Adelphia rise continues; MagnaChip lower; Pilgrim's Pride to launch deal

By Paul Deckelman, Paul A. Harris and Ronda Fears

New York, Jan. 5 - Adelphia Communications Corp.'s bonds posted solid gains on Friday as investors continued to react to the news earlier in the week that the Greenwood Village, Colo.-based company - formerly the operator of the fifth largest cable television systems in the United States - will soon emerge from a long bankruptcy process, following the court approval this past week of its plan of reorganization.

A trader said that the distressed-bond sector was once again the most active portion of an otherwise relatively sedate junk bond market, still not up to full speed after the end-of-year lull and the New Year's holiday break.

Airline bonds, such as those of Delta Air Lines Inc. and Northwest Airlines Corp., continued to bounce around, with their behavior Friday the exact opposite of Thursday, when they had initially moved lower, but then bounced off their lows to close higher, given a boost by the continued slide in oil prices. On Friday, the bonds initially moved higher, seeking to extend Thursday's late gains, but the advance fizzled out, even in the face of continued low oil prices.

Traders saw some weakness among the high-tech names, notably in Korean chip manufacturer MagnaChip Semiconductor Ltd., on the admission that the company had to recently go to its bankers and seek easier covenants terms on its credit facility. The company also announced some major executive changes.

In the primary market, Pilgrim's Pride Corp. was heard likely to launch a $450 million offering of new bonds sometime around the middle of the month. And Tube City IMS Corp. was preparing to hit the road Monday to market its $250 million offering of eight-year notes.

Back in the secondary realm, Adelphi's bonds continued to set the pace, a trader said, with its 10¼% notes due 2006 seen having risen as high as 98 bid during the session from its 93 bid, 94 opening, before coming off that peak level to end at 95.5 bid, 96.5 offered. He also saw the company's 10¼% notes due 2011 soar to 102 bid, well up from their 97 bid, 98 opening, but then drop back to 99.5 bid, 100.5 offered.

"They all went up 5 points - but came back down and ended up 21/2," he said.

While acknowledging that part of the rise was attributable to the fact that some shops which had been restricted from dealing in Adelphia bonds while the company was restructuring were now able to trade the bonds, he was more of the opinion that "everyone is shorting the stock against the bonds," or other such maneuvers, "so you've got the arbs in here now, playing all kinds of games."

Another trader, who took a more straightforward view that the gains were attributable to better investor sentiment about the company in the wake of the approval of the reorganization plan by the bankruptcy court in Manhattan, saw the bonds up as much as 5 points on the session, before ending up 4 points. He saw the 2011 101/4s recording such a move to close at par.

At another desk, Adelphia's 9 7/8% notes due later this year were seen having shot up to morning levels around 99 - a 6 point gain - before giving some of its gains backs to end at 98, still up 5.

Airlines down despite oil easing

A trader said that "most of the activity" in the junk market Friday was centered in the volatile distressed-debt sector, now that most non-distressed bonds are already richly priced around par and trade at un-junk-like tight-to-Treasurys spreads in the low 300 basis points area.

He saw activity in bankrupt airline carriers Delta and Northwest, each of which initially rose from Thursday's closing levels, but which then fell back to finish lower on the session.

He saw Delta's 8.30% notes due 2029 push up a point on the day to 67.5 bid, only to give it all back, and then some, later on, to end down 2 points on the day at 64.5 bid, 65.5 offered, while Northwest's 8 7/8% notes that were to have come due last year, rose to 95 bid, but then gave it all back," closing at 93.5 bid, 94.5 offered, which he called unchanged on the session, "even in the face of [recently] lower oil prices."

Airline investors have been watching the slide in world crude oil prices, down the mid-$50 per barrel area from summertime peak levels to the seeing it as a hopeful indicator that jet fuel costs will also decline accordingly.

Light, sweet crude for February delivery dropped as low as $54.90 Friday - the lowest price in 19 months - before climbing back to settle at $56.31, up 72 cents on the New York Mercantile Exchange. That action followed steep price drops in the 4½% range on both Wednesday and Thursday.

High tech names not so high

Back on solid ground, a trader saw the tech names weaker, led by the bonds of Korean chipmaker MagnaChip Semiconductor, down 3 on the session, with its 8% notes falling to 63 bid, 64 offered, and its 6 7/8% notes also down a trey at 82 bid, 83 offered.

He cited the announcement, contained in a company filing with the Securities and Exchange Commission, that MagnaChip had sought and received waivers of credit facility covenants from its bank lenders - the fact that they even had to seek easier terms from the banks in the first place being a major drag on the market.

MagnaChip said that effective Dec. 29, it had entered into its fifth amendment to the credit agreement, with UBS AG, Stamford Branch acting as the administrative agent.

Among other provisions of the amendment, MagnaChip agreed to a program of monthly reports to the lenders on various aspects of its financial condition. In return, certain existing financial covenants were revised and additional financial covenants related to minimum EBITDA and liquidity requirements were added.

In that same 8-K report to the SEC, MagnaChip also said that Jerry Baker had resigned as chairman of the board of directors, effective Dec. 31; the board accepted his resignation, although Baker will remain a director.

In other executive personnel moves, the board approved the elevation of Sang Park to chairman, replacing Baker; he has up till now been the company's president and chief executive officer, and will continue on as CEO. Robert Krakauer, up till now the company's executive vice president for corporate operations and chief financial officer, will move up to the president's job, while also continuing to act as CFO.

Spansion spanked on guidance

In that same sector, flash memory products systems maker Spansion Inc.'s 11¼% notes due 2016 were seen having dropped as much as a point on the day to 103.25 bid, 104.25 offered, before recovering some of that loss to finish down only ½ point at 104 bid, 105 offered.

That followed the Sunnyvale, Calif.-based chipmaker's warning that it now expects to report between $680 million and $690 million in fourth-quarter sales, down from its previous projection for sales of $710 million to $740 million.

It also cautioned that it may miss its goal of being breakeven in net income.

Spansion blamed the expected lower sales on a late-December delay in customer demand for certain custom flash memory devices, although it said that it expects to sell the units in this year's current first quarter.

Among other peers in that same sector, Amkor Technology Inc.'s 7¾% notes due 2013 were down ½ point at 95.25, a market source indicated, although another source pegged those bonds at 91.75, down ¾ point. However, Sanmina-SCI Corp.'s 8 1/8% notes due 2016 were up ½ point at 96.5.

Vertis gains as M&A seen

Elsewhere, Vertis Holdings Inc.'s bonds continued to firm with its 13½% notes due 2009 seen up a point for a second consecutive session, ending at 93. Those notes are up from levels around 88 a month ago.

The Baltimore-based publishing company's 10 7/8% notes due 2009 were seen having moved up to 101.75 bid from month-ago levels around 99.5

The bonds may be benefiting from a continuation of recent merger and acquisition speculation in the publishing sector, which late least year saw R.R. Donnelley & Sons agreeing to buy Banta Corp., which had rejected earlier buyout overtures from Cenveo Inc., which in turn set its sights on acquiring Cadmus Communications Corp., in a deal announced just before 2006 ended.

In that frothy deal-making atmosphere, Vertis is one of several companies which could figure in various consolidation scenarios, said Mary Ross Gilbert, director of research for Imperial Capital LLC of Beverley Hills, Calif.

Gilbert said that in the advertising insert business, Quebecor World Inc. is the top player, Vertis is Number Two, and American Color Graphics Holdings Inc. is the third biggest.

"That industry has been suffering from pricing pressure because of modest excess capacity, and this has been going on now for some time. The capacity situation has been improving, but it hasn't been fully rationalized, and the only way it will be, very quickly, is to have a consolidating transaction," Gilbert declared.

"When you look at Vertis and ACG, they almost consolidated back in 1995. They're complementary, there would be duplicative facilities that would be closed."

The analyst called a linkup between Vertis and American Color Graphics "a very compelling transaction, and we think something like that could happen and could be beneficial to both companies and to the securities there - and in the case of American Color Graphics, you have bonds that have been trading in the high 60s - lower 70s. So that's one of the few situations that's trading at such low levels, and there's a reason for it, but if they get consolidated, it could be a big win for the investors involved in those securities."

Gilbert further noted that "there's a commonality among the bondholders involved in American Color Graphics and Vertis," with some accounts holding positions in both companies, "and it wouldn't surprise me if they were interested in making a combination of those two occur."

While a union of Vertis and ACG would be good for Vertis, Gilbert said that this or a similar acquisition transaction with another company would be absolutely vital in the long run for ACG.

She said the company "has sufficient liquidity for the next couple of years, and that's good news, and me as an investor, I'm going to clip my coupon - but something has got to happen within the next few years, otherwise I face a restructuring, and I know that. I know it's ultimately going to happen, unless they get consolidated."

American Color Graphics' 10% notes due 2007 meantime closed at 72.75, unchanged on the session, but up from around the 68 level a month ago.

Job numbers a drag on junk

Overall, a trader said, "absolutely nothing was going on. The market was just dead."

He said that "a lot of people looked at the employment number this morning, and it kind of spooked some people." The Labor Department reported that U.S. employers increased their payrolls by 167,000 in December - well above analysts' expectations - and boosted workers' hourly wages by 0.5%. The unemployment rate, meanwhile, held steady at a historically low 4.5%.

That's good news for the economy - but the financial markets didn't see it as such, since it suggests the economy won't be slowing as much as investors anticipated and the Federal Reserve might use it as a reason to go back to raising interest rates. That caused a slide in both stocks and Treasuries, and in junk, the trader said, "the market felt a little bit on the heavy side. People hit some bids early, mostly on Treasury-sensitive names - but there was not a lot of follow through."

A high yield syndicate official, speaking late Friday morning, said that the junk market seemed weaker, and noted that both Treasuries and the stock market were "getting beat up."

The official added that issues among last year's record-breaking mega-deals, from HCA Inc. and Freescale Semiconductor, were down on the session.

HCA had been trading "heavily" on speculation that a dividend-funding deal might be in the works, the source added.

A trader saw HCA Corp. "get clobbered," with its 9¼% benchmark bonds opening at 107 bid, 107.5 offered and closing at 106.25 bid, 106.75 offered.

Goose egg

The official also noted that the primary market had gotten off to a slow start following the holidays, with the first week of January 2007 truncated by Monday's New Year's Day holiday which was followed Tuesday by a national day of mourning for former U.S. President Gerald R. Ford.

Although the bond market was officially open half a day on Tuesday, activity was virtually non-existent, especially in the primary market, according to sources.

Hence the first week of January was essentially a three-day week during which no new issues were priced.

It perhaps bears mentioning that during the record-breaking year of new issuance just past, the first week of January 2006 also came and went with no issues pricing.

Traffic ahead

Roadshows are set to commence on Monday for more than $2.8 billion of new bonds in five tranches from three issuers.

All three deals are expected to be completed during the four-day week trailing the Jan. 15 holiday commemorating Dr. Martin Luther King Jr.

Aramark Corp. starts its roadshow on Monday for a $2.270 billion three-part LBO deal via JP Morgan and Goldman Sachs.

The Philadelphia-based professional food, hospitality and facility management services company plans to sell plans to sell $1.70 billion of eight-year senior notes in fixed- and floating-rate tranches, in addition to $570 million of 10-year senior subordinated notes.

Also starting Monday is marketing for Open Solutions Inc.'s LBO deal.

The Glastonbury, Conn.-based provider of software to banks, thrifts, and credit unions is offering $325 million of eight-year senior subordinated notes (Caa1/CCC+), via Wachovia Securities, JP Morgan and Merrill Lynch.

And Tube City IMS Corp., a Glassport, Pa., provider of outsourced services to steel mills, will start the roadshow on Monday for its $250 million LBO deal.

The company is offering of eight-year senior subordinated notes (B3/B-) via Credits Suisse.

January business

Sell-side sources also mulled a "shadow calendar" of deals not officially announced but nevertheless expected to come to market before the end of the month.

Pittsburg, Texas-based poultry producer Pilgrim's Pride Corp. is expected to launch a $450 million offering of high-yield bonds shortly after the Martin Luther King, Jr., holiday.

Lehman Brothers will lead the deal to help fund the approximately $1.3 billion merger with Atlanta-based poultry producer Gold Kist, Inc.

Also expected to surface before the end of the month is Rite Aid Corp.

The company is expected to sell $870 million of notes via Citigroup, to help fund the acquisition of acquisition of Jean Coutu Group USA Inc.

However Rite Aid disclosed in an SEC filing that the deal could grow by $850 million if the Jean Coutu 8½% senior subordinated notes are not assumed.

And Alion Science and Technology Corp. disclosed in a mid-December filing with the Securities and Exchange Commission that it plans to offer $200 million of unsecured senior notes in January, in a debt refinancing deal expected to involve Credit Suisse.

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