Angiotech deal prices; Young up on KRON joining network; funds see $404 million outflow

By Paul Deckelman and Paul A. Harris

New York, March 16 - Angiotech Pharmaceuticals Inc.'s new eight-year deal proved to be just what the doctor ordered on Thursday, pricing at the tight end of pre-deal market price talk and then firming solidly when the new bonds were freed for aftermarket activity.

In the secondary market, Young Broadcasting Inc.'s bonds were seen up as many as four points on the session, after the television station group owner announced that it had reached agreement with MyNetworkTV - the new television network that will go on the air this September - for Young's most important station, and the only one of its properties that up until now has not had a network affiliation, KRON-TV, to become MyNetworkTV's affiliate in San Francisco, the sixth-largest television market in the United States.

Elsewhere, Dana Corp.'s bonds continued their meteoric post-bankruptcy rise, although the stage has now been set for putting a top limit on how far they might go, on the news that the main organizational body in the credit derivatives industry has set a date for an auction which will determine the settlement levels for most credit default swaps contracts involving Dana bonds - levels that will likely effectively act as a ceiling for those bonds.

From out of the distressed precincts came word that Movie Gallery Inc.'s bonds - which had shot up strongly in anticipation that the Dothan, Ala.-based video-rental chain operator would be able to win easier credit terms from its bankers - retreated from those Wednesday highs on the actual news early Thursday that such covenant relief had indeed been granted.

A buy-side source marked the broad high-yield market up an eighth of a point at least after Thursday's close.

"The market is strong right now," the source added.

"People are feeling like the GMAC deal is going to get done, and GMAC will have more money to keep itself liquid.

"Also people are feeling like maybe there will be a little less tension in the Delphi situation and with all the other suppliers that rely on GM.

"Ultimately when that is no longer an uncertainty it will be a heavy weight taken off the market."

And as trading was winding down for the day, participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $403.7 million more left the funds than came into them. It was the sixth consecutive weekly outflow, following the $185.1 million hemorrhage seen the previous week, ended March 8.

During that six week stretch, outflows have totaled some $780.2 million, according to a Prospect News analysis of the AMG statistics.

Outflows have now been seen in nine weeks out of the 11 since the start of the year, totaling nearly $1.15 billion in that time, up from the previous week's $746.15 million total, according to the Prospect News analysis.

The latest week's outflow also reinforced the decidedly negative pattern seen in 11 of the last 14 weeks, dating back to mid-December. In that time, net outflows have totaled around $1.995 billion, the analysis indicated.

Those results, in turn, confirm the continuation of the predominantly negative trend that was in evidence throughout most of 2005, when around $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the approximately $3.236 billion net outflow seen in 2004.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

An investor in New York, shortly after the number circulated, did not find the outflow number particularly meaningful.

"Those funds flows numbers didn't tell me anything last year except that mutual funds are seeing outflows," the investor commented.

"They don't tell you what institutions are doing," the source said, adding that there appears to still be cash to put to work in high-yield bonds.

Angiotech leads quiet primary

On Thursday the primary market passed another quiet session.

Canadian specialty pharmaceuticals firm Angiotech Pharmaceuticals, Inc. priced a highly oversubscribed and slightly restructured $250 million issue of 7¾% eight-year notes.

The senior subordinated notes (B2/B) came at par to yield 7¾%, at the tight end of the 7¾% to 8% price talk.

On Wednesday the company restructured the call features and equity clawback. The notes will be callable in year three at 75% of the coupon, after which they will become callable at the standard premiums. Also the definition of a public equity offering was changed to include equity-linked securities.

Credit Suisse and Merrill Lynch & Co. were joint bookrunners for the acquisition deal.

As the Angiotech transaction came to bat Thursday morning, a source close to the deal, mentioning that the overall market was firm with traders seeing better buying, put the book size for the $250 million deal at over $1.5 billion.

M-Real to sell €500 million

With players attending the Lehman Brothers high-yield conference, now underway, Angiotech turned out to represent the sum total of news that the U.S. primary market turned out on Thursday.

However Finland paper products company M-Real Corp. announced that it will begin a roadshow Tuesday in Europe for its €500 million offering of seven-year senior notes (Ba3/BB-).

Deutsche Bank Securities and Barclays Capital are leading the debt refinancing deal that will be marketed via Regulation S, with no U.S. roadshow.

A buy-side source in Europe, professing no familiarity with the credit, nevertheless told Prospect News on Thursday that investors there are sitting on a ton of euros: "both real € and hedge funds," the investor's email message specified.

The buy-sider said that there has been absolutely no issuance lately and people are looking for value, adding that there is not very much to be had at present in the secondary market.

Angiotech, Xerox up in trading

When the new Angiotech Pharmaceuticals 7¾% senior subordinated notes due 2014 were freed for secondary dealings, several traders saw the bonds at 100.75 bid, 101.25 offered, up from their par issue price earlier in the session.

A trader said that Xerox Corp.'s new 6.40% senior notes due 2016, which priced Wednesday as a quickly marketed drive-by offering at 99.413 but came too late in the day for secondary market action that session, had moved up to 100.5 bid, 100.875 offered by Thursday's close. Another trader saw them at 100.5 bid, 101 offered.

A trader said that the Stamford, Conn.-based copier and imaging technologies giant's existing bonds were also better, with its 7 1/8% notes due 2010 at 104 bid, 104.5 offered, and its 7.20% notes due 2016 were at 106 bid, both up half a point.

The better levels for both the new bonds and the existing issues was a sign he said, that "everything is feeling pretty good - everything rallied. The spread stuff rallied today [Thursday], or at least held steady. There hasn't been much weakness."

Another trader agreed that "pretty much everything was up today. The markets [for various junk bonds] were up and the Treasuries were strong."

Indeed, the junk market seems to be doing so well these days, the first trader said, that "stuff is so tight. There's not a lot of interesting stuff going on in the market. Everybody is bored."

He went on to explain that "the market is so tight - there's no real risk-reward. At this point, you're not really rewarded for the risk you take by going into the high-yield market.

"Everybody's been expecting [the market] to come in for years - but it never does."

Young jumps on KRON news

One name that was certainly not coming in on Thursday, but was going in the opposite direction, was Young Broadcasting.

A trader saw the New York-based TV station ownership group's 10% notes due 2011 at 93 bid and its 8¾% notes, also due 2011, at 87 bid, both up 2½ points.

A second trader called the 10s up three points at 93 bid, 94 offered, and yet a third saw them higher still, at 94 bid, 95 offered, a four point gain on the session, he said.

Young's bonds boomed and its stock was up nearly 4%, after the company said that KRON - which has been laboring under the competitive handicap of not having any network affiliation to attract Bay Area viewers for some years now - will once again carry network programming, from the new MyNetworkTV web that Fox Television is putting together to step into the void that will be created when the faltering WB and UPN networks cease operations.

Without any network affiliation, KRON - Young's most important property, located in the largest of the 10 TV markets in which the company owns stations - consistently finishes in the lower half, ratings-wise, of the seven major stations serving the San Francisco/Oakland market. Its prime-time programming features syndicated shows like Inside Edition and the Dr. Phil talk show, syndicated re-runs like Sex In The City and an hour-long news block - going against the first-run network fare of the local ABC, NBC, CBS, and Fox stations, as well as the WB and UPN outlets.

On the company's conference call several days ago, company chief Vincent J. Young bemoaned that fact that while an independent station like KRON could do respectably well in a strong market environment, in a soft environment - like the one seen last year in the San Francisco area - the would-be advertisers "just don't need you, when they can get a spot in [the highly-rated network drama] CSI."

Young is hoping that affiliation with the new network may help lead his company's flagship property out of the ratings wilderness. MyNetworkTV is slated to take to the airwaves on Tuesday, Sept. 5, with 12 hours a week of original new programming running from Monday through Saturday and aimed at the key 18-49 age demographic.

Dana up even more

Elsewhere, Dana's bonds continued the upside ride they've been on for the past two weeks, ever since the Toledo, Ohio-based automotive components maker's bankruptcy filing.

The bonds have been rising on both technical considerations - a short squeeze created by demand for the bonds to fulfill credit default swaps contracts on Dana debt - as well as the belief among some market participants that Dana's assets are sufficient to allow bondholders to recover most, if not all of their positions.

In Thursday's dealings, a trader pegged Dana's 6½% notes due 2008 at 80 bid, 81 offered - a 2½ point gain on the session. He saw the company's 5.85% notes due 2015 at 77 bid, 78 offered, up 1¼ points, while its 7% notes due 2028 were up 1¾ points at 78 bid, 79 offered.

Another trader saw the 61/2s jump to 80 bid, 82 offered from prior levels at 78 bid, 80 offered, while all of the other bonds, including the 6½% notes due 2009 and the 7% notes due 2029 as well as the '15 and the '28 issues - at 79 bid, 81 offered, up two points from 77 bid, 79 offered.

Another trader saw the '29s a point better at 78 bid, 79 offered. However, at another shop, a trader called Dana "basically unchanged," with the two 6½% issues staying at 78 bid and the 5.85s at 76.25 bid, 77.25 offered.

The International Swaps and Derivatives Association said Thursday that settlement prices for the various Dana bonds would be set at an auction on March 31. Those prices would be used, under a protocol established by the derivatives industry trade group, for cash settlements of most credit default index contacts involving Dana bonds. Dana is included in various credit derivative indexes, including those published by Dow Jones CDX and TRAC-X. The settlement date would be April 12.

While the ISDA protocol, and the prices to be set at the auction, will be used to settle contracts on derivative index trades involving Dana, the group cautioned that single-name trades - i.e. those involving contracts solely based on Dana debt - will not be part of the auction process provided for by the protocol. Thus, it said, "single name trades on Dana Corp. remain subject to the physical settlement procedures in those trades' governing documentation."

CDS contracts are used by bondholders and other investors to hedge against the possibility of a negative credit event, like Dana's March 3 Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of New York. Functioning not unlike an insurance policy, the contract pays its purchaser the full par value of the bond upon the bond's surrender to the seller, should the credit event occur. While the value of CDS contracts involving Dana debt is many times the approximately$2 billion face value of the company's outstanding bonds, most of those contracts can be settled for the cash price that will be set on March 31, rather than just by the actual delivery of the bonds.

Even so, the demand for Dana bonds to settle those contracts that allow only physical settlement via the delivery of the bonds has helped to propel its bonds into the upper 70s-80 area, from levels in the mid 60s just before the bankruptcy filing.

However, as happened previously with the bonds of another bankrupt auto component supplier name, Troy, Mich.-based Delphi Corp., and with the bonds of bankrupt San Jose, Calif.-based power generator Calpine Corp., the Dana bonds are expected to settle in around the auction-set settlement price, hold those levels until the April 12 settlement deadline - and then fall back to more realistic levels representing the market's consensus assessment of what the actual recovery percentages are going to be.

GM edges higher

Elsewhere in the automotive sector, a trader saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 at 74.5 bid, 75 offered, and its General Motors Acceptance Corp. financing unit's 8% notes due 2031 at 94.5 bid, 95 offered, both up ¾ point.

Another trader, however, saw the auto giant's bonds, and GMAC's, trading in a narrow range, "up or down ¼ point or so" versus Wednesday's levels.

Those late afternoon quotes came before the news broke in early evening that GM revised its reported loss for 2005 upward to $10.6 billion ($18.69 a share), versus the $8.6 billion ($15.13 a share) of red ink that the troubled company reported in January. GM also said that it now expects a 2005 North American restructuring charge of $1.7 billion, versus the $1.3 billion it previously reported.

The revisions will force GM to delay filing its 10-K annual report with the Securities and Exchange Commission, although it said it would have the report filed within the next two weeks.

SunCom bonds shrug off warning

SunCom Wireless Holdings Inc.'s 10-K , and that of its main operating subsidiary, SunCom Wireless Inc., contained a nasty little surprise that the Berwyn, Pa.-based wireless provider chose not to mention when it released its 2005 fourth quarter and full-year results - SunCom Wireless Inc. warned that its liquidity situation was perilous, with projected cash flow from operations not expected to be sufficient to pay its $150 million annual debt service costs, fund operating expenses and capital expenditure requirements past early 2007.

The SunCom unit further warned that unless the parent holding company chooses to put further money into Wireless, or it can find another source of liquidity, it might be forced to restructure its balance sheet, perhaps through a "prepackaged" or "prearranged" bankruptcy filing, or maybe sell a significant portion of its assets, to reduce its long-term debt.

SunCom said that it had hired financial and legal advisors, including the Lazard investment house, to help it evaluate its options.

The company's independent auditor, PricewaterhouseCoopers, cautioned that "these matters raise substantial doubt about the company's ability to continue as a going concern."

However, with none of this really given much media play during the session, the company's bonds were seen little changed, its 8½% senior notes due 2013 "maybe a quarter point weaker" at 95.75 bid, 96.5 offered," a trader said, "but that was about it." Its 8¾% notes and 9 3/8% subordinated notes, both due 2011 were steady at 69 bid.

Aleris steady

Aleris International Inc.'s 10 3/8% notes due 2010 were seen little changed at around 110.25 bid. The Beachwood, Ohio-based aluminum and zinc producer released improved fourth-quarter and full year results and debt leverage ratios, and separately announced plans to acquire some European and Canadian aluminum production assets from Corus Group plc. (See related story elsewhere in this issue).

Movie Gallery drops on news

Investors in Movie Gallery's battered bonds, shares and bank debt got the long-awaited news they were looking for early Thursday with the announcement that the video-rental chain operator's lenders have agreed to give the hard-pressed company some breathing room on meeting its financial covenants.

However, the news was anti-climactic, bond traders said, having been already factored into price levels, especially Wednesday, when the notes jumped as much as eight points on the session into the mid-50s, in expectation that help would be forthcoming.

In Thursday's dealings, those 11% notes due 2012 retreated from Wednesday's closing peak levels, with most participants seeing them down 1 to 1½ points at around 54.5 bid, 55.5 offered.

Movie Gallery said that the financial covenants have been relaxed for the next four fiscal quarters - at a price, however, of increased interest rates it will have to pay on its bank debt. In addition, certain mandatory prepayment provisions have been modified, and the banks actually tightened the covenants on such things as Movie Gallery's ability to take on more debt, pay dividends, redeem its equity, make capital expenditures and make acquisitions, among other things.

Movie Gallery said that because of delays associated with the amendment process and in completing its first fiscal year-end audit since it acquired Hollywood Entertainment Corp. last year, it will miss Friday's deadline for filing its 2005 10-K report, but it expects to report its fourth quarter and full year results by the end of the month.

In general, on top of a lack of exciting opportunities to make real money, a trader said, trading this week is truly a snoozefest, between the Lehman Brothers annual high yield conference, where many portfolio managers and other buyside decision makers are, and the exciting distraction provided by annual "March Madness" college basketball playoffs, with people at many shops watching the bouncing ball as closely - or even more so - than the headlines or the unbudging market indexes. Another trader, after noting that not much was really going on his beat, ended a phone check with the words "back to the ballgame."

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