Wireless sector firms, Kmart and UAL bounce; Charter off on federal subpoena news

By Paul Deckelman and Paul A. Harris

New York, Aug. 16 - Wireless sector debt firmed on Friday in line with a smart rise in the shares of Western Wireless Corp. and other sector players, after a major investment house boosted its rating on Western's shares. Elsewhere, traders saw a bounce in the recently beleaguered bonds of both Kmart Corp., currently in bankruptcy proceedings, and United Airlines, which could be headed for that same destination. And they saw Charter Communications Inc. debt drop several points on news that a federal grand jury had issued a subpoena for company documents - although the bonds later came off those lows to recover most of their lost ground and only end a bit lower on the session.

In the primary, the market opened Friday with news that another outflow from high-yield mutual funds - the 10th consecutive outflow, according to sources - had occurred for the week ending Aug. 14.

And one registered deal appeared on the horizon Friday although California homebuilder William Lyon Homes told Prospect News that it is in no particular hurry to attempt to muster the buy-side in the present "sketchy" market.

Friday's first email message to the Prospect News primary market desk told of a $110.9 million outflow from the high yield mutual funds for the week ending Aug. 14, as reported by Arcata, Calif. financial information firm AMG Data Services, Inc. It's the 10th successive outflow, which, according to one sell-side source, have averaged $264 million through the week that ended Aug. 7.

Another sell-side source pressed for color on the outflow expressed a modicum of exasperation. According to this source it does not require an army of strategists armed with supercomputers to grasp the liquidity situation in the high yield and what might alter it for the better.

"We're going to follow the stock market," this source said. "If we see some real stability in the stock market, people will start to put money back into high yield."

Another source allowed that the stock market is part of it but that there is a palpable sense of anxiety throughout the capital markets that there will be more negative news and corporate scandals.

"I think people believe they have not heard the last of it," this source said.

Asked whether the Securities and Exchange Commission's demand that executives testify to the accuracy of their financial statements would serve to boost investor confidence, this source took an opportunity to vent a little spleen.

"You know I've been reading SEC filings for a long time now and it seems to me that most of those documents were already being signed by the CEOs and CFOs," the source said, adding that the latest requirement bears a certain likeness to a "quick fix."

Back in secondary action, wireless names were in the news as Western Wireless Corp. shares zoomed $1.45 (94.17%) in Nasdaq trading on Friday to end at $3, on volume of five million shares, about six times the norm. The shares took off after J. P. Morgan raised its rating on the stock of the Bellevue, Wash.-based provider of wireless telecom services in rural markets to a "buy" from "market perform" previously, as analyst Thomas Lee said in a research note that new roaming revenue from Verizon Wireless and Cingular would offset the rate impact of a new three-year roaming agreement which Western Wireless recently inked with h AT&T Wireless.

Lee said that Western Wireless' roaming revenue was no longer expected to fall in the second half of the year - a major change from previous Wall Street expectations - and said that therefore, Western is not expected to trip covenants in its lending agreements. The Morgan analyst further projected that Western Wireless' 2002 EBITDA would likely come in at $350 million - up from his previous prediction of $338 million - and said the stock could go to $4.

Bond traders said they did not see any activity in Western Wireless' bonds, such as its 10½% notes due 2006 and 2007, which had most recently been quoted at around 45 bid. But they definitely saw activity in the junk wireless sector's bellwether name, Nextel Communications Inc., whose shares had risen in line with the Western Wireless advance. Nextel ended up 66 cents (10.93%) to $6.70, on Nasdaq volume of 42.1 million shares, about double its usual turnover.

On the bond side of the ledger, Nextel's benchmark 9 3/8% senior notes due 2009 were "well bid for," a trader said, quoting them up a point at 68.5 bid/69.5 offered. At another desk, Nextel's 9½% notes due 2011 were quoted a point better at 66.5 bid, while its zero-coupon notes due 2008 were also a point better, at 65.25 bid.

The wireless advance also aided the communications antenna tower segment, since the tower companies get much of their revenues leasing space on their towers to wireless providers. Crown Castle International Corp.'s 10¾% notes due 2011 finished at 57 bid, up more than two points on the session, while American Tower Corp.'s 9 3/8% notes due 2009 were a point better at 53.5 bid.

Elsewhere in the telecom world, Qwest Communications International Inc.'s bonds continued to firm, "up a lot," a distressed-debt trader declared, as its holding company 5 7/8% notes due 2004 pushed up to 64 bid/65 offered from prior levels around 59 bid/60 offered, while the Denver-based telecommer's 7 5/8% operating company notes due 2003 ended at 91 bid and its 7.20% operating company notes due 2004 were at 87 bid, both up about five points on the day.

Another trader attributed the rise to the news Thursday that a consortium of private investment funds led by Thomas H. Lee Partners had sweetened its offer to buy a part of Qwest's telephone directory business. Reuters, quoting sources familiar with the situation, said that while exact details of the amended offer were not immediately known, the Lee group - which also includes Bain Capital and Providence Equity Partners - is continuing to focus on buying just the QwestDex directory operation in 10 eastern states where regulators are not expected to raise serious objections to a deal. Qwest is also considering a second bid, from a group including Carlyle Group and Welsh Carson Anderson & Stowe, for the whole of the operation. Cash-hungry Qwest hopes to raise anywhere from $7 billion to $9 billion for QwestDex.

Also on the communications front, Charter Communications debt, which had ended around the 60 bid level Thursday, was down several points, with one trader quoting its bonds as low as 55 in morning trading on the news that a federal grand jury had demanded documents on the giant St. Louis -based cable system operator's accounting and customers.

News that Charter's bookkeeping was under scrutiny by the U.S. Attorney's office for the Eastern District of Missouri raises uncomfortable memories about the recent fall of rival cabler Adelphia Communications Inc., whose founding family was ousted from control of the company, with several of those family members eventually indicted and arrested on a variety of fraud charges.

No one is suggesting that Charter is involved in the same kind of alleged corporate chicanery that brought down Adelphia, which is currently in Chapter 11. But the grand jury subpoena called for documents relating to Charter's current and disconnected customers, and its policies relating the way it accounts for some of its costs.

But after that initial downside flurry of activity, "people kind of decided that this wasn't the biggest deal," the trader said, and they brought the bonds, such as the 8 5/8% notes due 2009 and the 10¾% notes due 2009, back up to closing levels around 59.5 bid/60.5 offered. "They traded down a couple of points but then they recouped" the losses to finish where they did, he said.

Another secondary source opined that "Charters are a little bit weaker with this probe that's supposedly going to go on. They're just going to look at how they treat certain expenses. Those bonds are weaker, but overall, kind of flat-ish."

Charter's shares, which had closed Thursday at $2.71, likewise fell as low as $2.27 on the subpoena news, before bounding off the lows to end at $2.53, still down 18 cents (6.64%) in Nasdaq dealings. Volume of seven million shares was about normal.

Back on the upside, Kmart Corp.'s debt "was a little better," a trader said, its 9 3/8% notes due 2006 having moved up to 22 bid from prior levels around 18.

Kmart was "back up," a distressed-debt trader agreed, quoting the bonds as high as 23-24 bid. "Buyers came back in. They re-read the [company's] press release and found some more money. Literally, that's what it was."

The troubled Troy, Mich.-based discount retailer, currently reorganizing under Chapter 11, issued a clarification on Thursday of its announcement Wednesday that it was seeking a $500 million increase in its debtor-in-possession credit facility. Company officials said that Kmart's liquidity position remains strong, with approximately $2.5 billion in cash on hand and available credit under its $2 billion DIP facility. That's actually an improvement over the $1.5 billion of credit availability that Kmart had as of the end of July.

Another trader quoted Kmart's 9 3/8% notes as having traded as high as 23.5 bid/25.5 offered from prior levels at 19 bid/21 offered.

You saw what they said - they were trying to dispel the notion that they have no money," he observed. "You put that [notion] together with what happened with Ames, and you can see why people bombed away on [Kmart] earlier in the week."

The trader was referring to the announcement earlier in the week by one Kmart's smaller rivals, Northeast regional discounter Ames Department Stores Inc. - also currently in Chapter 11 - that it would abandon efforts to continue operations and would instead shut down its 327 remaining stores and liquidate its operations.

United Airlines "was up a bit" Friday, a trader said, quipping that "they didn't crash land [on bad news earlier in the week]. They took off a couple of treetops and got back on the runway." He saw some of their issues "in the high teens and low 20s," with the 10.67% notes at 22 bid.

UAL paper "was probably one of the focus names" Friday, Another trader said. "In the morning [Thursday], 12 bids were getting hit on some of the [unsecured] corporates, but [Friday] they went out 15-16 bid across the board. They got a little better [Thursday] night and then were up another point or two [Friday], so they recovered a bit."

The trader acknowledged market sentiment that the nation's Number-Two air carrier might not necessarily land in bankruptcy, as has been widely speculated, even by management itself.

"I think there's still a possibility" that they might not go bankrupt, he declared, although he noted the current infighting between the various union factions of the 55% employee-owned airline.

"The pilots have offered some concessions, but the mechanics [seem like] they just don't care if they lose their stake in Chapter 11. Do they know that [equity stakes] go to zero in bankruptcy? They gotta know - this thing just continues to be one big game of chicken, I guess."

Back in the secondary, word of one new deal surfaced Friday from an SEC filing. William Lyon Homes, of Newport Beach, Calif., intends to bring a registered offering of $200 million of 10-year senior notes via UBS Warburg. However in an interview Friday afternoon with Prospect News the company president Wade H. Cable said there was no hurry, as he characterized the present high yield as "dead," and the primary market as "sketchy" (see story on page one).

Finally on Friday a variety of sources told Prospect News that no deals are expected to price during the week of Aug. 19. What's more, those sources added, there are no deals on the road.

The Prospect News High Yield Daily forward calendar contains two deals which, according to the most recent information, could possibly price during August: Ferrellgas Partners LP $170 million of 10-year seniors (B1), via Credit Suisse First Boston and Banc of America Securities, and the NCI Building Systems, Inc. $50 million add-on, via Wachovia Securities and Banc of America Securities.

However the sell-side sources who spoke Friday with Prospect News held that August pricings for those or any other deals, at this point, must be regarded as highly improbable.

The high yield primary market, those sources maintained, is closed until after Labor Day.

© 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.