Six Flags jumps on Q2 swing to profit; WCI slides after Chapter 11; Aeroflex rolls loan into bonds

By Paul Deckelman and Paul A. Harris

New York, Aug. 4 - Six Flags Inc.'s bonds moved up solidly on Monday after the New York-based theme park operator reported a second-quarter profit, in contrast to its year-earlier red ink.

On the downside, WCI Communities Inc.'s bonds were lower after the Florida-based homebuilder sought Chapter 11 protection from its junk bond holders and other creditors.

Another downsider was Idearc Inc., whose bonds continued their recent slide.

Market participants were divided on whether General Motors Corp.'s bonds appeared to steady after traveling on some rocky roads last week after the Detroit giant released terrible quarterly numbers and sales figures.

But a trader saw oil-related names like Tesoro Corp., Chesapeake Energy Corp. and Pride International Inc. slip-sliding around in the wake of the more than $20 per barrel fall that petroleum prices have recently taken - and as crude dropped another $4 in Monday's dealings to its lowest levels since early May.

In the primary arena, Aeroflex Inc. brought a $225 million issue of seven-year notes to market, rolling a previous loan into the new bonds.

And high yield syndicate sources saw a $149 million offering of four-year notes from Caribbean Restaurants LLC on the menu.

Syndicate sources used expressions such as "dead quiet" to describe Monday's session as the first full week of August 2008 got underway in the junk market.

"It has been very quiet," one syndicate official observed.

"Of course, you have the seasonality of the market, given that this is August.

"Also it was a Monday in the summertime.

"On top of that there is the continuing deleveraging that we have been seeing over the past six months to nine months.

"Those factors make for a very quiet environment."

Caribbean Restaurants launches $149 million

The Monday session turned out news of one deal launch.

Caribbean Restaurants, LLC began a roadshow for its $149 million offering of four-year senior secured notes (B3/B).

Jefferies & Co. and Credit Suisse are joint bookrunners for the debt refinancing deal from the Puerto Rican quick-service restaurant franchise, operator of 174 Burger King restaurants.

It is one of two deals on the road.

Allis-Chalmers Energy Inc.'s $350 million offering of 10-year senior notes, via RBC Capital Markets and Goldman Sachs, has been roadshowing since the middle of last week.

The acquisition and general corporate purposes is expected to price late this week.

Mezzanine market

Some sources have also been watching for news on the Chet Morrison Contractors, Inc. proposed $100 million private placement of five-year senior secured notes (B3), via placement agent Global Hunter Securities.

On Monday a high-yield syndicate official said that Chet Morrison, a Houma, La.-based wholly owned subsidiary of Morrison Energy Group, LLC, was expected bring the deal to the Rule 144A market in early July, but abandoned that attempt, opting instead to take the debt refinancing into the private placement market.

The official added that the mezzanine market has been comparatively busy due, in part, to the rugged condition of the Rule 144A junk market at present.

"The mezz market is a bit more concentrated," the source said.

Whereas the typical process with a Rule 144A deal features 30-minute roadshow stops, private deals provide investors with a chance to evaluate opportunities in face-to-face meetings with management, the official pointed out.

"You get a more exhaustive credit review in the private market."

Aeroflex prices 11¾% notes

Elsewhere on Monday there was activity related to the LBO backlog.

Aeroflex Inc. priced a $225 million tranche of 11¾% senior notes due Feb. 15, 2015 at par.

Goldman Sachs was the sole bookrunner.

Proceeds will be used to refinance a bridge facility incurred in the leveraged buyout of the company by Veritas Capital.

The company pulled a $370 million offering of 10-year senior unsecured notes in mid-August 2007 due to market conditions.

Apart from the $225 million senior unsecured tranche which priced Monday, there is a senior subordinated tranche which remains in loan form, according to an informed source.

The 11¾% notes will not be freed to trade until they settle this Thursday, the source said, adding that the notes are in just a few hands and thus are not expected to trade very much.

Run-up to Labor Day

A high-yield syndicate official told Prospect News on Monday that the primary market's attention is mostly shifting to the post-Labor Day period, and added that the market could be quiet from now until that three-day holiday, a traditional summer-fall market boundary, which takes place this year on Sept. 1.

This syndicate official added that there has typically been a pickup in issuance post-Labor Day because of the bottleneck which occurs around that holiday period.

However, the source added, the degree to which that pickup occurs this year will be a function of where secondary levels are, and added that the single-B part of the junk index is presently yielding over 11%, while the triple-C sector is trading at 15½%.

"For non-LBO related financings, where issuers have the ability to wait things out, I think rightly or wrongly a number may choose to wait things out a little longer, unless they have an immediate financing need," the official said.

According to Prospect News data, the month of August got underway with $55.72 billion of 2008 year-to-date issuance in the high-yield primary.

Asked to project where total 2008 issuance might come in, this source, whose year-to-date figure is somewhat below that of Prospect News, looks for issuance to reach $75 billion.

Market indicators again lower

Back among the established issues, a trader said that the widely followed CDX index of junk bond performance was down 5/8 point on Monday, quoting it at around 92 3/8 bid, 92 5/8 offered. The KDP High Yield Daily Index fell by 28 bps, about matching the declines seen in the previous two sessions, to end at 70.14, while its yield widened by 6 bps to 10.64%.

In the broader market, advancing issues trailed decliners by a five-to-three margin. Activity, represented by dollar volume, was down 15% from the levels seen in Friday's session.

A trader described the session as "one of the more lackluster days I've seen in my life," while another said it was "pretty quiet - after all, it's the summer."

Yet another trader said "unfortunately, it was pretty subdued, which has been the normal Monday pattern [lately] as everybody kind of sets up. Then we get a couple of good trading days and then it peters out again" on Friday, with many market denizens essentially really working a three-day week. "That is the reality, yes," he allowed.

One of the traders said "we probably did about two trades all day today - it's just that bad."

Six Flags on an upside ride

Among specific issues, Six Flags' bonds were seen to have moved up after the company reported substantially better numbers than it had a year ago.

Six Flags, a trader said, "had a nice little rebound" after the company reported its second quarter results, quoting its 12¼% notes due 2016 trading in a 92.5-93 context, while its most actively traded issue, the 9 5/8% notes due 2014, were trading in a "53ish" area, "up a solid 3 or 4 points" from the levels in the upper 40s at which the bonds were trading at the end of last week.

A market source saw those 9 5/8s having moved up to around the 52.5-53 area on several large trades, pegging the bonds up as much as 6½ points from Friday's closing level around 47. Even tossing out that previous trade, which was relatively small and perhaps not representative, the bonds were still up at least 4 points from last week's final round-lot trade, in the 49.5 neighborhood on Thursday.

Another market source saw the bonds get as good as 54.5, calling them up 5 points intraday, although later on, the bonds came off that peak to close at 53, still up more than 3 points on the day.

Six Flags' less-actively traded 9¾% notes due 2015 moved up to 56 bid, a more than 4 point gain, while its 8 7/8% notes due 2010 were quoted sharply higher at 89.5, up more than 6 points, though on very limited trading.

While Six Flags' bonds were hot - its New York Stock Exchange-traded shares definitely were not, falling 9 cents, or 8.04%, to finish at $1.03, on volume of 8.3 million shares, more than four times the usual daily handle.

Six Flags, which operates the Great Adventure theme park in Jackson, N.J., about mid-way between New York and Philadelphia, as well as around 20 other theme, animal safari and water parks near various large-sized markets across the United States, said that its second-quarter earnings totaled $89.1 million, or 63 cents per share, versus its year-earlier loss of $50.9 million, or 54 cents per share. Excluding discontinued operations, earnings totaled $108.7 million, or 72 cents per share, versus a loss of $41.9 million, or 50 cents per share, in the year-earlier period. Wall Street had been expecting a 19 cent per share loss.

While revenue rose 1% in the latest quarter to $345.7 million, the rise was driven by increases in sponsorship, licensing and other fees, as well as higher guest spending. Overall attendance actually dropped 3% from a year-earlier due to a calendar quirk - the Easter holiday period, when most schools are closed and many people take vacations and might be expected to go to someplace like Great Adventure or one of its counterparts elsewhere, fell in March this year, so holiday-time attendance was counted in the first quarter, unlike a year ago. First-half attendance was steady at 10.1 million.

Six Flags said the latest figures include a $107.7 million gain from debt repayment related to an exchange of senior unsecured notes that occurred in the quarter. In that transaction, which took place over several weeks in May and June, noteholders exchanged a portion of their 8 7/8% notes, 9¾% notes and 9 5/8% notes for newly issued 12¼% notes.

Besides cutting debt, Six Flags also boasted of a 7% reduction in operating costs and expenses.

On an afternoon conference call, company executives reiterated the projection they made several weeks ago, saying that based on attendance trends in July - historically the most important month in the company's calendar year, with all of its parks in full summer swing - Six Flags expects to become free cash flow positive, something that it has never in its history been able to do. Assuming current revenue and cost-control trends hold up, company officials predict that the company should be free cash flow positive for the year, with an adjusted EBITDA nearing $280 million.

WCI slides after Chapter 11 filing

The other big mover on the day, traders said, was WCI Communities, whose bonds tumbled after the Bonita Springs, Fla.-based homebuilder filed for protection via a Chapter 11 filing with the U.S. Bankruptcy Court in Wilmington, Del., claiming debt of $1.9 billion and assets of $2.2 billion as of June 30.

In announcing the bankruptcy filing, the company also announced the exit of its chief executive officer, Jeffrey Starkey, with its chief operating officer, David Fry, being named interim president and CEO. Billionaire investor Carl Icahn, who owns 15% of the company, making him the single biggest shareholder, remains as chairman of the board.

A trader said that WCI's 9 1/8% notes due 2012 dropped to 31 bid, 33 offered from prior levels around 39, and opined that of the company's bond issues "this was the only one that looked like it traded."

He also saw WCI's 7 7/8% notes due 2013 and 6 5/8% notes due 2015 each go to a 29 bid, 31 offered level from around 37 previously, and observed the company's 4% convertible notes due 2023 dropping to 29 bid from 57 previously.

At another desk, a market source pegged the 9 1/8s some points lower around 32.

Another trader, though said that WCI "wasn't the busier stuff for some reason. Once it all kind of settled in, in that 29-30 range, that's where it sat."

He continued that he "didn't see as much WCI trade as I would have thought." The fact that the company, which has been hard hit by the meltdown of the housing market in its home territory of Florida, went into bankruptcy "shouldn't have been a huge surprise." He said there had been some trading in the bonds, "but not the kind of volume that you might have expected."

With the bankruptcy filing, the company's bonds were seen trading flat, or without their accrued interest, as generally happens in cases of default.

GM bonds gyrate around

General Motors' bonds, and those of its 49% owned GMAC LLC automotive financing unit, were seen bouncing around at various levels, following the downturn which the Detroit-based top U.S. automaker's paper saw last week, hurt in part by the $15.5 billion quarterly loss GM reported - third biggest in its history - and the steep July sales decline which it suffered.

A trader called GM's benchmark 8 3/8% bonds due 2033 up a point on the session at 47.5 bid, 48.5 offered, although another figured them unchanged at 46 bid, 48 offered, while GMAC's 8% bonds due 2031 were likewise unchanged at 54 bid, 55 offered. GM's 6.85% notes coming due on Oct. 15 were quoted up nearly a point, above the 98 level.

However, another market source called the GM benchmarks down 3/8 on the day at around 46.625, while estimating a nearly 4 point loss for GM's 7.20% notes due 2011 down to 58.5. GM's 7 1/8% due 2013 were seen likewise down more than 2 points to 49.5 But yet another market source, while also seeing those 7 1/8s down a deuce, saw them going out at 51 bid.

GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were up ½ point, a trader said, to 48 bid, 49 offered. But at Ford's auto-loan unit, Ford Motor Credit Co.'s 9¾% notes due 2010 were quoted down nearly 2 points at 82.5.

Oil bonds slip lower on crude comedown

Elsewhere, a trader said that "even some of our oil players, the pillars [of the junk market], have gotten weak" given the steep fall in crude oil prices from the stratospheric levels they held as recently as mid-July - a fall which continued Monday on signs that Tropical Storm Edouard, now blowing around in the Gulf of Mexico, is not expected to disrupt oil drilling operations there. He saw "all of the go-go" energy names like Chesapeake Energy and Tesoro "down 3/8 to ½ point," albeit "in very light trading.

For instance, he saw refiner Tesoro's 6¼% notes due 2012 down about 1 point to 90.5 bid, 91.5 offered., while oil-field drilling company Pride International's 7 3/8% notes due 2014 have gone to 100.25 bid, 100.5 offered from prior levels above 101.

Independent oil and gas exploration and production operator Chesapeake's paper "still trades off Treasuries to a certain extent," like a high-grade bond, but he estimated that generically speaking, Chesapeake was down ¼ to 3/8 point.

At another desk, though, Chesapeake's 6¼% notes due 2018 were seen up nearly a point at just above the 93 level. Plains Exploration & Production Co.'s 7¾% notes due 2015 meantime lost a point to 98 bid.

Light, sweet crude traded at an all-time intraday high of $147.27 on the New York Mercantile Exchange on July 11 - but it's been all downhill from there, with crude costs falling some 18% since then. In Monday's NYMEX dealings, September-delivery crude fell as low as $119.50, its lowest level since May 6; even though oil came off those lows, it still ended down $3.69, or 2.9% on the day to settle at $121.41 a barrel, the lowest settlement price since May 5.

Natural gas prices have slid along with oil prices specifically and commodity prices generally, helping to push El Paso Corp.'s 7% notes due 2017 down a point to 99.5.

B/E Aerospace still flies high

On the upside, a trader said that B/E Aerospace Inc.'s 8½% notes due 2018 "continues to do well. That bond has gone up every day from the 101-102 range, and now they're trading at 104."

The Wellington, Fla.-based maker of aircraft cabin components priced $600 million of the bonds at par on June 26.

Alltel bonds still alright

The trader also said that Alltel Corp. is "a name that's picked up speed," helped by the pending $28 billion acquisition of the Little Rock, Ark.-based cellular provider by Verizon Wireless.

He saw Alltel's 7% notes due 2012 rising to 103 bid, up a point from recent levels, while its 7% notes due 2016 have gone to 102, also up a point.

Assuming the transaction wins approval from U.S. regulatory authorities, the deal, first announced back in June, would make Verizon Wireless - a joint venture of New York-based Verizon Communications Inc. and Britain's Vodafone Group plc - the buyer the biggest cellular phone service in the United States, vaulting it ahead of rival AT&T Corp. The deal calls for Verizon to pay $5.9 billion for Alltel, plus assume $22.2 billion in debt.

Idearc keeps sliding

Back on the downside, a trader said that Idearc's bonds "got hit a little bit more today, which has been an ongoing saga."

He saw the Dallas-based telephone director publisher's 8% notes due 2016 "trading for the first time at or below 40. That's down another 10 points" from recent levels, "and they've hit a low of down about 20 points" from where the bonds had traded before it came out with poor second-quarter numbers last Tuesday. That had caused the bonds to slide from levels above 60 down to around a 49-50 context; while the notes picked up a point or 2 on Wednesday, moving back over the 50 mark, they gave all of that back and then some on Thursday, falling to 44, and then falling further on Friday to the lower 40s.

After trading as low as 39 and change on Monday, the trader said, "they did bounce back at the end of the day, seemingly a little bit, but they broke through 40 a few times," trading as low as 39.75 bid "in multiple, multiple millions."

Another trader saw the bonds ending at 39, calling that down a point, while at another desk, a source said they were down 1½ points on the day to close at 40.

Spring Nextel seen off

Wireless operator Sprint Nextel Corp.'s bonds were seen lower in active trading despite a lack of fresh news out about the Overland Park, Kan.-based company. A market source saw its 6% notes due 2016 easing to 83.75, while its 5.95% notes due 2014 were seen down more than a point at 75.

The company's Sprint Capital Corp. affiliate's 6.90% notes due 2019 were seen by another market source to be marginally lower at around the 85 mark, but on fairly busy trading.

Chip report little help to tech names

High tech names were seen lower on Monday, along with most of the rest of the junk market, despite a positive report from a semiconductor industry trade group.

Freescale Semiconductor Ltd.'s 8 7/8% notes due 2014 were seen down more than a point at 84, and its 10 1/8% notes due 2016 were likewise easier at 80.25, while Amkor Technology Inc.'s 7¼% notes due 2013 eased to 91 bid.

The bonds got no lift from a Semiconductor Industry Association report touting the fact that worldwide chip sales rose 5.4% in first half of 2008, growing to $127.5 billion from $121 billion a year ago.

The association said that June sales of $21.6 billion were an 8% improvement from the $20 billion year-earlier sales figure. Second-quarter sales of $64.7 billion increased sequentially by 3% over first-quarter sales of $62.8 billion. "Continuing strength in international markets, coupled with healthy demand in the U.S., helped drive higher worldwide sales of semiconductors in June," said the head of the trade group, George Scalise.

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