B/E Aerospace, CW Media price; GM tows autos lower, Rite Aid retreats; funds lose $651 million

By Paul Deckelman and Paul A. Harris

New York, June 26 - B/E Aerospace, Inc. and CW Media Holdings Inc. successfully priced new deals on Thursday. High yield syndicate sources said that the B/E Aerospace deal was well received and was solidly upsized, while CW's offering came at the wide end of talk.

The sources also said that Rite Aid Corp. was heard getting ready to price a new issue of secured notes, probably during Monday's session.

In the secondary market, meanwhile, Rite Aid's bonds were seen down several points in tandem with a fall in its New York Stock Exchange-traded shares after the Camp Hill, Pa.-based drugstore chain operator reported a larger-than-expected fiscal first-quarter net loss, a swing into the red from its year-ago profit, and also confirmed its prior projections calling for a loss in the current 2009 fiscal year.

But the big loser on the day was General Motors Corp., whose bonds skidded several points lower in active trading, also taking their cue from its equity, which tumbled to its lowest level in 53 years after Goldman Sachs put out a "sell recommendation" on that stock, predicting more gloom and doom ahead for the struggling Detroit giant.

Sector peer Ford Motor Co.'s bonds were also down several points, as were the two carmakers' respective customer financing arms, GMAC LLC and Ford Motor Credit Co. Sentiment about the sector was not helped by bankruptcy rumors that circulated for a time regarding the third member of the traditional Big Three, Chrysler LLC, although that carmaker stoutly denied that plans for any such filing were on the drawing board.

Among newly or recently priced issues, the new B/E Aerospace bonds were seen having firmed a little bit from their par issue price - no small feat in a market where most new deals seem now to be struggling just to tread water. One of the latter, Intelsat, was seen continuing to ease. However, Telesat Canada - which had tumbled several points since pricing on Tuesday - regained a little of that lost ground.

A senior high yield syndicate official said that the broad market was down Thursday in sympathy with stocks, and noted that the Dow Jones Industrial Average dropped by 3% during the session.

Funds plunge by $651 million on week

Meanwhile the asset class disgorged what one syndicate official characterized as a "massive" amount of cash, as AMG Data Services of Arcata, Calif., reported that high-yield mutual funds saw $651 million of outflows for the week to June 25 - the second consecutive outflow after 11 straight weeks of inflows, including the cash exodus of $133.8 million seen in the previous week, ended June 18.

Over that 11-week winning streak, inflows had totaled $3.001 billion, according to a Prospect News analysis of the figures, completely erasing what had been a sizable year-to-date outflow totaling some $1.067 billion as of the week ended March 26, the last week in which a net outflow had been seen prior to the beginning of that positive surge. However, the latest two weeks of outflows have now reduced that bulge by about $784.8 million.

The cyclical, streaky nature of the fund flows is apparent at the year's half-way mark; the trend was overwhelmingly negative in the first part of the year, but began turning positive in early April and stayed that way all the way through mid-June before returning to the negative trend over the past two weeks. However, even counting the latest two weeks' downturn in the flows, inflows remain solidly ahead at the half, with 15 inflows versus 11 outflows seen in the 26 weeks since the start of 2008, according to the Prospect News analysis.

According to market sources, net inflows from the weekly-reporting funds since the start of the year, excluding distributions but including previous adjustments and revisions, are now estimated at $1.148 billion, down from $1.799 billion the previous week. At its peak, the 2008 net inflow totaled $1.933 billion in the week ended June 11.

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 only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - 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, more recently, hedge funds.

B/E Aerospace upsizes

In the primary market, terms surfaced on a pair of deals, as B/E Aerospace placed an upsized $600 million issue in a corporate deal while CW Media Holdings rolled a $312 million bridge loan into notes.

B/E Aerospace priced an upsized $600 million issue of 10-year senior notes (Ba3/BB+) at par to yield 8½% on Thursday.

The yield came at the wide end of the 8¼% to 8½% price talk.

JP Morgan, Credit Suisse and UBS Investment Bank were joint bookrunners for the acquisition financing, which was well oversubscribed, according to a market source.

CW Media bridge roll

Elsewhere CW Media priced a $312 million issue of senior PIK notes due Aug. 15, 2015 (B2/CCC+) at par to yield 13½%, at the wide end of the 13¼% to 13½% price talk.

Goldman Sachs & Co. ran the books for the refinancing of a bridge loan that was put in place to help fund the acquisition of Alliance Atlantis Communications Inc. by CanWest Global Communications Corp. and GS Capital.

Rite Aid to price Monday

Meanwhile Rite Aid Corp. disclosed plans to price a $425 million offering of eight-year senior secured second-lien notes (B3/B+/BB-) on Monday.

Citigroup is the bookrunner for the deal, proceeds from which will go to help fund a tender offer for existing bonds.

B/E Aerospace bonds gain altitude

When the new B/E Aerospace 8½% notes due 2018 were freed for secondary dealings, a trader - calling the issue "very well spoken for and well oversubscribed" before it priced - said the new bonds were "holding in," trading at a premium above their issue price, seeing them at 100.25 bid. Another quoted the bonds at 100.125 bid, 100.625 offered, while a third pegged them at 100.25 bid, 100.75 offered.

The new CW Media 13½% senior PIK notes due 2015, which priced at par earlier in the session, came too late in the day for any meaningful aftermarket action.

Recent deals not much seen

Unlike the situation on Wednesday, when traders saw markets in the new issues which had priced earlier in the week such as Intelsat, Telesat Canada, Linn Energy LLC, Quicksilver Resources Inc. and Atlas Pipeline Partners LLC, as well as last week's deals for Source Interlink Cos. Inc., Expedia Inc. and Cricket Communications Inc., such quotes were hard to come by on Thursday.

A trader, who said he was not seeing quotes on most of the new issues, speculated whether that dearth of fresh quotes might not be due at least in part to the bonds "for a change, being diligently and well placed to true end users" who would presumably want to hold onto them, "versus accounts that are flippers" looking to make a quick buck by buying the issues and then quickly getting out of them when the prices rose.

On the other hand, he acknowledged that such flipping would not be very likely with many of the new deals just struggling to stay around their respective issue prices and some, like Intelsat, trading well below it. The only clear exception to that negative trend was Linn's new 9 7/8% notes due 2018, which had been seen on Wednesday trading just below par, up around 2 points from the 97.684 level at which the Houston-based oil and gas exploration and production company's bonds had priced on Tuesday.

The trader saw Intelsat Subsidiary Holding Co.'s new 8 7/8% senior notes due 2015 being offered at 98.25, with no bids - down from levels around 98 bid, 99 offered seen on Wednesday and down still further from the par level at which the Bermuda-based satellite communications company had priced the $681.012 million of new bonds on Tuesday, as part of a five-part mega-deal totaling over $7 billion. He did not see any of the other four issues.

A trader at another shop also did not see any of the new Intelsat paper, although he did see the company's established 7 5/8% notes due 2012 at 79 bid, 80.5 offered and its 6½% notes due 2013 at 70.5 bid, 71.5 offered, both unchanged on the day; the existing bonds had eased earlier in the week on supply concerns after the news hit that the company was shopping its gargantuan new deal around.

That second trader also saw Telesat Canada's new 11% senior notes due 2015 trading at 93.75 bid, 94.75 offered, which he called up ½ point on the day. That $692.825 million issue, along with the $217.175 million of new 12½% senior subordinated notes due 2017, had both tumbled to a low to mid 90s context on Wednesday from the par level where the Ottawa-based satellite communications operator had priced each tranche during Tuesday's session.

One of the traders wondered whether the satellite communications companies' bonds were having such a tough struggle - some of the other new Intelsat paper had been seen on Wednesday considerably further down from its issue price than the 8 7/8s were - because of "too many memories of Iridium" - referring to the failed satellite-based telecommunications company which went bankrupt a few years ago and whose old paper "is trading under 1 [bid] right now" amid years of ongoing legal battles.

Market indicators take a dive

Back among the established issues, a trader said that the widely followed CDX junk bond performance index fell 5/8 point during Thursday's session, quoting it at 93¾ bid, 94¼ offered. The KDP High Yield Daily Index meantime plummeted 53 bps to 72.62, while its yield jumped out by 14 bps to 10.19%.

In the broader market, advancing issues once again trailed decliners, by a more than two-to-one margin. Activity, represented by dollar volume levels, was about 16% below Wednesday's levels.

A trader, asked whether anything was going on Thursday, quipped in reply "other than the market getting absolutely smoked? Not really."

He said that "guys are looking for any bid at all that can be hit."

He said the junk market was lower from the get-go, pulled down by GM and Ford, as well as "rumors that Chrysler was going to file for bankruptcy today [Thursday, a rumor strenuously denied by the carmaker]. Bonds were all down two, three, five points." He said that Chrysler's statement that it had sufficient cash on hand to last it at least into next year "kind of allayed some of the fear, but then with oil [prices] spiking and the stock market down almost 400 [points], it got a lot of people nervous, particularly going into a holiday weekend. So we're seeing stuff down a point or more - several points in some cases - pretty much across the board."

For the record, the bellwether Dow Jones Industrial Average plummeted by 358.41 points, or more than 3%, to limp to a close at 11,453.42 -not only its lowest level for the year but its worst finish since Sept. 11, 2006. Broader market indexes were likewise getting pounded down, hurt by a confluence of bad news - fresh signs of trouble in the financial and high-tech industries, pessimism about the autosphere after Goldman Sachs' bearish comments about industry leader GM, and a sharp climb in oil prices, with crude shooting to its highest level ever, past $140 a barrel on an intraday basis before closing up $5.09 at a record $139.64 on the New York market. Oil prices zoomed after the head of OPEC predicted the price of a barrel of crude could rise well over $150 this year and cartel member Libya said it may cut oil production.

With the Dow diving over 350 points, a trader said that it was "pretty quiet this afternoon" in junk bond land, "kind of like a ghost town."

GM leads autosphere downward

"Autos have certainly gotten hit," a trader said, "and GM has really gotten hit, with its stock trading at the lowest levels seen since 1955" - back when GM sold about half the cars sold in the United States, had the biggest tailfins in the industry and Detroit was experimenting with the newfangled three-speed automatic transmission.

Autos "got hit pretty hard," another trader said, quoting GM's 8 3/8% bonds due 2033 down 3½ points at 59.5 bid, 60.5 offered. A second saw those benchmarks at 58.5 bid, 60 offered, down 3 points on the day. Another trader saw the GM paper at 58 but called that down 5 points on the day.

GM's 7 1/8% notes due 2013 lost 3 points on the day to 64.5, a market source said, also quoting its 7.20% notes due 2011 down almost 4 points at 77.

GM's NYSE-traded shares plunged $1.38, or 10.77%, to end at $11.43.

That GM slide followed the news that Goldman Sachs auto analyst Patrick Archambault had cut his rating on the shares to "sell" from "neutral" previously, warning in a research note that the stock will "continue to underperform as market fundamentals deteriorate, which exacerbates liquidity concerns."

He also cited expectations that with sales sagging, GM would continue to burn through cash faster than one of its SUVs burns through the contents of its gas tank. That level of automotive cash flow burn this year and next, he said, "is likely to lead [GM] to look to raise capital, which we believe could lead to significant shareholder dilution and/or a cut to the company's dividend." Archambault also slashed his target price for the shares to $11 from $19. Looking at the whole of the domestic auto industry, he cautioned that things could still get even worse.

And the Goldman analyst also cut his price target for Ford's stock to $5 a share from $8.

Ford lower too

Following GM's lead, Ford's 7.45% bonds due 2031 lost 2 points to 57 bid, 58 offered, a trader said. Another saw them down 1½ points at 58, while a third had them down a deuce at 57.5 bid, 59 offered. However, at another desk, the Ford issue was seen only off ½ point at 60.

A trader said that Ford Credit's 12% notes due 2015 - $1.1 billion of which priced back on April 28 at par, and then shot right up to around 103 and stayed there, a sign, he said, that the bonds had been priced too cheaply to begin with - "finally cracked over the last few days." He saw the bonds trading at 88.125 on Thursday, down about 2 points from Wednesday's levels. Even before that, he said that the bonds "had been on a continuous slide down [recently] because they had held up so high for so long. It's sort of a catch-up on the downside now."

A source saw the Ford Credit 7% notes due 2013 at 74 bid, down 1½ points.

Ford Credit's opposite number at GM, the 49%-owned GMAC LLC's 8% bonds due 2031 were quoted down 1 point at 64. Another trader saw them down 2 points at 63 bid, 65 offered.

Among the shorter GMAC issues, its 6 7/8% notes due 2012 were seen down 2 points at 69 bid, while its 7¼% notes due 2011 tumbled 4 points on the session to the 73 level.

Parts names weak

Among the parts suppliers, bankrupt Delphi Corp.'s 6.55% bonds that were to have come due in 2006 lost 4 points to 26, a trader said, while another also had them with a 4 point loss, just below 27.

American Axle & Manufacturing Holdings Inc.'s 7 7/8% notes due 2017 were seen off ¼ point at 74. Lear Corp.'s 5¾% notes due 2014 were 2 points lower at 73, while its 8¾% notes due 2016 dipped about 3 points to 77.

Numbers a bitter pill for Rite Aid holders

Rite Aid's bonds were seen down several points after the company reported a larger-than-expected loss in the fiscal first quarter ended May 31, versus its year-ago profit.

A trader saw its busiest bond, the 9½% notes due 2017, trading at 68 bid, well down from Wednesday's last round-lot trade of 72, while its 8 5/8% notes due 2015 were also down 4 to 5 points in a 67-68 context. A market source at another desk saw the latter bonds down 4 points at the 69 level.

Yet another trader called those bonds 3 point losers at 67 bid, 69 offered, and saw its 7½% notes due 2015 a point lower at 104 bid, 106 offered.

Rite Aid's NYSE-traded shares were likewise on the slide, ending down 40 cents, or 22.86%, at $1.35, on volume of 34 million shares, about five times the usual turnover.

Rite Aid - the nation's third-largest drugstore operator after Walgreens Co. and CVS Caremark Corp. - reported a first-quarter loss of $156.6 million, or 20 cents a share, versus a year-earlier profit of $27.6 million, or 4 cents a share. After paying dividends, the latest-quarter loss was $162.8 million, compared with a $19.5 million profit a year ago, with the same per-share results.

The loss itself was not unexpected - but it was about double the dime per share that Wall Street was looking for.

Rite Aid's revenue jumped to $6.61 billion - slightly above the forecasts and well up from $4.43 billion a year ago - reflecting the addition to Rite Aid's store roster of some 1,854 stores throughout the eastern United States that it bought from Canadian retailer Jean Coutu Group Inc for $2.36 billion in cash plus 250 million Rite Aid shares, or about one-third of its float. Excluding those acquired stores plus any new outlets opened in the past year, same-store sales at Rite Aids that have been open at least a year - a key retailing industry economic metric - rose by 1.5% from a year earlier.

But while the gain of 338 former Brooks drugstores and 1,516 former Eckerd outlets pumped up the sales numbers and put Rite Aid on more of an even footing, size-wise, with its bigger rivals - Rite Aid has about 5,000 stores in 31 states, versus 6,252 in 49 states for Walgreens and around 6,300 in 40 states for CVS - the company had to spend heavily to remodel those stores, convert them over to Rite Aid's format and integrate them into its system, a process which won't be completed until October.

Rite Aid also confirmed its earlier forecast for fiscal 2009, projecting a net loss in a "challenging" business environment of between 34 cents and 48 cents per share, versus the Wall Street consensus of around 49-50 cents.

Rite Aid sees full-year sales of $26.7 billion to $27.2 billion, with same-store sales increasing by 2% to 4%.

Thornburg steady after big rise

Elsewhere, a trader saw Thornburg Mortgage Inc.'s 8% notes due 2013 at a wide 62 bid, 72 offered quote. He said that while the bonds jumped on Wednesday from prior levels in the mid-50s after the company sought to reassure investors on a conference call about its status, the paper "did nothing today."

A market source at another desk saw those bonds having pushed all the way up to 64 in some late dealings on Wednesday, saw them open Thursday at 61, fall to 58, but then bounce back again to around 62.

The first trader saw Countrywide Financial Corp.'s 6¼% notes due 2016 fall 2 points to 88.

Residential Capital LLC's 6½% notes due 2013 fell 2 points to 41 bid, and its 8 7/8% notes due 2015 were also seen at 41, off 4 points.

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