Freeport gains on cash conservation; Tousa dives on plan; casinos rally; Ford, GM bonds strengthen

By Stephanie N. Rotondo and Paul A. Harris

Portland, Ore., Oct. 14 - The high-yield bond market started the week off much stronger than it had the week before, traders reported Tuesday.

Market players came back after a long weekend to a much different marketplace than they left Friday, as traders called the junk sector 5 to 6 points better, generally speaking.

Freeport-McMoRan Copper & Gold Inc.'s bonds were among the most active issues of the day, traders said. The metal mining company's bonds were at least 5 points firmer on news that the company was looking to conserve cash.

Meanwhile, Tousa Inc. filed its reorganization plan, and "surprised" investors reacted by placing pressure on the company's debt. Under the plan, bondholders will receive nothing, which sent the paper down 5 to 6 points.

Though the turmoil in the market has proven that casinos are not recession proof, the sector staged a slight comeback during Tuesday's session. Isle of Capri Casinos Inc., as well as Trump Entertainment Resorts Inc. and MGM Mirage, finished the day several points stronger.

After taking it on the chin last week, the automotive arena also rebounded some. Traders attributed gains in the bonds of Ford Motor Co. and General Motors Corp. to good size rallies in the stocks on Monday.

Market rebounds

After several sessions of declines, market indicators turned positive Tuesday.

The CDX high-yield index gained 1.5 points, a trader said, to 82 bid, 82.5 offered. Meanwhile, the KDP High Yield Index rose to 56.22, yielding 15.06%, from 54.57, yielding 15.62% on Friday.

"It was a quiet day," a trader said, despite the overall better tone. "There was a lot of quoting and searching for appropriate levels."

"The market opened up much stronger than last week," said another trader. "Then things kind of settled in."

The CDX High Yield 11 closed trading at 1,059 basis points bid, 1,049 bps offered, on a spread basis, according to a high-yield syndicate official.

Meanwhile the session produced no primary market news.

Private placements 'stopped up'

It isn't just the high-yield primary market that has come to a standstill, according to a leverage capital markets official who watches the public and Rule 144A junk bond market and the private placements market.

The private placement market has become stopped up, the official contended Tuesday, adding that part of the problem is the relative health of the buyers. In this context the official made reference to AIG.

However pricing has widened to the extent that there is no longer an incentive for the issuers, the official added, noting that last week's International Business Machines Corp. $4 billion high-grade deal didn't help.

Although at the time market sources were celebrating the fact that IBM was the biggest high-grade deal since August, the leverage capital markets official found the price of IBM's $1 billion tranche of 8% 30-year notes, which came at Treasuries plus 400 basis points, particularly discouraging.

"Right now private placement investors are focused on the top tier," the official said.

"But there is a relative value disconnect between issuers and investors.

"Issuers in the private placement market are not necessarily price takers."

This source expressed the belief that the last private placement to be completed was done in late September.

Freeport to conserve cash

Freeport-McMoRan's bonds were deemed active and better by traders during Tuesday's session, as the company said it would make efforts to conserve cash.

A trader quoted the 8 3/8% notes due 2017 at 81.5 bid, 82 offered in round lots, noting that the debt got as high as 86 before settling back in. Still, he said that was better than last week, when the bonds closed in the mid- to high-70s.

Another trader placed the issue at 82 bid, 83 offered.

At another desk, the 8¼% notes due 2014 jumped 5 points to 84 bid, 86 offered.

The Phoenix-based copper and gold producer said Tuesday that it was considering delaying mining projects to conserve cash. Like most other companies, Freeport has been affected by the tight credit markets but also by a decline in demand for metals, as well as decreasing prices.

In a Bloomberg interview, Richard Adkerson, Freeport's top executive, said that "we're challenging our team to see what we can do to spend less capital now, defer projects, but not do something that's damaging to our positive longer-term view on the market. We, and other companies, have to be responsive to it. And that response is going to mean there will be less copper produced than there otherwise would have been."

Though copper futures gained during trading, overall the metal has seen a 22% drop over the year, attributed to slowing demand from automakers and builders.

Tousa dives on plan filing

Homebuilder Tousa filed its plan of reorganization Tuesday, and the details of the proposal shocked some market players.

"[The] plan is a surprise to most folks," said a trader, noting the bonds are to get zero under the plan with the only upside coming from litigation proceeds.

While that trader said he had not seen the bonds trade at all - "they went dark," he said - others reported a 5- to 6-point dip in the name.

A trader said he saw the 7½% notes due 2011 and 2015, respectively, offered at 2.

"I see offers in the 9% [notes due 2010], but they might be way too high," he added.

Another trader placed the 7½% notes at 0.5 bid, 1.5 offered and the 9% notes at 30 bid, 31 offered.

Under the plan, the Hollywood, Fla.-based homebuilder will convert more than $300 million in second-lien debt into equity, giving full ownership of the reorganized company to those lenders. About $1 billion in bond debt, along with $600 million of other unsecured claims, will be cancelled entirely. Stockholders will also be left with nothing.

"The filing of our plan of reorganization is an important achievement and we are excited to announce this development," said Tousa chief executive and president John R. Boken in a press release. "We have made significant progress over the past nine months in restructuring our operations and have transformed our business in this very difficult market environment.

"Our 'stand-alone' plan of reorganization includes a substantial reduction in our debt obligations, allowing us to emerge from Chapter 11 with a stronger balance sheet and greater financial flexibility that will position Tousa to compete effectively in the industry and to continue to deliver quality homes to our customers."

Tousa filed for bankruptcy earlier this year after a decline in new home sales and housing starts pressured the highly leveraged company.

Casinos stage a comeback

The gaming sector "bounced a little," a trader said, in line with the rest of the bond market. However, the trader added that it was "not the most active sector."

Isle of Capri's 7% notes due 2014 opened at 55 before hitting a high of 61, the trader said. Trump Entertainment's 8½% notes due 2015 moved up to 31 from 25 last week, despite a downgrade from Moody's Investors Service.

MGM Mirage's 7½% notes due 2016 were also "up a couple points" at 68.5 from 65 on Friday.

At another desk, Isle's debt was seen up nearly 12 points at 59.5 bid, while MGM's 6 5/8% notes due 2015 gained 5.5 points to 68 bid. Boyd Gaming Corp.'s 7¾% notes due 2012 moved up 4 points to 83 bid.

Another trader said he saw no late-day levels in Trump's paper, which were at 28 bid, 33 offered in early trading. MGM's 7½% notes increased 3 points to 66 bid, 68 offered.

Harrah Entertainment LLC's 10¾% notes due 2016 opened at 41 bid, 42 offered but closed lower at 38 bid, 39 offered, another trader said.

Late Friday, monthly revenue numbers from Atlantic City were released. The monthly report showed a 15% decline - the biggest drop in revenue since 1978 - to $356 million. The drop was partly attributed to inclement weather and the pre-Labor Day weekend falling in August.

Trump's revenue fell the most, at a hefty 33%. Harrah's revenue fell 8.3%, while MGM and Boyd-owned Borgata Hotel Casino & Spa fell 5%.

As the current economy has forced most to tighten their belts, would-be gamblers have stayed away from gaming centers such as Atlantic City. But the Jersey Shore's smoking ban has also played a role. As a result, city council members voted to put off a blanket ban that would have gone into effect on Oct. 15.

Meanwhile, Las Vegas' gambling revenue has also faltered. During the first eight months of the year, the city has seen wagers fall 6.7%, with a 7.4% decline on the Strip in August alone.

Auto sector sees relief

The automotive arena as a whole "caught a little bit of a bid," a trader said, pointing to decent gains in the stock a day before.

The trader placed Ford Motor's 7.45% notes due 2031 at 28 bid, 30 offered, up a deuce. General Motors' benchmark 8 3/8% notes due 2033 opened around 19 bid, 21 offered before moving up to 22 bid, 24.5 offered.

GM's lending arm, GMAC LLC, saw its 8% notes due 2031 also gain 2 points to end at 27 bid, 30 offered.

"They couldn't go down much more," the trader opined, citing recent losses in the sector. He said the day's gains were 'a direct result of the stock rally" on Monday.

Another trader placed GM's benchmark at 20 bid, 22 offered, up 4 points, while Ford's 7.45% notes gained 5 points to 27 bid, 29 offered.

Another market source pegged GM's 7 1/8% notes due 2013 at 29.75 bid, up 10 points on the day. GMAC's 6 7/8% notes due 2012 closed at 38 bid, 3.5 points firmer.

"They got a little bit of relief," a source said.

Slumping auto sales have caused some to believe that the Detroit automakers might be facing potential bankruptcy if they are not able to restructure quickly enough. For its part, GM is also struggling under the pressure of its GMAC unit, as well as its offspring, Delphi Corp.

On Monday, GMAC said it planned to only finance customers with what are considered "excellent" credit scores, around 700. Previously, the company's financing pool consisted of nearly 40% sub-700 scorers. The company also finances about 45% of GM's sales.

Broad market rallies

Idearc Inc.'s 8% notes due 2016 had a better day, after losing over the last few sessions. A trader quoted the bonds at 21 bid, 22 offered, up from 17 bid, 18 offered.

Lehman Brothers Holdings Inc.'s senior paper - such as the 6 7/8% notes due 2018 - got as high as 12.25 before coming back down to 10 bid, 11 offered, a trader said. Still, he called that up from Friday levels of 9 bid, 10 offered.

But another trader called that down 1.5 points, pegging the issue at 8 bid, 10 offered.

Washington Mutual Inc.'s holding company paper, like the 4.2% notes due 2010, closed at 62 bid, 65 offered, according to one source, and at 64 bid, 65 offered, according to another.

Community Health Systems Inc.'s 8 7/8% notes due 2015 regained some of the losses they incurred over the last week, ending at 84 bid, 85 offered from the mid-70s previously, a trader said.

Charter Communications Inc.'s 10¼% notes due 2010 finished at around 68.5, while its 11% notes due 2011 hit a high of 53 before settling back to 52 offered. The 8% notes due 2012 were called 8 points better at 84 bid.

Pilgrim's Pride Corp.'s 8 3/8% notes due 2017 were "moving around a lot," a trader said. He quoted the issue at 38 bid, 41 offered, up 5 points.

The poultry producer's debt had previously "had a lot of downward momentum," the trader said, as feed prices continued to escalate. While he conceded that the gains could be short covering, he still maintained that the move was "positive" for the company.

© 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.