NOVA gyrates, then steadies; autos shrug off sales plunge; Motorola slides; Landry's to price at big discount

By Paul Deckelman and Paul A. Harris

New York, Feb. 3 - The junk bond market turned in a spotty performance on Tuesday, sporting a generally better tone, although there were significant exceptions to that. However, traders saw no big overall theme, although they noted that activity levels had picked up from Monday's dishwater-dull showing.

NOVA Chemicals Corp. - whose bonds slated to come due on April 1 had been badly battered over the previous few sessions on investor fears that the Canadian chemical manufacturer might not be willing, or able, to pay off on those notes - was again the subject of busy trading; in fact, those '09s were the single most actively traded issue in Junkbondland, and movements were again volatile; however, when all was said and done, the deep slide had been stopped and market participants were quoting those bonds anywhere from unchanged to up modestly on the day.

News that January sales for General Motors Corp. and Ford Motor Co. had slid more than 40% from year-earlier levels seemed not to have much impact on the two carmaker's bonds, and paper from their respective automotive financing units, GMAC LLC and Ford Motor Credit Co. was actually seen mostly better, as GMAC posted its first quarterly profit after five down quarters.

There was no such good news for holders of Motorola Inc.'s debt, which tumbled after the Schaumburg, Ill.-based electronics manufacturer reported a massive fourth-quarter loss, gave weak guidance for the current quarter, and then further unsettled investors by announcing the unexpected departure of its chief financial officer.

On the new-deal front, price talk circulated on Landry's Restaurants Inc.'s upcoming issue of two-year secured notes, which is expected to price at a huge discount to par to fatten the already-generous double-digit coupon to near-stratospheric yield levels - the only way that a CCC rated credit like the Houston-based eatery operator will be able to get a deal done in the current market environment.

Market indicators remain mixed

The widely followed CDX High Yield 11 index of junk bond performance, which fell ¾ point on Monday for a second consecutive session, recovered modestly on Tuesday, with a trader quoting the market measure up ¼ point at 73½ bid, 74 offered.

The KDP High Yield Daily Index, however, was down 15 basis points on the day at 53.98, although its yield tightened by 10 bps to 13.33%.

In the broader market, advancing issues continued to lead decliners, by a better-than four-to-three margin.

Overall market activity, measured by dollar-volume totals, rose by 32% from the levels seen in Monday's session.

A trader characterized Tuesday's session as "a pretty quiet day today, with a little more activity than [Monday]."

A second agreed that things "certainly seemed a little bit busier. Actually, it felt like there was strength in our market, but there still were some specific credit situations that traded lower."

He saw both of the issues which some in the market regard as a barometer or proxy for the broader market because of their great size and liquidity, widespread distribution to accounts and easy tradability - Community Health Systems Inc.'s $3 billion of 8 7/8% notes due 2015 and First Data Corp.'s $2 billion of 9 7/8% 2015s - each a point or more better on the day. Franklin, Tenn.-based hospital operator Community Health's bonds were up a point on the day at 97.25 bid, on volume of $12 million, while Greenwood Village, Colo.-based e-commerce processor First Data's notes rose nearly 2 points to 58.25 bid, which he called "quite a pop" on $4 million traded.

Community Health sector peer HCA Inc.'s 9¼% notes due 2016 moved up nearly a full point to just under 95, on brisk volume of $20 million; the trader said that Tuesday was "the first day in three or four that there's actually an uptick on that name." The bonds, he continued, had been pretty much "getting hit over the last couple of weeks" on market scuttlebutt that the Nashville-based hospital company might be among the companies coming to market soon with a big new deal -- at least one buy-side source recently theorized for Prospect News that such an HCA offering would probably be driven by reverse inquiry and would likely be led by JPMorgan.

NOVA knocked around, bounces back

The most actively traded credit in the junk market was NOVA Chemicals' 7.40% notes slated to come due on April 1.

One trader saw the bonds going out at the same 55 bid level at which they had finished on Monday, despite $46 million of the bonds having been traded. He suggested that "it's quite unusual" for a bond to trade on that kind of volume and end unchanged.

A market source at another desk saw the bonds going home at 56.5, on heavy round-lot volume, actually up more than a point on the day - but not before they had careened around crazily, bouncing from session lows under 50 to highs around 57.

Between those two extremes, the source saw most of the day's trades in a 50-51 context, but said the bonds had moved back higher late in the session, lifted by several large block transactions.

Among the company's longer issues, meanwhile, the first trader also saw NOVA's 6½% notes due 2012 fall to 27.75 bid from 29 on Monday, on $4 million traded, while its floating-rate notes due 2013 were unchanged at 25.5.

Another market source pegged the 2012s down more than 2 points on the day at 27.5 bid.

The April 1 bonds had fallen from recent levels above 80 - and had plunged to their current depths even more sharply from the 95 area at which they had begun the year, battered down by investor concerns that the company might not choose to pay off the maturing issue.

Those worries were exacerbated last Thursday when the Calgary, Alta.-based chemical maker posted a quarterly loss of $214 million, largely due to a 36% decline in sales - even though the company also said that it had generated strong cash flow during the quarter and touted its debt-reduction efforts. Bondholders were said to be concerned that the company's finances are not strong enough to handle the $250 million payment needed to redeem the notes.

On Monday, Its debt was downgraded two notches by Fitch Ratings to the BB- level and a whopping three notches to CCC+ by Standard & Poor's after NOVA's banks imposed new restrictions on its credit availability. S&P said the "key to NOVA Chemicals' survival" will be to shore up bank financing to meet a large maturing debt load.

Motorola mauled after poor numbers

Poor quarterly numbers led to a poor junk market showing Tuesday for split-rated Motorola, whose 6 5/8% bonds due 2037 lost a point in round-lot dealings to 54.75, on a busy $20 million of bonds traded. The company's 6% notes due 2017 fell even further to just over 63 bid from 67 previously, on $12 million traded, while its 7 5/8% notes due 2010 were seen down 3 points at 93.35 bid, on turnover of $5 million.

Motorola's New York Stock Exchange-traded shares meantime fell as much as 15% intraday before finally ending down 11.01%, or 50 cents, at $4.04, on volume of 43 million shares, or almost twice the norm.

That nosedive followed the company's announcement that it lost $3.6 billion, or $1.57 per share, in the fourth quarter, versus a year-earlier profit of $100 million, or 5 cents per share. Sales were $7.14 billion, down 26% from the year-ago period.

Excluding charges it took for goodwill impairment and an increase in its deferred tax reserves, the company lost a penny per share, a little worse than the break-even forecast by analysts.

While company executives outlined its cost-cutting efforts on their conference call following release of the numbers, they acknowledged that even with those efforts, Motorola expects to lose 10 to 12 cents per share for the current quarter, excluding charges - about double what Wall Street had been expecting.

Further unsettling matters was Motorola's disclosure that CFO Paul Liska had left the company after just a year in that post, effective immediately, with no explanation offered. While co-CEO Greg Brown praised Liska's contributions to the company during the conference call, he also implied that the personnel shuffle was connected to the persistent delays in spinning off Motorola's Mobile Devices cellphone business. Edward J. Fitzpatrick, up until now the senior vice president and corporate controller, will be acting CFO while the company searches for a permanent replacement for Liska.

Motorola was dumped into junk territory back in December by S&P, and now Moody's Investors Service may follow suit; the agency on Tuesday downgraded Motorola's ratings to a precariously high-grade Baa3 from Baa2 and cut its short term rating to Prime-3 from Prime-2, citing "the continued decline in the performance of the handset business and the enormous challenges the company faces in turning around this business while the economic environment continues to deteriorate."

"The enormous cash drain from the mobile phone business and the uncertainty over when and if the cash drain can be stemmed has pushed the rating to the low end of the Baa spectrum," warned Moody's analyst, Matthew Jones.

Moody's maintained its negative outlook on Motorola - meaning that another downgrade is possible.

Autos shrug off sales swoon

In the automotive sphere, bonds of General Motors and Ford seemed little affected by the news that Ford's domestic sales had plunged 40% in January from year-earlier levels - and GM's skid was even worse, at a whopping 49%.

The sales losses are the latest in a long string of such big double-digit declines for the two Detroit giants and domestic peer Chrysler LLC, with even overseas-based U.S. producers like Toyota and Honda now feeling the sales pinch.

A trader saw General Motors' benchmark 8 3/8% bonds due 2033 up 3/8 point at 13.5 bid, 14.5 offered, while domestic arch-rival Ford's 7.45% bonds due 2031 were ½ point better at 21.5 bid, 22.5 offered.

Another trader saw the GM benchmarks fall to a round-lot level of 14 bid from prior levels at 15, though on only $2 billion traded, while the Ford long bonds were also down a point on $2 million traded to 21.5.

Among shorter issues, GM's 7 1/8% notes due 2013 lost a point to end at 14.5 bid, while its 7.20% notes due 2011 were likewise a point lower at 19 bid.

Meanwhile, bonds of financing arms GMAC and Ford Credit were seen mixed, even as GMAC reported its first profit after five straight quarterly losses; GMAC finished $7.46 billion in the black, versus a year-earlier loss of $724 million, although it should be noted that the swing back to profitability was driven by a one-time $11.4 billion gain from the company's recently concluded $21.2 billion debt exchange. While GMAC's insurance business actually made money, both its automotive finance unit and its Residential Capital LLC mortgage subsidiary posted losses.

Even so, GMAC LLC's 8% bonds due 2031 were seen by a trader at 52 bid, down ½ point, though on only $1 million traded, while its 5 5/8% notes coming due on May 15 were up nearly a point at 96 on volume of some $7 million.

At another desk, a market source called the 5 5/8s up 2 points on the day at that 96 level.

Another market source had the company's 6 7/8% notes due 2012 off by a pair of points at 64.

Ford Credit's 7 3/8% notes coming due in October were meantime quoted up more than 5 points on the day, a market source said, at the 93 level, although another trader saw them up just a point at 90.

Saks solid on real estate holdings

Elsewhere, a trader said that "there's some interesting stuff going on" outside of the activity in names which have day-to-day news attached to them such as the carmakers, Motorola and NOVA Chemicals.

For instance, he said, Saks Inc. is a name "that people want," although he added that "they're not bidding aggressively."

He said that buyers have pushed the New York-based high-end department store operator's 9 7/8% notes due 2011 up to around the 75 bid level, while not too long before, "they were bidding 60."

He explained that "even though the company is having a rough time," in line with the overall downturn which has hit the retailing sector generally, and particularly the luxury segment of that sector, including Saks rival Neiman Marcus Group Inc., "there was an article [recently] in Barron's that said [Saks] has enough real estate and whatever to weather the storm, if they have to sell off assets. They have some pristine properties."

Graphic Packaging gets better

The trader also said that Graphic Packaging International Inc., "despite what's been written, keeps going up," with its 9½% senior subordinated notes due 2013 trading around the 76 level, versus its recent 74ish context.

The Marietta, Ga.-based paperboard packaging company's corporate parent, Graphic Packaging Holding Co. - hurt by higher prices for raw materials, energy and freight, as well as slackening demand for its products in line with the general industrial slowdown - reported a wider third-quarter loss in November; Graphic Packaging lost $14.4 million, or 4 cents per share, versus its year-earlier deficit of $13.9 million, or 7 cents per share. The company's president and chief executive officer, David W. Scheible, said at the time that downturns in raw material prices stemming from lower petroleum prices "did not occur in time to benefit third quarter results, as we experienced significantly higher costs for energy, chemicals, fiber and freight."

While Schieble held out the hope that such lower costs would have a positive impact on the company's fourth-quarter results, general economic conditions have continued to deteriorate since then. On Dec. 22, Graphic Packaging announced a temporary shutdown of its No. 1 corrugated paper machine at its mill in West Monroe, La.., citing a softening of demand in the containerboard markets "after November turned out to be an unprecedented weak month for containerboard box shipments across the industry."

It also held out the prospects of further such "extraordinary actions" should "volatile" market conditions continue.

The company will release its fourth-quarter and 2008 full-year results after the close of trading on Feb. 26, and will hold a conference call the next morning, when company executives will discuss the results with analysts and investors.

AK up from late '08 lows

The trader said that AK Steel Corp. has recently had "negative press - but the bonds keep going up."

He saw the company's 7¾% notes due 2012 at 83.5-84.5, "which is well off the lows" of around 70 which the bonds were touching in November and early December.

AK has pretty much held onto its gains, despite its recent announcement of poor results for the fourth quarter - the West Chester, Ohio-based maker of specialty steels lost $430.6 million, or $3.88 a share, versus year-earlier net income of $106.7 million, or 95 cents a share. Excluding unusual items, the company's net income fell to $600,000 from $164 million, while its adjusted operating profit dropped to $10.3 million from $153.5 million.

AK said that it expects "a significant operating loss" for the first quarter, on reduced shipments stemming from its plan to idle the blast furnace at its plant in Middletown, Ohio - AK's largest facility - for 45 days of maintenance starting in early March.

However, AK said its results in the second quarter will likely be helped by lower raw material costs and higher shipments, leading to a modest operating profit for that period.

Bankrupt VeraSun secureds firm up

And the trader also said that there lately has been "a lot of buying interest" in VeraSun Energy Corp., whose 9 7/8% senior secured notes have gone from 50 bid to 60, with investors "looking for paper."

The Sioux Falls, S.D.-based ethanol producer sought protection from its junk bond holders and other creditors via an Oct. 31 Chapter 11 filing with the U.S. Bankruptcy Court in Wilmington, Del., but the trader noted "they're still making their interest payments" to some of the secured noteholders.

While the secured bonds are still in demand, the company's 9 3/8% senior unsecured notes due 2017 continue to languish at around 10 bid.

New bonds stay strong

Among recently priced issues, a market source saw Chesapeake Energy Corp.'s 9½% notes due 2015 at 98.5 bid; the Oklahoma City-based independent energy exploration and production operator's $1 billion of bonds were priced a week ago at 95.071 to yield 10 5/8%, traded up on the break and have hung in at those high levels ever since.

Ditto for Crown Castle International Corp.'s $900 million of new 9% notes due 2015, seen trading Tuesday at 96.125; the Houston-based communications antenna tower operator priced the bonds at 90.416 on Jan. 22, to yield 11¼%, and they too have held their high levels after first moving up on the break.

Incoming cash sets stage for deals

Meanwhile a trader working for a high-yield mutual fund said cash bonds were unchanged to a little better on Tuesday.

"I think the underlying demand is definitely biased toward buyers of quality paper," the trader said.

"The only real selling you're seeing is the garbage."

The slow-rolling new issue market has this source puzzled.

"We're seeing more money coming in than we see leaving," the trader said, adding that the incoming cash tide provides a good backdrop for high-yield.

"I think there is pretty good pent-up demand for quality paper, so something will come," the trader said.

However no one had any potential issuer names to proffer on Tuesday.

A high-yield syndicate official looks for another drive-by deal from the energy sector.

That sector has a recent track record in the new issue market.

Of the three deals that were priced last week, two came from energy names, with Chesapeake Energy Corp. and Inergy LP both bringing quick-to-market issues during the final week of January.

Landry's Restaurants price talk

Price talk surfaced Tuesday on the only deal that has traveled a full roadshow thus far in 2009.

Landry's Restaurants, Inc. talked its $270 million offering of senior secured notes due 2011 (B3) with a 14% coupon at an original issue discount of 88 or 89 resulting in a yield of 20%, plus or minus 0.25%.

Pricing is set for late Wednesday or Thursday.

Jefferies & Co. is the bookrunner for the debt refinancing and general corporate purposes deal from the restaurant, hospitality and entertainment company.

Although no high-yield issues priced on Tuesday, terms did surface on a deal that was certainly high-yielding.

Harley-Davidson, Inc. priced $600 million of five-year senior notes at par to yield 15% .

They were taken down, in equal parts, by Davis Selected Advisors LP and Berkshire Hathaway Inc.

However Harley did not seem to be hogging much attention among high-yield market observers, even though it was an ultra-quiet session, on Tuesday.

One high-yield syndicate official pointed out that although the notes came unrated, Harley-Davidson's senior unsecured credit ratings are A1 from Moody's and BBB+ from Standard & Poor's.

The official also expressed doubts as to whether the new Harley-Davidson 15% notes due 2014 will be traded.

Bookrunners for the Harley deal were Morgan Stanley, Citigroup, Deutsche Bank Securities and JPMorgan.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.