Junk slumps, but picks up near day's end; NOVA gyrates, TXU tumbles, Station mixed as investors eye Boyd bid

By Paul Deckelman and Paul A. Harris

New York, Feb. 24 - The junk bond market started Tuesday off on the downside, traders said, taking its cue from the early uncertainty in equities brought about by continued worries about the economy amid negative consumer confidence and home price data and whether or not the banking sector would be nationalized. However, once stocks turned around later in the day, with the bulls heartened by statements from Federal Reserve boss Ben Bernanke, high yield likewise perked up, with many issues regaining their earlier lost ground.

NOVA Chemicals Corp.'s bonds were volatile, particularly its soon-maturing 7.40% notes, which at one point were seen down more than 3 points - albeit on a series of relatively smaller trades that probably are not indicative of the real market in the bonds, but by the end of the day they had come off those lows to end essentially unchanged.

There likewise was some bouncing around by Station Casinos Inc.'s main bond issue, as junk marketeers sought to get a handle on the at this point non-binding $950 million expression of interest in some Station properties which rival Las Vegas-based casino operator Boyd Gaming Corp. made late Monday, as the market was closing; however, Boyd's own bonds were seen lower pretty much across the board, even though acquiring some of Station's key properties at a relative bargain price would be a coup for the company.

Elsewhere in the gaming sector, Wynn Las Vegas LLC's bonds fell on disappointing quarterly results.

Bad numbers also caused car-rental giant Hertz Corp.'s bonds to skid badly. Texas utility operator TXU was also one of the day's bigger losers, with the company planning a multi-billion-dollar writedown against earnings.

And American International Group's bonds, and those of the various AIG subsidiaries, were seen mostly lower amid continued news reports that the faltering New York-based insurance giant - already the recipient of some $150 billion of federal bailout money - is trying to restructure that debt and is likely to post a record corporate quarterly loss next week.

In the primary arena, activity remained muted.

Market indicators remain mixed

A trader saw the widely followed CDX High Yield 11 index of junk bond performance having jumped 1 1/8 point Tuesday to 73¼ bid, 73¾ offered.

The KDP High Yield Daily Index firmed by 14 basis points to 53.39, although its yield gapped out by 26 bps to 13.74%.

In the broader market, advancing issues continued to trail decliners by an almost two-to-one margin.

Overall market activity, measured by dollar-volume totals, rose by 39% from the levels seen in Monday's session.

"The market definitely picked up later in the afternoon, and gained momentum as the Dow went up. There were definitely names that got stronger."

He said the activity level "started out really slow, then picked up until about 3:30 [p.m. ET], and then died out again."

A second trader said that "the market was soft all day, but late in the afternoon, I'm starting to see some better bids here and there, and I'm presuming that it's in sympathy with equities," which rose for the first time in seven sessions, bouncing back from Monday's massive losses on a combination of bargain-hunting and Bernanke's assurances that the government does not intend to nationalize banks and that the recession could end this year, if all goes well. The bellwether Dow Jones Industrial Average regained almost all of the ground it had lost on Monday - stocks' sixth consecutive downturn - finishing Tuesday up 236.16 points, or 3.32%, to close at 7,350.94. The Nasdaq composite index did even better, up 3.90%, while the Standard & Poor's 500 index beat both of them, gaining 4.01%.

With stocks leading the way upward, the trader said, "high yield guys seemed to be somewhat active."

While he said that "it felt like there might have been some cash coming out of the market," and raised the possibility that the junk bond mutual fund flow numbers expected late Thursday could actually show an outflow, which would be the first such cash exodus since late November, nonetheless, he added that "bids started filling in towards the end of the day."

Market bellwether names bounce back

He said that "nothing really stands out; the most actively traded bonds are the ones where we saw the bids get hit on this morning, but they seem to be filling in [now]." For instance, he suggested, Community Health Systems Inc.'s 8 5/8% notes due 2015 - frequently seen as a market barometer because of their great size, at over $3 billion, and widespread distribution -- traded down around 93.5 bid early in the session, but by late in the afternoon, were going home around 94.75 bid, 95 offered.

He said that while he normally doesn't trade in the name, "I think the same thing is going on with Freeport-McMoRan [Copper & Gold Inc.]."

Another trader saw Nashville-based hospital operator Community Health's bonds ended on a round-lot basis at 95 bid, versus 95.25 on Monday, on $29 million traded, which he called "pretty good volume on that one today."

He too noted that the bonds had dipped to 93.5 earlier in the day, so the bounceback "is probably indicative of how we mirrored the equity market."

He saw the Freeport-McMoRan bonds - nearly constant fixtures, day in and day out, among the most actively traded issues - as again living up to that role, with the Phoenix-based copper and gold producer's busiest issue, the 8 3/8% notes due 2017, "actually up today" at 86.625 bid, improved from 85, on volume of $34 million, although its floating-rate notes due 2015 finished at 73 bid, down 2 points from Friday's round-lot levels, but on volume of only $2 million.

And he saw another issue sometimes seen as a market proxy, the $2 billion-plus First Data Corp. 9 7/8% senior notes due 2015, dipping to 55.75 bid 56.5 on Monday, but said that the volume was only $4 million, which he said was "amazing" for a deal that size, "how it just doesn't trade."

The trader said that while "a few issues really got hit, I'd have to say the overall tone was pretty much unchanged."

Hertz hurtin' on numbers

One of those issues he was referring to that really got hit was Hertz Corp.'s 8 7/8% notes due 2014, which he called easily "the biggest decliner," as well as one of the most actives; he saw the Park Ridge, N.J.-based auto rental industry leader's bonds slide to 53.75 bid from 60 previously, on $30 million traded, while its 10½% notes due 2016 plunged even further, to 39.5 bid from their previous round-lot finish at 50.5 last Thursday, although there was only about $2 million of activity in that issue.

The bonds slid as the company reported a fourth-quarter net loss of $1.21 billion, or $3.76 per share, versus net income of $80.7 million, or 25 cents per share, in the 2007 fourth quarter.

Adjusted pre-tax loss was $103.7 million, versus the year-earlier adjusted pre-tax income of $152.5 million, and adjusted net loss was $73 million, a sharp deterioration from adjusted net income of $93.9 million last year.

Revenues for the quarter were $1.79 billion, a decrease of 16.4%, from $2.14 billion in 2007, while corporate EBITDA for the quarter was $116.9 million, a decrease of 69.7% from the same period in 2007.

As for an outlook, due to continued volatility in car and equipment rental markets, with volume, pricing and residual value declines attributable to the global recession, the company said it was unable to provide specific quarterly or full year 2009 revenue, earnings and cash flow guidance.

Hertz also said on Monday night that it ended the fourth quarter with total debt of $10.97 billion and net corporate debt of $3.82 billion, compared with total debt of $12.84 billion and net corporate debt of $4.25 billion as of Sept. 30, 2008.

Levered cash flow for the quarter was $430.5 million, compared with $586.8 million in the fourth quarter of 2007.

As a result of the company's poor quarter, Fitch Ratings cut Hertz's outlook to negative.

It definitely was "not a good day for Hertz," the trader concluded.

TXU tumbles on writedown warning

The day's other big loser was Texas Competitive Electric Holdings Co. - the old TXU - whose 10¼% notes due 2015 dropped to 57 from 60 on Monday, on $30 million of volume, after the Dallas-based energy holding company said that it would write down about $9.6 billion in assets for the quarter.

"So two of your most active issues, at $30 million each, one is down 6 points and the other 3," the trader said, comparing Texas Competitive and Hertz.

Texas Competitive Electric issued the bonds as part of the $45 billion leveraged buyout of Texas utility operator TXU in 2007. As the market value of those assets has declined amid the financial turmoil, the company is planning to write down their value. Part of the impairment is an $8.9 billion goodwill charge.

The charges "resulted from an assessment of the carrying value of these assets triggered by the recent declines in market values of debt and equity securities of comparable companies," it said in a press release.

NOVA backtracks, ends little changed

A trader saw NOVA Chemicals Corp.'s 7.40% notes coming due on April 1 pretty much unchanged on the day around a 96.5 bid, 97.5 offered context, holding onto most of the spectacular gains - over 40 points - which the troubled Calgary, Alta.-based chemical company had notched on Monday on the news that it will be bought by the Abu Dhabi-government owned International Petroleum Investment Co. for $499 million in cash, plus the assumption of its $1.8 billion of debt.

While he acknowledged that the bonds had dropped as low as the 93.5 level during the day's trading, he dismissed that move as not representative, noting that it was "all odd lots down there - there were like four 20-bond trades maybe a 40-bond trade. All the rest" were on a round-lot basis at considerably higher levels. "So I don't think it [really] backed off."

He also noted that that was "before the market started picking up here late in the day. The market feels a lot better, so I would expect them to be better [Wednesday]."

Examining a printout of the trades, he declared that "it looked like the same bonds changed hands [on all the small trades]," revising his initial estimate to "three 40-bond trades and five 20-bond trades" around the 94-94.5 region. "All of the trades before that were around 97."

Another market source, queried later in the session, indicated that after that brief late-day dip into the lower 90s, the bonds sprang back up to the same 97ish level at which they had finished Monday's session, on several large-volume trades.

But while those short bonds had bounced off their lows to hold their own, on volume of some $11 million, a trader at another shop noted that NOVA's 6½% notes due 2012 fell to a final round-lot level of 79, down from Monday's 82.5, with $9 million changing hands. Its floating-rate notes due 2013 dropped to 70 bid from Monday's 76.5, although volume on that one was only $2 million.

"People are more comfortable that the 7.40s will be paid off" when the $250 million issue matures on April 1, "but of course, down the road, I guess they're still a little skeptical about how strong a credit this will be."

Station Casinos take a step back

Station Casinos' 6% notes due 2012, which had jumped to 35 bid late Monday on the news that Boyd Gaming is interested in buying several of its properties for $950 million, were seen having retreated back to 32.25 on Tuesday, on volume of $9 million.

Its 6½% notes due 2014, which have languished in the single-digits for weeks, traded at 5, versus 6.5 at the middle of the month. Some $2 million traded.

However, the company's 7¾% notes due 2016, which were not seen trading Monday, shot up to 33 bid from 25.5 previously, a trader said, although volume was only $2 million.

Another trader, in noting the pullback in the most widely traded issue, observed that "there's nothing firm to that [asset acquisition] yet. Guys are still trying to sort it out."

He saw the Station 6s trading "in the low 30s, so that's up a little bit" from where they had traded most of Monday, though not from the final trading of that session, post-news, which boosted the 6s to 35 bid.

He also saw "small trades" in the 61/2s, which he said were "still in the single digits, around 5," while the company's 7¾% notes were around a 33-33.25 range.

However, for the latter two issues, he said "there weren't a lot of bonds, just one or two trades in each."

He added that "it's kind of hard to tell" which way the Station bonds would ultimately go. "The interest that Boyd would have would be in the stuff that's not secured," such as its Wild Wild West, Fiesta Station, Boulder Station, Texas Station, Santa Fe Station and Aliente Station.

The main casinos that secure loans and are thus not immediately on Boyd's radar include the Palace Station, Sunset Station and the Red Rock Resort Spa and Casino.

'A lot of wood to chop'

The first group, he said, "would be the casinos I think Boyd would be looking at, but it's all subject to due diligence, and after that there will be [credit agreement] clauses and such. There's a lot of wood to chop to see if there is anything to do there. I don't think the market is going to take them up," Although, he said "it's a plus to have somebody interested."

Boyd, he said, would likely have no problem financing the estimated $950 million cost it is suggesting, since "they stopped construction on the Echelon project" that is supposed to rise on the Las Vegas Strip site formerly occupied by the famous "Rat Pack"-era Stardust Casino. "They halted it due to market conditions, and they've probably got a couple of bil[lion dollars] sitting around untapped" in their credit line . So "they would have capacity, and if the properties are unsecured, they would be able to deal with bank debt and secure them."

However, he reiterated, "the devil's always in the details and there's a lot of wood to chop there" before any kind of a deal gets done.

He meantime saw "some smaller trades" in Boyd's paper, with the 73/4s down around 74.5, which he estimated was "down a couple of points, maybe 2½ points from where they were before this news came out."

Wynn lower

Also in gaming, a trader said that Wynn Las Vegas put up "disappointing numbers," causing its 6 5/8% notes due 2014 to fall to 65.25 bid from 72 on Monday, on volume of $29 million.

Wynn, with gaming operations in its home base of Las Vegas and in Macau, lost $159.6 million in the fourth quarter, versus net income of $65.5 million in the fourth quarter of 2007. The company's gaming revenue plunged amid a general industry slowdown, and it also paid a hefty $98.8 million in taxes.

AIG angst lowers bonds

American International Group Inc. bonds were seen mixed, even as reports continued to circulate that troubled AIG -already in the hole for $150 billion of government loans - is looking for yet another restructuring of its obligations, which could mean a bigger government stake than the 80% of the insurer it now has, news which caused the company's shares to slide badly.

A trader saw AIG's 6¼% notes due 2036 at 45 bid, down from 52 on Monday, on volume of $11 million. However, its busiest issue, the 5.85% notes due 2018, merely eased ½ point on a round-lot basis to 52.5 bid, on volume of $80 million, reflecting trading in both the high-grade market - the bonds are nominally investment-grade rated, or at their lowest, a "5-B" credit - and the junk market, where AIG has been trading since at least last fall, despite its nominal ratings.

Another trader said there were "not many buyers - everyone is trying to get rid of them right now."

He continued that he "did not see one 'offer wanted' for AIG - not one buyer. Everyone was a seller. Someone would just throw out a [low] bid, and it would get hit."

However, some AIG-related paper was actually up on the day, with the trader seeing its American General Finance Corp. 4 5/8% notes coming due on May 15 at 77 bid, up from 72.5 on Monday, on volume of $23 million, while its International Lease Finance Corp. 3½% notes due April 1 traded at a round-lot level of 94.5 bid, up from 90 previously, on volume of $41 million.

Cemex starts roadshow

The primary market remained largely inactive on Tuesday save for news that Mexico-based cement company Cemex, SAB de CV will begin a roadshow on Wednesday in London for a benchmark-sized dollar-denominated offering of senior notes (//BB) with intermediate maturities and high-yield covenants.

The roadshow moves to New York on Monday, and is expected to wrap up on March 4, with pricing after that, depending on market conditions.

Citigroup is leading the debt refinancing deal.

Meanwhile price talk could surface Wednesday for Tyson Foods Inc.'s $500 million offering of senior bullet notes due 2014 (Ba3/BB) being led by J.P. Morgan, Banc of America Securities, Barclays Capital and Wachovia Securities, sources say.

Considering the current capital markets volatility, the deal is heard to be going well, and is expected to yield somewhere in the 12% range, according to an informed source.

Pricing is set for Friday.

Both Cemex and Tyson are former high-grade issuers making their debuts in the high-yield new issue market, sources say.

Hence the only two deals being actively marketed at Wednesday's close are fallen angels.

And both are running full investor roadshows.

Stephanie N. Rotondo contributed to this report.

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