Williams, Tyson, Videotron price upsized issues; Obama makes Sallie Mae swoon; funds lose $256 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 26 - After two weeks of relative inactivity, the high yield primary sector roared back to life on Thursday, pricing three upsized deals in rapid succession for Williams Cos. Inc., Tyson Foods Inc. and Videotron Ltd. While the Tyson deal had been marketed to investors via the traditional roadshow process, the Williams and Videotron offering were suddenly appearing drive-by deals that priced the same day they showed up on investors' radar. The latter two deals were heard to have traded up modestly when they were freed for secondary dealings, but there was no aftermarket seen in Tyson, which priced very late in the session.

Among the established issues, student-loan provider SLM Corp.'s bonds, along with its shares, plummeted after president Barack Obama said he wanted to end government subsidies to private student-loan lenders like Sallie Mae.

Another big loser was Chemtura Corp., whose bonds fell after the Middlebury, Conn.-based specialty chemical maker reported poor fourth-quarter numbers.

Bad numbers seemed to have little or no impact on General Motors Corp.'s bonds, traders said, since the market really wasn't expecting anything positive from the distressed Detroit giant anyway - and it was not disappointed in that regard.

NewPage Corp.'s bonds, on the other hand, pushed upward by several points, even though the Miamisburg, Ohio-based papermaker reported sharply wider losses for the fourth quarter and the full year -- offset by the gains in sales and EBITDA it racked up after effectively doubling its size through acquisitions, as well as by a solid liquidity profile.

Also higher were NXP BV's dollar-denominated unsecured bonds, which reportedly could be taken out if the semiconductor company decides to do a debt-swap transaction.

Junk tracked the stock market on Thursday, according to a senior syndicate official.

After showing some strength during the morning, high yield ended the day down ½ point, with cash faring better than CDS, the source added.

However the massive technical rally in the junk market may be teetering, sources conceded on Thursday.

To underscore that point, for the first time in 13 weeks AMG Data Services reported an outflow from high-yield mutual funds: negative $255.6 million for week to Feb. 25, market sources said.

Junk funds show $256 million outflow

As trading was winding down for the day, market participants familiar with the high yield mutual fund flow statistics generated by AMG, based in Arcata, Calif., said that in the week ended Wednesday $255.6 million more left the weekly-reporting funds than came into them.

It was the first cash exodus seen this year, against the seven previous weeks of inflows seen since the start of the year, totaling $3.608 billion, according to a Prospect News analysis of the AMG statistics, including the almost identically-sized $255 million inflow seen last week, ended Feb. 18. The outflow brought the year-to-date inflow down to $3.352 billion.

It was also the first outflow seen since the week ended Nov. 25, breaking a stunning 12 consecutive weeks of inflows, encompassing both this year's cash infusions and the inflows seen over the last five weeks of 2008 that dated back to the week ended Dec. 3. During that 12-week winning streak, net inflows totaled $5.425 billion, according to the Prospect News analysis. That massive flow of funds into high yield is seen as having been primarily responsible for the recently strong pace of new issuance, as well as the positive year-to-date return seen in Junkbondland so far, versus last year's staggering 25%-plus loss.

A market source also said that in the latest week, there was no change in funds which report on a monthly basis rather than a weekly one. For the year to date, these funds have seen a cumulative inflow of $1.759 billion.

On an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $5.113 billion more has come into the funds than has left them, down from $5.367 billion the week before.

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, the week's outflows from domestic and foreign-based high yield funds totaled $207.9 million - in contrast to the previous week's $245.7 million inflow. That brought the company's year-to-date total down to $3.45 billion from $3.66 billion previously. EPFR also noted the termination of the 12-week long inflow run, calling it "the end of an era."

While the EPFR figures point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers usually differ due to EPFR's inclusion of some non-U.S. funds in its universe.

All cumulative totals from the various tracking bodies can include unannounced revisions and adjustments to figures from prior weeks.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash to and from the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

Tyson debut junk deal oversubscribed

Meanwhile, for the fourth time this year, the new issue market saw a $1 billion day, with upsized deals being priced by Tyson Foods Inc. and Videotron Ltd.

Tyson Foods priced an upsized $810 million issue of 10½% of five-year senior notes (Ba3/BB) at 92.756 to yield 12½% on Thursday - it's first-ever issue of notes with high-yield covenants.

The yield came on top of yield talk. The issue price, meanwhile, came cheap to the 92.5 area price talk.

The deal, which was well oversubscribed, was played predominantly by high-yield accounts, although a handful of high-grade accounts participated, according to an informed source.

Timing had been moved up by one day due to the level of demand, market sources said.

"The deal saw strong demand at 12½%," an informed source said, adding that with the turmoil in equities the market moved against the Tyson deal during the time it was on the road, so that it came wider than was initially envisioned.

The issue was upsized from $500 million, and it generated $751 million of proceeds.

JPMorgan, Banc of America Securities, Barclays Capital and Wachovia Securities were joint bookrunners for the debut high-yield deal from the former high-grade issuer.

Videotron drives through

Meanwhile Videotron priced an upsized $260 million add-on to its 9 1/8% senior notes due April 15, 2018 (Ba2/BB-) at 98.625 to yield 9.35% in a quick-to-market transaction.

The issue price came cheap to the 98.5 price talk.

Banc of America Securities LLC led the debt and general corporate purposes deal from the Montreal-based cable TV operator.

The deal went extremely well, according to one informed source, who added that Videotron played to a very solid book.

The deal, which was announced at a size of $200 million, saw $1 billion of demand, according to another informed source.

Williams sees junk play

In the crossover market, Williams Cos. priced a split-rated $600 million issue of 8¾% 11-year senior notes (Baa3/BB-) at 99.159 to yield 8 7/8%.

The yield came at the tight end of the 9% area talk.

Investment-grade accounts made up 85% of the order book, with the remaining 15% comprised of high-yield names, according to an informed source.

JPMorgan, Banc of America Securities, Barclays Capital and Citigroup were joint bookrunners for the deal, which was upsized from $500 million.

Signs of stalling

In addition to the above-mentioned $255.6 million outflow from the high-yield mutual funds, as reported by AMG, sources saw other signs that the high-yield rally which began in mid-December could be sputtering.

A widening in high-yield is implied by investment-grade spreads, said a mutual fund manager.

"A lot of the most recent investment grade deals have been priced rather narrowly," the investor commented, adding that recent deals have not been nearly the bargains that the high-grade market had been turning out earlier in the year.

"And Treasury yields have bounced off of their inflection point, and are back up to near 3%," the investor added.

"At the end of 2008 the 10-year was 2.2%. Now it's 2.99%.

"Whereas in October and November and December you had the advantage of the 10-year falling in yield, and spreads coming in - a double-barreled benefit - now you have Treasury yields moving up. And because the investment grade deals have been priced much narrower you don't have the cushion."

Also troubling, sources say, are junk indexes that are seen up 2.5% to 4%, year-to-date, against the backdrop of a stock market that has disgorged 20% of its value over the same time period.

"It suggests that the high-yield market has kind of gotten ahead of itself," the mutual fund manager remarked, and other market sources agreed.

"Face it," a banker asserted, "either the stock market has to recover or the high-yield has to give up some ground."

Activity ahead

However amid such warnings, sell-siders advised Prospect News that, given the notable executions seen on the Videotron and Tyson deals, primary market activity is apt to ramp up meaningfully over the next two weeks.

Be that as it may, in the wake of Thursday's flurry of issuance only one deal remains on the active forward calendar, and even that one is something of a special case.

Mexico's Cemex, SAB de CV is in Europe roadshowing a benchmark-sized, dollar-denominated offering of senior notes (//BB) with intermediate maturities and high-yield covenants.

The roadshow moves to New York on Monday, and is expected to wrap up on March 4, with pricing afterwards, depending on market conditions.

Citigroup is leading the Cemex deal which, like Tyson, represents the issuer's first-ever offering of notes with high-yield covenants.

New Videotron, Williams bonds trade up

The new Tyson Foods 10½% notes due 2014, which priced at 92.756, came too late in the session for any meaningful aftermarket dealings.

When the new Videotron 9 7/8% notes due 2013 were freed for secondary dealings, a market source reported them at 101 bid, up from the 98.625 level at which the bonds had priced earlier.

At another desk, a trader called them 101 bid, 101.5 offered.

The new Williams 8 7/8% notes due 2020 were likewise seen having improved from their issue price, at 99.159.

They were initially seen at 99.25 bid, 100.25 offered. A trader at another shop saw that latter tighten to 99.75 bid, par offered.

The Tulsa, Okla.-based natural gas company's established 8¾% notes due 2032 were meantime seen unchanged at 92 bid, while its 7 5/8% notes due 2019 were up slightly to 94.5, with a significant $20 million traded.

A trader at another desk saw both of those issues unchanged on the day on respective volume of $22 million and $189 million, suggesting that "with the new issue coming, the existing issues had some activity."

Market indicators turn mixed

A trader saw the widely followed CDX High Yield 11 index of junk bond performance - which had fallen by ¾ point on Wednesday - continuing to slip Thursday, quoting it down another 3/8 point to 72 1/8 bid, 72 5/8 offered.

The KDP High Yield Daily Index, however, gained 8 bp to 53.17, while its yield tightened by 14 bps to 13.71%.

In the broader market, advancing issues overtook decliners, though only by a narrow margin.

Overall market activity, measured by dollar-volume totals, declined by about 12% from the levels seen in Wednesday's session.

Despite the indicators of improvement versus Wednesday's generally lower session, a trader - looking over the list of the most actively traded issues and finding a good percentage of them on the downside - opined that "it does seem like it's an easier tone, based on our most-actives.

"It shouldn't be a surprise, based on the way equities have turned around."

"Stocks just rolled over," another trader said. "They were up before, but now they're down." He said people were "just poking around, [seeing] equities' bad news, listening to the president speak, and watching the markets go down."

Concerns about the impact of Obama administration healthcare proposals on private health insurance, pharmaceutical companies and hospitals pulled equities lower as the day wore on an early gains on hope for the banking industry melted. The bellwether Dow Jones Industrial Average ended down 88.81 points, or 1.22%, to end at 7,182.08. In the broader market, the Standard & Poor's 500 index lost 1.58%, while the Nasdaq composite did even worse, surrendering 2.38% on the day.

However, despite equity-side investors' healthcare worries, the first trader saw junk market barometer Community Health Systems Inc.'s 8 7/8% notes due 2015 having gained ½ point to 95.25 bid, on volume of $17 million, which he called "a decent amount on a [relatively] quiet day."

However, he saw sector peer HCA Inc.'s 9¼% notes due 2016 down ¾ point at 92.25 bid, on $7 million traded.

But a market source at another shop said that the Nashville-based hospital operator's 5¾% notes due 2014 were among the day's more robust finishers, up more than 2 points at 71 bid. Out of that same sector, the source pegged Healthsouth Corp.'s 10¾% notes due 2016 down more than a point at just under 101.

The first trader meantime saw the other issue widely regarded as a proxy for the overall market, First Data Corp.'s 9 7/8% notes due 2015 up ¾ point at 56.75, on $3 million traded.

Sallie Mae takes a slide

One of the traders said that student-loan provider Sallie Mae's was "one of the bonds of the day," falling "straight down" about 10 to 12 points on the session after president Obama said he wanted to end government subsidies to private student-loan lenders.

"There was a lot of volume on the news," he said, with the bonds down around 10 point on the session; "at one point, they were down 12 or 15 points."

He saw Sallie's 8.45% notes due 2018, which had been in the mid-80s on Wednesday, fall as low as 70-71 Thursday, before finally coming back from that nadir to end in the mid-70s, around 76-77, down around 10 points.

Its 4% notes due 2010 were trading down to 84 bid, 86 offered from prior levels around 95 bid, 96 offered, ending about 10 points lower.

Sallie Mae's bonds stumbled after Obama, in submitting his budget for the coming fiscal year, called for the abolition of federal subsidies to commercial providers of student loans like Sallie Mae, Nelnet Inc., and Citigroup's Student Loan Corp. unit. Instead, he said, Congress should shift the entire system to direct government loans and eliminate the bank subsidies - a change which he said would save more than $4 billion a year.

Besides knocking the bonds lower, that proposal also greased the skids under Sallie Mae's New York Stock Exchange-traded shares, which plunged $2.59, or 30.87%, to $5.80, on volume of 96.3 million, a more than 12-fold increase from the usual turnover level.

Capmark collapse on default warning

Another badly performing financial credit Thursday was Capmark Financial Group Inc., with a trader seeing "hundreds of millions" of its 5 7/8% notes due 2012 trading down 5 to 6 points at 24.5-25, after the troubled San Mateo, Calif.-based commercial mortgage lender said it may record a pretax loss of $800 million in the fourth quarter. The company also warned that might break its debt-to-earnings limit, which may lead to an event of default under its loan agreement.

Another market source said the bonds were down nearly 6 points, to 26, after having fallen as low as 19 earlier in the session, with over $200 million of the notes traded.

The company was nominally investment-grade rated when the day began, although its bonds have traded alongside deeply distressed junk for a while; however, Moody's Investors Service and Fitch Ratings both knocked those bonds down to junk territory on Thursday.

AIG bonds seen better

The possibility that the government might split problem-plagued American International Group Inc. into several separate parts, or might even take stakes in those components, seemed to lift the New York-based insurers' bonds Thursday.

A trader saw AIG's 5.85% notes due 2018 as one of the heaviest-traded issues, with $45 million changing hands. The bonds were up ½ point on the day.

AIG's International Lease Finance Corp. 3½% notes slated to come due April 1 firmed to 95.375 bid, or a 65% yield to maturity, from 93.5 on Wednesday, though less than $1 million traded.

Another trader said AIG's "long paper traded up," seeing the 6.90% notes issued by its American General Finance unit right around 44, on "not a lot of activity, up maybe a point or so, or even a couple of points higher" from Wednesday, "but on not a lot of trades."

Its NYSE-traded shares - now almost worthless penny stocks - were up 6 cents, or 13.04% to end at 52 cents, on twice-normal volume of nearly 80 million shares.

Chemtura crumbles on bad numbers

A trader said Chemtura's 6 7/8% notes due 2016 were big losers, dropping 3½ points to 48.5 bid from 52 earlier, on volume of $7 million.

The bonds fell on Chemtura's fourth-quarter results, released late Wednesday. The company showed a net loss of $3.04 per share on revenue of $690 million. It also said that it might not be in compliance with certain covenants after a 90-day waiver period - secured in December 2008 - ends.

"The fourth quarter proved to be a very challenging quarter," Craig A. Rogerson, chairman, president and chief executive officer, said in a statement.

"Like many industrial companies, Chemtura saw order volumes decline sharply in November and December as our customers experienced, or anticipated, reductions in demand from the industries they serve. Lower manufacturing output resulting from lower demand and our efforts to reduce inventories, resulted in much higher manufacturing variances. These changes led to an unprecedented decline in operating profitability and a managed basis operating loss of $27 million for the quarter.

"With the benefit of working capital reductions, the company generated cash from operations in the quarter before proceeds from the sale of accounts receivable. However, the decline in our net sales and associated earnings resulted in a reduction in the availability under our senior credit facility revolver and significant reductions in our accounts receivable facilities, placing significant stress on our liquidity.

"As demand and profitability declined, it became necessary to seek relief from the two financial covenants under our senior credit facility," Rogerson continued. "Our lenders responded quickly to our needs and we entered into a 90-day amendment and waiver agreement on Dec. 30, 2008. The waiver expires on March 30, 2009.

"Secondly, the decline in financial performance reduced the value of accounts receivable that we could sell under our accounts receivable facilities. Certain of our lenders have assisted us in creating a new U.S. accounts receivable facility that we entered into on Jan. 23, 2009 that restores much of the available utilization we had under the former U.S. facility. The providers of our European accounts receivable facility have continued to support the company, but restricted our sales of accounts receivable. We are in the process of revising this facility which will permit its continued operation, but result in a significant reduction in the value of the European accounts receivable we can sell."

Earlier in the week, news reports indicated that Sinopec and other Chinese companies had expressed interest in purchasing about $1 billion worth of assets the company put up for sale. Chemtura has stated in early February that it was looking to sell off some assets as a way to fund upcoming maturities and to reduce inventories.

However, in order for Chemtura to meet its July maturity, a buyer would have to be selected by the end of March if the company is to beat the looming deadline.

GM little moved on bad numbers

Bad quarterly numbers did not seem to have much impact on General Motors' bonds.

A trader found them barely trading, despite the news that the embattled automaker had lost $9.6 billion during the fourth quarter, and had burned through $6.2 billion of cash, forcing it into a position where it had to beg the federal government for a bailout.

GM also warned that its auditors could very well decide to issue a "going concern" warning about the once-mighty company's continued survivability when GM files its 10-K report with the Securities and Exchange Commission next month

Despite that double-dose of bad news, the trader saw no trading in significant size in GM's benchmark 8 3/8% bonds due 2033, which last changed hands at 14.5 on Wednesday, nor in its 7.20% notes due 2011, which last traded Wednesday at 16.5 bid.

"People seem to have just given up on the autos and are gonna ride it out," he suggested.

Another trader said that the GM bonds "stayed right around the 14-15 level, on not much activity."

He said that regarding the poor quarterly numbers, "everybody expected just what happened."

NewPage numbers no problem

Elsewhere, although NewPage Corp. reported a sharply wider fourth-quarter and full-year loss, the papermaker's 10% notes due 2012 jumped 6 points in round-lot dealings to 30 bid, on $7 million traded.

While the company did post a quarterly net loss of $42 million, far wider than the year-earlier $4 million, and a full-year loss of $117 million compared with a net loss of $8 million in 2007, other results were more positive.

Net sales for the quarter were $977 million, up 50% from $652 million in the fourth quarter of 2007, while full year 2008 net sales were $4.356 billion versus $2.168 billion for 2007, an increase of 101%, reflecting the impact of NewPage's purchase of Stora Enso North America Inc. late in 2007, which essentially doubled the size of the company.

EBITDA was $144 million for the fourth quarter of 2008 versus $110 million for the fourth quarter of 2007, while for the full year, debt covenant EBITDA was $611 million in 2008 and $308 million in 2007.

NewPage also said that it closed the quarter with $344 million of liquidity, consisting of $3 million of cash and $341 million of borrowing availability under its revolving credit facility. There were no outstanding borrowings under the revolving senior secured credit facility as of the end of the year.

NXP unsecureds move up

Dutch semiconductor maker NXP's 9½% notes due 2015 jumped to better than 9 bid at the close, up from 6 on Wednesday, a 50% gain. Volume was about $5 million of round-lot trades. The bonds rose on speculation the company may offer to take out those unsecured bonds by offering holders new senior secured bonds that would rank higher in the capital structure (see related story elsewhere in this issue).

Stephanie N. Rotondo contributed to this report.

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