Lehman a loser, most other junk also lower; Pilgrim's Pride in slide; First Data debt rolled into bonds

By Paul Deckelman and Paul A. Harris

New York, Sept. 24 - Lehman Brothers Holdings Inc.'s bonds were seen lower and remained actively traded on Wednesday, although the frenetic activity levels seen a week ago seemed to have diminished.

Washington Mutual Inc.'s bonds "cratered again," a trader said, noting the continued carnage among the Seattle-based thrift's paper.

Taking their cue from the uneasiness which hung over the equity markets amid controversy about the government's planned $700 billion bad-loan bailout of Wall Street, most junk issues were also seen on the downside.

General Motors Corp.'s widely traded benchmark bonds, which previously seemed to have held their own, skidded badly on Wednesday, down by several points.

Pilgrim's Pride Corp.'s bonds remained cooped up at the lower levels to which they had fallen Tuesday, while the top U.S. poultry producer's shares got plucked amid investor concern about its poor credit metrics.

In the primary market, syndicate sources heard that First Data Corp. had rolled some $7 billion of bridge debt connected with its buyout into three series of new junk bonds.

Perkins & Marie Callender's Inc. brought a new five-year issue of bonds to market, although at a steep discount to par.

A high-yield syndicate official who spoke to Prospect News late Wednesday afternoon had not seen much trading in cash bonds, and added that activity had been concentrated in the synthetics.

However a portfolio manager from a high-yield mutual fund saw evidence of people running for cover.

"Yesterday was bad, but today felt worse," the buy-sider said.

"Things were slipping down," the source remarked adding that although the new SunGard Data Systems Inc. 10 5/8% senior notes due May 15, 2015 (Caa1/B), which priced last week at 98.852 to yield 10 7/8%, were holding in, the company's previously existing bonds were off 2 points.

Likewise the bonds and bank loans of TXU Corp., as well as the bonds of HCA Inc. and Community Health Systems Inc. were all down 2 points on the day.

"These are not crummy companies," the buy-sider contended.

Perkins & Marie prices

There was activity in the primary market during the mid-week session.

Perkins & Marie Callender's Inc. priced a $132 million issue of 14% senior secured notes due May 31, 2013 at 94.29 to yield 15¾%.

An informed source said that the non-rated deal was not formally marketed with a roadshow, but rather was quietly shopped and placed with a few accounts.

There was no formal price talk.

Jefferies & Co. ran the books for the bank debt refinancing.

The issuer is a Memphis, Tenn.-based operator and franchiser of full-service restaurants.

Affinia postpones

Elsewhere Affinia Group Inc. suspended plans to syndicate a $340 million asset-based revolver and postponed its $200 million of offering of Rule 144A senior secured notes due to market conditions, according to a Wednesday press release.

"Given recent volatility in the capital markets, Affinia Group Inc. has voluntarily chosen to suspend this proposed refinancing and may consider refinancing alternatives in the future, as market conditions allow," the company stated in the release.

JP Morgan was the lead on the debt financing.

The proceeds from the proposed offering of notes, together with the revolver, would have been used to repay the company's existing senior secured credit facility and to finance the acquisition of HBM Investment Ltd., a Hong Kong company, and its wholly-owned subsidiary, Longkou Haimeng Machinery Co. Ltd.

The acquisition of Longkou Haimeng Machinery is expected to proceed as planned and is expected to close in the fourth quarter of this year.

Ann Arbor, Mich.-based Affinia is an on- and off-highway replacement products and services company.

Forced selling

The high-yield portfolio manager who gave such a dire accounting of the Wednesday market said that the reason appeared to be forced selling.

Some hedge funds are liquidating, the manager added, noting that a JP Morgan $712 million bid-wanted list got some attention.

"It just seemed like liquid stuff was going off," the source remarked.

"Apparently JP Morgan was seeing bids 2 points below where things were trading. That's where people were beginning to express interest.

"Today felt really bad."

The fund manager said that a lot of forced selling has already taken place, and certainly there is some left to play out, but would not hazard a guess as to how much.

Bank loan bargains

As has been true for months, this high-yield fund manager remains uninterested in the junk primary market, but instead prefers the secondary markets, especially the bank loan secondary where secured paper is priced to move.

As far as secured bank loan paper is concerned, this week's bargains are in the utilities sector, the buy-sider added.

TXU and Calpine are both really attractive, the source said, noting that TXU's Libor plus 350 basis points secured bonds, at 86 bid, yields approximately 11%, while Calpine's Libor plus 275 bps loan is 88 bid.

"Calpine rejected a bid that valued its equity at $10 billion!" the buy-sider exclaimed.

"So either the board is comprised of complete idiots or the bank loan paper should be covered.

"And they've got $5.5 billion of market cap right now. This is not like a high-yield company with a $90 million market cap. It's a real market cap."

Market indicators point lower

The widely followed CDX index of junk bond performance, after falling by a full point on Tuesday, was off ¼ point on Wednesday, a trader said, quoting it at 90¼ bid, 90¾ offered. The KDP High Yield Daily Index plunged by 72 bps to end at 67.28, as its yield widened by 16 bps to 11.43%.

In the broader market, advancing issues trailed decliners by a margin of two-to-one. Activity, represented by dollar volume, declined by some 5% from the levels seen on Tuesday.

A trader said that "it was the same old stuff - more of the same. There was a lot of indecision, with stocks going back and forth between plusses and minuses a zillion times."

"There definitely was an easier tone," another said "The biggest surprise - since I always consider high yield to be equity with a coupon - is how well stocks, specifically the Dow, held in here versus high yield. I think it's rare" that one sees high yield getting clobbered while equity holds its own, he said.

Junk "didn't crater, or get slammed, but it weakened versus stocks hanging in there."

The Dow Jones Industrial Average bounced around for much of the day, then fell to a sharp session low late in the day before battling back from that downturn to end the down just 29 points, or 0.27%, at 10,825.17. Broader stock indicators were mixed, with the Standard & Poor's 500 index down 2.35 points, or 0.20%, to 1,185.87, while the Nasdaq composite index rose 2.35 points, or 0.11%, to 2,155.68.

He said that "there's no question, watching the [Congressional] testimony regarding the [bailout] plan, and with the Senate being so skeptical of everything that's trying to be passed, that people are concerned. If this does not get passed or if they get a measly $10 billion to start, which would be fruitless, then I think there will be a real problem in the general market, and maybe that's why we saw some selling into the market today."

He heard that it was "primarily hedge funds" doing most of the selling.

"Everything was easier," yet another trader said, "especially this afternoon. Everything is getting a little skittish. The market's definitely getting softer. Everything seems to be trading down across the board."

He opined that "there might be a lot of redemptions - accounts needing to raise cash. I haven't seen the number, but it wouldn't surprise me. There's a lot of outflow."

Her also suggested that when the weekly high yield mutual fund-flow numbers are released late Thursday by AMG Data Services, "I think we'll probably be looking at the same thing again [as last week, when a $187 million outflow was seen, the first in several weeks] - or maybe worse."

Lehman turns lower

A trader saw Lehman Brothers' bonds "getting weaker," with the benchmark 6 7/8% notes due 2018 retreating to an "18ish" level from around 20 earlier. The Lehman senior notes had firmed to around 19-20 context over several sessions.

He saw Lehman's subordinated bonds meantime drop from 1 penny on the dollar to 1/2.

Lehman, he said, is "slowing down," in terms of racking up heavy volume, "but there's still a lot of trading."

Another trader said that the 6 7/8s had declined to 18.75 bid from prior levels around 19.25, on volume of $41 million.

"Initially, there was strength in the seniors - but by day's end, they were at 18-19."

Several market participants noted the gradual fall off in the volume of trading levels on Lehman's bonds, which had been breathtakingly active early last week after the company filed for Chapter 11 protection and was subsequently downgraded to junk. They ascribed the much-heavier activity level largely to investment-grade accounts barred from holding junk bonds. These were forced to unload their Lehman paper once it went junk, racking up volume totals in the tens of millions of dollars as they hit bids and let the paper cascade down to current levels.

WaMu again the big loser

As had been the case on Tuesday, a trader said, Washington Mutual's bonds "cratered again. They really got slammed," while investors worried that that any sale of the company would only be done in piecemeal fashion. In fact, S&P cited such concerns Wednesday in downgrading WaMu's creditworthiness further into junk territory.

He saw its 4% notes slated to come due on Jan. 15 tumbling to 24 bid in round-lot trading, less than half of the 50 bid level at which the bonds had finished on Tuesday.

"They're down 26 points - on a bond that's supposed to mature in 3½ months. I don't think so."

He also saw its 8¼% notes due 2010 at 19 bid, well down from 32 earlier in the week on a round-lot basis, and suggested that in an environment where some other WaMu bonds were trading 20 points of more lower on the day, 13 points "is actually pretty good."

He saw the 5½% notes due 2011 finish at 25, down 5 points on the day, making them "one of the better performers."

Noting that while the bonds were mostly down multiple points the shares showed restrained losses, he said perhaps the reason for the relatively restrained equity downturn was that WaMu, like other financials, is on the list of companies being technically protected from short-sellers, thus limited its downside.

But with the bonds continued to get hammered, he said, it was a clear sign that "there's something waiting to erupt there and come out. There's only so much more downside left."

Most issues seen lower

Apart from the financials, lower prices were seen generally across the board, although here and there were a few upsiders.

A trader saw General Motors' benchmark 8 3/8% bonds due 2033 down 3½ to 4 points at 44 bid, 45 offered. He saw the Ford Motor Co. 7.45% bonds due 2031 some 2½ points lower at 50.5 bid, 51.5 offered.

Another trader saw the GM benchmarks down 5 points on the day at 44 bid, 45 offered, while GMAC LLC's 8% bonds due 2031 sank to a wide 41 bid, 44 offered. The latter bonds, he said, "keep going down - nobody knows why."

Yet another trader saw the GM long bonds down 5½ points at 44.75 bid, while GM's 7.20% notes due 2011 were 4 points lower at 67. He also saw the GMAC benchmark bonds drop to 44 bid from 48.5.

Outside of the autosphere, another loser was Dish Networks' 7 1/8% notes due 2016 which fell to 89 bid from prior levels at 92, down 3 points.

Community Health Systems Inc.'s 8 7/8% notes due 2015 retreated to 96.75 bid from prior levels at 98.875. Another hospital operator, HCA Inc., was also looking none too healthy, its 9¼% notes due 2016 falling to 99.375 bid from 100.5. Volume was a busy $36 million and $41 million, respectively.

Markets chicken out on Pilgrim's Pride

Pilgrim's Pride's bonds continued to languish at the low levels to which they had slid on Tuesday, while the Pittsburg, Tex.-based poultry producer's shares were being slaughtered Wednesday on investor concerns about the company's continued access to capital.

A market source saw Pilgrim's Pride's 8 3/8% notes due 2017 remaining around 71-72 on a handful of small trades; the bonds were well down from Tuesday's intraday highs around 77-78 at which they had traded, including a number of large-block trades, before their late slide. They were down still further from the 79-80 context at which they had ended last week.

The company's NYSE-traded shares meantime swooned as much as 41% during the session before trading was halted late in the day, leaving them at a final level of $6.36, down $3.90, or 38.01%, on volume of 13.1 million, five times the norm. The drop was the biggest ever since it began trading publicly in the 1980s.

Investors were said to be worried that the heavily levered company- total debt had ballooned to $1.3 billion as of last Dec. 31, more than double a year earlier, due to its $1.1 billion 2007 buyout of rival Gold Kist Inc. - might run afoul of its loan covenants and then be unable to obtain a waiver in the current shaky credit environment, or might otherwise not be able to access the capital markets to obtain the credit it needs to fund operations.

Published reports said that the company was expected to make an announcement on Thursday to address the situation that led to the share meltdown.

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