Secondary market tone seen better, as primary side falls silent; Unisys, Xerox up

By Paul Deckelman

New York, Aug. 20 - High yield secondary credits were quoted Wednesday having jumped a point or more in some cases Wednesday - albeit on very thin mid-summer volume, which was helping to distort the extent of the market movements.

Meanwhile, with Oxford Automotive Inc. having pulled its planned two-part offering of $240 million new bonds plus equity warrants, the new-deal arena fell silent, players said.

A market source opined that "everything was up big today, a point or more. It was up pretty big."

That assessment was echoed by Kingman D. Penniman, founder and president of KDP Investment Advisors Inc. of Montpelier, Vt., who told Prospect News that "we saw some of the issues that had been hard hit rising two or three points. Basically, the tone of the market is one of very few sellers and people out there looking to see what they can buy-so you're watching prices move up".

The respected junk market guru notes that with the virtual clearing of the forward calendar that had been overhanging the secondary market, the stage is set for the recently battered secondary to regain its footing (see related story on page one of this issue).

A trader said that Unisys Corp. bonds were "a lot better today. Why? I have no clue."

He saw the Blue Bell, Pa.-based computing solutions company's 8 1/8% notes due 2006 as having firmed to 106 bid "and looking [for offers], from prior levels around 103.25 bid, 104.25 offered.

At another desk, the Unisys 7¼% notes due 2005 were heard to have firmed a point to 104 bid. No fresh news was seen out on the company.

Also in the technology area, a trader cited Xerox Corp. debt as rising - again on no significant news - as the most notable feature of an otherwise "very quiet" session.

He quoted the Stamford, Conn.-based office machines and copier giant's bonds all up around a point, with Xerox's 7 5/8% notes due 2004 at 94.5 bid, 95.5 offered, its 7 1/8% notes due 2010 at 95 bid, 96 offered and its 8% trust preferred securities of 2027 at 79 bid, 81 offered.

A trader saw Calpine Corp. bonds "better today," with the San Jose, Calif.-based power generating company's 8¾% notes due 2013 firming to 89 bid, 91 offered from 87 bid, 88 offered on Tuesday and its 8½% notes due 2008 up more than two points on the bid side at 90.5 bid, 91.5 offered.

The trader also noted that Charter Communications Holdings LLC bonds "felt a little better," with its benchmark 8 5/8% notes due 2009 having firmed to 73.5 bid, 75 offered from 72 bid, 74 offered on Wednesday.

The St. Louis-based cable operator's bonds have been gradually rebounding from the low levels they hit late last week when the company announced that it was not going through with its planned $1.7 billion issue of new junk bonds and the accompanying tender offer for over $1 billion of straight and convertible bond debt.

Standard & Poor's on Wednesday announced that it had raised Charter's corporate credit rating to CCC+ from CC previously and had removed the company from CreditWatch with a developing outlook.

KDP's Penniman, however, pointed out that the move was a purely technical one and not indicative of any change in S&P's opinion of the problem-plagued company, since the ratings agency cited Charter's decision to cancel the tender offers for the various outstanding debt issues. Charter was offering to buy a certain percentage of the outstanding bonds back from their holders at prices well below par, which would have constituted a selective default in the ratings agency's eyes, which would have resulted in a lowering of the bond ratings.

By not going through with the tenders, it avoids the default, causing the ratings to rise, even though, Penniman said, " had they done it, the credit outlook for the company, given time, would have been better, but the fact that they didn't do it at below par meant the rating was put back to CCC-. It had nothing to do with the fact that they were a better credit."

Elsewhere, a trader saw Dillard's Inc. bonds having fallen on the session - one of the few exceptions to the generally positive rule - after the Little Rock, Ark.-based department store operator reported a larger than expected second-quarter loss of 35 cents per share, excluding special items, about double what analysts were looking for.

The trader noted that Dillard's 7.15% notes due 2007 were trading at 97.5 bid, 98.5 offered, down about a point from week-ago levels, while retailing sector peer Gap Stores' comparable issue, the 6.90% notes due 2007, had firmed in that time to 104.5 bid, 105.5 offered from week-ago levels at 102.5 bid, 103.5 offered. Still he said, he hadn't seen any move by investors interested in playing the retailing sector to swap out of Dillards and into Gap, the San Francisco-based specialty clothing retailer which continues to undergo a sharp revival from its weak year-ago performance levels.

In a related sector, Levi Strauss & Co. bonds were bouncing around, its 11 5/8% notes reaching as high as 97 bid, 99 offered in the morning; the bonds on Wednesday had firmed to 95 bid Tuesday from early levels at 93 bid, 96 offered. But by the end of the day, San Francisco-based apparel maker's bonds had come off their highs and were offered at 97, with bid levels estimated around 95-96.

Red Bank, N.J.-based homebuilder Hovnanian Enterprises' bonds firmed after the company said that it expects to continue its strong growth pace this year, with earnings per share anticipated to increase by more than 58% over earnings of $4.28 per share in fiscal 2002.

"We are now confident that we will exceed the high end of our previously announced earnings projection of $6.50 to $6.75 per share for fiscal 2003, which ends Oct. 31," the company announcement said.

Hovnanian's 9 1/8% notes due 2009 were a point better at 105. Its 8% notes due 2012 rose from 101 bid on Tuesday to a Wednesday close at 102.5 bid.

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