AMD bonds down on downgrade, collateral concerns; Delta dives

By Paul Deckelman and Paul A. Harris

New York, April 24 - Bonds of Advanced Micro Devices Inc. were seen lower Tuesday in the wake of a series of negative events, including the big loss the Sunnyvale, Calif.-based high-tech company posted last week, negative ratings agency actions, and possible collateral problems.

Elsewhere, homebuilders such as Technical Olympic USA Inc., Standard Pacific Corp., K. Hovnanian Enterprises Inc. and KB Home were seen weaker, reacting to news showing a continued slide in the housing market.

And Delta Air Lines Inc. bonds were off - even as the bankrupt Atlanta-based Number-Three U.S. airline carrier headed into a Wednesday court hearing which is expected to produce a judicial OK for its plan of reorganization, clearing the way for the carrier to emerge from Chapter 1.

Sources in the late morning and mid-afternoon - one from the buy-side and one from the sell-side - told Prospect News that the broad market was flat on Tuesday.

The buy-side source, who spoke to Prospect News late Tuesday morning, said the news that existing home sales had taken their deepest plunge since 1989 did not appear to be spooking the market ovferall.

"Away from that the news in home sales for the past month has been pretty good, and earnings weren't as bad as people thought they would be," the buy-sider said.

"You don't get the sense that people feel as though the bottom is falling out of this market, right now."

Primary market activity was busy enough, although there were no actual pricings. Talk emerged on prospective issues from borrowers such as Clarke American Corp., OSI Restaurant Partners, LLC and USI Holdings Corp., roadshow plans for Rare Restaurant Group, LLC, and actual news about deals being launched for Dune Energy, Inc. and Mariner Energy, Inc.

AMD bonds take a hit

Back among the established secondary names, "AMD did not have a very good day at all," said a trader, who saw its 7¾% notes due 2012 - which on Monday had traded at par bid, 100.375 offered - open up at 98.25 bid, 98.75 offered, "right off the bat, before even the equity market opened," and "hung around" the 98.5-99 area all day.

Another market source saw the bonds staying around the par level at the close - but pegged that down some 2¼ points from prior levels, and said that the bonds were among the day's most heavily traded issues."

Yet another trader saw those bonds at 98 bid, 99 offered, and blamed the fall on Monday's ratings downgrade by Standard & Poor's, which dropped the company's ratings a notch to B from B+ previously. The agency cited "recent subpar execution of business plans" and a more difficult competitive environment - factors which contributed to the $611 million ($1.11 per share) loss which AMD posted for the first quarter.

While S&P actually downgraded the debt, Moody' Investors Service and Fitch Ratings also weighed in, threatening similar moves. Moody's on Monday changed its outlook to "negative" from "stable," citing "AMD's reduced financial flexibility following the company's weaker than expected operating performance in the first quarter of 2007 and Moody's expectations that the next couple of quarters will remain very challenging even though the company plans to reduce costs and preserve liquidity while at the same time rolling out its new product platform dubbed Barcelona in the third quarter of 2007.

"AMD's ratings could come under downward pressure to the extent that product launches are delayed, if it experiences operating losses in the second half of 2007, or if cash levels fall below $1 billion."

However, Moody's also held out the alternative possibility that "a stabilization of its ratings outlook could emerge if AMD is able to make steady progress towards sustainable free cash flow from operations, which would enhance financial flexibility that is critical in the capital intensive and volatile microprocessor segment."

On Tuesday Fitch also lowered its outlook on the company to negative, warning that "performance will remain challenged over the intermediate-term. AMD's profitability continues to be pressured by meaningfully lower than anticipated microprocessor unit shipments and intensified competitive pressure from Intel Corp., driven by a combination of Intel's manufacturing advantage and strong operating momentum following its product portfolio refresh in the third quarter of 2006."

A market source said that another factor behind the fall in the AMD bonds is the fact that bondholders are worried that the company might release the collateral that secures the 7¾% notes. The source noted an SEC filing that disclosed that that back in October, AMD entered into a term loan credit agreement which granted the lenders security interest in certain collateral. While the holders of the bonds are secured "equally and ratably" with the term loan lenders, "the company currently has the ability to release the collateral from the security held by the noteholders."

Spansion coming back

In that same high-tech sector, a trader saw Spansion Inc.'s 11¼% notes due 2016 at 103 bid, 104 offered, "considerably better" than the levels around 101 bid, 102 offered to which those bonds fell after the release of disappointing numbers last Wednesday evening by the Sunnyvale, Calif.-based maker of mobile phone memory chips - a onetime joint venture between AMD and Japanese tech powerhouse Fujitsu Ltd.

"They have effectively recovered all but half a point to a point" of what they lost after their earnings came out - "and it's only been four days."

"A nice coupon" helps the recovery process, the trader added, noting the fat 11¼% interest the bonds pay.

Homebuilders hit

A trader said that homebuilder names were "weaker" on the day, after the National Association of Realtors reported sales of existing homes in March had their biggest one-month decline since January 1989.

The trader saw Technical Olympic's 10 3/8% notes due 2012 down ½ point at 80 bid, 81 offered and Standard Pacific's 7% notes due 2015 half a point down at 92 bid, 93 offered.

Also lower were Hovnanian's 6 3/8% notes due 2014 at 98.25, and KB Home's 8 5/8% notes due 2008 at 103, both ½ point lower.

Building products maker Ply Gem Industries' 9% notes due 2012 were also ½ point lower, at 90 bid.

Six Flags mostly steady

Elsewhere, a trader said, "some things that were moving around yesterday [Monday] sort of evened out [Tuesday], among them Six Flags Inc., whose bonds had risen Monday on the news that the New York-based amusement- and theme-park operator had lined up a new $1.1 billion credit facility, and will use the funds to refinance existing debt.

In Tuesday's dealings, the company's 9¾% notes due 2013 and 9 5/8% notes due 2014 were seen down about ¼ point from Monday's levels, "but nothing huge," the trader said, with the '13s at 98.625 bid, 98.75 offered, the '14s at 97.25 bid, 97.5 offered and the company's 8 7/8% notes due 2010 at 101.75 bid, 102 offered, " so off just a tad, holding [most of] their gains, but just backing off a teeny bit."

Delta down

Even as investors looked forward to Delta Air Lines' Wednesday bankruptcy court hearing at which its reorganization plan is expected to be confirmed, they saw the company's bonds lower, with the 8.30% benchmark notes due 2029 seen off 1¼ point at 59 bid.

A trader saw rival bankrupt carrier Northwest Airlines' 8 7/8% notes due 2006 two points lower at 85 bid, 86 offered.

OSI talks $700 million

In the primary, OSI Restaurant Partners, LLC set price talk for its $700 million offering of eight-year senior notes (Caa1/B-) at 9 5/8% to 9 7/8% on Tuesday, and set pricing for Thursday.

Banc of America Securities LLC and Deutsche Bank Securities are joint bookrunners for the LBO deal from the Tampa, Fla., casual dining restaurants company.

Clarke American talkes $615 million

Meanwhile Clarke American Corp. set price talk for its $615 million two-part offering of eight-year senior notes (Caa1/B-).

The company talked its tranche of floating-rate notes at Libor plus 475 basis points, and its tranche of fixed-rate notes at the 9¾% area.

Tranche sizes remain to be determined. Pricing is expected on Thursday.

Credit Suisse, Bear Stearns & Co., Citigroup and JP Morgan are joint bookrunners for the acquisition financing from the provider of checks and related products.

A buy-side source told Prospect News that the covenants in the Clarke American notes were "nothing to write home about," but added that there appears to be sufficient yield to get the deal done.

USI talks $425 million

Also expected to price Thursday is USI Holdings Corp.'s $425 million two-tranche offering of notes, which the Briarcliff Manor, N.Y., distributor of insurance and financial products and services talked on Tuesday.

USI set guidance for a $225 million tranche of 7.5-year senior floating-rate notes (B3/CCC) at Libor plus 400 to 425 basis points and a $200 million tranche of eight-year senior subordinated notes (Caa1/CCC) at 10% to 10¼%.

Goldman Sachs & Co. and JP Morgan are joint bookrunners for the LBO financing and debt refinancing deal.

Petroplus poised for Wednesday

Meanwhile the biggest deal now in the market is poised to price on Wednesday.

Swiss refiner Petroplus Finance Ltd. set price talk on Monday for its $1.20 billion two-part offering of senior notes (BB-).

The company talked its tranche of seven-year notes at 7¾% to 8% and its tranche of 10-year notes to price an eighth of a point to a quarter of a point behind the seven-year notes.

Morgan Stanley is the lead bookrunner for the acquisition financing and debt refinancing deal.

Of the Petroplus deal, a buy-side source said: "It's pretty tight, but it's going to work."

Mariner launches $200 million

Mariner Energy, Inc. began a brief roadshow on Tuesday for its $200 million offering of 10-year senior notes (Caa1/B-).

The roadshow wraps up Wednesday, with the deal expected to price on Thursday.

JP Morgan has the books for the debt refinancing deal from the Houston-based independent oil and gas exploration, development and production company.

A buy-side source said that the whisper on the Mariner bonds is 8%.

Dune launches $285 million

From elsewhere in the energy sector, another Houston-based company, Dune Energy, Inc., began a roadshow on Tuesday for its $285 million offering of five-year senior secured notes.

Jefferies & Co. has the books for the stock purchase and debt refinancing deal.

Mastro's launches $100 million

Rare Restaurant Group, LLC and RRG Finance Corp. (to be renamed Mastro's Restaurants, LLC) will start a roadshow on Wednesday for its $100 million offering of seven-year senior secured notes.

Again, Jefferies is the bookrunner.

Proceeds will be used to help fund the acquisition of five Mastro's Steakhouse restaurants and two Mastro's Ocean Club Fish House restaurants, and related assets.

The company's offices are located in Woodland Hills, Calif.

Sara Rosenberg contributed to this article.

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