Dole deal comes to market, firms in secondary; GM extends gains; bankruptcy buzz bashes Six Flags

By Paul Deckelman and Paul A. Harris

New York, March 13 - The high yield market finished out the week on a relative high note on Friday, as junk continued to draw inspiration from a resurgent stock market, which had its best week since at least last November, managing to string together several upside sessions in a row.

Dole Food Co. Inc. priced an upsized offering of five-year secured bonds on Friday, making it the only new junk deal to actually come to market this week. The bonds priced at a substantial discount to par in order to boost the yield on an already-fat coupon further into the double-digits. When they were freed for secondary dealings, they firmed modestly.

Back among the established issues, General Motors Corp. extended its upside ride, building on the momentum of the gains notched Thursday when the often-beleaguered car maker pleasantly surprised the financial markets with its revelation that it was doing better than expected in cutting costs and would thus not need $2 billion of federal assistance it had originally said it would need to get through March.

GM's main domestic rival, Ford Motor Co., and its Ford Motor Credit Co. financing arm, remained well bid for, continuing to ride the momentum from the prior week's announcement of a $10 billion debt-cutting plan, as well as Ford's declaration that labor cost savings would bring its car production costs down to near those of its "transplant" rivals.

Troubled theme park operator Six Flags Inc.'s bondholders and shareholders must have felt like they were riding the downhill slope on the terrifying Kingda Ka roller coaster at the company's Six Flags Great Adventure park in New Jersey, as those bonds and shares plunged on renewed bankruptcy concerns after Six Flags said it might have to default on an upcoming obligation.

The cash market was flat to slightly up on Friday, according to a senior high-yield syndicate official.

"We are not getting a lift from equities," the official remarked, noting the four-day rally in the stock markets which saw the Dow Jones Industrial Average rise by 9% for the week to Friday's close.

Dole gets done

The Friday session saw the week's only high-yield deal clear the market, and trade up.

Dole Food priced approximately $350 million of restructured 13 7/8% five-year senior secured third-lien notes (B3/B-) at 92.883 to yield 16%.

The 13 7/8% coupon came 62½ basis points inside the 14½% coupon talk while the 16% yield came on top of yield talk.

In the end the coupon went down, and investors received a slightly greater original issue discount, an informed source said, adding that the deal was originally expected to be discounted to approximately 95.

"The deal went well," the source commented, adding that the rallies in equities and fixed income helped to get it done.

"In the end everybody was satisfied, I think," the source added.

In early trading in the secondary market, the bonds were seen significantly above issue price, being quoted at 93¾ bid, 94 5/8 offered.

In a restructuring of the bonds, call protection was decreased to three years from four years, while the first call premium was increased to par plus the full coupon, or 113.875, from the conventional par plus ½ the coupon level.

In addition covenant changes were introduced.

Deutsche Bank Securities and Banc of America Securities were joint bookrunners for the debt refinancing deal from the Westlake Village, Calif.-based fruit and vegetable producer.

The precise face amount of the issue was $349,902,566.

The face amount came thus because the company was very set on getting exactly $325 million of proceeds, the informed source said.

Empty calendar

The clearing of the Dole deal emptied the active new issue calendar.

However, given late week developments in the high-yield market and beyond, primary market activity could surface during the week ahead, according to a syndicate official.

Those developments include:

• The pricing of Dole Foods at its announced size and within yield talk, and the subsequent upward trading of the company's new 13 7/8% secured notes due 2014 in the secondary market, counteracting somewhat the previous Friday's transactions which saw two of three deals downsized;

• Moderating outflows from high-yield mutual funds, with AMG Data Services reporting that the most recent week saw $80 million of outflows - characterized as "flat" by market sources - trailing two previous weeks of significant outflows; and

• The positive trajectory of U.S. equities, with the Dow seeing gains in four of the past week's five sessions, and gaining 9% on the week.

Those factors could serve to rekindle the primary market, the syndicate official said.

However at Friday's close no potential issuer names were available, the source added.

Dole moves up, modestly

When the new Dole 13 7/8% secured notes due 2014 were freed for trading, a trader - declaring "I can't believe that coupon" - saw the bonds firm slightly to 93 bid, 93.75 offered from the 92.883 issue price at which the Westlake Village. Calif.-based fruit and vegetable producer priced its upsized $350 million deal earlier in the afternoon. He later saw the bonds trading as high as 93.5 bid.

A second trader quoted the bonds at 93.125 bid, 93.5 offered, while yet another pegged them going out around 93 bid, 94 offered.

It remains to be seen whether the new Dole issue will follow in the footsteps of another food processing company, Tyson Foods Inc.'s recent issue. - or whether it will fall by the wayside the way Plains Exploration & Production Co.'s recent issue has.

A trader noted that the latter company's 10% notes due 2016 was "the worst deal of the quarter." The Houston-based energy exploration and production operator priced a sharply downsized $365 million of those bonds on March 3 at 92.373 to yield 11.625%, but they have been mostly trading below that issue level - in some cases well below it.

The trader said that he saw the bonds last trading at 91.25 on Wednesday - and other market sources saw those bonds get as low as an 88-89 area bid.

On the other hand, Springdale, Ark.-based meat and poultry producer priced Tyson's $810 million of 10½% notes due 2014 priced at 92.756 on Feb. 26 to yield 12½%, and since then, the trader said, they have moved up to a Thursday level of 98.5 bid, 99.5 offered.

"My God, has that been a performer," he exclaimed, "definitely the best new-issue performer we've had. It just continues to go up."

Market indicators gain more

Back among the established issues, a trader saw the widely followed CDX High Yield 11 index of junk bond performance - which had risen in each of the three previous sessions - again up, by ¼ point on Friday, quoting it at 69½ bid, 80 offered. It finished solidly above the 67¼ bid, 67¾ level at which it had closed out the previous week.

The KDP High Yield Daily Index likewise rose by 41 basis points to end at 50.41, while its yield tightened by 18 bps to 14.37%. A week earlier, the index had stood at 49.67, while the yield was at 14.63%.

In the broader market, advancing issues extended their lead over decliners, topping them by a better than five-to-three margin.

Overall market activity, measured by dollar-volume totals, declined by about 5% from the levels seen in Wednesday's session.

A trader said that overall, "there was not much to report" from where he sat, while another agreed that "today again, we seemed to follow the trend that we've seen on Fridays - it was pretty much a non-event."

For instance, he said the Community Health Systems Inc. 8 7/8% notes due 2015, sometimes seen as something of a market barometer, were up 3/8 point at 93.375, but only on relatively modest volume for the $3 billion-plus issue of $12 million.

Another recent barometer-type issue he said, Aramark Corp.'s 8½% notes due 2015, traded $13 million, but only was up 1/8 point at 88 bid. Sometime-barometer First Data Corp.'s 9 7/8% notes due 2015 actually gained a full point, but on trading of only $1 million.

Motorola move continues

The trader said that the most-active issue that he saw, with over $21 million traded by mid-afternoon, was Motorola Inc.'s 8% notes due 201, which he saw unchanged at a round-lot level of 90.75 bid.

Another trader, however, while seeing those bonds at 90.75 bid, 91 offered, called them up about ¼ point on the day but " up a good couple of points" over the last few sessions.

"Nobody knows" what has been pushing the bonds of the Schaumburg, Ill.-based electronics company and cellular phone manufacturer up as solidly as they have been rising. "There's no news out on them - but the bonds have been moving up. They've been on a tear."

Motorola, he added "continues strong. We'll see what happens on Monday with them."

GM living life in the fast lane

For a second consecutive session, General Motors' bonds continued to drive higher, presumably helped by the company's confident-sounding prediction Thursday that it will not be needing the $2 billion of federal aid it had requested to get it through the current month because its cost-cutting initiatives had gone better than expected. Whether this means the troubled Detroit giant will scale back its recent request for as much as $16.6 billion of federal bailout assistance, on top of the $13.4 billion lifeline the car maker got at the end of 2008, remains to be seen.

However, that announcement provided a jump-start to its benchmark 8 3/8% bonds due 2033, which had been languishing in an 11-12 context before that news. Holders took them up about 2 points on Thursday, to around the 14 level, and they were seen pushing still higher Friday.

A trader quoted them at 15 bid, 16 offered, which he called up at least ½ point, and said there was "some activity there. They were definitely quoted higher, and there were some trades at 16 as well."

Another trader was a little more conservative in his estimate, quoting the benchmarks at 14 bid, 16 offered, which he called up ½ point.

But another trader, quoting the '33s on a round-lot basis, said they had moved up to a late level at 16 versus just 12.5 on Thursday, with $6 million traded.

At another desk, a market source saw those bonds doing even better, up more than 4 points on the day. GM's 7 1/8% notes due 2013 were up 1½ points to the 15 level.

Dow Jones Industrial Average component GM's New York Stock Exchange-traded shares were up big for a second straight session, accelerating by 54 cents, or 24.77%, to close at $2.72, not too far off its day's high level. Volume of 42.9 million shares was over twice the norm.

Traders also saw considerable upside in the bonds of GM's 49% owned GMAC LLC auto-loan finance unit, which provides much of the loan capital for consumers buying GM cars. A trader saw GMAC's 5 5/8% notes slated to come due on May 15 at 93.25 bid, or a 50% yield to maturity, up from 92 on Thursday, on $5 million traded.

Another trader said that GMAC's bonds "were up a couple of points as well" in addition to the rise in the GM paper. He saw its 8% bonds due 2031 trade at 39, while its 7¼% notes due 2011 were being quoted at 69 bid, 70 offered, "definitely up a couple of points. There was some activity in GMAC - investors were feeling a little bit better about it."

However, a market source at another shop located GMAC's 6 7/8% notes due 2011 at 63, down a point on the day.

Ford, credit arm advance

GM's strength helped to tow the bonds of rival car maker Ford and its Ford Motor Credit Co. financing arm higher, although the Dearborn, Mich.-based Number-Two domestic producer's paper had already been holding onto strong levels ever since its announcement last week that it will take out over $10 billion of debt by tendering for bonds and term loans and by giving convertible bond holders stock.

A trader saw Ford's 7.45% bonds due 2031 hanging in in the high 20s, around 28-29, on "good volume." By the end of the day, he said, the bonds had firmed a little more to 29 bid, "feeling better at higher levels."

Another trader saw the Ford long bonds unchanged on the day at 28.875, on $9 million traded, but said that the Ford Credit 8% notes due 2016 jumped to a round-lot closing level of 57 bid from 50 previously, on $3 million traded.

"I guess guys are more comfortable with it," he theorized, "or maybe the ones who put on short positions now realize that they are not going under, at least not in the next quarter."

However, he did see the Ford Credit 7 3/8% notes coming due in October ½ point easier at 89.5, or a 27% yield to maturity, on $1 million traded.

Six Flags faltering

Traders said the dog of the day was Six Flags, after the New York-based theme park operator warned in a regulatory filing that it does not expect to have enough cash on hand to pay off its more than $300 million of PIERS - preferred income redeemable shares - when they mature on Aug. 15.

A default on those securities could trigger cross-default provisions in the indentures of its several issues of bonds and its bank lending agreements. The company raised the specter of a possible Chapter 11 filing, should it not be able to come to an agreement with its creditors before then, and said that a Chapter 11 filing could even occur well before August, if Six Flags decides an out-of-court agreement is not possible or to its advantage.

That caused Moody's Investors Service to cut Six Flags' debt ratings, lowering its corporate family rating and probability-of-default rating by two notches to Ca from Caa2, with a negative outlook, as the ratings agency cautioned that an out-of-court restructuring or a bankruptcy filing "is likely in the near term."

A trader saw the company's 9 5/8% notes due 2014 fall to around the 11 level from 14 previously, on $7 million traded, noting that those bonds were the only ones in the Six Flags capital structure moving around.

A market source saw them doing even worse, down more than 6 points on the day at the 10.5 level

Another trader said that Six Flags "is hurting," with the bonds down "at least a couple of points. It's horrible."

And at another shop, a trader said Six Flags' latest troubles had "been the talk" of the distressed market. He said the bonds had started at 12, and had been quoted bid as low as 7.5 - although he said it was "just a bid," and there had been no actual trades that far down - before going out at 10.5, which he called down ½ point on the day.

He quoted its Six Flags Operations Inc. 12¼% notes due 2016 as holding around a wide 42 bid, 47 offered, although he didn't see any trading in the issue.

Six Flags' already nearly-worthless penny-stock shares, after plunging over 25% at one point, ended down 3 cents, or 15.79%, at 16 cents, on volume of 3.8 million shares, nearly eight times the average daily turnover.

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