Mirant sells oversubscribed $850 million; auto names stall; transit strike, pre-holiday lull seize secondary

By Paul A. Harris

St. Louis, Dec. 20 - The high-yield market had news to please both the bulls and the bears on Tuesday, as one source marked the CDX up a sixteenth.

Early in the session sources professed optimism that New York City's transit strike would not deter junk players from showing up. However late in the day traders and syndicate officials admitted that the strike, coming in conjunction with expectedly thin pre-holiday trading, had unmistakably pared the ranks.

"There were definitely less people in the office," one sell-side source in a Manhattan-based investment bank said after the close.

"People are checking out," a trader remarked a little earlier.

"The new issuance is out of the way. The secondary is just window dressing.

"Guys are getting out of stuff that they don't want at the end of the year. And that's pretty much it."

New issuance almost done

With sources reporting extremely thin trading in the secondary market, the new issue arena produced terms on over $1 billion of business, in what some sources say could be the last day (others the last "big" day) of 2005 business.

Tuesday's biggest issue came from Mirant North America, LLC, which priced an $850 million issue of eight-year senior notes (B1/B-/BB-) at par to yield 7 3/8%.

With JP Morgan, Deutsche Bank Securities and Goldman Sachs running the books, the notes priced on top of the 7 3/8% area price talk, which had been revised from 7½% to 7¾%.

The Atlanta independent power producer's deal, brought to help finance its exit from bankruptcy, was said to have gone well, with one source reporting that the order book was over $2 billion.

Late in the afternoon a source spotted Mirant's new 7 3/8% notes due 2013 at 101 bid, 101.25 offered.

Meanwhile a trader, commenting that the deal seemed to have been pretty well received, confirmed that the notes had traded up to 101 bid, 101.25 offered, then closed at 100.875 bid, 101.125 offered, with "a lot of good two-way flow."

Omega completes $175 million

The only other action in Tuesday's primary market came from Timonium, Md., long-term care industry REIT, Omega Healthcare Investors Inc.

The company priced a $175 million issue of 7% 10-year senior notes (B1/BB-) at 99.109 to yield 7 1/8%, on top of the price talk.

Deutsche Bank Securities, Banc of America Securities and UBS Investment Bank ran the books for the issue. Proceeds will be used for debt refinancing and general corporate purposes.

Shortly after the bonds broke for trading one source spotted them at 99.375 bid, up from the 99.109 issue price.

Later in the day the same source gave closing levels on Omega Healthcare's new paper of 99.375 bid, 99.625 offered.

However a trader remarked that Omega had come into the secondary trading "kind of came flat," adding that the new 7% senior notes were straddling the issue price at 99 bid, 99.25 offered.

Done, or almost done?

Although some sources suggested that Tuesday's business concludes the primary market activity for 2005, with nothing left save for "Auld Lang Syne," others made note of deals perched on the thinning forward calendar that are thought to be this year's business.

One prospective issuer appeared Monday with a deal that is expected to price before the Christmas break.

Art Five BV, Inc., a special purpose vehicle for Italy's Wind Telecommunications, plans to sell €250 million equivalent of nine-year blended-rate senior secured notes in dollar and euro tranches (implied ratings B1/B+) on Thursday.

The blended rate is anticipated to be three-month Euribor plus 300 basis points until 2013 and three-month Euribor plus 325 basis points until 2014.

ABN Amro and Deutsche Bank Securities are joint bookrunners.

Proceeds will be used to support the acquisition of Wind by Weather Investment.

Wind is a fixed-line and mobile telecommunications company based in Rome, Italy.

In November 2005 Wind Acquisition Finance SA priced approximately €1.25 billion of 10-year senior notes (B3/B-) in two tranches, an €825 million issue at par to yield 9¾% and a $500 million at par to yield 10¾%.

Proceeds from that transaction were also used to support the acquisition.

Also expected to price before year-end is Comstock Homebuilding Cos., Inc.'s $150 million of five-year senior subordinated notes (B3/B-) via Friedman Billings Ramsey.

Price talk on that deal widened to 12% from 11% to 11¼%. An informed source said Tuesday that covenant changes could be in the offing, including a covenant restricting debt to EBITDA to four to one, and possibly another covenant restricting stock sales and dividend payments.

Finally, high-yield watchers are looking for terms on National Coal Corp.'s $80 million offering of seven-year senior secured notes via Jefferies & Co. Price talk is 10½% with warrants for common stock.

Toyota to elbow GM?

In Tuesday's secondary market action, those tracking the automotive sector seemed to get a see-saw ride.

First there was Monday's news that Fitch Ratings had downgraded Ford Motor Co. to junk: to BB+ from BBB-. Fitch was the last of the three rating agencies to take that step.

Early in the session one trader marked Ford's bonds unchanged to slightly lower on the news.

"It was no surprise to the market by any stretch of the imagination," the trader asserted.

"After what happened in April and May I don't think people are going to be surprised by downgrades of Ford and GM.

"People are ready for it, as opposed to earlier in the year when people were surprised by how quickly it all came."

However as the session waned, another trader had Ford's 7.45% bonds due 2031 marked at 70.0 bid, 70.75 offered, while Ford Motor Credit's bonds maturing in 2013 were 87.0 bid, 87.75 offered - both issues down a half point to three-quarters of a point.

So much for the fallout from Monday's news.

Fast-forward to Tuesday, and the bonds of General Motors Corp. were up on blocks, as news circulated that Toyota Motor Corp. may be poised to unseat GM as the world's biggest auto maker in 2006.

One trader remarked that GM's share price "got whacked," losing $1.20 during the session, dropping below the $20 per share level to trade at a 23-year low.

The source had GM's 8 3/8% notes due 2033 spotted at 68.50 bid, 69.50 offered, down half a point, on the "Toyota news."

"It feels like somebody is doing something, here, and using that Toyota story as a kind of smoke screen," the source commented, but added that nevertheless with GM's share price dropping below $20.00, it could make it hard for any automotive bonds to rally.

Shortly later another trader said that GM bonds were half a point weaker across the board, and spotted the 8 3/8% notes due 2033 at 67.50 bid, 68.50 offered at the close.

After hours there was news that big shareholder Kirk Kerkorian, via his investment arm Tracinda Corp., had sold 12 million shares of the automaker in the past two sessions, cutting his stake in GM to 8% from 10%. The billionaire investor had been loading up on GM stock earlier in the year, then made a failed attempt to get a board seat for his longtime investment deputy Jerome York but the sides were unable to come to terms.

Delphi steady

Meanwhile bankrupt auto parts supplier Delphi Corp.'s Monday withdrawal of a proposal to drastically cut wages and benefits of over 30,000 hourly workers, was seen as a sign that rapprochement between Delphi, former parent GM and the United Autoworkers is possible.

Early Tuesday one trader had Delphi's 7 1/8% notes due 2029 at 51.50 bid, and commented that Monday's news was a signal that GM could be getting a little more involved in the negotiations, and maybe there is a possibility that a strike can be avoided.

Later in the afternoon another trader also had the Delphi paper unchanged at 50.50 bid, 51.25 offered.

Hertz dips from gains

Elsewhere the new bonds of Ford's former car rental unit, Hertz Corp. - acquired in an LBO deal backed by a $2.80 billion bond financing that priced last week - have eased from their highs but are generally hanging in, sources said Tuesday.

One source marked the new Hertz 8 7/8% senior notes off three-quarters from the highs seen late last week while the 10½% subordinated bonds were off about half a point.

"It came out of the gate a lot stronger than people thought, which is a sign that it was done right," the trader commented.

Another source later marked both bonds down half a point, with the senior notes at 101.25 bid, 101.625 offered, and the subordinated notes 102.375 bid, 102.75 offered.

Another jolt for Calpine

Away from the auto sector the pressure continued Tuesday on the debt of troubled San Jose, Calif., independent power producer Calpine Corp.

With the market still digesting the news of the Delaware Supreme Court's ruling which requires Calpine to repay hundreds of millions in proceeds it misspent on fuel for its gas-fired power plants, leading some to speculation that Calpine will file for bankruptcy early in 2006, California attorney general Bill Lockyer announced his intentions to hold the troubled company's feet to the fire with regards to its contracts with the state.

Lockyer asked the Federal Energy Regulatory Commission to ensure that Calpine continues to abide by the terms of its contract with the state to provide electricity at a fixed rate lower than the current market rate in the event Calpine files for bankruptcy.

"Calpine continues to be the focus of the secondary market," one trader commented, marking the company's second-lien issues unchanged in early morning trading.

People are just waiting to see what happens with the cash, the trader said.

"Do they put it back in the account by Jan. 22, or do they have to tender for second-lien bonds at some point?"

"It's a waiting game at this point."

Meanwhile another trader had Calpine's 8½% notes due 2008 closing 25.50 bid, 26.50 offered, down a 1.75 on the day.

Cablevision down on S&P cut

Trailing Monday's news that CSC Holdings Inc. (Cablevision Systems Corp.) had canceled the $1 billion bond issue it priced late last week, owing to the company's disclosure of technical covenant violations under CSC Holdings, Inc.'s existing credit facility and possible technical covenant violations under other debt instruments, Standard & Poor's appeared to waste no time lowering the boom.

Citing the disclosures S&P cut Cablevision Systems Corp.'s corporate credit rating to BB- from BB and its senior unsecured debt rating to B from B+. Meanwhile S&P cut CSC Holdings Inc.'s corporate credit rating to BB- from BB, and its senior unsecured debt rating to B+ from BB-.

Late Tuesday, following S&P's ratings actions, a trader marked Cablevision's bonds down half a point across the board.

The company's 7 7/8% notes due 2007 closed at 101 bid, 102 offered, down from 101.50 bid, 102.50 offered.

Meanwhile the 8 1/8% notes due 2009 were at 100.50 bid, 101.50 offered, down from 101 bid, 102 offered.

"There are definitely management accountability issues with this company," the trader commented.

"This is the track record that this company has," the trader commented.

Meanwhile the longer paper took a harder hit, according to another trader who marked the Cablevision 8% notes due 2012 as closing at 93 bid, 94 offered, down from Monday's 95.50 bid, 96.50 offered, altogether down about 2.50 to 2.75, the trader estimated.

Amkor gets a lift

If clouds hung over much of the quiet secondary market's Tuesday session, at least one ray of light shined through.

Amkor Technology Inc., the Arizona semiconductor maker, announced a significant increase in its expected fourth quarter 2005 performance Tuesday morning.

The company's assembly and test revenues are now expected to increase by 13% to 15%, up approximately two times over its previous guidance of 6% to 8%.

A trader marked Amkor's 10½% subordinated notes closing Tuesday at 91.375 bid, 92.375 offered, up from 88.50 bid, 89.50 offered "a couple of days ago."

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