Harrah's, Univision, Sbarro fall on losses; energy names seen off as oil slides; primary quiet

By Paul Deckelman

New York, Aug. 8 - Harrah's Entertainment Inc.'s bonds were lower on Friday after the world's largest gaming company reported that it slid into the red in the most recent quarter versus a year-earlier profit, again underlining the deterioration of an industry once popularly thought to be "recession proof."

Another downsider was Univision Communications Inc., as the Los Angeles-based Spanish-language media company showed a wider loss from a year ago.

Sbarro Inc.'s bonds were also lower after the Melville, N.Y.-based Italian fast-food restaurant chain served up a wider quarterly loss versus a year ago and lower EBITDA figures, hit by, among other things, soaring commodity costs for foodstuffs.

Apart from earnings-driven bond movements, energy names like Tesoro Corp., Massey Energy Corp. and Chesapeake Energy Corp. were seen on the downside, affected by investor unease over the rapid decline in oil prices and the fall in prices for other forms of energy like natural gas and coal, although Chesapeake's downside was seen by a trader as relatively limited.

American Axle & Manufacturing Holdings Inc.'s 2014 bonds slid precipitously, although no one saw any fresh news out about the automotive components maker.

But overall, trading volume was seen low and activity slow, while in the primary market, syndicate sources said absolutely nothing was going on Friday.

Market gauges seen little changed

A trader said that the widely followed CDX index of junk bond performance was up 1/8 point on Friday, quoting it at 92 11/16 bid, 92 15/16 offered. The KDP High Yield Daily Index declined by 4 basis points to end at 70.35, while its yield increased by 1 bp to 10.62%.

In the broader market, advancing issues were seen about even with decliners. Activity, represented by dollar volume, plunged by 53% from the levels seen Thursday.

The general consensus among traders was summed up by one who said that "not much was going on" in this "typically sleepy summer Friday session."

"It was dead, awful," another said. "It would have been nice to leave at 2."

Harrah's hurt by slide into the red

A trader saw Harrah's Entertainment's 10¾% notes due 2016 traded into a 71 bid, down about 4 points. He said that the Las Vegas-based casino giant's other bonds "were all over, down 3 or 4 points" in the wake of the release of the company's second-quarter results.

Another noted the weak numbers and the bonds' lower levels, but said that "they were mostly down over the last couple of days in anticipation of bad numbers." With the numbers out, "they didn't get hit that much" additionally.

He saw its 6½% notes due 2016 trading at 42.5 bid, 43.5 offered - down just a point on the day, though off 4 points on the week.

The bonds fell as Harrah's officially became recognized as the latest victim of the vicious downturn that has gripped the casino industry, which was once thought of as a safe, defensive play during bad economic times. But the combination of high energy prices that have restricted air and car travel and consumer reluctance to frivolously spend money in the face of a worsening economy and uncertain employment prospects, has brought the slowdown to the casinos as much as other business sectors.

For the second quarter, the company reported a net loss of $97.6 million, versus net income of $237.5 million in the year-ago quarter.

Total revenues for the quarter were $2.6 billion, down 3.7% from $2.7 billion in the same period last year. Property EBITDA for the quarter was $646 million, down 9.5% from $714 million last year. Adjusted EBITDA for the quarter was $634 million, down 11.1% from $713 million in the second quarter of 2007.

And, the company's second-quarter income from operations was $323.1 million, compared with $477.9 million last year.

For the six months ended June 30, net loss was $285.4 million, compared with net income of $422.8 million in the first half of 2007. Total revenues were $5.2 billion, down 2.9% from $5.4 billion in the comparable 2007 period. And, income from operations totaled $724.1 million in the 2008 first half, compared with $929.1 million in the prior-year period.

"The first half of the year presented us with the most turbulent economic conditions the casino-entertainment industry has faced in years," the company's chairman, president and chief executive officer, Gary Loveman said in the news release announcing the results. "Customer visitation fell in the second quarter as consumers coped with higher fuel costs, declining asset values, the impact of widespread flooding in the Midwest and other financial challenges.

"During the second quarter, we reduced certain costs in response to reduced demand, but continued to fund for the future," Loveman continued in the release. "We completed the re-branding of Caesars Indiana to Horseshoe Southern Indiana and Grand Tunica to Harrah's Casino Tunica. Today we celebrate the grand opening of the $485 million expansion at Horseshoe Hammond in Northern Indiana, and we remain on track with the expansion of the hotel tower and convention center areas at Caesars Palace in Las Vegas. Further, we have completed the $565 million expansion of Harrah's Atlantic City."

Sbarro off after wider loss

Sbarro's bonds were lower after the company, which runs over 1,000 restaurants worldwide serving pizza and other Italian specialties, mostly in shopping malls, reported relatively unappetizing second quarter numbers. A market source saw its 10 3/8% notes due 2015 down more than 2 points on the session to the 80 mark.

At another desk, the bonds were seen having retreated to the 79 level, down more than 2 points on the day.

Sbarro said that in the fiscal second quarter ended June 29, its net loss widened to $5 million, more than double the year-earlier red ink of $2.4 million.

Although revenue rose to $85.4 million versus $82.6 million a year earlier, helped by the addition of new stores in the second half of 2007 and the beginning of this year, EBITDA slid to $5.5 million from $9.7 million, with the company attributing the decline to the increased cost of cheese, flour and flour-related commodity costs such as pasta, as well as increased cost of labor, while comparable unit sales from outlets open at least one year declined slightly.

Company executives are scheduled to discuss the results in a Monday afternoon conference call.

Univision off on mucho red ink

Another bond seen lower after earnings was Univision's 7 7/8% notes due 2011, which slid 2½ points to the 89 range.

The Spanish-language media company reported a net loss of $100.7 million, compared to a net loss of $19.6 million in the 2007 comparable period. Net revenue for the quarter was $533.1 million, down 4.3% from $557.3 million last year. And, operating income before depreciation and amortization1 decreased 10.9% to $219.9 million in 2008 from $246.8 million in 2007.

For the six months ended June 30, net loss was $266.9 million, compared to net loss of $86.6 million in the same period last year. Net revenue was $991.9 million, up 0.1% from $990.9 million in the first half of 2007. And, operating income before depreciation and amortization decreased 5.8% to $370.8 million in 2008 from $393.5 million in 2007.

Energy names run out of gas

A trader said that apart from the earnings-related names, a key factor in an otherwise listless sector was the weakness - not just on Friday but over the last several sessions - of oil and gas related bonds, paralleling the steep fall which oil itself has recently been taking.

Petroleum - which had traded above $147 per barrel only a month ago - has since come down radically from that peak. In Friday's dealings on the New York Mercantile Exchange, light, sweet crude for September delivery slumped $4.82 to settle at $115.20 a barrel, its lowest settlement since May 1, when it settled at $112.52. During Friday's trading, crude dipped as low as $114.90. Prices for gasoline, heating oil and natural gas also dropped.

That sudden weakness in heretofore strong energy prices has been the catalyst behind the gradual comedown in the sector's bonds, the trader said.

He saw Denver-based independent oil and gas exploration and production operator Cimarex Energy Corp.'s 7 1/8% notes due 2017, which two weeks ago were trading at 99, finishing Friday at 97.75.

He saw San Antonio-based refiner Tesoro's 6¼% notes due 2012 trading into a 90.75 bid, the low tick on the day, down 1½ points on the session.

Suburban Propane Partners LP's 6 7/8% notes were also weaker, nosing down to a 91.25 bid from prior levels above 93.

The trader did see one of the bellwether names in the sector, Chesapeake Energy, "holding in okay," with its 6 3/8% notes due 2015 trading at 94.5 "a couple of times," its 7% notes due 2014 at 99, its 7½% notes due 2014 at 101.5 and its benchmark 7¼% notes due 2018 at 97.5 bid, 98.5 offered, "give or take a quarter point here and there. They didn't trade off as much as you would think," owing to their main business being in natural gas rather than oil, although gas prices have also recently come down.

However, at another desk, a market source saw Chesapeake's 6 7/8% notes down more than a point on the day at 95.625.

The trader also saw coal names off a little Friday "as the equities got hammered," with Massey Energy's 6 3/8% notes due 2013 at 97.5 bid, 98 offered, down from 98.75 bid, 99 earlier in the week. However, he saw sector peer Peabody Energy's bonds "holding in, doing fine,, with its 6 7/8% notes due 2013 hovering at 101.5 bid, 102 offered.

GM bonds, other autos take a breather

After several sessions in which the battered bonds of General Motors Corp. were seen having firmed off the lows they recently hit after the Detroit giant reported a $15.5 billion second-quarter loss, one of the largest in its 100-year history, as well as a steep July sales decline, that paper was generally observed to be unchanged Friday.

A trader saw GM's benchmark 8 3/8% bonds due 2033 unchanged at 52.5 bid, 53 offered, while GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were likewise steady at 54 bid, 55 offered.

Another trader also saw the GM benchmarks unchanged at that 52-53 level, commenting that there had been "some trades - but it wasn't terribly active."

Yet another said it was "kinda quiet in the autos."

Among the auto-finance related issues, GM's 49%-owned affiliate GMAC LLC's 8% bonds due 2031 were seen by a trader unchanged at 55 bid, 57 offered, while its 6 7/8% notes due 2012 were ½ point better at 63. On the downside, a market source quoted GMAC's 5 5/8% notes due 2009 down ¾ point at 92.5, while its 7¼% notes due 2011 were seen down 1½ point at just below the 70 level.

Ford vehicle-financing unit Ford Motor Credit Co.'s 7.80% notes due 2010 gained 1¼ points to end at 75.

Yet another trader said it was "kinda quiet in the autos."

While that may have been true of the mainstream OEM names, it was not the case among the auto parts manufacturers whose health is inextricably linked to that of the traditional Big Three of GM, Ford and Chrysler LLC.

There, a trader saw American Axle & Manufacturing Holdings' 5¼% notes due 2014 "get crushed," despite a lack of fresh news out on the Detroit-based maker of truck axles, a major GM supplier. He saw the bonds fall into the mid-50s from prior levels in the 60s.

At another desk, those bonds were seen having fallen to 54 bid, up a point from their opening but well down from the 62-ish levels they had occupied earlier in the week. Trading was described as active, and mostly in round lots.

The company's 7 7/8% notes due 2017 were seen having gyrated around in a 5 point range, also in very active big-block trading, before finally coming to rest right back where they had gone home on Thursday, at 57.

Elsewhere in the sector, Lear Corp.'s 8½% notes due 2013 were seen having fallen more than 2½ points to close at 80.5.

At another desk, a market source pegged its 5¾% notes due 2014 at just above the 70 level, down nearly a point on the day, on no news.

New Texas Industries bonds not seen

A trader said he saw no sign of the new Texas Industries Inc. 7¼% notes due 2013, $300 million of which priced on Thursday as an add-on deal. However, he did see the outstanding bonds - the two issues are not fungible - trading at around the 93.5 level.

Primary quiet

A primary market source said late in the day that "abosolutely nothing" was going on in that quarter.

Caribbean Restaurants LLC's $149 million issue of senior secured notes due 2012 remains on the road, with marketing expected to wrap up late in the upcoming week.

Sara Rosenberg contributed to this report.

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