United (yawn) files for bankruptcy, bonds unmoved; K&F deal hits the road

By Paul Deckelman and Paul A. Harris

New York, Dec. 9 - To the surprise of exactly no one, United Airlines and its parent company, UAL Corp., filed for Chapter 11 protection Monday from the holders of their junk bonds and other creditors; with the company's intentions of filing for bankruptcy no secret last week, the filing left the ailing air carrier's beleaguered bonds little changed after the other shoe finally dropped. Elsewhere, Lucent Technologies Inc. and that of rival telecommunications equipment maker Nortel Networks Corp. continued to retreat from recent peak levels, a retreat which had been especially pronounced on Friday.

In the primary market K&F Industries, Inc. lowered the landing gear for what will be a comparatively short approach for its Rule 144A deal. And in a press release that came after Monday's close Hollinger International Publishing Inc. announced it will bring $300 million in a new Rule 144A deal.

And the market heard price talk on the deal from first-time issuer Turning Stone Casino Resort Enterprises.

The roadshow started Monday for K&F Industries' $250 million of senior subordinated notes due 2010 (B3 expected/B). The New York City-based manufacturer of aircraft wheels, brakes and other aircraft and industrial systems will wrap up that roadshow on Friday, according to a syndicate source. Lehman Brothers is running the books on the Rule 144A deal.

And following the close Monday Hollinger International Publishing announced $300 million of new Rule 144A senior notes in a press release that specified no bookrunners, maturities or timing.

Also on Monday price talk of 9 1/8%-9 3/8% emerged on Turning Stone Casino's $125 million of eight-year senior notes (B1/B+) via Banc of America Securities. The New York State tribal gaming, entertainment and lodging firm - a first-time issuer - figures to price its deal Tuesday.

As the week of Dec. 9 got underway, some investment banks sounded positive notes on the present status of the high-yield new issuance market.

In its Fixed Income Weekly Merrill Lynch & Co. chief U.S. fixed income strategist Kenneth L. Hackel commented that: "The financing environment is improving considerably for corporations, especially the weaker credits. The average yield on our high-yield master index is down about 190 basis points from its mid-October peak."

Meanwhile the high yield research team at Deutsche Bank Securities Inc., led by David Bitterman and Andrew W. Van Houten forecast better times ahead for the primary market.

"New issuance has been confined to a handful of sectors for most of the year (mainly Industrials, Consumer and Energy) and consequently the total amount of new bonds issued so far in 2002 has been relatively low at only $53 billion," the Deutsche Bank Securities researchers noted it their One Stop Weekly. "A sustained rally as well as widespread activity in the primary market in 2003 can help us catch the $80+ billion figure of 2001. We are expecting new issuance, as opposed to downgrades, to make up the bulk of fresh High Yield paper over the next 12 months."

Late Monday one sell-side official conceded during a telephone conversation with Prospect News that factors had seemed to be in place for a big wind-up to 2002. However, this official said, as the sands drain from the hour glass the final days of the year in the junk market don't seem to be shaping up to recent expectations on the sell side.

"We had expected the market to strengthen sooner than it did," this official commented. "The technicals didn't seem to work. You had inflows coming in for two months now, and the secondary levels were kind of behind where we felt they should have been."

This sell-sider said that the investment banks had been pitching issuers on the idea that the market was poised for recovery.

"However that really didn't come until three weeks ago," the source stipulated. "Then all of a sudden we saw a jamming of the market two weeks ago and a softening last week and into today, with problems in Venezuela that have driven off some of the energy and chemical names.

"So the market is skittish again.

"But the buy-side has so much cash on hand that you would think they have to put it to use before year-end," this sell-side source added. "And there really aren't that many clients that can come out with proceeds that can account for those inflows.

"So we think that the secondary market should improve."

In trading of recently priced issues, the new Allbritton Communications Co. 7¾% senior subordinated notes due 2012 were being quoted Monday at 99.5 bid/par offered, "pretty much how they closed Friday" after pricing at par, a trader said.

Back among established issues, UAL's bankruptcy filing - the sixth largest by any company and largest ever by any airline - was the big news dominating the business pages of the nation's newspapers and the news summaries on the trader screens - but as far as the junk bond market was concerned it was no news at all.

"UAL filed," a trader deadpanned when asked what was up. "The sun rose in the east."

"Big deal," another scoffed, dismissively. "This was no major shock."

The company's bonds had fallen to levels around 11-12 last week after the Machinists' Union and the Air Transportation Stabilization Board delivered a one-two punch to the reeling Number-2 U.S. airline - the machinists by rejecting a package of wage concessions just before Thanksgiving Day and the board by last Wednesday nixing UAL's request for $1.8 billion of federal loan guarantees which United said it needed to stay solvent. There the bonds pretty much stayed where they were on Monday, although a trader saw them dipping as low as the 9-10 area before firming slightly off those lows to end essentially unchanged from Friday's 11-12.

"On the whole, activity in United was muted, said a trader, who quoted the bonds in a 9.5-12.5 context. "A lot of [the bankruptcy news] was already baked in."

He said that with the paper staying around the same levels it held on Friday - when it was widely acknowledged that bankruptcy was just days away at the most - shorter-dated United paper, "for whatever reason happens to be half a point better than the longer stuff."

Another trader opined that "everyone expected this. The bonds were the same where they were [Friday]. We didn't see any action."

The first trader said that his shop had actually seen more activity on the municipal bond side of the ledger - the bonds issued by local airport authorities in cities served by UAL's far-flung network to defray the costs of hangars, gates and other physical facilities used by the carrier.

"That's been kind of fun," he said. "There's been some buyers, some of the hedge [fund] guys who've not so much been playing the corporates as the munis. "They come in many different fruit flavors and varieties," he quipped - "sizes and maturities."

But which of those United-related muni bonds are secured by what facilities, he said, "that's the $64,000 question."

The trader said it was likewise difficult "to get your hands around" the true value of EETCs - enhanced equipment trust certificates, essentially bonds backed by actual liens on the company's aircraft.

"I continue to see a lot of bid-wanteds on that stuff. But it's really more the hedge guys who are playing the EETCs, the sophisticated investors, because you have to not only know where you are in the capital structure with these things - you also have to have an idea of what airplanes are worth."

United, like most large carriers, has the bulk of its non-bank debt in EETCs rather than unsecured bonds - and also like most big carriers, has a varied mix of manufacturers (Boeing, Airbus, McDonnell-Douglas), ages and passenger capacities; with almost all airlines forced to cut service and idle planes in order to bring their cost structures in line with the their lower revenues, it would seem that there's a glut on the market for used airplanes - bad news for the securities secured by those assets.

A trader said that he saw the bonds of other airlines, notably Delta Airlines and Northwest Airlines, essentially unchanged on the UAL bankruptcy news. "They did not weaken in sympathy." he declared.

Delta Airlines debt was seen as "actually a little better" at another shop, with its 6.65% notes due 2004 having firmed slightly to 82 bid without any offers from 79 on Friday. American Air Lines' 9% notes due 2012 were steady at 52.5 bid/53.5 offered.

Elsewhere, Northwest's 7 7/8% notes due 2008 had firmed two points to 55.5 bid, but Continental Airlines' 8% notes due 2005 were seen down a point at 51.

Back on the ground, Lucent debt was being quoted around 56.5 bid/57.5 offered, down another two or three points from Friday's levels and well down from their recent peaks around 70. Quotes on Nortel - whose bonds have recently moved more or less in tandem with Lucent - were hard to come by Monday, but traders surmised that they must be weaker as well.

Both phone equipment firms - Murray Hill, N.J. -based Lucent and Brampton, Ont.-based Nortel - had been firming smartly on both the stock and the bond sides of the ledger within the past month or so, given a boost by a recent big announcement by China Unicom of a large equipment buy from several Western companies, including Nortel and Lucent, as well as by investor sentiment that the telecommunications industry meltdown may have finally hit bottom and better times lay ahead.

"People are just coming back to reality with the valuation on those things," a trader said, "they were really over bought. Any time you have the bonds on a credit doubling in price over a couple of months, and there really isn't any real underlying turnaround in the results, it would seem to be a case of irrational exuberance."

Also in the communications field, a trader saw Nextel Communications Inc.'s benchmark 9 3/8% notes due 2009 "a little weaker," down two points to 89.5 bid/90.5 offered.

WorldCom Inc. bonds were "pretty active - but they stayed in a narrow range" around the 24-24.5 region.

Kmart Corp. bonds, which began last week quoted around 22 bid/23 offered, only to erode to 19 bid/21 offered by the week's end, continued to slide Monday, a trader said, dipping to 17 bid/19 offered. While the bankrupt Troy Mich-based discount retailer announced that it would be restating results over the last few fiscal years, the trader said that this was not what was really driving the bonds lower - simply that "people think that they're not going to have a great Christmas season."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.