Seagate deal a blowout; AIG steady on asset sales; Hawker, Burlington Coat up; funds add $540 million

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., April 16 - American International Group Inc.'s bonds held steady Thursday despite news of a pending asset sale.

AIG announced a plan to sell of its car insurance unit to the owners of Farmers Group Inc. for $1.9 billion. Also, the company said it completed another asset sale to Aabar Investments PJSC.

Hawker Beechcraft Acquisition Co. LLC reported better-than-expected earnings, which resulted in a boost for the company's bonds. Burlington Coat Factory Warehouse Corp.'s debt was also continuing to move up, after reporting decent numbers on Wednesday.

Meanwhile in the Thursday primary market Seagate Technology International completed a $430 million deal at the tight end of downwardly revised price talk.

The transaction was clearly a blowout, sources said.

However some of the anchor orders lost interest when talk tightened, one official said.

Meanwhile high-yield mutual funds saw $540 million of inflows for the week to Wednesday, according to AMG Data Services, a market source said.

The funds have seen $3.4 billion of inflows over the past five weeks.

Seagate tight to revised talk

After trimming price talk substantially at the 11th hour, Seagate Technology International priced its $430 million issue of 10% five-year senior secured second-priority notes (Ba1/BB+) at 95.317 to yield 11¼% on Thursday.

The deal, roundly reported to be a blowout, was subjected to a lowering of price talk shortly before pricing.

Talk was cut to 11¼% to 11½% from 11¾% to 12%. Hence the deal priced at the tight end of the revised talk.

However the lowering of talk sent one or two accounts, which had come in with anchor orders at 12%, scurrying for the exits, according to one source with knowledge of the deal.

Morgan Stanley was the left bookrunner for the Rule 144A for life notes offer. Banc of America Securities was the joint bookrunner.

Proceeds will be used for general corporate purposes including the repayment or repurchase of all or some of Seagate Technology HDD's $300 million floating-rate senior notes due Oct. 1, 2009 and other debt.

Seagate is a Scotts Valley, Calif., hard drive manufacturer.

$540 million inflows

Meanwhile investors continue to pile into junk, sources say.

In part, the lowering of price talk in the Seagate deal was possible because there is so much cash chasing high-yield at present, a high-yield mutual fund manager remarked late Thursday.

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 April 15.

The most recent flow follows the previous week's $680.8 million.

It is the fifth consecutive inflow, according to a high-yield syndicate source, who added that $3.4 billion has come into the funds during that period, extending year-to-date positive flows to $5.98 billion.

Meanwhile the funds that report on a monthly basis saw $25.8 million of inflows during the most recent period, extending their year-to-date positive flows to $5.97 billion.

Year-to-date aggregate flows, the combined total of the weekly reporting funds plus the monthly reporting funds, came to $11.95 billion by Wednesday's close.

Market indexes mixed, new issues gaining

Market players called the secondary market relatively stronger yet again Thursday.

The CDX Series 12 High Yield Index, however, ended unchanged at 75.5 bid, 76 offered. The KDP High Yield Index moved up to 55.92, with a yield of 12.52%, compared to Wednesday's levels of 55.46, with a yield of 12.68%.

A trader said that overall, volumes continued to be good, with about $1.5 billion trading, "excluding those new issues that don't Trace," he said, referring to names that aren't required to be reported on the Trace information dissemination system.

And new issues remained active as Seagate Technology set pricing for its new notes. The senior secured second priority notes due 2014 came to market at 95.317 and, according to several sources, quickly moved up to 97.5 bid, 98 offered.

Toll Brothers Inc.'s recent 8.91% notes due 2017 traded actively - about $40-plus million traded, according to one trader - at 99.25, a gain of ¼ point.

HCA Inc.'s 8½% notes due 2019 also continued to be active. A trader placed the issue at 98 7/8 bid, 99 1/8 offered, while another called the bonds 98 7/8 bid, 99 3/8 offered. Among other HCA issues, the 5¾% notes due 2014 moved up over a point to 76.5 bid.

AIG steady despite asset sale

American International Group's debt closed the session unchanged, despite news of an asset sale.

A trader saw the 6.90% notes due 2017 at 39.5, with $25 million trading, and the 5 3/8% notes due 2012 at 45, with about $7 million trading. He said there was "no change" in AIG's other issues as well.

AIG announced Thursday that it would sell is car insurance unit, 21st Century Insurance, to Zurich Financial Services Group - the owner of Farmers Group Inc. - for $1.9 billion.

Farmers Group will pay $1.5 billion of the purchase price in cash and will fund the remaining portion with $400 million subordinated capital notes issued backed by Zurich Insurance Co. Farmers will assume $100 million of outstanding debt as well.

Additionally, the sale of the AIG Private Bank Ltd. unit was completed. The business was sold to Aabar Investments PJSC for $253 million. Aabar also assumed about $55 million in intra-company loans.

Funds from the asset sales are expected to be used to repay part of a $182.5 billion government bailout loan.

Hawker, Burlington better with numbers

Hawker Beechcraft's bonds moved up after the company posted stronger-than-expected earnings.

A market source deemed the 8½% notes due 2015 up a deuce at 30 bid, while another called the issue up over 3 points at 31 bid, 32 offered.

For the first quarter, the aircraft manufacturer posted an operating loss of $41.2 million, compared to a loss of $1.5 million in 2008. Net sales came to $537.6 million, a nearly $39 million decline from the year before.

However, net after-tax income came to $66.9 million, more than double that seen during the same period of 2008.

In other earnings news, Burlington Coat Factory's 11 1/8% notes due 2014 continued to gain after the retailer posted good numbers on Wednesday.

A trader placed the issue around 60, noting that it had closed around 50 in the previous session. Before that, the bonds had been in the low 40s.

Another trader said the notes "continue to trade up," quoting the issue at 59 bid, 60 offered.

Yet another trader deemed the debt up 4 points on the day at 58 bid, 60 offered.

The retailer reported a 3.4% increase in sales for the quarter ending Feb. 28. Sales totaled $1.02 billion, compared to sales of $987.1 million the year before. Net loss came to $150.9 million, versus net income of $26.8 million in 2008.

Broad market mostly better

Elsewhere, General Motors Corp.'s 8 3/8% notes due 2033 were unchanged at 8 bid, 9 offered, while Ford Motor Co.'s 7.45% notes due 2031 dropped a point to 37.5 bid, 39 offered.

OSI Restaurant Partners LLC's 10% notes due 2015 were seen "up a good bit" at 47. A trader said that was up from the mid-30s, but he did not know what had sparked the move.

TXU Corp.'s 10 7/8% notes due 2017 moved up over 3 points to 61.5, a trader said, but he did not know why. There was no news to explain the gain.

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