AMG reports $465.8 million inflow, biggest in 2¼ years; Downstream prices; market revs for LBO deals

By Paul A. Harris

St. Louis, Sept. 27 - Junk players spent much of Thursday tuned into the bank loan market where a sizable chunk of the First Data Corp. $13 billion term loan allocated and then firmed in the secondary market.

Market watchers, who were scrutinizing the fortunes of the First Data bank deal as an indicator of leveraged market sentiment, remained focused on it until well past the midpoint of the afternoon when news began to spread that AMG Data Services reported a $465.8 million inflow for the week to Wednesday, the biggest burst of cash to come into the weekly reporting funds since early June 2005.

The favorable news regarding the technical condition of the junk market only served to amplify Thursday's buzz that a pair of the hung-up LBO bond deals, one from the above-mentioned First Data, the other from Allison Transmission Inc., could resurface as early as next week.

There was some primary market news during the session.

The Downstream Development Authority of the Quapaw Tribe of Oklahoma raised $244 million of proceeds by selling two tranches of notes.

In the secondary market, recently priced issues continued to hold in, while the auto sector - perhaps hung over from the jubilation following news earlier in the week that General Motors Corp. and the UAW had ended the brief strike - eased somewhat.

Meanwhile the existing bonds of Buffets Inc. traded lower.

Biggest in two years

Unlikely though it may have seemed, AMG Data Services stole the thunder from First Data on Thursday - at least among junk market watchers.

Late in the afternoon AMG reported a $465.8 million inflow to high yield mutual funds for week to Sept. 26.

Sources subsequently told Prospect News that it was the biggest weekly inflow since the week to June 1, 2005 when the junk funds saw an inflow of nearly $974 million.

Although the most recent weekly flow purposefully pushes the year-to-date total among weekly reporting funds back toward the balk line, the weekly reporters still have a row to hoe in order to get back to zero.

At Wednesday's close they were negative $1.63 billion year-to-date.

However the funds that report to AMG on a monthly basis remain firmly in the black, having seen more than $4.48 billion of inflows thus far in 2007.

Hence the year-to-date aggregate flows, which combine the totals of both the weekly and the monthly reporting funds, stood at slightly less more $2.85 billion, at Wednesday's close.

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, most recently, hedge funds.

First Data loan firms

Prior to the AMG figures, the junk market was mainly focused on FDC.

The Thursday session in the leveraged loan market saw First Data Corp. price and allocate a sizable portion of its $13 billion term loan B, with all three tranches firming in the secondary market.

Heading into Thursday, the underwriters were expected to allocate $7 billion to $8 billion of First Data's $13 billion in term loan (Ba3/BB-/BB).

One market source said that $1.5 billion of the $5 billion B-1 tranche priced at 96.00, as did $4.05 billion of the $5 billion B-2 tranche. Meanwhile $1.5 billion of the $3 billion B-3 tranche priced at 97.00.

This source, which had Thursday's total allocation just barely topping the $7 billion mark, was at the low end of a range which topped out at around $10 billion.

What sources did agree upon, however, is that when the deal broke in the secondary it traded up.

Shortly after the allocation news circulated, a trader spotted the B-1 tranche at 96¾ bid, versus the 96.00 OID.

The same source saw the B-2 tranche at 97 bid, up a point, while the B-3 tranche was at 97 1/8 bid, versus the 97 OID.

Sources in junkland are keen to divine the fortunes of the First Data bank deal because its success or failure may foreshadow the fate of the big underwriters as they attempt to place what was initially an estimated $300 billion-plus of risk overhang resulting from LBO related unplaced junk and unsyndicated leverage loans at the shortest possible distance south of par.

Revving up

Two sources told Prospect News during the Thursday session that some of the bond portions of that risk overhang could show up sooner than later.

Try next week, these sources - one from the sell-side, the other from the buy-side - advised.

Both agreed that the cash-pay notes in the Allison Transmission $1.1 billion senior notes (Caa1/B-) two-parter could surface during the first week of October.

The deal is being led by Citigroup, Lehman Brothers and Merrill Lynch.

Throughout the latter part of September, sources have told Prospect News that underwriters succeeded in placing approximately $1.5 billion of the Allison risk: first $1.0 billion at 96.00, with MFN protection, then another $500 million at 96.50 without MFN.

And the name "First Data" also came up Thursday with respect to possible LBO-related junk resurrections, as a hedge fund manager told of hearing that Citigroup, Credit Suisse, et. al. are heard to be headed back to market with part of the $8 billion of notes.

Quapaw prices

The Downstream Development Authority of the Quapaw Tribe of Oklahoma raised approximately $244 million of proceeds by selling two tranches of notes on Thursday, with Banc of America Securities at the helm.

The company priced a downsized $197 million tranche of 12% eight-year senior notes (B3/B-) at 97.50 to yield 12½%.

The issue was priced on top of the price talk, and generated $192.075 million of proceeds.

In addition the company priced a $52 million tranche of 10-year senior subordinated notes at par to yield 15½%.

No price talk was heard on the subordinated notes.

The issuer is a Native American gaming concern which will develop and operate a casino-resort at the Three-corner border area of Oklahoma, Missouri and Kansas.

The senior notes tranche was downsized from $235 million.

The company did a roadshow back in July and early August.

Elsewhere in the primary market, MCBC Holdings, Inc. (MasterCraft) set price talk for its $105 million offering of seven-year senior secured floating-rate notes (B3/B-) at Libor plus 625 to 650 basis points.

The deal, which is being led by Jefferies & Co., is expected to price midday Friday.

Recent issues holding in

The hedge fund manager spotted the new CDX High Yield 9 index closing Thursday down 1/16 at 99 5/16 bid, 99 7/16 offered.

The manager spotted that new Quebecor Media 7¾% notes due March 2016, which priced at 93.75 on Wednesday in an upsized $700 million add-on, at 95¾ bid, 96 offered at Thursday's close.

At midday a trader saw the Quebecor bonds at 95½ bid, 96 offered.

Later in the afternoon another trader saw the Quebecor paper in a 95½ bid, 96½ offered context.

This trader, meanwhile, saw the R.H. Donnelley Corp. 8 7/8% notes due 2017, which priced within the past seven days at par in an upsized $1 billion, going out Thursday at 101½ bid, 102 offered.

Meanwhile the trader saw the recently priced American Tower Corp. 7% notes due 2017, which priced in an upsized $500 million issue at par to yield 7%, trading at 101½ bid, 101¾ offered at the Thursday close.

Good news priced in

The hedge fund manager, acknowledging that General Motors and the UAW cheered up the market earlier in the week by reaching a settlement that quickly ended a strike, was in no mood to sweep up confetti on Thursday.

The source saw GM's benchmark 8 3/8% notes due 2033 down a point on the session at 88¾ bid, 89¾ offered, and noted that the company's stock was down $1.18, or 3.13%, on the day.

"The good news has come out," said the manager. "Now they have to sell some cars."

Meanwhile Ford Motor Co.'s 7.45% bonds due 2031 were unchanged at 79¼ bid, 79¾ offered, the source said.

Buffets slide continues

This source also remarked that the price of Buffets, Inc.'s 12½% senior notes due 2014 continued to deteriorate on Thursday.

Buffets recently reported a net loss of $55.1 million for the fourth quarter of fiscal 2007, compared with $2.7 million for the same period in 2006.

Noting that the paper is 10 points lower over the past three days, the manager said the Buffets 12½% notes were headed out Thursday 69 bid, 71 offered, "with better buyers on the close, but it got whacked pretty good."

With the better buyers, the paper improved to 70 bid, 72 offered at the bell, after having traded as low as 68 bid, and so ended 2 points off its bottom.

The source said the paper had gone out Wednesday 72 bid, 73 offered, and hence was 2 points lower on Thursday's session.

"They've given up 9 points since earnings came out," the hedge fund manager remarked, adding that the paper is 37 points lower since February.

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