No joke: TXU dominates market in heavy trading; Liz Claiborne's new deal caps $6 billion week

By Paul Deckelman and Paul A. Harris

New York, April 1 - A day after a sizzling session in the high-yield primary market that saw some $3.6 billion of new paper price, market attention shifted radically away from the new deal arena to focus instead on the bonds and bank debt of beleaguered Texas utility operator Energy Future Holdings Corp., the company formerly known as TXU Corp., and those of its subsidiary Texas Competitive Electric Holdings Corp. Some market participants may have though they were the victims of an elaborate April Fool's Day hoax when they got to the office and found that TXU in its various forms absolutely dominated the most-actives lists - at some points holding down almost all of the Top Ten spots - but it was the truth, as investors boosted the bonds by multiple points across the entire capital structure in heavy dealings on the news that company was in talks with its lenders on resolving allegations of a covenant breach.

TXU-mania also spilled over into the primary market, as word spread that Texas Competitive Electric will be selling an offering of secured notes as part of its efforts to complete a newly launched amendment and extension of its senior secured credit facility.

Away from TXU - which also pulled bonds of other power generators like Dynegy Holdings and Edison Mission Energy higher - high-yield syndicate sources heard that New York fashion house Liz Claiborne, Inc., had priced a $205 million issue of eight-year senior secured notes. When the new bonds were freed for trading, they firmed smartly.

That deal, as well as a sterling-denominated pricing for Britain's Thames Water Utilities Ltd., put the cap on a week which saw around $6 billion of new paper price, including offerings from such well-known junk names as Visteon Corp and First Data Corp.

Secondary market activity was seen firm, given a boost by the sharp rise in the TXU bonds, while statistical performance measures were on the rise.

Liz Claiborne on top of talk

Friday's session, the first of 2011's second quarter, saw a pair of issuers - each bringing a single tranche of dollar-denominated notes - raise a combined $705 million, though one of them was an emerging market name.

Liz Claiborne priced a slightly upsized $205 million issue of eight-year senior secured notes (B2/B-) at par to yield 10½%, on top of the price talk. The amount was raised from the original $200 million.

Merrill Lynch, J.P. Morgan Securities LLC, SunTrust Robinson Humphrey Inc. and Wells Fargo Securities LLC were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Winsway sells $500 million

Meanwhile, Hong Kong's Winsway Coking Coal Holdings Ltd. priced $500 million of five-year notes (B1/BB-/BB) at par to yield 8½%, at the tight end of price talk.

Deutsche Bank, Merrill Lynch, Goldman Sachs and ICBC International were the bookrunners.

About 60% of the proceeds will be used to finance investments in rolling stock, other transportation-related vehicles and railway-related infrastructure, 25% to finance investments in upstream resources through new acquisitions and/or joint venture projects and to otherwise secure upstream supplies, and 15% for working capital and general corporate purposes.

Biggest quarter ever

With Friday's deals in the mix, the March-April crossover week closed having seen high-yield issuers raise $6.1 billion in 13 tranches.

At Friday's close year-to-date issuance stood at $94.9 billion in 220 tranches.

The final session of the March-April crossover week was also the first session of 2011's second quarter.

The quarter just concluded was the biggest quarter in the history of the junk new issue market, having generated a whopping $94.23 billion of issuance.

The next biggest quarter was the one immediately preceding it; the fourth quarter of 2010 saw $92.62 billion of issuance.

The combined $186.85 billion of issuance which cleared during the past two quarters tops the issuance totals of every full year in the history of the junk market except last year. The history-making year of 2010 saw $292.6 billion.

Before 2010, the next-biggest year in terms of dollar amount of issuance was 2009, with $161.8 billion, according to Prospect News data.

Thames Water prices £400 million

Also on Friday, in London Thames Water (Kemble) Finance plc priced a £400 million issue of eight-year senior secured notes (B1//BB) at par to yield 7¾%.

The yield printed on top of the price talk. However that talk came well wide of the 7½% area whisper which circulated earlier in the week on the Thames Water deal.

Morgan Stanley & Co., BNP Paribas and J.P. Morgan Securities LLC, NAB, Royal Bank of Canada and Royal Bank of Scotland managed the debt refinancing deal.

Production Resources plans

Looking to the week ahead, Production Resources Group Inc. plans to price a $400 million offering of eight-year senior notes via joint bookrunners Merrill Lynch, Goldman Sachs & Co., Barclays Capital, Inc., Deutsche Bank Securities Inc. and Wells Fargo Securities LLC.

Proceeds will be used to repay the company's credit facilities, to fund acquisitions and for general corporate purposes.

KION marketing on Monday

Meanwhile in Europe, KION Group GmbH will begin a roadshow on Monday in Germany for its €400 million two-part offering of seven-year senior secured notes.

The notes will be sold in fixed-rate and floating-rate tranches.

Deutsche Bank, Goldman Sachs International, BNP Paribas, Commerzbank, KKR Capital Markets and UniCredit are the joint bookrunners. Deutsche Bank will bill and deliver.

The German supplier of trucks plans to use the proceeds to refinance debt.

Matalan selling secured deal

The Friday session also saw dealers bring a sterling-denominated deal aboard the active new issue calendar.

British clothing and housewares retailer Matalan plc began a roadshow on Friday for its £250 million offering of five-year senior secured notes (expected ratings Ba2/BB).

The Europe-only roadshow is set to wrap up on Tuesday.

Goldman Sachs International has the books.

The Skelmersdale, England-based company plans to use the proceeds to repay bank debt.

New deals take a back seat

A trader said that "normally, there's a lot of activity in all the new issues, but I didn't really see that much today," declaring that all of the news coming out regarding for the former TXU had grabbed the spotlight away from the primary, at least for one day.

Liz Claiborne moves up

When the new Liz Claiborne eight-year senior secured bonds were freed for secondary dealings, a trader said he didn't see too much of a break, pegging the notes at around 100½ bid, 101 offered, versus their issue price at par earlier in the day.

However, a short time after that, another trader called the fashion apparel company's new deal "the star of the new issues," quoting the bonds as having moved to the 102 bid level.

Another trader saw those bonds even better, locating them at 102¼ bid, 102¾ offered.

Winsway Coking a winner

A trader saw Winsway Coking Co.'s 8½% notes due 2016 at 100¾ bid, 101¼ offered.

The Hong Kong-based coking porter priced $500 million of the notes at par in a deal that mostly played to emerging markets investors, although some in Junkbondland expressed interest.

Earlier deals hang in there

A trader said that "most of the stuff that came earlier in the week" seemed to be between par and 101 bid. He cited as an example Millar Western Forest Products Ltd.'s $210 million offer of 8½% notes due 2021. The Edmonton, Alta.-based company's deal priced Thursday at par; on Friday, he said the bonds were trading around 100 5/8 bid, 100 7/8 offered.

He also saw Park-Ohio Industries, Inc.'s 8 1/8% senior subordinated notes due 2021 in that same general area; the Cleveland-based industrial manufacturer and supply-chain logistics company's $250 million deal had also priced at par on Thursday.

A second trader saw the Millar bonds at 100½ bid, 101 offered, while also seeing the Park-Ohios at 100 7/8 bid, 101 3/8 offered.

The trader further saw Ameristar Casinos Inc.'s 7½% notes due 2021 at 100½ bid, 100¾ offered. The Las Vegas-based gaming operator had priced $800 million of the bonds on Thursday at 99.125 to yield 7 5/8%.

Kennedy-Wilson sizzles...

A trader saw Beverley Hills, Calif.-based real estate operator Kennedy-Wilson Inc.'s new 8¾% notes due 2019 having jumped to 102½ bid, 103½ offered in the aftermarket.

The bonds priced at 99.297 to yield 8 7/8% late Thursday but did not make it into the secondary until Friday.

...but CNL Lifestyle fizzles

While Kennedy-Wilson was hot, the other deal that came out of the real estate sector on Thursday decidedly was not.

Orlando, Fla.-based CNL Lifestyle Properties Inc.'s $400 million of 7¼% notes due 2018 had priced at 99.249 on Thursday to 7 3/8%, and had traded around that 99 context in Thursday's aftermarket dealings.

But on Friday, a trader saw those bonds having been hammered down to 97½ bid, 98½ offered.

A second trader said the new deal "definitely got hit," in seeing those bonds down around 97½ bid, 98 offered.

"It didn't seem like too many [investors] wanted to carry it," he said, while being unaware of any specific news that might have turned bond players against the company, a real estate investment trust which owns an extensive portfolio of properties ranging from ski resorts, golf courses, marinas and amusement parks, to senior-living facilities.

Visteon seen easier

Also seen easier was one of Thursday's signature deals, for well-known high yield issuer Visteon Corp.

The Van Buren Township, Mich.-based automotive components company's $500 million issue of 6¾% senior notes due 2019 priced at par and then seemed to stay around issue in Thursday's initial dealings.

But a trader saw the bonds on Friday at 99½ bid, par offered.

A second trader agreed that Visteon was "a little softer," hearing quote levels in a 99 context.

First Data stays firm

First Data Corp.'s $750 million offering of 7 3/8% first-lien senior secured notes due 2019 were seen ending the week on pretty much the same firm note that the well-received deal had sounded all along.

The bonds had priced on Wednesday at par, had immediately jumped to above the 102 bid level and stayed there the rest of the session. On Thursday, they came a little bit off the peaks to hold steady at 101½ bid, 102 offered.

A trader saw them little changed Friday at 101 5/8 bid, 101 7/8 offered.

TXU takes command

But trading in the new deal names almost seemed like a sideshow on Friday, market participants said, with the spotlight on the troubled Texas power company formerly known as TXU.

A trader said that "gazillions" of dollars of TXU bonds and bank debt traded during the session on the news that the Dallas-based utility company now known as Energy Future Holdings Corp. has been in talks with its lenders aimed at amending its credit facilities so as to counter allegations by a credit facility lender that the company is in default due to an allegedly improper intra-company loan to EFHC from its Texas Competitive Electric Holdings Corp. subsidiary.

He quoted its 6½% notes due 2024 at 52½ bid, up 5 points, while its 10 7/8% notes due 2017 traded up 4½ points at 881/2. Texas Competitive Electric Holdings' 10¼ % notes due 2015 were the really big gainers, up 7½ points at 67½ bid.

There was "huge volume in all of them and huge volume in the bank loans as well."

"The big activity today was all in TXU," a second trader declared. "I guess the news must have been good, so they traded up." He said that at midday "the Top Five issues that were trading in terms of volume were all TXU."

A market source said that the Energy Future and Texas Competitive bonds absolutely dominated the most actives list, with the latter's 101/4s having racked up nearly $50 million in trading by mid-afternoon, with the old TXU 5.55% 2014 legacy bonds (left over from before the company's 2007 leveraged buyout by a Kohlberg Kravis Roberts-led syndicate) having traded over $21 million at 79¼ bid and over $20 million of the 6½% notes due 2024 having changed hands.

Also in the power generation space, Dynegy Holdings "moved up a little bit," a trader said, with the 7¾% notes due 2019 right around 78 bid, up 1 point. He said that there was "not a lot of volume, though, it was more quoted up than traded."

Houston-based Dynegy's 8 3/8% notes due 2016 were seen up 1 point at 84¾ bid.

Another trader added that "they carried other power names in sympathy" seeing California-based Edison Mission's paper a point better on the news.

Reaching even beyond the power-generation patch, the trader said that with the TXU paper "up pretty solidly, and active, that carried the overall market."

Indicators firmer on day, week

Perhaps inspired by the strength shown in TXU, the CDX North American Series 16 HY index rose 5/8 point Friday to end at 102 9/16 bid, 102 13 1/6 offered, after having retreated by ¼ point on Thursday.

The new series thus concluded its first week of trading on a high note, having begun at 102 on Monday. Its finish is not comparable to the previous week's level of 103¼ bid, 103¾ offered, which represented the final week of trading of the old Series 15 index, comprised of different companies than the new index.

The KDP High Yield Daily Index meantime rose by 7 basis points on Friday to end at 75.82, after having gained 6 bps on Thursday. Its yield came in by 2 bps to 6.62% after having tightened by 7 bps Thursday.

The index thus ends the week up from the previous week's reading of 75.66, with a yield of 6.73%.

The Merrill Lynch High Yield Master II index rose for a second consecutive session on Friday, by a robust 0.158%, on top of Thursday's 0.052% gain. That lifted its year-to-date return to 4.067% - a new peak for 2011, up from Thursday's 3.902% level, the previous high for the year.

On the week, the index gained 0.357%, up from the previous week's 0.280% gain.

GM gains on car sales

Among specific non-TXU names, a trader saw Motors Liquidation Co.'s 8 3/8% bonds due 2033 up a point to 1½ points at 30½ on "not a lot of trading."

A second trader called the bonds of the former General Motors Corp up a point at 30½ bid, 31 offered, attributing the rise to positive auto sales numbers - the reconstituted GM that emerged from bankruptcy in 2009 sold 9.6% more cars in March than it had a year earlier, and its first-quarter sales were up 24% from a year earlier.

He meantime saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 unchanged at 108 bid, 108½ offered, even though Ford's March sales jumped 19% year-over-year - and company-wide March sales of about 212,000 vehicles actually beat larger rival GM by around 6,000 units.

Horizon Lines got hammered

A trader said that Horizon Lines' 4¼% notes due 2012 "have been ticking up in activity," seeing them going out at 76½ bid, 77 offered, down a point on the session. "They were pretty active traders today."

He noted that he has seen "more activity in that the last couple of days - a week ago, it was in the high 80s."

The Charlotte, N.C.-based shipping company's bonds and shares have gotten hammered ever since it said earlier in the week that it it's likely to violate terms of debt agreements and may be forced to seek bankruptcy protection.

Another trader said he heard some accounts trying to trade the bonds flat in the wake of that warning, while others still traded with accrued interest.

He quoted the Horizon bonds at 75 bid, 76 offered, noting that a week ago, he had seen the notes at 901/4-91.

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