Sprint, Clearwire gain on accord; AMR busy; market awaits PHH; Castle slates; funds post loss

By Paul Deckelman and Paul A. Harris

New York, Dec. 1 - The high-yield market moved into the homestretch for the year on Thursday, quietly opening the final month of 2011.

Unlike Wednesday's exciting $1 billion-plus session in the primary arena, Thursday saw no pricings other than a split-rated issue from Verisk Analytics, Inc. that priced off the high-grade desk.

While price talk emerged on outsourcing services provider PHH Corp.'s $250 million offering of seven-year notes, the quickly shopped bonds never did actually come to market, leading one trader to speculate that they would now be Friday's business.

One new deal joined the forward calendar. A.M. Castle & Co., a distributor of specialty metals and industrial plastic products, took to the road to began shopping a $225 million secured note issue around to prospective investors.

Charter Communications Inc.'s new $750 million bond deal was seen up between 1 and 2 points from where the cable operator's issue priced on Wednesday.

Away from the new issues, considerable activity in the newly bankrupt AMR Corp. continued for a third straight session.

Sprint Nextel Corp. and its 49%-owned affiliate, Clearwire Corp., were seen higher after wireless giant Sprint announced a new accord between the two companies, deepening their cooperation and apparently clearing up lingering questions about Sprint's relationship with the smaller company.

Secondary market performance indicators firmed for a second straight session.

However, a leading indicator for the junk market - high-yield mutual fund flow numbers, considered a reliable barometer of overall market liquidity trends - posted their second net decline in as many weeks.

AMG posts $1.01 billion outflow

As Thursday's session was coming to a close, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $1.01 billion more left those weekly reporting funds than came into them.

It was the second consecutive week in which a net outflow had been seen; in the previous week, which ended Nov. 23, the junk funds bled $2.17 billion, the fourth-biggest outflow recorded since Arcata, Cal.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - began tracking fund flows in 1992.

That big outflow, meanwhile, had broken a previous stretch of six straight net inflows, dating back to early October and totaling $10.313 billion, according to a Prospect News analysis of the numbers. That total includes the spectacular $4.25 billion cash transfusion seen in the week ended Oct. 26 - the biggest single weekly inflow in AMG history.

For the year as a whole, inflows have now been seen in 31 weeks versus 17 outflows, according to the analysis.

Net inflows for the year have totaled $7.879 billion, according to the analysis - down from an estimated $8.889 billion a week earlier and well down from the peak cumulative figure of $11.059 billion recorded in the week ended Nov. 16.

EPFR: $1.62 billion outflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a net loss from the funds, pegging it at $1.62 billion.

It was the third consecutive cash loss seen by EPFR, including the $1.87 billion bleed seen in the week ended Nov. 23.

Over the past three weeks, an estimated $3.519 billion more has left the funds than come into them, according to a Prospect News analysis of the EPFR figures.

On a year-to-date basis, flow totals fell to an estimated $3.371 billion from $4.991 billion the week before, according to the analysis.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ markedly because they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

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.

Those trends had pretty much continued into 2011 as well, although the market hit something of a dry patch in June. It then seemed to recover in July only to run into a brick wall for all of August, although judging by the patterns recently seen in the fund flows, the junk market seemed to be in the process of righting itself and coming back before the last two weeks of outflows.

Outflows 'front-loaded'

Asked if the outflow news could negatively impact a deal that was just about to price, such as the PHH offer, a high-yield investor said, "No, but a $1 billion outflow certainly gets your attention."

In the case of the outflows reported Thursday, it's yesterday's news, the investor said, adding that flows over the past two sessions have been positive.

Hence the "outflow" news is "front-loaded," the investor asserted, meaning that cash flows were negative during the early part of the five-session reporting period.

Considering that the first day of that five-day period was Thanksgiving Day, when markets were closed in the United States, the following Friday and Monday were the sessions that saw significant negative flows, the source added.

Primary dull

The primary market generated very little news on Thursday.

In the crossover market, Verisk Analytics priced $250 million of 4 7/8% eight-year senior notes (Ba1/BBB-/A) at a 350 basis points spread to Treasuries.

Bank of America Merrill Lynch and J.P. Morgan Securities LLC were the bookrunners for the deal, which was priced on the investment-grade desk and was said to have played to very limited interest among high-yield accounts.

PHH sets talk

PHH talked its $250 million offering of non-callable seven-year senior notes (expected ratings Ba2/BB+/BB+) with a 9½% to 9¾% yield.

The order books were scheduled to close late Thursday afternoon.

Some market-watchers expected final terms on the deal to roll out on Thursday night. However, no terms were available as Prospect News headed to press.

The order book was believed to be at issue size heading into the New York afternoon, according to a trader from a high-yield mutual fund, who added that the deal appeared to be going OK.

Citigroup Global Markets Inc. and JPMorgan are the joint active bookrunners for the debt-refinancing deal.

A.M. Castle starts roadshow

A.M. Castle began a roadshow on Thursday for its $225 million offering of five-year senior secured notes in a deal being led by Jefferies & Co.

The roadshow wraps up on Dec. 12.

Proceeds will be used to help finance the acquisition of Tube Supply, Inc. and refinance existing debt.

Charter - 'fabulous execution'

The market continued to buzz about Wednesday's $750 million issue of 7 3/8% notes due June 2020 from Charter Communications.

Before the company entered bankruptcy in February 2009, it was known for its knack for showing up when the high-yield new issue market was red hot, refinancing its parade of maturing bonds at advantageous rates.

The St. Louis-based cable television company appears to have emerged from bankruptcy with that knack intact.

Amid the tumult in the global capital markets that has been playing out since August, Charter showed up on the day that equities in Europe and the United States rallied massively on the heels of accommodative moves on the part of central bankers in Europe and the United States.

"They got a fabulous execution," a high-yield mutual fund manager said of Wednesday's Charter deal. The manager added that the $750 million offer - half of it soaked up by reverse inquiry - was believed to have played to a $2 billion order book.

"They remarked during the call that in times past they would have upsized the deal," the buysider said.

However, the veteran issuer is seeking to season its balance sheet with some new bank debt.

"They alluded to it on [Wednesday's investor] call," the fund manager said, adding that people are expecting the cable company to show up in the bank loan market with $500 million or more of term loan debt sooner rather than later - possibly in the next couple of weeks.

Charter's deft sense of debt capital markets timing won't help it nearly as much in the bank loan market, said the manager, who plays loans in addition to junk bonds.

"In the high yield, you can get in and out in a day if you're Charter," the source said. "You can't do that in the bank loan market."

New Charter holds gains

A trader said that the new Charter Communications 7 3/8% notes due 2020 that priced on Wednesday "hung around where they had been" in initial aftermarket dealings after the pricing.

He said that late Wednesday, the St. Louis-based cable operator's CCO Holdings LLC/CCO Holdings Capital Corp. bonds had gotten as good as 101 5/8 bid, 102 offered after the quickly shopped $750 million issue had earlier priced at par.

On Thursday, he quoted them at 101 5/8 bid.

A second trader said the new bonds traded at bid levels between 101½ and 102.

Landry's hangs in

A trader said that the new Landry's Acquisition Co. add-on to its 2015 notes was quoted Thursday at 104 bid.

That's up slightly from aftermarket levels around the 101¾ bid neighborhood seen on Wednesday after the Houston-based restaurant and gaming operator priced a quickly shopped $115 million add-on to its existing 11 5/8% senior secured notes due 2015. That add-on was upsized from an originally announced $90 million and priced at 102.5 to yield 10.829%.

Optima a no-show

For a second consecutive session, traders saw no activity in Optima Specialty Steel Inc.'s new 12½% senior secured notes due 2016.

The Akron, N.Y.-based steel products producer had priced its $175 million issue of those bonds on Wednesday at 96 to yield 13.622%. The deal was downsized from the originally announced $200 million.

There also had been no aftermarket dealings on Wednesday, leading several traders to theorize that the relatively small issue had already been snapped up and put away.

Indicators up again

Away from the new-deal names, traders saw a generally quiet market outside of some specific high-volume names like AMR, Sprint Nextel and Clearwire.

One noted that a lot of market participants were absent, attending the big Bank of America Merrill Lynch Leveraged Finance Conference going on this week in Florida.

He further noted that there was also a Bloomberg-sponsored hedge fund conference taking place in New York.

Between the two of those, he said, "it kind of takes a lot of players out" and dulls activity.

Among the statistical measures of market performance, things were on the upside for a second consecutive session, although not quite as impressively as Wednesday.

A trader saw the CDX North American series 17 High Yield index gain 1/8 point on Thursday to end at 91½ bid, 91¾ offered after having jumped by 2¼ points on Wednesday.

The KDP High Yield Daily index gained 18 basis points to close at 71.28, about half of the previous session's 35-bps advance.

Its yield declined by 7 bps to 7.82% on top of Wednesday's 10 bps reduction.

The widely followed Merrill Lynch High Yield Master II index rose for a second straight session, gaining 0.331% on Thursday following its 0.493% rise on Wednesday.

That gain lifted the index's year-to-date return to 2.195% on Thursday from Wednesday's 1.858%. It was the first time the year-to-date figure had topped the psychologically potent 2% mark since Nov. 18, when it hit 2.422%.

The year-to-date return remains below its recent peak level of 4.28%, recorded on Oct. 28, and is well below its high-water mark for the year of 6.362%, which was set on July 26.

However, it is still well up from its 2011 low-point, a 3.998% deficit recorded Oct. 4.

Junk diverged from stocks, which had surged strongly on Wednesday on good news out on the European debt and banking crisis but which were mostly lower on Thursday. The bellwether Dow Jones industrial average - which on Wednesday had zoomed 490 points, its best showing since March 2009 - on Thursday lost 25.65 points, or 0.21%, to end at 12,020.03.

The S&P 500 lost 0.19%, although the Nasdaq index gained 0.22%.

AMR again active

A trader said that AMR's 10½% notes due 2012 were "the most active bond today" in Junkbondland, with "a lot of paper trading up and down" in a bid range of 87½ to 89 before ending the day at 88½ bid. He called that unchanged to perhaps down a quarter-point.

There was "just a lot of volume" in the Fort Worth-based airline holding company's shortest issue.

At another desk, a market source pegged the bonds down by three-quarter of a point at 88½ on volume of almost $63 million.

The air carrier's bonds have been among the busiest issues in junk over the past three sessions following Tuesday's announcement the company had filed for Chapter 11 protection, hoping to emulate other major airlines that have used the bankruptcy process in recent years to shed burdensome debt, labor contracts and aircraft leasing arrangements.

Sprint surges

Elsewhere, a trader said that Sprint Nextel's bonds were "up anywhere from one-quarter point to 3 points, depending what issue," after the Overland Park, Kan.-based wireless carrier announced new arrangements with 49.6%-owned Clearwire, helping to settle weeks of market speculation about the ongoing relationship between the two companies. (See related story elsewhere in this issue).

He saw Sprint's 8 3/8% notes coming due in March 2012 up a quarter-point, trading at 109.9. "Pretty much trading as a short-term yield [to call issue]," he said.

He saw the company's 6% notes due 2016 as the most active Sprint bond, up 2¼ points to go home at 82 bid.

The company's longest-dated issue, the 8¾% bonds due 2032, were up 3½ points on the session, last trading at 80½ bid.

A market source at another desk located the 6% notes at 81½ and said that almost $30 million of the notes had changed hands, putting it among the four or five busiest junk issues of the day.

He saw the Sprint 8 3/8% notes due 2017 up three-quarters of a point at 87¾ with over $21 million changing hands.

Other active Sprint credits included the Sprint Capital Corp. 6.9% notes due 2019, trading at 80 bid on volume of $22 million, and Sprint Capital's 6 7/8% notes due 2028, finishing at 71 5/8 bid with over $20 million of turnover.

Yet another trader called Sprint's volume "huge," with the 6% notes due 2016 up a couple of points at 82 bid and the 8 3/8% notes due 2017 "also up a couple of points" to end at 88. He saw the 6.9% notes finishing around 80, "up a couple of points" from 78-78½ at the open.

"The whole capital structure was active in Sprint," he said.

Clearwire climbs

One of the traders meantime saw Clearwire's 12% notes due 2017 trading at 70 bid, although he said it was only a "small piece." He called the Kirkland, Wash.-based broadband network company's bonds down 23 points but noted that the last time they had traded was August, at around 93 bid, so he said quoted levels were likely unreliable.

He said just $1 million had traded down at 75 on Thursday and just 500 bonds (i.e., $500,000) at 70, "so there was not a huge amount of volume."

Another trader meantime saw more activity in Clearwire. "I assume there was a lot of volume," he said, "since they moved around and were quoted all day long."

However, he cautioned that many of the Clearwire credits were 144A issues, "so it's tough to say how much volume there really was."

He saw the 12% first mortgage notes due 2015 at 88-90, pretty much unchanged, and the 12% notes due 2017 ending around 71-72.

He said the company's 8¼% exchangeable paper started the day around 45 bid but were ending around 53 bid.

Another trader declared that "Clearwire rallied pretty dramatically," pegging the 12% notes due 2015 ending at 89 bid, 91 offered after having gotten as good as 92 bid, 93 offered during the session. All of those levels were well up from Thursday's sightings in an 82-83 range, he said.

He said that the 12% notes due 2017 were "the big mover today," quoting them having risen to 75-78 after the Sprint announcement, versus levels as low as the mid 40s prior to the news.

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