Sirius bonds gyrate on lower subscriber guidance; NewMarket, Williams Partners deal takes shape

By Paul Deckelman and Paul A. Harris

New York, Dec. 5 - Sirius Satellite Radio Inc.'s bonds, along with its stock, fell in the early going on Tuesday, and then gyrated around at mostly lower levels after the upstart New York-based satellite radio broadcaster admitted late Monday that retail sales of its radio receivers have been less than expected, and lowered its year-end subscriber growth projection.

Elsewhere, Delta Air Lines Inc.'s bonds continued to rise, in the wake of Monday's news that the bankrupt Atlanta-based Number-Three U.S. airline carrier had struck a deal with federal pension regulators on the airline's request to terminate its pilots' pension plan. Bankrupt rival Northwest Airlines Corp.'s bonds, which frequently move in tandem with Delta's, were also up.

A buy-side source said that the market felt firm on Tuesday, and added that since activity resumed on Nov. 27 following the Thanksgiving break, junk has been doing a little better.

The source also noted that the indexes are better from that point in time.

In the primary arena, participants said they expected NewMarket Corp.'s planned $150 million offering of 10-year notes to price by the end of the week. Meantime, price talk was heard to have surfaced on Williams Partners LP's upcoming $600 million issue of 10-years.

Lower Sirius projections no laughing matter

Back on the secondary side, Sirius' bonds were seen trending lower, at least initially, on the late-Monday news that the satellite broadcaster had lowered its year-end subscriber total projections to a range of 5.9 million to 6.1 million - down from guidance released last month of 6.3 million.

"Sirius fell maybe 1½ points as its stock got hammered," a trader said of the company's 9 5/8% notes due 2009, "but then it came back up [off its lows] to end down 1/2," at 98.5 bid, 99.5 offered.

Another trader quoted the bonds "about unchanged" on the day at 98.25 bid, 99 offered.

However, a market source said that the bonds fell to lows early Tuesday around 98.25 from a close Monday at 100.75, and then proceeded to gyrate between that low point and highs of as much as 101.25, before falling from such peak territory to end at 98.625

At another desk, a trader said the bonds hit a bottom of 98 early but bounced back to 100.5, unchanged, around midday. Later, another trader saw the issue at 99.5 and said there were "probably a few odd-lot hedgies unwinding."

"The tree is really getting shaken today," said the latter distressed bond trader, noting that Sirius' Nasdaq-traded shares meantime dropped 32 cents (7.67%) to finish at $3.85. Volume of 121.7 million shares was about 3½ times the norm.

"Hopefully it is just a one-day bloodbath. I think the stock was oversold but I suppose we'll see how the holders feel in a few weeks."

He said the numbers did not appear as bad as the headlines, so he figures there might be a rebound in store, but remarked, "I think Sirius may have lost some credibility with its subscriber over-estimation."

The Sirius bonds and shares were in the doghouse after the company admitted that sales of the special radio receivers needed to pick up the company's satellite programming have been less than expected since Thanksgiving, the traditional start of the year-end holiday retail season. Sirius and rival XM Satellite Radio Holdings both count heavily on people giving subscriptions to their respective services, and their receivers, as holiday gifts.

Sirius' sales, in particular, are suffering by the comparison with its very strong sales a year ago, which were driven by heavy interest in the company generated by the then-impending move of risque radio bad boy Howard Stern to Sirius, after the self-proclaimed "King of All Media's" long reign at the top of ratings on regular broadcast radio. With no mega-star like Stern making such a switch this year, Sirius' post-Thanksgiving retail sales have been "strong" - but "not at the pace we had anticipated," Sirius top dog Mel Karmazin said in a statement.

While Sirius' sagging sales are symptomatic of problems that the still-fledgling satellite broadcasting industry has in trying to get people to pay up-front cash every month for something they have traditionally gotten for free - radio - its bad news did not push larger Washington-based rival XM's bonds down; the latter's 9¾% notes due 2014, after initially falling a point to lows around 99, ended the day actually up 1¼ points at 101.25, a market source said.

Delta, Northwest continue to fly

Elsewhere, Delta's bonds, and those of rival Northwest - like Delta, currently wallowing in Chapter 11 as it attempts to restructure itself - were seen by one trader to have risen by a point earlier in the day, continuing the rise which both names had seen during Monday's session, but he saw them finishing Tuesday's trading about unchanged from prior levels.

However, another trader saw both names higher, with Delta's most widely traded issue, its 8.30% notes due 2029, up ½ to 62.5 bid, 63.5 offered, while Eagan, Minn.-based Number-Four carrier Northwest's 8 7/8% notes that were to have matured this year were a point better at 84.

Another trader saw those Northwest bonds also up a point, at 84 bid, 85 offered, and quoted the Delta 8.30s likewise up a point at 62 bid, 63 offered, on top of a 2 point rise Monday.

The Delta bonds have been climbing over the past two sessions, one of the traders said, after the troubled airline said Monday that it had reached a settlement with the government's Pension Benefit Guaranty Corp. - which has taken over a number of pension plans from bankrupt companies - on some key issues related to Delta's effort to terminate its pilots' pension plan. The bankruptcy court has already okayed such a move, over the objections of Delta's pilots, but the federal body must sign off on it as well.

Under terms of that agreement, the PBGC would get an unsecured claim of $2.2 billion against Delta, making it an unsecured creditor - although such creditors typically recover only a fraction of what they are owed.

Delta also agreed to provide in its reorganization plan that the pension insurer would get $225 million in senior unsecured notes, which Delta would repay in full when it emerges from bankruptcy, which the airline figures will happen around the middle of next year.

Technical Olympic up on Transeastern news

Technical Olympic USA Inc.'s bonds were seen better, after the Hollywood, Fla.-based homebuilder declared that its troubled Transeastern homebuilding joint venture in Florida will not be entering any voluntary Chapter 11 filing (see related story elsewhere in this issue).

That is good news for the company's bondholders, since Transeastern's $625 million of outstanding debt would be considered full recourse to Technical Olympic and its 50-50 partner, The Falcone Group, only in the event of such a voluntary filing.

Otherwise - as Technical Olympic officials had discussed with investors on a Nov. 14 conference call - the debt would be limited recourse - meaning the partners would be liable for only part of the amount - if there were misrepresentation or certain other matters, and Technical Olympic would only be responsible for damages or losses suffered by the lenders as a result of the misrepresentation. The debt would be non-recourse in the event of an involuntary bankruptcy filing, say by disgruntled debtholders.

The denial of any intention of voluntarily filing for Chapter 11 was "par for the course," a trader said - "but it's good to hear management say it."

He saw Technical Olympic's 10 3/8% notes due 2012 up 1½ points at 90.5 bid, 91.5 offered, while another trader saw the company's 7½% notes due 2011 at 82.5 bid, 83.5 offered, and its 2015 7½% notes at 78.5 bid, 79.5 offered, both up a point.

Also in the housing arena, Toll Brothers Inc.'s 8¼% notes due 2011 were up ¾ point at 103.5 bid, after the Horsham, Pa.-based homebuilder's executives indicated on their quarterly conference call that the troubled U.S. housing market may finally be bottoming out.

Market digesting supply

Additionally the buy-sider remarked that the massive amount of supply seen during the Nov. 13 to Nov. 17 week - nearly $10 billion in 15 dollar-denominated tranches - appears to have been digested.

"There is a better feeling that going forward the market is going to be trading up," the source commented.

Meanwhile the high yield primary market produced practically no news whatsoever on Tuesday.

No deals were priced. Nor were any new offerings announced.

Williams to price Wednesday

Williams Partners LP closed the books Tuesday on its $600 million offering of 10-year senior notes (Ba3/BB-/BB), and talked the notes at a yield in the 7 3/8% area, with pricing expected on Wednesday.

Citigroup, Lehman Brothers and Merrill Lynch & Co. are joint bookrunners for the acquisition and debt refinancing deal from the Tulsa-based natural gas company.

Timing was also heard on NewMarket Corp.'s $150 million offering of 10-year senior notes (B1/BB+).

The Richmond, Va., chemical company is expected to price the deal before the end of the week.

Credit Suisse has the books for the debt refinancing.

Georgia-Pacific rumored

The buy-side source who spoke to Prospect News on Tuesday said that there are rumblings that Georgia-Pacific Corp. will do $1 billion of new bonds in the near future, and added that the deal is likely to be led by either Citigroup or Banc of America Securities.

Georgia-Pacific is presently in the market with $1.25 billion in add-on bank debt via Citigroup, Bank of America and Deutsche Bank.

Hearing sleigh bells

Upon hearing the suggestion that Georgia-Pacific might launch a $1 billion deal before the end of the year, a sell-side source wasted no time before consulting the calendar.

It so happened that this official was working a syndicate desk, the ranks of which had been depleted by a Christmas party.

The source said that should Georgia-Pacific choose to launch a deal before the end of the year, with a roadshow, they face a window of opportunity that will not remain open very much longer.

For example, the sell-sider said, the last deals to price in 2005, following full roadshows, were done on Dec. 20.

On that day Mirant North America, LLC priced an $850 million issue of 7 3/8% senior notes due 2013 - a deal that had been announced on Dec. 11.

Also on Dec. 20, 2005, Omega Healthcare Investors Inc. priced a $175 million issue of 7% senior notes due 2015, in a transaction that had been announced on Dec. 15.

Meanwhile in 2004, the sell-sider recounted, the last dollar-denominated to be marketed via an investor roadshow, Inergy LP/Inergy Finance Corp.'s $425 million issue of 6 7/8% notes due 2014, was announced on Dec. 9.

Hence, the sell-sider summarized, if Georgia-Pacific means to price a deal before the end of the year, it is window of opportunity for getting a $1 billion transaction done that won't be open very much longer.

Eye on defaults

Meanwhile the buy-side source who suggested that Georgia-Pacific could be coming soon, also did not think that the company needed to be in any particular rush, with respect to present market conditions.

The conditions that prevail right now ought to carry into the new year, the buy-sider said.

"Overall there still seems to be some wind behind us," said the buy-sider who watches both the junk bond market and the leveraged loan market,

"I don't see default rates creeping up next year," the source said.

"Junk still seems like a pretty good place to be."

The buy-side source went on to say that much of the structured finance market is predicated upon default rates. As long as default rates stay low, the substantially leveraged structureswill provide investors with a good return.

Should default rates start to creep up, however, with the result that those higher default rates become factored into the structured transactions, the returns will come down and people will start looking elsewhere to invest their money.

"That would cause a slowdown in issuance, especially in the loan market," the buy-sider said.

"It would also slow down M&A activity."

Ronda Fears contributed to this report

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