XM bonds lower on reduced growth outlook, Sirius too; primary is subdued

By Paul Deckelman and Paul A. Harris

New York, May 24 - XM Satellite Radio Holdings Inc.'s bonds were seen losing altitude on Wednesday, after the Washington D.C.-based satellite broadcasting industry leader cut its previously announced forecasts for full-year subscriber and revenue growth. Bonds of rival satellite broadcaster Sirius Satellite Radio Inc. - which is affected by the same industry dynamics as its larger competitor - were likewise seen down several points.

Secondary market traders did not see much else really going on, noting that activity continued to dwindle in advance of the upcoming Memorial Day holiday break, which will see an abbreviated session on Friday and a full close on Monday.

Things were even quieter in the primary market, where no issues were seen to have priced by the time things wrapped up, with the forward calendar's only remaining scheduled deal - Libbey Glass Inc.'s planned issue of eight-year senior notes - still waiting in the wings, but seen likely to price Thursday, the last full trading session before the break.

Back among the established issues, a trader saw the market "slowing down for the weekend," but saw XM's bonds falling earthward, as the company issued its reduced subscriber and revenue guidance.

XM's 9¾% notes were seen down three points at 92.5 bid, 94.5 offered, while Sirius' 9 5/8% notes were "down two points in sympathy" at 91.5 bid, 93.5 offered.

XM's New York Stock Exchange-traded shares meantime fell $1.76 (11.35%) to $13.75, on volume of nearly 24 million shares, around four times the norm, after the company cut its projections for full-year subscriber growth and revenue, citing what it termed "overall softness" of retail sales for satellite radios in the second quarter and problems with product availability.

XM - which had previously predicted that it would 9 million subscribers signed up and tuned in by year-end - now anticipates having only 8.5 million customers on board. Accordingly, it also cut its estimate of full-year revenues to $835 million from the $860 million level it announced a month ago when it reported first-quarter numbers.

The company, in announcing the lowered guidance, said that while first-quarter sales were in line with its previous subscriber and revenue guidance, "the satellite radio category has seen an overall softness at retail during the second quarter to date, and we have been later than anticipated with broad availability of our new products."

More ominously, XM's statement also warned that the company is "currently working through regulatory and legal challenges" - which could require it to further revise its guidance.

Elsewhere, a trader said that "today was deadly [dull]. It was sort of ridiculous. Everybody was in a vacation mode."

Mark IV higher

One name which was not in a vacation mode, he said was Mark IV Industries Inc. He saw the Amherst, N.Y.-based automotive components manufacturer's 7½% senior subordinated notes due 2007 at 102 bid, well up from recent levels at 93 bid, 94 offered, as the company increased the amount it is offering in its previously announced tender offer for those bonds.

He said the company's announcement several days ago that it was tendering for the $250 million of outstanding bonds "caught everybody by surprise."

He said that "there was talk about it a few days ago, and first they were offering 101, and customers said no - I would have taken it and run like a bandit - and now they're offering 102."

The company on Tuesday night upped total consideration that it will pay for the notes to $1,020 per $1,000 principal amount, including a $20 per $1,000 principal amount consent payment for holders tendering their bonds by the now-extended June 2 consent deadline and thus consenting to proposed indenture changes. The tender offer is slated to expire on June 13.

Delphi edges higher

Elsewhere in the automotive sphere, investors were keeping an eye on the newswires for any developments coming out of New York, where Delphi Corp. once again requested that the federal judge overseeing the Troy, Mich.-based automotive parts supplier's bankruptcy proceedings allow it to void its labor contracts, which would clear the way for imposition of a more affordable wage schedule - but which also would make a strike against the company that much more likely. Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York is not expected to rule on the company's motion before late June, at the earliest.

A trader saw Delphi's 6.55% notes slated to come due this year at 77.25 bid, 78.25 offered and its 7 1/8% notes due 2029 at 76 bid, 77 offered, both up half a point. Another trader, however, said that he saw the company's bonds going nowhere.

The first trader also saw the benchmark 8 3/8% notes due 2033 issued by Delphi's former corporate parent, General Motors Corp., up ¼ point at 73.75 bid, 74.75 offered, while the 8% notes due 2031 of the Detroit-based auto giant's financial arm, General Motors Acceptance Corp., were also up 1/4, at 92.75 bid, 93.75 offered.

GM, fearing that a strike against Delphi, its biggest parts supplier, would badly disrupt its production at a time when the giant carmaker needs to get back on track, sales-wise and financially - had unsuccessfully petitioned the court to postpone Wednesday's hearing on Delphi's motion, saying the session should be delayed by 60 days in order to give GM, Delphi and the latter's union more time for negotiations aimed at reaching a consensual solution to the company's problems.

At that session, lawyers for Delphi's labor unions and other stakeholders insisted that the troubled parts supplier's results have been running ahead of expectations, producing a bigger financial cushion than company officials admit, and thus should not be given leeway to junk its current labor contracts. Their point was emphasized when a Delphi executive - chief restructuring officer John Sheehan - acknowledged in his testimony that the company has about $3.6 billion in available liquidity, including $1.9 billion in cash and $1.7 billion in bank credit.

Delphi - which was spun off by GM in 1999 - contends that the costly labor contracts with the United Auto Workers and several other unions were a key factor in driving the company into bankruptcy last fall, and says it must lower its labor costs if it is to survive. Delphi wants to cut its hourly workers' wages from an average of $27 an hour to $16.50 an hour - but that is only if GM agrees to pay a part of that, and so far, it has not. Without a GM contribution, Delphi is willing to go no higher than $12.50 an hour, on average - a level which the unions say is absolutely unacceptable. Their rank and file of about 34,000 employees voted to give their respective union leaders the authority to call a strike should Drain rule in favor of Delphi and the company then attempt to unilaterally impose the lower wage scale.

GM has already offered to pay for buyouts for up to 13,000 Delphi workers and to hire another 5,000, but at least for now has apparently drawn the line against directly subsidizing a portion of the wages of the remaining Delphi workers.

The carmaker is involved because it is trying to head off a repeat of a lengthy strike several years ago at Delphi, which cost it hundreds of millions of dollars in lost production.

Avondale Mills up further

Among names which were active on Tuesday, traders saw Avondale Mills Inc.'s 10¼% notes due 2013 continuing to firm a little after their huge rise in the previous session, which was spurred by the news that the Monroe, Ga.-based textile manufacturer had received the second part of a $215 million insurance settlement stemming from a disastrous railroad accident last year that caused a toxic chemical spill near one of its plants, and that it was considering suing the railroad involved as well, potentially setting up another big payday. Those bonds, which last week had traded in the mid 60s, were seen having jumped to the mid to upper 80s on Tuesday on the news. A trader saw them Wednesday up another ¾ point at 87.75 bid, 88.75 offered.

Jo-Ann gains more

And he saw Jo-Ann Stores Inc.'s 7½% notes due 2012 up about half a point to 95.5 bid after having risen four points on Tuesday on takeover buzz, spurred by reports that the Hudson, Ohio-based specialty retailer had hired Lehman Brothers to help it evaluate strategic options, possibly including the sale of the whole company. He noted that those bonds were "around 85, 86, 87 a couple of weeks ago, on earnings."

However, another trader heard that the Jo-Ann bonds were heading the opposite way, contending that the notes "gave back two points after [Tuesday's] runup, to end at 92 bid, 94 offered.

'Tough market'

A high yield sell-side official, speaking shortly after the Wednesday close, labeled it a "tough market" and added that junk traded off a quarter of a point to half a point during the session.

The sell-sider also commented that the Treasury market is presently quite volatile, with the 10-year government paper "sticking around the low 5% level.

"But the high yield market has really backed up over the past couple of weeks, especially for the tighter-trading credits," the sell sider added.

Meanwhile the primary market produced a mere trickle of news during the mid-week session, with no deals pricing.

The sell-side source professed the expectation that indeed the post-Memorial Day week will continue to be slow unless there are a couple of exceptionally strong days.

"The market has really been tough," the sell-sider summarized, "and it will probably take a little time to settle down."

Interline coming in June

Interline Brands, Inc. announced in a Wednesday press release that it plans to place a public offering of senior subordinated notes.

An informed source said that Lehman Brothers will lead the debt refinancing deal from the Jacksonville, Fla., distributor and direct marketer of maintenance and repair products, which is expected to come in June.

Elsewhere Hanesbrands Inc. disclosed in a 10-12B document filed Wednesday with the Securities and Exchange Commission that it plans to sell new senior unsecured notes and to obtain a new senior secured credit facility in connection with its spin-off from Sara Lee Corp.

The Memorial Day run up

Sources said that the Thursday session and the abbreviated Friday session in the run-up to the three-day Memorial Day weekend are expected to remain quiet.

The only deal expected to price during that time is Libbey Glass Inc.'s $400 million offering of eight-year senior notes (B).

JP Morgan Securities and Bear Stearns & Co. are leading the acquisition financing and debt refinancing deal from the wholly owned subsidiary of glass tableware manufacturer Libbey Inc.

Some market sources had anticipated hearing price talk on the deal on Wednesday. However by the close of the session none had materialized, a market source said.

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