"Ugly day," as market follows stocks down; Charter, Cablevision, Bally Fitness lower

By Paul Deckelman and Paul A. Harris

New York, May 10 - Monday was "an ugly day" in junkbond land, in the words of one typical trader, as continued fears of interest rate hikes continued to batter stocks and spook high yield investors. Investor wariness about earnings data for some widely followed issues also took their toll.

In the primary market, no deals priced by the close, primary players apparently following their secondary-market cousins to the sidelines to ponder the prospects for a Federal Reserve rate hike in the face of an apparently improving economy, the continued carnage in stocks, and the net effects of several consecutive weeks of outflows in high-yield mutual funds, seen as a key barometer of overall market liquidity.

"This was just an ugly day," a trader said. "Take your pick. Just about everything was down."

For instance, he saw Charter Communications Inc.'s 8 5/8% notes due 2009 fall to levels around 77.5 bid, 78.5 offered from prior levels around 80 bid, 81 offered, after the St. Louis-based cable operator reported a wider first-quarter loss, although it did post higher subscriber growth and sales.

Charter reported a net loss of $294 million, or $1 a share, wider than its year-ago loss of $182 million or 62 cents a share. On the bright side, revenue rose 3% to $1.21 billion from $1.18 billion a year earlier and while the company lost 8,500 basic cable subscribers during the quarter, that did represent an improvement from the 49,000 basic customers it lost a year earlier on a pro-forma basis. And Charter actually added 68,800 digital cable subscribers during the quarter, finishing the quarter with 2.7 million customers, versus its 6.2 million basic cable subscribers. The company also posted a gain in average revenue per user - ARPU, a key communications industry metric - which grew to $63.75 from $58.88.

Even with those not-so-bad numbers, however, Charter's bonds were generally seen down about two or three points across the board.

Also in the cable sector, a trader saw Cablevision Corp.'s 7 7/8% notes due 2007 trading down to 103.5 bid, 104.5 offered, from levels around 106.25 bid, 107.25 offered several days ago and a closing level Friday offered at 106.5, with no bid seen.

He also saw Cablevision's 7¼% notes due 2008 trading down to par bid, 102 offered from previous levels at 102.5 bid, 103.5 offered.

The Long Island based cable company and operator of the New York Knicks and Rangers pro sports teams actually didn't do that badly during the first quarter, posting a net loss of $120 million, or 42 cents a share, versus $151 million, or 54 cents a share, in the year-ago period.

Even so, its bonds were caught in the general downturn, with a trader quoting Cablevision's 8 1/8% notes due 2009 down two points on the session, at 103.5 bid, 104.5 offered.

Bally tumbles

Bally Total Fitness Holding Corp. also reported earnings, and said that its net loss in the first quarter was $13.8 million, or 42 cents per share - a considerable improvement from the year-earlier net loss of $635.2 million ($19.50 per share), including special items, in the year-ago period. The Chicago-based health and fitness club chain operator said that it had decreased its loss by increasing its membership.

Even so, Bally's bonds got pushed around like a 98-pound weakling at the beach, its 9 7/8% notes due 2007 seen having tumbled to 75.5 bid, 79 offered, from last week's levels around 81 bid, 83 offered.

"Not many were trading," the trader said.

At another desk, Bally's 10½% notes had dropped to 88.5 bid, 90 offered from 90 bid, 93 offered.

The bonds had fallen to those levels from 85 bid, 86 offered, after the company shocked Wall Street by announcing the abrupt departure of its chief financial officer, as well as the fact that the Securities and Exchange Commission was looking into the way Bally was booking membership revenue.

Delta drops

Another loser, a trader said, was Delta Air Lines, which "got mowed"; he quoted the Atlanta-based airline operator's 7.70% notes down a full six points, at 64 bid, 65 offered, after Delta for the first time officially warned about the possibility of bankruptcy in the event it cannot reach an accord with its pilots. He saw rival carrier Northwest Airlines' 8 7/8% notes off two points in sector sympathy, to 82.5 bid, 83.5 offered.

The trader said that Delta's warning is "the beginning of the end-game" for the carrier and its unions, who have sparred for months over Delta's efforts to get its pilots - the best paid in the industry - to agree to more than the 9% pay cut they've offered.

Delta, on its recent conference call, decried what it said were its way-too-high cost structure, putting the blame on the pilots and warning that current cost levels were unsustainable in the long run - but stopping short of a bankruptcy warning. However, in a filing with the SEC, it warned that it might be forced into Chapter 11 if no accord is reached with the pilots.

The trader said that "it's a game of chicken that everyone has been kind of anticipating."

He saw the Delta 8.30s of 2029 at 39 bid, 41 offered from 44 bid, 46 offered several days ago.

Not all of the loss was necessarily based on the news of Delta's finally using the dreaded "B" word - "the fact that they said it was not a surprise to anybody because they had kind of alluded to it for a while."

He noted that Delta could go either way, depending on what the union response was - it might go the way of AMR, which was able to "play hardball with its unions" and wring from them concessions that allowed the Dallas-based Number-One carrier to avoid bankruptcy - or it might end up like United Airlines, which was unable to get the kinds of concessions it needed and is currently restructuring.

"Who knows how it will turn out?" he shrugged.

Other downsiders Monday included Collins & Aikman Products Corp., whose bonds continued the slide seen on Friday, the Troy Mich.-based auto components maker's 11½% notes due 2006 dropping to 92.5 bid, 93.5 offered from 95.5 bid, 96.5 offered, and Great Atlantic & Pacific Tea Co.'s 7 % notes due 2007, off a point at 88 bid, 91 offered.

Level 3, some Williams issues firm

With so many bonds going down, rare was the issue that didn't - but there were a few here and there. Level 3 Communications Inc. - whose bonds had recently fallen sharply - continued to hold steady.

And Williams Companies 6¼% notes due 2006 - one of several series of bonds the Tulsa, Oka.-based natural gas company is tendering for (see Tenders and Redemptions elsewhere in this issue for full details) - were seen up about three-eights of a point at 104.25, around their planned take-out level.

A trader said that all of the seven issues of bonds for which Williams is tendering for had "moved up to close to their tender price - not up to it or through it, but close" - while the company's other bonds were unchanged on the session.

No new deals

No transaction terms emerged during the opening session of the May 10 week, as junk continued taking the lumps it began taking last Friday.

"Most of the action Monday was in the secondary, and it was pretty ugly," said a high yield syndicate source at the session's close.

"Possibly it wasn't quite as ugly as it was on Friday," the source added.

At this official's institution the perception remains that high yield accounts continue to have cash to put to work in the asset class.

"In the primary market we will see fewer announcements relative to pricings compared to the way it has been going for the past few weeks," the source said. "Also I image that we won't see as many euro deals on the calendar.

"There is an unmistakable trend, given the recent outflows. But we still haven't seen any large outflows; there has not been anything larger than $500 million in a few months.

"Accounts still have money. They don't have as much as they did a couple of weeks ago, or a couple of months ago. But it's not been a deluge of outflows at this point. It's something like $4 billion to $4.5 billion total that has flowed out this year.

"And last year the total inflows were over $20 billion."

Recent deals reflect moving market

The source also said that transactions seen in the late part of the May 3 week, coming downsized and at the wide end - in several cases wide of - price talk do not portend a significantly cash-diminished buy-side.

"It has been a busy primary market," noted the official. "People have been buying a lot. And of course money has been flowing out, according to the fund flow numbers.

"Those two factors would indicate that people have less cash. And they may have larger cash positions than they would ordinarily have, just because they took in so much cash last year.

"However, if someone wants to buy a deal now I don't think that they are scrambling to find the cash to do it. The fact that things are pricing wide and downsized, and deals are getting pulled is just a reflection of the fact that accounts are being selective, and that the whole market is moving."

A trickle of primary news

No deal terms were reported by market sources as the opening session of the May 10 week came to a close.

Some observers had been anticipating terms to emerge on Lazy Days' R.V. Center Inc.'s planned $155 million of eight-year senior notes (B3/B-) via Deutsche Bank Securities. Price talk is for a yield of 10¾%-11%. However no terms were heard by the close.

Price talk of 10½% area emerged Monday on Consolidated Container Co. LLC's upcoming $170 million of five-year senior secured second lien notes (B3/CCC), which are expected to price on Tuesday via Deutsche Bank Securities.

Meanwhile price talk is 12% area on Milacron Inc.'s planned $225 million of seven-year senior secured notes (Caa1CCC+), expected to price on Tuesday afternoon via Credit Suisse First Boston.

And price talk of 10¼%-10½% was heard Monday on Revlon Consumer Products Corp.'s $400 million of seven-year senior unsecured notes (CCC), which are expected to price on Wednesday via Citigroup.

Concentra announces $150 million

One offering was announced on Monday.

Concentra Operating Corp., an Addison, Tex. company which provides financial services to the health care industry, announced that it intends to sell $150 million of eight-year senior subordinated notes.

The company intends to use the proceeds, along with borrowings under the its amended senior credit agreement and $48 million of cash to fund a tender for its 13% senior subordinated notes due 2009.

Credit Suisse First Boston is the dealer manager for the tender offer.

Proceeds from the bond sale will also be used to pay a dividend of $97 million to parent company Concentra Inc., which will then pay a dividend to its stockholders.

Finally on Monday an informed source told Prospect News that Adesa Inc. is expected to start a roadshow during the week of May 17 for its downsized $125 million offering of seven-year senior subordinated notes (B1).

UBS Investment Bank and Merrill Lynch & Co. are the underwriters of the deal, which was decreased from $200 million.

The proceeds will be used to finance the spin-off of Adesa from Allete Inc.

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