FTI prices upsized 8-year deal; Northwest bonds up, Dura down; funds see $105 million outflow

By Paul Deckelman and Paul A. Harris

New York, July 28 - Question: how do you top a day like Wednesday, when the high-yield primary market saw three $1 billion-plus megadeals (two from SunGard Data Systems) carrying total proceeds of $4 billion come clattering down the chute? Answer: you don't. And the new-deal arena didn't even try on Thursday, confining itself to one smallish deals - an upsized offering of eight-year notes from FTI Consulting Inc.

In the secondary sphere, Northwest Airlines Corp. bonds were seen flying higher, with some traders suggesting the rise was for a very simple reason - Northwest is not troubled rival Delta Air Lines Inc. The latter company's bonds, meantime, which had been solidly thrashed on Wednesday amid renewed bankruptcy fears, were mostly unchanged Thursday, although its flagship 7.70% notes due 2005 did weaken by a point or so.

Sources said that the bonds priced Wednesday by SunGard Data Systems, Inc. and L-3 Communications continued to show strength in Thursday's secondary trading.

"The market is up a solid quarter to a half, and everything is right with the world," said a high-yield investor who spoke to Prospect News on background late Thursday.

And after trading had wound down for the day, market participants familiar with the weekly junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that some $104.8 million more left the funds in the week ended Wednesday than came into them - the third consecutive week of net outflows, on top of losses from the funds of $52.5 million last week (ended July 13) and $12.4 million before that (ended July 6).

The three outflows would seem to indicate a new, weaker trend for the funds, moving away from the zig-zagging pattern, which had been seen since the beginning of June, of here a week or so of inflows, there a week or two of outflows. In recent weeks, the inflows and outflows have been relatively modest - under $100 million most weeks - a sign of lack of conviction by fund investors one way or another - but over the past three weeks, the outflows have totaled $169.7 million, according to a Prospect News analysis of the AMG data.

Since the week ended June 1, inflows and outflows have been pretty much evenly matched, in terms of the number of each - but a net total of approximately $493 million more has come into the funds than has left them, even counting the latest week's outflow, according to the Prospect News analysis. That surge has helped to revive the junk bond primary market and has given a boost to the secondary market as well. However, before that, outflows had solidly dominated the first part of the year, including one 15-week losing streak, from mid-February through late May, in which more than $6.7 billion bled from the funds, which are seen as a measure of overall market liquidity trends.

Outflows have now been seen in 23 weeks of the 30 since the start of the year, against only seven weekly inflows. Cumulative net outflows for the year total around $7.209 billion, according to the Prospect News analysis, up from about $7.104 billion last week.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants, since they are considered a generally reliable barometer of the overall liquidity trends - and because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

A high yield syndicate official mused late Thursday that in light of the combined Wednesday-Thursday activity in the primary market, with the SunGard, L-3 and apparently the FTI Consulting deals all playing to oversubscribed order books, the funds flow number doesn't really say a thing about the liquidity of the asset class.

"I think people are beginning to have the attitude that if it's under $1 billion either way, it doesn't really move the needle," the sell-sider said.

Meanwhile a high yield investor asserted that there is presently plenty of cash to put to work in junk.

"We've had pretty low issuance up till this point," the investor said. "And you've had a lot of tenders and calls.

"Everybody has money for these big liquid deals," the buy-sider added, referring to SunGard and L-3, "especially if they have a big coupon."

FTI upsizes, prices below talk

As if to put an exclamation point on the market strength that the SunGard and L-3 deals were said to signify, Thursday's lone transaction, from Annapolis, Md. turnaround, restructuring and bankruptcy services provider FTI Consulting Inc., was upsized and priced better the price talk.

The company sold $200 million of 10-year senior notes (Ba2/B+) at par to yield 7 5/8%, 12.5 basis points inside of the 7¾% to 8% price talk. The deal was increased from $175 million.

Goldman Sachs & Co. and Banc of America Securities ran the books for the share repurchase, debt repayment and general corporate purposes deal.

Sources told Prospect News that the deal was a blowout.

L-3 up in trading

Back in the secondary market, the FTI priced too late in the session for any kind of appreciable aftermarket activity, and at any rate was eclipsed by the attention paid to the previous day's three big deals.

L-3 Communications Inc.'s new 6 3/8% notes due 2015 - which on Wednesday had priced at a slight discount to par, 99.09, and then moved up to 99.75 bid, 100.25 offered by the day's end, were seen by one trader as having gotten as good as 101.375 bid, 101.625 offered, before coming slightly off that peak to close at a still respectable 101.25 bid, 101.5 offered.

The New York-based defense electronics contractor's bonds "track governments," the trader said, and were better as the 10-year Treasury bond picked up about half a point on the day, he added.

At another desk, the new L-3s were seen up about a point on the day, at 100.75 bid, while a third trader saw them going home at 101 bid, 101.5 offered.

SunGard gains, falls back

The new SunGard Data Systems bonds - which had shot up right out of the gate in late trading Wednesday - were, by contrast, seen having continued to push solidly higher on Thursday - only to give back most of those gains by the close, thus ending only up slightly.

A trader saw the new SunGard 9 1/8% notes due 2013 having gotten as good as 105.25 bid during the day - only to give most of that back and close at 104.25, up just ¼ point on the day.

"The market kinda tailed off at the end," he said, in explaining the sudden loss of enthusiasm for any further upside excursions.

He saw SunGard's floating-rate notes due 2013 moving up to 104.5 bid, 105 offered before ending at 103.5 bid, 104 offered, while its 10¾% notes due 2015 likewise got up to 104.5 bid, 105 offered before ending at 103.75 bid, 104 offered, about unchanged on the session.

Another trader saw the 9 1/8s at 104.25 bid, 104.75 offered at the end of the day, while the 101/4s ended up straddling 104.

Those 9 1/8s, a third trader agreed, rose to a peak of 105, up a point on the day, but then came back down to 104.25 bid, 104.75 offered.

Northwest up further

Back among the established issues, Northwest Airlines bonds - which had firmed earlier in the week despite having reported a wider quarterly loss - which apparently was not as bad as many in the market had feared - took another step upward on Thursday.

One trader quoted the Eagan, Minn.-based Number-Four U.S. air carrier's 10% notes due 2009 as having moved up to 45.5 bid, 47.5 offered, while its 8 7/8% notes due 2006 "motored up" to 69.5 bid from prior levels about 65 bid, 66 offered.

"Beats me if there's any news out about them," he exclaimed. "Some people are talking about them partnering with another airline, while some people are talking about short covering." He said that in his view, it was "all technical."

Another trader, who saw the airline's bonds "up pretty big today" and quoted the 10s three points better at 47.5 bid, 48.25, while the 8 7/8s were two points better at 68 bid, 69 offered, dismissed short-covering or other technical factors as an explanation. "People were just buying, because they like it better than Delta."

Northwest and Atlanta-based Number-Three U.S. carrier Delta are seen as the most troubled of the old-line legacy carriers who have not yet filed for bankruptcy (two already have - United Airlines and US Airways) - but Northwest's situation is seen not quite so dire as that of Delta, whose chief executive officer again raised fears on Wednesday that the company might have to reluctantly slide into bankruptcy due to sky-high fuel costs, heavy unfunded pension obligations and lots of debt.

That pushed Delta's bonds sharply lower Wednesday, with its 7.70% notes due 2005 seen down as much as seven or eight points to the upper 60s. On Thursday, traders said that Delta's notes, after their steep swoon Wednesday, were relatively inactive Thursday.

However, a trader saw those 7.70s down 1½ additional points to 66 bid, 67 offered, while the other bonds were not seen trading around.

Another trader described Delta as "steady today," while a third said that Delta's 8.30% notes due 2029 were unchanged at 23.25 bid, 24.25 offered, while the 7.70s were a point off at 66. Even so, he said that "Northwest is the only airline moving around."

Dura falls on earnings

Elsewhere, more companies weighed in with quarterly results Thursday, as earnings season rolled on. Dura Automotive reported a 9% fall in second-quarter earnings from a year earlier, and lowered its outlook.

A trader said that helped to push the Rochester Hills, Mich.-based automotive components company's 9% notes due 2009 a point lower at 84.25 bid, 85.5 offered, while its 8 5/8% notes due 2012 lost half a point to 95.25 bid, 96.5 offered.

Dura cut its revenue forecast for the year by $100 million to a range of $2.3 billion to $2.4 billion, as it expects North American production volumes and foreign exchange rates to be more unfavorable. Analysts had previously projected revenues of some $2.46 billion.

Dura's Nasdaq-traded shares plunged $1.09 (16.39%) to $5.56, on volume of 496,000, about 2½ times the norm.

Amkor, Tembec loses

Also on the earnings front, Amkor Technology Inc., which reported its quarterly results Wednesday as the market was closing, "had crappy numbers and cut guidance," a trader said, in quoting the West Chester, Pa.-based high tech manufacturing company's 10½% notes at 91 bid, 93 offered, off a point.

Tembec Industries, he said, also had "crappy numbers," and its 8½% notes dipped two points to 78 bid, 79 offered.

Elan down

And Elan Corp. plc reported that its quarterly loss widened, which pushed the Irish pharmaceuticals maker's 7¾% notes due 2011 a point lower at 86.25 bid, 87.25 offered, while its 7¼% notes due 2008 were half a point lower at 95 bid, 96 offered.

Elan also noted during its conference call that the patient safety review that began after it pulled its new Tysabri multiple sclerosis drug off the market in late February, after use of the drug was linked to several deaths from a rare nervous system disease, is almost completed with a conclusion seen by the end of the summer. The company also touted its belt-tightening and debt-cutting performance during the quarter (see related story elsewhere in this issue).

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