Charter takes a step back; GM steady despite new bailout needs; Precision Drilling nowhere to be found

By Paul Deckelman and Paul A. Harris

New York, Feb. 18 - Charter Communications Inc.'s bonds - which had been steadily rising since last Thursday on the news that the company will restructure its debt and eliminate a sizable chunk of it - were seen on Wednesday giving up some of the previous session's hefty gains.

General Motors Corp.'s bonds were seen not much changed, with apparently little investor reaction to the news that the beleaguered automotive giant and smaller rival Chrysler Corp. will each need many additional billions of government bailout dollars to continue operating. Also in the automotive arena, Hertz Corp.'s bonds were seen lower - including a sharp, if temporary plunge in one issue - although there was no fresh news out that might explain that fall.

There also was no immediate explanation for the improvement in Tyson Foods Inc.'s bonds, which were solidly higher in busy trading.

Back on the downside, MBIA Inc.'s 2033 surplus notes - ostensibly investment-grade rated but traded in Junkbondland - fell sharply, a trader said, on the news that the New York-based bond insurer will separate its crown-jewel municipal bond insurance business from the riskier operations that sent its finances into a tailspin last year.

Trump Entertainment Resorts Inc.'s bonds were seen gyrating around on the first day after the Atlantic City, N.J.-based gaming company announced its "Chapter 33" filing - in other words, the third trip into bankruptcy for the debt-challenged company or its corporate predecessors, which had also reorganized through the courts in the early 1990s and again several years ago. However, volume was light, consisting mainly of small trades.

Primary market players were meanwhile expecting Precision Drilling Trust's $250 million issue of six-year senior notes to price after the scheduled midday closing of the books on the deal - but like the two main characters in the classic drama Waiting for Godot, everyone was still sitting on their hands at the end of the day, waiting in vain for something that never shows up and hoping it might arrive tomorrow, although there was some talk in the market that the deal was struggling.

Market indicators mostly keep retreating

The widely followed CDX High Yield 11 index of junk bond performance, after having fallen by 3/8 point on Tuesday, was unchanged on Wednesday, said a trader who quoted it at 72¼ bid, 72¾ offered.

The KDP High Yield Daily Index was meanwhile down another 27 basis points on the day at 53.80, while its yield widened by 11 bps to 13.33%.

In the broader market, advancing issues continued to trail decliners, by a 10-to-seven margin.

Overall market activity, measured by dollar-volume totals, shot up by almost 55% from the levels seen in Tuesday's session.

A trader noted the overall lower tone in the market. He said that volume - despite relatively the sharp rise from Tuesday's pretty sedate post-holiday levels - was "light" by high yield's usual standards, with "the majority of my most active page down. So the trend is definitely lower."

For instance, he said that the most active issue that he'd seen on the day was Community Health Systems Inc.'s 8 7/8% notes due 2015 - which is also viewed by some as a barometer of trends in the overall junk market because of its great size ($3 billion-plus) and widespread distribution -- which was lower on the day. The Franklin, Tenn.-based hospital operator's bonds retreated to 96.75 bid from Tuesday's close around 97.5, a decline which he said was "probably indicative of our market." He saw $25 million of the notes changing hands, but observed that while it was the busiest on the session, "that was not a big number."

The other issue frequently thought of as a reliable market proxy, Greenwood Village, Colo.-based e-commerce processor First Data Corp.'s $2 billion-plus 9 7/8% notes due 2015, was also on the downside, off ½ point at 57, although he saw only $4 million traded, "very light volume, actually."

"The secondary market, on a relative basis, has held in better than equities," a syndicate official commented, adding that the junk market is not presently correlated with either equities or the notably active high-grade market.

"At certain points in the past equities have led the high-yield market," the official recounted.

"And if you continue to see equities remain volatile it could impact secondary trading in high-yield."

Absent a leg down in the secondary market, the high-yield primary ought to continue the way it has been going, the official said, noting that there have been inflows to the high-yield mutual funds, as well as interest payments and redemptions which are still relatively high compared to the amount of activity in the primary, where the accounts might put that money back to work.

Charter rise interrupted

A trader saw Charter Communications' bonds lower on the session - a sharp reversal from Tuesday, when the paper had mostly firmed smartly in heavy trading as it continued the momentum generated at the end of last week on the St. Louis-based cable operator's announcement that it would restructure much of its debt. Besides being lower, volume was greatly reduced from Tuesday.

He saw the company's Charter Communications Holdings 10¼% notes due 2010 at 84.5 bid on a round-lot basis, down from 87 on Tuesday, while its CCH II LLC 10¼% notes due 2013 dipped to 82.75 bid from 85, on volume of $5 million. Its CCO Holdings LLC 8¾% notes due 2013 lost 1¼ points to end at 85.25, on $7 million traded.

Another trader called the Charter bonds "down a few points today," seeing the 2010s at 82.5 bid, 84.5 offered, and the 10¼% 2013s at 80 bid, 82 offered, which he estimated was about 3 points lower.

A market source at another desk meantime saw the 83/4s down 1½ points at 85, while the company's CCH I LLC 11% notes due 2015 lost more than 5 points on the day to close below 10.

The Charter bonds had been rising pretty much across the board since last Thursday when Charter - the fourth largest U.S. cable system operator, by subscribers and revenues after Comcast, Time Warner Cable and Cox Communications, though ahead of Cablevision - announced that it would enter Chapter 11 sometime before or on April 1 to restructure its $21 billion debt load. Charter said it had reached an agreement with an ad hoc bondholders' committee on a plan to restructure some $8 billion of its approximately $11 billion of bond debt, taking out the existing paper by giving those bondholders a combination of cash, new debt, shares in the reorganized company and/or warrants to buy those new shares. Charter's $10 billion of bank debt and the remaining $3 billion of bond debt will remain in place, and all of its current equity will be cancelled. Despite that loss of his estimated 51% equity stake, Charter's main investor, software billionaire and Microsoft Corp, co-founder Paul G. Allen, will remain Charter's main investor, with an estimated 35% stake in the reorganized company.

GM in neutral despite increased bailout needs

Elsewhere, a trader saw General Motors' 8 3/8% bonds due 2033 down ½ point at 15 bid, 16 offered, while a second saw those bonds actually up ½ point at 15.625 bid, on $7 million of volume, investors apparently unfazed by the late Tuesday news that the troubled carmaker will need at least another $16.6 billion of federal bailout money, on top of the $13.4 billion it has already received, to continue normal operation.

The second trader saw GM's 7 1/8% notes due 2013 likewise ½ point better at 16.5 bid, on $4 million traded.

GM, yet another trader said, "didn't move," as the fact that it needs another huge cash infusion "is not exactly news, so they stayed unchanged."

However, a source at another shop did see the long bonds, moving higher to the 16.5 level, up more than a point on the day.

Detroit-based industry leader GM, along with the smaller Chrysler LLC, had to give federal officials a comprehensive turnaround plan by Tuesday as a condition of its end-of-the year government bailout.

While GM's plan envisions cutting another 47,000 jobs from its workforce, closing or selling its money-losing Hummer, Saab and Saturn operations and greatly scaling back its venerable Pontiac division -- a GM mainstay since 1932 -- GM also said that it would need as much as $30 billion of federal money, in total, including the $13.4 billion it got from Washington at the end of the year as well as $16.6 million in additional cash. GM warned that it could run out of money by March without new funds, and needs $2 billion next month and another $2.6 billion in April. GM pointed to the worsening economic environment and weaker-than-expected sales since December, when it first sought federal assistance, in upping its total request for assistance to $30 billion from the $18 billion of federal expenditures it projected originally.

Hertz gets hurt

Also in the automotive realm, a trader saw Hertz Corp.'s bonds heading lower, with its 9¼% senior notes due 2016 at one point falling as low as the 50 area from their levels between 61 and 63 at which they had traded "all day" before that. He wondered whether the unusually low figure was some kind of technical mistake, which, he pointed out, "people make all the time," although he noted that the low trade had been up on the Trace system for over a half hour at that point without having been pulled or killed, and was still there at the end of the day.

Another trader also saw those bonds dipping down, and theorized that "it could have been a bad quote." He otherwise saw the bonds trading all day in a 61.5-62 context all day, before firming off the unusually low trade to go out at 62 bid, 64 offered, on "a lot of volume."

A market source at another shop said the bonds were finishing down around 2 points on the day at 62.5 after first having dipped below 50, although they recovered from that fall later on with some large-block trades back up to the closing levels.

One of the traders quoted Hertz's 10½ senior subordinated notes due 2016 down a point at 50, on $2 million traded. A second trader quoted those bonds at 49 bid, 50.5 offered, while a third, while seeing them down a point in round lots at 50, also noted they were down around 5 points from late Tuesday levels, although there had been no news about the Park Ridge, N.J.-based car-rental company that might explain the drop.

Tyson tastier, but no one knows why

Another unsolved market mystery was the rise in Tyson Foods' 8¼% notes due 2011; a market source saw those bonds, which had finished in the low 90s on Tuesday, push as high as 96 and change during the day before going home just below the 96 level, on about $13 million traded.

There was no fresh news seen out on the Springdale, Ark.-based poultry and meat processors that might explain the gain.

MBIA mauled on new-unit plan

A trader said MBIA Inc.'s 14% surplus notes due 2033 fell to 42 bid, 46 offered, which he called "down 10 or 12 points on the day" from prior levels in the 50s, pushed down by the news that MBIA will create a new, separate municipal bond insurance unit, thus segregating its bread-and-butter municipal bond insurance business from the kind of risky mortgage-backed securities whose collapse last year severely trashed MBIA's formerly strong financial picture, credit rating and bond prices.

The news that the muni insurance business is being moved to the new subsidiary caused S&P to slash currently principal subsidiary MBIA Insurance Corp.'s ratings by 5 full notches to BBB+ from AA previously, with the agency citing the lost revenues that MBIA Insurance would suffer as a result of putting a big chunk of its overall business in the new and separate entity.

"There was a lot of news out on MBIA," the trader said, noting the downgrade and noting also that the company's New York Stock Exchange-traded shares jumped as much as 41.66% in intraday trading before finally finishing up $1.03, or 29.60% on the session, at $4.51. "That's a big move on a $3 stock," he commented. Volume was 28.7 million shares, over four times the usual turnover.

The municipal bond unit news, he said was "good for the stock - but bad for the surplus notes."

Trump jumps around, then turns south

A market source saw Trump Entertainment Resorts' 15½% notes due 2015 bouncing around at somewhat higher levels for much of the day, though only on a series of small odd-lot transactions, before they reversed course later on and ended lower by several points.

Those bonds - which had been anchored around 14 last week, before the gaming company's third bankruptcy filing - had finished the day on Tuesday at around 11 bid, although there was an earlier round-lot trade around 13. The bonds opened Wednesday having firmed to nearly the 16 bid area, but came back down from that peak later on to hover around 13, not much changed on the day. Several smallish trades late in the session were seen having pushed the bonds down to about the 10 mark.

Chesapeake retreat limited despite giant loss

One of the most actively traded bonds on the day was Chesapeake Energy Corp.'s recently priced 9½% notes due 2015. A trader saw $23 million of the Oklahoma City-based energy exploration and production company's notes changing hands, down 5/8 point on the session at 97.125.

Chesapeake priced $1 billion of the bonds on Jan. 28, and brought a $425 million add-on to market a week ago.

The trader agreed with the proposition that it was interesting that the bonds were only down a fraction of a point, even as the company reported that in the fourth quarter it lost $860 million, or $1.51 per share - a bad deterioration from a year earlier, when Chesapeake had turned a profit of $303 million, or 33 cents per share. The slide into the red was chiefly attributable to writedowns that the company took on the value of oil and gas reserve properties it held, due to the plunge in energy prices from their peak levels last summer.

Chesapeake also warned that the poor economy and soft conditions in the energy industry would cause it to cut its previously announced 2009 cash-flow projections. Chesapeake now says that financial measure would come in at $1.25 billion to $1.28 billion, well down from the $2.1 billion to $2.4 billion that it forecast as recently as December.

The trader opined that "there's lots of cash on the sidelines, and the cash is going to the better-end names," like Chesapeake, "so I think people are willing to accept some of these losses with the better-end names, looking at it more long-term."

Thursday could be busy

The Wednesday primary market did not generate any news.

However Thursday is apt to be a different story, according to sources on both the buy-side and sell-side who are looking for a $500 million offering from a food-related company in the consumer sector to launch on Thursday, via JPMorgan.

The deal will travel a full roadshow, according to a buy-side source.

Dole Food Co., Inc. is expected bring a $500 million maximum offering of notes - a deal that was disclosed when the company announced an amendment to its credit facility. However sources say that Thursday's expected deal is not the Dole deal.

Elsewhere there is a 50-50 chance that Qwest Communications International Inc. will bring a deal on Thursday, according to the same buy-side source. JPMorgan will be the bookrunner for the offering that could be sizable, depending upon what the market is willing to accept.

"They have a lot of debt coming due," said the buy-sider who added that Qwest, if it materializes on Thursday, could come as a drive-by.

HCA's possible first-lien deal

Meanwhile, HCA Inc., which priced a $310 million issue of 9 7/8% senior secured second-priority notes (B2/BB-/B+) due 2017 a week ago, is expected to return soon with a first-lien deal, sources say.

The Nashville-based health care company has launched a cash flow credit agreement amendment which would clear the way for the bonds, according to an investment banker.

However HCA is not granting any price concession or fee, in the deal, according to a high-yield mutual fund manager.

"The lenders want some type of fee, but I don't think they have much of a leg to stand on because HCA can buy bonds on the open market without approval - they have a basket to do that - if they don't get approval to issue first-lien bonds."

The buy-sider asserted that since the company is going to keep leverage neutral at the first-lien level the amendment stands to benefit the first-lien lenders.

"If you're a loan-holder, and the company is willing to push maturity out - which increases liquidity, or decreases the chance of a liquidity event - that's not a bad deal," the buy-sider said.

"And you might get preferential treatment when they do issue first-lien bonds because you're a first-lien loan holder that granted the amendment to the company without making them pay for it."

No word on Precision Drilling

Beyond the anticipated primary market business above, there were further rumblings, with sources suggesting that there are offerings that the dealers would prefer to bring under less volatile capital markets circumstances than those seen thus far in the post-Presidents Day week.

"People are eager to see what happens with the Precision Drilling deal," one high-yield syndicate official said.

The books for the Precision Drilling deal were expected to close on Wednesday morning, and some market sources had anticipated hearing final terms by the session's close.

However no terms had been heard as Prospect News went to press on Wednesday night.

Late last week Precision Drilling set price talk for its $250 million offering of 6.5-year senior notes: a 13½% coupon at a price of 90 to 92 to yield 15½% to 16%.

Deutsche Bank Securities and RBC Capital Markets are joint bookrunners for the Precision Drilling bond deal.

Late Wednesday the Calgary-Alta.-based oilfield services provider announced the closing of its 46 million offering of trust units which priced at $3.75 per unit.

The deal generated $172.5 million of proceeds, and was underwritten by RBC Capital Markets and Deutsche Bank Securities Inc. The syndicate also included TD Securities, HSBC, Cormark Securities, FirstEnergy Capital Corp. and Tristone Capital Inc.

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