Foxwoods, McMoRan price; Charter dives on numbers, Ford can't hold gains; funds lose $13 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 8 - The Mashantucket Pequot Tribal Nation - which operates the big Foxwoods casino resort in southern Connecticut - was heard by high yield syndicate sources to have successfully brought its offering of eight-year notes to market Thursday, although the new bonds didn't stray far from their par issue price when they passed into the secondary realm.

The sources also heard that McMoRan Exploration Co. got its seven-year offering done, although the deal was downsized substantially.

Also on the new-deal scene, revised price talk emerged on United Rental Inc.'s upcoming $2 billion-plus behemoth of a deal, and Connacher Oil & Gas Ltd. was said to be in the market with a $600 million offering of eight-year notes. But United Test & Assembly Center/Global A&T Electronics Ltd. became the second prospective high yield issuer this week - the first was Guitar Center - to postpone an upcoming offering due to unsettled credit market conditions.

In the secondary arena, Charter Communications Inc.'s bonds slid badly on heavy volume after the struggling St. Louis-based cable operator reported a third quarter loss that was both wider than its year-ago deficit and wider than what analysts were looking for.

Ford Motor Co.'s bonds were initially seen better, in busy size trading, after the Number-Two domestic carmaker reported a narrower third-quarter loss versus a year earlier, beating Wall Street's expectations - but as the day wore on and the market groaned under the weight of economic jitters, those gains faded and the bonds did no better than breaking even.

Back on the downside, WCI Communities Inc.'s bonds fell after the Bonita Springs, Fla.-based homebuilder reported a much worse than expected loss for the third quarter and warned that it would be out of covenant compliance, forcing it to seek help from its lenders - this just a day after it unveiled a restructuring plan calling for headcount reductions as a means of bringing company expenses into line with sagging home sales.

Dean Foods Co.'s bonds were seen lower, though on fairly inactive trading, as the Dallas-based dairy products producer reported a sharp slide in third-quarter earnings from a year ago, driven by soaring milk prices.

A high yield syndicate official said that junk was weaker on Thursday, on a higher volume of activity than had been seen in any of the week's earlier session.

However the official insisted that the cash market remains largely quiet, with most of the trading taking place in high yield credit default swaps.

The source said that cash bonds ended the day down ¼ to ½ point, but added that they were well off the lows of the session.

Fund flows back in the red

And as trading wound down for the session, market participants familiar with the weekly high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif. said that in the week ended Wednesday $13 million more left the weekly-reporting funds than came into them. That continued the zig-zag trend of alternating inflows and outflows which have been seen over the last four weeks, including the $90.8 million inflow seen in the previous week, ended Oct. 31, and the $33.6 million outflow reported in the previous week, ended Oct. 24.

The latest week's outflow was only the second in the last seven weeks, versus five inflows, several of them quite sizable. During that seven-week stretch, net inflows have totaled $896.6 million, according to a Prospect News analysis of the AMG figures.

That recent inflow-dominated stretch has followed a lengthy string of outflows which had begun around mid-year, completely wiping out the roughly $1.6 billion cumulative inflow that had built up over the first half of the year and plunging the year-to-date fund flow numbers deeply into the red, where they remain to this day.

Even with the recent net inflows, that 2007 cumulative total remains decidedly on the downside, at $1.199 billion, up slightly from the prior week's $1.186 billion.

Meanwhile the funds that report to AMG on a monthly basis reported a $935.5 million inflow for the most recent period.

The monthly reporting funds paint an altogether different liquidity picture from that reported by the weekly reporters: the monthly reporters have seen $6.55 billion of inflows thus far in 2007.

Hence the year-to-date aggregate flows, which tally both the weekly and monthly reporting funds, remain firmly in the black at $5.35 billion to the Wednesday close.

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 - although 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, most recently, hedge funds.

Two deals price

The new issue market continued to be active. However the theme of the session could have been "Good news, bad news and no news."

The Thursday session saw two issuers raise $800 million by placing one tranches of junk apiece.

One deal was downsized.

One priced on the wide end of talk while the other priced well wide of price talk.

Foxwoods brings $500 million

The Mashantucket Pequot Tribe priced Thursday's biggest deal, a $500 million issue of eight-year series A taxable notes (Ba1/BB+) which came at par to yield 8½%.

The yield was printed on the wide end of the 8¼% to 8½% price talk.

Merrill Lynch & Co. and Morgan Stanly were joint bookrunners.

The company also priced a $285 million tax-exempt bond issue in an investment-grade transaction.

Proceeds will be used to repay debt, fund capital expenditures and for general corporate purposes.

The Mashantucket Pequot Tribal Nation owns and operates the Foxwoods gaming facilities in Connecticut.

McMoRan downsizes

McMoRan Exploration Co. priced a downsized $300 million issue of seven-year senior notes (Caa1/CCC+) at par to yield 11 7/8%.

The yield was printed 62.5 basis points beyond the wide end of the 11% to 11¼% price talk.

The deal was cut from the $400 million originally announced.

JP Morgan and Merrill Lynch & Co. were joint bookrunners for the deal to refinance debt taken on for the acquisition of the Gulf of Mexico shelf oil and gas properties of Newfield Exploration Co.

United Rentals revises talk

United Rentals revised the price talk for its $2.55 billion offering of seven-year second-priority senior secured notes (B2/B) on Thursday.

The notes are talked to come with a 10 5/8% coupon at an original issue discount of between 97.00 and 97.50.

Previously the notes had been talked to price at par with a yield of between 10 ½% and 10 ¾%.

The deal is expected to price mid-day on Friday.

Credit Suisse, Banc of America Securities LLC, Lehman Brothers and Morgan Stanley are joint bookrunners.

The Friday session also figures to see Apria Healthcare Group Inc. price its $265 million offering of 10-year senior subordinated notes (B1/BB-) via Goldman Sachs and Banc of America Securities.

On Wednesday the deal was talked at 8% to 8¼%.

In addition, Energy and Industrial Utilities Co., LLC, a wholly owned subsidiary of Detroit-based DTE Energy Co., is expected to price its $275 million offering of 10-year senior notes (B2/B), which were talked Wednesday at 10½% to 10¾%.

Morgan Stanley and Barclays Capital are joint bookrunners.

Meanwhile, Novamerican Steel Finco Inc. remains in the market with a $315 million offering of eight-year senior notes (B3/B-). Some sources were expecting that deal to price on Thursday, however no terms were available as Prospect News went to press.

On Wednesday the deal was talked at 12% to 12¼%.

JP Morgan and CIBC World Markets are joint bookrunners.

Connacher launches $600 million

The market heard news of one roadshow start during the Thursday session.

The roadshow starts Friday for Connacher Oil & Gas' $600 million offering of eight-year second-lien senior notes.

Credit Suisse, RBC Capital Markets and BNP Paribas are leading the transaction for the Canadian oil sands production company.

Proceeds will be used to repay existing debt, fund capital expenditures and for working capital.

Foxwoods gains, falls back in trading

When the new Mashantucket Pequot 8 ½% notes due 2015 were freed for secondary dealings, a trader saw them get as good as 100.75 bid, up from their par issue price earlier in the session, before settling in at a par bid, 100.25 offered. Several other traders saw the new bonds around that same level.

There was no aftermarket activity seen in the new McMoRan Exploration 11 7/8% notes due 2014, which were heard to have priced fairly late in the session.

A trader said that Terex Corp.'s issue of 8% notes due 2017, which priced late Wednesday at par, was trading around at 100.25 bid, 100.75 offered on Thursday, "about where it was all day."

He also saw the new ReAble Therapeutics Inc. 10 7/8% notes due 2014 - which had priced at par on Wednesday, moved a little higher on the break but then fell back later in the session to end at around 99.25 bid, par offered - moving further under water Thursday at 98.875 bid, 99.5 offered.

Indexes trend lower

Overall, traders saw a heavier tone to the market, with considerably more declining issues than advancers - for a second straight session, losers outnumbered winners by a better than two-to-one margin - with a lot of issues seen down at least a point or more.

A trader saw the widely followed CDX junk bond performance index down 3/8 point on the day at 95 5/8 bid, 95 7/8 offered.

Among other market barometers, the KDP High Yield Daily Index lost 0.21 on the day, ending at 78.91, while its yield widened out by 6 bps to 8.27%.

"It was pretty ugly," a trader said.

Another trader said "there weren't any up movers." He called it "a kind of a slow day, for as much stuff was going on" with earnings from quite a few companies.

Some participants were merely biding their time on the last fell session before the Veterans' Day holiday break, which will see an abbreviated session with a recommended 2 p.m. ET close on Friday and a full market shutdown on Monday's legal holiday.

Another trader said that "everything was weaker" - even if it started out on a positive note, "it came back in at the end of the day."

However, while seeing a down market, he said that most issues "were down in an orderly fashion - down half a point, down a point. "

Charter bashed on numbers

There are exceptions to every rule - and Charter Communications was the big exception to the orderly retreat scenario outlined by the trader. The bonds were among the most actively traded issues on the session, market participants said, and they fell sharply as the company reported a sharply wider third-quarter loss.

A trader saw Charter Communications' 11% notes due 2015 - easily the day's most actively traded junk bond - drop 4½ points to 89.5 bid, 90.5 offered, and saw its 9.92% notes due 2011 down 7 points at 71 bid, 72 offered. A second trader who observed the slide in the 9.92s observed that the bigger loss might be attributable to the bonds' lower position in Charter's complex capital structure.

Another trader saw Charter's 10% notes due 2014 fall to 71 bid, 73 offered from 78 bid, 80 offered. However, he saw its 8 3/8% notes due 2014 only down to 98 bid, 99 offered from prior levels at 99.5 bid, 100.5 offered.

Another big loser, according to a market source, was Charter's 10¼% notes due 2010, off nearly 1½ points to around the par level, in busy trading.

Charter's junk bond holders were not the only victims - Charter stockholders saw their Nasdaq-traded shares plunge 62 cents, or 34.83%, to $1.16. Volume of 49 million shares was more than four times the daily average.

Charter's 5 7/8% convertible notes due 2009, linked to the value of that stock, plunged to 82.409 from 102.91 previously.

The cable operator, controlled by billionaire high-tech investor Paul Allen, reported a far wider third-quarter loss for fiscal 2007, missing analysts' expectations. It suffered a loss of $407 million, versus a $133 million loss the previous year, translatable to $1.10 per share and 41 cents per share, respectively. The loss came even as revenues increased 10% to $1.53 billion, up from $1.39 billion in the third quarter of 2006.

Analysts were expecting a loss of 89 cents on revenues of $1.53 billion.

Ford gains fade despite better numbers

Elsewhere on the earnings front, Ford's bonds initially got a jump start from the better-than-expected third-quarter results announced before the market opened.

Its widely traded 7.45% bonds due 2031 - which had retreated around a point or so on Wednesday to around the 76 bid level, towed lower by the fall in arch-rival General Motors Corp.'s bonds - were seen having opened at around 77.5 on Thursday, and pretty much held those gains throughout the morning session. But later in the day, traders saw the bonds come in and end essentially unchanged, dragged down by the overall market heaviness.

Ford "was really flat," a trader said "It had good numbers, all things considered - but the bonds were basically flat." Another trader saw them going home unchanged at 76 bid, 76.5 offered, while a market source marked them up perhaps ½ point at 76.5.

Ford's New York Stock Exchange-traded shares meantime initially rose nearly 5% on the news but by midday had come back down to around unchanged levels near Wednesday's $8.24 close. The shares caught a bid later in the day, though, to finish slightly higher on the day at $8.48, up 24 cents, or 2.91%. Volume of 72 million shares was more than 1½ times the norm.

The bonds and shares gyrated after the Dearborn, Mich.-based automotive giant announced that it had lost $380 million, or 19 cents per share, during the third quarter - a solid improvement from the yawning year-earlier loss of $5.2 billion, or $2.79 per share, which included large charges connected with a massive company restructuring effort. Excluding charges and other one-time items, the latest period's per-share loss came to just a penny, versus the average analyst's forecast in the 50 cent range.

Although the quarterly loss represents a reversal of the positive trend seen in the second quarter, when Ford made $750 million, the company remains profitable on a year-to-date basis, showing a net profit of $88 million for the first nine months of the year, or 5 cents per share - a sharp contrast to a year-ago, when the company posted total losses for the nine-month period of $6.99 billion, or $3.73 per share.

However, Ford - which made money in Europe and Latin America, but which continues to struggle with sagging vehicle sales in its core North American market - anticipates losing money during the fourth quarter and ending the year either at breakeven or with a small loss, excluding one-time items. That would still represent a substantial improvement over last year, when the company lost $12.6 billion, or $3.15 billion excluding special items. Ford executives see their much-ballyhooed "Way Forward" turnaround effort continuing next year, with a target of returning the venerable carmaker to profitability in 2009. Ford's chief executive officer, Alan Mulally, said the company was "on track" toward achieving that goal.

Mulally also said during Ford's conference call with analysts and investors that it expects to sell its Jaguar and Land Rover operations early next year. The famed British luxury brands, along with Sweden's Volvo, make up Ford's Premier Automotive Group, which has been losing money, along with the North American operations. Ford has no plans to also sell Volvo at this time.

Ford's earnings got a boost from the good performance of its Ford Motor Credit Co. financial unit, which earned $546 million pretax in the quarter, although that was down from $730 million in the year-ago period. Because Ford Motor Credit focuses on automotive financing and does not deal in home mortgages - unlike its GM counterpart, GMAC LLC - it is untouched by the recent troubles in the mortgage industry, which led to some $1.6 billion of third-quarter losses at GMAC.

Helped by the profitable results, Ford Motor Credit's 7% notes due 2013, after opening up 1 point, initially came off their peak, but then moved back up to finish at 92.5, up nearly 3 points on the session.

Ford's good news provided little in the way of coattails for either GM or GMAC, who continued the slide seen Wednesday. A trader pegged the GM benchmark 8 3/8% notes due 2033 down 2 points on the session Thursday at 85.5 bid, 86 offered, while another saw the GMAC 8% notes due 2031 also down 2 points at 85 bid, 87 offered.

WCI falls on bad numbers

Apart from the automotive realm, a trader saw WCI's 9 1/8% notes due 2012 down 7 points at 70 bid, 72 offered.

Another trader saw them about 5 points lower at 71 bid, 73 offered. He also saw WCI's 7 7/8% notes due 2013 fall to 62 bid, 64 offered from 68 bid, 70 offered, and its 6 5/8% notes due 2015 end at 61 bid, 63 offered, down from 67 bid, 69 offered.

WCI's 4% convertible notes due 2023 fell to 80.4 bid from 86.5 previously

WCI's NYSE-traded shares meantime plunged $1.05, or 19.85%, to $4.24, on volume of 2.2 million, almost double the usual turnover.

The bonds and shares retreated after the company announced that it lost $69.9 million during the third quarter, or $1.66 per share - a sharp deterioration from its year-earlier profit of $10.7 million, or 25 cents per share. Excluding one-time items, the quarterly per-share loss came to $1.14 - wider than the roughly 90 cents per share of red ink that Wall Street was looking for. Revenue plunged 61% to $166 million from $425.6 million last year and missed analysts' consensus estimate of around $205 million.

WCI, which builds upscale high-rise condominiums as well as single-family homes, blamed the poor results on a rise of cancellations during the quarter, particularly in the former area, with high-rise cancellations totaling $88.9 million. It said tower defaults shot up during the quarter and it expects further defaults in the current period, as "demand continues to be unpredictable from week to week," according to its chief executive officer, Jerry Starkey. The company took a $36.6 million charge to adjust the anticipated value of towers under construction.

WCI also admitted that said it was not able to comply with its fixed-charge covenant at quarter-end, forcing it to ask for - and receive - a limited waiver under the covenant which will run through Dec. 7. WCI said that it is in talks with its lenders aimed at devising a longer-term amendment that would provide the company with more financial flexibility as it tries to cope with the continued housing industry softness.

However, it may have to pay a stiffer price in return for such a concession from the lenders - analysts at Bank of America warned in Thursday research note that they "expect lenders to be less flexible in renegotiations given the unabated deterioration in Florida."

The bad numbers and covenant problems follow by just a day WCI's announcement of a restructuring plan aimed at bringing expenses more into line with reduced sales revenue. The company plans to cut more than 20% of its staff in hopes of saving some $46 million per year.

Dean dips as profit plummets

Also on the downside, Dean Foods' 7% notes due 2016 were seen down more than 2 points on the session at 90.75 bid, although participants said that trading in the issue seemed fairly light. A trader saw the company's 6.90% notes at 86 bid, 89 offered, adding that he "didn't see much of Dean."

That downturn followed the company's announcement that third-quarter earnings plunged 91% from year-ago levels, a slide it blames on surging dairy costs for its milk products and softer shipment volumes. Besides skyrocketing raw milk prices, Dean has been challenged by such factors as an oversupply of organic milk and more sales of cheaper private-label milk products rather than higher-margin branded products.

Company executives warned on their conference call that they don't expect the situation to improve any time soon, predicting that the current fourth quarter and next year's first quarter would also be difficult for Dean, the largest U.S. milk processor and distributor. However, they said that results should start improving sequentially after that.

In the third quarter, net income nosedived to just $6.4 million, or a nickel per share, well down from year-earlier totals of $70.8 million, or 51 cents a share, even though net sales for the quarter rose 24% to $3.1 billion. The key factor in slashing earnings to just a fraction of last year's was a 95% jump in raw-milk prices, company executives said.

Omnicare bonds steady at lower levels

A trader saw Omnicare Inc.'s 6 7/8% notes due 2015 continuing to hold around the 92 bid, 94 offered area to which they had fallen over the previous two sessions, from levels in the high 90s. The bonds have slid by about 4 or 5 points on news reports indicating that the Justice Department had subpoenaed documents dealing with supposed company efforts to steer Medicare patients to prescription drug plans. The possibility of a second federal probe comes on top of an earlier, and still on-going federal review of the Covington, Ky.-based pharmacy services company's Medicare dealings.

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