Norbord prices; American Casino pulled; Navistar slides on results; funds fall by $2.9 billion

By Paul Deckelman and Paul A. Harris

New York, June 7 - The high-yield primary market continued to modestly edge away from its recent new-deal drought on Thursday. For a second straight session, it priced a smallish deal - a $165 million issue of three- year secured notes for Canadian wood products company Norbord Inc.

However, that offering came to market late in the day and was not seen trading around afterward.

There also wasn't anything going on with Wednesday's lone deal, a $152 million add-on to an existing issue by fashion designer and retailer Fifth & Pacific Cos. Inc., the former Liz Claiborne Inc.

Junkbondland syndicate sources meantime heard that American Casino & Entertainment Properties LLC decided to fold its hand and walk away from the table rather than gamble on trying to bring its planned $310 million secured notes deal to market in the current environment - the latest in a recent string of such postponements or outright cancellations.

Away from the new deals, Navistar International Corp.'s bonds and shares slid in heavy-volume trading after the maker of diesel engines, buses and trucks shocked the financial community by reporting a big loss for the latest quarter, when analysts had been looking for a profit, and radically downsized its full-year earnings target.

A company that delivered a surprise going in the other direction - homebuilder Hovnanian Enterprises Inc., which unexpectedly turned a quarterly profit - was up for a second straight session.

There were some dealings going on in Chesapeake Energy Corp. bonds ahead of what promises to be a rowdy and raucous annual shareholders' meeting for the troubled natural gas company on Friday.

Overall, the junk market was mostly firmer for a second consecutive day, as evidenced by statistical performance indicators.

But junk players noted a fourth consecutive weekly exodus of cash from high-yield mutual and exchange-traded funds - and one of the largest such pullbacks on record - a sign of heightened investor caution about high yield.

AMG nosedives by $2.9 billion

As activity was winding down on Thursday, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, a whopping $2.9 billion more left those weekly reporting funds than came into them.

It was the fourth consecutive outflow from those funds and followed the $382 million cash loss seen last week by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division, and one of the biggest such hemorrhages ever recorded, dwarfing even the mammoth $2.46 billion outflow seen in the week ended May 23.

In fact, since AMG began tracking inflows and outflows to those funds, only two other outflows were larger - the $3.43 billion cash bleed seen in the week ended June 22, 2011 and the nearly identical $3.42 billion lost during the week ended Aug. 10, 2011.

Over that four-week stretch dating back to the week ended May 16, the junk funds have seen an estimated $6.43 billion of outflows, according to a Prospect News analysis of the figures.

On a year-to-date basis, the latest outflow pulled the cumulative net inflow figure down to around the $17.7 billion mark, according to the analysis. The year-to-date figure counts monthly reporting funds as well as the weekly reporters, according to AMG.

That puts it well below its peak level for 2012 of an estimated $24.15 billion seen in the week ended May 9, according to the analysis.

Including an outflow seen earlier in the year, the $1.29 billion recorded in the week ended April 11, there have now been just five outflows seen so far this year, while inflows have now been seen in 18 out of the 23 weeks since the start of the year, the analysis said - although after a long stretch of big inflows being seen week after week, the momentum has now decidedly turned negative.

Cumulative fund-flow estimates 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 relatively strong performance so far this year versus other fixed-income asset classes and its active new-deal pace, with issuance volume remaining not too far behind last year's totals.

Outflow no surprise

Junk traders were awed by the sheer size of the latest week's outflow.

"Wow" summed it up for one, while a second, with some degree of understatement, rhetorically asked, "That was pretty ugly, don't you think?"

But the traders had generally expected another sizable outflow number this week. Several pointed to a news report circulating on Thursday afternoon that said that earlier this week, investors had pulled a record number of shares from Invesco Ltd.'s PowerShares Fundamental High Yield Corporate Bond Portfolio - the third-biggest junk-buying ETF - amid growing angst over the ongoing European sovereign debt crisis. The reported redemption of 1.6 million shares on Tuesday, worth nearly $30 million, was the biggest one-day outflow since the fund's inception in November 2007.

"Likely they weren't the only one" to see large redemptions, one market source opined.

Back-loaded outflow

According to a mutual fund manager, $830 million of the outflow flowed from high-yield ETFs.

However, the week to date has been flat to slightly positive for this source's fund, with Monday slightly negative, Tuesday decidedly negative, Wednesday slightly positive and Thursday decidedly positive, the manager said.

It suggests that the most recent Lipper-AMG report was "back-loaded," meaning that the bulk of the outflows were seen in the earlier parts of the reporting period, Thursday, May 31, and Friday, June 1, the manager said, adding that June 1 flows were indeed strongly negative.

Meanwhile, leveraged loan mutual funds saw $217 million of outflows during the most recent week, the manager said, again citing the weekly report from Lipper-AMG.

Norbord, on top of talk

Toronto-based Norbord completed Thursday's only junk deal, a $165 million issue of three-year senior secured notes (Ba2/BB-/DBRS: BB) that priced at par to yield 6¼%, on top of yield talk.

The company came out with a specific target in mind, and Thursday's market tone - coming after two days of relative stability - helped the deal, according to an informed source.

The deal was well received by both Canadian and U.S. accounts, the source added.

CIBC World Markets Inc. was the left bookrunner for the debt-refinancing deal. Credit Suisse Securities (USA) LLC and Bank of America Merrill Lynch were the joint bookrunners.

Also, in a true private placement, Norbord placed $75 million of senior unsecured notes (B2/B+/DBRS: B) with a single U.S. investor.

Ford crossover deal

In the crossover space, Ford Motor Credit Co. LLC priced a $1.5 billion issue of 3% five-year notes (Baa3/BB+/BBB-) at a 230 basis points spread to Treasuries on Thursday.

The deal was "priced on the screws," according to a trader in the crossover space, who added that the book built up at Treasuries plus 237.5 bps, subsequent to which the deal launched at 230 bps.

"They always do it the same way," the trader remarked.

The deal, which was priced on the high-grade desk, was trading at 229 bps bid, 226 bps offered just after the Thursday close, according to a hedge fund manager.

There was very little interest in the deal among high-yield accounts, the manager added.

Bank of America Merrill Lynch, Credit Suisse, HSBC Securities (USA) Inc., J.P. Morgan Securities LLC and RBC Capital Markets were the bookrunners.

Renault samurai for Friday

French automobile manufacturer Renault SA is expected to price a yen-denominated offering of two-year notes (Ba1/BB+/BBB+) on Friday in Japan.

Price talk has firmed up at 280 bps over the on-the-run Japanese benchmark. Earlier talk was 275 bps to 285 bps.

Most of the deal is expected to be taken down by Japanese accounts, a market source said.

Mizuho Finance and Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. are the leads.

American Casino withdraws

American Casino & Entertainment Properties withdrew its $310 million offering of seven-year senior secured notes (B3/B+) from the market on Thursday.

No formal price talk had circulated; however, the company was not interested in going forward with a deal in an interest rate context of 9¾% to 10%, a portfolio manager commented.

Initial guidance on the deal came in the 9% area.

Goldman Sachs & Co., Wells Fargo and Deutsche Bank Securities Inc. were the joint bookrunners.

The Las Vegas-based casino operator had planned to use the proceeds, together with cash on hand and a $50 million secured revolver, to purchase any and all of its existing 11% senior secured notes due 2014.

Norbord not seen

Junk bond secondary market traders said that the new Norbord 6¼% senior secured notes due 2015 that priced Thursday afternoon came to market too late for any kind of aftermarket trading.

The other half of the Toronto-based wood products company's $240 million two-part deal, a $75 million tranche of 6¼% unsecured notes, went to a single U.S. investor and was thus not expected to trade around.

A trader meantime said he had seen no activity on Thursday in the new 10½% senior secured notes due 2019 that Fifth & Pacific, the New York-based fashion house and specialty apparel and accessories retailer formerly known as Liz Claiborne, priced on Wednesday.

That $152 million tranche - styled as a quickly shopped add-on to the company's existing $220 million of those notes sold in April 2011 - priced at 108.25 and was quoted late Wednesday having gone home at 109¼ bid.

Recent deals little changed

Among other recently priced issues, a trader said that Boyd Gaming Corp.'s 9% notes due 2020 were up a half-point on the session at 98½ bid, 99½ offered.

The Las Vegas-based casino operator priced its quick-to-market offering at par last Thursday after upsizing it to $350 million from the originally announced $300 million. After briefly trading about a quarter-point above its issue price in initial aftermarket dealings, the Boyd bonds gave it all back, and then some, falling to around the 98 level and at one point even down into the high 97s in subsequent days before finally starting to climb partway out of its hole this week.

The other gaming credit that priced last week - the 9½% senior secured second-lien notes due 2019 from Rivers Pittsburgh Borrower LP, the company that owns that city's sole gaming establishment, the Rivers Casino - was quoted unchanged at 103¼ bid, 103¾ offered.

Rivers Pittsburgh priced its $275 million forward calendar deal, downsized from an original $300 million, at par last Wednesday. Unlike the Boyd bonds, which struggled pretty much from the start, the new Rivers notes began moving up right from the get-go. They ended their initial aftermarket at 101¾ bid, 102¼ offered and continued to move up to their current levels above 103, although activity has quieted down over the past two sessions, traders said.

A trader quoted Sally Beauty Holding LLC/Sally Capital Inc.'s 5¾% notes due 2022 at 100¾ bid, 101 3/8 offered, unchanged on the session and about where the issue has been for some days.

However, a market source saw more than $8 million of those bonds changing hands on Thursday, even though there was no fresh news out about the company, a Denton, Texas-based wholesale distributor and retailer of beauty supplies.

It priced $700 million of those bonds at par in a quick-to-market deal on May 15. They got as good as a 1011/2-to-102 context in initial aftermarket trading and held most of those gains subsequently.

Navistar knocked around

Away from the new deals, a trader said that "Navistar was the big story today," quoting the company's 8¼% notes due 2021 down as much as 7½ points at one time during the session before finally coming up from that bottom - but not too far up - to go home at 96 3/8 bid, which he called down 6½ points on the session.

He said that Navistar, with more than $85 million of those bonds having changed hands, was by far the busiest junk credit Thursday except for several issues of Ford Motor Co. and Ford Motor Credit Co. LLC bonds. The Ford bonds are still technically considered junk bonds because Standard & Poor's still rates the carmaker that way, though traders now consider them pretty much an investment-grade story since Moody's Investors Service and Fitch Ratings consider them to be such and high-grade accounts are doing most of the buying in them.

The Navistar bonds slid badly in line with its New York Stock Exchange-traded shares, which tumbled as much as 28% early on and then ended down $4.04, or 14.35%, at $24.11; volume of 23.3 million shares was about 15 times the norm.

The bonds and shares swooned after the Lisle, Ill.-based maker of diesel engines, trucks and buses stunned Wall Street by reporting a big loss in the fiscal second quarter ended April 30 - analysts had been looking for a profit - and sharply downsized its projections for full-year earnings.

Despite its problems, company executives said on a conference call that the company has adequate liquidity to meet its needs. (See related story elsewhere in this issue.)

Hovnanian higher again

For a second straight session Thursday, a trader saw Hovnanian Enterprises' 10 5/8% notes due 2016 heading higher, propelled by Wednesday's announcement by the Red Bank, N.J.-based homebuilder that it had posted its first quarterly profit in two years.

He said the bonds were up a point on Thursday to end at 92 bid on brisk volume of about $14 million. Even with the gain, he said, "look at how they're yielding 13%, on a four-year piece of paper."

On Wednesday, Hovnanian had jumped by 4½ points on the session to around the 91 level on what a trader called "pretty good volume" of more than $17 million.

The consistently money-losing company reported earnings for the fiscal second quarter ended April 30 of $1.8 million, or 2 cents a share, versus a loss of $72.7 million, or 69 cents a share, a year earlier. Analysts were expecting a 32-cent loss.

Revenue jumped 34% to $341.7 million, beating estimates of $299 million.

Gross margin widened to 17.4% from 14.8% in 2011.

Chesapeake churns

Elsewhere, a trader said that Chesapeake Energy's bonds were "mostly down by a quarter-point" Thursday, although he saw the embattled Oklahoma City-based natural gas company's 6.775% notes due 2019 for some reason up by three-quarters of a point at 97¾ bid.

"All their other issues were down, though," he said.

He saw "OK volume, but nothing huge."

The company's bonds were traded around ahead of what is expected to be a contentious annual shareholder meeting on Friday in the wake of sharp declines in the company's stock price, criticism by ratings agencies including Moody's and revelations of the tangled personal financial dealings of chief executive officer Aubrey McClendon, who was recently stripped of his chairman's position in the wake of the latter disclosures.

Junk indicators improve

Statistical indicators of market performance were higher across the board on Thursday for a second straight session - the first time in nearly two weeks they've consistently pointed north.

A trader saw the Markit Group CDX North American Series 18 High Yield index jump by nearly a full percentage point to 93 7/8 bid, 94 1/8 offered after having risen by 9/16 point on Wednesday. It was the third straight gain for the index.

The KDP High Yield Daily index was up for a second session, firming by 29 bps to end at 72.27 after breaking out of a four-session slump Wednesday with a 27 bps jump. Its yield fell by 11 bps to 7.11%, which came on top of the 10 bps tightening seen Wednesday.

And the widely followed Merrill Lynch U.S. High Yield Master II index was up for a second straight day, gaining 0.443%. On Wednesday, it had snapped a five-session losing streak as it pushed up by 0.412%.

The latest gain lifted its year-to-date return to 4.904% from Wednesday's 4.442% reading, but it was still well down from the peak level for 2012 so far, 6.80%, set on May 7.

Cristal Cody contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.