'Terrible' results hurt YRC Worldwide debt; Las Vegas Sands' notes dip post-numbers

By Stephanie N. Rotondo

Portland, Ore., July 31 - Earnings news was the catalyst for many of the day's movements in the distressed debt market on Friday.

For example, YRC Worldwide Inc.'s bonds dropped as much as 5 points on the day after releasing "absolutely terrible" numbers late Thursday night. The company attributed the disappointing results in part to integrations of its Yellow and Roadway units and noted that it did not expect charges related to the integrations to continue going forward.

Meanwhile, Las Vegas Sands also reported second-quarter results. Market sources saw the casino operator's bonds drifting lower post-numbers, though in light trading, while its loans continued to rise.

Overall, traders said the day resembled a "typical summer Friday," with many players away from their desks. The ones unfortunate enough to be in the office were focused on month-end pricing.

YRC sinks on results

YRC Worldwide's debt took a 4 to 5 point hit after the company reported its second quarter results.

A trader said the 3 3/8% convertible notes due 2023 were the only issue that printed, down around 21. However, he said that all the company's debt had moved lower and was trading at similar levels.

Another trader said the converts were active, also around 21, compared to 25 bid, 25.5 offered previously. He saw the 5% notes due 2023 at 27, down from around 32 on Thursday.

"Those took a whack," he said.

Late Thursday, the Overland Park, Kan.-based company posted what the first trader called "absolutely terrible" numbers for the quarter. Pre-tax net loss came to $369 million, or $5.20 per share. That compares to earnings of $0.63 per share the year before.

"The second quarter was focused on executing our comprehensive plan to realize efficiencies from the YRC integration, restore financial strength and position our operating companies for future success," said Bill Zollars, chairman, president and chief executive, in the earnings release.

"As a result of the March integration of Yellow and Roadway, the further rightsizing of our networks in relation to volumes and the overall economic environment, we recorded some significant charges that we believe are not reflective of the underlying operating results of our company.

"Although we will continue to enhance the efficiencies of our networks, we do not expect to record charges of this magnitude going forward," he concluded.

Las Vegas Sands notes dip post-numbers

Though trading was thin, market sources reported that Las Vegas Sands' bonds were weaker during the session. The debt came under pressure after the company released its second-quarter results.

One source called the 6 3/8% notes due 2015 softer by 3 points at 78 bid, 79 offered. Another source said the bonds entered the day at 80 bid, 81 offered and noted that odd-lot trades occurred around 78.

"I imagine they will be trading in the high-70s the next time a round lot trades," he said.

For the quarter ending June 30, Las Vegas Sands reported net revenue of $1.06 billion, a 4.8% decline from the second quarter of 2008. Its operating loss worsened to $171.3 million compared to operating income of $73.3 million the year before.

Adjusted net income fell to $8.8 million, or $0.01 per share, versus $30.9 million, or $0.09 per share, in 2008.

The net loss widened to $222.2 million from $8.8 million.

"While our operating results reflect the challenging economic environment, we remain pleased that our properties in both Las Vegas and Macau continue to generate solid cash flow," said Sheldon G. Adelson, chairman and CEO, in a press release.

"We have made marked progress during the quarter on the execution of each of the three principal components of our business plan. First, to maximize our cash flow from current operations in Las Vegas and Macau through the implementation of cost savings programs designed to right-size our global operations; these savings programs are now targeted to achieve at least $500 million in annualized cost reductions. Second, to complete our Marina Bay Sands development in Singapore in a timely and cost efficient manner. Third, to enhance our financial flexibility by advancing opportunities that will increase liquidity and enable us to execute our de-leveraging strategy."

"We continue to make progress in reducing our cost structure and in the implementation of operating efficiencies across our organization worldwide," added Mike Leven, president and chief operating officer.

"These ongoing efforts have enabled us to continue to produce solid cash flow across our operations while positioning us to benefit from meaningful operating leverage when economic conditions improve. While we have now increased our annualized cost savings objective to more than $500 million across our entire organization, we will continue to seek additional areas where savings may be achieved. In addition to the $500 million in expense savings, we are avoiding over $100 million of annual costs on a temporary basis. We expect the $100 million cost avoidance savings to erode over time as business conditions improve."

But while the bonds were easier, the company's loans performed better, also shrugging off a review for downgrade from Moody's Investors Service.

The loan strip was at 78½ bid, 79½ offered on Friday afternoon, a bank loan mutual fund manager said, up from 76½ bid, 77½ offered in the middle of the week, and from 74½ bid, 75½ offered a week ago.

Las Vegas saw a lot of improvement since the fourth quarter of 2008 and the first quarter of 2009, the manager explained.

"If you're going to play the rebound, the gaming sector is not necessarily the worst place to play it," the source suggested.

To be certain, the Vegas scenario is a "good news-bad news" one, the investor conceded, adding that the entertainment and lodging companies are attracting people by cutting room rates. So although occupancy rates look good, room rates are down, the source said.

"The economy is drifting up a little," the manager said.

"Gas prices don't seem high enough to prevent California people from driving into Vegas.

"Gaming in Vegas and Atlantic City isn't the worst place to be. And gaming outside of Vegas and Atlantic City is holding up even better."

Market-cap comfort

With respect to Las Vegas Sands, in particular, its capital structure is fairly highly leveraged in terms of going through a trough like the present one, the buy-sider said.

"But the bank loan paper has been trading very well for quite a while, and so has their stock."

Imparting the caveat that stock prices are not very useful as metrics for bank loan investors, the manager spotted the Las Vegas Sands share price at $9.27 Friday afternoon, after peaking at $10.88 last week. Las Vegas Sands bottomed out at $1.77 on March 6, the investor said.

The Friday share price gives the company a market cap of over $6 billion, the manager said.

"People like that picture, although it could be slightly misleading.

"A lot of that market cap might come from the potential value of the Asian operations. Yet the loans are in the U.S. operations."

Later in the day a trader tracked a similar trajectory for the Las Vegas Sands strip: 78¼ bid, 79½ offered on Friday the afternoon, up 3 points on the offered side from 75½ bid, 76½ offered at the beginning of the week.

"Most stuff is up, particularly the lower quality names, the trader said.

"Anything in the 70s and 80s is going up."

Meanwhile another trader spotted the Las Vegas Sands term loan stronger on the day, up 1/8 point at 94½ bid, 96½ offered.

Broad market tidbits

Among other distressed names, Spansion Inc.'s bonds ended a point weaker, just a couple days after the company released its second-quarter results.

A trader placed the 11¼% notes due 2016 around 67 and the floating rate notes due 2013 around 83.

Meanwhile, a source said that there was "speculation" regarding a "management reshuffle" at Vertis Inc. However, he noted there was "no price movement in the bonds."

According to NASD Trace, the 18½% notes due 2012 held steady around 20.

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