Chiquita gets peeled on poor numbers; Sprint backtracks; Dole tries to clear way for $500 million deal

By Paul Deckelman and Paul A. Harris

New York, Feb. 20 - Chiquita Brands International Inc.'s bonds were battered badly on Friday, after the Cincinnati-based produce marketer reported a sharply wider fourth-quarter loss - ironically having nothing to do with the company's almost iconic signature product, bananas, but everything to do with its underperforming salads business.

Chiquita rival Dole Foods Co., meantime was heard by high yield syndicate sources to be moving heaven and earth to clear the way for its planned $500 million junk bond issue, trying to cajole its bank lenders to allow the deal by sweetening the pricing on a proposed amendment to its senior credit agreement.

Back in the secondary sphere, Sprint Nextel Corp., whose bonds had firmed smartly on Thursday on the telecommunications provider's less-onerous-than-expected fourth-quarter performance and 2009 outlook, gave some of those gains back.

Market indicators move lower

A trader saw the widely followed CDX High Yield 11 index of junk bond performance lower on Friday, quoting it down ¾ point at 72 bid, 72½ offered.

The KDP High Yield Daily Index was meanwhile down by 23 basis points on the day at 53.62, while its yield widened by 10 bps to 13.37%.

In the broader market, advancing issues remained behind decliners by a better than two-to-one margin.

Overall market activity, measured by dollar-volume totals, fell about 26% from the levels seen in Thursday's session.

"What a market, huh?", a trader asked rhetorically, as he tracked the junk market's levels against those of equities, which closed out a truly miserable week with a loss in the bellwether Dow Jones Industrial Average of 100.28 points, or 1.34%; the Dow fell to 7,365.67, to the kind of levels last seen in the fall of 2002, at the depths of a bear market. Other market indexes, like the Standard & Poor's 500 and the Nasdaq composite index were likewise lower, by 1.14% and 0.11%, respectively.

The general market tone, he said, was lower, but added that "even when the Dow was down 160 [points, on its way to an intra-day loss of 215 points], it was very interesting - there's definitely a consensus [in high yield] towards the strong single-B and BB paper. I'm not saying that it's necessarily moving up - but there are bids and buyers around for that paper, while the weak single-Bs and CCCs and below just continue to get sold off here."

He said this was "nothing really new" - but "for some reason, today [Friday] it stuck out more than it has."

Cash bonds were ½ point lower on Friday as the rout in the stock market continued, according to a high-yield mutual fund manager.

HCA Inc.'s second-lien notes were off ¾ point, while the bonds of Community Health Systems Inc. were unchanged to slightly lower, the investor said.

A trader from another shop, said the name of the game was "equities got crushed; everyone is miserable."

Yet another trader said that from where he sat, "it was a pretty lazy Friday. The biggest news was probably [everybody re-playing] Rick Santelli's rant," referring to the CNBC reporter's extemporaneous Thursday afternoon on-air tirade against the Obama administration's stimulus program and its plans to head off a wave of residential foreclosures; in a clip that's gotten several hundred thousand replays on You Tube, he heatedly denounced the government's actions as "promoting bad behavior" by "losers" who shouldn't have bought too-expensive houses in the first place and called for a "Chicago Tea Party" protest on the shores of Lake Michigan, earning a round of applause from traders at the Chicago Mercantile Exchange who were standing around listening to the impromptu speech.

Presidential press secretary Robert Gibbs, not surprisingly, later took issue with Santelli's criticisms, saying the reporter "doesn't understand what he's talking about."

Chiquita gets chopped up

Apart from those rhetorical fireworks, there was plenty of action in Chiquita bonds, in the wake of the poor fourth-quarter numbers the company posted after the close of trading on Thursday.

A trader saw the bonds as having "gotten slammed" on those poor earnings; he quoted its 7½% notes due 2014 trading at a final round-lot level of 75.125 bid, well down from 82.5 earlier in the week, on $12 million traded.

He also saw the company's 8 7/8% notes due 2015 at 79 bid, down from 86, on $6 million of volume. "Bananas are definitely not in," he quipped, although, in fact, the problem was not in Chiquita's banana operations - sales were up 9%, paced by higher prices in North America, Asia and the Middle East - but rather in its Fresh Express salad line, which did so badly that it had to take a $375 million goodwill impairment charge related to that business.

That helped to sharply widen the company's loss for the quarter to $411.9 million, or $9.28 per share, from $26 million, or 68 cents per share, a year earlier, despite the fact that revenue for the quarter was little changed at $839.3 million, down about 1% from $840.4 million.

Even excluding that big charge for the salad business and other unusual items, Chiquita lost 74 cents per share - nearly four times the loss that Wall Street had been expecting. That loss also compared unfavorably to Chiquita's ex-items profit of 2 cents per share in the fourth quarter of 2007.

For the full year, Chiquita lost $323.7 million, or $7.40 per share, versus its year-earlier deficit of $49 million, or $1.22 per share, even though revenue actually rose 4% to $3.61 billion from $3.46 billion.

Another trader said Chiquita was "a name I saw quite a lot of," quoting them "down a few points" at 75 bid, 77 offered for the 71/2s and at 76.5 bid, 78.5 offered for the 8 7/8s. He said the bonds "didn't trade in a week and then they were in the mid-80s; now they're in the 70s."

Chiquita, he added, "traded ugly on the wider loss," though on "decent volume."

Chiquita's New York Stock Exchange-traded shares plunged $5.46, or 42.19% on Friday to finish at $7.24. Volume of 6.4 million shares was nearly 11 times the usual turnover.

Dole in the doldrums

Bonds of Chiquita's main rival, Westlake Village, Calif.-fresh and canned fruit and vegetable company Dole Foods, were meantime seen by a trader unchanged; he quoted its 8 7/8% notes due 2011 as steady at 83 bid, 84 offered.

Another trader, however, while seeing "no activity" in those bonds, quoted them in the upper 80s to even the low 90s at the end of the day.

He saw Dole's 8¾% notes due 2011 at 79 bid, 80 offered, but said that there had been no trading seen.

Regarding Dole's efforts to line up credit facility lender support for its planned new issue, he declared that "you wouldn't know it, from the bonds."

Sprint steps back

A trader saw Sprint Nextel bonds "active and lower" on Friday, a far cry from the situation Thursday, when the Overland Park, Kan.-based wireless company's bonds had risen on the perception that its latest quarterly figures, while not great, were certainly not as bad as some in the markets had feared.

He saw Sprint's most active issue, its 7 5/8% notes due 2011, down ½ point at 85.5 bid, on $12 million traded. Its 8 3/8% notes due 2012 moved down to 81 bid from 82.375 on Thursday. That issue also saw $12 million traded.

He also saw Sprint's 6.90% notes due 2019 finishing at 67 bid on a round-lot basis, down from 68.25, while its 6% notes due 2016 eased to 67.5 bid, off from 68.25 Thursday, on volume of $6 million.

Sprint Nextel, the third largest mobile phone carrier in the nation, posted a loss of $1.62 billion, or 57 cents per share Thursday. Excluding certain costs and expenses, the loss fell to just 1 cent per share, versus an expected loss of 4 cents per share. Sales revenue dropped 14% to $8.43 billion.

In 2008, Sprint lost 4.5 million customers, the company said. However, it is expected that defections will decline in 2009. The company also plans to complete its workforce reductions in the current quarter.

However, Fitch Ratings cut Sprint's issuer default rating to BB from BB+, despite the better-than-expected report. The agency said that the downgrade reflected, in part, uncertainty regarding operating trends in 2009.

Unisys lower, cause unknown

Several traders saw Unisys Corp.'s 6 7/8% notes due 2010 having fallen to 48 bid; one said they were down about 2 or 3 points on the day, although a market source at another desk said the bonds were trading as much as 9 points below recent levels.

There was no news seen out on the Blue Bell, Pa.-based technology solutions company; one trader suggested that it may have simply been a case of "someone needing to move a round lot in today's market, who got a low bid." he noted that most of the recent trading at higher levels in the credit was for odd-lot transactions.

Retailer rings up an advance

A trader saw Saks Inc.'s bonds "bucking the trend, and in retailing, no less," with its 9 7/8% notes due 2011 firming to 66 bid from previous levels around 61.5, on $8 million of volume. He saw no news out on the New York-based high-end department store operator.

He called it nothing short of amazing that "in this environment a retailer is going up - especially when the stock was trading even below its 52-week lows."

Charter eases again

A trader saw Charter Communications Inc.'s bonds continuing to ease from the peak levels they had hit earlier in the week.

He quoted its 10¼% notes due 2010 at 81.875 bid, off a little from 82.25 late Thursday, on $9 million traded. Its 8¾% notes due 2013 dipped to 79 bid from 81.5, though on volume of only $3 million.

Charter's bonds had shot up sharply in post-holiday trading on Tuesday, continuing the solid firming trend seen at the end of the previous week, when the bonds had risen sharply on the news that the troubled St. Louis-based cable operator had reached agreement with a bondholder committee on restructuring a big chunk of its debt, which will occur through a pre-packaged Chapter 11 filing by April 1.

Charter, which has some $21 billion of bank and bond debt, will take out $8 million of bonds, offering holders a mixture of new debt, cash, shares in the company and/or warrants to buy other shares.

Charter's most active issue, its 10¼% 2010s which had been up strongly the previous Thursday and Friday, zoomed by another 10 points on Tuesday to hit peak levels around 86 bid, but had come down steadily from there ending the week in that 81 context.

Autos remain parked

A trader said that it was "a quiet day in autoland - just like it's going to be pretty quiet in the showrooms" as the recession drags on and cuts into consumer car-buying.

He saw General Motors Corp.'s 8 3/8% bonds due 2033 at 14.875 bid, down from 16.5 Thursday, but on only $4 million traded.

He saw no dealings in GMAC LLC's 8% bonds due 2031.

Ford Motor Co.'s 7.45% bonds due 2031 were unchanged at 20 bid, on volume of $3 million.

Momentive moves down

A trader said Momentive Performance Materials Inc.'s 9¼% notes due 2014 dipped to 41 bid from 42.5 bid two days earlier on $6 million of volume. He said that it was "no surprise" that the Albany. N.Y.-based industrial materials company's bonds have recently traded lower.

Dole ups amendment pricing

Meanwhile the primary market failed to produce news on Friday.

In an attempt to clear the way for a maximum of $500 million of new junior-lien notes, Dole Food Co. Inc. increased pricing on an amendment to its senior secured credit facility to Libor plus 500 bps from Libor plus 450 bps, on Friday, according to an informed source.

Dole also hiked the Libor floor feature by 25 bps. The new Libor floor is 3%, up from 2.75%.

Deutsche Bank is leading the amendment which would permit the company to sell the greater of $500 million of new notes or an amount that, when added to the outstanding senior secured debt, equals 3.75 times the last 12 months' EBITDA.

Proceeds from the notes would be used to refinance existing senior notes.

Earlier in the day market sources told Prospect News that the amendment had met with resistance from lenders at the initial pricing.

A shutout week

For the first time in the new year, the high-yield primary market passed a week without any new issues pricing.

Year-to-date new issuance remained at $7.8 billion proceeds in 16 deals, unchanged from the week before.

In a comparison of year-over-year dollar-amount of issuance to the Feb. 20 close, 2009 is almost level, although lagging slightly, with the 2008 new issue market which had seen $7.9 billion price in eight tranches to that point.

At Friday's close the active forward calendar contained only one junk deal.

Tyson Foods Inc. began a roadshow on Thursday for its $500 million offering of senior bullet notes due 2014 (Ba3/BB).

The deal is slated to price before the Friday, Feb. 27 close.

JPMorgan, Banc of America Securities, Barclays Capital and Wachovia Securities are joint bookrunners.

Meanwhile the post-Presidents Day week did see the first pulled deal of 2009 as Precision Drilling Trust postponed its $250 million offering of senior notes due 2015 on Thursday, citing currently unfavorable market conditions.

Cash continues coming in

As with junk, the high-grade market also widened during the final session of the week.

A high-grade syndicate official said that the investment grade index was 20 bps wider at one point on Friday.

"Credit is definitely wider, week over week," the official commented.

The robust issuance seen in the investment grade market since the beginning of the year, nearly $208.5 billion according to Prospect News data, is apt to let up somewhat, the official added.

"We may be at a bit of an inflection point again," the syndicate source said.

"The high-grade market has gone through so many iterations of being more or less closed to being half open or being open at a price or being open only to certain sectors.

"We're potentially heading back into an environment where only a certain subset of issuers can get deals done."

A short time later a high-yield mutual fund manager reckoned that it would be reasonable to expect that if high-grade issuance will fall off, junk issuance almost certainly will fall off as well.

"It seems like the high-yield would go that way, too," said the investor. "But there is still a lot of cash.

"We still keep getting it in."

The buy-sider also mentioned Thursday's news from AMG Data Services which reported a $255 million inflow to the high-yield mutual funds for the week to Feb. 18, the 12th consecutive inflow trailing back to early December.

"That's $5.4 billion of cash since early December," the investor pointed out, "and people are still receiving coupon payments and being hit with redemptions."

© 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.