Intelsat upsizes, bonds trade up; little Ford loss impact; Royal Caribbean sinks on numbers; funds gain $352 million

By Paul Deckelman and Paul A. Harris

New York, Jan. 29 - Intelsat Subsidiary Holding Co., Ltd. priced an upsized offering of new 2015 bonds Thursday, their terms mirroring a tranche of its existing bonds. The new paper traded up by several points after being freed for aftermarket action.

Other recent new issues, including Chesapeake Energy Corp. and Inergy LP's bonds, both priced Wednesday, and last week's Crown Castle International Corp. deal, continued to trade well above their respective issue prices.

Among the established bonds, traders saw little real impact from Ford Motor Co.'s report of a nearly $5.9 billion loss, far larger than the market was looking for, or the news that the carmaker had drawn down its credit line in order to have cash on hand during the uncertain times ahead; these negatives seemed to be balanced by Ford's assertions that it will be able to get through the auto industry's current rough conditions without having to ask for a government bailout as its domestic rivals have done.

Royal Caribbean Cruises Ltd.'s bonds were meantime seen listing badly after the Miami-based cruise line operator reported horrendous fourth-quarter numbers; its earnings nosedived 98% from year-earlier levels as cruise bookings fell and the company was unable to take full advantage of the sharp fall in fuel prices during the period.

Bad quarterly numbers for Mohegan Tribal Gaming Authority proved to be an unlucky omen for the New England casino operator's bonds, and also put pressure on other gaming-sector peers like MGM Mirage and Wynn Las Vegas LLC.

On the upside, Rite Aid Corp.'s bonds continued to rebound from the shellacking which they took on Tuesday, aided by the company's release of January comparable-store sales figures.

Funds see $352 million inflow on week

As trading was wrapping up for the day, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday, $352 million more came into the weekly reporting funds than left them. It was the ninth consecutive inflow and the fourth inflow of 2009, against no outflows, and follows the $218.2 million cash infusion seen last week, in the period ended Jan. 21.

During that nine-week span of cash additions, dating back to the week ended Dec. 3, net inflows have now totaled $3.905 billion, according to a Prospect News analysis of the AMG figures.

On a year-to-date basis, 2009 inflows now stand at $2.093 billion so far this year, up from the previous week's total of $1.741 billion, according to the analysis.

That healthy inflow figure means the year is certainly off to a better start than was 2008, which began with several consecutive outflows, although last year ultimately ended with a cumulative net inflow total of $2.123 billion, its peak level for the year. It should be noted, however, that most of that total gain was recorded in the final weeks of the year, the surge of funds coming in reflecting the junk market's upturn after the Federal Reserve announcement of a sharper-than-expected interest rate cut and the central bank's pledge to take other measures to stabilize and revive the credit markets and the overall economy.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash to and from the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

Ninth consecutive inflow

In the primary market Intelsat Subsidiary Holding Co., Ltd. priced $400 of mirror notes in an oversubscribed deal that doubled in size.

Meanwhile AMG Data Services reported that the high-yield mutual funds saw $351.815 million of inflows week to Jan. 28.

That was the ninth consecutive inflow, according to a market source.

"There is a lot of interest in yield right now," said the mutual fund manager who independently verified - as other junk investors have done this week - that cash is indeed coming into junk.

"A lot of people remember how much money they made from the bottom in 2002," the investor said.

"Also it looks as though equities are just going to waffle around in a trading range.

"You've had appreciation in the high-yield market, and you haven't given it back, whereas equities have been a lot more up and down."

Similarities to 2002

The investor recalled that trailing the market lows of 2002 the Federal Reserve purposefully pumped money into the U.S. economy.

Had the central bank done otherwise, the investor said, that period of high-yield defaults would have been longer and recovery rates would have been lower.

"That's when you had the money machine pumping out liquidity, which allowed the poorer quality high-yield issuers to refinance, and also to be able to come to the equity market.

"High yield was one sector that truly benefited from that 'easy money' policy," the investor added.

"High yield benefited before sub-prime mortgages did.

"People remember how much money they made then."

The money manager said that in late 2008 high-yield spreads widened far more dramatically than they had in 2002, while high-yield defaults in late 2008, were far lower than in 2002.

"It looks pretty appealing if you think we're going to see much lower yield spreads," the investor said.

"And I think you will have much lower yield spreads. You're just going to have to avoid the defaults for the next year.

"When we had those record-wide spreads in high-yield [in 2002], which were much narrower than today's yields, we also had defaults running around 10%.

"Now defaults are running around 4%, although people expect them to go materially higher."

Intelsat doubles deal-size

Intelsat priced an upsized $400 million issue of notes mirroring its 8 7/8% senior notes due Jan. 15, 2015 (B3/BB-) at 88.50, on Thursday, resulting in a yield of 11.617%.

The deal was increased from $200 million.

It came rich to the 88 area price talk, while the yield came tight to the 11¾% area yield talk.

The deal was substantially oversubscribed, according to market sources, one of whom remarked that the accounts, now sitting on building piles of cash, are clamoring for bonds and seem willing to shoulder some risk.

Goldman Sachs was the bookrunner.

Concurrent with upsizing the bond deal, Intelsat increased to $375 million from $200 million the amount of its outstanding 7 5/8% senior notes due 2012 and its 6½% senior notes due 2013 covered by its tender offer.

Proceeds from the bonds will be used to fund the tender.

The original $681.012 million of 8 7/8% senior notes due January 2015 was priced at par on June 24, 2008.

Junk investor plays General Mills

Not all of the accounts appear poised to shoulder more risk, however.

The high-yield mutual fund manager did not become involved in the Intelsat deal, ostensibly because of a scheduling conflict.

However that scheduling conflict didn't stop the junk investor from venturing into high-grade land to play Thursday's upsized General Mills, Inc. $1.15 issue billion of 5.65% 10-year notes (Baa1/BBB+/BBB+) which came at Treasuries plus 287.5 basis points, at the tight end of price talk of 287.5 bps to 300 bps.

"Even though high-grade spreads and absolute yields have come down from last fall I think they still represent a pretty good risk-reward value," the investor commented.

"I think spreads have to narrow."

The investor said that the General Mills order book had $6 billion of orders for a deal that started at $1 billion in size.

"That's the way they've all been," the investor added.

"All of these investment-grade deals have been five- or six-times oversubscribed.

"For all of the talk about the lack of liquidity, and companies' inability to obtain financing, good quality investment-grade companies that aren't in cyclical businesses have no difficulty raising money whatsoever."

However the money manager doubted that there was extensive high-yield play in the General Mills deal, given that it came with a 5.65% coupon, at a slight discount, to yield 5.661%.

New Intelsat bonds gain altitude

When the new Intelsat 8 7/8% notes due 2015 were freed for secondary dealings, several traders saw the bonds having moved up to 92 bid, 93 offered from the 88.5 figure at which they had priced earlier in the session.

One noted that the size of the deal had been doubled from the $200 million which had originally been shopped around.

"It looked like most of the allocations went to existing holders who tendered [old notes that the company is partially taking out], based on a pro rata formula, so there was very little re-trading in it.

Recent new issues hold gains

Among recently priced issues, a trader saw Chesapeake Energy's new 9½% notes due 2015 at 97.5 bid, 98 offered. That was off from the peak level at 99 which the Oklahoma City-based independent oil and gas exploration and production company's upsized $1 billion of bonds touched in initial aftermarket activity after their pricing Wednesday, and in just a bit from 98 bid, 99 offered at Wednesday's close, but still well up from their pricing level earlier that session at 95.071.

Chesapeake's established 6½% notes due 2017 were seen by another market source having gyrated around in the lower 80s in busy trading, before finally coming to rest at 82 bid - precisely where they had begun the session.

The first trader also saw the new Inergy 8¾% notes due 2015 at 93.5 bid, 94.5 offered, up ½ point from 93 bid, 94 at Wednesday's close. The Kansas City, Mo.-based retail and wholesale propane marketing and distribution operator's upsized $225 million of the bonds had priced earlier that session at 90.191.

And he saw Petrohawk Energy Corp.'s 10½% notes due 2014 at 94.5 bid, calling that up from recent levels around 93-94; the Houston-based oil and gas exploration and production company priced an upsized $600 million of the paper at 91.279 a week ago.

However, the trader saw no fresh activity in Crown Castle International Inc., which priced an upsized $900 million of 9% notes due 2015 last week at 90.416. The Houston-based communications antenna operator's new issue had moved steadily up since then, including a day of very active trading on Tuesday, before peaking at 96.5 bid on Wednesday. At another desk, a market source did see some round-lot trading in the bonds on Thursday, but quoted them at 96.75, which he called unchanged on the day.

A trader said that "the new issues from the past couple of days have all settled into a trading range," and took particular note of Tennessee Gas Pipeline Co.'s new 8% notes due 2016; the Houston-based energy pipeline operator, a unit of El Paso Corp., priced a $250 million of the split-rated issue a week ago at 94.881, and since then, he said, the bonds have moved up smartly and still remain bid-for.

He quoted the bonds "at least 99 bid today, looking [for bids], if not [higher]" and said he was "expecting those bonds to trade at par in the near future, if somebody really wants them."

The company's outstanding 7 5/8% bonds due 2037 were also doing quite well on Thursday, with a market source quoting them up more than 5 points on the day to above the 90 level, on fairly busy volume topping $10 million.

Market indicators turn mixed

Back among the established issues not impacted by new-deal placements, the widely followed CDX High Yield 11 index of junk bond performance, which rose a full point on Wednesday, surrendered all of those gains and then some on Thursday, a trader said, quoting the market measure down 1½ points at 74¾ bid, 75¼ offered.

However, the KDP High Yield Daily Index was meanwhile little changed on the day, 1 bp better at 54.24, while its yield also rose by 1 bp to 13.53%.

In the broader market, advancing issues maintained their lead over decliners, although their previous bulge of almost two-to-one was cut to a narrower nine-to-eight margin.

Overall market activity, measured by dollar-volume totals, fell nearly 11% from the levels seen in Wednesday's session.

A trader said that "we went into new-issue lockdown this [Thursday] morning, with the Intelsat deal. [The market] got pretty quiet right out of the gate."

He said that "Royal Carib. was under some pressure, down a couple of points after Barclay's downgraded the equity [Wednesday], and the earnings."

He also saw "casino names were weaker - MGM was a little weaker"

But overall, "we've continued to see buyers looking for paper. So there's still really good demand. The credits that are trading off are [doing so because they are] either earnings related or because they're problematic."

Generally, he said, "the buying is disciplined - what we're seeing is people not necessarily chasing new issues ever higher - they're circling back to the secondary market and re-looking at positions that they have [in established bonds] and adding to those positions as bonds become available."

Well before the AMG number hit the market, he predicted that judging from the strength which has been evident in Junkbondland, "we'll see a pretty good cash number coming into the mutual funds again, which would push us over $2 billion year-to-date. So that should be pretty good" - a forecast which turned out to be right on the money.

Another trader reported "a quiet day," theorizing that junk players were "taken aback by the drop in Treasuries, which, when you actually read the news, it's appropriate." Among the factors weighing on the fixed- income markets, he said were earnings released, the overall economy, "constant job cuts and the ugly durable goods figures."

While he saw the presumed market bellwether, Community Health Systems Inc.'s 8 7/8% notes due 2015, higher by ½ point at 97 bid on $7 million traded, he quickly added: "I don't feel that's indicative of the market. I could not categorize our market as up today. Unchanged and quiet? Possibly. But I certainly would not categorize it up, like Community Health."

The 3/8 point drop in Freeport-McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017, to 83.125, on very busy volume of $38 million, he said "is a lot more indicative of the market today."

An investor noted that 30-year government paper dropped a whopping 2 ¼ points, ending the session yielding 3.56%, said the investor who quipped about migrating to Treasuries from junk.

"I think it's driven by concern about all the new Treasury supply, and concern about the Chinese not being there to buy our deficit," the money manager commented.

"The absolute yields aren't attractive enough to get other income buyers.

"And it's not clear how much support Treasuries are going to get from the Federal Reserve Bank.

"The concern is that foreigners are not going to buy."

On top of all that, U.S. equities received a sound thrashing, with the Dow dropping 2.7% while the Nasdaq unloaded 3.24% of its value.

Against that backdrop one might reasonably wonder whether there was a good word to be heard in the capital markets - but the high-yield primary developments and the flow of cash into mutual funds did give some reason from hope in junk.

Ford flails around post numbers

Ford Motor Co.'s bonds were seen holding to a narrow range after the Dearborn, Mich.-based Number-Two domestic carmaker reported a wider-than-expected fourth-quarter loss; that bad news was balanced somewhat by Ford's declaration that it would not need any government bailout money, unlike its domestic arch-rivals General Motors Corp. and Chrysler LLC.

A trader saw Ford's 7.45% bonds due 2031 down 1½ points at 21.5 bid, 23.5 offered, while a second market source saw Ford's 8.90% bonds due 2032 off nearly 3 points at just over 18.

But another trader said that Ford's 7.45s had traded at a round-lot level of 23, down just ¼ point on the day, on $20 million traded, and saw Ford Motor Credit Co.'s 12% notes due 2013 unchanged at 75 bid, despite $7 million of the bonds changing hands.

And at yet another desk , Ford's bonds were seen by a trader "generally up ½ to 1 point across the board, despite the loss." He saw the 7.45s at 22 bid, 24 offered, which he called "up perhaps ½ point."

He pointed out that Ford's chief executive officer, Alan Mulally, being interviewed on CNBC, said that Ford "has cash on hand," as well as funds available from its credit facility, which it is drawing down in the face of market uncertainty, but not to fund day-to-day operations, and "has yet to go for TARP [bailout] funds" from the government.

A market source saw the 7.45s open a tad higher than Wednesday's close around 23, and then bounce around in a range of 22-24. Volume was fairly active, with a number of large-block trades seen.

Ford's New York Stock Exchange-traded shares meantime closed down 8 cents, or 3.94%, to end at $1.95, on volume of 30 million - down nearly two-thirds from the usual daily handle. Like the bonds, the shares moved within a narrow range, with the day's high and its low separated by all of 8 cents.

Ford reported a deeper-than-expected fourth-quarter loss of $5.88 billion, or $2.46 per share, considerably larger than its year-earlier deficit of $3.06 billion, or $1.13 per share. Excluding one-time items, the latest quarterly loss came to $1.37 per share, worse than analysts' consensus estimates in the $1.25-$1.30 per share area.

Revenue slid 36% to $29.2 billion, versus $45.5 billion in the 2007 fourth quarter.

Even Ford's credit arm, traditionally a source of profits that could offset losses from its domestic auto operations, proved to be no help this time around, posting a $372 million loss.

For the year, Ford posted its biggest-ever loss, $14.6 billion, more than five times the $2.7 billion of red ink recorded in 2007. That yearly loss eclipsed Ford's previous company record yearly deficit, $12.6 billion in 2006.

With the credit markets remaining unsettled and likely closed completely to further new borrowing by the problem-plagued U.S. carmakers, Ford said that it was drawing down the remaining $10.1 billion on its existing credit line, and was also deferring a scheduled $2 billion payment into an auto workers-union run trust fund in order to conserve cash.

Although Ford burned through some $21.2 billion of cash last year, $5.5 billion of it in the fourth quarter, leaving it with a year-end cash position of $13.4 billion, the company said that it would not need to access any loans from Washington, unlike its major rivals; they needed emergency loans -- $13.4 billion for GM and $4 billion for Chrysler - as last year ended to stave off bankruptcy. Ford asked the government for a $9 billion stand-by line of credit it could access should the already tough conditions in the battered auto industry worsen, but it has repeatedly insisted that this was only a contingency measure, and that it did not expect to have to tap into that credit line, a position the company reiterated on Thursday. Ford said that it plans to receive the $10.1 billion of credit line cash on Tuesday and combined with its cash, this should be sufficient to let it ride out the industry downturn.

Cruise line's bonds get that sinking feeling

Elsewhere, Royal Caribbean Cruises bondholders were being buffeted by rough seas Thursday as the company reported a 98% fall in fourth-quarter profits from a year ago - results which a trader said were "no shocker," given the weakness that consumer discretionary spending for things like expensive seaborne vacations has been showing over the past few quarters.

Inexplicably, the bonds had been firming over the previous several sessions - perhaps on investor hopes that the numbers might not be so bad, with the company being able to reap some rewards from the world fall in crude oil prices. But that did not turn out to be the case - fuel costs actually went up rather than down, as at-the-pump prices failed to reflect the fall in crude costs, and the falloff in demand for cruises was greater, combining to batter the earnings down.

"I was surprised to see people actually buying the bonds" the previous few sessions, the trader said, quoting the company's 8% notes due 2010 as having slid to 86 bid on a round-lot basis from 89 on Wednesday, with $7 million traded.

The 6 7/8% notes due 2013 and the 7% notes due 2013 did even worse, with the former bond falling nearly 6 points on the day to 59.75, on volume of $3 million, while the latter dropped more than 6 points to 63 bid, with $2.5 million traded.

Royal Caribbean reported that net income fell to $1.4 million, or just a penny per share, from $70.8 million, or 33 cents per share, a year ago; analysts on average were looking for earnings of 5 to 10 cents per share. For the full year, earnings totaled $573.7 million, or $2.68 per share, down from $603.4 million, or $2.82 per share, in 2007.

And 2009 doesn't look any better; faced with softening consumer spending for leisure, the company warned of a first-quarter loss between 30 cents and 35 cents per share; it said full-year 2009 earnings will likely come in at only a little more than half of 2008's already-shrunken profit, at no better than $1.40 per share. Those projections are worse than analysts' consensus expectations.

While the company's cash position seems adequate - it reported liquidity at year-end of $1 billion - company executives said on their conference call that they may look to extend the maturities on some of its debt.

Royal Caribbean's NYSE-traded shares fell by 26.7% at one point in the session before ending down $1.21, or 13.36%, at $7.85; volume of 21.6 million shares was five times the usual turnover.

Mohegan tumble trips sector peers

A trader saw gaming issues faltering after Mohegan Tribal Gaming Authority reported a fall in gaming revenues and other financial measures during the fiscal first quarter ended Dec. 31. Mohegan, he said, "was out with very weak numbers, and that put pressure on the other gaming names."

Mohegan's own 6 1/8% notes due 2013 were down 2 points on a round-lot basis, at 72.25 bid, with $9 million of the bonds traded.

The Uncasville, Conn.-based operator of the Mohegan Sun casino resort reported that for the fiscal first quarter ended Dec. 31 gaming revenues totaled $326.7 million, down 6.8% from the same quarter the previous year, pressured by the effects of the recession on consumer leisure spending as well as competition from the other Native American gaming operator in Connecticut, Foxwoods Resort Casino, which expanded last year in partnership with MGM Mirage. Competition from racetrack-based slot-machine parlors in Yonkers, N.Y., and Lincoln, R.I., areas that would normally be "feeder" markets for the Connecticut casinos, also cut into Mohegan's slice of the regional gambling revenue pie.

On the basis of those disappointing Mohegan numbers, the trader saw an across-the-board drop in rival gamers such as MGM Mirage, which was "down points;" he saw its 8 3/8% notes due 2011 fall to 60.5 bid from 64.875 on Wednesday, while its 6¾% notes due 2013 lost 1½ points to end at 60. The session's biggest loser, he said, was the 7½% notes due 2016, down 5 points to 56 bid, on $3 million traded.

He also saw Wynn Las Vegas LLC's 6 5/8% notes due 2014, which dipped more than 2 points to 73, on $11 million traded.

A market source elsewhere said MGM Mirage's 6 5/8% notes due 2015 lost more than 4 points on the day to end around the 57 level, while its 5 7/8% notes due 2014 retreated nearly 7 points to the 54 level. Wynn's 6 5/8s fell almost 2 points to a bit over 73.

Rite Aid revival rolls on

Rite Aid Corp. bonds continued their rebound from the lows seen on Tuesday, when investor angst over a ratings downgrade and fears of liquidity deterioration led to a selloff. A trader saw the company's 8 5/8% notes due 2015 trading between 26 and 27.5 bid on a round-lot basis, up from 22.5 on Wednesday and well up from levels around 20 on Tuesday, when the bonds slid.

He saw its 7½% notes due 2017 jump 3 points from Wednesday's levels to 57.5, on volume of $6 million, while its 10 3/8% notes due 2016 got as good as 65.5, before coming off that peak to end at 64.5, up from a close of 62.875 on Wednesday. $3 million bonds changed hands.

Another trader saw the 8 5/8s and the 9 3/8% notes due 2015 both 4 points better at 26 bid, 28 offered; he noted that the Camp Hill, Pa.-based drugstore operator announced a 1% rise in January same-store sales - the key financial performance metric for retailers -- which he called "a solid thing when everyone else [in the industry] was reporting same-store sales that sucked."

At another desk, a market source saw the 8 5/8s as much as 5 points better at 27.5 bid.

Troubled financials are active

A trader said that his shop was "fairly active in Lehman [Brothers Holdings Inc.] paper this morning, just cleaning up some positions for people."

A market source meantime said that Lehman's 4¼% notes due 2010 was one of the more actively traded issues on the day, pegging the bonds up more than 2½ points around the mid-13 level, while its 5 5/8% notes due 2013 did even better, up more than 3 points to the 14 bid level.

He also saw Nuveen Investments Inc.'s 5½% notes trading "around the 22 level, which is right in the range where they've been trading in."

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