XM up as merger approval seen near; Freescale climb continues, as does NXP slide

By Paul Deckelman and Paul A. Harris

New York, July 23 - XM Satellite Radio Holdings Inc.'s bonds rose solidly on Wednesday, apparently buoyed by news reports that members of the Federal Communications Commission are near a deal which would allow its long-awaited merger with rival satellite broadcaster Sirius Satellite Radio Inc. go through.

Primary market participants meantime awaited word on the Washington, D.C.-based satellite radio company's new offering of five-year notes. Syndicate sources heard price talk on the issue, which indicated that despite its already fat, double-digit coupon, the bonds would likely price at a healthy discount to boost their yield even further.

Back among the established issues, Freescale Semiconductor Inc.'s bonds were continuing the rise seen at the tail end of Tuesday's session, given a big boost by the Austin, Tex.-based computer chip manufacturer's favorable earnings data, which was released late in the day on Tuesday.

However, sector peer NXP BV's bonds - which fell on Tuesday in response to that company's worse-than-expected numbers - kept on sliding during Wednesday's session.

Another high-tech name with earnings out was Blue Bell, Pa.-based computer services company Unisys Corp. - but while its shares fell on an unexpected quarterly loss, a trader said its bonds were little moved, probably since the loss was smaller than its year-ago deficit.

R.H. Donnelley Corp.'s bonds were better, in line with a sharp spike in its share price, although there was no fresh news out on the company that might explain the movement.

A trader from a high-yield mutual fund said that the market started "like a gunshot" on Wednesday morning, but became quiet toward afternoon.

A money manager from a different high-yield mutual fund said that junk was basically flat, or perhaps 1/8 lower on Wednesday.

Market indicators mostly move up

A market source pegged the widely followed CDX junk bond performance index unchanged on the day, quoting it at around 94 bid, 94¼ offered. The KDP High Yield Daily Index jumped by 42 basis points to end at 71.94, while its yield tightened by 13 bps to 10.30%.

In the broader market, advancing issues led decliners by an almost two-to-one margin. Activity, represented by dollar volume, rose about 7% from the levels seen in Tuesday's session.

A trader said that the market "had a pretty decent tone to it today. Nothing's running away, because people are still cautious here - but it had a pretty decent tone."

'Zero liquidity'

"The market is quiet," a money manager from a high-yield mutual fund said. "People are trying to figure out the macro picture. I don't think anyone knows what to do."

The money manager said that right now high-yield investors do not want to be in the primary market.

Meanwhile in the secondary market inventory is scarce.

"You can't buy size and you can't sell size either," the money manager asserted.

"There is zero liquidity."

Right now, the investor said, high-yield accounts are looking at higher quality, shorter duration paper, which has not moved, and comparing it to lower quality, longer duration paper from cyclical issuers, "which has been destroyed.

"The question is, do you stay defensive? Or should you move into some of this beaten up higher beta paper?

"People are trying to figure that out."

XM gains as merger OK seen near

The trader said that XM's 9¾% notes due 2014 "are well up there - wow," quoting the bonds as having moved up to 99.25 bid from prior levels in the mid-90s. "They got a nice boost, a nice run-up."

A market source saw the bonds advancing to just below par from their close at around 94 on Tuesday, while noting that the previous level had come on a very small trade and might not be indicative. The previous round-lot trade Tuesday was at a shade over 95, putting the bonds still up at least 4 points on the day Wednesday, when most of the trades involved large-sized blocks of bonds.

Another source saw the bonds up an even 4 points at 99.25.

XM's New York Stock Exchange-traded shares meantime rose 94 cents, or 10.33%, to $10.04, on volume of 28.2 million shares, nearly five times the usual turnover.

The final pieces appeared to be falling into place on FCC approval for XM's combination with its smaller competitor, Sirius, in a $3.5 billion deal which both money-losing companies say is a necessity if satellite broadcasting is to survive. The regulatory agency - whose approval is necessary for the merger to go through - has been reviewing the deal for more than a year.

Although the merger effort was briefly dealt a set-back on the news that one of the five commissioners, Jonathan Adelstein, had decided to vote with fellow Democratic member Michael Copps in opposing the deal, leaving the vote temporarily knotted at 2-2 - the panel's chairman, Kevin Martin, and fellow Republican commissioner Robert McDowell have already indicated their approval - news reports Wednesday afternoon said that Martin had managed to convince the third GOP member, Deborah Taylor Tate, to cast the deciding vote in favor of the transaction, although nothing was yet official.

For a time, it appeared as though Adelstein might vote for approval - if a series of conditions he outlined were met - but as of Tuesday night, Martin indicated that he would not go along with those modifications.

While the satellite operators contend that only by combining and realizing millions of dollars of synergies and cost savings can the fledgling industry survive - neither company has yet turned a profit - conventional terrestrial radiocasters who compete with XM and Sirius have opposed the deal, as have some politicians and consumer advocates who oppose creating what amounts to a monopoly in the satellite radio field.

XM talk: 13% coupon, 16% area yield

Meanwhile, although the primary market generated very little news on Wednesday, that which it did generate got peoples' attention.

XM set price talk for its $400 million offering of five-year senior bullet notes with a 13% coupon, pricing at a discount to yield 16%.

Pricing is expected on Thursday.

JP Morgan, Morgan Stanley and UBS Investment Bank are joint bookrunners for the debt refinancing deal which is related the pending merger of XM with Sirius Satellite Radio, Inc.

A buy-side source who won't play the deal pointed out that if the notes price to yield 16% they will be priced at a "distressed level."

The source added that if the deal gets done it will probably trade pretty well because investors who become involved will know what they were buying, and will make certain that it trades well.

Freescale flies on good numbers

Back among the established issues, Freescale Semiconductor's bonds were up on what one trader called "their solid earnings" reported at the close of the day on Tuesday.

He saw the company's 10 1/8% notes due 2016 trading at 78.25 bid, 79 offered, well up from Tuesday's finish around the 76 mark, while its 9 1/8% notes due 2014 traded up to 81.5 bid, 82.25 offered from 80.5 at the close on Tuesday.

Another trader saw those latter bonds at 82.25, calling it a 1¾ point gainer on the day.

At another desk, Freescale's 8 7/8% notes due 2014 were seen up nearly 5 points on the session at just above 85.

Freescale said late Tuesday that its operating loss and net loss for the second quarter of 2008 shrank to $137 million and $184 million, respectively from $268 million and $288 million, respectively, during the 2007 second quarter.

Excluding unusual expenses such as the reorganization of business charges and non-cash purchase accounting expenses related to the company's acquisition by a private equity consortium in December 2006, the latest quarter's operating earnings were $234 million and EBITDA was $368 million, well up from $159 million of operating earnings and $311 million of EBITDA in the year-ago period.

Net sales for the second quarter were $1.47 billion, up sequentially from $1.41 billion in the first quarter up still further from $1.38 billion a year ago.

NXP retreat continues

But while Freescale's bonds were sizzling, competitor NXP's were fizzling, continuing to fall on adverse investor reaction to the Dutch computer chip maker's latest quarterly numbers.

A trader saw NXP's 9½% notes due 2015 "get hammered" down to as low as 66.5 bid before closing at 70, still down 4 points from Tuesday's close at 74, "so they were down 4 [points] on the day, although they had been down 8."

A second trader also saw those bonds "up 3 or 4 points from the lows," which he estimated at 67 bid, 69 offered, before the bonds went out at 70 bid, 72 offered, which he said was a 4 point loss on the session.

A market source at another shop called the bonds down 4½ points at that 70 level, while the company's 7 7/8% notes due 2014 were seen down about a point at 85.

NXP said Tuesday that that its adjusted EBITDA for the second quarter was $114 million, down sequentially from $183 million in the first quarter and down even further from $190 million a year earlier.

Sales slid to $1.524 billion in the quarter, down 0.6% from first-quarter levels and down $1.9% from a year ago.

Unisys seen steady despite loss

A trader said that Unisys Corp.'s bonds had been quoted down ½ to ¾ point during the session on what he termed "disappointing earnings' by the company.

However, late in the session, he said that its 6 7/8% notes due 2010 were at 95.5 bid, while its 8% notes due 2012 were at 85.5 bid, 86 offered, which he called "actually unchanged," although he noted that the issue "hasn't traded that much."

Given the fact that the company showed a loss when most analysts were expecting at least a small gain, and the company's shares traded off, "I would have thought that the bonds would have gotten hammered, truthfully," he said.

However, another market source, while seeing Unisys' 12½% notes due 2016 unchanged at 99 and seeing the 8s actually up slightly from the past previous round-lot trade on Tuesday, though down more than a point from that session's smallish odd-lot closing trade, said its 8½% notes due 2015 were down several points to around 80, while its 6 7/8s were about unchanged.

Its NYSE-traded shares were down 37 cents, or $8.85, to $3.81. Volume of 4 million shares was around 1½ times the norm.

Unisys posted a loss of $14 million, or 4 cents per share, versus a bigger loss of $65.5 million, or 19 cents per share, a year earlier. However, Wall Street had been expecting earnings of about 2 or 3 cents per share.

CNH gains on numbers, guidance

Better quarterly numbers helped CNH Global NV's shares and bonds bulldoze their way higher, with its 7¼% notes due 2016 seen having pushed up to above the 99 level from Tuesday's close at 97.5.

That rise came after the Dutch heavy equipment company said that its second-quarter profit jumped 52% from year-ago levels, citing strong industry-wide demand for farm equipment and market-share gains.

CNH's shares were also among the biggest gainers, percentage-wise, on the NYSE, ending up $8.18, or 26.39%, at $39.18. Volume of 2.4 million shares was four times the usual level.

CNH earned $347 million, or $1.46 per share on revenues of $5.55 billion, up from year-earlier earnings of $228 million, or 96 cents per share on $4.32 billion of sales. Excluding restructuring charges, CNH earned an adjusted profit of $351 million, or $1.48 per share - good enough to beat Wall Street expectations of $1.15 per share earnings, excluding restructuring charges, on $4.85 billion of sales.

The good results caused the company to also up its full-year earnings guidance to $3.40 to $3.60 per share, versus its previous prediction of $3.30 to $3.60 per share. Analysts expect earnings between $3.35 and $3.40 per share, with all projections excluding restructuring charges. CNH also anticipates sales of $5.41 billion, up from 2007's revenues of $4.33 billion.

The company, which produces farm equipment like tractors and combines as well as construction equipment, bases its more bullish forecast on expected continued strength in agriculture, as high commodity prices and low commodity stockpiles fuel continued growth in global demand for heavy farm equipment.

R.H. Donnelley up as stock surges

R.H. Donnelley's 8 7/8% notes due 2016 were seen up by several points to 52 bid, versus Tuesday's levels around 48, although the bonds had been trading in the low to mid-50s before that and only fell down into the 40s Tuesday on several smallish odd-lot trades.

A trader saw its 9 7/8% notes due 2013 "pretty active" and up a point at 86, while quoting the 8 7/8s at a wide 52 bid, 55 offered in morning trading, versus a 53 bid "a couple of days ago," with no sizable trading seen in a week.

Another trader who saw the 9 7/8s at 85 bid, 86 offered, said that the issue "held up pretty well, estimating a gain of ¾ to 1 point. He also saw its 11¾% notes due 2015 trade into an 81 bid.

The bonds firmed in line with a powerful surge in the Cary, N.C.-based telephone directory publisher's NYSE-traded shares, which jumped 46 cents, or 26.35%, to $2.11 on volume of 3.3 million shares, 1½ times the usual turnover.

However, there was no fresh news seen out on Wednesday that might explain the movement of the company's bonds and shares.

Donnelley's 6 7/8% notes due 2013 were unchanged from the 54 level seen on Tuesday.

Autos extend gains, despite soft sales data

The recently hard-charging automotive names extended their gains for yet another session, even as General Motors Corp. reported that global sales for the quarter fell from last year's levels, dragged down by sagging sales in North America that offset hefty gains notched in the rest of the world.

A trader saw GM's benchmark 8 3/8% bonds due 2033 up 1 point at 58 bid, although he noted that the carmaker's 49%-owned financing arm GMAC LLC's 8% bonds due 2031, "which had been up a couple of points" closed at 64, unchanged on the day.

A second trader saw both GM's benchmark and domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2045 up a point at 58 bid, 59 offered.

A market source at another desk saw the 8 3/8s end the day up more than 2 points, above the 60 mark, in very busy size dealings, while the company's 7.20% notes due 2011 did even better - up more than 4 points to above the 75 level - and GMAC's 8s gained 1½ points to 65.

Another source estimated the GM 7.20s as up nearly 3 points, to almost 76, while GMAC's 7¼% notes due 2011 were more than 2 points better, trading above 76.

GM reported second-quarter sales at "record levels" in its overseas divisions, selling in Latin America, Africa and the Middle East, Europe and the Asia-Pacific region. However, despite those impressive gains, the giant carmaker said that total global sales 2.28 million cars and trucks were actually down 5% from year-ago levels, because of a 20% nosedive in vehicle sales in its core North American market.

WaMu bonds give up gains

Traders saw Washington Mutual Inc.'s bonds - which had actually notched some gains late Tuesday despite the news of the big thrift's big quarterly loss - giving up those gains as investors apparently looked past management's assertions about the company's strong capital and liquidity position to focus on the sheer amount of red ink it generated in the latest quarter, over $3.3 billion.

Matters were not helped by Standard & Poor's announcement that it was cutting its ratings on Seattle-based WaMu, the nation's largest savings institution, down to BBB-, just one thin notch above junk level (although the bonds remain for now a 6-B nominally investment-grade credit, they've been trading off some junk desks for a while).

A trader said that "the financials were getting ahead of themselves," and quoted WaMu's 4 5/8% notes due 2014 at 58 bid, down from late-Tuesday levels between 59.5 and 61.

Another trader said he saw those bonds at 61, down from 62 late Tuesday, but said that he "really didn't see a lot of dumping of the securities."

He saw WaMu's 8¼% notes due 2010 go as low as 78 during the session before finishing at 80.25, which he called unchanged. He saw "lots of odd-lot trading" in that particular issue.

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