Trump jumps despite loss, Sprint off as converts scrubbed; Texas Industries prices; funds add $96 million

By Paul Deckelman and Paul A. Harris

New York, Aug. 7 - Trump Entertainment Resorts Inc.'s bonds were seen solidly higher in active large-block trading on Thursday, even as the Atlantic City, N.J.-based gaming company reported a wider second-quarter loss versus a year ago.

Other credits seen gaining ground in the wake of earnings included Avis Budget Group Inc. and Blockbuster Inc.

Sprint Nextel Corp.'s bonds were seen under pressure late in the session on news reports that the Overland Park, Kan.-based wireless telecommunications company had decided to withdraw its planned sale of $3 billion of convertible preferreds, at least some of the proceeds of which were expected to be used for debt reduction.

In the primary market, Texas Industries Inc. was heard by syndicate sources to have successfully brought an upsized add-on offering to its existing 7¼% notes due 2013 to market, with terms mirroring the original bonds.

Funds rise by $96 million on week

And as trading was wrapping up for the session, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday some $96 million more came into the weekly-reporting funds than left them. It was the third consecutive inflow, including the $153 million cash infusion seen in the previous week, ended July 30. Over the past three weeks, inflows have totaled $275.4 million, according to a Prospect News analysis of the AMG figures.

There have been four inflows and four outflows seen during the last eight weeks, dating back to the week ended June 18; during that time, the funds have lost a net $538.276 million, according to the Prospect News analysis. Before that had come a run of 11 consecutive weekly inflows, stretching from early April through mid-June, during which time $3 billion of inflows were recorded, according to the analysis. Before April, outflows had been recorded in most weeks, with net outflows totaling around $1 billion.

With the calendar third quarter now well underway, inflows, after that slow start, remain solidly ahead, with 19 inflows versus 13 outflows seen in the 32 weeks since the start of 2008, according to the analysis. According to market sources, net inflows from the weekly-reporting funds since the start of the year, excluding distributions but including previous retroactive adjustments and revisions, are now estimated at $1.395 billion, up from $1.299 billion the previous week. At its peak, the 2008 net inflow totaled $1.933 billion in the week ended June 11, the final week of the 11-week run of straight inflows.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, more recently, hedge funds.

Texas Industries upsizes

One new issue priced on Thursday.

Texas Industries, Inc. price an upsized $300 million issue of notes mirroring its 7¼% senior notes due July 15, 2013, and priced it at 93.25 to yield 8.973%.

The issue price came at the cheap end of the 93.25 to 93.50 price talk.

The issue of non-fungible mirror notes (Ba3/BB-), which generated $279.75 million of proceeds, was upsized from $250 million.

Banc of America Securities LLC and UBS Investment Bank ran the books for the debt refinancing and general corporate purposes deal from the Dallas-based cement company.

A source close to the transaction said that it went very well, and added that the underwriters were able to grow the deal which played to a great book.

"Money is available for quality issuers," the source asserted.

The new Texas Industries bonds priced too late in the session for any meaningful aftermarket activity, traders said. A market source saw the original tranche of 71/4s having traded down to about the 94 level, a 2½ point drop, before the pricing, after having risen a point in Wednesday's dealings.

One on the road

With the drive-by mirror notes deal from Texas Industries having cleared, sources are expecting a quiet Friday in the primary market, as well as a quiet run-up to the Sept. 1 Labor Day holiday in the United States, a traditional summer-fall terminus in the bond market.

When the final session of the week gets underway it will do so with a single deal on the road.

Caribbean Restaurants, LLC, a Puerto Rico-based quick-service restaurant franchise which operates 174 Burger King restaurants, is marketing its $149 million offering of four-year senior secured notes (B3/B) via Jefferies and Credit Suisse.

The roadshow is slated to wrap up late next week.

Market barometers in retreat

Back among the established issues, a trader said that the widely followed CDX index of junk bond performance was down 3/8 point on Thursday, quoting it at 92 5/8 bid, 92 7/8 offered. The KDP High Yield Daily Index declined by 7 basis points to end at 70.39, while its yield increased by 1 bp to 10.61%.

In the broader market, advancing issues trailed decliners by a narrow margin for a second consecutive session. Activity, represented by dollar volume, rose by 19% from the levels seen Wednesday.

Despite that nominal increase, a trader said that activity was "pretty thin out there. I was expecting that after we got the Fed out of the way on Tuesday, that things would pick up during this end of the week. But with the slew of earnings and earnings [conference] calls out there today, it seemed like analysts were just focused on that and people are using early August as a light, take-a-breather vacation time."

Noting the ever-present lure that the sporting world presents in giving market participants an excuse to do nothing, he quipped that "with an afternoon Mets game and the PGA [golf] tournament on, we found a lot of distracted accounts. Combine those things with earnings and it was pretty light out there."

Another trader said that bonds "felt weaker, given the state of the equity market," which saw stocks fall as higher unemployment, lackluster retail sales and more woes in the financial sector sparked fresh investor concerns about the economy. The bellwether Dow Jones Industrial Average skidded nearly 225 points, with broader equity indexes also lower.

Trump is pumped

Trump Entertainment Resorts' 8½% notes due 2015 were seen to have pushed all the way up to the 51 mark from an opening at 47, which itself was up a little from Wednesday's close at 46.5. The bonds, which were moving around in fairly busy round-lot trading that produced more than $50 million of activity in the issue by mid-afternoon, outpacing most other issues, eventually came down from that peak level to trade in a 48-50 context, participants said, although there were a couple of small-sized trades that tried to take the bonds lower, back down to Wednesday's close.

A trader quoted those notes as having risen "on the back of its numbers" before coming off the 51 peak to end at around 48. A second saw the bonds going home at 47 bid, 49 offered, down from the 51 peak, but still up a point on the day. At another desk, a source saw the bonds up ½ point at 47.

A trader who saw the bonds going out at 48 bid, 50 offered, said that his "first reaction was that the earnings were down," but said the bonds had probably risen on investor feeling that "it could have been worse.

"I don't know what kind of expectations people have in the back of their minds - it's like, 'okay, it's not as bad as it could have been'." He also raised the notion that the bonds were being lifted by some short-covering, and then there was "some selling into strength," causing the bonds to be "hit back down." That level "was better [than Wednesday's close], but not nearly as good as they were at one point."

He said that there may have been "some selling ahead of the earnings - maybe they got a touch oversold, and then there was a collective sigh of relief that the earnings could have been worse, and they moved higher."

Another trader said that the bonds "were trading off going into the numbers. I think a lot of people were probably leaning on it and shorting it. Then the numbers came out, and it wasn't catastrophic."

He said the buying may have been short-covering, but allowed that "it's hard to figure out exactly what people's expectations were. [The reported numbers] don't look good, no - but what were the expectations? It's like every [company dependent on selling to or attracting members of the general public] is going to be putting up bad numbers - but you don't know what the expectations were. It's not like any of them are going to be reporting record growth or anything - but the bonds have been hammered lately, so you wonder if its just some short-covering post the numbers, giving them the catalyst to either knock 'em down or make 'em go one way or the other, and out."

The bonds rose even as the company said that its second-quarter net loss more than doubled from a year ago to $29.8 million, or 94 cents per share, versus $13.5 million, or 43 cents per share. Excluding non-recurring items, the per-share loss was 52 cents, a bit wider than the 50 cents per shares that Wall Street had expected.

Revenues were down 4.1% year-over-year to $226.1 million, and came in below the approximately $228 million that Wall Street was expecting. Gaming revenues fell to $178.3 million, a decline of $11.9 million, or 6.3% from second-quarter 2007 levels.

The company - which operates the Trump Taj Mahal and Trump Plaza hotel-casinos on Atlantic City's famed Boardwalk, and which recently agreed to sell its third New Jersey property, the Trump Marina, for $316 million to Coastal Marina LLC, blamed the wider loss on the weaker economy, which its chief executive officer, Mark Juliano, noted "has had a significant impact on the gaming industry across America."

Additionally, Trump and the other Atlantic City casino operators have had to contend with increased competition in the form of growing racetrack slot-machine gaming in nearby Pennsylvania, Delaware and New York State, three key traditional "feeder" markets for the New Jersey casinos.

Trump said that its review of strategic options on using the proceeds from the Trump Marina sale was continuing. Among the options it is currently considering are investments in Atlantic City itself, including a potential mixed use development on the city's famed Steel Pier, as well as gaming opportunities outside of the Atlantic City market. Another option is using some of the proceeds to cut its debt, which stood at $1.696 billion as of the end of the second quarter on June 30, most of it - some $1.25 billion - in the form of the 8½% bonds. The company said its debt level is up by $52.5 million since the beginning of the year. As of the end of the second quarter, it had cash and cash equivalents of $81.5 million. That sum does not include the $316 million it expects to get from the Trump Marina sale, which has not yet closed, nor does it include $8.3 million in cash included in Trump Marina's assets held for sale and $2.8 million in restricted cash representing amounts used to secure outstanding letters of credit.

Analysts have said that the company has to continue to invest in improvements at its two other aging casino properties if it expects to remain competitive in its market, especially against competitors like the flashy Borgata mega-resort jointly owned by rivals Boyd Gaming Corp. and MGM Mirage, and even the Marina, once buyer Coastal renovates and re-launches it under the tropical-themed "Margaritaville" brand that has proven successful in other gaming markets.

Trump also said that it is currently in negotiations with a third-party developer to lease commercial space at the Trump Ocean Club in Panama, currently under development, and to operate an approximately 35,000 square-foot casino on the property.

Avis tries harder - and succeeds

Another bond seen better on earnings was Avis Budget Group. Its Avis Budget Car Rental LLC 7¾% notes due 2016 were seen by a market source to have moved up to 68 bid, a 1½ point gain on the session, in fairly active round-lot trading.

That rise came in tandem with a jump of 80 cents, or 12.86%, in the Parsippany, N.J.-based vehicle rental company's New York Stock Exchange-traded shares, which ended at $7.02.

The stocks and bonds got a jump start as the company - which famously has touted itself in its advertising down through the years as "trying harder" to please the car-renting public than larger competitor Hertz - reported that it earned $15 million, or 15 cents per share in the second quarter, considerably better than the 6 cents a share the financial community had been expecting, although down from $24 million, or 23 cents per share, a year ago.

Avis also reported a 4% rise in revenue, to $1.58 billion versus $1.52 billion in the year-ago period and Wall Street's expectations of $1.52 billion.

Despite a nod to the weaker economy and higher gas prices, both of which cut into its core business, Avis Budget reiterated its previously announced EBITDA guidance and its expectations that full-year revenues will still top its 2007 total.

Blockbuster also better

A trader said that Blockbuster's bonds were "a little bit better," in the wake of the Dallas-based video-rental company's quarterly results. He saw the 9% notes due 2012 up 1 point at 80.5 bid, 81 offered.

The numbers were not great - Blockbuster lost $44.7 million, or 23 cents per share, in the fiscal second-quarter ended July 6, worse than its year-ago loss of $34.2 million, or 18 cents per share.

However, excluding one-time items, such as the $81.3 million gain that it recorded a year ago on an asset sale, Blockbuster's operating loss narrowed in the second quarter to $36.1 million from $96.5 million. But on a per-share basis, that ex-items loss totaled 20 cents a share, a penny more than Wall Street was counting on.

Bondholders were cheered by better full-year guidance, with the company raising its estimate of 2008 EBITDA to a range of $300 million to $315 million, versus its previous forecast of $290 million to $310 million. The upwardly revised EBITDA suggests net income for the year in the area of $21 million to $36 million.

Numbers don't move Sirius, DirecTV

A trader said that there was not much activity happening in the bonds of the former Sirius Satellite Radio Inc., which recently merged with the former XM Satellite Radio Holdings into Sirius XM Inc., which on Thursday reported earnings for the old Sirius for the second quarter, the final period in which its results were tabulated separately.

He also did not see much happening with XM, noting that "most of the activity in that name was before the takeover" of Washington-based XM by its smaller, upstart rival, Sirius, which last week closed its $3.5 billion acquisition of XM.

However, another market source saw some activity in the XM 9¾% notes due 2014, calling them up a little more than a point at the 99-and-change level. Yet another source called the bonds par bid, where they are expected to be taken out in the aftermath of the merger transaction, while Sirius' 9 5/8% notes due 2013 were anchored around 81.5 bid.

The first trader also said that satellite TV operator DirecTV Group Inc. "reported good numbers" - second-quarter profits were up about 2% from a year earlier, in line with analysts' estimates, although earnings were constrained by higher marketing expenses, dealer incentives and installation costs for new subscribers - but there really was "not much activity there."

He said the El Segundo, Calif.-based company's 8 3/8% notes due 2013 "have a short call and really have nowhere to go," since they are already trading well north of par, at the 103.25-104 level, in anticipation that the company will call the bonds for redemption a month from now, "while the longer ones just kind of sat still."

He said that DirecTV rival Dish Network Corp.'s bonds "were active earlier in the week, with earnings, but there were no real big price movements there." He agreed with the suggestion that whatever support the latter's bonds had gotten from a Wall Street Journal story earlier in the week suggesting that Englewood, Colo.-based Dish and its bigger competitor had been informally discussing a possible combination of the two companies - something they tried to do in 2001, and failed - had fizzled out. "I really didn't see much follow though since then."

Sprints retreat as convert sale cancelled

Outside of names moved by earnings, Sprint Nextel's widely traded 6% notes due 2016 were seen to have fallen late in the session on news reports - later confirmed by the company after the market closed - that it had cancelled a controversial planned sale of $3 billion of convertible preferred stock, just a day after announcing that deal.

The original announcement had sent the company's bonds higher, on the prospects that the proceeds would be used to whittle down its $19.5 billion net debt load, but stockholders were dismayed at the prospect that their shares would be diluted by 10% to 15% upon conversion of the notes.

A market source saw those bonds having fallen as low as 83 bid as the news began to filter through the market, before coming off that low to end the day at 86, in busy round-lot trading, still down 1½ points from Wednesday's close.

However, a trader at another shop said the bonds ended at 85.5 bid, 86 offered, which he called still up ½ point on the day, though well off its opening levels at 88.

GM joyride continues

In the automotive sphere, a trader saw General Motors' benchmark 8 3/8% bonds due 2033 up 1 point at 52 bid, 53 offered, and saw the 7.45% bonds due 2031 of domestic arch-rival Ford Motor Co. likewise a point higher at 54 bid, 55 offered, continuing the carmaker's rebound from the lows they hit the previous week when they were pulled down by investor angst over poor July sales data and a huge quarterly loss from GM.

Another market source saw GM'S long bonds arch up to above the 54 level before coming off that peak to end at 52, still up more than 2 points, in active dealings. Its 7 1/8% notes due 2013 were likewise up a deuce at 55.

But not everyone was going along for the upside ride.

From deep in distressed territory, a trader quoted the bonds of Plymouth, Mich.-based automotive stamping company Metaldyne Corp. sharply lower, seeing its 11% notes due 2012 plummeting to 15 bid, 16 offered, while its 10% senior notes due 2013 fell to 34 bid, 35 offered, each down 5 points on the day.

Another trader saw the 11s at 13 bid, 17 offered and the 10s at 35 bid, 38 offered, after having "not seen those bonds for a while." He said that it was not so very long ago that the 10s had been around 52 bid, 55 offered, while the 11s were at 28 bid, 30 offered.

The first trader said that he saw no specific news out on the company - just generalized auto-parts sector weakness.

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