New Intelsat, Telesat bonds trade down, Linn issue gains; Thornburg up on CEO remarks, autos rebound

By Paul Deckelman and Paul A. Harris

New York, June 25 - Intelsat's gigantic $7 billion multi-part offering of senior, discount and toggle notes was seen by traders Wednesday pretty much trading below the different tranches' respective issue prices. They also saw Intelsat sector peer Telesat Canada's new two-part deal trading well below issue price, while the new deals for Quicksilver Resources Inc. and Atlas Pipeline Partners LLC traded around or slightly below issue.

However, the exception to the rule was Linn Energy LLC, whose new bonds were seen trading just under par, well up from the discounted price at which those bonds had come to market on Tuesday.

Among the established issues, Thornburg Mortgage Inc.'s bonds were up solidly as the embattled Santa Fe, N.M.-based mortgage provider's chief executive officer sought to provide reassurance to investors on a conference call.

Automotive names, led by sector bellwethers General Motors Corp. and GM's domestic arch-rival, Ford Motor Co., were several points higher, rebounding after several days of being pounded lower.

There was a busy level of trading - but little real movement - in the bonds of Tribune Co. amid the news that the Chicago-based newspaper publishing giant hopes to raise further capital for paying its debt by selling its iconic headquarters building as well as the landmark home of its Los Angeles Times.

In the new-deal market - where participants are still reeling after Tuesday's barrage of new issues - price talk emerged on B/E Aerospace Inc.'s upcoming new deal, and that of CW Media Inc., while Ferrellgas Partners LP was heard bringing an offering of six-year notes, mirroring an existing issue.

Market indicators seen mixed

Back among the established issues, a trader said that the widely followed CDX junk bond performance index was up ¼ point during Wednesday's session, quoting it at 94¾ bid, 95¼ offered. The KDP High Yield Daily Index meantime fell 19 basis points to 73.15, while its yield widened out by 8 bps to 10.05%.

In the broader market, advancing issues once again trailed decliners, by around a five-to-three margin. Activity, represented by dollar volume levels, was about 9% below Tuesday's levels

Sell-side sources said that high-yield had a tepid response, if any, to news that the Federal Reserve Bank's Federal Open Market Committee left the Fed Funds rate unchanged at 2%, on Wednesday.

A source from a high yield syndicate desk said that the CDX High Yield 10 index was at 94¾ bid before the Fed decision, and eased to 94 11/16 bid in its wake.

The source added that it has not been a particularly good week in the high yield market.

Meanwhile a money manager whose portfolio includes high-yield bonds as well as stocks expressed the belief that the Fed will now stand pat with respect to its benchmark rate until a new U.S. president is inaugurated in early 2009.

New-issues mostly tread water

A trader said that while a lot of new paper had priced on Tuesday, most of it "wasn't going [like] gangbusters out of the blocks."

He opined that "it feels like they're pricing deals at the tighter end. They're borderline too rich."

He explained the apparent lack of investor enthusiasm for the new paper by citing "this complete dislocation in the secondary market. Right now, it's just spotty at best."

"There's a lot of activity around the new-issue calendar, and we're seeing more deals coming to market than we have in some time, between Intelsat and these energy deals. The window is clearly open for business - but they're testing, testing pricing here."

New Intelsat bonds struggle

A trader saw the new Intelsat Subsidiary Holding Co. issues that priced on Tuesday as Rule 144A private placements "not trading so great." He saw the 8½% senior notes due 2013, $883.346 million of which priced at par, retreating to 97.75 bid, 98.5 offered, while the $681.012 million of 8 7/8% notes due 2015, which also traded at par, were seen Wednesday at 98 bid, 99 offered.

He said that the $481.02 million of new zero-coupon/9½% senior discount notes due 2015 that the Intelsat Intermediate Holding Co. priced on Tuesday at 86.23 "traded like a pig," seeing the new bonds come down to 81 bid, 82 offered, "so that's a mess."

He saw Intelsat (Bermuda)'s $2.805 billion of 7.28%/11% step-up senior notes due 2017, which had priced at par, way down on the day at 84.5 bid, 85.5 offered. He saw no traces of its $2.23 billion of 11½% PIK toggle notes due 2017, which also priced at par on Tuesday.

Another trader also saw the Intelsat Subsidiary paper trading around 98.25, down from their par issue price. As for the other paper, and the sharp discrepancy between where it priced and where it was seen trading on Wednesday, he noted that the Bermuda-based communications satellite company's mega-deal was "an LBO-related deal that's been kind of on the shelf for about a year, so I think they were eager to go ahead and get that off."

He said that while he had no specific details about its allocation, it seemed like "that deal was spread out, all over the place. There was a lot of fast money in it."

Intelsat (Bermuda)'s outstanding 11¼% notes due 2016 were seen by a market source to have traded to the downside in quite active volume for a second straight session. After easing slightly on Tuesday, they again moved marginally lower on Wednesday, finishing at about the 101.5 level.

Telesat takes a tumble

Wednesday was a bad day for new satellite communications bonds all around; Telesat Canada's two new issues of bonds were each seen down several points on the session. A trader saw the Ottawa-based satellite communications company's $692.825 million of 11% senior notes due 2015, which priced Tuesday at par, trading on Wednesday at 94 bid, 95 offered.

He also saw its $217.175 million of new 12½% senior subordinated notes due 2017, which also priced at par, as having fallen "well down" from that level at 93 bid, 94 offered.

Other new or recent deals struggle too

Apart from the satellite sector bonds, even energy issues - heretofore considered as close to a can't-miss opportunity as anything could be in the current junk market environment - were seen having a hard time gaining traction.

A trader saw Quicksilver Resources' new 7¾% notes due 2015 trading at 98.75 bid, 99.25 offered, up only slightly from the 98.655 level at which the Fort Worth, Tex.-based independent oil and gas exploration and development company priced its upsized $475 million issue of the new bonds on Tuesday.

And he saw Atlas Pipeline Partners' 8¾% notes due 2018 at 99.5 bid, par offered, off slightly from the par level at which the Moon Township, Pa.-based natural-gas pipeline operator priced its downsized $250 million offering of the bonds on Tuesday.

Outside of the energy realm, a trader saw the Expedia Inc. 8½% notes due 2016, a downsized $400 million of which priced last Thursday at 98.572, "probably right on top of their issue price, so they really haven't done anything. They drifted a bit, but they're back to the new issue price."

Linn firms from issue, Cricket up

Linn Energy's downsized $256 million offering of 9 7/8% notes due 2018, however, seemed to buck the overall trend of new deals perhaps managing to stay around their issue price, or else getting knocked sharply lower. A trader saw those bonds jumping to 99 bid, 99.5 offered, well up from the 97.684 level at which Linn, a Houston-based exploration and production operator, priced the bonds on Tuesday.

Another trader saw the Linn bonds at 99.25 bid, 99.5 offered, "so they're up 2 points, while [most of] the other deals are kind of languishing."

Also trying to move to the upside, he said, was last Thursday's Cricket Communications Inc. 10% notes due 2015. The San Diego-based wireless communications company, a subsidiary of Leap Wireless International Inc., priced an upsized $300 million offering of the bonds at par. After that, the bonds traded all the way down to 98 bid, 98.25 offered, but now, "they're muttering their way back to a 99-par kind of context, so they're fighting to get back to where they were."

No easy path for established bonds

Turning to the more established issues, one of the traders said that the current environment seems like "more of the same. It's very topical, and credit-specific - companies with better-than-expected earnings, their bonds may drift higher, the ones that miss, the bonds are going to drift lower."

He also said there were a lot of technical dynamics at work right now, with short squeezes and hedge-fund activity. "It's nothing unusual." He added that "liquidity remains very, very tight."

Thornburg rebounds from recent troubles

A trader saw Thornburg Mortgage's 8% notes due 2013 up 3 points to 57.5 bid, 58.5 offered after what he called some "happy talk" from management - the company chief executive officer said on a morning conference call that Thornburg has potential equity of as much as $1.7 billion if its preferred shareholders approved a previously announced tender offer that is central to the mortgage provider's efforts to straighten out its finances (see related story elsewhere in this issue).

At another desk, a trader saw the bonds up even further, quoting them as having gone to 60 bid from prior levels around 52 bid, on those management statements.

On the conference call, CEO Larry Goldstone said that the $1.7 billion figure is without the addition of any new capital. He also said that after valuing Thornburg's March 31 senior subordinated note transaction, the company believes there is nearly $3 billion of recoverable value in its portfolio. However, Goldstone cautioned that such values can only be realized if the company is able to normalize operations - noting that it would require the successful completion of its preferred stock tender offer for that to happen.

Also in the mortgage sphere, a trader saw Residential Capital LLC's 6½% notes due 2013 unchanged at 43 bid, 45 offered, while Countrywide Financial Corp.'s 6¼% notes due 2016 remained at 90 bid, 92 offered. Countrywide shareholders on Wednesday approved of the sale of the Calabasas, Calif.-based company to Bank of America, a transaction expected to close on July 1.

Auto bonds get a bounce

Automotive issues - which had been getting knocked around over the past several sessions on investor worries that the weakening economy, combined with strengthening world energy prices, will further erode the financial fortunes of the car makers and other companies that sell parts to the car manufacturers, pulled themselves out of the ditch on Wednesday and drove back upward by several points.

A trader said that General Motors' benchmark 8 3/8% bonds due 2033, after several days of decline, "moved back up" to 63 bid, up 2 points. A market source saw those bonds up about 1¼ points at 62.25 and saw GM's 49%-owned GMAC LLC 8% bonds due 2031 up 1½ points at 65.5 bid, both in busy dealings.

Another trader saw GM's 7.20% notes due 2011 up 2 points at 79.5 bid, 80.5 offered.

That trader said that the auto parts sector "saw a little bounce, nothing major," with Accuride's 8½% notes due 2015 up 2 points at 74.5 bid, 75.5 offered. Another trader saw those bonds up almost 3 points, around the 76 level.

The first trader also saw ArvinMeritor Inc.'s 8 1/8% notes due 2018 up a point at 80 bid, 81 offered.

However, while many of the car names were seen better in response to the sector's previously oversold condition, that revival was by no means universal.

Visteon Corp.'s 7% notes due 2014 fell 2 points to 57 bid, while its 8¼% notes due 2010 were unchanged at 92 bid, 94 offered. However, a market source at another desk saw the Visteon 7s up 1 point at 59

A trader saw Metaldyne Corp.'s 10% notes due 2013 down 3 points at 52 bid, 53 offered, while its 11% notes due 2012 were 1 point lower at 28 bid, 30 offered.

Tribune trades actively, but goes nowhere

There was some busy dealings in Tribune Co. paper - though at the end of the day, not much in the way of price changes.

A market source saw Chicago-based Tribune's 4 7/8% notes due 2010 gyrate around in a 10-point swing that ranged between 67.5 bid and 77.5 offered, although most of the day's activity took place in a 68-71 context.

However, late in the day, there was a round-lot trade at 67 that caused the bonds to end about 2 to 3 points lower on the day. Most of the trades were smallish odd-lot pieces.

Tribune's 5¼% notes due 2015 saw some larger and probably more representative trades, bouncing from its days' low of 37.5 to finish at 42 bid, down slightly on the day.

The bonds moved against a backdrop of news reports indicating that Tribune's new owner, real estate billionaire Sam Zell, plans to monetize some of the debt-laden company's real estate assets by putting its famous Tribune Tower building in Chicago up for sale, as well as the headquarters building for its Los Angeles Times.

Vedanta prices $1.25 billion

Although some regarded it as an Indian mining play, other U.S. high-yield sources took an interest in the Vedanta Resources plc $1.25 billion two-tranche deal which cleared on Wednesday.

The company priced $500 million of 5.5-year notes at par to yield 8¾%, on top of priced talk which had been increased from the 8¼% area.

Vedanta also priced $750 million of 10-year notes at par to yield 9½%, again on top of price talk that was increased from original talk of the 9% area.

Barclays, Citigroup, Deutsche Bank, JPMorgan and Morgan Stanley ran the books for the Rule 144A and Regulation S debt refinancing and general corporate purposes deal.

One source told Prospect News that the new Vedanta paper broke to par 1/8 bid.

Thursday's deals

Thursday's session promises a modicum of activity in the high-yield primary, with at least two and possibly three deals expected to price.

On Wednesday B/E Aerospace, Inc. set price talk for its $500 million offering of 10-year senior notes (Ba3/BB+) at 8¼% to 8½%.

JP Morgan, Credit Suisse and UBS Investment Bank are joint bookrunners for the acquisition financing.

Elsewhere CW Media Holdings Inc. talked its $310 million offering of seven-year PIK notes (B3) at 13¼% to 13½%.

Goldman Sachs & Co. has the books for the bridge refinancing.

Ferrellgas to bring mirror notes

Meanwhile Ferrellgas, LP and Ferrellgas Finance Corp. will hold an investor call at 12:30 p.m. ET Thursday for a $250 million offering of notes mirroring the company's existing 6¾% senior notes due May 1, 2014 (Ba3/B+).

One syndicate source thought it was possible that the deal could price later on Thursday.

Banc of America Securities and JP Morgan are joint bookrunners for the debt refinancing deal.

The original $250 million priced at 99.637 to yield 6.8% in April 2004.

On Wednesday one market source spotted the notes from the original issue at 93½ bid.

Sooner is better

One institutional investor who has watched this week's new issue market activity from the sidelines, not playing in any of the deals, said that a pre-Fourth of July burst of issuance is not surprising, given the weak U.S. economy and a raft of bad news from the auto sector as well as from the bond insurers.

For issuers, sooner is better than later, this buy-sider reasons.

"Defaults are going from less than 1% to more like 2%," the investor remarked.

"The economy is still slow.

"And yield spreads have come in quite a bit from their March wides.

"It's a great time to get money if you can get a deal out the door."

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