Ford Credit, Tekni-Plex, Crosstex price deals; Penn Virginia ahead; funds gain $754 million

By Paul Deckelman and Paul A. Harris

New York, May 10 - The high-yield primary sphere had another busy day Thursday. All told, four issuers raised a total of $2.11 billion.

The big deal of the day was a quick-to-market $1.25 billion offering of three-year bonds from Ford Motor Credit Co. LLC. But despite having junk ratings from two out of the three main agencies, there was little interest in the deal in most of Junkbondland owing to its record-tight, virtually investment-grade yield, traders said.

Much more conventionally junky issues came from packaging maker Tekni-Plex Inc. and Crosstex Energy, LP, and traders saw both of those issues move up when they hit the aftermarket.

There was also a $130 million add-on offering from airline services operator Swissport International Ltd., although there was no trading seen given the deal's small size and the lateness of the hour at which it priced.

High-yield syndicate sources heard price talk emerge on two energy-sector deals that could come to market during Friday's session: Penn Virginia Resource Partners, LP and Magnum Hunter Resources, each with a $450 million offering of eight-year paper.

Away from the new-deal sphere, ATP Oil & Gas Corp.'s bonds fell sharply and on heavy volume in line with a slide in its shares after the offshore energy exploration and production company reported less-than-stellar quarterly earnings that even company executives admitted were disappointing.

Apart from the energy names, Residential Capital LLC's bonds were being quoted several points higher, helped by news reports that corporate parent Ally Financial Inc. got a verbal commitment from some of ResCap's bondholders to support a planned bankruptcy filing by the money-losing residential mortgage lender.

After several sessions of struggle, the overall junk market was better, as borne out by statistical measures of market performance.

And high-yield mutual fund flows - seen as a reliable indicator of overall junk market liquidity trends - remained positive for a fourth consecutive week and 18th week out of 19 so far this year as yield-hungry investors continued to put more money into junk than they took out.

AMG posts $754 million inflow

As Thursday's session was wrapping up, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $754 million more came into those weekly reporting funds than left them.

It was the fourth consecutive inflow and followed the $1.19 billion cash addition seen by Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - the week before, which ended May 2.

In that four-week stretch, an estimated $3.23 billion more came into those weekly reporting domestic junk funds than left them, according to a Prospect News analysis of the figures.

The inflow brought the year-to-date net inflow figure up to an estimated $18.4 billion, according to the Prospect News analysis, up from the previous week's $17.7 billion.

It also established a new peak net inflow total for the year so far, eclipsing the old mark set the week before, according to the analysis.

Inflows have now been seen in 18 weeks of 2012 so far against just one solitary outflow, although that was a big one - the yawning $1.29 billion cash hemorrhage seen in the week ended April 11. That outflow had snapped an amazing string of 18 straight weeks of inflows totaling $18.64 billion, which dated back to the week ended Dec. 7, according to the Prospect News analysis.

EPFR sees $1.2 billion inflow

The other major fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG's, saw an inflow of $1.2 billion in the latest week on top of the previous week's $1.84 billion cash addition.

As was the case with the AMG number, it was the fourth consecutive inflow following the gigantic $1.17 billion outflow seen in the week ended April 11 - the first such outflow seen this year after 14 straight inflows. That outflow also broke a larger 18-week winning streak that had dated back to the beginning of December, according to an analysis of the numbers.

EPFR inflows over the past four weeks have totaled $4.7 billion, according to the analysis.

On a year-to-date basis, the cumulative inflow figure rose to more than $36 billion.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ since they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from some non-U.S. domiciled funds that are excluded from the more narrowly focused AMG tally of domestic junk mutual funds and exchange-traded funds. U.S.-only funds produced a $1.05 billion inflow in the latest week, EPFR said.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from EPFR, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's strong performance so far this year and its active new-deal pace, with issuance volume remaining near last year's totals.

Record low print for Ford

The high-yield primary market plowed into record territory on Thursday.

Ford Motor Credit priced a $1.25 billion issue of three-year senior notes (Ba1/BB+/BBB-) at par to yield 2¾%.

The yield, which came at the tight end of the 2 7/8% area yield talk, is the lowest in the history of the market, according to a debt capital markets banker in New York.

The 2¾% yield came 2 basis points below the market's previous record-holding low yield. That mark was set by CMS Energy Corp. last year when it priced a $250 million issue of 2¾% notes due May 15, 2014 at 99.942 to yield 2.77%

For Thursday's deal from Ford Motor Credit, Goldman Sachs & Co., HSBC Securities (USA) Inc., Morgan Stanley & Co. LLC and RBS Securities Inc. were the joint bookrunners. The quick-to-market deal received an investment grade-style execution and was transacted on the high-grade syndicate desks.

Tekni-Plex, at the tight end

Tekni-Plex priced a $485 million issue of 9¾% seven-year senior secured notes (Caa1/B-) at 98.756 to yield 10%.

The yield printed at the tight end of price talk that was given at 10% to 10¼% including an original issue discount.

Bank of America Merrill Lynch and Credit Suisse Securities (USA) LLC were the joint bookrunners for the debt-refinancing deal.

Tekni-Plex is a King of Prussia, Pa.-based manufacturer of packaging products.

Crosstex comes atop talk

Crosstex Energy and Crosstex Energy Finance Corp. priced a $250 million issue of 10-year senior notes (B2/B+) at par to yield 7 1/8%, on top of yield talk.

Bank of America Merrill Lynch was the left bookrunner. Wells Fargo Securities LLC, BMO Securities, Citigroup Global Markets Inc. and RBC Capital Markets were the joint bookrunners.

The Dallas-based midstream natural gas company plans to use the proceeds to help fund the acquisition of Clearfield Energy, Inc., including the Cajun Sibon natural gas liquids pipeline expansion.

Swissport, at the rich end

Swissport International and Aguila 3 SA priced a $130 million add-on to Aguila's 7 7/8% senior secured notes due Jan. 31, 2018 (B2/B) at 103 to yield 7.221%.

The reoffer price came at the rich end of the 102.5 to 103 price talk.

Timing was moved ahead. The deal was originally announced as Friday business.

Citigroup was the left bookrunner. Barclays Capital Inc. was the joint bookrunner.

Proceeds, together with cash on hand, will be used to fund the consideration paid for the capital stock of Flightcare, to repay existing Flightcare third-party debt (defined as Flightcare SL and Flightcare NV together) and pay the fees and expenses incurred in connection with the acquisition and the offering.

The original $425 million and CHF 350 million issue priced at par in January 2011.

Talking the deals

Dealers set the stage for a busy Friday session. All told, five deals are expected to price before the weekend.

Magnum Hunter Resources talked its $450 million offering of eight-year senior notes (Caa1//) with a yield in the 9½% area.

Citigroup and Credit Suisse are the joint physical bookrunners. BMO, Capital One Southcoast, Deutsche Bank, Goldman Sachs, RBC and UBS are the joint bookrunners.

Penn Virginia Resource Partners and Penn Virginia Resource Finance Corp. II talked their $450 million offering of eight-year senior notes (B2/B) with a yield in the 8½% area.

RBC, JPMorgan, Wells Fargo and SunTrust are the joint bookrunners.

Swiss specialty steel-maker Schmolz + Bickenbach AG downsized its offering of seven-year senior secured notes (B1//) to €258 million from €300 million and set price talk.

The notes are talked with a 9 7/8% coupon and at a three-point original issue discount to yield 10½%.

BNP Paribas, Commerzbank, Credit Suisse, Royal Bank of Scotland and UniCredit are the joint bookrunners.

Earlier in the week, OPI International upsized its offering of five-year first-lien senior secured notes to $155 million from $125 million and talked the notes with a yield in the 13% area with warrants for 17% of the company. The deal, via Global Hunter, is possible Friday business.

Finally, Select Medical Corp. was finishing the roadshow on the West Coast Thursday afternoon for its $365 million offering of eight-year senior notes (B3/B-).

Price talk is expected on Friday morning, and the deal is expected to price later in the day.

Morgan Stanley, Bank of America Merrill Lynch, Goldman Sachs, JPMorgan, RBC and Wells Fargo are the joint bookrunners.

Ford falls flat

Although it was the day's biggest deal, Ford Motor Credit's new 2¾% notes due 2015 were quoted mostly holding just around their issue price when they were freed for secondary activity.

One trader quoted the bonds at par bid, 100¼ offered, while a second had them at 100½ offered. The Dearborn, Mich.-based financing arm of automotive giant Ford Motor Co. priced the $1.25 billion drive-by deal at par.

"What a joke!" a junk trader exclaimed when he saw what a record-stingy coupon the new issue carried.

When asked whether any junk accounts were playing in the Ba1/BB+/BBB- deal, he laughed and added, "I hope not!"

In quoting the bonds close to issue, the trader said, "I can't imagine anyone paying a big premium for a 2¾% coupon."

"Oh my God," a second trader said when he saw the small coupon. "Makes me want to go home."

He said that for a mostly junk-rated issue, "that just doesn't sound right. 2¾ and high yield just doesn't mix.

"Welcome to the crazy market: near 0% rates and no trading."

Tekni-Plex trades up

The trader called Tekni-Plex's $485 million deal "a more old-fashioned junk deal with a coupon near 10%."

He said that there was "decent-sized" trading in the King of Prussia, Pa.-based packaging maker's new 9¾% senior secured notes due 2019, although he saw only a 100¼ bid - well up from the 98.756 price at which the deal came to market - with no right side.

A second trader, though, did see two-sided markets, quoting the bonds at 99½ bid, 100½ offered.

Crosstex proves energetic

Also doing well once the bonds hit the aftermarket was Crosstex Energy's 7 1/8% notes due 2022, $250 million of which priced at par just a day after the Dallas-based natural gas midstream company had announced its bond deal.

A trader saw the new bonds move up a little to 100½ bid, 101½ offered, while two others saw the notes going out at 101 bid, 101½ offered.

Louisiana Pacific pops

Among the bonds that priced on Wednesday or earlier, traders saw Louisiana-Pacific Corp.'s $350 million of 7½% notes due 2020 continuing to push upward.

The Nashville-based building products maker's bonds priced at par on Wednesday after having been upsized from an originally announced $300 million. They then got as good as 101¾ bid, 102¼ offered when they were freed to trade.

On Thursday, they were seen at even higher levels, with one trader pegging them as high as 103 bid, 103¼ offered.

And a second trader said he saw "a bunch of markets in that one." He had them at 103¼ bid, 103½ offered but said that the issue "backed off a little from that 1031/4" to end the day at 102 7/8 bid, 103¼ offered.

Carlson Wagonlit BV's 6 7/8% senior secured notes due 2019 were seen having firmed a little Thursday to around 102 bid, 102¼ offered.

The travel services provider priced that $465 million of dollar-denominated bonds at par on Wednesday as part of a two-part, $854 million equivalent transaction that included a tranche of euro-denominated 2019 secured notes as well. After pricing, they traded up to 101 7/8 bid, 102 3/8 offered in Wednesday's aftermarket.

But while those new deals were doing well, a trader quipped that there was "poor reception" on satellite broadcaster Dish Network Corp./Dish DBS Corp.'s big new deal that priced on Tuesday.

The Englewood, Colo.-based company came to market with a $1.9 billion two-part transaction, upsized from the $1.5 billion originally announced. It priced $900 million of 4 5/8% notes due 2017 and $1 billion of 5 7/8% notes due 2022, both at par. But those bonds failed to gain any altitude and in fact fell back from where they had priced, both tranches settling in at 99ish levels. They were no better on Wednesday or Thursday.

On Thursday, a trader saw the five-year notes at 99 1/8 bid, 99 5/8 offered, while the 10-years were 99¾ bid, par offered.

Junk market better

Away from the new deals, traders saw junk paper generally firmer for the first time in several sessions. Bonds were given a little boost by overall better financial markets following a somewhat lower-than-expected number for new jobless claims coupled with investor feeling that maybe the European debt situation is not yet hopeless.

Statistical measures of market performance rebounded after having been down for the two previous sessions and having been mixed for several sessions before that.

A trader saw the Markit Group CDX North American Series 18 High Yield index up by 3/16 point on Thursday to end at 95 1/8 bid, 95½ offered. The index finally broke out of a losing streak that had it down for the five previous days, including Wednesday, when it dropped by ¾ point.

The KDP High Yield Daily index meanwhile snapped a three-session losing streak by edging up 1 bp Thursday to 74.13 after having eased by 1 bp on Wednesday. Its yield, though, rose by 1 bp to 6.42% after having come in by 1 bp on Wednesday.

The widely followed Merrill Lynch U.S. High Yield Master II index posted its first gain after two straight sessions on the downside, rising by 0.092%. That contrasts with Wednesday's 0.126% loss.

The gain lifted its year-to-date return to 6.759%, up from Wednesday's 6.661%, although it remained down from Monday's 6.8%, the peak level for 2012 so far.

ATP trades off

While the overall market tone seemed a little cheerier, not everybody rose with the tide. A trader declared that ATP Oil & Gas' 11 7/8% senior secured second-lien notes due 2015 were "the winner of the day," at least in terms of volume activity, though definitely not in terms of price.

"I saw that name all day long," he said. "A boatload traded."

He estimated volume in the Houston-based offshore energy exploration and production company's paper of at least $55 million, adding "who knows?" and speculating that "if $55 million was showing [on Trace], there's a lot more than that" since Trace tends to undercount the size of high-yield deals over $1 million.

He saw the bonds end at 69½ bid, 70 offered, calling that down about 5 points from Wednesday's levels.

A second trader said that ATP, which released its first-quarter results after the financial markets closed on Wednesday followed by a Thursday conference call, "was active" as a result and that virtually all of the activity took place on the downside, with levels below 70.

"They're a habitual disappointer," he declared, "and they always have a lot of reasons for it, but they always do" disappoint the marketplace.

In the quarter ended March 31, the company recorded a net loss attributable to common shareholders of $145.1 million, or $2.83 per basic and diluted share - wider than the $119.5 million, or $2.34 per basic and diluted share, of red ink seen a year ago in the 2011 first quarter.

Revenue of $146.6 million fell $32 million short of Wall Street expectations. Even the company's chairman and chief executive officer, T. Paul Buhlman, opened his conference call presentation by stating that the company was not pleased with those first-quarter results.

The trader noted that the bonds had been trading in a 74-75 context recently but fell to 71-72 on Thursday "and dropped below 70 for a while."

"That's one that swings around with the stock and is very volatile on announcements from the company," he said. ATP's Nasdaq-traded shares tumbled by 70 cents, or 9.78%, on Thursday to end at $6.46, although volume of 2.2 million shares was about the norm.

"It looks like they had a miss, with a bunch of explanations, and you've had a lot of volatility in the stock and the bond."

Yet another trader said that the bonds had opened at 72½ bid, 72¾ offered on Thursday but swooned down to 69½ and stayed there as market players got a chance to digest the less-than-overwhelming news in the quarterly earnings announcement and conference call.

"I guess they didn't like the earnings," he said.

He saw no trading in the credit on Wednesday but said that the bonds had traded in a 74-to-74¼ bid context before that, "so they're down 5 points since then."

PDVSA is popular

Also in the energy sphere, a trader said that bonds of Venezuela's state-run oil monopoly, Petroleos de Venezuela, "were still popular" on Thursday after having been actively traded on Wednesday at levels down around a point or so from where they had been earlier.

"They have at least three of the top 10 volume issues," he said.

He saw PDVSA's 8½% notes due 2017 finishing around 86½ bid, 87 offered, which he said was "about where they were" earlier and on "good volume" of about $45 million.

He said that 9% notes due 2021 were also little changed on the day in a 791/2-to-80 context with over $40 million changing hands.

The company's 5¼% notes due 2017 were finishing around 75 bid, with around $12 million of the bonds trading Thursday.

ResCap rallies

Away from energy names, a trader saw Residential Capital's bonds up by several points on Thursday, quoting its 9 5/8% secured notes due 2015 having moved up to 98¼ bid on "a couple of million" traded.

He called that a two-point gain for the Minneapolis-based residential lender's paper, although he reiterated that there was "not a huge amount trading."

On Wednesday, "they were trading around 95-96, and today, they're trading around 97-98."

He cited the news reports indicating that some of the bondholders were backing the potential bankruptcy plan, "so that seems to have a positive spin on it."

The company's 8½% unsecured notes due 2013 were likewise seen up a deuce on the day at around the 33 mark and at one point were being quoted up as much as 4 points on the session at 35 bid.

A Bloomberg news report, citing unidentified sources close to the talks going on between ResCap, its corporate parent Ally Financial and various bondholders, said that key bondholders had given the company an oral commitment to support bankruptcy reorganization, with a filing possible as early as Sunday evening in New York.

The story did note that some ResCap bondholders - notably John Paulson's Paulson & Co. and David Tepper's Appaloosa Management LP, collectively holding about $800 million of paper - retained legal counsel back in January in an effort to oppose any bankruptcy.

ResCap meantime has also reportedly lined up $1.45 billion of debtor-in-possession financing from Barclays plc for use should there be a bankruptcy filing.

The U.S. government, which owns 74% of Detroit-based Ally, the automotive and residential lender and online banking company formerly known as GMAC, has indicated that it would approve such a bankruptcy filing.

A trader saw Ally Financial's busiest issue, its 8% notes due 2020, having moved up to 118¾ bid, 119 offered, which he called "up a little" from prior levels around 118¼ bid, "nothing dramatic." About $8 million of those bonds changed hands on Thursday.

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