MGM dodges bankruptcy bullet, bonds come off lows; Charter better after Chapter 11; Amkor climb continues

By Paul Deckelman and Paul A. Harris

New York, March 27 - MGM Mirage pulled a rabbit out of a hat on Friday, narrowly heading off a financing default on its ambitious Las Vegas development project that could have pushed that project into bankruptcy, possibly as early as this weekend - the latest of several narrow escapes for the troubled gaming company. Its bonds, which fell earlier on news reports that the company had hired counsel to possibly prepare for a filing if a scheduled loan payment were not made, came a point or so up from their lows, although they remained off on the day.

Charter Communications Inc.'s years-long struggle to stay out of bankruptcy finally came to an end, as the St. Louis-based cable television company formally filed. But it came as no surprise at all to the market, since Charter itself had announced some weeks ago that it would reorganize in a pre-packaged Chapter 11 filing, allowing it to restructure its heavy debt load under an agreement reached with some of its major creditors. Charter's bonds rose a point or so on the prospect.

Also on the upside, bankrupt chemical manufacturer Chemtura Corp.'s bonds - which have been rebounding steadily from the lows they hit after last week's Chapter 11 filing - continued to improve.

Apart from bankrupt or near-bankrupt companies, Amkor Technology Inc.'s bonds, which shot up sharply on Thursday on improved guidance and news of a coming big convertibles sale that will augment the Chandler, Ariz.-based semiconductor industry service company's capital, were up again on Friday.

In the automotive realm, General Motors Corp.'s bonds were a little off the highs seen on Thursday, while domestic arch-rival Ford Motor Co.'s paper was unchanged to up slightly.

Primary market activity remained in low gear, as roadshow marketing campaign for the sole pending new deal, for BWAY Corp., continued.

Market indicators mostly up again

A trader saw the widely followed CDX High Yield index of junk bond performance - a new series of which, Series 12, began trading after the scheduled roll - down ¼ point at 72 3/8 bid, 72 5/8 offered. He had seen the old Series 11 index on Thursday at 70½ bid, 71 offered, up ¼ point on the day. A week earlier, the index had finished at 68 3/8 bid, 68 7 /8 offered.

However, the KDP High Yield Daily Index rose by 18 basis points to 53.25, while its yield tightened by 4 bps to 13.44%. It had ended the previous week at 51.71, with a yield of 13.98%.

In the broader market, advancing issues remained ahead of decliners, by a three-to-two margin.

Overall market activity, measured by dollar-volume totals, was down nearly 19% from the levels seen in Wednesday's session.

Traders saw most junk issues up at least ½ point or more, as the market luxuriated on an easy liquidity cushion in the wake of Thursday's news that weekly-reporting high yield mutual funds - considered a reliable proxy for overall liquidity trends in Junkbondland - posted their second consecutive inflow in the week ended Wednesday, $789.9 million, according to statistics compiled by AMG Data Services. The inflow was the largest since early January, and, combined with the $375 million cash infusion recorded the week before, it more than matched the nearly $1 billion of outflows which had been recorded in the three weeks before that, and brought the year-to-date inflow figure up to $3.777 billion, according to market sources familiar with the numbers.

While traders said anecdotally that they saw more names on the upside than the down, key issues thought to be barometers for the overall market ended mixed. According to a market source, Community Health Systems Inc.'s 8 7/8% notes due 2015 mostly gravitated around the 95 level after a slightly higher opening, going out a little over 95 and down about ½ point on the session, on volume of over $8 million.

First Data Corp.'s 9 7/8% notes due 2015 actually did finish higher, up around a point at 59 bid, on volume of over $10 million.

The most active bellwether issue, Aramark Corp.'s 8½% notes due 2015, moved in a tight range around its Thursday close of 93.5, going out essentially unchanged on volume of over $20 million.

While a trader said it seemed to him like "there was more activity in some names," at another desk, a trader said that "things got very quiet, especially in the afternoon."

Another said he had seen nothing "which caught my attention."

MGM off lows on City Center news

MGM Mirage's bonds initially traded lower on news reports that the troubled Las Vegas gaming giant had hired bankruptcy lawyers to prepare a possible Chapter 11 filing for its massive CityCenter development project on the Las Vegas Strip, which MGM jointly owns with 50-50 partner Dubai World. The bankruptcy rumors circulated on the news that Dubai World - which sued MGM for breach of contract earlier in the week, contending that its partner's shaky finances were endangering the viability of the nearly-finished CityCenter - was refusing to kick in its half of a $200 million loan payment on the project due on Friday.

However, the bonds were seen to have come off those early lows on the news later in the day that MGM had gotten its lenders to give it a waiver that would allow MGM to make the entire payment itself, thus avoiding a threatened default that could have dumped the whole project into bankruptcy, potentially also dragging the hard-pressed MGM itself down with it.

It was the latest close shave for the beleaguered MGM; on March 17, the company announced that its lenders had given it a waiver on meeting its credit facility financial covenants through May 15. Failure to obtain the waiver could have left MGM vulnerable to defaulting on the covenants, potentially triggering a default related to the facility and cross-defaults related to its other financings, including its various issues of bonds as well as the CityCenter debt agreement.

A trader saw the company's 13% notes due 2013 "right around" 74, which he said was around the range where the bonds had been trading already. "I didn't see much change in those."

He saw the company's 6% notes coming due on Oct. 1 as "a pretty active one, being so short." He saw the bonds opening around 50 bid, 51 offered, well down from prior levels around 55, pushed lower by fears of a CityCenter default. He saw the bonds get as good as 52, although ultimately, he said, they had dropped back to around their opening levels.

A second trader saw the 6s at 51 bid, 53 offered, which he called down a point on the day, while its 6 7/8% notes due 2016, after having been lower during the session, ended about unchanged.

At another desk, a trader said he "did not see anything dramatic" in MGM., which he said was essentially unchanged.

Charter charges forward on Chapter 11

The news that Charter Communications had filed for Chapter 11 status was entirely anticlimactic, since the debt-laden cabler had said back in February that it would do so in order to implement a restructuring plan that envisions eliminating some $8 billion of its $11 billion of bond debt, leaving it with about $13 billion of bank debt and bonds.

A trader said that Charter "finally got around to doing what they wanted to do," and while he didn't see much happening initially in the company's bonds, "at the end of the day, they did move up."

He said the 10¼% notes due 2010 issued by the company's CCH II subsidiary "moved up a couple of points" to around 91 bid, 92 offered from 89 bid on Thursday, starting out at 88 bid and getting as good as 91.5 before settling in.

He called the 101/4s the most active issue on the day, "really active," easily making the list of the 10 busiest bonds, and suggesting that volume was "well over" $30 million, and "probably double that" when all of the smaller pieces are figured in.

Among other Charter issues, he saw its 10¼% notes due 2013 "probably pretty active" at 87.75 bid, 88.75 offered, while its 8¾% notes, also due in 2013, finished at 84 bid, 86 offered, with both bonds up a point or so."

A trader saw Charter's weakest issue, its 10% notes due 2014"still trading" in the low single-digit range those bonds have held for months, going home essentially unchanged at 1 bid, 3 offered.

Chemtura comeback extends

A trader saw Chemtura's 6 7/8% notes due 2016 "up a little" at 44 bid, 46 offered, as the Middlebury, Conn.-based chemical manufacturer's main issue of bonds continues to move up from the lows seen after its March 19 Chapter 11 filing.

While that bankruptcy news initially caused those bonds to fall to the mid-20s from around 30 bid, they bounced solidly off those lows, first up a couple of points last Friday, and then up nearly 10 points in wild trading this past Monday that took the bonds back up to near 40. They continued to firm during successive sessions on the week.

He meantime saw the company's 6 7/8% notes due 2026, issued by Chemtura corporate predecessor Witco, firmer at 24 bid, 26 offered.

Amkor advance carries on.

A trader saw Amkor Technologies' 9¼% notes due 2016 "pretty active" around 75 bid, up about a point from the levels seen on Thursday in busy trading.

Late in the day, he said, "they ended up trading up to 76."

At another desk, Amkor's 7 1/8% notes due 2011 were being quoted up 2 points on the day at 90 bid, 92 offered, a trader said, "As they continue to move up."

He also saw the 91/4s at 74 bid, 76 offered, which he called up a point, while its 7¾% notes due 2013 firmed to 77 bid, 79 offered, up a point on the day.

Yet another market source saw the 91/4s up 1½ points around the 76 level.

The bonds were riding the momentum of Thursday's big surge, when the capital structure rose 10 points or more across the board after Amkor announced plans to boost its capital with a $240 million five-year convertible debt sale and announced guidance that was slightly improved from its original projections.

Amkor - which provides testing and packaging services to semiconductor manufacturers - said that while it still expects a first-quarter sales decline in the area of 30% to 34% from fourth-quarter levels, that is still an improvement of sorts from its earlier warning that sales for the quarter could plunge as much as 38%. It also said that gross margin for the first quarter should come in between 8% and 12% of net sales, an improvement from its previous prediction that ranged from 5% to negative 2%.

Ford still firm, while GM backs up

In the automotive area, a trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 down ½ point on the day at 18 bid, 20 offered, while seeing Ford Motor Co.'s 7.45% bonds due 2031 unchanged at 28.5 bid, 29.5 offered.

At another desk, a trader also saw the Ford long bonds unchanged on the day, although he saw them going home at 30 bid, 31 offered. He saw the GM benchmarks at 18 bid, 20 offered, "maybe a little bit lower, or unchanged."

However, another trader said that Ford's bonds gained a point to end at 28 bid, 30 offered, while GM "showed a little strength as well." seeing the Detroit giant's 7.20% notes due 2011 at 25 bid, 27 offered, up a point on the day.

Among the really short paper, GM'S 49%-owned auto loan financing arm, GMAC LLC's 5 5/8% notes coming due in May, were seen up 1½ points to around the 95 mark. Earlier, those bonds had been down as much as 3 points on the day, to around 91 bid, before making a comeback.

The Wall Street Journal was reporting Friday that GM - which faces a deadline of next Tuesday for having a full restructuring plan handed in to government regulators overseeing its federally-assisted reorganization - is likely to be given more time - another 30 days - to get its plan together.

GM's efforts to cobble together a restructuring plan are being hobbled by a dispute with its bondholders, who object to the size of the haircut they would be required to take under the company's restructuring scenario. The Obama administration is demanding that GM cut its $27 billion of unsecured debt by some two-thirds as a condition of getting continued federal assistance.

Hertz hurries along

Elsewhere among the automotive names, Hertz Corp.'s 8 7/8% notes due 2014 were seen by a trader as having moved up another point on the day to 60 bid, 51 offered, on what he termed "good-sized trading."

Another trader also saw the Parsippany, N.J.-based rental car giant's bonds at 60, in active dealings, calling them up ½ point.

There was no fresh news out on the company, whose bonds have been firming smartly all week - advancing steadily up from the upper 40s - on news that Hertz is seeking permission from its lenders to buy up to $500 million of its loan debt to improve its balance sheet.

Shareholders not pleased with such a use of the company's cash took Hertz's New York Stock Exchange-traded shares down 67 cents, or 13.81% on Friday, to a close of $4.18, on volume of 1.7 million, about normal.

BWAY well received

The active high-yield forward calendar sports just one deal.

BWAY Corp. began a roadshow on Thursday for its $200 million offering of five-year senior subordinated notes (B3/B-).

That roadshow is going well, according to an informed source who added that the offering has been playing to positive receptions from the buy-side.

The deal is expected to price during the middle part of the coming week via joint bookrunners Deutsche Bank Securities and Goldman Sachs.

Qwest expected

Qwest Communications International Inc. is expected to bring a junk bond deal, according to a trader for a high-yield mutual fund.

No size, structure or timing were available on Friday, according to sources. However Banc of America Securities is expected to be involved.

A Qwest transaction is unlikely to surface during the week ahead, according to a sell-side source familiar with the matter.

In January Qwest CEO Ed Mueller said that the Denver-based telecom believes it will be able to refinance all or a portion of its $1.2 billion of 3½% convertible senior notes which mature in the fourth quarter of 2010.

The week ahead

The week ahead figures to bring one or two deals in addition to the above-mentioned BWAY transaction, sources say.

Meanwhile an asset manager in the Midwest related a Friday conversation with bankers who don't expect a lot of new issue business, aside from companies that face maturities in 2010 or sooner.

"All others are trying to wait the market out and get what they think will be lower rates in the future," the asset manager said.

A high-yield syndicate official also expressed the belief that the primary market will be visited mostly by those with near-term maturities, given the cost of raising cash in the junk bond market.

As to what the present cost is, one market source pointed to Kansas City Southern de Mexico, SA de CV's $200 million issue of 12½% seven-year senior unsecured notes (B2/B+) which priced at 94.49 to yield 13¾% last Tuesday, and quantified the new issue premium - that is, the concession to existing bonds - at 209 basis points.

However, market sources point out, the $200 million issue is not an especially liquid one, and the company's performance has been adversely impacted by the economic downturn in Mexico.

$189 million week

The Kansas City Southern de Mexico deal, which generated $189 million of proceeds, was the only one to clear the high-yield primary market during the final full week of March.

That is the lowest dollar amount for any week thus far in 2009, according to Prospect News data.

With respect to that dubious distinction, the past week replaces the previous week, beginning March 16, which saw a single issuer, Lamar Media Corp., raise $315 million with one tranche of notes.

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