GM, Six Flags continue rise; Baseline up as stock soars; SemGroup settles in lower

By Paul Deckelman and Paul A. Harris

New York, July 18 - The junk bond market continued to rise on Friday, riding the crest of the momentum seen on Thursday. Among the big winners were the widely held benchmark bonds of General Motors Corp., seen up several points in active trading.

Another gainer was Six Flags Inc., still basking in the warm after-glow of a survey showing considerable customer satisfaction among the people who visit its theme parks.

XM Satellite Radio Holdings Inc.'s bonds were up as the broadcaster reached an agreement with its bondholders, and as a member of the Federal Communications Commission suggested a plan for approving XM's acquisition by rival Sirius Satellite Radio Inc.

Baseline Oil & Gas Corp.'s bonds were solidly higher in active trading, in line with a jump in the energy company's shares propelled by takeover maneuvering.

On the downside, SemGroup LP - whose bonds and shares had cascaded down to very distressed levels on Thursday - continued to retreat on Friday, although both were seen coming off the day's bottom levels, a little.

Primary market activity was virtually nil - with the pace of secondary action not much better.

CDX better

Back among the established issues, a market source pegged the widely followed CDX junk bond performance index was up 3/8 point on Friday, quoting it at around 93½ bid, 93¾ offered. The KDP High Yield Daily Index rose by 29 basis points to end at 71.50, while its yield tightened by 8 bps to 10.42%.

In the broader market, advancing issues led decliners by a five-to-three margin. Activity, represented by dollar volume, plunged nearly 43% from the levels seen in Thursday's session.

A trader said that the market had "a better tone to it," but said that activity was very restrained. "There was a very light flurry at the opening - and then everyone left," leaving the market to wind slowly down.

"Some things were a little higher," another trader said, "though not a ton."

Yet another trader characterized Friday as "a very stale day." He said that "when things tried to get better, there was selling into strength."

And a fourth summed the day up as "just another quiet Friday summer."

The first trader said the market upturn of the past two sessions has been attributable in part to the fact that "there are a lot of people on the sidelines, just waiting for the right time to jump in." He said it was possible the upturn is just a "bear bounce," but added that "people have jumped in, because when things get beat up as much as they have, it creates opportunity."

Auto benchmarks better

GM's benchmark 8 3/8% bonds due 2033 were seen up 1½ points by a trader at 58 bid, 59 offered, while at its 49%-owned auto finance unit, GMAC LLC's 8% bonds due 2031 were a point better at 63.

At another desk, a trader saw the GM bonds "gaining traction" at 57 bid, 58 offered, and pegged GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 around the same level.

Yet another trader saw GM's widely traded issue finishing at 56.75 bid, off a bit from its high of 57.5, but still up a point on the day, while seeing the Ford issue up 2 points Friday at 57.

A market source called those benchmark GM bonds up more than 4 points on the day in relatively busy trading, ending at 57.625, although at the same desk, the company's 7.20% notes due 2011, while actively traded, were seen little changed on the day at around the 72 level.

Six Flags climb continues

Apart from the autosphere, New York-based theme park operator Six Flags - whose bonds have been characterized by some wags in the market as being on a roller-coaster ride because of their ups and downs this year - was seen on Friday as having been headed almost straight up, as was also the case on Thursday.

A trader said that Six Flags' 9 5/8% notes due 2014 pushed up to 51 bid. 52 offered from 49 bid on Thursday - which itself was up 4 or 5 points from the levels the bonds had held earlier in the week.

He also saw its 9¾% notes due 2013 at 52.5 bid, up from 49.5 offered.

Another trader saw the 93/4s closing at 53 bid, 54 offered, noting they had come roaring back from lows earlier in the week of 43 bid, 44 offered, "so they've made up a full 10 points."

"SIX," another trader said, using the company's stock ticker, "has been moving up into the lower 50s. They've had a good run the past two days."

The first trader chalked the sharp two-session rise up largely to short covering, noting that the amusement park operator's paper had "been getting pounded the last month or so."

However, he also said there probably were "some new investors jumping in with the news that's recently come out."

Company executives at mid-week touted the results of a customer-satisfaction survey done among park-goers by an independent market research organization, which found that well over 70% would "definitely" come back to a Six Flags park themselves or recommend going there to a friend, giving the company high marks on things like park cleanliness and ride safety.

The company said that with the summer season, its busiest time of the year, now in full swing - even despite higher gasoline prices and tighter discretionary spending by consumers - Six Flags was on track to post its first free cash flow-positive year in the company's history.

XM flies high on debt deal

A trader saw XM Satellite Radio's 9¾% notes due 2014 trading as high as 94.5 on the day before going out at 94 bid, up more than a point from levels around 92.75 seen in Thursday's dealings.

Another market source saw the bonds at 94.25, up more than 2 points on the day

Washington-based XM announced that it had reached agreement with its bondholders to give them at least $400 million in cash and $200 million of new debt, which will carry a considerably higher yield - at least 13.92% or 15% or even higher annually if less than $150 million of new debt is issued. In return, the current noteholders waive their rights to a change-of-control put when New York-based Sirius finally buys its more established rival in a $3 billion stock deal. Refinancing the old bonds was considered a key hurdle in clearing the way for that planned acquisition to be completed.

The planned merger of the two currently money-losing satellite broadcasting companies also picked up an unexpected ally - at least potentially. Jonathan Adelstein - a Democratic member of the Federal Communications Commission, which must rule on the permissibility of the combination - unveiled a plan under which he would vote "yes" on the deal - if the companies agree to a six-year price cap and make 25% of their satellite capacity available for public interest and minority programming, plus other conditions.

The conditions are tougher than a set of conditions announced last month under which the panel's chairman, Kevin Martin, said he would support the controversial deal, which has drawn fire from some politicians and consumer advocates, as well as the regular radio broadcasting industry. So far, two of the five commissioners, including Martin, have backed the deal, one short of the 3-2 majority it would need to pass. Alderstein's "yes" vote, if his conditions are met - would provide the necessary majority to allow the deal to go through

Baseline up big

Baseline Oil & Gas's 12½% notes due 2012 were seen up more than 4 points on the day at just below the 98 level. Trading was described as active. That jump in its bonds was in line with a sharp spike in the stock of the Houston-based independent oil and gas production and exploration company; those over-the-counter traded penny stock shares zoomed 14 cents, or 26.42%, to 67 cents, on volume of 600,000, about six times the usual turnover.

The stock climb - and the bond movement as well - seemed to be propelled by a takeover effort being made against the company, as Third Point LLC on Friday reported in a Securities and Exchange Commission filing that it holds a 66.9% stake in Baseline and said it plans to contact the company to discuss obtaining majority control of the board.

The $3.5 billion hedge fund, run by manager Daniel Loeb, currently owns about $49.2 million of Baseline's 14% senior convertible notes, which are convertible into 68.27 million common shares, according to the filing.

Loeb plans to remove the company's current directors and replace them with his own supporters.

SemGroup settles in lower

Junk bond traders saw SemGroup's 8¾% notes due 2015 - which on Thursday had plunged to levels around 30 bid from prior levels in the mid-to-upper 90s - continuing their fall, with one seeing the bonds "continuing to get hammered" down to as low as 17 bid, 22 offered and another seeing them at 19 bid, 23 offered.

Yet another trader said that the bonds were being quoted bid around 23 late in the day, "better than where they were" earlier on, but still well down from Thursday's levels straddling 30. The traders were all quoting the bonds as trading flat, or without their accrued interest, in the wake of the Thursday night warning that a bankruptcy filing could be in the cards.

The company's SemGroup Energy Partners LP subsidiary's New York Stock Exchange-traded shares, which on Thursday had lost more than half of their value in incredibly heavy trading - nearly 85 times the norm - were beaten down again on Friday, dropping a further $2.70, or 24.55%, to end at $8.30. Even with the average volume figure having been bloated by Thursday's unusually heavy dealings, Friday's volume of 9.1 million shares was still about 63 times that average.

Several bond traders on both Thursday and Friday questioned the disparity between the company's bond prices and its share price, with one on Friday saying that "something is off" when a bond is trading around 20 flat and the stock around 7 - it actually hit a low of $5.98 before coming back from that nadir to end where it did.

"I am surprised," he said, "considering a stock trading at 7 as a potential bankruptcy candidate." He said that "with a bond trading at 20 flat," - a fairly potent indicator that a bankruptcy filing is only a matter of time -"the stock is way too high at 7. But we'll see."

The SemGroup Energy Partners unit had announced late Thursday, well after that day's market carnage in the name had mercifully come to an end, that it had been informed by its parent that the latter company "is experiencing liquidity issues and is exploring various alternatives, including raising additional equity, debt capital or the filing of a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code."

SemGroup - which trades, stores and transports petroleum via pipelines and trucks as well as providing oilfield services to various energy producers - did not elaborate on the nature of the company's problems, which it discussed with its bank lenders in a closed-door meeting on Tuesday, the details of which have not been publicly released. However, is generally believed that the sharp rise in petroleum prices over the past several months has greatly adversely impacted its hedged trading business, a factor cited prominently by Moody's Investors Service when the ratings agency downgraded SemGroup's debt on Thursday.

In addition to trying to make sense of the company's daunting enough financial problems, investors were further rattled on Friday by news stories indicating that Terry Ronan had been appointed to a senior management post at SemGroup Energy Partners, replacing its president and chief executive officer, Kevin Foxx; the company later noted that some of those reports were incorrect, and reiterated that Ronan had been appointed as acting president and CEO of the parent company, SemGroup LP, with Foxx staying on in his positions at SemGroup Energy Partners.

Gaming gets better

Elsewhere, the gaming sector - one of the hardest hit sectors in high yield so far this year, down around 10% or 11% as a whole according to the major market performance indexes - took full advantage of the perceived better tone in the junk market the past two sessions to come bouncing back, at least a little.

A trader saw Station Casinos Inc.' 6 7/8% notes due 2016 at 50 bid, up from 48.5 on Thursday, although he also pegged Boyd Gaming Corp.'s 6¾% notes due 2014 about ½ point lower at 70.25.

At another desk, a trader saw Isle of Capri Casinos Inc.'s 7% notes due 2014 "looking active, up a little bit," while seeing Trump Entertainment Resort Holdings Inc.'s 8½% notes due 2015 moving up to 53 bid from 51.5 bid, 52 offered previously.

A market source at another desk saw the Station, Isle and Trump bonds as being among the most active issues on a generally lackluster day - all three recorded over $20 million of bonds traded, while most other names were down in the seven-figure range - with the Station 6s having gained 3 points to end at 51 and the Isle 7s up nearly 3 points, at just below 70.

Another market source likewise had the Isle bonds at just under 70, and saw MGM Mirage's 6 5/8% notes due 2015 at 80, up nearly a point.

Primary quiet

In the primary market, sources said, no issues were priced and no deals were announced.

However one deal disappeared as Interval Acquisition Corp. dropped plans for a $300 million offering of eight-year senior notes and instead plans to issue the same amount of debt in an exchange.

$1.9 billion week

On the face of it, the week's dollar volume in the new issue market, just over $1.9 billion, seems robust by 2008 standards.

However nearly $1.24 billion of that amount came in the form of an Intelsat Corp. bridge roll, in which the company replaced portions of its LBO-related bridge loan with two tranches of 9¼% notes which the underwriters are selling into the market at varying prices not specified in the terms which circulated.

The remaining $665 million of the week's issuance came in three tranches, none of which were related to the LBO backlog.

DynCorp International LLC and DIV Capital Corp. priced a $125 million add-on to their 9½% senior subordinated notes due Feb. 15, 2013 (B2/B) at 99.001 to yield 9.772% on Monday.

Then on Wednesday Ticketmaster priced its downsized $300 million (from $400 million) issue of eight-year senior notes (Ba3/BB) at par to yield 10¾%, and HSN, Inc. priced a slightly downsized $240 million (from $250 million) issue of 11¼% eight-year senior notes (Ba2/BB) at 99.352 to yield 11 3/8%.

The week ahead

Ticketmaster and HSN comprise two of a trio of deals related to spin offs of entities from IAC/InterActiveCorp.

The third deal, from Interval Leisure (Interval Acquisition Corp.) was intended as a $300 million offering of eight-year senior notes (B1/BB) via Morgan Stanley.

Sources had anticipated hearing terms on that deal toward the latter part of the July 14 week, however none were heard.

On Friday IAC announced that it had agreed with some bondholders that it would instead issue $300 million of 9½% senior notes due 2016 in exchange for some of its 7% senior notes due 2013, replacing part of the tender offer for the existing notes.

The exchange is intended to create a succession event for the purposes of credit default swaps, with Interval as the sole successor of IAC.

"We are able to eliminate uncertainty over the resolution of the 7% notes, provide our tendering bondholders with a more attractive tender price and allow investors to achieve certain benefits in the credit derivative market as a result of the exchange structure, which in turn helped IAC to secure attractive financing for Interval at an otherwise challenging time," chief financial officer Tom McInerney said in an announcement.

Meanwhile a trio of deals carried over from the pre-Independence day week - all three of them seen as "opportunistic" debt refinancings - remain in the market as day-to-day business, sources said on Friday.

Ferro Corp. is in the market with a $200 million offering of eight-year senior notes (B2) via Credit Suisse.

Ferrellgas, LP and Ferrellgas Finance Corp. have been marketing a $250 million offering of notes mirroring the company's existing 6¾% senior notes due May 1, 2014 (Ba3/B+), via Banc of America Securities LLC and JP Morgan.

The third of the trio of deals pushed forward from the pre-Independence day week is AEI's $250 million offering 10-year senior bullet notes (B2/B), via Credit Suisse.

Sources say the status of these deals remains day-to-day, as the issuers wait for capital markets volatility to subside.

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