MedQuest bonds gain on redemption plans; techs tumble on Intel numbers; Quebecor goes flat

By Paul Deckelman and Paul A. Harris

New York, Jan. 16 - MedQuest Inc.'s 11 7/8% notes were seen having moved up several points in busy trading Wednesday after the Alpharetta, Ga.-based medical diagnostic imaging provider's announcement that those bonds were being called for redemption.

Technology names like Freescale Semiconductor Inc., NXP BV and Amkor Technology Inc. moved lower, hurt by industry leader Intel Corp.'s disappointing fourth-quarter earnings and lackluster forecast for the current first quarter.

Young Broadcasting Inc.'s bonds were seen up several points as they continue to bounce back from recent lows hit before last week's announcement of a potentially lucrative asset sale.

From out of the distressed-debt precincts came word that Quebecor World Inc.'s bonds had begun trading flat, or without their accrued interest, in the wake of the Montreal-based printing company's Tuesday night announcement that it had not made a scheduled interest payment on one of its bonds, instead invoking the standard 30-day grace period while it tries to get its financial act together.

In the primary arena, things remained quiet, although price talk emerged on Atlas Energy's downsized offering of 10-year notes.

Market indicators point downward

A trader said that the widely followed CDX junk bond performance index lost 3/8 point on the session to end at 92 bid, 92½ offered. The KDP High Yield Daily Index dropped by 0.21 to 75.76, while its yield widened by 6 basis points to 9.16%.

In the broader market, declining issues held a slight lead over advancers, while overall activity, reflected in dollar volume, was up about 19% from Wednesday's level.

A trader said that "things opened up a little weaker," and then "kind of bounced [around] - the same kind of trend we've [recently] seen, on any kind of weakness, buyers try to dip in and swallow up some things on lower moves."

A high yield syndicate official said that the junk market was down all day.

"There is just no momentum," the source added.

Another investment banker who works on a different high yield syndicate desk said that there is presently a disturbing trend afoot in high yield land.

"There are a lot of bargains out there," the official said. "But no one's buying.

"That could spell trouble.

"We're now seeing some of the highest spreads we've seen since 2002.

"But people aren't buying because they think that tomorrow it's going to be even cheaper."

Medquest moves up

Still, among the gainers was MedQuest, on the heels of the company's announcement Tuesday that the $177.168 million of outstanding 11 7/8% notes due 2012 are to be redeemed on Feb. 15 at a price of 105.938, plus another $59.38 of accrued and unpaid interest per $1,000 principal amount.

A trader saw the bonds at 106 bid looking, noting that the bonds normally were "not actively traded." In fact, he said, the last previous trades, at the 104-105 level, had come in mid-December. Another trader also said there was "not much going on there," at least at his shop.

However, a market source at another desk saw brisk trading in the bonds just above the 106 level, pegging the bonds as nearly 5 point gainers.

Young bonds seen as rejuvenated

Elsewhere, Young Broadcasting's 10% notes due 2011 were seen up 2 points to the 76 bid level, continuing the recent rebound in the New York-based television station group owner's paper. Earlier in January, the bonds had fallen about 10 points in one session to the upper 60s on investor concern about the company's underperfomance and possible liquidity problems. However, those bonds began pushing back up a week ago on Young's announcement that it would put its largest and potentially most valuable property, KRON-TV in San Francisco, up for sale.

Young hopes to have a sale wrapped up some time in the current quarter. There has been no immediate word on potential buyers, or how much the sale of KRON - Young's only large-market station - might bring.

Tech bonds off as Intel disappoints

On the downside, a trader saw several technology-related bonds move lower in apparent response to disappointing fourth-quarter results and first-quarter forecasts from the world's largest computer-chip maker, Intel Corp. - an ominous sign of likely softness throughout the sector.

He called Freescale Semiconductor's 10 1/8% notes due 2016 down 2 points at 73 bid, 74 offered, with Dutch sector peer NXP's 9½% notes due 2015 likewise down a deuce at 85.5 bid, 86.5 offered.

At another desk, Austin, Tex.-based Freescale's 8 7/8% notes due 2014 were 2 points lower at 83.5, while Chandler, Ariz.-based Amkor Technology Inc., a provider of semiconductor testing and packaging services, was a point lower, its 7¾% notes due 2015 at 90.5.

Another market source had the Freeescale '14s a point lower on the day at 83.25.

Intel reported after the market closed Tuesday, among other disappointing news, that its first-quarter revenue will rise to as little as $9.4 billion, well short of the $10.1 billion generally predicted by analysts.

Foxwoods, Harrah's among the losers

A trader said that "gaming remains a little soft." He noted that the Foxwoods 8½% notes due 2015 "continued to drift a little lower," going home at 95.5 bid, 96.5 offered, well down from levels around par bid, 100.5 offered before last week's announcement from the Mashantucket, Conn.-based tribal gaming operator that the president of the casino, John O'Brien had tendered his resignation, effective this Friday, in order to "pursue other interests."

The casino's vice president of operations, Barry J. Cregan, will take over as interim president of the resort effective Friday.

The unexpected executive suite shuffle comes at a time when Foxwoods - heretofore highly successful - faces multiple challenges. With the economy slowing markedly - some forecasters see it sliding into a recession - consumer spending generally is expected to be hard hit, particularly in such strictly discretionary areas as entertainment, including patronage of gaming casinos. Operators from Nevada to Atlantic City have been reporting slowing revenues and casino win figures.

With what is expected to be a smaller consumer spending pie to divide, there is more competition, not only from Foxwood's traditional in-state rival, Mohegan Sun, but from new slot-machine gaming palaces opened at racetracks in neighboring New York and Rhode Island.

On top of that, the resort's operator, the Mashantucket Pequot Tribal Nation, is locked in a battle with the United Auto Workers union over the UAW's efforts to organize the more than 2,000 table game and poker dealers at Foxwoods, who up till now have not been unionized. A union election was held in November, in which the dealers voted by about a three-to-two margin to organize as a UAW local. The tribe is challenging alleged irregularities in the vote, presenting testimony this week before a National Labor Relations Board hearing. The UAW will also call witnesses, and then the NLRB is expected to render a ruling in several weeks.

The outcome of the battle could have profound effects on the economics of the tribal gaming segment of the casino industry, since Foxwoods is by far the largest tribal gaming facility targeted for unionization by the labor movement. The NLRB has rejected Foxwood's contention that as a tribal entity it is not bound by the same federal labor laws that regulate the rest of the casino industry.

Elsewhere in the gaming sector, Harrah's Operating's 5½% notes due 2010 were seen 2 points lower at 87.5 bid, while its 5¾% notes due 2017 were off more than a point at 62.25, while its 7 7/8% notes due 2010 issued under the company's former name, Park Place Entertainment, were down ¼ point at 92.5 Harrah's existing paper has been eroding steadily over the past several sessions amid investor angst over the Las Vegas-based gaming giant's upcoming multi-billion-dollar mega-deal to fund its leveraged buyout transaction.

Quebecor flattens out

Traders in distressed debt reported that Quebecor World's bonds were all trading flat after news of the missed coupon payment on its 9¾% notes.

A trader saw its 6 1/8% notes due 2013 down 2 points at 62 bid, 64 offered, while its 4 7/8% notes slated to come due in November were 3 points better at 67.5 bid, 68.5 offered.

Another trader saw the '08s finishing at 67.5 bid, 72.5 offered, although at one point, he said, they traded as low as 63.5. "It was another wild day for Quebecor," he said.

Another market source saw the 6 1/8s up 3 points on the session at 64 - after having dropped as low as 57 earlier, on initial response to news of the failure to make the 9¾% payment on Tuesday. The 4 7/8s were seen down 3½ points at 67.

Mercer revolt raises tender hope

Meanwhile, a shareholder revolt at Mercer International Inc. prompted some hopes that there might be a change of control tender offer.

A pulp and paper analyst said that the shareholder committee's initiative could conceivably represent good news for Mercer's bondholders, adding that the bonds, now trading in the 80s, failed to move along with Mercer's shares on Wednesday.

"The bonds have a change of control provision at par," the analyst said, relating that at least one Mercer bondholder made a call on Wednesday to cheer on the revolt.

"Will a change of control happen because of this small shareholder revolt?" the analyst asked, rhetorically.

"I don't think so. But it doesn't hurt that there is someone out there making this noise."

Hong Kong-based Mass Financial Corp., a minority stakeholder in Mercer International, re-launched a shareholder revolt which the analyst described as basically a rejuvenation of a revolt that Mass Financial launched back in mid-December.

It boosted Mercer's share price to $8.03, up $0.60 (8.08%), on volume of 444,218 versus average volume of 229,000.

In its Wednesday press release, the Mass Financial-led Mercer Shareholders Committee announced that its mandate will be to unlock the value of the Mercer's common shares by requesting drastic corporate changes within Mercer, and to either have the company sold or create a joint venture with a strategic investor to realize the highest value for the shareholders.

Based on published reports, the committee continued, several investment bankers believe that Mercer is worth between $11.50 and $13.50 a share.

Atlas downsizes

The primary market's sole piece of Wednesday news also came with something of a negative thrust.

Atlas Energy Operating Co. and Atlas Energy Finance downsized to $250 million from $400 million their offering of senior notes due 2018 (B3/B).

Meanwhile the company set price talk for the notes at 10% to 10¼%, at a discount.

The JP Morgan and Wachovia Securities led debt refinancing deal is expected to price on Thursday.

Meanwhile there was no news on the only other deal expected to price before Friday's close, Solutia Inc.'s $400 million offering of eight-year senior notes (B2/B-), a Chapter 11 exit financing via Citigroup, Goldman Sachs & Co. and Deutsche Bank Securities.

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