Junk moves sideways, new deals mostly steady; Nortek plans notes; Copano, Sandridge offerings also slate

By Paul Deckelman and Paul A. Harris

New York, May 12 - Thornburg Mortgage Inc. warned Monday that it would delay filing its 10-Q report with the Securities and Exchange Commission and that it expects a "substantial" first-quarter loss. But the troubled Santa Fe, N.M.-based mortgage provider's announcement came at the very tail end of the day and had little or no impact on trading in its bonds - thus doing nothing to upset the overall perception that the high-yield bond market essentially "moved sideways," as one trader put it, with secondary dealings seen largely featureless and no names really standing out.

Thornburg sector peer Residential Capital LLC's bonds were meantime seen likewise little changed despite news reports circulating around that bondholders unhappy with the relatively paltry consideration which some of them are being offered in the company's recently announced exchange offer might organize to oppose the deal, in hopes of getting the company to sweeten the pot.

Sprint Nextel Corp. and its Sprint Capital Corp. affiliate's bonds were seen mixed, even as the Overland Park, Kan.-based wireless company reported a wider first-quarter loss, largely due to a steep drop in its subscriber rolls.

Also on the earnings front, there seemed to be little activity in Standard Pacific Corp.'s bonds, despite the homebuilder's substantially wider first-quarter loss from a year ago.

In the new-deal arena, Nortek Inc. was heard by syndicate sources to be shopping a $750 million offering of secured notes as part of the Providence, R.I.-based residential building products company's financing efforts as it attempts to stay in compliance with its loan covenants.

Also heard to be lining up new deals were Copano Energy LLC and sector peer SandRidge Energy Inc. - the latter having begun a short roadshow for its 10-year note deal.

Among recently priced bonds, such names as Petrohawk Energy Corp., DirecTV Holdings LLC/DirecTV Financing Co. Inc. and Newfield Exploration Co. were seen trading at or a bit above their respective par issue prices. But Ace Hardware Corp., which last week priced a $300 million deal more than a point cheaper than par, continued to struggle in the aftermarket.

Market indicators mixed

Back among the established issues, a trader said, the widely followed CDX junk bond performance index was up by 3/8 point to 96 7/8 bid, 97 3/8 offered. The KDP High Yield Daily Index rose 4 basis points to 76.09, while its spread widened by 1 bps to 9.14%.

In the broader market, advancing issues trailed decliners by a narrow margin. Activity, represented by dollar volume levels, was down 26% from Friday's already restrained pace.

It was "a pretty quiet day today," said a trader, noting that the widely held and usually fairly busy automotive benchmark issues from General Motors Corp. and Ford Motor Co. were pretty much unchanged in the mid-70s - although a market source at another desk saw the Ford 7.45% bonds due 2031 down more than a point at 72.5.

A syndicate official observed that cash bonds were flat to barely up, on a name-by-name basis, adding that oil and gas exploration and development names were clearly higher on the day.

Another official from a different syndicate desk noted that while last week began well in high yield, the latter three sessions saw the index ease, so that Monday marked the first time in at least four sessions that the index advanced.

Another trader, when asked what was new and exciting, replied succinctly: nothing. He characterized Monday's market as trading pretty much "sideways" with not too much reaction to what would seem to be fairly significant news developments.

For instance, he saw no great surge in the bonds of either Tribune Co. or Cablevision Systems Corp. despite news of a major asset sale - Chicago-based Tribune agreed to sell its suburban New York daily Newsday to Long Island-based Cablevision for $650 million.

Even on that news, he saw Tribune's 4 7/8% notes due 2010 "actually down ½ point" at 53 bid, while its 5.67% notes scheduled to mature this coming Dec. 8 were in the 94.625-95 area, but with mostly odd-lot trading going on - and those odd lots "were really odd, mostly 10s and 20s." Meanwhile, Cablevision's 8% notes due 2012 were down ¼ to ½ point at 98.5 bid, but with not a lot of bonds having traded.

Thornburg news comes too late

Thornburg Mortgage's 8% notes due 2013 were seen trading between 78 and 80 late in the day, versus their 80 close on Friday - but a trader noted that it was all relatively small odd-lot trades of 10 to 25 bonds "almost every time'. He said that he had seen no round-lot trades for "a couple of days" - and said that the news that Thornburg will delay filing its 10-Q and expects to post a "substantial" first-quarter net loss broke way too late in the day to have any kind of real impact.

"The news was out after just about everyone was gone, - around 5 [p.m. ET], 5:15 - everyone was out of here."

He suggested that once everyone gets to work on Tuesday and digests the impact of Monday's late news "it's probably going to drop." Thornburg, he declared "is going down."

In that same sector, a trader called Residential Capital LLC's 6½% notes due 2013 unchanged at 49 bid, while ResCap parent GMAC LLC's 8% bonds due 2031 were a point lower at 75.25. Another trader also saw the 61/2s unchanged at that same 49 level, although he saw the floating-rate notes due 2009 up ½ point at around 77 bid and the 6% notes due 2011, which he called "their most active issue today" up "maybe 1/4" point at about 49.125. At another desk, a market source saw ResCap's 8 7/8% notes due 2015 up 1 point at 49.5.

The traders did not see much activity in response to news reports indicating that holders of some ResCap bonds - those slated to be exchanged for new notes at a discount rather than being redeemed at full value in cash as its really short bonds will be - are unhappy with the terms of the deal and might organize to oppose it. Those bondholders are scheduled to get about 80 cents on the dollar, mostly in new bonds due 2015 and a small amount of cash.

A trader saw Countrywide Financial Corp.'s 3¼% notes coming due next week unchanged at 99 bid, 99.75 offered, while its 6¼% notes due 2016 lost a point to 78 bid, 80 offered. A second trader saw Countrywide bonds pretty much unchanged across the board. But at another desk, its 5 5/8% notes due 2009 were seen off more than 2 points at 88.5.

Also in the mortgage and homebuilding sector, Irvine, Calif.-based builder Standard Pacific's 7% notes due 2015 were seen buy a trader to be unchanged at 71.5 bid, 73.5 offered - even in the face of a wider quarterly loss. The builder's quarterly deficit widened to $216.4 million, or $3.34 per share, versus $40.8 million, or 63 cents a share. The actual net loss in the latest period was about twice the roughly $1.50 a share of red ink that Wall Street had been expecting. Afterward, the company said that it was examining alternatives, including selling stock, selling more debt - or even perhaps selling the whole company.

Sprint mixed as loss widens

Elsewhere on the earnings front, Sprint's bonds were seen traveling all over the lot, even as the third-largest U.S. wireless operator, behind AT&T/Cingular and Verizon, reported a substantially wider first-quarter loss, fueled by a big drop in subscribers.

On the upside, Sprint's 6.90% notes due 2019 were seen up 1¼ points to the 87 bid level, although another market source saw those bonds down by around the same amount to 86 bid. Its 8 3/8% notes due 2012 gained about ¼ point to above 98 in brisk trading. Its 6% notes due 2016 were up about ½ point to 84.5. Nextel's old 6 7/8% notes due 2013 were seen about ¼ point easier at the 83 level.

Sprint said that it lost $505 million, or 18 cents per share, in the first quarter versus a year-earlier loss of $211 million, or 7 cents per share, during the first quarter of last year. Wall Street had been hoping for earnings of around 2 cents per share. It further said that its total subscriber base fell by 1.09 million to 52.8 million - and well over 1 million of those lost subscribers were the more valuable and desirable post-paid customers - those who pay a regular monthly bill, rather than buying pre-paid services.

New issues hover around par

Among recently priced issues, a trader said he "saw nothing today" in PNM Resources Inc.'s new 9¼% notes due 2015, which had priced at par on Friday and then moved up solidly to about 101.5 bid 102 offered. But he did see the new Petrohawk 7 7/8% notes due 2015 at 100.5 bid, 100.75 offered, a little above Friday's par issue price.

On the other hand, the new Ace Hardware 9 1/8% notes due 2016 were trading around the 97.625-98.125 area, down from Thursday's 98.60 issue price. He said of that particular new deal that "either it was not placed well, or the underwriter is not supporting it, contrary to some of these other recent issues. They're trading below issue."

In contrast, he said, "look at [Petro]Hawk, look at PNM, look at DirecTV, look at Newfield." The latter's 7 1/8% notes due 2018, which priced a week ago at par, were straddling that mark Monday at 99.875 bid, 100.125 offered, while the DirecTV 7 5/8% notes due 2015, which came at par last Wednesday traded at 100 bid, 100.5 offered.

"Ace," he declared "is the only one [of the recent deals] that's trading below issue. So you can't just say 'it's the market'."

A quick calendar

A trio of high yield deals surfaced on Monday.

All three are expected to clear by the Thursday close.

Nortek, Inc. will host an investor conference call on Tuesday for its $750 million offering of first-lien fixed-rate senior secured notes due in December 2013.

The deal, which is being led by Credit Suisse, Banc of America Securities and Goldman Sachs, is expected to price on Tuesday following a conference call.

The notes will be non-callable for three years. A special provision allows company to call $75 million of the notes once per year at an annual premium of 103.

Elsewhere a brief roadshow began on Monday for Sandridge Energy, Inc.'s $500 million offering of 10-year senior notes (existing B3/confirmed B-).

Pricing is set for Thursday.

Banc of America Securities, Barclays Capital and JP Morgan are joint bookrunners for the debt refinancing and possible capital expenditures deal.

And Copano Energy LLC will hold an investor call on Tuesday for its $250 million offering of 10-year senior notes (existing ratings B2/B+), via Banc of America Securities and JP Morgan.

Proceeds will be used to repay bank debt.

Appetite for energy unlimited

Market sources from both the buy-side and sell-side have lately been commenting upon the notable volume of 2008 junk bond issuance that has emanated from the energy sectors. Most of these sources include exploration, development and production companies, utilities and specialized service providers to the oil and gas industry in that set.

One high yield syndicate official said that one-third of 2008 issuance has come from the energy sectors, and added that most if not all of it has been driven by reverse inquiry.

Asked whether there was any evidence that some accounts were reaching saturation points with respect to the amount of energy-related paper their bylaws allow them to own, this official replied that if so it is not apparent.

"The appetite seems unlimited right now," the sell-sider said.

While declining to furnish any names, this source has visibility on a pair of pending syndicated loans and a pair of mezzanine financings, as well as four straight-up high yield bond deals - all from the energy sectors and all driven by reverse inquiry.

Although others have furnished even less detail, most of the high yield syndicate officials who spoke to Prospect News late last week and on Monday claim to have visibility on pending primary market activity, from energy and elsewhere.

Hence it appears that second quarter 2008 issuance stands poised to at least double the first quarter's anemic $10 billion.

Thus far the second quarter primary market has generated slightly more than $12 billion of issuance.

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