Mylan Labs, several upsized deals price; auto sector better; funds see $12 million outflow

By Paul Deckelman and Paul A. Harris

New York, July 14 - The high-yield primary market grabbed the spotlight Thursday, as six deals totaling nearly $1.8 billion were heard to have priced - the busiest session in weeks. Although the largest offering of the day, the $500 million placement from Mylan Laboratories Inc., came in at the expected size, three other deals - for CMM Merger Inc./Motor City Casino, Quiksilver Inc. and Clayton Williams Energy Inc. - were all upsized to meet robust investor demand. Grant Prideco Inc. and Beazer Homes USA Inc. also priced quickly emerging drive-by offerings, the latter a smallish add-on supplement to an existing note tranche.

In the secondary market, the bonds of General Motors Corp., Ford Motor Co. and many of the companies that supply them and other carmakers with parts and components were stronger, helped by the government's retail sales report for June, which saw a strong surge in auto sales on the strength of GM's "employee discount for everyone" marketing promotion. The sector also benefited from a rise in the carmakers' and auto suppliers' stocks after the shares were upgraded by Lehman Brothers.

Airlines were also seem winging their way up, helped by Delta Air Line's Inc.'s $100 increase in the top fares the Atlanta-based airline charges, which was quickly matched by several rivals.

Overall sources were marking high yield up a quarter of a point or better on Thursday, as the equity markets continued to enjoy good health on the back of positive earnings news and declining crude oil prices.

And as trading was wrapping up for the session, 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 $12.4 million more left the funds in the week ended Wednesday than came into them - this following the $80.77 million net inflow reported in the previous week (ended July 6).

It was yet the latest small course change in a recent zig-zag pattern, in place since the beginning of June, which has seen the funds zig to an inflow one week, then zag to an outflow the following week, then zig to another inflow the week after that, followed by yet another outflow zag.

Before that pattern of alternating inflows and outflows started, outflows totaling more than $6.7 billion had been seen over 15 straight weeks dating back to mid-February, according to a Prospect News analysis of the AMG figures.

The latest week's outflow marks the 21st time the funds have bled money in the 28 weeks since the beginning of the year, versus only seven weeks in which inflows were seen, according to the Prospect News analysis. Outflows have totaled about $7.052 billion so far this year, up from $7.04 billion last week, the analysis indicated.

The fund flows are a widely watched gauge of market liquidity trends. The recent choppy pattern has still yielded a net infusion of approximately $649 million over the last seven weeks, the analysis indicated, which has helped to revive a junk bond primary market that seemed all but dead through most of May, and has given a boost to a secondary market that had been staggering by the tail end of the long outflow losing streak.

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 overall liquidity trends - and because there is no reporting mechanism to track the movements of other 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.

One high-yield syndicate official expressed surprise that the mutual funds flow number was flat to slightly negative.

"People around here were thinking we might see a substantial inflow," the source remarked.

Primary revives

Meanwhile the high-yield primary roared to life with half a dozen issuers selling $1.775 billion in seven tranches.

Of those seven, four were upsized and four came tight to talk, while two came on top of the price talk.

And the much-anticipated SunGard Data Systems, Inc. LBO deal stepped out from behind the curtain, as the company will begin a roadshow on Monday for a $1.25 billion two-part offering.

Sooner rather than later

One debt-side capital markets source told Prospect News on Thursday that heading into the summer the buy-side was perceived to be salting away money in anticipation of the LBO deal from SunGard, as well as anticipated ensuing ones from Toys "R" Us and Neiman Marcus.

"It seemed like a lot of buy-side accounts had been building cash positions so that they could become involved in some of these deals, but the sense now is that people need to get that money put to work sooner rather than later," the official remarked.

"So people are starting to look for alternative paper now."

$1.775 billion of alternatives

Hence, according to this source's color, Thursday's seven tranches totaling $1.775 billion were the alternatives to the big LBO deals.

Sources around the market said late Thursday that those deals - alternative or not - played to conspicuous demand.

The largest total issuance Thursday came from Canonsburg, Pa., pharmaceutical company Mylan Laboratories Inc. which sold $500 million of senior notes (Ba1/BB+) in two par-pricing tranches.

Mylan priced a $150 million five-year bullet tranche to yield 5¾%, on the tight end of the 5 7/8% area price talk.

The company also priced a $350 million tranche of 10-year non-call-five notes to yield 6 3/8%, on top of the 6 3/8% area price talk.

Merrill Lynch & Co. ran the books for the share repurchase deal.

Elsewhere Huntington Beach, Calif.-based casual clothing company Quiksilver, Inc. priced an upsized $400 million issue of 10-year senior notes (B1/BB-) at par to yield 6 7/8%, tight to the 7% area price talk. The deal was increased from $350 million.

JP Morgan ran the books for the debt refinancing and acquisition-related deal.

Also upsized was the CCM Merger, Inc. (MotorCity Casino) $300 million issue of eight-year senior unsecured notes (B3/B-), to fund the acquisition of the company. In this case it was increased from $200 million.

The notes came at par to yield 8%, at the tight end of the 8% to 8¼% price talk, via Deutsche Bank Securities and Merrill Lynch & Co.

Clayton Williams Energy, Inc. also priced an upsized deal: $225 million of eight-year senior notes (B3/B-), which came at par to yield 7 ¾%, on top of price talk, and was raised from $200 million.

JP Morgan ran the books for the debt refinancing and general corporate purposes deal from the Midland, Texas energy company.

In quick-to-market action, Grant Prideco, Inc. also priced an upsized $200 million issue of 10-year senior unsecured notes (Ba2/BB) at par on Thursday to yield 6 1/8%, tight to the 6 1/8% to 6¼% price talk. The size was increased from an initial $175 million.

Banc of America Securities, Citigroup, Credit Suisse First Boston and Deutsche Bank Securities were joint bookrunners for the debt refinancing deal from the Houston-based outfitter to the oil and gas industry.

Finally, and also appearing as a drive-by deal, Beazer Homes USA Inc. priced a $50 million add-on to its 6 7/8% senior notes due July 15, 2015 (existing ratings Ba1/BB) at 99.976 to yield 6 7/8%, via UBS Investment Bank.

The original $300 million issue price on June 1, 2005.

The issuer is an Atlanta-based home builder.

SunGard launches Friday

One roadshow start was heard during the Thursday session-the long-anticipated whopper from SunGard.

The Wayne, Pa.-based software company will launch its $1.25 billion two-part offering of eight-year senior unsecured notes (B-) on Friday, with the roadshow to kick off on Monday.

The company is in the market with fixed-rate notes that come with four years of call protection and floating-rate notes that come with two years of call protection.

Tranche sizes remain to be determined. Pricing is expected during the July 25 week.

Deutsche Bank Securities, JP Morgan, Citigroup, Goldman Sachs & Co., Morgan Stanley and Banc of America Securities will be joint bookrunners for the deal to help fund the $11.3 billion acquisition of the company.

The SunGard LBO financing is known to contain a $3 billion bridge loan to high yield bonds. However sources close to the deal declined to specify whether or when the SunGard might bring the remaining $1.75 billion that it would conceivably need to take that bridge out.

Motor City, Quiksilver up in trading

When Motor City Casino's new 8% senior notes due 2013 were freed for secondary dealings, they shot up right out of the gate to 102.25 bid, 103.25 offered from their par issue price earlier in the session, several traders said.

Another market source saw the bonds a little tighter, at 102.5 bid, 102.75 offered.

"This clearly was the big winner of the day, versus Quiksilver," one trader said, "though both of those bonds were up."

He also quoted the new Quicksilver 6 7/8% senior notes due 2015 as having moved up to 101 bid, 102 offered on the break, from their par issue price, before easing from that high to end at 100.75 bid. Another trader, however, quoted the new bonds going home at 101 bid, 101.5 offered.

Grant Prideco's new 6 1/8% notes due 2015 were meantime seen at 101.25 bid, 103.25 offered, up from their par issue price, although a second trader pegged those bonds a little lower, at 100.75 bid, 101.125 offered.

The Mylan Labs, Clayton Williams and Beazer Homes deals priced too late in the day for aftermarket activity.

Auto names strong

Back among the existing issues, the automotive issues seemed to be in the fast lane Thursday, helped by the Labor Department report, the Lehman Brothers upgrade and the rise in the sector's shares on those two developments.

It also couldn't hurt that crude oil prices - a sort of crude indicator of future price trends for gasoline - went into a swoon Thursday that brought the price of a barrel of light, sweet crude for August delivery down to $57.80 on the Nymex, lower by $2.21 on the day. Oil has fallen from recent levels around $62 a barrel on several factors, including a rise in U.S. stockpiles of distillates like heating oil and jet fuel, indications of slowing oil demand in China and projections that Hurricane Emily, now in the Caribbean, will likely not strike the oil-producing areas, as feared.

All of that good news helped boost GM's benchmark 8 3/8% notes due 2033, which ended 1½ points higher on the session at 87 bid, 88 offered, from 85.5 bid, 86.5 offered.

"We broke through the 10% [yield] level very nicely," a trader said, quoting the bonds at yielding 9.74% on the bid side, and 9.62% on the offered side.

He cited the Lehman upgrade of the shares of the carmakers and their suppliers. Lehman auto equity analyst Darren S. Kimball said in a research note Thursday that GM's sales pace has not slowed materially and industry sales could beat June levels. Kimball raised the sector's rating to neutral from negative, and upped GM's stock specifically to equal weight from underweight. Kimball further said that the domestic auto industry may be poised for a modest turnaround next year from the recent pattern of sagging sales and consequently lagging production.

The Lehman upgrade came on the same day that the Labor Department reported that auto sales and auto parts sales jumped 4.8% in June, the biggest gain since May 2004. Analysts largely attribute that sales gain to GM's popular program offering all carbuyers the same kind of discount that GM's own employees have enjoyed for decades; the buyers can save may thousands of dollars off the sticker price.

That promotion shot sales up 41% for the month, causing GM to extend it another month, to July 31. Both Ford and the Chrysler division of DaimlerChrysler have now matched GM's program with their own, hastily thrown-together incentive plans.

The trader also quoted Ford's flagship bond, the 7.45% notes due 2031, half a point better at 83.5 bid, 84.5 offered.

Dura, TRW gain

And auto supplier Dura Automotive Systems Inc.'s bonds were "up pretty big," he said, quoting the Rochester Hills, Mich.-based parts maker's 8 5/8% notes at 92.25 bid, 943 offered, up from 90.5 bid, 91.5 offered.

However, another trader only saw the notes up a point on the day at 93 bid, 94 offered.

Dura's 9% notes due 2009 were quoted at 76 bid, up 2½ points on the day. Another trader saw them at 75, a two-point gain.

Another auto supplier, TRW Automotive, was half a point better, just below 113.

A trader said that autos were "up about a point across the board. Everything was tighter," although he saw that gain in the context of a ½ point to 1 point rise in the overall market, in line with higher stocks.

The firming in the automaker/auto sector supplier's bonds came on a day when Standard & Poor's warned that the suppliers will remain under pressure during the remainder of the year, hurt by reductions in orders from Detroit's Big Three, rising raw materials prices, and liquidity concerns (see related story elsewhere in this issue).

Delta higher as fares rise

Elsewhere, the news that Delta Air Lines - which earlier this year announced a radical plan aimed at boosting passenger bookings by sharply cutting its fares - has now backed off from those fare cuts somewhat by raising the maximum fare by $100 helped lift its bonds a little.

Delta boosted the cap on one-way walk-up fares to $599, up from $499, for economy class and to $699 for first class.

Rivals Continental Airlines Corp. and United Airlines matched suit, while American Airlines' parent, AMR Corp., and Northwest Airlines Inc. said they were studying Delta's move as well.

Delta's bonds were "up a touch," a trader said, quoting its 7.70% notes due later this year a point better, at 86 bid, 88 offered.

The trader said other Delta issues were up from half a point to a full point, with the 8.30% notes due 2029 at 27.5 bid, 28.5 offered.

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