Sprint Capital gains on consolidation hopes; autos continue to struggle as market retreats in sleepy session

By Paul Deckelman and Paul A. Harris

New York, June 27 - The high yield market continued to lose ground on Friday, in line with a lower stock market reflecting continued investor angst over the deteriorating economy. This was particularly true in the hard-hit automotive sector, where names like General Motors Corp. and Visteon Corp. continued to spin their wheels, in retailing, and among homebuilders, where declines were seen in such names as D.R. Horton Inc. and Lennar Corp.

Other downsiders included the jilted Huntsman International LLC - particularly since intended merger partner, Hexion Specialty Chemicals, said it would not extend the merger agreement between the two companies which it recently backed out of.

A rare upsider was Sprint Nextel Corp., its bonds given a boost by investor hopes that the Overland Park, Kan.-based wireless telecommunications provider might benefit from any consolidation trend that industry may go through.

In the primary arena, still trying to catch its breath after a barrage of new deals at mid-week, including one of the largest junk offerings ever, the $7 billion multi-tranche behemoth from Bermuda-based satellite operator Intelsat Ltd., one of that company's units, Intelsat Jackson Holdings Ltd., was heard getting ready to tap the market for another $1 billion.

A high-yield syndicate official said that the broad market ended the Friday session "basically unchanged," and added that given the context of swooping equity prices throughout the latter part of the June 23 week the junk market held in well.

Market indicators keep falling

Back among the established issues, a trader said that the widely followed CDX junk bond performance index, which had fallen 5/8 point during Thursday's session, was little changed, still hanging in at that same 93¾ bid, 94¼ offered level. However, the KDP High Yield Daily Index continued to head south, falling another 21 basis points to 72.41, while its yield widened 5 bps to 10.24%. A week earlier, the index stood at 74.27, while its yield was 9.73%.

In the broader market, advancing issues once again trailed decliners, by a more than five-to-three margin. Activity, represented by dollar volume levels, was about one-third below Thursday's levels.

"There was a lot of noise," a trader said, "but not a lot of results. I'm sure people just want to get this one [session and week] over with."

Another trader quipped that the day was "worse than a Friday in the summer when everyone's been watching the stock market," which saw the bellwether Dow Jones Industrial Average end a week, and a month, better forgotten at 11,346.51, down 106.91 points on the day, or 0.93%. Broader market indexes were likewise lower. Record oil prices continued to grease the skids under equities, with the weakness carrying over to speculative-grade bonds as well.

He characterized the market as weaker, although he allowed that "the better names were actually slightly better - for instance, I'd say that names that are healthcare-related or something that's not cyclical in the marketplace were probably a couple of ticks better - maybe 1/8 or ¼ point than [Thursday].

But everything else, he said, was "weaker or at its lows." Nothing really stood out he said - because it was a summer Friday just before the end of the month and the end of the second-quarter, with no one wishing to make any dramatic moves at this point.

Several market sources also noted the looming July 4 holiday next Friday, which has already begun to still anyone's desires for a lot of action.

Retail retreat continues

The trader saw retailing names like Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 change hands around 81.75 bid, "a new low, or a recent low, anyway, while Bon-Ton Stores Inc.'s 10¼% notes due 2014 were in the 68 area.

Even upscale retailer Neiman Marcus' paper, which he said "has been hanging in there," was down, its 9% senior notes at 98.75 bid, 99.5 offered, unchanged on the day but off a point from Wednesday, while its 10 3/8% notes due 2011 - which he said was "if not the gold standard, then one of the better credits in the high yield market, for retailers anyway" - was also lower at 100.5 bid. 101 offered.

Against the backdrop of a coming new eight-year second-lien deal announced on Thursday, there "hasn't been much activity [Friday]" in Rite Aid Corp., whose bonds were seen down about 4 points the previous session after the Camp Hill, Pa.-based drugstore operator announced a larger-than-expected fiscal first-quarter loss due to the heavy costs of integrating nearly 2,000 Eckerd or Brooks stores that it bought last year.

He saw "a little bit of trading" in its 6 7/8% notes due 2013, "nothing spectacular," with the bonds unchanged to off a point in the low 60s. At another desk, the company's 8 5/8% notes due 2015 were seen off a point at 67.

Autos rumble along in low gear

The trader said that GM's 49%-owned financing arm, GMAC LLC "was, if not the most active bond, probably one of the more active bonds" on the session, following the tumble which those bonds and the rest of the sector took on Thursday in response to a Goldman Sachs equity analyst putting out a "sell" recommendation on GM - once thought of as among the bluest of blue chips - and warning about the stricken auto giant's continued intense cash-flow burn as it tries to wean itself off a dependence on sales of gas-guzzling SUVs and pickup trucks, once a highly profitable niche now regarded as poison by the car-buying public.

A market source saw GMAC's benchmark issue, the 8% bonds due 2031, up a point at 64.75, although at another desk a source saw GMAC's 6 7/8% notes due 2011 down more than 2 points at 68.75. Its 6 7/8% notes due 2012 lost ½ point to 68.5.

Parent GM's most widely traded issue, its 8 3/8% bonds due 2033, were meantime seen by a source down nearly 2 points to the 58 level, although another trader pronounced the bonds pretty much unchanged around the 59.5 bid, 60.5 offered level to which he had seen those bonds fall on Thursday.

He also saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 little changed around the 57-58 context seen Thursday.

A different market source saw Ford's Ford Motor Credit Co. 8% notes due 2016 up around a point at 74, while its 7% notes due 2013 were down around a point to the same level.

Among the parts suppliers, former Ford unit Visteon's 7% notes due 2014 were quoted down 3 points on the day at 54 bid, 57 offered, while its 8¼% notes due 2010 dropped to 87 bid, 88 offered from 90 bid, 92 offered.

A trader saw Delphi Corp.'s 6.55% notes that were to have been redeemed in 2002 fall 5 points to 21 bid, 25 offered, while Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 remained at 4 bid, 6 offered, even as the Rochester Hills, Mich.-based components maker emerged from Chapter 11 on Friday. Lear Corp. was a rare gainer among the parts makers, it 5¾% notes due 2014 firming about ½ point to 73.

Builders keep getting hammered

Homebuilder names were being shown the door by investors in the wake of the latest bad news affecting the sector - a larger-than-expected loss posted by KB Home.

Among the losers were Lennar, which itself had posted a wider-than-expected loss on Thursday - its 5.60% notes due 2015 lost nearly 2 points Friday to around the 73 level - and D.R. Horton, whose 5 5/8% notes due 2014 ended at 81, down more than 2 points,

Huntsman hurt as engagement called off

Huntsman International's 7 3/8% notes due 2015 lost nearly 2 points on Friday to around the 88 level. The company's corporate parent, Huntsman Chemical, was supposed to have been acquired by Hexion Specialty Chemical in a $10.6 billion/$28 per share cash deal - but Hexion's principal owner, Apollo Partners, said the wedding was off, citing a clause in the merger agreement allowing Hexion to back out in the event of "material adverse changes" in Huntsman. Hexion said such deterioration had taken place so as to make the merger no longer viable, while market observers said they doubted that Deutsche Bank and Credit Suisse would now front the Columbus, Ohio-based buyer the money it would need for the acquisition, given current tightened credit market conditions.

Hexion officially said Friday that it would not extend the merger agreement under which it had been scheduled to buy Huntsman, which would seem to preclude the possibility that the deal could be tinkered with or even restructure to keep it alive.

Huntsman has gone to court, suing Apollo Partners and several of its principals for $3 billion.

Sprint runs ahead

One of the few gainers on the day, a trader said was Sprint Nextel, which was "up while the rest of the market was down," citing "all of this talk about consolidation in the industry," especially in the wake of the recently announced purchase of Alltel Corp., currently the fifth-largest U.S. cellular carrier, by the current Number-Two, Verizon Wireless, which aims to topple AT&T/Cingular as Number One. Sprint Nextel - itself formed last year by the merger of what was then Sprint Corp. with the former Nextel Communications Inc. - is currently the third-largest wireless carrier in the U.S, ahead of Number-Four T-Mobile.

Investor thinking, he said is that "they would be a takeover candidate, but since you can't do an LBO [given current credit market conditions and Sprint Nextel's already considerable leverage], they'd have to be taken over by a high-grade guy. I don't think you could LBO Sprint in this environment."

He saw its 6% notes due 2016 trading at 84.5 bid, 85.5 offered, up from 83.5 previously, while its 8¾% bonds due 2032 have moved up to 95 bid, 95.25 offered, up from levels around 92 at mid-week.

Another market source saw the company's Sprint Capital Corp. 6 7/8% bonds due 2028 at the 83 level, up more than a point on an otherwise down day.

Another $1 billion

No issues were priced on Friday.

However underwriters did announce another $1 billion-plus of bonds related to the LBO of Intelsat Holdings, Ltd., to finance change-of-control tenders of existing bonds.

That deal is expected to price Monday.

Busy summer week

The abbreviated four-session week leading up to the Independence day weekend in the U.S. figures to be a comparatively busy one, with seven deals totaling nearly $4.37 billion expected to price by Thursday's close.

As mentioned above, Intelsat Jackson Holdings Ltd. plans to price $1.011 billion of senior notes in two tranches on Monday.

The deal will include $309.2 million of 11½% notes due 2016 and $701.9 million of 9½% notes due 2016.

Credit Suisse, Banc of America Securities LLC and Morgan Stanley are leading.

Proceeds, together with cash on hand, will be used to repay a portion of Intelsat Jackson's outstanding 11¼% senior notes due 2016 and its 9¼% senior notes due 2016.

A portion of the outstanding notes have been tendered to Intelsat Jackson under a change-of-control offer conducted by Intelsat Jackson following the acquisition of Intelsat Holdings, Ltd., the indirect parent of Intelsat, Ltd., by an entity formed by funds advised by BC Partners Holdings Ltd., Silver Lake Partners and certain other equity investors.

On Tuesday Intelsat Subsidiary Holding Co., Ltd., Intelsat (Bermuda), Ltd. and Intelsat Intermediate Holding Co., Ltd. combined to price $7.08 billion of notes in five tranches.

Also in the market

Intelsat Jackson Holdings joins half a dozen other offerings that were in the market at Friday's close.

Also expected to refinance bond debt with a Monday issue is Rite Aid Corp., in the market with a $425 million offering of eight-year senior secured second-lien notes (B3/B+/BB-) via Citigroup.

Meanwhile Ferrellgas, LP and Ferrellgas Finance Corp. are in the market with a bank debt refinancing deal, a $250 million offering of notes mirroring the company's existing 6¾% senior notes due May 1, 2014 (Ba3/B+).

Banc of America Securities LLC and JP Morgan are joint bookrunners.

The original $250 million of priced at 99.637 to yield 6.8% in April 2004.

Some market-watchers had been expecting the Ferrellgas deal to price before Friday's close, however no terms had been heard as Prospect News went to press.

Elsewhere Fox Acquisition Sub LLC will start a brief roadshow on Monday for its $230 million offering of eight-year senior notes.

Deutsche Bank Securities, UBS Investment Bank and Banc of America Securities are joint bookrunners for the deal to finance the acquisition of eight FOX network affiliated television stations from News Corp. for approximately $1.1 billion in cash.

Market sources noted that ratings on the proposed Fox senior notes surfaced Friday: Caa1 from Moody's and B- from Standard & Poor's.

Also AEI, a Houston-based energy services company started by Ashmore Group plc, will begin a roadshow on Monday for a $250 million offering of 10-year senior bullet notes (B2/B), a debt refinancing deal via Credit Suisse.

Ferro Corp. is on the road with a $200 million offering of eight-year senior notes (B2) via joint bookrunners Credit Suisse, Citigroup and JP Morgan.

The Cleveland-based supplier of technology-based performance materials for manufacturers plans to use the proceeds for refinancing debt and general corporate purposes.

And finally Singapore-based microchip testing and packaging firm, Stats ChipPAC Ltd. is expected to price a $1 billion two-part offering of senior notes (Ba1/BB+), a dividend funding and debt refinancing deal via Credit Suisse and Deutsche Bank Securities.

© 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.