Charter 11% bonds tumble; Realogy, MagnaChip up on financing efforts; Six Flags rise continues

By Paul Deckelman and Paul A. Harris

New York, Sept. 5 - Charter Communications Inc.'s 11% notes due 2015 dropped in active trading on an otherwise very dull day Friday, despite a lack of fresh news about the St. Louis-based cable television operator.

Other issues, however, were seen moving to the upside, including Realogy Corp. and MagnaChip Semiconductors Ltd., both of which were seen having moved up on the possibility of new financing for each of those companies.

Six Flags Inc.'s bonds continued to head upward as well, not on any particular news, but just on investor optimism that the New York-based theme park operator will show strong results for the current third quarter.

The junk bond primary market, meantime, heard that Frontier Oil Corp. was getting ready to hit the road Tuesday with an issue of eight-year bonds.

Market indicators mixed

The widely followed CDX index of junk bond performance was up 3/8 point, said a trader, who quoted it at 93 bid, 93½ offered. However, the KDP High Yield Daily Index fell by 20 basis points to 70.37, while its yield widened out by 4 bps to 10.65%.

In the broader market, advancing issues and decliners were virtually even. Activity, represented by dollar volume, was little changed from Thursday's levels.

"It was completely dead," a trader said. "I wish that I could tell you that something went on - it was dead all around, with very thin volumes."

He said that the biggest news of the day came from outside junk bond land, in the wider financial markets - reports that the Treasury Department might be moving towards a bail out of the troubled government sponsored enterprise mortgage giants Fannie Mae and Freddie Mac.

"That will help the financials," he said. Junk would be helped, at least indirectly, by an improvement in investor sentiment on the government move.

It was "a pretty lame day," another trader said. "The employment numbers took the wind out of everyone's sails."

"Once again," yet another trader said, "people seemed to be handcuffed, or paralyzed, just watching the equity markets." Coming off Thursday's big plunge, Wall Street was generally spooked early on by the worse-than-expected August employment statistics - but managed to battle back from its initial decline later on as investors moved into financial issues that had taken a pounding during Thursday's session. The Dow Jones Industrial Average came back from a 150 point deficit and ended up 32.73 points, or 0.29%, to 11,220.96. The broader stock market ended mixed, with the Standard & Poor's 500 index rose 5.48 points, or 0.44%, to 1,242.31, and the Nasdaq composite index fell 3.16 points, or 0.14%, to 2,255.88.

"Most people are just waiting to see how the waves crash."

Charter charts a downward course

A trader said that Charter Communications' 11% notes due 2015 was easily the most active issue, with over $25 million traded on an otherwise fairly dull day.

He saw the bonds down ¾ point at 75.75 bid, and said he had seen no news on the credit.

A market source at another desk quoted the Charter 11s down ½ point, also at 75.75 bid.

The first trader speculated that since this was "the only active Charter issue, it may be a function of one account liquidating a position." He noted that with $3 billion of the bonds outstanding, the 11s are very liquid and the idea of someone having such a position or trying to get out of it was not out of the question. "Someone definitely had marching orders on that issue," he declared.

On the other hand, another trader saw the bonds at 75 bid, 76 offered, which he said was about where they had been Thursday. While there might have been a lot of activity, he said "there was no price-change generation going on."

Financing news spurs bonds

Traders saw several issues pushed upward by news - or at least talk - that the companies attached to those bonds were lining up additional financing to shore up their respective liquidity positions.

A trader saw Realogy Corp.'s 10½% notes due 2014 up ½ point on the session at 61 bid, 62 offered and up 3 points on the week, which he called "kind of strange," but he cited rumors that the Parsippany, N.J.-based real estate services company was lining up a second-lien financing deal "to supply them with liquidity."

Realogy's 11% notes due 2014 meantime moved up to 51.25 bid, and its 12 3/8% notes due 2015 ended just above 50, on somewhat active dealings of $4 million of bonds each, "again, pretty good volume on a day like today," one of the traders commented.

The trader likewise saw MagnaChip Semiconductor's bonds up on the South Korean-based computer chip maker's announcement that it is looking to get some new first-lien financing, to the tune of $50 million.

He saw the 6 5/8% notes and floating-rate notes due 2011 each up 3 points at 61 bid, 62 offered, while the 8% notes due 2014 were 2 points better at 39 bid, 41 offered.

On the other hand, another trader quoted the 8s at 36 bid, 39 offered, the floaters at 57 bid, 59 offered and the 6 7/8s at 57 bid, 59 offered, levels which he said "seemed unchanged." He added that he was "not sure where they are going to put that new debt."

The Korean company disclosed its intentions of raising $50 million in new first-lien debt in a filing with the Securities and Exchange Commission. The filing did not specify what type of financing MagnaChip was looking at, but did state that UBS Investment Bank had been retained as advisors.

And traders saw the bonds of Springdale, Ark.-based meat processor Tyson Foods Inc. better a day after it announced plans to bolster its balance sheet by selling new stock and convertible debt.

A trader called Tyson's 6.60% notes due 2016 up 1¼ point to 95 bid, while another pegged the bonds at 94.75 bid, up a point on the session.

On Thursday, Tyson announced that it plans to offer 20 million shares of its class A common stock in a registered underwritten public offering, and could sell a total of 23 million shares, with over-allotments.

It also will sell $450 million of new convertible senior notes due 2013 in a registered underwritten public offering, and will grant underwriters a greenshoe option to purchase up to an additional $67.5 million of those converts to cover over-allotments.

Strong summer for Six Flags

Six Flags bonds were "up again today," a trader said, with its 9 5/8% notes due 2014 a point better at 62, even though "summer is over - so go figure."

A second trader saw them up "another point" at 63 bid, 65 offered."

Although the first trader was essentially right - the summer, for all intents and purposes, is over, although the season will officially linger on for another roughly 2½ weeks - that didn't stop investors from feeling optimistic that when the numbers for the third quarter come out, they will show a strong performance by the company's 20 theme, water and animal safari parks across the country, despite the economic downturn and higher gas prices.

Those factors, in fact, may play a role in making the Six Flags parks near major cities more of an attraction than further off destination resorts like rival Disney's California and Florida theme parks.

In Mid-July, Six Flags released preliminary third-quarter numbers, with the quarter roughly half over, and chairman Marc Shapiro said they showed Six Flags off to a "terrific" start to the quarter and on track towards finishing cash-flow positive for the first time in the present company's history.

No issuance for the week

In the primary, no new deals priced on Friday, capping a week which saw no issuance whatsoever.

Hence, according to Prospect News data, the post-Labor Day week of 2008 becomes the second consecutive post-Labor Day week to produce no new issues.

All the post-Labor Day weeks from 2001 through 2006 saw at least some issuance. The greatest amount of issuance for that four-session period during those years came in 2005: the four sessions beginning Sept. 6 and ending Sept. 9 that year saw slightly more than $2.5 billion price in nine dollar-denominated tranches.

Frontier launches $200 million

However news of a deal launch circulated the market early Friday evening.

Houston-based refiner Frontier Oil Corp. will start a brief roadshow on Tuesday for its $200 million offering of eight-year senior notes.

The UBS-led offering is expected to price by the end of the week.

Credit ratings remain to be determined.

Proceeds will be used for general corporate purposes.

Clear Channel ahead

The Sept. 8 week will get underway with only one other deal on the forward calendar.

Some market observers expected to hear price talk before the end of the week just completed on Clear Channel Communications Inc.'s $980 million tranche of 10¾% senior cash-pay notes due 2016 (Caa1/CCC+).

However no talk surfaced during the Friday session.

An institutional investor reported hearing discussion about the deal earlier in the week at a dollar price in the mid-70s.

Pricing is expected early in the coming week.

Deutsche Bank Securities, Morgan Stanley, Citigroup, Credit Suisse, RBS Greenwich Capital and Wachovia Capital Markets are leading the LBO financing, which is part of the legacy supply of deals that became hung up when the credit markets went into correction during the summer of 2007.

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

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

Safe harbor

The institutional investor who spoke to Prospect News on background said that with investment-grade spreads presently at near-record levels, high-yield represents something of a safe harbor.

"High-yield spreads are nowhere near their record wides," the investor added.

According to a report published Friday by Standard & Poor's, the agency's U.S. investment-grade composite credit spread widened 2 bps to 277 bps on Thursday.

Meanwhile Standard & Poor's marked the speculative-grade composite at a 796 bps spread and the single B at 853 bps.

The investor said that in contrast to the high-grade spreads, which are in record territory, the single B spread's historic highs are in the 1,100s, well over 200 bps north of Thursday's 853 bps.

"But when that happened defaults were at 10%," the investor said.

"Defaults are now in the context of 2.3%, so they're very low. The rating agencies are looking for them to go up. But you haven't had any spectacular blowups. Most of the bad news has been in the structured products. Investment-grade spreads have widened in the financials. And there has been bad news in the housing-related sectors.

"Against this backdrop high-yield has been a safe harbor in a storm."

This institutional investor is looking for a rally in both stocks and high-yield late in 2008, and commented that monetary conditions are very liquid, interest rates are low and by the time year-end arrives prices of securities will be sufficiently beaten down that they will inevitably attract some shoppers.

This buy-sider's macroeconomic outlook, however, is negative for the time being.

"I don't see the economy going off a cliff," the source said.

"But at the same time it is difficult to see the catalyst that is going to pick it up because what has pulled it down, housing and the massive amount of leverage, is nowhere near turned around.

"And now it's eating into the real economy."

A conundrum

Perhaps most puzzling, the investor said, are the high interest rates being exacted from the big financial institutions as they raise cash in the capital markets.

The source noted that on Wednesday Wells Fargo Capital raised $1.75 billion with a perpetual preferred that pays 9¾%.

"Now you have a scenario where there are billions of preferreds, and the market is saturated," the buy-sider said.

"Some people are looking at it as a top-five, double A-rated U.S. bank for 9¾%, and believe that's all they need to know.

"But the 'perpetual preferred' part could be something we'll hear about later."

The investor is keen to know whether the market is right or wrong in exacting such a high rate.

"Wells Fargo should be too good for that," the buy-sider said.

"But don't forget, they priced $1.75 billion. What that 9¾% coupon may be revealing to you is Wells Fargo's need for cash and the condition of its balance sheet.

"But if 9¾% is the right level for Wells Fargo, what should I pay for a single-B bond?

"If the single-B spread is 850 bps, which gets you to a coupon somewhere around 11½% or 11¾%, why are there only 200 bps between it and double-A Wells Fargo, a top five bank?"

The investor conceded that comparing a junk bond to a perpetual preferred is akin to comparing apples and oranges, a theme that an investment banker picked up on slightly later in the Friday session.

The banker agreed that in absolute terms the interest rate comparison which the investor painted out certainly does not make sense, but went on to insist that such a comparison is ultimately not meaningful.

"For one thing a perpetual preferred is much lower on the capital structure than a bond, which has covenants and a fixed maturity," the banker said. "And if you insist on making a comparison like that you better go for the double A-rated preferred at 9¾%, because if conditions worsen to the point that a Wells Fargo could go down there certainly won't be much of a high-yield market left."

Stephanie N. Rotondo contributed to this report.

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