Freescale firmer after numbers; Ford Credit gets clocked; retailers recover; funds see $78 million outflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 31 - Freescale Semiconductor Inc.'s bonds were firmer Thursday as the Austin, Tex.-based computer chip maker basked in the warm afterglow of fourth-quarter results reported the previous day, which included an adequate cash cushion and a reduced loss versus its year-earlier red ink.

Other upsiders included retailers such as Michaels Stores Inc., Toys 'R' Us and Burlington Coat Factory Warehouse - even in the face of new data showing that U.S. consumer spending slowed in December.

Downsiders included Ford Motor Credit Co., one of the most actively traded names on the day, and LIN Television Corp., whose bonds partly backed away from large gains they notched on Wednesday.

In the primary sphere, Axcan Pharma Inc. was heard by high yield syndicate sources to be ready to go on the road Friday to market its upcoming offering of eight-year notes.

Fund flows off $78 million on the week

Meanwhile, a market source familiar with the weekly high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday, some $78 million more left those funds than came into them.

It was the seventh consecutive weekly cash exodus, according to a Prospect News analysis of the AMG figures, including the $231.9 million outflow recorded in the previous week ended Jan. 23. In that time, dating back to mid-December, outflows have totaled $1.097 billion.

The latest week's outflow also brought net outflow for the year to Jan. 30 to $742.9 million from the previous week's $664.9 million outflow total, according to the analysis. (The year-to-date cumulative figures include the final three market sessions of 2007, which were reported as part of the week ended Jan 2, according to the source). There have been five weekly outflows reported so far this year, against no inflows. In 2007, outflows among the weekly reporters totaled approximately $2.75 billion.

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.

When Prospect News quizzed a portfolio manager as to whether the buy-side is presently sitting on a higher-than-normal amount of cash, this source responded: "I haven't seen any evidence of that."

However the portfolio manager, who approves the moves that the Federal Reserve Bank's Federal Open Market Committee made during the past 10 days, lowering the benchmark Fed Funds rate by 125 basis points to 3% (it was 5¼% last September), went on to say that the rate cuts are unlikely to mean very much to the junk market.

The source added that presently risk aversion trumps whatever problems the buy-side might be facing in having cash that, in other circumstances, it would need to put to work.

Market indicators end quietly mixed

A market source said that the widely-followed CDX index of junk market performance retreated to the 91½ bid level, down about 5/8 point, while the KDP High Yield Daily Index was unchanged at 76.07 and its yield wider by 1 basis point at 9.09%.

In the broader market, advancing issues outnumbered decliners by a five-to-four ratio. Overall activity, reflected in dollar volumes, was down 8% from Wednesday's levels.

A trader characterized the session as "really slow," and said he had seen few, if any generalized features worth talking about.

Another, calling the session "painfully slow," added that it was "a little boring."

Fresescale firmer on numbers

One of the few features which seemed to stand out was Freescale Semiconductor, whose bonds rose for a second straight session Thursday. A market source saw the company's 8 7/8% notes due 2014 at 82.5 bid, up a point on the session and up 2 points in as many days.

At another desk, those bonds were seen up more than a point to around the 82.625 level. Freescale's 9 1/8% notes due 2014 were holding steady around the 76.5, while its 10 1/8% notes due 2016 ended at about the 73 level, up 2 points on the session and nearly 3 points over two sessions.

The Freescale bonds were seen as among the most active credits of the day.

Freescale's bonds had been falling last week, along with those of other high yield high-tech companies like Amkor Technology Inc, Advance Micro Devices Inc. and Unisys Corp., on disappointing earnings and soft forecasts for such tech powerhouses as Intel Corp. and Motorola Inc. - the latter Freescale's former corporate parent and still its most important customer.

But they have moved up over the last two sessions on numbers reported Wednesday, when the company said that it had a net loss of $525 million for the three months ended Dec.31 - far less than the $2.7 billion of red ink seen in the 2006 fourth quarter, although it should be noted that the year-earlier period included a $2.26 billion charge for in-process research and development.

Excluding such special charges, Freescale said its adjusted EBITDA improved to $406 million in the fourth quarter, versus a year-earlier $1.31 billion loss. Sales rose to $1.54 billion from $1.45 billion a year earlier, and gross profit margins saw a five percentage-point improvement.

The company ended the year with $751 million in cash, cash equivalents and short-term investments, improving upon the $710 million it had at the end of 2006. Company executives said on its conference call on Wednesday that the liquidity cushion was adequate to meet Freescale's operating, capital expenditure and debt-service needs. And Freescale plans to fatten that cushion further some time in this year's first half, when it expects to receive one-time cash proceeds of more than $500 million from an amended existing supply agreement with Motorola and proceeds from the sale of equipment.

Retail names rise despite soft numbers

Elsewhere, traders saw retail names pushing upward, although there seemed to be no impetus to that move - certainly not in economic data released Thursday which showed that consumer spending in the U.S. increased at the slowest pace in six months in December, when it was up 0.2%, versus November's 1% rise. Meanwhile, retailers' holiday sales rose 2.2% percent, according to the International Council of Shopping Centers - the smallest gain in five years.

Be that as it may, traders saw the bonds of a number of retailers better on the day, including Michaels Stores; a trader said that the Irving, Tex.-based art supplies merchant's 10% notes due 2014 "had a run," rising about 1½ points to 90 bid, 91 offered, on "pretty good volume."

Anther sector gainer was Toys 'R' Us, whose 7 3/8% notes due 2018 were seen up nearly 2 points on the session at 70 bid, although a source at another desk saw them up just ½ point - but pegged the Wayne, N.J.-based specialty retailer's bonds considerably higher at 73.

Also on the upside were Bon-Ton Stores Inc., whose 10¼% notes due 2014 were seen about 1½ points better at 68.5, while Burlington Coat Factory's 11 1/8% notes due 2014 were also up 1½ points, finishing at about the 78.5 level.

E*Trade keeps gaining

E*Trade Financial Corp.'s bonds continued to firm on Thursday, with its 8% notes due 2014 quoted up more than a point at 87.75 bid.

The New York-based on-line financial services companies bonds had risen solidly on Wednesday after the company disclosed in a filing with the Securities and Exchange Commission that its chairman, Donald Layton, had recently purchased about $1 million of the company's shares, while other officers and directors had collectively bought about another $1 million. The purchases were seen by Wall Street as a vote of confidence in the company, whose value had declined sharply over the past year, hurt by the fallout from the mortgage lending crisis.

Ford Credit falters

On the downside, Ford Motor Credit's bonds were seen by a source as one of the more actively traded names on the day. Its 9¾% notes due 2010 were quoted down nearly 3 points on the session at 97.25, while its 7 3/8% notes due 2009 and 7 7/8% notes due 2010 were each seen down more than a point, at 97 and 94, respectively. Ford Credit's 5.8% notes due 2009 lost nearly a point to end at 97.5. However no one had a ready explanation for the retreat.

Sector peer GMAC LLC's 6 7/8% notes due 2012 were seen ¼ point easier around 86.

LIN a loser

Also last seen traveling southbound was LIN Television's 6½% notes due 2013, which had surprised a few junk marketeers on Wednesday when the bonds rose about 4 points on "no news."

On Thursday, the Providence, R.I.-based TV station group owner's paper was seen down 1½ points at 95 bid, also on "no news."

Axcan emerges

Sources from high yield bond syndicate desks told Prospect News that junk more or less held in, on Thursday, while leverage loans tanked.

In part, according to one of these sources, the loan market is groaning beneath the weight of the Harrah's Entertainment Inc. term loan which was marketed at 96.50 and priced and 94.00, whereupon it traded substantially lower.

Meanwhile one new but expected junk bond deal turned up Thursday as Mont-Saint-Hilaire, Quebec-based specialty pharmaceutical company, Axcan Pharma Inc., announced that it will start a roadshow on Friday for its $240 million offering of eight-year senior unsecured notes (B3/B-) via Banc of America Securities.

The proceeds will be used to help fund the buyout of Axcan by TPG Capital.

However one source told Prospect News that the Axcan deal notwithstanding, 2008 deal flow could become unsustainably low for underwriters.

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