XM up as FCC OKs merger; Pilgrim's Pride lower on Tyson results; Community Health off on numbers

By Paul Deckelman and Paul A. Harris

New York, July 28 - XM Satellite Radio Holdings Inc.'s established bonds were seen by traders as having firmed Monday in the wake of the news on Friday night, well after the financial markets had closed, that the Federal Communications Commission had given its approval to the company's acquisition by upstart rival Sirius Satellite Radio Inc. XM's newly issued six-year notes meantime hung onto the gains they had notched after having been issued at a steep discount to par last week.

But elsewhere in the junk world, most issues were lower amid continued bad news, with high yield players watching falling equities, while several issues were seen lower either directly on lower results, such as Community Health Systems Inc., or indirectly, such as Pilgrim's Pride Corp., which fell after sector peer Tyson Foods Inc. put out bad numbers.

A rare upsider was AK Steel Corp., which may be in line for a ratings upgrade from Moody's Investors Service due to improved financial results.

The primary market, meantime, after having successfully pushed out the XM deal around the middle of last week, remained pretty much in a mid-summer daze.

Sources marked the broad high-yield market flat to lower on Monday.

An investment banker, noting that the Dow Jones Industrial Average ended the day down by 2.11% said that junk was "flat-ish."

"It's fairly quiet," said the banker.

"There is not a lot of liquidity out there. Trying to make two-way markets, right now, is tough.

"There are limited buyers of paper in a lot of names."

Meanwhile a source from a high-yield mutual fund, also noting that "equities got crushed," said that the market was off a little, and spotted the General Motors Corp. 8 3/8% bonds maturing in 2033 at 53 bid, 54 offer, "off another point or so."

Market indicators remain lower

A trader pegged the widely followed CDX junk bond performance index down ¼ point Monday, quoting it at around 93 bid, 93¼ offered. The KDP High Yield Daily Index lost 27 basis points to end at 71.39, while its yield rose by 8 bps to 10.44%.

In the broader market, advancing issues trailed decliners by a more-than five-to-four margin. Activity, represented by dollar volume, plunged by over 34% from the levels seen in Friday's session.

A trader said that "nothing was going on. Everyone was watching stocks," which fell on renewed investor anxiety about the health of the financial sector. The bellwether Dow Jones Industrial Average fell 239.61 points, or 2.11%, to close at 11,131.08, and broader indexes reflected that drop as well.

"It was an absolutely nothing day," was how another trader put it.

A third said "with equities getting trashed here, and financials being beaten up again, there was pretty much widespread selling - not dumping or unloading, just some selling across the board. He estimated that the overall market was down a ½ point to 3/4.

Apart from fixating on the continued carnage in stocks, he said that "earnings" were what junk marketeers were focusing on - that and "everyone trying to figure out what a covered bond is." He was referring to the new kind of security (new to the United States, at any rate - they are widely used in Europe) which the nation's four biggest banks, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo, plan to issue, with the blessing of the Treasury Department to improve home financing in hopes of reawakening the nearly comatose housing market.

Community Health not so robust

The trader said that Community Health Systems' 8 7/8% notes due 2015 were trading at par bid, 100.5 offered, post-earnings - down from the 101.125 bid level at which they were last seen trading on Friday, and down from the 101 level at which the bonds were trading on Monday before the earnings came out.

A market source elsewhere saw the bonds at 101.25 bid, down around 1½ points, in busy dealings following the quarterly numbers.

Late in the session, the Franklin, Tenn.-based hospital chain operator said that its second-quarter net earnings fell to $47.9 million, or 50 cents per share, an 11% drop from $53.8 million, or 57 cents per share, in the year-earlier quarter.

It said that income from continuing operations was $49.8 million, or 52 cents per share, versus $53.6 million, or 57 cents a share, a year earlier, missing average Wall Street earnings forecasts by around a nickel per share.

Revenue - which more than doubled from a year earlier as a result of Community Health's acquisition of Triad Hospitals - came in at $2.69 billion, versus the roughly $2.75 billion that analysts were expecting.

The company said that lower Medicaid payments, particularly in Indiana, and rising costs hurt its bottom line.

Tyson problems hurt Pilgrim's Pride

Another earnings-related situation was Pilgrim's Pride, whose 8 3/8% notes due 2017 were seen down 3¾ points from Friday's levels to 75.5 bid, apparently on the poor numbers reported by sector peer Tyson Foods and what they might mean for Pilgrim Pride's own upcoming numbers - the Pittsburg, Tex.-based top U.S. poultry producer is scheduled to unveil its own quarterly numbers on Tuesday.

A trader saw Pilgrim's Pride's 7 5/8% notes due 2015, which had closed Friday at 86.25, bid at 83 on Monday, but with none offered. Tyson's 6.60% notes due 2016 were down about ¼ point at 92.25.

Springdale, Ark.-based Tyson, the second-biggest poultry producer, reported that it earned $9 million, or 3 cents per share, in the third quarter - a 90% plunge from year-earlier levels, due to the sharply escalating cost of corn and other types of animal feed. Besides chicken, Tyson is also a large beef and pork producer.

Excluding one-time items, Tyson lost 1 cent per share - a far cry from the roughly 12 cents per share of earnings that Wall Street had been expecting.

XM up as merger approved

Apart from earnings, XM Satellite Radio's 9¾% notes due 2014 were seen by a market source as having moved up to par bid, better by a point on the session, while another had the bonds at 99.125 bid, up from 99, although yet another shop was quoting the bonds at 99.5 bid, 100.5 offered.

XM's recently issued 13% notes due 2014 were "still holding onto a decent premium to their new-issue price," a trader said, quoting them at 91.125 bid, 91.75 offered, while another trader saw them at 99.25 bid, 99.75 offered.

The company's bonds were seen better on the news, announced on Friday evening long after the markets had closed, that the FCC, which been reviewing XM's planned acquisition by competitor Sirius for over a year, finally voted 3-to-2 to approve the deal, despite intense lobbying by the two satellite broadcasters' earthbound competitors and by consumer groups opposed to the creation of a monopoly operator.

Sirius' 9 5/8% notes due 2014 were seen little changed from the 81.5 level around which they had recently traded.

AK better as upgrade looms

A trader saw Middletown, Ohio-based steel producer AK's 7¾% notes due 2012 up ¾ point at 101.5 bid, 102.5 offered, although he allowed that the bonds were "not terribly heavily traded."

That rise accompanied the news that Moody's had put the company's ratings, including its Ba3 corporate family rating, under review for a possible upgrade. The agency cited AK's improved operating and financial profile, driven by strong steel fundamentals.

Moody's also noted the success which AK has lately been having in reducing debt and pension liabilities.

Auto bonds continue downside ride

Back on the downside, a trader saw General Motors Corp.'s 8 3/8% bonds due 2033 "down 1 or 2 points" at 53 bid, 55 offered. Another trader saw those benchmarks trading in a 53.5-53.75 context, pegging the bonds down 1¾ to 2 points down from a Friday close at 55.5. Yet another saw those bonds down a point at 54 bid, 55 offered.

Among the shorter GM issues, its 7 1/8% notes due 2013 were quoted down a full 3 points at 58, although another market source saw the bonds remaining just under 60, while its 7.2% notes due 2011 were seen at 72. Its 7.70% notes due 2016 settled in around 53 bid.

At GM's 49%-owned financing arm, GMAC LLC's 8% bonds due 2031 were quoted down 3 points at 58 bid, 60 offered, while its 6 7/8% notes due 2011 were seen having eased to 69.

A trader saw Ford Motor Co.'s 7.45% bonds due 2031 down a point at 52 bid, 53 offered, while another saw the bonds off a little at 52.75.

Ford Motor Credit Co.'s 7% notes due 2013 were seen by a market source having lost a point to 73, while another had them off just ½ point at 73.5.

Another losing hand for gaming investors

Among the gaming names, Inn of the Mountain Gods' 12% notes due 2010 were seen unmoved during the session, holding around the same 73.25 bid level to which the New Mexico-based tribal gaming operator's bonds had fallen on Friday from prior levels around 81.

A market source attributed the decline to investor reaction to poor quarterly numbers.

Elsewhere in the sector, Station Casinos Inc.'s 7¾% notes due 2016 were down more than 2 points to just under the 70 bid level, while its 6% notes due 2012 were also seen 2 points lower, at 73.

Isle of Capri Casinos Inc.'s 7% notes due 2014 were seen by a market source at 69, down more than a point, while another saw the bonds a little above 69, down a point.

Boyd Gaming Corp.'s 7¾% notes due 2012 lost a point to end below 80, while at another desk they were seen at 80 even, down a point.

Harrah's Entertainment Inc.'s 5¾% notes due 2017 dipped under the 45 mark, down about a point.

However, MGM Mirage's 6 5/8% notes due 2015 were seen up between ½ point and a point, just under 80.

WaMu washout continues

A trader saw Washington Mutual Inc.'s bonds continue to slide, with its 4% notes due 2009 dropping 1½ points to 83.5, while its 7¼% notes due 2017 lost 1 point to 53.5 bid, 54.5 offered. He noted that the first bond - due in January 2009 and thus, a five-month piece of paper - was trading at "an astronomical" yield of 48%.

He made the analogy to the Countrywide Financial Corp. situation "before Bank of America stepped in" and bought the troubled Calabasas, Calif.-based mortgage lender. "It's very similar, as far as the short paper getting continuously pounded, because of the high dollar prices."

Despite WaMu's well publicized troubles, including a $3.3 billion loss which the big Seattle-based thrift operator posted last week, "if you don't foresee them as faltering on their own and you believe someone will step in to save them - either another bank or the government - these are dirt-cheap."

Primary all quiet

The primary market failed to generate any news on Monday.

One deal is being actively marketed, sources say.

A roadshow will kick off on Wednesday for Allis-Chalmers Energy Inc.'s $350 million offering of 10-year senior notes, a post-correction acquisition deal via RBC Capital Markets and Goldman Sachs.

No junk for Wrigley

Meanwhile, according to a buy-side source, the Wrigley Co. LBO deal is going very well.

However, the buy-sider said, there won't be any junk bonds for people to buy because investor Warren Buffett is taking down $4.4 billion of subordinated notes, with a coupon in the context of 11%.

Meanwhile the $4.45 billion Libor plus 375 basis points term loan, talked at the 97 area, is going very well, the buy-sider said.

"This is not your ordinary LBO," the source asserted.

"There's a 60% equity check, and Buffett is involved.

"It's not highly levered, so it definitely gets a good reception."

Asked whether it is a surprise that the financing contains no publicly offered bond debt, the buy-sider said: "If Buffett thinks he has a good investment why shouldn't he take the 11% coupon for himself?"

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