High-tech names move up in quiet market; Tenet defense fails to rally bonds; primary remains stilled

By Paul Deckelman and Paul A. Harris

New York, Aug. 29 - The high-yield market on Wednesday continued its week-long wind-down ahead of the Labor Day holiday weekend. Traders reported scant moves in many issues - and cautioned that even those issues that appeared to have good movement in them were doing so on relatively thin volume.

Bonds of high-tech issuers Advanced Micro Devices Inc., Amkor Technology Inc. and Freescale Semiconductor Inc. were seen better, in line with a rise in the shares of AMD and other industry players such as Intel Corp. and Semtech Corp., after the latter's adjusted second-quarter earnings beat Wall Street estimates and after Seagate Technology upped its first-quarter guidance.

Investors were apparently not much impressed with Tenet Healthcare Corp.'s formal response to a Credit Suisse research note Tuesday suggesting that the Dallas-based Number-Two U.S. hospital chain operator might find itself filing for bankruptcy in three years because of an expected cash crunch.

The primary market was quiet, other than a small add-on offering for Mexico's Maxcom Telecommunicaciones SA de CV, which priced at a premium to par.

Bond indexes little changed

Overall, a trader said that Wednesday was "just pretty much a nothing existence" for the junk market. "Stocks go down and stocks go up. Unfortunately, high yield did not pick up what it lost [Tuesday]."

He said "not a lot of things traded, and we didn't see a lot of activity. Things are winding down."

He saw the widely followed CDX index of junk bond performance up ¼ point, at 95-951/2. Among other indexes, the Banc of America Securities High Yield Broad Market Index was off 0.04% on the day, with a year-to-date return of 0.63%. The KDP High Yield Daily Index was unchanged at 78.31, its yield edging up 1 basis point on the day to 8.33%.

"The whole market is quiet," another trader opined. "It's firm - but there are not many people here."

High tech bonds move up

With high tech stocks leading Wall Street higher, a market source saw AMD's 7¾% notes due 2012 at 90.5 bid in busy trading, up from Tuesday's finish at 88, although the bonds came off their earlier highs of just below 93.

There was no specific news out on the Sunnyvale, Calif.-based computer chip maker, whose stock climbed along with the tech sector.

Another mover, albeit on relatively thin trading, was Amkor, whose 7¾% notes due 2013 were seen having moved up more than 3 points on the session to 95.875 bid. However, another market source only saw them up about a point at 93.25.

The Chandler, Ariz.-based semiconductor manufacturing services provider's 9¼% notes due 2016 briefly moved as high as 99 bid, although on thin trading, but by day's end had dropped back to actually end slightly lower at 96 bid.

A trader at another shop characterized that latter issue as "trading sideways," calling the bonds unchanged at 96.5 bid, 97.5 offered.

Austin, Tex.-based chipmaker Freescale Semiconductor's 10 1/8% notes due 2016 gyrated around in a 3 point range between 86.5 and 89.5, on respectably busy trading, before dropping back to end the day unchanged at 87 bid. A market source saw its 8 7/8% notes due 2014 up ¼ point at 92.5.

Seagate's own bonds were seen little changed on the day despite the company's bullish news. Its 6.20% notes due 2009 were unchanged around 99.5, while its 6.80% notes due 2016 were likewise little moved, hovering around 95.

Seagate announced Tuesday that it had increased its earnings guidance for the quarter to between 57 cents and 61 cents per share on sales of $3.15 billion to $3.25 billion, up from its earlier projection of 35 cents to 39 cents per share on sales of $2.9 billion to $3 billion.

Tenet little moved by company defense

Tenet Healthcare's bonds were seen not much moved, even after the company issued a statement which its chief financial officer, Biggs C. Porter, declared that "we believe we have the financial resources to execute our turnaround," reiterating comments made by company executives on Tuesday in the immediate aftermath of the Credit Suisse report.

The bonds, which had eased between ½ and 1½ points on Tuesday, even as the company's shares plunged to their lowest level in 27 years, were mostly mixed Wednesday and trading within a point of Tuesday's finish either to the upside or the downside. Only one issue showed any appreciable movement - its 7 3/8% notes due 2013, which on Tuesday had spiked up to around the 86 level in small trading late in the session, only to come back down to around where it had been previously, in the low 80s. Activity in the credit was seen as light.

Another source pegged the company's 6 3/8% notes due 2011 down nearly a point around the 82 area.

Tenet's New York Stock Exchange-traded shares, after having taken a big hit in Tuesday's dealings, were pretty much stable on Wednesday, up 6 cents (1.80%) to $3.40

In his statement, Porter said that "in addition to our cash on hand and bank credit line, we would have the ability - although it is not anticipated - to tap the credit markets using our asset base."

Tenet said that it had $675 million in cash as of June 30, and no outstanding borrowings on its $500 million line of credit, and no long-term debt maturing until December 2011.

Even so, in his note to investors on Tuesday, Credit Suisse analyst Kenneth Weakley, who began coverage of Tenet's stock by rating it "underperform," said that his shop does not believe "that THC can sell its positive cash flow hospitals, and we doubt anyone wants to buy its weaker facilities, at least at a price that will change the financial position of THC too much." He further warned that without an industry recovery in volume or patient insurance, "a Chapter 11 filing may be necessary" within three years.

Tenet, he said, is not a turnaround story, as the company asserts, " but one that is very much in secular decline," hurt by negative industry dynamics such as a rising level of bad-debt expense from uninsured patients, as well as more company-specific problems such as slow revenue gains and lack of labor productivity.

Tenet, which has consistently lost money in most quarters since 2003, has been in a turnaround mode for the better part of the last several years, embarking upon an aggressive campaign to shed underperforming hospital assets by selling or closing about a third of what at one time were nearly 100 facilities nationwide.

ResCap continues retreat

Residential Capital Corp., one of the mortgage industry names caught up in the aftermath of the subprime lending business meltdown, continued on the downside Wednesday. A trader quoted its 6% notes due 2011 at 74.5 bid, 75.5 offered, down a point, although he noted that the bonds had been down as much as 3 points at one point before coming back part of the way.

At another desk, ResCap's 6 3/8% notes due 2010 were down 2 points at 75.5. Its 6½% notes due 2013 lost 1 7/8 points to around the 74 vicinity.

ResCap's corporate parent, GMAC LLC, was also lower on the day, its 8% notes due 2031 ending more than 2 points down, at 88.

Primary stays quiet

A high yield syndicate official said that the broad junk market opened a little firmer on Wednesday.

Given that volume was extremely light, the source said that the market may have moved up a little on the day, following equities somewhat.

Stocks, meanwhile, moved sharply higher, with the Dow Jones Industrial Average up 1.9% on the day.

Again on Wednesday there was no news in the primary market. Nor do sources anticipate that any primary market news is likely to surface for the remainder of this week.

However, although high yield market observers have roughly split into two factions - one forecasting that September will be a relatively busy month in the new issue market, the other forecasting a light month that will get off to an exceptionally slow start - both factions seem to concur that there will be primary market news during the post-Labor Day week.

Downstream remains in market

Also on Wednesday, a source told Prospect News that the Downstream Development Authority of the Quapaw tribe of Oklahoma remains in the market with its $235 million offering of eight-year senior notes (B-) via Banc of America Securities.

The source declined to rule out the possibility that the deal could price before the end of August, notwithstanding that there remains just one full session and one abbreviated session to play out before the end of the month.

The company intends to use the proceeds to fund costs associated with the design, development, construction, equipment and opening of the Downstream Casino Resort, and to repay debt.

Sell-side sources agree that Downstream is the only deal now in the market.

Throughout the pre-Labor Day week as Prospect News has pressed its sources to disclose even the most remote rumors of deals that might surface when trading resumes on Tuesday, those sources, one and all, have turned out empty pockets.

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