Junk slumps along with equities as storm dampens spirits; MGM slide continues; Anixter, Digicel, Dole launch

By Paul Deckelman and Paul A. Harris

New York, March 2 - March, as the old saying goes, came in like the proverbial lion Monday, with a late winter blizzard-like blast up and down the Eastern seaboard - and that carnivorous cat stopped by Wall Street to claw the junk market - along with equities and even high-grade bonds - with feline ferocity, sending many high yield issues tumbling 2 or 3 points on the session.

Big losers included MGM Mirage, whose bonds were already tumbling and stumbling on Friday in response to the news that the Las Vegas-based casino giant had drawn the final $842 million from its revolver, taken by most in the market as a worrisome indicator.

Another was Freeport-McMorRan Copper & Gold Inc. - as usual, one of the busiest names in the market - whose paper "got slammed," a trader declared, despite an apparent lack of fresh negative news out about the Phoenix-based metals mining company.

There was some upside in the bonds of American International Group Inc. and such AIG subsidiaries as American General Finance and International Lease Finance Corp., given a partial boost by news of the latest government assistance to the ailing AIG - but even so, some of its bonds did not share in that rally.

And bonds of Reliant Energy Inc. were likewise mixed, despite the ostensibly good news that the Houston-based power generator had arranged an asset sale, as some Reliant investors chose instead to focus on the company's bad fourth-quarter numbers and 2009 guidance.

No issues priced in the primary market.

However against the backdrop of plummeting stock prices dealers set the stage for what could be a busy week in the new issue market.

Dole launches $325 million

Dole Food Co. Inc. launched a $325 million offering of five-year senior secured notes on Monday.

An investor roadshow will be run this week, with the deal expected to price next week.

Deutsche Bank Securities and Banc of America Securities are joint bookrunners for the offering.

Proceeds, together with borrowings under its revolver, will be used to purchase its outstanding senior notes due May 1, 2009.

In a press release announcing an amendment to its credit facility Dole announced the size of the bond offer at $500 million maximum.

However the company will use cash on hand to generate the remaining $175 million of proceeds, according to an informed source.

Anixter brings $200 million

Elsewhere Anixter International Inc. will start a roadshow on Tuesday for a $200 million offering of five-year senior bullet notes which are expected to price by the end of the week.

Banc of America Securities, JPMorgan and Wachovia Securities are joint bookrunners for the debt refinancing and general corporate purposes deal from the Glenview, Ill.-based distributor of communications and security products.

Jamaica's Digicel to sell $435 million

Jamaican wireless provider Digicel Ltd. began a roadshow on Monday for its $435 million offer of senior unsecured notes due 2014 (confirmed B1//existing B-).

Marketing is expected to conclude on Wednesday, with the notes expected to price after that.

Citigroup, JPMorgan and Credit Suisse are joint bookrunners for the acquisition and general corporate purposes deal.

The notes come with three years of call protection. The first call premium will be par plus the full coupon.

The deal is expected to generate considerable interest among U.S. high-yield accounts, market sources say.

Digicel last came to the dollar-denominated bond market in July 2006 with a $150 million add-on to its 9¼% senior notes due Sept. 1, 2012 (B3//B), which priced at 102.514 to yield 8 5/8%.

Elsewhere in high yield emerging markets, Mexico's Cemex, SAB de CV is expected to conclude a roadshow on Wednesday for an expected $500 million of notes with a maturity of between three and five years.

Last week the company began roadshowing what was announced as a benchmark-sized deal with intermediate maturities.

The present offering is the company's first to feature high-yield covenants, market sources say.

Citigroup is leading the debt refinancing.

Split-rated Louisiana-Pacific plans units

From the crossover sector, Louisiana-Pacific Corp. announced a $350 million offering of split-rated units (Ba3/BBB-), consisting of senior secured notes due 2017 and warrants for the company's common stock on Monday.

The deal is being run off the high-yield syndicate desk.

Pricing is set for Tuesday afternoon.

Banc of America Securities, Goldman Sachs and RBC Capital Markets are joint bookrunners for the general corporate purpose - including debt refinancing - deal.

Simultaneously with the units transaction Louisiana Pacific is launching a consent solicitation to eliminate restrictive covenants in its existing 8 7/8% senior notes due 2010.

Expected to pay up

Although Dole and Anixter were the only U.S.-based companies to launch straight-out junk deals on Monday, if the above news from the emerging markets and crossover areas is factored in, the session rendered a comparatively high volume of news on the new issue front.

What's more, the news came against a backdrop of steeply declining equity prices, with the Dow Jones Industrial Average, which dropped by nearly 4¼% during the session, closing at its lowest level in more than a decade.

That should not impede the week's planned issuance, a senior high-yield syndicate official told Prospect News shortly after the Monday market close.

However new issue premiums, which contracted throughout the month of February, are apt to rise once more given this backdrop, the official added.

Market indicators' slide deepens

Back in the secondary, a trader saw the widely followed CDX High Yield 11 index of junk bond performance - which had fallen by ¾ point on Friday - continuing to retreat on Monday, quoting it down another 1½ points to 69¾ bid, 70¼ offered.

The KDP High Yield Daily Index meantime slid by 57 basis points to 51.23, while its yield widened by 22 bps to 14.07%.

In the broader market, advancing issues fell further behind decliners, whose bulge widened to a nearly three-to-one margin.

Overall market activity, measured by dollar-volume totals, slid by nearly 41% from the levels seen in Friday's session.

The winter of our discontent

A trader said that "stocks and misery" were the themes in the junk market on Monday as it took its cues from equities, which were getting pounded on renewed investor worry about the economy and the insufficiency of Obama administration efforts to turn things around. That took the bellwether Dow Jones Industrial Average down another 299.64 points, or 4.24%, to 6,763.29, breaching the psychologically potent 7,000 support level to end at its lowest close in 12 years. Broader gauges were also down, with the Nasdaq composite index sliding 3.99% on the day and the Standard & Poor's 500 giving up 4.66%.

"As the snow falls," the trader said, noting the eight to 10 inches of the white stuff dumped on the Big Apple on Sunday and early Monday, "the market falls. Everyone sounded miserable. The mood is definitely not robust."

Another trader said that even as Northeasterners were trying to dig themselves out, "the [junk] market is trying to dig out."

"Needless to say," another trader said, "high yield was weaker, though there was not extensive volume - I would call it medium, lukewarm volume. But there was selling going on."

He saw Community Health Systems Inc.'s 8 7/8% notes due 2015 - frequently cited as a market barometer because of the $3 billion-plus issue's great liquidity and widespread distribution -- down over 2 points on the session at 93 bid, with $18 million of the bonds having changed hands. He characterized that as "decent volume."

He cautioned that although the Franklin, Tenn.-based hospital operator's "are supposed to be a barometer, I wouldn't categorize the whole market as being down 2¼ points," although he allowed that "there certainly were a handful of names down 2 to 3 points."

Meanwhile, the market's other supposed barometer - First Data Corp.'s 9 7/8% notes due 2015 - were down even further, 3 point losers at 52.5 bid, on volume of $16 million "the most activity I've seen in them in a while."

Helping push those bonds down - and probably boosting the activity in them at those lower levels - was Moody' Investors Service's review of the Greenwood Village, Colo.-based financial transaction processor's ratings for a possible downgrade on the agency's concerns that profit and free cash flow would not increase, as was expected when First Data was purchased in a leveraged buyout in 2007. At that time, Moody's gave First Data a B2 corporate family rating, warned that it was weakly positioned at that level.

However, Moody's still said it believes First Data's leverage ratios will improve in 2010.

Freeport falls, in busy dealings

The trader said that downsiders appeared to dominate the most-actives list, with few names busier than fixture Freeport-McMoRan, whose bonds, he said, "got slammed, no question."

The company's 8¼% notes due 2015 dropped nearly 4 points on the session to 86.25 bid, on volume of $36 million, while its 8 3/8% notes due 2017, which were down nearly 3 points to 83.5, with $22 million traded.

The company's floating-rate notes due 2015 were down 2¼ points to 70.25, on $12 million of turnover.

While there was no specific news out on Freeport, a market source noted that the bonds certainly were not helped by the latest slide in prices for gold, one of the company's major products.

The precious metal fell for a sixth consecutive session Monday - the longest slide since October - closing down $2.50, or 0.3%, to $940 an ounce on the Comex division of the New York Mercantile Exchange.

More misery for MGM

A trader said that while a lot of issues were off about 2 or 3 points on the session, MGM Mirage "did worse, with its 7½% notes due 2016 at 35.5 bid, down from 40 previously, on $14 million traded, while its 6% notes coming due on Oct. 1 "got slammed" down to 58 bid from 65 on Friday, with $11 million traded. He said that the 131% yield to maturity "is not a positive sign."

Another trader saw MGM's 13% notes due 2013 going out at 72 bid, 74 offered, "a little lower than where they were at the beginning of the day."

At another desk, a market source pegged its 6 5/8% notes due 2015 at 38.5 bid, down 1½ points.

MGM's New York Stock Exchange-traded shares meantime slid by another 45 cents, or 12.86%, to $3.05, on twice-normal volume of 9 million.

The bonds and the shares had also slid most of last week, as investors reacted badly to the notion that MGM had withdrawn the final $842 million of what once was a $4.5 billion revolving credit line. They were also fretting at fourth-quarter earnings, which the company has yet to release, as well as concern over whether MGM and joint-venture partner Dubai World will be able to negotiate a loan from Deutsche Bank to complete their ambitious City Center development project on the famed Las Vegas Strip, currently stalled due to a lack of new funding amid current market conditions.

And as if MGM Mirage did not already have enough troubles to deal with, the company on Monday put out an advisory warning that someone is perpetrating a scam by sending out counterfeit "MGM Mirage checks" illegally imprinted with the company logo to people in Nevada, California and Texas, telling them they have "won a sweepstakes" and should deposit the checks into their bank accounts - after first sending an "administrative fee" to a post office box address the swindler has set up. After recipients who fall for the scheme send the swindler some very real money, they'll find out that the bogus "checks" they have deposited in their accounts are worth about as much as Monopoly money, and adding insult to injury, they could be charged a fee by their own banks as well. MGM Mirage loses no money on the scheme - but it's a public relations black eye for the now-struggling gaming giant.

AIG ending mixed

One of the few upsiders among major names was American International Group, most of whose bonds rose on the news that the U.S. government is going ahead with a $30 billion bailout - the second the troubled New York-based insurer has gotten during the economic meltdown. It comes on top of the first bailout in September 2008, which ultimately totaled $150 billion.

A trader said that AIG's bonds "were higher, with everything else moving down."

Another trader said that AIG's 8.45% notes slated to come due on Oct. 15 moved up to 74.5 bid on a round-lot basis, or a 65% yield to maturity, from 69.875 last Wednesday, the most recent prior round-lot level. Volume was just $1 million, which he said was "light for AIG." He also saw AIG's 4 7/8% notes due 2010 last trading on a round-lot basis at 57.25 bid, versus 51.75 a week ago, on volume of $3 million.

However, its 4 5/8 notes due 2010 were just 3/8 point better at 50.375. "We're not showing a lot of volume in the short AIGs," he said.

A third trader called AIG "up a couple of points, now that they're going to get another $30 billion [of federal bailout money]. They're better bid by a point or two."

He said the shorter paper "has a better tone - the '09s are up by a couple of points." However, he said that while AIG "was quoted up, I didn't see a lot of trading not a lot of volume."

Among the longer issues, its 5.40% notes due 2017 gained as much as 5 points on the day to end at 50.

By contrast, however, the company's 5.85% notes due 2018 were down ½ point, with $13 million traded. American General Finance's 4% notes due 2011 dropped more than 3 points to end at 43.

Besides the relatively good news that AIG will get the additional bailout money it needs - not so good that it needs those funds in the first place - the company also had bad news which may have pulled down some of the bonds.

AIG posted a record-breaking $61.7 billion, or $22.95 per share, loss for the quarter, compared to a loss of $5.29, or $2.08 per share, the year before. All told, the company's loss for fiscal 2008 came to nearly $100 billion.

Reliant mixed on news

The good news-bad news dichotomy also caused mixed trading in Reliant Energy's paper. A trader saw Reliant's 6¾% notes due 2014 up nearly 4 points on the day at 92 bid, on volume of $11 million.

However, he saw the company's 7 7/8% notes due 2017 sliding to 64.75 from previous round-lot levels of 75, with $16 million traded. Its 7 5/8% notes due 2014 fell nearly a point to 67.5, with $3 million traded.

Reliant announced Monday that it will sell its Texas retail power business to NRG Energy Inc for $287.5 million in cash, plus working capital.

However, that good news was overshadowed by the announcement that the energy provider reported a quarterly loss of $437.7 million, or $1.25 per share - a sharp deterioration from its year-earlier earnings of $227 million, or 64 cents per share. Reliant slid into the red after taking $543 million in charges, including goodwill impairments and losses on energy derivatives as commodity prices fell.

It also said it expects its 2009 EBITDA to fall from 2008 levels and to miss analysts' expectations.

Junk at the crossroads

Overall, one of the traders, taking a slightly longer view, said "we're sort of at a cross roads here. You don't know whether to sell [or buy].

"The technicals are very strong - there's a lot of cash around," even despite last week's first junk mutual fund outflow in 13 weeks, since late November. "Guys are sitting on 10-15-20% cash positions, but not really putting money to work."

Even with what should be favorable technicals, he cautioned that "by the same token, people are very nervous about which way this market is headed, particularly with all of the talk about the explosive budget" unveiled last week.

"I think a lot of people are digesting that and trying to figure it out." He said that had provoked "a lot of skittishness" in equities, and, to a degree, in bonds too.

He said that "as new issues come, there's money going into those, but you're not seeing a lot of buying in secondary -- if anything there's better selling."

If a company "misses [expectations for earnings] or if there's some bad news, it gets pounded." He noted, for instance that Franklin, Tenn.-based psychological services provider Psychiatric Solutions Inc. reported numbers late last week. Its 7¾% notes due 2015 were trading around 90-91, "then the numbers came out and they were terrible, and the bonds are down 5 points."

While the company made $24 million, or 43 cents per share, in the fourth quarter, up from $23.2 million, or 42 cents per share, a year earlier, the numbers fell short of analysts' expectations At the same time, the company expects profit from continuing operations of $2.24 to $2.32 this year, down from a prior guidance range of $2.40 to $2.44, and below analysts' average expectations of around $2.40 per share.

Noting the drubbing the bonds took on the numbers, and the outlook, he said that's "pretty characteristic of what we've seen in the last several months - very cautious, and on balance, better sellers."

New Tyson, Videotron ease slightly, Williams off

Among last week's newly priced issues, a trader saw Tyson Foods Inc.'s new 10½% notes due 2014 at 94 bid, 95 offered, slightly easier from the peak levels around 95 bid at which the Springdale, Ark.-based meat and poultry producer's bonds had achieved in Friday's dealings. However, they were still well up from the 92.756 level at which the company had priced its upsized $810 million deal on Thursday, to yield 12½%.

Also easing from their somewhat exalted Friday levels as high as 101 bid were Videotron Ltee.'s new 9 7/8% notes due 201. A trader saw those bonds Monday at 99 bid, par offered, down from the lofty levels reached after last week's pricing, and still at least a little better than that 98.625 level at which the Montreal-based cable-TV operator had priced its upsized $260 million add-on tranche on Thursday.

A trader meantime saw the split-rated (Baa3/BB) Williams Cos. offering of 8 7/8% notes due 2020 at 98 bid, 99 offered - down from Friday's levels around 99.375 bid, 99.625 offered, and down as well from the 99.159 level at which the Tulsa, Okla.-based natural gas company priced its bonds on Thursday, upsized to $600 million from the initially shopped $500 million.

Stephanie N. Rotondo contributed to this report.

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