Rotech jumps on Medicare news; Le-Nature's crushed; Chiquita weak; funds see $201 million inflow

By Paul Deckelman and Paul A. Harris

New York, Nov. 2 - Rotech Healthcare Inc.'s bonds and shares were up sharply Thursday on the news that a proposed cut in federal Medicare reimbursement that might have hurt the company's main business will not take place.

Le-Nature's Inc.'s bonds gyrated around at sharply lower levels from where they had begun the week, as indications of possible massive fraud at the Latrobe, Pa.-based beverage maker continued to mount. Creditors forced the company into involuntary bankruptcy under Chapter 7 - meaning they want to see its assets liquidated.

Also on the downside, Chiquita Brands International Inc.'s bonds were down by a point or so as the Cincinnati-based fruit and vegetable importer and marketer released third-quarter results, showing a loss.

Sources marked the broad high yield market a quarter of a point higher on Thursday.

A sell-sider said that junk was catching up with Treasuries which have rallied of late on the back of a spate of poor economic numbers.

However the primary market - trailing a Wednesday session that was 2006's second biggest, in terms of dollar amount, having seen $5.032 billion of bonds priced - stood practically stock still on Thursday, hardly producing a whisper of news.

Funds get back in the black

And as the session wound down, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $201.3 million more came into the funds than left them, in contrast to the $27.3 million outflow seen the previous week, ended Wednesday, Oct. 25.

It was the second inflow in three weeks, although outflows have recently dominated; however, despite there having been five such bleeds in the last eight weeks against only three inflows, the outflows have generally been small, and a net cumulative inflow of $66 million has been seen during that stretch, according to a Prospect News analysis of the AMG statistics.

That analysis shows that even though a negative trend has been effect so far this year, over the past roughly four months inflows have held sway, totaling about $705.1 million, with 10 such infusions seen in the last 18 weeks.

For 2006 to date the weekly reporting funds are negative $2.988 billion to Nov. 1, according to the AMG data.

Meanwhile the funds that report to AMG on a monthly basis are reporting a $462 million inflow for the most recent period. That ups the net inflows seen by the monthly reporting funds to $3.746 billion year to date.

Hence the aggregate flows, which tally both the weekly reporting funds and the monthly reporting funds, are in the black to the tune of $757.5 million, for the year to Wednesday.

Even counting the latest week's result, the funds have hemorrhaged $2.931 billion since the start of the year, although that's down from the previous week's $3.132 billion net outflow total, according to the analysis. Outflows have now been seen in fully 29 weeks out of the 44 since the beginning of the year, against just 15 inflows. The figures exclude distributions and count only those funds that report on a weekly, rather than on a monthly, basis.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends even though they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

Britania Bulk restructures

In a primary market almost devoid of action, news was circulated that Britannia Bulk Plc has restructured its $215 million offering of senior secured notes (B3/B-) and put out price talk.

The London-based shipping company decreased the tenor of the bonds to five years from seven years.

The call protection also was decreased to three years from four years.

Price talk is for a yield of 10¾% to 11%.

The deal, which is being led by Jefferies & Co. and ABN Amro, is expected to price on Tuesday.

For the records

On Thursday a growing chorus of sell-side voices concurred that the $2.85 billion tranche of 8% notes due 2016 that was priced on Wednesday by Idearc Inc., a new public company formed by the spin-off of Verizon Communications Inc.'s directories businesses, is the biggest tranche ever to clear the junk market, topping NRG Energy Inc.'s $2.4 billion tranche of 7 3/8% senior notes due Feb. 1, 2016, which priced on Jan. 26, 2006.

Pay to play

Meanwhile primary market watchers had to content themselves with rumor mongering on Thursday.

Two sources said that Freescale Semiconductor Inc. can be expected to show up soon with $6 billion-plus of new junk as part of its LBO financing.

The Prospect News bank loan desk reported Thursday that Freescale has scheduled a meeting for Monday to launch its proposed $4.25 billion senior secured credit facility via Citigroup, Credit Suisse, JPMorgan, Lehman Brothers and UBS.

A sell-sider, specifying that the syndicate for the bonds would likely be identical to that of the bank deal, professed the expectation that the junk offer could launch as early as next week.

Elsewhere a buy-side source said that Bombardier Inc.'s €1.8 billion equivalent three-part offering of notes (Ba2/BB), now on the road, may turn out to have a larger dollar component than the company had originally anticipated.

The source added that the structure of the Bombardier deal remains very much in play.

And sources have been telling Prospect News that the Hercules Holding II LLC/HCA Inc. $5.70 billion bond deal (B2/BB-) now wending its way along the investor trail, is doing well.

The roadshow for the HCA deal is expected to end Tuesday.

And there is one other consensus building among observers of the new issue market: this is not the time for issuers to be aggressive.

The dramatic buildup in the new issue calendar, sources say, has not caused existing bonds to trade off in the secondary market, but rather has resulted in new issuers having to pay to play.

"We're seeing more generous terms," a buy-side source said on Thursday.

"Issuers can get stuff done but they have to be flexible. It's tough to be squeezing guys right now with so much paper in the market."

New MediMedia issue healthy

When MediMedia USA Inc.'s new 11 3/8% senior subordinated notes due 2014 were freed for secondary dealings, a trader saw them having "rallied up" to 102.25 bid, 102.75 offered - well up from the par level at which they were priced Wednesday. The company sold $150 million of the notes.

The same could not be said of Sabine Pass LNG, LP's new notes which "struggled a little," the trader said, on "not a lot of bids." He saw the company's first-lien 7¼% senior secured notes due 2013 and 7½% senior secured notes due 2016 trading at levels below their par issue price, though both came back late in the session to end around par bid, unchanged on the day. Sabine Pass priced $550 million of the 71/4s and $1.482 billion of the 71/2s on Wednesday.

Among other recently priced names, Idearc's 8% senior notes due 2016, which priced at par Wednesday and then pushed up to around the 101.5 level, held steady Thursday at 101.5 bid, 101.75 offered.

A trader saw the new MetroPCS Wireless 9¼% senior notes due 2014 trading at 101.5 bid, a week after the Dallas-based wireless communications provider's deal had priced at par.

And out of that same wireless telecom sector, Cricket Communications Inc. (Leap Wireless International Inc.)'s new 9 3/8% senior notes due 2014, which priced at par on Oct. 18, were seen having onto their gains notched since then, finishing at 102.5 bid, 102.75 offered.

HCA up ahead of new deal

A trader saw the established bonds of such hospital operators as HCA Inc. and Tenet Healthcare Corp. "tightening right into an upcoming $5.7 billion of new-issue supply" that Nashville-based industry leader HCA is expected to come to market with early this month as part of the funding for LBO, "and that's very unusual."

He suspected that underwriters for the big new mega-deal were buying hospital sector bonds to create a strong market - or at least, the perception of such a market - for the coming new deal.

Otherwise, he said, it's difficult to understand why the bonds of those companies are going to go up, when the biggest company in the industry is about to drop a giant load of new secured debt on them.

"This [established] paper is getting crammed down" by the new second-lien paper that's coming. "It should be going down - but why is it trading up?"

He noted for instance that HCA's 6½% senior notes due 2016 have moved up to around the 80.75 bid level - up nearly 2 points from the 79 bid, 79.25 offered at which they started the week.

"That's a pretty big move upward," considering that the price talk on the upcoming HCA bank debt, also part of the LBO financing, at 300 basis points over Libor "implies a 9 % yield on the new second-priority bonds that will be issued."

And yet, he said, the existing 61/2s currently trade at a 9.70% yield, which he called "way too tight," considering that the outstanding bonds are structurally subordinated to the new issue.

He also saw Dallas-based rival hospital operator Tenet's 9 7/8% notes due 2014, which began the week at 97.25 bid, 97.75 offered, now trading at 99, "a substantial tightening" - particularly given the fact, he said, that Tenet is nowhere near as strong a credit as HCA. The latter's unsecured bonds are rated Ba2 by Moody's Investors Service, B- by Standard & Poor's and BB+ by Fitch Ratings, while Tenet's comparable bonds carry a Caa1 rating from Moody's, CCC+ from S&P and B- from Fitch.

"I think when people wake up tomorrow," or the next day, he said, and see that the outstanding hospital issues are trading way too tight relative to the anticipated levels of the upcoming deals, the sector will likely pull back.

Rotech romps

Bonds of another healthcare-related name - Rotech - were seen having shot up sharply, several traders said, given a boost by expectations that the government's Centers for Medicare and Medicaid Services will keep reimbursement rates for stationary oxygen suppliers like Rotech where they are for the upcoming year.

The Orlando, Fla.-based home healthcare products and services provider's bonds had fallen sharply earlier this year on news that an advisory panel was calling for a 10% cut in rates paid to oxygen suppliers like Rotech, and a cap on how much time patients can have Medicare pay for it.

But on Thursday, Rotech's 9½% notes due 2012 "were up big time," a trader said, quoting them at 80 bid, 82 offered, up from prior levels at 65 bid, 67 offered.

Another trader said they had "popped up" and had "a really big move" of 12 points up to that 80 bid level.

Rotech's Nasdaq-traded shares zoomed 73 cents (79.35%) to close at $1.65, on volume of 4.1 million - eight times the norm - after Stifel, Nicolaus & Co. equity analyst Eric T. Gommel said in a client note that the Medicare/Medicaid panel decided to keep the reimbursement rules as they are - a positive for Rotech, he noted.

Le-Nature's falls

Elsewhere, Le-Nature's bonds were seen sharply lower - although up from their session lows - gyrating wildly around in response to revelations of alleged massive accounting problems at the producer of flavored bottled waters, lemonades, fruit drinks and teas, problems which led to angry creditors filing a Chapter 7 bankruptcy action, signaling that they seek a liquidation.

A trader saw the company's 9% notes due 2013 trading "a week ago at par," then having taken an incredible plunge in late trading Wednesday from the low 80s to levels as low as 10 as news about the company made the rounds. The bonds opened Thursday at 20 he said, off those lows, but collapsed back down to 7¾ bid, 8¾ offered, while its bank debt went out at 31 bid, 34 offered.

"There was just massive fraud there."

Another trader was totally unaware of those gyrations - not an unusual response, given that the small, illiquid size of the company's lone bond issue - $150 million - makes it not exactly a household name in junkbondland.

Still another trader, though, said the bonds had closed at 5 bid, 8 offered on Wednesday, then opened Thursday at 16 bid, 18 offered, before falling back down to a level around 8 bid 9 offered.

"This was immense fraud," he said, "along the lines of Adelphia" Communications Corp., the Greenwood Village, Colo.-based cable operator beaten down into bankruptcy in 2002 on revelations that members of the Rigas family, which controlled the company, had, in the words of a federal prosecutor, used it as "their personal piggy bank."

Another trader likened Le-Natures' to "another Refco," referring to the bankrupt New York-based financial trading company that went bankrupt last year amid major fraud allegations.

"People are losing fortunes," the third trader said of the massive slide in the bonds. "The distressed guys are just shorting the crap out of it."

The company faced a bankruptcy filing later Wednesday by a group of creditors who say the company owes them more than $1.4 million. They filed the case Wednesday under Chapter 7 of the federal Bankruptcy Code with the court in Pittsburgh.

That move came after a Delaware state judge on Tuesday appointed the turnaround firm of Kroll Zolfo Cooper LLC as custodian of the company after concluding it had engaged in potentially criminal activity, according to court documents.

While the creditors filed for Chapter 7 in Pittsburgh, Kroll Zolfo submitted an emergency motion in Delaware to borrow up to $10 million and seek Chapter 11 protection, which would not liquidate the company but allow it to reorganize.

The creditors - General Press Corp., Lyons Contracting Inc., M.I. Friday Inc. and Jackel Development Inc.-allege Le-Nature's, owes them a total of $1.44 million.

Judge Leo E. Strine Jr. of the Delaware Court of Chancery relieved Gregory J. Podlucky, who was chief executive, and three other Le-Nature executives, of their duties and ordered to turn over all company property within 48 hours of Friday's order. Company directors have also been barred from accessing, tampering with or destroying company property, books or records.

The third trader said that while there were no firm details on the case out, he had heard that "a lot of asset-type notes were issued to this guy [Podlucky]. There's lots of money missing. The company's plant and equipment probably have been heavily borrowed against."

Podlucky has so far been laying low and has had no comment on the allegations.

Steven G. Panagos, a Kroll Zolfo Cooper managing director, is now running the company on an interim basis. In an affidavit filed Wednesday, Panagos said his firm had found that some of Le-Nature's financial statements showed "significant discrepancies" between customer shipment and accounts receivable information.

The holders charged that while the company reported revenues of $250 million, "real revenues were more like $50 million."

"This one is going to be fun to watch" in a morbidly grim way, the third trader said. "Just make sure to stay out of the way."

Chiquita gets peeled

On the earnings front, "Chiquita had really bad numbers," a trader said, quoting its 8 7/8% notes down 1½ to 2 points at 88.5 bid, 89.5 offered.

Another trader called the results "disappointing," quoting its 7½% notes due 2014 at 84.5 bid, 85.5 offered, down from 86 bid, 87 offered at the opening.

The company's results were far worse than what Wall Street had expected. It lost $96 million ($2.29 a share) for the third quarter, versus a profit of $300,000, (one cent a share), a year ago, even as revenue increased 8% to $1 billion from $954 million last year. Revenues were in line with expectations - but analysts had only forecast a loss in the 28 cents per share area.

Chiquita blamed reports of tainted spinach, which hurt its Fresh Express packaged salad business, and depressed banana prices in Europe.

Station lower on miss

A trader said Station Casinos Inc.'s bonds were down about ¾ point on the session as the gaming operator missed Wall Street forecasts, causing its bonds to be "a little heavy."

He saw its 6½% notes due 2014 at 91 bid, 92 offered and its 6 7/8% notes at 91.5 bid, 92 offered, each down ½ point to ¾ point.

Another trader pegged those bonds unchanged at 91.5 bid, 92 offered, saying that from where he sat, marketeers "tried to take them up a little, but there was no significant movement."

Station Casinos reported that profits from the third-quarter ended Sept. 30 fell by 51% from year ago levels. The Las Vegas-based operator of local gaming casinos - which gets most of its business from residents who live near its various locations rather than from high-rollers or even regular tourists - reported that net income fell to $19.2 million (34 cents per share) from $39 million (56 cents per share) a year earlier. While revenue rose 25% to $346 million from $276.3 million the previous year, it came in somewhat under Wall Street's estimate of $350.7 million.

Excluding charges for special items the company earned 38 cents per share, down from 63 cents per share a year ago, and down as well from Wall Street's expectations of 51 cents per share.

Station lowered its fourth-quarter earnings projections to between 41 and 51 cents per share, down from its previous guidance of between 59 cents and 64 cents per share. Analysts are looking for 61 cents per share. It also cut expectations for full-year net income to a range of $2 to $2.43 per share, down from $2.53 to $2.95 per share. Wall Street anticipates $2.50 per share.

Station said that long-term debt was $3.41 billion as of Sept. 30. The company purchased approximately 2.6 million shares of its common stock during the quarter, for some $142.5 million. As of Sept. 30, Station's debt-to-cash flow ratio, as defined in its bank credit facility, was 5.9 to 1.

Also in the casino sector, on the other hand, MGM Mirage posted what it termed "record" results for the quarter, with net earnings of $156.2 million (54 cents per share), up from $93.2 million (31 cents per share). Long-term debt of $12.955 billion was up from $12.355 billion.

As of the end of the quarter on Sept. 30, the Las Vegas-based company had $2.1 billion of available borrowings under its senior credit facility. After the quarter ended, the company announced that it had amended the credit facility. While the total capacity remains at $7 billion, the term loan component was increased from $1.5 billion to $2.5 billion, the pricing was reduced and the maturity was extended to October 2011. In addition, MGM Mirage has the ability to solicit additional lender commitments to increase the facility's capacity to $8 billion.

The company also said that during the third quarter, it repurchased 3 million shares of its common stock for $106 million, leaving 8 million shares available under its current authorization.

MGM Mirage projected that for the fourth quarter, it would come in with earnings of between 40 cents and 45 cents per share, up from 33 cents per share in the year-earlier fourth period. It attributes the expected increase to higher property EBITDA (i.e., EBITDA before corporate expense and stock compensation expense), and a fourteenth consecutive quarter of growth in REVPAR - revenue per available room, a key gaming and lodging industry performance metric.

© 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.