Clear Channel slates eight-year deal; Liberty a loser after spin off news; earnings lift Isle of Capri

By Paul Deckelman and Paul A. Harris

New York, Sept. 3 - The long-dormant high yield primary market came back to life on Wednesday as word spread that Clear Channel Communications Inc. will soon bring nearly $1 billion of eight-year notes to market to help defray the cost of the giant broadcasting company's recently completed leveraged buyout.

Among the established issues, Liberty Media Corp.'s bonds were seen sharply lower in busy trading, after the Englewood, Colo.-based media and communications conglomerate announced plans to spin its entertainment assets off into a stand-alone public company.

A winner, on the other hand, was Isle of Capri Casinos Inc., whose bonds firmed smartly after the gaming operator reported a narrower fiscal first-quarter loss versus a year ago.

Dollar General Corp.'s bonds were seen up in active dealings after the discount retailer posed favorable second-quarter numbers.

Revlon Consumer Products Corp.'s bonds were seen at higher levels after the New York-based cosmetics and beauty care product maker announced plans to pay down a big chunk of its outstanding debt.

Junk automotive bellwethers General Motors Corp. and Ford Motor Co. each reported another big slide in their respective monthly domestic sales figures. GM's 49%-owned financing arm, GMAC LLC, meantime announced big layoffs at its money-losing Residential Capital LLC mortgage-financing union.

Overall a senior high-yield syndicate official said that the market felt better Wednesday morning.

"With equities being relatively flat on the day certain sectors have rallied," the official said, adding that technology sector felt better on the day.

"The name of the game, Tuesday, was getting the runs out and seeing where stuff would shake out," the source added.

"There hasn't been any real trading for the better part of two and a half weeks, and there were a number of traders that still weren't in on Tuesday."

Clear Channel to bring $980 million

The LBO backlog was the topic du jour in the primary market, as Clear Channel was heard to be marketing a $980 million tranche of 10¾% senior cash-pay notes due 2016 (Caa1/CCC+) - a deal that is expected to be talked this week and priced early next week.

One source close to the deal said that the notes were discussed as recently as last week in the context of a reoffer price in the 70s.

Deutsche Bank Securities, Morgan Stanley, Citigroup, Credit Suisse, RBS Greenwich Capital and Wachovia Capital Markets are joint bookrunners.

The notes are part of the debt financing for the LBO of the company by Thomas H. Lee Partners and Bain Capital.

The bond portion of the financing also includes $1.33 billion of 11% senior PIK toggle notes due 2016, with a 75 bps step up if interest is paid in kind.

On Aug. 1 underwriters converted Clear Channel's $2.31 billion bridge loan into the senior unsecured notes.

Watching for windows

In the run-up to year-end a senior high-yield syndicate official expects to see two or three decent windows for best efforts new issuance to open up in the high-yield.

"The backlog isn't gone, but it hinges on two trades: BCE and Hexion," the source asserted.

"And there are a lot of opportunities, now, for things that are not related to the LBO overhang."

This official maintains that there is a potential list of issuers who, although they aren't going bankrupt, need liquidity.

"We are going to see windows of execution open up where three or four or five deals are going to push through.

"Then someone is going to get a little aggressive, roll out a $2 billion financing, a billion of which will fall on its face and back everyone up for a month."

The official reiterated that there are a number of funds, including BlackRock, raising capital to invest in loan paper.

"That will ultimately translate into more demand across the asset classes in leveraged finance," the senior syndicate source said.

Meantime, the sell-sider said, volatility is forcing everyone to take another look at asset valuations and recovery values.

"That stuff has been very volatile," the official remarked.

"We've seen ServiceMaster trade from 40 to 30, and back up to 57 in a two-week span.

"And nothing has happened to the company."

Meantime institutional investors are, realistically, shooting just to come out on or slightly north of the balk line for 2008, the syndicate source said, noting that presently the asset class is posting year-to-date returns of between negative 2.5% and negative 3%.

Cash to put to work

Meanwhile a money manager in a high-yield mutual fund, who has lately been browsing the aisles of the leveraged loan market, said that the absence of a junk calendar for the past two months has translated into a considerable amount of cash on the sidelines.

"It seems like everybody has a lot of cash to put to work, and if it's a good name they'll put it to work," the source asserted.

"Everybody knows the pipeline is there," the source added.

"If the opportunity presents itself there is a lot of paper."

Market indicators firmer

The widely followed CDX index of junk bond performance was up 1/8 point, said a trader who quoted it at 92¾ bid, 93 offered. The KDP High Yield Daily Index meantime gained 2 basis points to end at 70.63, while its yield was steady at 10.58%.

In the broader market, advancing issues continued to lead decliners by a narrow margin. Activity, represented by dollar volume, was up 48% from the dull post-holiday levels seen on Tuesday.

A trader said that "nothing really went on" that he saw - it was "just more of the same."

However, another trader said that "we had some activity" during the session, describing it as "very issue-specific and news-specific. There were some movers, on some volume."

Liberty lower as spin off plan is unveiled

A trader saw Liberty Media's 5.70% notes due 2013 at 86.75 bid, 87 offered, down from levels around 88 bid, 89 offered late last week.

At another desk, a market source saw those bonds open several points lower at 85.5 bid, and then gyrate around before coming in lower at just under 87, calling that down more than a point on the day from Tuesday's close and off around 2 points day-over-day counting only round-lot trading.

Yet another source saw the bonds around 86 bid, calling it a nearly 3 point fall.

That slide followed Liberty's announcement that it intends to spin off its Liberty Entertainment group subsidiary to create a new publicly held company, Liberty Entertainment Inc. The existing entertainment group already trades as a tracking stock on the Nasdaq; those shares would be exchanged for shares of the new public company.

Liberty envisions the new company being composed of its current entertainment-oriented holdings, including its approximately 47.9% stake in DirecTV Group Inc., among other assets. It said that Liberty Entertainment will be the obligor on approximately $1.977 billion in debt that Liberty incurred to acquire 78.3 million DirecTV shares in April, which it combined with another 110 million shares it got from News Corp. in exchange for Liberty giving up its News Corp. holdings.

The company also said that its 3.25% exchangeable debentures due 2031 that are currently attributed to the Liberty Entertainment group will be attributed to the Liberty Capital group, together with enough cash to compensate that group for the change in attribution of the debentures. It said further that it does not anticipate any other changes in the attribution of its assets or liabilities among the various Liberty units.

Holders of Liberty Media's various issues of Nasdaq-traded shares seem to like the idea - Liberty Media Capital was up 7 cents, or 0.44%, to $16, Liberty Media Interactive gained 32 cents, or 2.35%, to $13.95, both on normal volume, while the Liberty Entertainment Group tracking stock rose 41 cents, or 1.51%, to $27.53 on twice-normal volume of 4.1 million shares.

But the fixed-income community's reaction was another story entirely. Not only did the straight junk bonds fall in fairly active round-lot trading, but Liberty's 0.75% convertible bonds due 2023 were evenly more busily traded, sliding 3½ points to around the 106 bid region. And in the credit-default swaps market, the cost of protecting Liberty Media's debt against a possible default ballooned out by over 100 bps, to mid-swaps levels around 475 bps, its widest level in five months - a sign of decreased investor confidence in the company's prospects.

Additionally, Moody's Investors Service and Fitch Ratings each placed Liberty's debt under scrutiny for a possible downgrade, given the impending loss of the revenues from the DirecTV assets as well as from other Liberty Entertainment operations - it owns 100% of Starz Entertainment, FUN Technologies, and Liberty Sports Holdings, LLC, 50% of GSN, LLC and 37% of WildBlue Communications, Inc. - which currently go to help support the company's bonds.

Bonds of El Segundo, Calif.-based DirecTV, the largest U.S. satellite TV company, were meantime seen pretty much unchanged, with its 8 3/8% notes due 2013 hovering around 104 bid and its 6 3/8% notes due 2015 remaining around 94.

Isle of Capri a winning hand

Elsewhere, a trader said that Isle of Capri's 7% notes due 2014 "looked like the most active issue today, according to Trace," adding that "for a $500 million gaming credit, that was impressive." Nearly $30 million of the bonds had changed hands by late afternoon, he said, versus "zero" on Tuesday.

He saw those bonds going home at 74.25, well up from previous levels of 71.5, although the bonds had not traded in any size since last Thursday.

Another market source also saw those 7s having pushed up to above the 74 level, a gain of nearly 3 points in active large-block trading.

That followed the announcement by the St. Louis-based gaming company that in the fiscal first quarter ended July 27, it lost $3.6 million, or 12 cents per share - about half of the year-earlier red ink of $7.1 million, or 23 cents per share. While Wall Street generally was looking for a smaller loss, some analysts had estimated red ink of as much as 18 to 20 cents per share.

Isle also said that net revenues rose a bit to $282.3 million from $278.5 million a year earlier.

The first trader opined that "the gaming sector as a whole had been beaten up in anticipation of really weak numbers - so I think this was a pleasant surprise, not that I saw many gaming issues rally, but there certainly was a bid on some select names."

For instance, he said, Station Casinos Inc.'s "bonds are usually pretty active," with the Las Vegas-based gaming operator's 6% notes due 2012 trading up 3/8 point on Wednesday to 70.125 bid, while its 6 5/8% notes due 2018 gained ½ point to 42.25.

Over on the equity side of the aisle, Isle's shares shot up by as much as 12.79% in intraday dealings before finally finishing up 75 cents, or 10.32%, at $8.02 on volume of 764,000, nearly double the average daily turnover.

Besides having been propelled by the relatively better quarterly numbers, that gain was also in line with generally firmer share prices for gaming companies having properties in Louisiana and Mississippi, now that Hurricane Gustav has proven not to be a repeat of the fearsome Hurricane Katrina, which famously caused considerable wind and flood damage to a number of Gulf Coast gaming establishments just three years ago. Isle of Capri did note that it was forced to close its properties in Biloxi and Natchez, Miss., and in Lake Charles, La., over the normally busy Labor Day weekend as a precaution in the face of Gustav, but said that whatever flooding and "minor" damage to its properties occurred this time around "should not have a significant impact on our operations moving forward."

Lots more dollars for Dollar General

Also on the earnings front, a trader saw Dollar General's 11 7/8% notes due 2017 as one of the most active issues, quoting those bonds 97.75 bid, well up from the previous day's levels at 95.25, "continuing [Tuesday's] momentum," which had seen the bonds rise ahead of the Wednesday morning release of its second-quarter numbers.

"Wow!" he exclaimed, "what a move - 2½ points, on size too," estimating that some $27 million of the bonds had changed hands.

A market source at another desk, seeing similar levels, guessed that the bonds may have been among the two or three most actively traded credits on the day, while seeing the company's 10 5/8% notes due 2015 also actively traded, and also up more than 2 points on the day at just under the 103 level.

The Goodlettsville, Tenn.-based retailer said that in the fiscal second quarter ended Aug. 1, it had net income of $27.7 million, versus a year-earlier net loss of $68.8 million. EBITDA increased to $200.1 million in the 2008 second quarter from $5.8 million a year earlier. The year-ago figures were impacted by a change of ownership what took effect on July 6, 2007.

Dollar General also said that its sales for the quarter increased by 11.2% to $2.61 billion, versus $2.35 billion a year ago, as same-store sales - a key performance metric in the retailing industry - increased 10.1%, with customer traffic and average transaction amount contributing "significantly" to the sales increase.

Revlon bonds sitting pretty

Revlon Consumer Products' 9½% notes due 2011 were seen by a trader at 96.5 bid, 97.5 offered, which he called up a point on the session, while another saw the bonds close out at 97 bid, up versus lower odd-lot trades seen Tuesday. The day's turnover in that credit of $14 million, he said, was "high volume for that issue," which has about $310 million outstanding.

Another market source saw those bonds get as good as 98 during the session before going out at 97, calling it a slight gain on the day. There were a number of large-block trades pushing the bonds upward.

The bonds firmed as the company - controlled by New York billionaire Ronald O. Perelman through his MacAndrews & Forbes investment vehicle - announced plans to reduce its debt load by $170 million, by paying off a term loan from MacAndrews & Forbes ahead of its scheduled maturity date of next Aug. 1. Revlon will use $63 million of the more than $90 million of proceeds which it realized from its recent sale of its Bozzano Brazilian business, and then will raise another $107 million via an equity rights offering which will take place in the fourth quarter. MacAndrews & Forbes, which owns about 61% of Revlon, will purchase its pro rata share of the new stock on the terms of the rights offering, which will be outlined. It agreed to forgo its over-subscription privilege in order to make the maximum number of new shares available to the public holders of the other 39% of Revlon, but stands ready to backstop the rights offering by purchasing any new shares that other holders do not purchase.

Revlon said that retiring the term loan will get rid of the company's highest-cost, nearest-maturity debt, saving it some $19 million in annual interest costs.

Auto sales numbers have little impact

A trader saw General Motors' benchmark 8 3/8% bonds due 2033 unchanged at 49 bid and GMAC's 6% bonds due 2031 at 54, also unchanged. A second trader quoted the GM benchmarks down a point in round-lot dealings at 50 bid, although a third saw them "up a couple" of points at 51 bid, versus 48 bid, 49 offered previously, and said that the GMAC bonds were also firmer at 54.5 bid, 56 offered.

Among shorter-dated issues, one of the traders saw considerable activity - about $14 million worth - in GM's 7.20% notes due 2011, quoting them at 65.75 bid, saying it was "interesting that that issue is actually up," by around ¾ point, which he called "surprising" as well, although he noted that the fat 28% yield those bonds carry is keeping demand up.

Among Ford's bonds, he saw the benchmark 7.45% bonds due 2031 down 7/8 point at 51.125 bid.

None of the traders saw the latest terrible sales numbers reported by the two automotive giants as much of a factor, since the downturn was widely expected.

Ford reported that domestic car and truck sales slid 27% in August from year-earlier levels, the 21st month in the last 22 in which it has posted a sales decline. GM's sales decline was only a little less onerous, down 20% year-over-year, although unlike Ford's figures, it was not as bad as most analysts had feared. GM said that its sales got a boost from its "employee pricing for everyone" sales incentive program during the latter half of the month, and announced that it was keeping the incentive plan, which was to have ended on Tuesday, in effect for the full month in hopes of clearing its lots of leftover 2008 vehicles by knocking 10% or more off their list prices.

ResCap short paper still trades at discount

A trader saw GMAC's wholly-owned Residential Capital mortgage unit's 6½% notes due 2013 unchanged at 24 bid, apparently unmoved by the news that its parent will cut 5,000 jobs at the money-losing unit. A second trader saw those bonds up ½ point at 25.5. Another trader saw its 6 3/8% notes due 2010 at 27 bid, 28 offered.

Among shorter-dated ResCap issues, a trader said that its 6 1/8% notes coming due on Nov. 15 were up ¾ point on the day to 91.25. He noted that the paper continues to trade well below par even though "you don't have much time on it" - a sign of investor skepticism that the troubled Minneapolis-based mortgage lender will actually pay off on those bonds come November. That's boosted the yield on the notes up to 54%, he said. He also saw ResCap's floating-rate notes due 2009 unchanged at 62.25.

MBIA surge fizzles out

Also among the financials, a trader saw MBIA Inc.'s nominally investment-grade-rated, but actually junk-traded 14% surplus notes due 2033 unchanged at 88.5 bid, the sharp run up seen over the past several sessions having apparently run its course.

Over the course of several sessions, those bonds had gained some 15 points since just last Thursday, when they began moving upward from the 73 bid level, in line with a big upside move Thursday in the company's shares on the news that MBIA was in a deal to reinsure billions of dollars in municipal bonds - a sign that the beleaguered New York-based bond insurer is able to attract new business despite the credit crunch and recent cuts in its once-sterling financial strength ratings by the major agencies.

Freeport actively traded

Back among the non-distressed credits, a trader noted intense activity in some of the issues of Freeport McMoRan Copper & Gold Inc., noting that the Phoenix-based metals mining concern's 8 3/8% notes due 2017 traded some $29 million of bonds on Wednesday, "really active." He saw that paper at 105.375 bid, slightly off from the 105.75 level at which it had finished on Friday, although the bonds did equal that 105.75 level in intraday trading.

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