Dish firmer as post-T-Mobile trading stays busy, Sprint not; ILFC holds gains; primary still

By Paul Deckelman and Paul A. Harris

New York, Dec. 21 - Dish DBS Corp. bonds continued to trade at higher levels on Wednesday on respectable volume for a mostly dull day, given a boost for a second straight session by AT&T Inc.'s Bell System-sized failure to acquire smaller wireless rival T-Mobile Inc., a move aimed at getting the latter company's communications spectrum holdings. Satellite telecaster Dish awaits approval on its own big spectrum buy, and is seen as a possible spectrum-seller - or even potentially a new acquisition target for the former "Ma Bell."

But there was a slackening off of activity in another credit very interested in the outcome of the AT&T bid for T-Mobile - wireless rival Sprint Nextel Corp., whose bonds had been busy and better on Tuesday following the demise of the T-Mobile deal, which Sprint had vehemently opposed for competitive reasons.

International Lease Finance Corp.'s new issue continued to trade a bit above its par issue price on Wednesday, though volume was small.

There was also some activity seen in the recently issued 10-year bonds of oil and gas operator Pacific Rubiales Energy Corp., as well as in that company's existing 2016 bonds, which are the subject of an exchange offer that is currently under way.

From out of the distressed-debt precincts came word of notable volume - though little real price movement - in semiconductor maker MEMC Electronic Materials Inc., whose ratings were recently put on review for a possible downgrade by both Moody's Investors Service and Standard & Poor's.

Overall, although activity remained quiet as part of the market's pre-holiday winding-down process, statistical performance indicators firmed, even though equities were about unchanged.

The primary market passed Wednesday's session with no issues pricing and no new deals announced.

New issue activity during the run-up to Christmas is highly unlikely because much of the buy-side has already left ahead of the holidays, a high yield syndicate banker said.

"Activity tapered off during the afternoon," said a trader from a high-yield mutual fund, who does not expect the new issue market to resume until 2012.

Market winding down

A trader said there was "nothing exciting to report," as junk market activity continued to wind down ahead of the year-end holiday hiatus. The eight-day Chanukah festival began on Tuesday night, and U.S. debt markets are expected to see only a half session on Friday ahead of the Christmas holiday, with a full market close this upcoming Monday for the latter observance.

With a seasonal tip of his hat, he observed that "it will be a pretty silent night."

A second trader agreed that "it's a little on the quiet side for sure."

Volume, a third trader declared, "was about half of what would be considered half-way decent."

Indicators show improvement

Statistical measures of junk market performance - which firmed solidly on Tuesday after having been mixed over the previous several sessions - stayed on the upside on Wednesday.

A trader saw the CDX North American series 17 High Yield index gain 3/8 point on Wednesday to end at 91 7/8 bid, 92 1/8 offered, this on top of the 1½ points which the index rose on Tuesday.

The KDP High Yield Daily index gained 5 basis points on Wednesday to close at 71.81, after having risen by 12 bps on Tuesday.

Its yield came in by 3 bps on Wednesday, to 71.64%, after having declined by 5 bps on Tuesday.

And the widely-followed Merrill Lynch High Yield Master II Index posted a fifth consecutive gain, as its 0.112% rise followed Tuesday's 0.137% improvement.

The latest gain lifted the index's year-to-date return to 3.632% from Tuesday's 3.515% close.

Year-to-date returns meanwhile remain below the recent peak level of 4.28%, recorded on Oct. 28, and are well below the index's high-water mark for the year of 6.362%, which was set on July 26.

However, they are still well up from their 2011 low point, a 3.998% deficit recorded Oct. 4.

Junk rose even though stocks were lower for much of the day after Oracle Corp's fiscal second-quarter earnings came in below expectations, raising fears of less robust corporate tech spending than anticipated.

The bellwether Dow Jones Industrial Average, which had zoomed by 337 point on Tuesday - one of its biggest gains of the year - eked out a 4.16 point gain, or a 0.03% increase, to end at 12,107.74.

The Standard & Poor's 500 rose by 0.19%, but the tech-heavy Nasdaq Composite Index lost 0.99% on the day.

Dish tops the list

A trader said that Dish DBS' 6¾% notes due 2021 were the day's volume leader in Junkbondland, pushed up in busy dealings for a second day on "speculation that AT&T may try to do something with them, now that it's not going to be buying T-Mobile.

He saw the Englewood, Colo.-based satellite television broadcaster's issue last trading at 106 5/8 bid, which he said was up a little from the 106-106¼ context at which those bonds had traded Tuesday on busy volume of some $25 million in the immediate aftermath of the news that wireless giant AT&T had pulled the plug on its controversial effort to buy T-Mobile for $39 billion. AT&T's deal had been aimed at both improving its own position in the U.S. wireless industry, as well as getting hold of the big unused chunk of the broadcast spectrum which T-Mobile had acquired.

During Wednesday's session, the trader saw the Dish bonds trading between 106¼ and 1063/4, before going out at the 106 5/8 level, improved from Tuesday.

He noted that on Monday - before the news of AT&T's abandonment of the T-Mobile deal and its need to find a "Plan B" had hit the market - Dish had been trading around the 104 bid level, "and then AT&T happened."

A second trader saw $22 million of the Dish '21s trading on Wednesday, continuing the issue's two-session dominance of the junk market's most-actives list.

He pegged the bonds at 106 3/8 bid, but said that was a gain of almost 7/8 point on the day.

He also saw Dish's 7 1/8% notes due 2016 up ½ point at 107¾ bid, on "a couple of trades, while the company's other issues were largely unchanged on just small volume.

Dish's Nasdaq-traded shares - which had risen on Tuesday by more than 9%, on 1.5 times their normal volume, were up on Wednesday by another 30 cents, or 1.09%, to end at $27.76, although volume of volume of about 3 million shares was down by almost one-third from the usual turnover.

Dish's bonds and its shares have risen the past two sessions on the speculation that now that AT&T can't buy T-Mobile - there were numerous objections from consumer groups fearing less competition, and from federal regulators - the company might look to Dish as the solution to its spectrum problem.

Dish is poised to buy a massive chunk of airwaves, needing only to get federal regulatory approval for a license to use the big spectrum purchase it agreed to last summer. Once it gets that, it could turn around and sell that wireless spectrum to AT&T, which desperately needs more capacity to handle its burgeoning wireless service, now the second-largest in the United States.

An alternative scenario could see Dish agree to be acquired altogether by AT&T, which would get a major platform for delivery of TV services to its customers, as well as gaining access to a vast library of television and movie content owned by the failed movie-rental operator Blockbuster, which Dish purchased via a bankruptcy auction earlier this year.

However, AT&T can expect to pay dearly for whatever deal it might make with Dish, since the latter is led by its chief executive officer, Charlie Ergen, who is generally seen as one of the shrewdest and most hard-nosed deal-makers in the communications industry.

Sprint activity trails off

While trading in Dish was going great guns, traders saw a distinct lessening of activity in Sprint Nextel's paper, which had also been actively traded on Tuesday in the wake of the AT&T/T-Mobile news.

A trader said that Sprint, the Overland Park, Kan.-based Number-Three U.S. wireless service provider was "not trading as much as [Tuesday]," when its Sprint Capital Corp. 6 7/8% notes due 2028 were among the most actively traded issues, moving up about 2 points on the session on volume of over $15 million.

On Wednesday, he said, those bonds traded between 70 bid and 70¾ bid, which he said was "really not much different" than the levels at which they had risen to on Tuesday, on less volume than on Tuesday.

A second trader saw "just a couple of trades in them," also seeing the bonds unchanged in a 70-71 context.

"There wasn't much activity in them," he continued. "Usually, that's the somewhat active one."

On Wednesday, he said, the parent company's 6% notes due 2016 saw a little more volume, what he called "a moderate amount of trading," ending up ½ point at 81 bid, 82 offered.

A market source saw about $7 million of the bonds traded, ending just below the 82 level.

Sprint's bonds had firmed smartly on Tuesday and stayed higher Wednesday, albeit in much lighter volume the second day, as the company saw its vocal objections to the combination of AT&T and T-Mobile vindicated.

Sprint had vehemently opposed the efforts of Number-Two industry player AT&T to buy T- Mobile, now the Number-Four U.S. wireless firm, in hopes of being able to leapfrog the current industry leader, Verizon Wireless.

Sprint - already far back of both Verizon and AT&T in terms of subscribers and revenues, feared that letting the one-time "Ma Bell" buy T-Mobile would put it at an even greater competitive disadvantage

Federal authorities agreed, with both the Justice Department and the Federal Communications Commission filing objections on antitrust grounds that threatened to derail the whole deal, ultimately causing AT&T to forget about doing its transaction.

Clearwire seen little traded

Sprint's 49%-owned affiliate, Clearwire Corp.'s bonds had also risen on Tuesday, but on Wednesday were seen little moved

A trader said that the Bellevue, Wash.-based wireless broadband service provider's 12% first-lien notes due 2015 were trading Wednesday at 93 bid, 95 offered, while its 12% second-lien notes due 2017 were at 82 bid, 84 offered. He said both were unchanged.

With the downfall of the AT&T effort to buy T-Mobile, Clearwire was being mentioned around the market on Tuesday, along with Dish as a possible seller of communications spectrum space to AT&T.

Clearwire, which is currently in partnership with Sprint to develop the next generation of advanced LTE networks, has large amounts of communications spectrum it is currently not using, and could theoretically sell some or all of it to AT&T to generate the cash it needs for its buildout, which is currently being partly funded by Sprint but which will need additional funding over the next three or four years to successfully complete.

New ILFC holds gains

Away from any of the issues potentially connected to the AT&T story, traders saw a little bit of trading in International Lease Finance Corp.'s new 8 5/8% notes due 2022.

However, unlike on Tuesday, when the bonds were fairly active, Wednesday saw only a little trading in the credit.

"There was not too much activity," said one trader, who said it looked like maybe $1 million of the bonds had traded at around 100½ bid.

"There was just a small amount," agreed a second trader, who observed maybe three transactions, all around the 100 3/8 bid level, which he said was "pretty much unchanged."

ILFC - the Los Angeles-based aircraft-leasing division of New York-based insurance giant American International Group Inc. - priced $650 million of the bonds, upsized from an originally expected $500 million, at par on Monday, and they traded between 99½ and par in the aftermarket. The split-rated (Ba1/BBB-BB) bonds mostly appealed to junk traders, rather than to high-grade accounts.

On Tuesday, the bonds were seen having moved up to bid levels between 100 3/8 and 100 5/8.

Some $5 million of the company's existing 5 5/8% notes due 2013 traded Wednesday at 97 7/8 bid.

Pacific Rubiales moves around

A recently priced issue from Pacific Rubiales Energy Corp. was seen trading around on Wednesday, with a market source seeing those 7¼% notes due 2021 trading slightly above par, on volume of over $11 million.

Pacific Rubiales, a Toronto-based energy company that develops oil and gas deposits in Colombia, priced $300 million of those bonds at par on Dec. 5. After an initial trading flurry, they then pretty much disappeared from the aftermarket, until Wednesday.

The company's existing 8¾% notes due 2016 were meantime quoted trading above the 114 level, with over $13 million having changed hands.

Pacific Rubiales recently began an exchange offer under which holders of the '16s could swap them for the new bonds.

That exchange offer is set to expire at 11:59 p.m. ET on Jan. 3.

MEMC trades

A trader said that MEMC Electronic Materials' 7¾% notes due 2019 were among the most actively traded issues on the day, quoting them at about 70½ bid, which he called unchanged.

"It was kind of interesting," he said, "there were something like 14 trades, most right around 701/2.

A second trader said that the St. Peters, Mo.-based maker of the silicon wafers used in semiconductors, switches, solar panels and other high-tech applications, had "decent volume" of some $14 million.

He said that earlier in the week, the bonds had been trading as high as a 77-80 context, but had traded at around 70 on Tuesday, with between $3 million and $6 million changing hands, and stayed there on Wednesday on better volume.

Yet another trader said that around the middle of the month, the bonds had been pegged around a 721/2-73 range.

He noted that on Dec. 12, Standard & Poor's had put the company's ratings on watch for a possible downgrade of its BB ratings, citing its large exposure to the currently struggling solar power equipment sector.

Several days earlier, Moody's Investors Service had also warned that a downgrade of its B1 ratings was possible, citing an anticipated fourth quarter $700 million restructuring charge, an amount roughly equal to the reported sales for the third calendar quarter.

The agency also said the possible downgrade also considers the lower than expected liquidity position, which results from negative free cash flow and cash restructuring costs.

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