Ford Credit ends big primary week with $1.25 billion drive-by; MF Global dives after downgrade

By Paul Deckelman and Paul A. Harris

New York, Oct. 28 - Ford Motor Credit LLC drove by the junk market on Friday with a $1.25 billion offering of three-year notes.

The quickly-shopped transaction from the Number-2 U.S. automaker's financial arm capped a busy, eventful week in Junkbondland which saw the high-yield primary explode with nearly $7 billion of new paper - making it easily the busiest week high-yield players have seen in three months, since the $10 billion which priced in the week of July 25.

Besides Ford Credit, junk players saw other mega-deals from Kinetic Concepts Inc., which brought a $1.75 billion seven-year offering, and from FMG Resources Pty. Ltd., which weighed in with $1.5 billion of eight year paper, with both upsized issues pricing on Tuesday.

There was also a swarm of smaller issues - $700 million from MarkWest Energy Partners LP, $600 million from Chesapeake Oilfield Operating, LLC, both also on Tuesday, Wednesday's $460 million placement from Atlantic Power Corp., and Thursday's offerings from Oasis Petroleum Inc. - $400 million - and from Acadia Healthcare Co. Inc., for $150 million.

The new Ford Credit bonds were pretty much straddling their par issue price, while traders saw most of the week's other new deals continuing to trade at premiums to their respective issue prices.

Away from the new deals, the dominant name of the day was MF Global Holdings Ltd., whose bonds continued to plummet, on very heavy trading, following ratings downgrades that have turned the formerly investment-grade credit into a fallen angel, as well as reports that it had drawn down on its $1.3 billion credit line to maintain its liquidity.

Statistical market performance measures - which had been sharply higher on Thursday - all ended in positive territory, but with relatively modest advances, versus Thursday's surge.

Ford Motor Credit drives by

The Friday primary market saw a single dollar-denominated deal.

Ford Motor Credit priced a $1.25 billion issue of three-year senior notes (Ba1/BB+/BB+) at par to yield 3 7/8%.

The yield printed at the tight end of price talk which had been set in the 4% area.

BNP Paribas, Credit Agricole CIB, Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. were the joint bookrunners.

A big order book was filled with accounts from both the high-yield and investment-grade bond universes, according to a syndicate banker.

Heading into Friday the existing Ford Motor Credit 8% notes due 2014 were trading at 110 bid, 111½ offered, translating into a 3.87% yield, according to a hedge fund manager.

However the yield to worst of those 8% notes was 3.69%, rendering the new 3 7/8% paper cheap to that yield to worst, the manager said, chalking up the concession to the size of Friday's $1.25 billion deal.

$6.8 billion week

With Friday's Ford Motor Credit deal in the tally, the Oct. 24 week closed having seen $6.8 billion of issuance in eight junk-rated dollar-denominated tranches.

It was the biggest week since the week of July 25 which saw $10.5 billion in 11 tranches, and it extends the year-to-date total to $224.7 billion in 496 tranches.

The week ahead could see $6 billion to $7 billion, as some familiar high-yield issuers may be tempted from the sidelines where they have been biding their time, riding out the volatility that took hold of the global capital markets in mid-summer, according to syndicate bankers.

Much of the activity in the week ahead is expected to come in the form of quick-to-market transactions, sources say.

Sherritt upsizes

Also on Friday, Sherritt International Corp. priced an upsized C$400 million issue of seven-year senior notes (DBRS: BB) at par to yield 8%, on top of price talk.

GMP Securities LP and National Bank Financial were the joint bookrunners for the debt refinancing and general corporate purposes deal.

"The book was significantly oversubscribed," a market source said.

"This essentially reopened the high-yield market because we haven't seen any issuance since the summer."

Two more deals are expected in the high-yield market in the week ahead, a bond source said.

Cara Operations Ltd. plans to sell C$75 million in senior second lien guaranteed notes.

"Probably will get done next week after the consent," the source said.

And GreenField Ethanol Inc. will wrap its two-week roadshow on Wednesday for an offering of C$175 million offering of five-year senior second-lien notes (/B+/DBRS: B), with pricing expected soon after.

Scotia Capital is leading both deals.

Ford stays around issue price

The big Ford Credit deal priced fairly late in the session, and traders did not see much movement in the Dearborn, Mich.-based company's new three-year bonds in the aftermarket, with most saying that the bonds were about bracketing their par issue price, between 99¾ and 1001/4.

A trader said that the parent carmaker Ford Motor Co.'s benchmark 7.45% bonds due 2031 were up 1 point at 119 bid, 120 offered. Almost $13 million of those bonds traded, enough to put them among the most actively traded junk issues of the day.

There was also brisk activity in some existing Ford Credit paper, with a market source pegging its 7% notes due 2015 at 109 1/8 bid, which he called down 1 9/16 points. Volume was about $8 million.

Ford Credit's 7½% notes due 2012 likewise eased to just over 104, with $121 million having changed hands.

Trader: sentiment uncertain

One of the traders said that "this Ford deal gets done pretty easily at 3 7/8% - I guess you're feeling pretty safe with a piece of Ford paper, even at 3 7/8%, you're getting something over Treasuries that's worth putting your money into."

That having been said, he cautioned that the ease at which the quickly shopped drive-by offering was able to be priced does not necessary mean that all is well among junk investors.

He suggested that while the junk market had seen record inflows into high-yield mutual funds, a key indicator of overall liquidity trends, in the latest week, he was still not convinced that junk participants have completely recovered for the shellacking which the market took during the late summer, particularly in August.

While both AMG Data Services and EPFR Global reported that over $4 billion more came into those funds than left them during the week ended Wednesday, far eclipsing previous recorded fund inflows, "you would think that with all of that money coming into the marketplace, there would be a huge kick-up in the [forward] calendar, but I'm just not seeing it yet.

"They'd be getting priced at the rich end of price talk and going away and looking for the next deal - but I don't see a lot of that happening."

He said that despite the success of the Ford deal, "I think people are putting money into the market - but they're still scared of the market.

"We've seen a lot of the decision-making that's been done over the last couple of months by investors. On the buy side, instead of more relative value, it's been a question of whether to be in the market or not. So it's kind of a different environment."

Quiet trading in new deals

Traders noted that despite the excitement generated in the junk market this week by the big fund inflows and by the biggest primary week in three months, on Friday, trading in those issues was relatively sedate, "unlike the fury of the last couple of days of all that cash coming in."

He said that on Thursday "the powder was getting lit when Europe looked like things were working out, and the market just exploded upward," and the surge carried many of the recently priced new deals higher. However, on Friday, he said he really had not seen the recent new deals.

Another trader agreed that things were "kind of quiet -the new deals opened up a little weaker, but sort of walked their way back."

For instance, he saw Chesapeake Oilfield Operating's new 6 5/8% notes due 2019 opening at 102 bid, 103 offered, "and by the time we ended the day, they were at 102¾ bid, 103¼ offered. He was not sure "how many of the bonds actually traded."

A second trader saw those bonds at 103 bid, 103¼ offered.

Chesapeake Oilfield Operating - a unit of Oklahoma City-based natural gas powerhouse Chesapeake Energy Corp. - priced $650 million of those bonds, upsized from the originally shopped $500 million, on Tuesday at par. They immediately began moving up in that day's aftermarket and have been staying strong ever since then.

He saw Denver-based energy operator MarkWest's 6¼% notes due 2022 trading early in the session He said that they were around 102½ to 102 7/8 bid, "but there were only a few trades there." He said that such a level was down "a little" from the 103 level at which the offering - upsized to $700 million from an initially shopped $500 million had gone home on Thursday.

"He said that at the end of trading on Thursday, the bonds were "creeping back up toward the higher levels."

Mark West priced the issue at par on Tuesday.

The bonds generated fair volume of nearly $8 million in Thursday's session.

Houston-based energy sector peer Oasis Petroleum's 6½% notes due 2021 traded early in the day at 101 bid, 101 3/8 offered. Later in the day, the bonds had backtracked slightly to 100¾ bid on volume of nearly $17 million, putting it in the Top 10 of the most actives. Oasis had priced the $400 million of bonds at par, upsized from the originally shopped $300 million.

MF Global is top trader

With the new deals being largely ignored, a trader said that "most of the action was in MF Global," whose bonds were "all over the place."

He said that early in the day, the bonds traded as low as the 35 bid level, then moved up to 40, and then 45, getting as high as 51 bid before going out with "a few trades" at 50.

"They're still down 23 points from [Thursday], he said, "but they were down, I guess, 40 points at one point."

He said that nearly $200 million of the $325 million issue had traded on Friday.

"That was a lot of the activity today."

Another trader put among traded at $193 million, which he said was seven times the activity on the next-busiest bond, Boston Scientific Corp.'s 7 3/8% notes due 2040, which was around $28 million.

The MF Global bonds gyrated again Friday after Moody's Investors Service cut its rating on the New York-based futures firm yet again - the second time in less than a week.

Moody's dropped its rating on the company to Ba2 from Baa3. On Monday, Moody's dropped its long-term rating to Baa3 from Baa2, alleging that the firm was not properly managing risk.

Moody's cited concerns about MF Global's European risk as the basis for its action on Friday.

On Thursday, news reports were out regarding a potential sale of the company's futures business. The firm run by John Corzine was said to be talking to various big banks about taking over the business.

Fitch Ratings then cut its rating on MF Global to BB+, its highest junk rating, citing the challenges of earning profits from interest in the current "low interest rate environment." Standard & Poor's placed the firm on CreditWatch with negative implications on Wednesday.

On Tuesday, MF Global reported a net loss of $191.6 million, or $1.16 per share, for the third quarter. That compared to a loss of $94.3 million, or 59 cents per share, the year before. Revenues dropped 14.3% to $205.9 million.

The firm is reported to have about $6 billion in European exposure. That compares to the $12 million in revenues earned from its principal trading unit in the last quarter.

There were also reports on Friday that the firm had drawn down its $1.3 billion credit line in order to provide needed liquidity to continue operations while it explore its next move.

-Stephanie N. Rotondo contributed to this report

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