Charter charges upward; Sirius soars on Liberty loan; Dex down on credit drawdown

By Paul Deckelman and Paul A. Harris

New York, Feb. 17 - Charter Communications Inc.'s bonds continued their upward push Tuesday, with some of the St. Louis-based cable operator's bonds seen up as much as 9 or 10 points on the session, still riding the momentum from last week's announcement that debt-laden Charter will enter Chapter 11 sometime within the next six weeks to implement a restructuring plan agreed to by most of its bankers and bondholders.

Also on the upside was Sirius Satellite Radio Inc., which avoided having to file for bankruptcy by lining up $530 million of funding from Liberty Media Inc. - a coup for Sirius boss Mel Karmazin that also keeps his company from falling into the clutches of EchoStar Corp., run by an old foe, Charlie Ergen.

And there were gains late in the day in NOVA Chemicals Corp.'s debt, bondholders drawing some encouragement from chief executive officer Jeffrey Lipton's assertion that NOVA is still able "to work with both existing and new lenders," as it races against an end-of-month deadline to raise $100 million so it can remain in covenant compliance.

General Motors Corp., along with industry peer Chrysler LLC, was meanwhile right up against a Tuesday deadline for submitting detailed corporate survival plans to government regulators so as not to have to immediately repay the money that Washington gave the two carmakers as 2008 came to a close. Even so, traders saw little real movement in GM's bonds. After the market had closed, however, came word that GM and Chrysler are each asking for additional billions of dollars to allow them to keep operating which they restructure themselves - a second bailout which is by no means any kind of a done deal.

Bondholders of Dex Media East LLC and Dex Media West LLC meanwhile took those companies' bonds lower on the news that emerged late in Friday's abbreviated pre-holiday session - by which time the fixed-income markets were virtually deserted - that parent R.H. Donnelley Corp. and its two Dex subsidiaries had together drawn down all of the remaining availability under the three companies' respective credit lines.

The primary market seemed to remain in a quiet extended holiday mode; however, investors were getting ready for Wednesday's scheduled closing of the books on Precision Drilling Trust's upcoming offer of 6.5-year senior notes, which could price soon after.

Market indicators head south

The widely followed CDX High Yield 11 index of junk bond performance was down 3/8 point Tuesday, said a trader who quoted it at 72¼ bid, 72¾ offered.

The KDP High Yield Daily Index was meanwhile down by 17 basis points on the day at 54.07, while its yield widened by 13 bps to 13.22%.

In the broader market, advancing issues continued to trail decliners, by a better than five-to-three margin.

Overall market activity, measured by dollar-volume totals, rose by 12% from the levels seen in Friday's shortened and half-staffed session.

A trader described Tuesday's session as "quite a boring day." He said that "the major news" of the day was that "the stock market is not helping" matters with its latest plunge on investor anxiety about the general economy, the battered banking sector and the latest worries about Detroit's continued viability. That sent the bellwether Dow Jones Industrial Average down 297.81 points, or 3.79%, to close at 7,552.60, as shares retreated back to around their November lows. The broader indexes were even worse, with the Nasdaq down 4.15% and the Standard & Poor's 500 sliding 4.56%.

However, another trader said, high yield proved itself to be "pretty resilient, considering the onslaught in the equity market."

He suggested that this toughness might "partially be a function of the six weeks in a row of [high yield mutual fund] inflows" since the start of the year - and the 11 straight weeks of such cash infusions going back to early December and now totaling over $5 billion.

While he said that he did not "necessarily see anything really trading up" other than such headline-grabbing credits as Charter and Sirius, "there really isn't a selling consensus out there, at least not in high yield."

Still junk was down ½ point to a point in "a lot of the stuff that people have been throwing money at lately," according to a trader at a high-yield mutual fund, who was referring to recently priced issues which, in the wake of oversubscribed deals, rallied sharply in the secondary market.

"It seemed as though the market was softer in the morning," the trader commented, adding that there was not a lot of selling. Rather, junk investors seem to be taking their levels down a little.

That take on Tuesday's market was more or less shared by a high-yield syndicate official who noted that recent issues tend to still be trading above their respective issue prices, but below the post-pricing highs.

"There was a big spike but they are coming down to more normalized levels," the official added.

"We're looking for a quiet week this week, because most of our traders have taken vacation to be with their kids on mid-winter break," the source added.

Charter is the champ

Charter Communications' bonds were among the most actively traded issues, with its Charter Communications Holdings 10¼% notes due 2010 the single busiest bond, at 86 bid, up from 76.75 on Friday, a gain of more than 9 points, on volume of $37 million.

A trader saw the company's CCO Holdings LLC 8¾% notes due 2013 up 3½ points at 86.5 bid, on $16.5 million of volume. He also saw Charter's CCH II LLC 10¼% notes due 2013 jump to 85 bid from 76 previously, with $14 million changing hands. And he saw the CCO Holdings LLC 11% notes due 2015 fall 2 points to 15 bid from 17 previously, on volume of $10 million.

Another trader said that Charter "seemed to be quoted a lot and traded a lot."

He added that the bonds "were trading flat [without their accrued interest] - I guess [the company] made it clear that the coupons are not going to be paid."

He said the 2010 bonds "seemed to be a popular one," at 86 bid, 88 offered. He noted that Charter's complex capital structure - which, as noted, includes bonds issued by four or five different subsidiaries - also has "old" and "new" versions of many of its bonds, including the '10s, due to past debt-exchange offers that replaced some existing bonds with new debt, but left others in place. "It seems like the 'news' trade a point lower [than the 'old' bonds]," he said. "I don't know why -- but they do."

"An awful lot of [Charter] paper traded, "he continued, seeing the bonds up "almost 9 points today."

He also saw the Charter 10¼% 2013s also up 9 points at 85.

"That was also very active," he said. "Charter was a big, active name."

The Charter bonds continue to ride the upside momentum generated from Thursday's announcement that the company - burdened with some $21 billion of bank and bond debt - has reached agreement with an ad hoc committee of bondholders on a partial restructuring which will reduce its approximately $11 billion of bond debt to just $3 billion, by giving the holders of the other $8 billion a mixture of new debt, cash, new equity shares and warrants to buy such shares. Charter's existing stockholders, including its biggest investor, software billionaire Paul Allen, would be completely wiped out, but Allen will still retain 35% of the voting shares in the new company.

Charter said it would implement the restructuring plan by means of a pre-packaged bankruptcy filing to take place by April 1.

Sirius solidly higher on loan from Liberty

Bonds of Sirius Satellite Radio were seen gaining altitude on Tuesday on the news that the troubled New York-based satellite radio broadcaster had managed to stave off both possible bankruptcy and being taken over on unfavorable terms by EchoStar Corp.

A trader saw Sirius' 9 5/8% notes due 2013 "up a bit from Friday" at 50.5 bid. "There was not a lot of trading [in the issue], he said, "but it was up a lot from last week," noting that the bonds had previously been "the high 30s or 40s," and calling the bonds up 10 points on the day.

He saw Sirius' former rival-turned Sirius subsidiary XM Satellite Radio's 13% notes due 2013 at 57 bid, 59 offered, well up from around 45 last week, declaring "that's a good move!"

At another desk, those notes were seen up as much as 15 points on the day at 60 bid.

Another trader saw the 9 5/8s move up to 50.5 bid on a round-lot basis, which he said was up from 46 on Friday, on $3 million traded.

Sirius' Nasdaq-traded shares, long trading down in deeply distressed penny-stock territory, shot solidly higher on news of the Liberty loan. They rose as much as 78% on the day before finally ending with a gain of 52.53%, or about 5.5 cents, to 16 cents. Volume of 376 million shares was six times the norm.

Under terms of the agreement, Liberty Media will provide a total of $530 million in loans to Sirius in return for 12.5 million shares of preferred stock convertible into 40% of Sirius' common shares, and two seats on the company's board. Liberty will also get 15% interest on its loan. However, despite those benefits, Liberty's own bonds were seen on the downside by multiple points; its 5.70% notes due 2013 were quoted down more than 4 points to around the 76 level, while Liberty-controlled satellite TV broadcaster DirecTV Group Inc.'s 6 3/8% notes due 2015 were quoted at 92.5 bid, down a point.

Using the Liberty loot, Sirius will pay off $175 million of convertible debt that was coming due Tuesday; a big chunk of that is owned by EchoStar, whose CEO, Charlie Ergen, was reported to be trying to use that debt as leverage to take control of Sirius.

NOVA Chemicals not worried on funding

Elsewhere, NOVA Chemicals Corp.'s 6½% notes due 2012 were quoted by a market source 1½ points higher at 37.5, while its 7.40% notes coming due on April 1, hung in around the same 63-64 context at which they had ended trading on Friday, but the source saw those bonds going home 10 points higher, around 74, on a sizable trade late in the day.

Earlier, CEO Jeff Lipton, speaking at a Morgan Stanley Global Basic Materials Conference, expressed optimism that NOVA would still be able to do a deal with its lenders to raise needed funds to satisfy its credit facility terms. Lipton said that NOVA hoped to be able to provide an update on its financial situation "soon."

Calgary, Alta.-based NOVA is required by the recently amended terms of its credit facility, to raise $100 million by the end of this month and another $100 million at the end of June; NOVA's bonds had shot up solidly earlier in the month on speculation that two financial units owned by the Alberta provincial government would provide Nova with the needed funds, but the bonds had come right down again after provincial officials denied that any such loan was in the works.

At Tuesday's conference, Lipton said that NOVA remains "confident in our ability to work with both existing and new lenders, and [we] hope to be able to provide an update on our financing situation soon."

Bondholders were also heartened late in the day by market scuttlebutt indicating that NOVA will pay its scheduled 10 cent stock dividend next Monday, taking that as a sign that the company is not about to go belly-up, as some in the market have feared. They believe that the financing problem will be solved, since the company's directors would be unlikely to violate their fiduciary duty and potentially open themselves up to legal action by declaring a dividend if NOVA were in trouble with its lenders and about to slide into insolvency.

Dex vexed by credit drawdown

Investors in Dex Media East and Dex Media West were rattled by the late Friday announcement, containing in a regulatory filing after the market had closed, that Dex East will draw down the remaining $97 million on its $100 million revolving credit line, while Dex West will fully draw down its own $90 million revolver. Additionally, parent R.H. Donnelley - reeling from the downturn in its telephone directory business - will draw down the remaining $174 million of availability on its own revolver.

Donnelley said that it and its subsidiaries are borrowing the money now "to preserve [their] financial flexibility in light of the continuing uncertainty in the global credit markets."

However, bondholders were not reassured; a market source saw the Dex East 8½% notes due 2010 fall more than 7 points on the day to end under 56, in busy trading. Meanwhile, Dex West's 9 7/8% notes due 2013 fell 5 points to 22 bid.

GM stuck in neutral

With General Motors facing a Tuesday deadline for having its completed turnaround plan in government hands in order to keep the federal bailout money it's gotten so far, a trader saw GM's benchmark 8 3/8% bonds due 2033 unchanged at 15 bid, 16 offered, while Ford Motor Co.'s 7.45% bonds due 2031 were down 1½ points at 18.5 bid, 20.5 offered.

A second trader agreed that the GM benchmarks were "right around where they've been seeing them trading at either 15 bid, 17 offered or 14 bid, 15 offered during the day before ending at 15 bid, essentially unchanged. "There was not a lot of volume" in the GM paper, he said. "There was some volume - but not that much."

Yet another trader saw the GM '33s at 15.125 bid, but called that down more than a point from 16.25 on Friday, on volume of $6 million. He meanwhile saw GM's 7.20% notes due 2011 up ½ point at 18.5 bid, but on only $1 million traded.

A market source at another desk called GM's 7 1/8% notes due 2013 actually 3 points better at 17.

GM's financing arm, GMAC LLC's 8% bonds due 2031 dropped to 44 bid from 47 on Friday, though on volume of only $1 million, a trader said, also quoting its 5 5/8% notes slated to come due on May 15 at 91 - which translates to a 47% yield to maturity - down from 92 previously, on volume of $4 million.

A market source at another desk also saw those bonds at 91, but called that a better than 3 point drop from previous levels.

Late in the day, GM presented a plan calling for cutting 47,000 jobs - but also envisioning that Washington, which has already loaned GM $13.4 billion, would have to give the stricken auto giant additional billions that could boost the government's total investment to $30 billion, up from a previous estimate of $18 billion, including what the company has already received. GM warned that it could run out of money by March without new funds, and needs $2 billion next month and another $2.6 billion in April.

Its restructuring plan includes $27 billion in unsecured public liabilities currently on its balance sheet which would be converted into a combination of new debt and equity, for a net debt reduction of at least $18 billion.

Negotiations are progressing with advisors of the ad hoc bondholder committee. Term sheets have been exchanged and due diligence regarding GM's restructuring has commenced.

The company anticipates that the bond exchange will commence in late March.

The company also anticipates that a substantial majority of the pro-forma equity in GM would be distributed to exchanging bondholders and the United Auto Workers-Voluntary Employee Beneficiary Association.

Also in the automotive realm, Ford Motor Credit Co.'s 7% notes due 2013 lost 3 points to end at 54. FMCC's 5.70% notes due 2010 fell more than 5 points to end just under 77 bid.

Among the parts suppliers, Tenneco Inc.'s 8 1/8% notes due 2015 lost more than 5 points to end at 20.

Precision Drilling coming club-style

The primary market failed to produce any news as high yield resumed trading after the three-day Presidents Day weekend.

One deal remains in the market.

Late last week Precision Drilling Trust set price talk for its $250 million offering of 6.5-year senior notes: a 13½% coupon at a price of 90 to 92 to yield 15½% to 16%.

The books are scheduled to close at noon on Wednesday, and the notes are expected to price thereafter.

A buy-side source said that the deal is expected to come around 16%.

"It sounds like it's done," said the buy-sider, who added that it will likely be a club-style deal taken down by a group of investors who know the company.

Precision Drilling is likely to have to pay such a high interest rate because rig counts are sharply lower, on a year-over-year basis as some oil and gas exploration and production companies are cutting back on capital expenditures, market sources say.

Deutsche Bank Securities and RBC Capital Markets are joint bookrunners for the Precision Drilling deal.

Beyond that one deal, the active forward calendar is empty.

However sources do expect deal announcements to be made during the week.

There were no names available on Tuesday, sources said.

A buy-side source expressed surprise that Qwest Communications International Inc. didn't bring a deal following last week's earnings report, which had it beating the Street's expectations.

Another name this buy-sider is watching with respect to a possible deal is Georgia-Pacific Corp.

Less interest in high-grades

Although high-grade market produced $3.75 billion of new issuance Tuesday, recent investment grade transactions are unlikely to have kindled much interest among high-yield investors, market sources say.

One high-yield syndicate official watched last week's high-grade deal from Atlanta-based cable TV and internet services provider Cox Communications Inc.

Cox priced $1.25 billion of 8 3/8% 30-year notes (Baa3/BBB-/BBB) at Treasuries plus 490 basis points.

However a 490 bps spread for "an almost-junk piece of 30-year paper" is unlikely to generate a lot of interest among high-yield investors, the official said.

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