Amkor bonds fall on Moody's move; Station Casinos brings add-on deal

By Paul Deckelman and Paul A. Harris

New York, Aug. 23 - Amkor Technology Inc.'s bonds were seen several points lower Tuesday after Moody's Investors Service downgraded the debt ratings of the Chandler, Ariz.-based provider of contract semiconductor assembly and test services, citing concerns about the company's ability to handle its existing debt.

Elsewhere, Northwest Airlines Corp. bonds remained steady to slightly higher, as the strike by 4,500 mechanics and other employees against the Eagan, Minn.-based Number-Four U.S. airline carrier moved into its fourth day.

In spite of declining equity prices, high yield traded up on Tuesday, with one source spotting the CDX 100 index 1/16 to 1/8 higher on the session.

In the primary market - which had pretty much hung a "see you in September" sign on the door over the previous several sessions - Station Casinos Inc. was heard by syndicate sources to have rolled the dice on an opportunistically timed add-on offering.

Station Casinos on top of talk

Las Vegas-based gaming and entertainment company Station Casinos Inc. priced a $150 million add-on to its 6 7/8% notes due March 1, 2016 (B1/B+) at 102.50, resulting in a yield of 6.399%.

The add-on notes, which were sold in a quick-to-market transaction, priced on top of the 102.50 area price talk.

Banc of America Securities and Deutsche Bank Securities ran the debt refinancing deal.

The original $350 million issue priced at par on Feb. 24, 2004, so the company walked away from Tuesday's tap having shaved close to 50 basis points off of its yield, and left the total issue size at $500 million.

A source from a hedge fund had the Station Casino 6 7/8% notes closing at 103.0 bid, 103.50 offered.

More drive-bys?

Late Tuesday Prospect News reached one high-yield syndicate official not involved in the Station Casinos transaction, and asked whether the market might see more quick-to-market plays in the run-up to Labor Day.

The official said that the answer is most likely "No."

The source added that strong single-B gaming paper such as Station Casinos 6 7/8% notes of 2016 comprise "an open and shut case," likely playing to a handful of ready buyers who were in with standing bids.

Shadow calendar

The sell-side official went on to say that reports of a massive looming forward calendar of new issues for the post-Labor Day junk market could be overstated.

"I don't think the shadow calendar is as enormous as some people would have us think, although I'm sure there will be some good activity after Labor Day," the official said.

The source went on to say that in spite of a succession of outflows from the high-yield mutual funds - six in a row - there remains a considerable amount of cash to be put to work in junk paper.

"The AMG number amounts to about 25% of the money that is out there," the official asserted, "the long-only mutual funds.

"Between the money managers and hedge funds there is still a lot of cash to put to work.

"Needless to say the outflows don't help, but you can't take that to mean there is no cash out there."

Looking at SunGard

Breaching an unwritten sell-side tenet which holds that the deal should not be used as an example of the junk market's liquidity, this official said that summer 2005's mega-deal, the SunGard Data Systems $3 billion three-tranche transaction - upsized from $2 billion - that priced in late June, should serve to satisfy those who are skeptical about junk's liquidity.

"You're not supposed to use that as an example, I know," the official said.

"But it blew out the door and traded to 104.

"There's gotta be cash out there."

Station up in trading

When the new Station Casinos 6 7/8% notes due 2016 were freed for secondary dealings, a trader saw the new bonds having firmed half a point from their 102.5 issue price to 103 bid, 105 offered. Another trader, however, said there was "nothing exciting" going on with the new deal, and saw it staying in the same 102.5 context at which it had priced earlier in the session.

Amkor down on Moody's cut

Back among the outstanding bonds, Amkor seemed to be the major mover on a day that otherwise saw very little in terms of significant pricing activity.

Its 7¾% notes due 2013 were seen having fallen more than two points on the session to 85.5 bid, a market source said, while its 9¼% notes due 2008 were down almost two points to 94 bid.

That late slide followed the mid-afternoon announcement by Moody's that it had cut the company's senior unsecured debt rating to Caa1 from B3 previously, had lowered its subordinated notes to Caa3 from Caa1, and had reduced Amkor's corporate family rating - the old senior implied rating - to B3 from B2, and kept the ratings outlook at negative.

Moody's said that the downgrade "reflects concerns about Amkor's ability to support its existing debt load at its current operating performance levels. The burden of fixed expenses and continued high capex levels make it challenging for Amkor to generate positive cash flow without meaningful growth in revenues and operating margin which has been absent so far."

Moody's also downgraded the company's speculative-grade liquidity rating to SGL-4 from SGL-3 previously due to its concerns about Amkor's ability to meet its $233 million debt maturity in 2006 - when its 5¾% convertible subordinated notes come due on June 1 - from available funds or cash generation over the next 12 months.

Northwest firm

Northwest Airlines bonds were "up a little," a trader said, quoting its 8 7/8% notes due 2006 as having pushed up to 66 bid, 67 offered from prior levels 65 bid, 66 offered, and its 10% notes due 2009 as going home at 47 bid, 49 offered, up from 45.5 bid, 47.5 offered on Monday.

A market source at another shop saw the airline's 7 7/8% notes due 2008 initially gain a point, but then give half of it back to close up only half a point, at 47 bid.

However, another trader saw "not much happening" in Northwest paper, seeing it pretty much unchanged, with the 8 7/8s around 65 bid, 67 offered, the 9 7/8% notes due 2007 and the 8.70% notes due 2007 "right around 53-55, depending on what time of the day," and the 10s at 47 bid, 49 offered, "so no real [moves]. Pretty much all the runs you saw in the Street were open-to-close a variation of half a point, depending on what time of the day it was, but no big swings or excitement there."

Overall, he said, "airlines were quiet," with Delta Air Lines Inc.'s benchmark 7.70% notes coming due on Dec. 15 "opening and closing unchanged, at 25 bid, 27 offered, with "no real trading."

Yet another trader said that Northwest was "up earlier, and then unchanged, although he did see the 8 7/8s slightly easier, at 65 bid, 67 offered, off a point, and "the rest the same [as where they had been on Monday]."

A trader said that Northwest "gave up a little," quoting the 8 7/8s as having retreated half a point to 64.5 bid, 66 offered, and saw its 6 5/8% notes due 2023 at 51.5 bid, 52.5 offered.

He saw Delta's 7.90% notes due 2009 unchanged at 17.5 bid, 18.5 offered.

And another source said that there had been what he termed a "last-minute rally" in Northwest, which came from 5% down earlier to only about 1% down at the close, with "shorters eating dust."

While Northwest seems to be weathering the mechanics' strike, using a combination of supervisors, replacement mechanics and outsourcing to third-party contractors to cover its maintenance needs, and denying union assertions that the strike has proven to be a major disruption of its normal routine, there may be further trouble over the horizon for Northwest and Atlanta-based Delta, with reports saying that the Justice Department is recommending that the federal Department of Transportation reject a bid by Delta and Northwest to coordinate prices and scheduling with foreign airlines.

Members of the SkyTeam consortium - which also includes Air France, KLM Royal Dutch Airlines and Alitalia Airlines - are seeking an exemption from federal anti-trust regulations, which usually bar nominal competitors from acting in concert with one another. Complicating matters is the fact that Air France, Northwest's long-time partner in coordinating transatlantic flights, now also owns KLM, Delta's long-time partner, bringing the whole arrangement in for closer federal scrutiny, since Northwest and Delta are fierce rivals domestically. Both airlines profit handsomely from their deals with the foreign carriers and hope that DOT will give its blessing.

Delphi lower

Back on the ground, a trader saw Delphi Corp.'s bonds easier, with its 6.55% notes due 2006 down half a point at 92.5 bid, 93.5 offered, and the Troy, Mich.-based automotive electronics manufacturer's 6½% notes due 2009 a point behind at 86 bid, 87 offered.

Salton unchanged as exchange ends

The trader saw no real movement in Salton Inc.'s bonds, even as the troubled Lake Forest, Ill.-based maker of small appliances like the George Foreman brand electric hotdog and hamburger grills announced that its previously announced exchange offer aimed at taking some of those bonds out had concluded.

He saw the Salton 10¾% notes scheduled to come due on Dec. 15 at 64 bid, 66 offered for the tendered bonds and "at least 10 point higher for the untendered ones," while its 12¼% notes due 2008 were last seen at 52 bid, 54 offered. There was "nothing at all" going on in the name on Tuesday, he said.

Salton said that - after several deadline extensions - its exchange offer for the outstanding bonds expired as scheduled at midnight ET on Monday. As of that deadline, noteholders had tendered $75.3 million of the 10¾% notes, or 60.2% of the $125 million of the bonds that were outstanding when the offer began in mid-June.

The offer - primarily intended to take out those Dec. 15 bonds or, at least, most of them - was conditioned on the participation of holders of at least $75 million of the notes, and the offer was extended a number of times until that threshold was reached. Holders also tendered $90.1 million of the 12¼% notes, or 60.1% of the $175 million of outstanding bonds.

The tendered notes are to be exchanged - at a sizable discount to their face value - for new floating-rate notes due 2008 issued via a second-lien credit facility, under a previously announced exchange ratio, as well as new preferred stock and common stock. Salton is issuing a maximum total face amount of the new notes of $110 million (see related story elsewhere in this issue for full terms).

The trader called Salton's exchange offer "a disaster," - since the cash-strapped company had hoped to ideally take out the whole $125 million of the Dec. 15 bonds, but is still stuck with a sizable chunk of them to be redeemed, just slightly under $50 million.

"That's going to be a real problem," he said. "People are trading tendered and untendered bonds, and people that took themselves out of the tender. That should be interesting to watch this thing unfold. They just barely made it [the minimum tender threshold for the 103/4s] by a couple of hundred bonds over the $75 million level. They [Salton] have got their work cut out for them."

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