Traders reported firmer price action on moderate volumes. New issues continued to dominate trading, particularly a $3.3 billion three part bond and bank deal from Calpine Corp. Inflows to mutual funds were a healthy $224 million, according to AMG Data Services. Here was selected action.
Investors Give Thumbs Down To Proposed
Auto Parts Deal
ArvinMeritor's bid to take over Dana Corp. received a hostile reception from investors. ArvinMeritor's 8 3/4% notes of '12 (Baa3/BB+) dropped six points to a 105 bid through mid-Thursday. Dana's 9% notes of '11 (Ba3/BB) climbed three points on news of the proposed acquisition, but settled at a 106.5 bid, down less than a point on the week.
Investors were too kind, argues Nate Hudson, analyst at Banc of America Securities. "You'd have a significant increase in leverage at both entities in an industry that has proven itself unable to support high leverage. I see further risks to the downside for both names," he says.
HealthSouth Looks Healthier, Bonds Move North
HealthSouth's 10 3/4% senior subordinated notes of '08 (C/D) rocketed from 60 to 82 after the company announced better-than-expected numbers in its first meeting with investors since its accounting scandal came to light in March. The issue then dipped to a 77 bid on profit-taking.
Elie Radinsky, analyst at Jefferies & Co. who essentially predicted the surge (BW, 7/7), says the company's numbers exceeded even his optimistic projections. He has raised his price target to 90 for the senior subordinated issue, but says the 3 1/4% convertible notes of '03 (WR/D) are the most interesting play. That issue was trading at 81 last Thursday.
While some investors expressed concern that a government investigation could still pull the plug on the company, Radinsky has no such concerns. "Do you think the government would take precious healthcare services out of business? Twelve executives have already pleaded guilty. It appears to us the government wants to do a perp walk with (former ceo) Richard Scrushy."
Charter Investors Tune In
Charter Communications' 8 5/8% notes of '09 (Ca/CCC+) surged some seven points through last Thursday as rumors of a convertible deal or a possible asset sale swept through the market. The company announced a tender offer Friday morning for two convertible issues that will be financed by a new debt deal. The news appeared to give the bonds a further lift. They opened at a bid of 80 and traded down to 79 1/4.
Aryeh Bourkoff, equity and fixed income cable analyst at UBS Securities, continues to like the bonds. "They could be par in two years, but they're more of a yield play today rather than offering any substantial near term price appreciation, due to the high leverage ratio." He says the tender will give to company further liquidity, as its operations continue to improve and it looks to compete with satellite and telephone companies for a bundle of communications services.