IKON Office bonds continue Ricoh-fueled rise; Sprint runs up, autos cruise; funds see $45 million inflow

By Paul Deckelman and Paul A. Harris

New York, Aug. 28 - IKON Office Products Inc.'s bonds - which had shot up dramatically on Wednesday on the news that the company will be acquired by Japanese office machines giant Ricoh - were seen having pushed a little higher on Thursday, pretty much across the board, although on much-reduced volume.

Much-reduced volume was in fact the common denominator for activity in junk bond land on Thursday, as trading tapered off after an early flurry, people mentally preparing for Friday's abbreviated session and the three-day Labor Day holiday weekend after that.

Among the issues that were actually doing something, Sprint Nextel Corp. and its Sprint Capital Corp. funding affiliate were seen moving up in relatively brisk trading, given the overall dull market tone.

Also higher was General Motors Corp., its 49%-owned GMAC LLC auto finance arm, and its domestic arch-rival, Ford Motor Co.

And MBIA Inc.'s nominally investment-grade rated but junk-desk traded surplus notes were seen sharply higher, as the oftimes beleaguered New York based bond insurer agreed to insure nearly $200 billion of municipal bonds.

Primary activity remained at a standstill.

Funds rise by $45 million on week

And as trading was winding down 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 $44.7 million more came into the weekly-reporting funds than left them. It was the fifth inflow seen in the last six weeks, a stretch interrupted only by the $8.63 million cash exodus seen in the previous week, ended Aug. 20. That setback had followed four straight weekly gains totaling $328.7 million, according to a Prospect News analysis of the AMG figures.

There have been six inflows and five outflows seen during the last 11 weeks, dating back to the week ended June 18; during that time, the funds have lost a net of $431.646 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. Prior to April, outflows had been recorded in most weeks, with net outflows totaling around $1 billion.

With the calendar third quarter now some two-thirds finished, inflows, after that slow start, remain solidly ahead, with 21 inflows versus 14 outflows seen in the 35 weeks since the start of 2008, according to the analysis. 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 $1.484 billion, up from $1.439 billion the previous week, market sources say. 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 comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash seen in recent years such as insurance companies, pension funds and hedge funds.

Market indicators push higher

Meanwhile the widely followed CDX index of junk bond performance was up ½ point, said a trader who quoted it at 92 7/8 bid, 93 1/8 offered. The KDP High Yield Daily Index meantime rose 15 basis points to end at 70.51, while its yield narrowed by 5 bps to 10.62%.

In the broader market, advancing issues led decliners by four to three. Activity, represented by dollar volume, fell by 15% from the weak levels seen on Wednesday.

There was "not a lot of action," a trader said, and it was the understatement of the day.

"We've just been sitting around, looking at each other for six hours," another said, while a third said a little after midday that the session "is over, closed, done - put a fork in it."

Activity was seen continuing the nearly two week-long wind-down that the market's been going through, as participants anticipated what promises to be an even slower session on Friday, with U.S. debt markets slated to close down at 2 p.m. ET ahead of the holiday break, which will also see the financial markets shuttered on Monday.

"It was a pretty quiet day," one of the traders said. "The market felt strong," with the CDX pushing upward. "But a lot of guys just weren't around."

IKON bonds gyrate higher

For a second straight session, one of the more notable names was IKON Office Products, whose bonds and shares had jumped on Wednesday in response to news that the Malvern, Pa.-based provider of document and information flow technologies is to be bought for $1.6 billion by one of the main suppliers of such technologies, Ricoh.

The bonds had all jumped sharply to around the 107-108 level Wednesday, although there was no immediate word from the company whether those bonds are to be assumed by Ricoh and left outstanding, or whether they are to be taken out via a tender offer. Company executives did not answer several phone calls and e-mails Thursday seeking clarification.

A market source saw the IKON 7¾% notes due 2015 push up to around the 109.5 bid level, up a point from Wednesday's close and some 9 points from the pre-news levels of earlier in the week.

IKON's 6¾% bonds due 2025, which on Wednesday had jumped up to 107.75 from prior levels in the low 60s, although there were some smallish trades at lower levels late in the day - gyrated further on Thursday, getting as good as 108.5 and low as 94.5, on small trades, before pushing back up to a final round-lot price of 107.25.

The company's 7.30% bonds due 2027 hit a peak of 110.5 bid, but ended at 109, up only marginally from Wednesdayy's close around 108.5.

Sprint sprints upward

A trader saw Overland Park, Kan.-based wireless operator Sprint Nextel up, pegging its 6% notes due 2016 a point better at 91.75 bid.

"Ever since they called an issue a couple of days ago Sprint's been active," he said, referring to the announcement last week that U.S. Unwired's old 10% notes due 2012 were being called for redemption.

He also noted a research note put out a week ago by Credit Suisse, saying that Sprint might be able to get $11 billion by selling the Nextel operations. That's only about a third of what it paid for the unit back in 2005 - but it has since written down much of the value anyway, in the midst of sagging sales.

A market source saw Sprint Capital's 6.9% notes due 2019 as actively trading, gaining 2 points to 93 bid.

Autos' upside ride continues

In the volatile automotive arena, a trader saw General Motor's benchmark 8 3/8% notes due 2033 up a point at 49 bid, 51 offered, while its GMAC LLC funding affiliate's 8% bonds due 2031 were 1½ points higher at 54 bid, 55.5 offered.

Another trader saw the GM bonds up a point at 49 bid and GMAC's long bonds at 54 bid, which he called up 2 points. GMAC's 6 7/8% notes due 2011 were up 1¾ points at 62.75.

Among the shorter issues, GM's recently busy 7.20% notes due 2011 were perhaps ¼ point better at 64.5 bid, but he said that round-lot trading was "not active," although there were "lots of odd-lot trades."

A trader saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 a point better at 51 bid, 52.5 offered. A second saw the Fords up ½ point at 51.25 bid, 52.25 offered.

No fresh news was seen out, on the sector

MBIA moves upward

MBIA Inc.'s surplus notes due 2014 jumped to 81 bid from prior levels at 73, in line with a surge in its shares on the news that the company is in a deal to reinsure billions of dollars in municipal bonds, showing that the beleaguered New York-based bond insurer is able to attract new business despite the credit crunch.

August must end

The final full session of the summer season in the junk bond market came to an utterly quiet close on Thursday, sources said, noting that the primary market failed to generate any news, as expected.

The Thursday session saw the ranks of players in the junk market greatly reduced. Calls that were not steered into voicemail tended to be fielded by administrative assistants who suggested trying back on Tuesday.

"Right now people just want August to be over with," one high-yield syndicate official said.

This source professed no visibility on business for the post-Labor Day week, and added that the jury is still very much out as to whether the month of September will be abundantly more active than August has been.

However, the official added, it is unlikely that any potential high-yield issuer will unveil a deal during the abbreviated pre-holiday Friday session.

Should that come to pass, the month of August will end having seen two corporate high-yield issuers raise slightly less than $428 million of proceeds in business unrelated to the backlog of hung bridge loans.

The all-in total for August, including the backlog, was slightly less than $1.7 billion in six tranches.

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