New deals move up in secondary; better tone seen; retailers continue rally; market ponders MGM situation

By Paul Deckelman and Paul A. Harris

New York, Apr. 17 - The trio of new big new deals that blazed across the high yield horizon earlier in the week - for HCA Inc., Crown Castle International Corp. and Seagate Technology - continued to hold the spotlight on Friday, as they again firmed to levels at or just below par, and solidly above the levels at which those deals each priced initially.

Overall, traders said that the junk market continues to have a better tone, in line with the ongoing rally in equities as well as the strong flow of funds into Junkbondland, as evidenced by the high yield mutual fund-flow data that hit the market as trading was winding down on Thursday. Among the gainers Friday were market bellwether bonds First Data Corp., and Hertz Corp.

The recent rally in retail names was seen continuing, with gains again being posted in such diverse credits as Rite Aid Corp., Toys R' Us Inc., Jones Apparel Group and Burlington Coat Factory Warehouse Corp.

And traders were mixed in their assessment of MGM Mirage, as market participants mulled news reports saying bond investor Carl Icahn is seeking to push the gaming company into a restructuring - and other reports saying that such a restructuring would ideally be done in tandem with principal stockholder Kirk Kerkorian, heading off a potential battle of the billionaires.

Market indicators stay strong

A trader saw the CDX Series 12 High Yield index - which had gained 3/8 point on Thursday - essentially unchanged on Friday, holding steady at 75½ bid, 76 offered.

Meanwhile, the KDP High Yield index was up 56 basis points at 56.48, while its yield tightened by 12 bps to 12.40%.

Advancing issues continued to lead decliners, by a more than two-to-one-margin.

Overall market activity, measured by dollar-volume totals, rose about 10% from the level seen in Thursday's session.

"The global thing is a better tone for the week," a trader said, adding that "it seems like people are starting to like debt more."

Helping to fuel that appetite for risk - which has carried the junk market's year-to-date return on the widely followed Merrill Lynch High Yield Master II Index up another two-plus points on the week, to above 11% - over 44% on an annualized basis - was the more-than-ample liquidity picture, with the most closely-watched measure of overall junk liquidity trends, the weekly high yield mutual fund-flow statistics compiled by AMG Data Services which usually make the rounds of trading desks on Thursday afternoons, showing a $539.7 million inflow to weekly reporting funds in the latest week. That followed a $680.8 million cash infusion the previous week, and represented a fifth consecutive week in which more money has come into those funds than has left them. There have been $3.4 billion of inflows in the last five weeks, with the year-to-date net inflow total rising to $5.98 billion. Including those funds which report on monthly basis rather than just the weekly reporters, the aggregate year-to-date inflow figure came to $11.95 billion.

First Data a leading gainer

One of the biggest gainers on the day, a market source said, was Greenwood Village, Colo.-based financial transaction processor First Data Corp.'s 9 7/8% notes due 2015. Not only were the notes the most active high-yield issue of the session, the source said, with over $22 million having changed hands by mid-afternoon, but it was also one of the biggest gainers, up more than 4 points from Thursday's mid-60s level, to end at 70.5 bid.

Another source saw the bonds at 71 bid, up 4 points on the session.

Among other normally busily traded bonds, Community Health Systems Inc.'s 8 7/8% notes due 2015 were perhaps ¼ point better at 97.5 bid, on mid-afternoon volume of over $8 million.

A trader saw the recently strong Hertz Corp. 8 7/8% notes due 2014 at a wide 73 bid, 76 offered, calling it up 1½ points on the day, on "a lotta volume."

Another market source saw the Parsippany, N.J.-based car-rental giant's bonds doing even better than that, up 2¾ points at 74 bid, on mid-session volume of just under $10 million.

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Freeport a big loser

However, perhaps the most actively traded name, on average, on a day-in-day out basis, Freeport-McMoRan Copper & Gold Inc., was decidedly to the downside on Friday, with its 8 3/8% notes due 2017 having fallen to around the 95 level from a par bid on Thursday. Over $13 million of the Phoenix-based metals mining company was seen changing hands, on no news that might easily explain the reason for the slippage.

Recent new issues trade strongly

Among the most recently priced bonds, investor demand remains strong, pushing the prices of those bonds up in the secondary market.

The biggest deal of the week - Wednesday's $1.5 billion pricing of a sharply upsized new issue by Nashville-based hospital operator HCA, continued to bask in the warm afterglow of the sharply upsized deal's initial acceptance by investors. Those bonds had priced at 96.755 to yield 9%, and traded up "from the get-go," a source said, moving up to 98½ bid, 99 offered in late Wednesday dealings, improving to 98 7/8 bid, 99 3/8 offered by late Thursday. In Friday's activity, a trader saw the HCA's push up to "around 99," while another trader saw those bonds at 99 bid, 99½ offered.

A trader at yet another desk saw them going home at 98¾ bid, 99¾ offered.

Crown Castle keeps climbing

The week's other mega-deal - Crown Castle International subsidiaries CC Holdings GS V LLC and Crown Castle GS III Corp.'s $1.2 billion of 7¾% eight-year senior secured notes - also remained on the upswing. A trader saw the bonds "right around par," well up from Wednesday's 97.092 pricing level, which yields 8¼%, and up as well from the 99 bid, 99½ offered level to which the Houston-based communications antenna owner's bonds firmed in their initial aftermarket move.

Seagate securities strengthen

A trader saw Seagate Technology's 10% senior secured second-priority notes due 2014 at 99¼ bid, 99¾ offered, while a second said that the bonds "went right up" to the 99 region.

The Scotts Valley, Calif.-based manufacturer of hard drives and other computer storage media priced its $430 million issue at 95.317 on Thursday to yield 11¼%. Market participants described the deal as "a blowout," with the company even lowering its price talk shortly before pricing, to a range of 11¼% to 11½% from 11¾% to 12% originally.

Retailers ride

A trader said the retailers "definitely have been strong" this week, attributing the sector strength to "a short squeeze to a certain extent."

For instance, he said, Burlington Coat Factory "has been flying," with its 11 1/8% notes due 2014 having started the week "somewhere around the 40-45 range" - and then jumping to around 59-60 by the end of the week. "So that's up 15 or 16 points - and that wasn't out of the ordinary." He attributed those gains to "all short-covering," adding that "a lot of people are short the retailers - but it's a dangerous game to play, because when they turn it can get ugly."

However, another trader had his doubts about the short-covering scenario," noting that Burlington's term loan is in the high 60s, around 68-71, which he called "up 20 points on the week.

"There's a lot of that going on on the loans - there seems to be really strong buyers on the loans. " Although he himself does not trade bank debt, "that caught my eye when it came across."

He said that Burlington's bonds were trading "a few times - and that's just today" at 65 bid, 66 offered, up from 61 bid, 62 offered previously. "Why [the bonds went up] I don't know - you can say 'short covering,' but the bank debt being up 20 points tells me that maybe it's not short-covering - bonds being short is one thing, bank debt, I don't think so." It should be noted that Burlington released financial results on Tuesday, explaining why everything traded up earlier in the week.

As for the bonds of other retailers, Camp Hill, Pa.-based Number-Three U.S. drugstore operator Rite Aid's 9½% notes due 2017, which had firmed solidly early in the week along with other elements of the company's capital structure, were seen up as much as 5 points to the 42.5 level.

A trader said that he saw Macy's 5.35% notes due 2012 at 86 bid, 87 offered, up from 82 bid, 83 offered at the beginning of the week.

He also saw Macy's 5.90% notes due 2016 move up to 74 bid, 75 offered from 71 bid, 72 offered earlier.

There was no fresh news out on the Cincinnati-based department store operator, whose bonds were recently downgraded to Ba2 by Moody's Investors Service from their high-grade level, but the trader said that "in general, Macy's are up ¾ point or more."

Another name from the retailing sphere, Jones Apparel Group's 6 1/8% bonds due 2034 were quoted by a market source having risen to just over the 60 level.

MGM seen mixed

A trader said that MGM Mirage's bonds were lower as "[Carl] Icahn tries to force them into bankruptcy," referring to the billionaire financier who is a large MGM bondholder.

He saw its 9 3/8% notes coming due later this year at a 36-38 context, down from 40-41 before that, "so maybe [the news] is forcing them down a little," estimating the decline as "2 to 3 points" across the board. He saw the 7½% notes due 2016 at 43-44, versus 44-45 previously, "off a little, but not too much."

He also saw the 13% secured notes due2013, on the other hand, at 84 bid, 86 offered, versus 82-83 on Monday, "so they seem a little better. That's weird."

Another trader, however, also saw the 13s "a point or two higher," at 87 bid, 89 offered, but said the company's other bonds, like its 6 7/8% notes due 2016, were also "a little higher," at 45 bid, 47 offered, on "some volume, with 45ish-type bids."

A trader said that MGM paper was "down points [Thursday] on the news that Icahn was pushing for a bankruptcy - now it's up 2 points from those Thursday lows, but unchanged on the day.

He quoted the company's 6 5/8% notes due 2015 up 2 points from those lows to 44 bid, 45 offered.

News reports Friday said that while Icahn seeks a restructuring of the debt-laden Las Vegas casino giant, he will propose a plan that will include MGM's other billionaire holder, 53% shareholder Kirk Kerkorian, hoping to gain the octogenarian billionaire's cooperation for any restructuring effort.

2009's biggest primary

The April 13 week turned out to be a big one for the primary market.

It was the biggest week thus far in 2009 in terms of dollar-amount of issuance, with three issuers raising $3.026 billion of proceeds. They each priced a single tranche of dollar-denominated junk-rated notes.

That was nearly $850 million more than the second-biggest week, that of Feb. 9 when five issuers raised $2.177 billion.

The week to Friday also saw the biggest day in 2009 to date. On Wednesday two issuers, each bringing a single tranche of junk, combined to raise $2.616 billion of proceeds.

That was more than $1.25 billion more than the next-highest day, Jan. 22, when two issuers raised $1.36 billion.

And Wednesday's deals were the two biggest high-yield issues so far this year.

HCA Inc. priced a massively upsized $1.5 billion issue of 8 ½% first-lien senior secured notes due 2019 (Ba3/BB) at 96.755 to yield 9%. It was increased from an original size of $500 million.

Wednesday's other issue, from CC Holdings GS V LLC and Crown Castle GS III Corp., was an upsized $1.2 billion issue of 7¾% eight-year senior secured notes (Ba1/BB) which priced at 97.092 to yield 8¼%...the second biggest deal of 2009 to date. It was increased more modestly, from $1.1 billion.

The third-biggest deal thus far in 2009 came on Jan. 28 when Chesapeake Energy Corp. priced a $1 billion issue of 9½% senior notes due 2016 (Ba3/BB) at 95.071 to yield 10 5/8%.

Piling into bonds

The scope of the week's notable primary market activity came as no surprise because cash is presently gushing into high-yield bonds, and investors are looking for places to put it to work, sources say.

As a measure of the cash coming in, AMG Data Services reported $539.7 million of inflows to high-yield mutual funds for the week to Wednesday.

That is the fifth consecutive inflow for a total of $3.4 billion.

Year-to-date funds that report to AMG on a weekly basis and on a monthly basis have seen $11.95 billion of aggregate inflows.

Everybody likes a bargain

"There is lots of money chasing bonds," remarked a mutual fund money manager whose portfolio includes high-grade bonds, junk bonds and stocks.

One reason, according to this investor, is that by and large the deals that have been successful have been priced to sell, priced at a bargain discount to the issuer's outstanding bonds.

"Everybody likes the bargain pricing, which creates great demand," the investor said.

There is no reason for the dealers to attempt to reel in the yields on these deals right now, the buy-sider added.

"Obviously the bank is not going to take any risk in pricing the deal.

"And the bond buyer feels pretty good when they can buy something and actually make money for a change.

"Right now you can just feel the pressure on the market, which is for narrower spreads. Investment grade spreads have narrowed, and high-yield spreads are going to follow, for those companies that are not on the verge of bankruptcy."

A quiet Friday

The final session of the big week of April 13 passed quietly, sources said.

Cash bonds were up 1/8 to ¼ point on low volume, and the CDX High Yield 12 index headed out at 75 3/8 bid, flat on the day.

There are two deals on the road, both expected to price during the week ahead.

JBS USA, LLC and JBS USA Finance are roadshowing a $400 million offering of five-year senior notes (mid-single B ratings expected) via J.P. Morgan and Banc of America Securities.

The roadshow is expected to end Tuesday, with the deal possibly pricing Tuesday or Wednesday.

And DigitalGlobe Inc. is marketing a $300 million offering of five-year senior secured notes (B+) via Morgan Stanley.

The roadshow is expected to end Wednesday, with the notes pricing after that.

And the week ahead is bound to see some drive-by activity, according to a high-yield syndicate official who spoke at Friday's close.

Right now demand for bonds is huge, the source added.

Georgia Pacific Corp. is headed to the primary market during the week ahead, a buy-side source told Prospect News well after Friday's close.

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