Junk tracks stocks higher; secondary shrugs off mad cow scare; Charter generates chatter; primary quiet

By Paul A. Harris

St. Louis, March 14 - The high-yield market was marked up ¼ to ½ point by sources on Tuesday, with the consensus being that junk seemed to have firmed on the back of rising stock prices.

"There was not much activity across the board, but the market had a better bid and a better tone," a trader remarked, adding that the Dow Jones Industrial Average advanced more than 75 points on the day.

Elsewhere the headline news and the financial news put several sectors - meat producers, broadcasting and cable - under the microscope. However, with certain exceptions, most names appeared to hold in on Tuesday, sources said.

The primary market, which has spent most of the late winter becalmed, saw no issues price. However up in the crow's nest sources kept calling out names spotted on the horizon, or perhaps closer.

Cablevision firm despite dividend

The freshest piece of news, Tuesday, was credit specific.

Bethpage, N.Y., media, entertainment and telecommunications company Cablevision Systems Corp. launched a proposed $3.5 billion term credit facility to pay a previously postponed dividend - but the company's bonds held steady.

The company will used proceeds from the new loan to fund a $3 billion special dividend to shareholders that was authorized by the company's board of directors on March 5.

Late last year Cablevision pulled dividend-funding bond and bank deals due to violations of covenants in CSC Holdings Inc.'s existing credit facility.

Late in January Cablevision Systems, along with Rainbow National Services LLC - another Cablevision subsidiary - came into compliance.

At least one trader professed some mystification that news of Cablevision's resurrected dividend deal did not cause the company's existing bonds to trade off.

The source marked the company's 7 7/8% notes due 2007 at 102 bid, 102.50 offered, unchanged on the session, while the 8% notes due 2012 were 96.625 bid, 97.25 offered, up 0.25.

Another source commented that the long bonds in Cablevision's capital structure have been "tough to find, as has a lot of double-B paper in the high-yield market.

"Long double-B paper has generally been very well bid," the trader added.

Yet another trader, following news of the dividend deal, saw Cablevision's 7 5/8% notes due 2013 closing 97.25 bid, 98.25 offered, and its 8% notes due 2012 97 bid, 97.50 offered, both up a point or so over the past couple of days.

"The whole market was up today by about a half a point," the trader added.

Meanwhile Toronto-based Rogers Communications Inc.'s paper was also unchanged or better, according to a trader who spotted the company's 8¼% bonds due 2010 at 106.50 bid, 107.25 offered, unchanged, while the 7¼% bonds due 2011 were at 103.50 bid, 104.25 offered, up 0.25.

The Bells, the Bells

Traders also took note of recent warnings from analysts that the merger of AT&T Corp. and BellSouth portends some unwelcome competition for the cable industry.

With Congress mulling whether to relax rules on phone carriers entering the cable business, the ultra-thin margins of some cable companies could erode further, so the reasoning goes.

With respect to these developments, one company, St. Louis cable television and high speed internet services provider Charter Communications, appears particularly ill-positioned, sources said Tuesday.

"People are concerned about the leverage on Charter, and the competition from some of the traditional telephone companies getting into the cable business," one remarked.

"The story you hear is that Verizon is going to get into the television and internet businesses, and the first market they have targeted is one of Charter's markets.

"Charter does not have the resources to increase their capital expenditures because of their high leverage."

However this source added that Charter's paper, having fallen on Monday, appeared to hold in on Tuesday.

Another trader, reporting seeing "a lot of Charter runs" on Tuesday after the bonds had fallen a couple of points on Monday, commented that "Charter is off a bunch all over the place.

"The bank loan paper is off about half a point in a market where everything is going straight up," the source said.

"The stock is down below a buck, and not looking too healthy."

This source also said that the invasion of the Bells does not bode well for Charter, but added "There may be more to it than that."

This source spotted the Charter 8% bond due 2012 down perhaps a quarter of a point on the session.

"That's the most senior stuff in the capital structure," the trader commented. "That paper is only levered up to about $1,200.00 per subscriber. It's worth about $3,000.00 per subscriber, so it's way covered."

The source said that what had been getting hit recently has been Charter's older holding company paper.

However, after trading off on Monday it appeared to be holding in on Tuesday. The 8 5/8% notes and the 9 5/8% notes, both due 2009, and the 9.92% notes due 2011, were unchanged on the session.

The source spotted the 9.92% paper at 46 bid, 48 offered, while the 9 5/8% notes were at 65 bid, 67 offered late Tuesday.

Another trader saw Charter's 11% notes due 2015 closing at 81.50 bid, 82.50 offered, half a point stronger, and added that the broad market was up a quarter to a half.

"You saw some people lifting paper, but no real follow-through," the source added.

Yet another source said the Charter 8 5/8% notes due 2009 at 64.50 bid, 66.50 offered, unchanged, while the 9 5/8s due 2009 were at 65 bid, 67 offered, up 0.75.

Bonds shrug off mad cow

The bonds of beef-dependent companies appeared to be holding in on Tuesday, according to one trader, even as stocks in the sector slumped on news that the U.S. Agriculture Department had confirmed that a cow in Alabama has tested positive for mad cow disease.

In fact, the source said that on the back of news that Hong Kong had decided to suspend beef imports from a Swift & Co. subsidiary, its paper actually appeared to firm.

The trader spotted Swift's 10 1/8% notes due 2009 up half a point at 102.50 bid, 103.50 offered.

This source recounted owning the bonds of Smithfield Foods during a previous "mad cow" scare. Noting that the company has more exposure to pork than to beef the source said that during the scare Smithfield's bonds "got crushed.

"We ended up buying some real cheap bonds and they snapped all the way back," the source added.

"This story, today, is about one cow," the source said.

"I wouldn't expect to see a lot of reaction. I think people are a little bit conditioned at this point."

Elsewhere an existing bond of National Beef Packing Co. LLC did trade off. However the move may not have been directly related to mad cow.

Both Moody's Investors Service and Standard & Poor's put the company's debt on review for a possible downgrade following the announcement that the company's majority owner, U.S. Premium Beef LLC, has entered into a non-binding letter of intent to purchase Brawley Beef LLC.

Details of the proposed transaction were not publicly disclosed, according to Moody's.

A trader saw National Beef's 10½% bonds trading at 100.75 bid, 101.75 offered, down 0.25 on the day.

Calpine defying gravity

The same trader, marking the broad market up a quarter of a point with stocks, said that Calpine Corp.'s paper also held in.

On Tuesday Standard & Poor's lowered the recovery rating on Calpine's second-lien debt.

"That paper trades in a 91 bid, 92 offered context," the source said. "These things continue to defy gravity. I think there are a lot of shorts out there."

Another source saw Calpine's 8½% notes due 2010 and its 8¾% due 2013 both at 91 bid, 92 offered, unchanged on the session.

Granite trades down

Another trader commented that in spite of the fact that Granite Broadcasting Corp. reported on Tuesday that its net revenue increased 5.6% during the fourth quarter of 2005, and 7% for the full year, its paper traded off.

One trader saw its 9¾% paper maturing in 2010 trading at 90.25 bid, 91.75 offered, down a point.

Another trader commented that the market for Granite's paper had been at 89.50 bid, 90.50 offered "for days.

"All of the sudden, trades showed up around the 92.25 bid, 92.50 offered level.

"People were on the conference call, today, listening to the earnings and trying to figure out if [the company] is going to make the coupon payment in June, and what they are going to have to do to raise the money to do that."

Auto names higher

Apart from news-driven activity, a source saw the market lift names in the automotive and chemicals sectors.

This trader said that General Motors Corp.'s long paper, the 8 3/8% bonds due in 2033, was up perhaps a quarter of a point, closing at 74 bid, 74.50 offered after opening the session at 73.75 bid, 74.75 offered.

Another saw GM's paper, as well as that of General Motors Acceptance Corp., close the session unchanged after having traded off by as much as a point earlier in the day.

A trader also saw Collins & Aikman Corp.'s 10¾% notes at 31 bid, 33 offered at the close, after having opened at 31 bid, 32 offered.

This trader added that the bonds of Lyndhurst, United Kingdom-based diversified chemical company Ineos Group also rose with the broad market on Tuesday.

New deals fail to excite in trading

It was not easy to spur traders into any rousing cheers for issues recently priced in the primary market.

Some, they said, have traded slightly higher while others appear to be straddling the issue price and still others have softened.

Quicksilver Resources Inc. priced an upsized $350 million issue of 7 1/8% senior subordinated notes due 2016 (B2/B) at par on Monday. At the Tuesday close a source spotted them 100 bid, 100.50 offered.

Last Friday Levi Strauss & Co. priced a $350 million tranche of new 8 7/8% senior notes due 2016 (B3/B-) at par, as part of an overall $470 million equivalent two-tranche transaction. On Tuesday a trader spotted the 8 7/8% paper due 2016 trading 100 bid, 100.25 offered.

Another trader said that Ball Corp.'s new 6 5/8% notes due 2018 (Ba2/BB) had "traded down right off the bat," but rebounded Tuesday.

The company priced the $450 million issue at 99.799 to yield 6.65% early last week.

The trader spotted them Tuesday at 99.625 bid, 100.125 offered, "up a little" on recent levels.

Another source had the Ball Corp. 6 5/8% bonds due 2018 trading at 99.50 bid, 100 offered, unchanged on the day.

Meanwhile a trader marked the recently priced Bon-Ton Stores, Inc., 10¼% senior notes due 2014 (B2/B-/CCC+) languishing on Tuesday.

The notes came in a downsized $510 million issue pricing at par on March 2.

"Bon-Ton couldn't get out of its own way," the trader remarked, spotting the 10¼% notes at 97.375 bid, 97.625 offered.

However the trader added that one bright spot was Level 3 Financing Inc.'s 12¼% notes due 2013 (Caa1/CCC-).

Last week the company priced the paper at a significant discount, 96.618, to yield 13%.

On Tuesday those 12¼% bonds were seen at 97.25 bid, 97.75 offered.

A quiet primary again

Meanwhile Tuesday's primary market maintained the near tranquility that has pervaded it practically since the beginning of the month.

No issues priced.

However a roadshow got underway for a $300 million deal from an off-the-run name.

Mobile Satellite Ventures began a roadshow Tuesday for its offering of seven-year senior secured discount notes, which are expected to price next week via Merrill Lynch and Morgan Stanley.

Proceeds will be used for general corporate purposes, working capital and construction of the company's next generation of integrated networks.

Meanwhile rumors persisted that Xerox Corp. could appear at any time with a drive-by.

Xerox last tapped the junk market in the late summer of 2004 with a $500 million issue of 6 7/8% senior notes due Aug. 15, 2011 which priced at par on Aug. 5. It was followed on Sept. 20 by a $250 million add-on to that issue that priced at 104.25 to yield 6.108%.

Citigroup and JP Morgan led both transactions.

A buy-side source who reported having been in touch with JP Morgan on Tuesday said there is apparently nothing to report so far on Xerox.

"There must be a lot of people calling on it," the source remarked.

"If it does come they will place it very easily, but there is no deal yet."

The buy-sider added that right now "drive-bys aren't even getting whispered because they can just bring the stuff on a moment's notice," and mentioned that another name in the current drive-by rumor mill is that of KB Home.

Where are the new issues?

When Prospect News quizzed this buy-sider as to where the junk bond deals are, the source pointed to the bank loan market and Cablevision's $3.5 billion credit facility.

"The bank loan market is taking a lot of supply," the source said.

"The last time CVC was in the market they were going to do $2.5 billion of bank debt and $1 billion of bond debt.

"Now they don't need to do bonds. They're going where they can get the most done the easiest."

The source, who plays both bank debt and bonds, said that currently the collateralized loan obligation bid is so strong in the bank market that it's taking some of the supply out of high yield.

© 2015 Prospect News.
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