.

Another trader who saw those bonds at that level and who saw its floating-rate notes at 96, said the bonds appeared well bid for.

XM - which last week announced that it had reached agreement with the holder of the 9¾% notes on a deal to swap those bonds for a mixture of cash and new notes with higher coupons, in return for the holders waiving their rights to exercise a change-of-control put upon XM's acquisition by rival Sirius - said Monday that it ended the second quarter with 9.7 million subscribers, up 17% from a year ago.

XM also announced its plans for a new bond sale.

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