Junk primary pauses after big session; secondary slows; funds add $597 million; Smithfield up

By Paul Deckelman and Paul A. Harris

New York, March 17 - How do you top a $5 billion high yield primary market session?

The answer is - you don't, and junk primary players worn out from Wednesday's rousing borrowing binge did not even try on Thursday. Activity dwindled to one small pricing and several new deals joining the forward calendar:

Coleman Cable Inc. priced a $40 million drive-by add-on to its existing 9% notes due 2018. The Waukegan, Ill.-based electric wire and cable producer had priced the original $235 million of those bonds back on Jan. 26.

CVR Energy, Inc. announced plans to sell $500 million of secured notes in a two-part offering, consisting of five-year and seven-year paper. Syndicate sources heard the Sugar Land, Tex.-based energy refining and transportation company and nitrogen fertilizer producer starting a roadshow to market the deal to potential investors.

The sources also heard Da-Lite Screen Co., Inc., a Warsaw, Ind.-based producer of video screens used for professional presentations and home theaters, shopping a $105 million offering of five-year notes for likely pricing Friday. They heard talk on the deal envisioning a hefty, double-digit coupon pricing at a sizable discount to par.

European high-yield watchers meantime said that British clothing retailer Matalan will sell a sterling-denominated tranche of seven-year notes.

In the secondary arena, Wednesday's new deal from Ball Corp. was seen adding to the gains it had notched in initial aftermarket action. But a trader saw SLM Corp.'s Wednesday mega-deal "trading below water."

Away from the new deals, a trader saw some upside in Zions Bancorp's bonds, on no real news, while Smithfield Foods Inc. gained on takeover talk. Overall activity levels slumped, with traders seeing many market participants caught up in "March Madness" and distracted by the ongoing college basketball championship playoffs.

Junk funds lose $597 million

And as dealings were winding down for the session, market participants familiar with the fund-flow statistics generated by AMG Data Services of Arcata, Calif. - a closely watched indicator of overall junk market liquidity trends - reported that in the week ended Wednesday some $597 million more came into those weekly reporting high-yield funds than left them.

It was the fourth consecutive cash infusion as Junkbondland continued to bounce back from two massive outflows seen before that in mid-February, totaling some $1.9 billion, which had reflected at least a temporary state of heightened investor angst, leading to a spate of redemptions from the funds.

However, between the latest inflow and the $1.579 billion which came into the funds over the previous three weeks, according to a Prospect News analysis of the AMG figures - including the $795 million liquidity injection seen the week before, ended Wednesday, March 10 - inflows over that four-week winning streak have now totaled $2.176 billion, according to the Prospect News analysis.

That, in turn, has lifted the year-to-date net inflow total for 2010 to $1.819 billion - the peak level for 2010 so far, according to the analysis, eclipsing the old mark of $1.576 billion seen in the week ended Jan. 20. The new total was well up from $1.222 billion last week.

The year-to-date fund flow totals have gyrated between that new peak cumulative inflow level and a net outflow of $357 million seen in the week ended Feb. 17, which had been the first such year-to-date net loss for the funds since early April of 2008, according to the analysis. In the 11 weeks since the beginning of this year, AMG has now reported eight inflows, including this week's, against three weeks of outflows, the analysis indicated.

EPFR sees $954 million gain

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime also reported that $954 million more came into the funds than left them in the latest week.

That cash infusion followed the $1.19 billion inflow seen in the previous week - the largest weekly inflow EPFR has seen since it began tracking the junk funds' flows in late 2004. Following the pattern seen in the AMG figures, the EPFR statistics have now shown four straight weeks of inflows, lifting the funds from a two-week rut in the Feb. 10 and Feb. 17 weeks which had seen some $1.76 billion of combined outflows.

Reflecting the difference in the way AMG and EPFR calculate their respective fund-flow totals, the latter - which includes results from certain non-U.S. domiciled funds as well as the domestic funds - said that on a year-to-date basis the mutual funds are now showing a $3.7 billion net inflow, widening from $2.75 billion in the previous week. The latest week's figure represents a new peak level for the year.

Cumulative fund-flow totals, whether for AMG or EPFR, 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 barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they did in the past. Last year's strong pattern of inflows - with AMG reporting over $20 billion having come in to the weekly-reporting funds over the course of the year, along with over $10 billion more into funds which only report on a monthly, rather than weekly basis, and EPFR posting similarly robust numbers - was seen as a proxy for the overall surge of liquidity into the junk market from all sources, which helped to fuel record 2009 new-issuance of over $160 billion and unprecedented secondary returns topping 57%.

Coleman's small deal

The high-yield primary market took a breather on Thursday, with just one small add-on pricing.

Coleman Cable did a $40 million tap of its 9% senior notes due Feb. 15, 2018 (expected ratings B3/B).

The add-on priced at 99.25 to yield 9.131%.

No official price talk was circulated.

Bank of America Merrill Lynch ran the books for the quick-to-market sale.

The Waukegan, Ill.-based electrical wire and cable products company will use the proceeds to repay debt and for general corporate purposes.

The original $235 million issue priced at 98.597 to yield 9¼% on Jan. 26, 2010. With the additional notes, the total issue size is now $275 million.

$597 million inflow

Meanwhile, cash to be put to work in high yield bonds continues to build, according to information from AMG Data Services.

The high-yield mutual funds saw $597 million of inflows for the week to Wednesday, slightly less than the previous week's $795 million inflow.

The inflow reported on Thursday increases to $1.8 billion the year-to-date flows into funds which report to AMG on a weekly basis, according to a syndicate official who tracks those cash flows.

Da-Lite Screen for Friday

Da-Lite Screen Co. talked a $105 million offering of five-year senior unsecured notes to yield in the 13¼% area, with about 3 points of original issue discount.

Pricing is expected on Friday.

Morgan Stanley has the books.

Proceeds will be used to retire the company's 9½% senior notes due 2011.

Meanwhile, there was no news Thursday on Nationstar Mortgage LLC's $250 million offering of senior notes due 2015 (expected ratings B2/B), via Barclays Capital, Bank of America Merrill Lynch, Deutsche Bank Securities and RBS Securities.

The roadshow for the debt refinancing and general corporate purposes deal was scheduled to wrap up on Wednesday, with pricing expected before the end of the week.

Nor did any news surface on Wyle Services Corp.'s $175 million offering of eight-year senior subordinated notes (expected Caa1/confirmed B+) via J.P. Morgan and Barclays Capital.

The roadshow started on March 16. The deal is expected to price on Friday, or else early in the week ahead.

CVR Energy unveils $500 million

Thursday did see a slight build-up to the new issue calendar.

Coffeyville Resources, LLC and Coffeyville Finance Inc., subsidiaries of Sugarland, Tex.-based CVR Energy, Inc., began a roadshow for a $500 million two-part notes offer.

The deal comes in two equal-sized secured tranches.

The energy services and fertilizer company is selling $250 million of five-year first-lien senior secured notes (/BB-/), which come with two years of call protection.

In addition Coffeyville is selling $250 million of seven-year second-lien senior secured notes (/BB-/), which come with three years of call protection.

Deutsche Bank Securities is the left bookrunner. Credit Suisse, Goldman Sachs & Co. and RBS Securities, Inc. are joint bookrunners.

The roadshow wraps up on March 24.

Proceeds will be used to repay term loan debt under the company's first priority credit facility and for general corporate purposes.

Matalan to bring dividend deal

Meanwhile, Matalan Retail Ltd. will begin marketing a £225 million offering of seven-year senior notes on Friday via Goldman Sachs.

The deal is expected to price on Wednesday.

The Skelmersdale, England-based budget clothing retailer will use the proceeds to fund a dividend.

Ball Corp. continues better

A trader saw Ball Corp.'s 6¾% notes due 2020 adding to the gains they had initially notched on Wednesday after pricing at par.

He saw the Broomfield, Colo.-based packaging company's $500 million of bonds - upsized from the originally announced $450 million - trading at 101½ bid, 101¾ offered. That was not only up from their issue price, but up as well from the 101 bid, 101¼ area to which those bonds had moved later Wednesday after being freed.

Ball's new bonds "traded very strongly," a second trader said, quoting them at 101 3/8 bid, 101 7/8 offered.

"It's unbelievable that a 10-year bond with only a 6¾% coupon is trading up so well," he opined - although he acknowledged that "the company has always done well" and is liked by investors.

ILFC issue shows improvement

The new International Lease Finance Corp. deal was seen by a trader as having firmed to 100 1/8 bid, 101 1/8 offered on both tranches from the levels at which the Century City, Calif.-based aircraft leasing company - a unit of New York-based insurer American International Group Inc. - had priced on Wednesday.

The company priced $1 billion of 8 5/8% notes due 2015 at 98.409 to yield 9%, and had priced $1 billion of 8¾% notes due 2017 at 97.474 to yield 9¼%.

QVC up in initial dealings

A trader saw QVC Inc.'s new 7 1/8% first lien senior secured notes due 2017 trading around 100 3/8 bid, 100 5/8 offered, up from the par level at which the West Chester, Pa.-based online and television retailer had priced its $500 million offering - upsized from the originally announced $250 million - on Wednesday. Those bonds had priced too late for any aftermarket activity that same day, waiting until Thursday.

He said that the bonds "had been trading slightly higher throughout the day, but then kind of drifted back in a little bit towards the end."

He saw the 7 3/8% first lien secured bonds due 2020 trading around the same levels as the 7 1/8s. "They've been trading pretty close to the same dollar price." This tranche, too had been upsized to $500 million from the original $250 million, and priced at par late Wednesday.

BioScrip stays above issue

A trader saw BioScrip, Inc.'s new 10¼% notes due 2015 bid at 101¼ with no offering level seen. That was below the 102 bid high which the Elmsford, N.Y -based specialty pharmaceuticals healthcare company's new issue had risen to on Wednesday shortly after its morning pricing, but still up from the par level at which the $225 million deal had priced.

He noted that as one of the smaller issues "we just haven't seen it" - especially since competition to get a piece of the deal was fierce, with one market source having seen it 10 times oversubscribed before pricing. The trader suggested that the deal had thus probably been bid a little higher.

Sallie Mae struggles in secondary

SLM Corp.'s new $1.5 billion issue of 8% notes due 2020 was the only Wednesday issue not to push higher in the aftermarket.

The bonds had priced on Wednesday at 98.318 to yield 8¼%, and had firmed a little to the 98½ bid, 99 offered level later that same session.

But a trader saw the Reston, Va.-based education financing company's new deal on Thursday trading under its issue price. He said that there was "a lot of activity: in the new credit - which, with a rating of Ba1/BBB-/BBB- was attracting attention from both sides of the high yield/high grade divide.

He frankly characterized the issue's aftermarket performance as "a little disappointing."

After trading for most of the day around a high of 981/2, the bonds hit a low of 98.

Another trader declared that the bonds were "trading below water."

He had seen them trading around 98 3/8 in one of the first trades of the day, only to see the bonds ending around 97¾ bid, "so they moved down quite a bit" - a downside move made all the more notable because "nothing else [among the recent issues] moved down like that."

Market indicators generally steady

Among bonds not connected with the new-deal market, a trader saw the CDX Series 13 index down 1/8 point on Thursday at 99 5/8 bid, 99 7/8 offered, after having been unchanged on Wednesday.

The KDP High Yield Daily Index meantime rose by 3 basis points on Thursday to finish at 71.95, after having firmed by 12 bps on Wednesday. Its yield narrowed by 1 bp on Thursday, to 7.86%, after having tightened by 5 bps on Wednesday.

Advancing issues led decliners for a 15th consecutive session on Thursday, by a margin of seven to six.

Overall activity, measured by dollar-volume levels, plunged 41% from Wednesday's pace.

A trader, when queried as to what was going on, facetiously asked "you mean besides basketball? Not much," pointing out the huge distraction factor that televised coverage of the NCAA championships - heavily bet upon in office pools throughout the country - was having on regular market activity.

Thursday's session was "very uneventful" and had "a Christmas vacation feeling to it," another trader said. "I don't know if it was the new-issue hangover, or everyone working on their basketball brackets, or it finally being not freezing or raining on the East Coast" - it was a sunny 70 degrees on Wall Street Thursday afternoon -- "but maybe everybody's gotten spring fever."

Zions are flyin'

A trader said that the bonds of Zions Bancorp were up about 2 points on the session, although he had seen no specific news about the Salt Lake City, Utah-based regional banking company that might explain such a rise.

"I haven't seen or heard any news. But CNBC has mentioned it a lot, with a bunch of other banks, that banks are becoming more profitable. Those bonds have been creeping up and it seems like they're up a good point or two today."

For instance, he said that the 6% notes due 2015 were up a deuce to break the 90 barrier, some trades taking place as high as 90¼ bid, versus 88½ at the close on Wednesday and last week's levels around 87.

He also saw the company's 7¾% notes due 2023 trading as high as 101 bid - although they went out at the end of the day trading around 97 bid.

"There was a huge swing in them," between a low of 96¼ and a high of 101, versus the tighter range seen on Wednesday around the par level.

"It's becoming more of a liquid name," he continued, "but it's not that liquid yet to where a seller coming in can really move the market down and then it slowly starts edging back up."

He said the latter issue "had been moving up the past week or so, but late in the day, some large sizes traded on the 73/4s and knocked them back down below the 97 level."

At another desk, a market source saw the Zions 6s going out at 901/4, calling that a gain of nearly 2 points.

Smithfield gains on takeover talk

A market source saw Smithfield Foods' 7¾% notes due 2017 up nearly a point at 98 bid, 99 offered, and suggested that the bonds "traded higher on speculation over M&A activity" involving the Smithfield, Va.-based hog producer and pork processor, whose New York Stock Exchange-traded shares also gained on that buyout buzz.

Market watchers cited rumors that Chinese conglomerate Cofco might be interested in buying the company.

Financials seen firm

A trader said that MBIA Inc.'s 14%surplus bonds due 2033 were "up again this week," moving up "another point or so" to around 70-72, after the Armonk, N.Y.-based bond insurer's paper had traded up through the 60s the prior week.

He saw CIT Group, Inc.'s bonds "holding higher," with the New York-based commercial lender's 7% notes due 2017 up nearly 2 points at the 90½ bid level and its 7% notes due 2015 up more than a point to the 91½ neighborhood.

He also saw AIG's bonds "staying better, at the higher levels from [Wednesday].

"International Lease did that big deal and so that moved everything else up. The fact that they could do it made everybody feel better about the rest of the bonds," the trader said. AIG's 5.05% notes due 2015 were up 1½ points at 93½ bid.

Blockbuster steady to lower

A trader said that Blockbuster, Inc.'s 9% senior subordinated notes due 2012 were quoted around 21, but he had seen "virtually no activity" there. He saw its 11¾% senior secured notes due 2014 start the day at around 74-75, then trade unchanged to down ¼ point from there in a 731/2-74½ context, but here again, said he did not know "if it was active at all."

Another market source saw the 113/4s off ¾ point at 73¼ bid, 74¼ offered, observing that the both Standard & Poor's and Fitch had dropped the Dallas-based movie rental company's ratings to the brink of default following Blockbuster's warning late Tuesday that it might have to file for Chapter 11 if its cash flows don't improve and it is unable to restructure its debt and meet obligations, using cash on hand and cash from operations, along with certain proposed actions such as possible overseas asset sales and an exchange offer for its subordinated bonds.

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