NXP up on news of JV stake sale; Energy XXI bounces; Majestic Star seen on the slide

By Paul Deckelman and Paul A. Harris

New York, Aug. 20 - NXP BV's bonds were seen up several points Wednesday on news that the Dutch semiconductor company will sell its 20% stake in a joint venture - not even a month after the closing of the deal that created that unit.

Energy XXI Gulf Coast Inc.'s bonds were seen actively trading around for a second consecutive session, bouncing from Tuesday's lows, although there was still no specific news seen out on the Houston-based oil and natural gas company. One trader, however, suggested that the bonds might just be jumping around on technical factors rather than for any fundamental reason.

Majestic Star Casino LLC's bonds were sharply lower, despite a lack of fresh negative news out about the Las Vegas-based gaming company.

There was a fair amount of activity in Cricket Communications Inc.'s bonds, which were seen slightly lower, though on no news about the wireless telecommunications company.

Primary market activity meanwhile remained at a standstill.

Market indicators again lower

Back among the established issues, a trader said Wednesday that the widely followed CDX index of junk bond performance was down 3/16 point on the day, quoting it at 91 15/16 bid, 92 3/16 offered. The KDP High Yield Daily Index meantime eased by 4 basis points to end at 70.32, while its yield rose by 2 bps to 10.65%.

In the broader market, advancing issues trailed decliners by a narrow margin. Activity, represented by dollar volume, fell by one-third from the levels seen on Tuesday.

For yet another session, traders noted the paucity of real activity in the secondary arena.

"Right now is just a big vacation period," one remarked, adding that "this will continue till after Labor Day."

"It was pretty quiet and boring," another said, other than the action in names which seemed to have some specific rationale behind their movement, like NXP. Otherwise, he said "you see a couple of little blurbs - but you can't say much [about any real market trend] by the activity that we saw."

A trader from a high-yield mutual fund said the market continued to ease Tuesday, and marked junk ¼ point lower.

"The financials are leading the charge," the trader said.

"It's the fear of Freddie Mae.

"Fannie Mae and Freddie Mac are putting the scare into people," the trader remarked on the troubled government-sponsored mortgage lending enterprises.

"Is the government really going to come in and save these guys, with $200 billion-plus due next quarter?!"

NXP climbs on joint venture sale

NXP was one name which seemed to buck the overall trend of aimless wandering - either credits moving around for unknown or obscure reasons, despite a lack of real news that might explain such activity, or else credits staying put despite real, actionable news developments that in a more robust populated market might be counted upon to produce some bond-price action.

A trader saw NXP's dollar-denominated bonds up on the news that the Eindhoven, Netherlands-based computer-chip company will sell its 20% joint-venture stake in ST-NXP Wireless to partner STMicroelectronics for an as-yet undisclosed sum, as part of the latter's agreement with Swedish telecommunications equipment maker Ericsson AB to form a new and even larger joint-venture for mobile networks and semiconductors.

He called NXP's 9½% senior notes due 2015 "very active" - it was, in fact, the most actively traded of the company's issues and was one of the most actively traded bonds in the whole junk market Wednesday. He saw the bonds having firmed to 68 bid from prior levels at 65.5, calling them up 2½ points in busy round-lot trading.

He also saw NXP's 7 7/8% senior secured notes due 2014 move up to 84 bid, from 81.75 previously, a 2¼ point gain, while "even the floaters were up," with the company's floating-rate notes due 2013 at 79.5 bid, a point above the last previous round-lot trading level, seen on Monday.

A market source saw the bonds all finishing higher, although down from the early peak levels they hit when the market first digested news about the latest chapter in the ST-NXP Wireless saga. The source saw the 91/2s having jumped as much as 4¼ points in active round-lot trading to around 70 bid, before coming off that peak level to finally settle in up about 2 points on the day at 67.5. The 7 7/8s initially moved up around 2 points on the news, before falling back to just below the 83 level, up about a point on the day.

Its senior secured floating-rate notes due 2013 also came off their early highs to settle in about unchanged around 78.5, in only light dealings.

Ironically, the news that Geneva-based semiconductor maker STMicroelectronics will buy out its junior partner in ST-NXP Wireless and then merge the unit with Stockholm-based Ericsson's Mobile Platforms division to form the new, larger joint venture, comes less than a month after NXP and STMicroelectronics announced completion of their deal merging the wireless technology operations of the two companies into a new unit, 80% owned by STMicroelectronics, Europe's largest semiconductor manufacturer, and 20% owned by Number-Three European chip producer NXP.

The latter's chief executive officer, Frans van Houten, said in a statement on Wednesday that his company "understand[s] the desire of ST to call our 20% stake in order to expand the ST-NXP Wireless joint venture with Ericsson. We support this next step that Ericsson and ST are taking to create the global leader in wireless semiconductors. To help ensure the success of the joint venture going forward, all NXP's supply and support agreements will continue as planned."

Van Houten said that "the additional proceeds of the 20% stake will enable NXP to further build leadership positions through innovation and investment in NXP's core businesses."

The amount of the proceeds that NXP will reap from the sale has not yet been determined. STMicroelectronics will buy out NXP "under the terms already agreed with NXP," the companies said in their statement. The value of that 20% stake will be a function of the last 12 months performance of the ST-NXP Wireless joint venture as of the time when the call is exercised, which is expected to take place before the closing of the transaction between ST and Ericsson.

Tech names unmoved by NXP gains

With so thin a level of attendance and activity in junk bond land, the rise in NXP's bonds on the asset-sale news, as well as the general rally in technology-sector stocks in the wake of tech bellwether and Dow Jones Industrial Average component Hewlett-Packard Co.'s better-than-expected fiscal third-quarter results and its upbeat fourth-quarter projections, failed to inspire other tech junk to move higher.

A trader saw Austin, Tex.-based chip maker Freescale Semiconductor Inc.'s 8 7/8% notes due 2014 down a point in round-lot trading at 81 bid, while its 9 1/8% notes due 2014 were unchanged at 78. Chandler, Ariz.-based semiconductor testing and packaging provider Amkor Technology Inc.'s 9¼% notes due 2016 were off 3/8 point at 95.625 bid.

Energy XXI gyrations continue

A market source saw Energy XXI Gulf Coast's 10% notes due 2013 actively trading around for a second consecutive session, with the bonds pushing up some 4 points on the day to an intraday high of 84 bid in busy round-lot trading. Later in the session, that gain was about halved, with the bonds seen at 82, but they bounced again late in the session to end just below 84.

At another desk, a source quoted the bonds up 3 points on the day at 83.

On Tuesday, the bonds - which had been trading in the high 80s last week - abruptly tumbled to intraday lows around 79 before closing out the session at 80 bid, down 7 points, also in active large-block activity.

Several traders said that they had seen no specific news out on Energy XXI, an independent exploration and production company that drills for oil and natural gas in the Gulf of Mexico, that might explain either Tuesday's slide or Wednesday's partial rebound.

At another desk, a trader opined that the movements might just be attributable to technical factors in a thin market, rather than to any actual fundamental reason. He said that Tuesday's final print at 80 "was a large block, 5 to 7 points lower than previous trades. So it probably was just a function of pricing it to clear. Now that the overhang is gone, the bonds are drifting higher." He added that the bonds "may have been discounted to trade on size in a thin market, and are now snapping back to a more reasonable level." The technicals explanation "is just a guess - but makes some sense."

Majestic is no Star

Elsewhere, a trader saw Majestic Star Casino's 9½% notes due 2010 at 63.75 bid, "down over 4 points" from prior levels at 68.5 bid, although he saw no fresh news out about the company Wednesday that might explain that slide. Another called the bonds 4½ point losers at 64 bid and said that they were relatively active in an otherwise pretty quiet session.

A market source said the bonds had also fallen about 1½ to 2 points on Tuesday to that 68.5 level, although at another desk, the bonds had been quoted Tuesday up more than 3 points on the day to 73.5.

The current levels are well down from the peak levels around 75.5-76.5 seen earlier in the month.

The company, which runs casinos in Indiana, Colorado and Mississippi, has been trying to develop a new slot machine-only casino in Pittsburgh through an affiliate, PITG Gaming LLC, but ran into financial problems on the project last month, defaulting on a $200 million bridge loan, which forced a shutdown of construction activity. That forced Majestic chief executive officer Donald H. Barden, whose eponymous development company controls both Majestic Star and PITG, to sell majority control of the $780 million project to an investor group led by billionaire Chicago businessman Neil Bluhm. That group, Holdings Acquisition Co. LP, won the approval for the transfer of the project's gaming license from Barden, and has lined up the necessary financing needed to complete the half-built project, which at this point is still known as the Majestic Star Casino and which is still being promoted on Majestic Star's corporate website.

Construction was scheduled to resume this week, with the 400,000-square-foot slots parlor, originally scheduled for a grand opening next May, now expected to open up sometime next August.

Elsewhere in the sector, a market source saw Tropicana Entertainment LLC's 9 5/8% notes due 2014 languishing at 31.375 bid. Station Casinos Inc.'s 6% notes due 2012 were up ½ point to the 70 level, although its 6½% notes due 2014 were seen down more than a point to end at 46. Harrah's Entertainment Inc.'s 5¾% notes due 2017 lost a point to finish at 40.

Cricket volume Leaps, but bonds don't

Elsewhere, one of the traders saw Cricket Communications' 9 3/8% notes due 2014 very actively traded at 99.25 bid, down 3/8 point on the session. A market source at another desk, who also saw those bonds at that level, said that the issue was probably one of the three or four most actively traded issues on an otherwise slow and sleepy day.

There was no news seen out on the San Diego-based wireless carrier or its corporate parent, Leap Wireless International Inc., that might explain the increased activity level.

Auto bonds seen mixed

Among the widely traded automotive benchmark issues, a trader saw General Motors Corp.'s 8 3/8% bonds due 2033 unchanged at 51 bid, and called GM's 49%-owned automotive finance affiliate GMAC LLC's 8% bonds due 2031 "still right around" 55 bid, unchanged on the day.

Another trader saw the GM bonds down a point at 50 bid, 51 offered and saw domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 off by ¾ point at 51.25 bid, 52.5 offered.

However, a third trader, looking only at the day-over-day change in round-lot levels and ignoring smaller trades, pronounced the GM benchmarks actually up 3/8 point at 50.75 bid. On that same basis, he saw the Ford bonds down ½ point at 52.5 bid.

At another desk, GMAC's 6 7/8% notes due 2012 were seen up more than a point, pushing above the 60 level. Ford financing unit Ford Motor Credit Co.'s 5.80% notes due 2009 hovered just below 99, up a point on the session, but its 7% notes due 2013 lost about the same amount to finish at 72. Its 7.80% notes due 2012 were seen actively traded at 74 bid, down 1½ points.

Also in the autosphere, a trader saw Visteon Corp.'s bonds unchanged to "maybe down a point," with the 7% notes due 2014 at 49 bid, 50 offered and Visteon's 8¼% notes due 2010 at 84 bid, 86 offered. There was "some trading in it, but not a whole lot." He noted the lack of activity in the credit - despite news of Visteon's amended agreement with former parent Ford providing more help for Visteon - saying that "there were just one or two trades."

At another desk, a market source saw the 7s at 49 bid, calling it down about a point on the session, and down nearly 2 points from the last previous round-lot trade last week. The 81/4s were not seen Wednesday.

Yet another market source called the 7% bonds 2½ point losers at 50 bid.

In a Securities and Exchange Commission filing on Wednesday, Van Buren Township, Mich.-based parts maker Visteon - spun off by Ford several years ago but unable to turn a profit since then and still needing extensive help from its erstwhile parent to remain solvent - said that under the amended terms of its agreement with Ford, the giant carmaker agreed to contribute an additional $50 million into an escrow account that Visteon can use, if need be, to fund restructuring and other qualifying costs on a 100% basis.

Ford also agreed to now fully reimburse Visteon for certain severance expenses and other qualifying termination benefits for salaried employees whom it leased to Automotive Components Holdings, LLC - a Ford-run company which acquired 17 unprofitable plants and six other money-losing facilities in the United States and Mexico from Visteon in 2005 as part of its effort to aid its problem child. Ford was to operate the plants until they could be sold to third parties. Previously, the amount required to be reimbursed by Ford was capped at $150 million, of which the first $50 million was to be funded in total by Ford and the remaining $100 million was to be matched by Visteon, with any unused portion of the $150 million as of the end of 2009 to be deposited in the Visteon escrow account.

A real August

An investment banker who keeps watch on high-yield and bank loan markets said that both are pretty dead right now.

"It's a real August in the leveraged markets," the banker quipped.

"Everybody's hoping that once all the accounts are back, come September, there will be cash to put to work because it really has been a quiet July and August.

"There has hardly been any activity in the high-yield, and not much has been happening in the bank market either."

This official expects a quiet start to September.

"Everyone will just be trying to get their bearings, waiting to see if we can get an uptick."

The CDO bid

This banker said that for the right deal - such as post-correction LBOs with full covenant packages, high equity percentages and Libor floors - the CDO bid is coming back.

Recent success stories include the $1.3 billion Bright Horizons Family Solutions, Inc. LBO by Bain Capital, the $1.1 billion FoxCo Acquisition Sub LLC acquisition by Oak Hill Capital Partners and the $23 billion Wrigley Co. deal merging Wm. Wrigley Jr. Co. and Mars Inc., the banker said.

The Wrigley deal, in particular, is being roundly celebrated in the leveraged markets.

The investment banker noted the $4.4 billion of Wrigley 11½% junk bonds completely taken out by Berkshire Hathaway, in addition to Berkshire Hathaway's $2 billion-plus equity stake in the deal.

The banker also made note of the $3.5 billion Weather Channel acquisition deal which features a $610 million private placement of senior unsecured notes

The market is liable to see more of these sizable private placements, said the banker, particularly in an era when senior secured lenders are keen to see a big piece of subordinated debt beneath them, and traditional high-yield players are demonstrating ambivalence which is spurred on in part by the volatility of the marketplace.

Liquidity is tight

Meanwhile the Tuesday session found a trader found a high-yield mutual fund restive.

"Liquidity is tight," this source asserted.

"You can do little things, but you can't do anything huge."

With no high-yield forward calendar the trader reasoned that cash positions are probably building.

In the absence of that calendar, the source added, things are beginning to look somewhat picked over.

"You're basically going back through the same secondary stuff that you have already gone through," said the source.

"And how many times do you want to keep going into that?

"You're kind of waiting for the high dollar stuff to cheapen up a little - or at least hoping it will cheapen up.

"And the beat-down names are really beat down. Do you double-up in that stuff, and pray that the company can make it for two more years?

"Right now people are not feeling like they're getting much of a discount, with stuff priced around 99 or par.

"So why not wait for a couple of weeks for the market to get kicked in the stomach, and pick it up for 95, depending upon the name."

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