Interoil deal prices; Blockbuster rises; GM, Motorola busy; funds gain $315.49 million on week

By Paul Deckelman and Paul A. Harris

New York, Aug. 26 - The high-yield primary arena saw its first pricing of the week on Thursday - although it originated abroad, as Norwegian energy company Interoil Exploration & Production ASA came to market with a 310 million kroner offering of high-coupon senior secured notes.

But away from that one deal, the new-deal realm remained in its summertime snooze.

In the generally pretty quiet secondary market, the bonds of troubled movie-rental company Blockbuster Inc. pushed higher by at least 3 points, although there was no real news that would explain or justify such a rise.

General Motors Corp.'s benchmark bonds were among the busiest junk issues, although they were little changed.

Other active issues included Motorola, Inc. and First Data Corp.

Hovnanian Enterprises Inc.'s bonds eased in apparent delayed reaction to two straight days of poor home-sales numbers.

Junk funds gain $315.49 million

And as the day's trading was wrapping up, participants familiar with the Lipper FMI weekly high-yield mutual fund-flow numbers compiled by AMG Data Services of Arcata, Calif. - considered a reliable barometer of overall junk market liquidity trends - said that in the week ended Wednesday, $315.491 million more came in to those funds than left them.

It was the seventh inflow in as many weeks, following on the heels of the $49.55 million cash injection seen the previous week, which ended Aug. 18, and represented a strong bounceback from the previous week's anemic addition - the first one of the group that failed to even break $50 million, which had raised concern in some quarters that it was a possible sign of lessened investor interest in Junkbondland.

Over those seven weeks, inflows have totaled $4.474 billion, according to a Prospect News analysis of the figures provided by market sources. The latest addition raised the year-to-date cumulative total for the weekly reporting funds to $5.162 billion, according to the analysis - a new peak level for 2010, versus the previous peak level of $4.847 billion recorded the week before. The funds hit their biggest year-to-date negative number so far in the week ended June 9, with a cumulative deficit of $475 million.

With the 2010 third quarter now well under way, inflows have been seen in 23 weeks out of the 34 since the beginning of the year, while there have been 11 outflows, the Prospect News analysis of the data indicated. After a strong start to the year, including a stretch from late February through late April that saw 10 consecutive weekly inflows totaling over $4 billion, the flows turned negative for six weeks in May and early June, with about that same total amount of net outflows. After that, the flows were choppy, with several weeks of gains followed by several weeks of losses, until the current surge began in mid-July.

Prior to the release of the numbers, a trader correctly predicted a seventh straight inflow, although he erred a little on the side of caution in predicting that it would be "mildly positive," much like last week's roughly $50 million cash addition.

He added that "more money has come in in the past two days."

EPFR sees $602 million inflow

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime reported a $602 million inflow in the latest week, continuing a recent string of mostly large inflows, including at least two topping the $1 billion mark. The week before, it had seen a $162 million inflow, somewhat small by recent standards.

EPFR's analysts said in a research note Thursday night that it was the seventh straight week of inflows dating back to mid-July. It was also the 10th inflow seen by EPFR in the past 11 weeks.

Reflecting the difference between the ways AMG and EPFR calculate their respective fund-flow totals - EPFR includes results from certain non-U.S. domiciled funds as well as the domestic funds - the service's year-to-date net inflow total now stands at $9.871 billion, a new peak level for the year, eclipsing the old mark of $9.269 billion set the week before.

Any and all cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

Interoil prices NOK 310 million

The primary market, locked in the late-August doldrums, remained quiet on Thursday, sources said.

No dollar-denominated issues were priced, nor were any new deals announced.

There was news from Scandinavia, however. Oslo-based Interoil Exploration and Production priced NOK 310 million of 3.5-year senior secured bonds at par to yield 15%, according to a market source in Europe.

The issue size came at the high end of the NOK 275 million to NOK 310 million range at which Interoil brought the deal to the market.

SEB Merchant Banking AB and Pareto Securities AS managed the debt-refinancing deal.

Bonds continue to attract cash

The $315.49 million inflow to the high-yield mutual funds for the week to Wednesday, as reported by Lipper-AMG, was no surprise to one portfolio manager in the Midwest.

In fact, this investor is looking for a huge inflow on Friday, amounting to 1% of assets under management.

Troubled times in the equity markets are not souring the sentiment for junk, the buysider said. Quite the opposite: People are moving cash out of stocks and into bonds.

Government paper continues to rally, the fund manager said, who spotted 10-year Treasuries yielding 2.48%.

And the longer end of the Treasury curve may still have substantial room to run, the source added.

Meanwhile, junk will flourish in a flat-to-slightly-positive economy, the buysider said. But given the expectation of continued slowness, it will be the higher quality junk that flourishes.

Since July 1, double B paper has narrowed to Treasuries plus 711 basis points from 732 bps, while triple C paper is unchanged or wider, the manager said, citing the JPMorgan index.

Conceding that double-dip recession talk lately has intensified, the investor said that the high-yield universe won't like that macroeconomic scenario, should it materialize.

However, in a double-dip recession, higher quality bonds will outperform, the source added.

"Look for people to start unloading their triple C bonds," the manager said.

A jammin' September

September is apt to get off to a fast start in the primary market, this fund manager said, professing to have no specific issuer names at hand.

"The dealers are playing their cards close to their vests, but everybody knows there is a huge calendar," the investor said.

A drive-by deal from a familiar, highly rated credit soon after Labor Day would not be surprising, the source added.

Also, a September deal from US Oncology Inc. would not take this bondholder by surprise, given recent activity in the company's existing bonds.

One of the few times this buysider's phone rang on Thursday turned up a dealer who submitted a 103 bid for US Oncology's 10¾% senior subordinated notes due Aug. 15, 2014.

"That paper just became callable at 103.6," the manager said. "Do I have 'Schmuck' painted on my forehead?!"

Recent bonds stay firm

Among recently priced issues, a trader quoted Goodyear Tire & Rubber Co.'s 8¼% notes due 2020 at 102 bid, 103 offered.

That was off a little from peak aftermarket levels earlier in the week, at 103 bid, 103½ offered, but was still well up from the 100.75 at which Akron, Ohio-based tiremaking giant's $100 million issue priced last Friday to yield 8.119% as an add-on to the $900 million of those same bonds, which originally priced back on Aug. 10

A trader, meantime, saw Mueller Water Products Inc.'s 8¾% notes due 2020 trading at 101 bid, 101½ offered.

That was up from the previous aftermarket levels around 100½ bid, 101 offered that the bonds had hit following their Aug. 19 pricing, and it was well up from that 98.37 level where the Atlanta-based water pipe and flow-control equipment maker's $225 million deal priced to yield 9%.

The trader saw Toys' 'R' Us Inc.'s 7 3/8% senior secured notes due 2016 trading at 100¾ bid, 101¼ offered, just a little below the peak aftermarket levels around 101 bid, 101½ offered that the Wayne, N.J.-based specialty retailer's $350 million issue had reached after it priced at par on Aug. 16.

And he saw NRG Energy Inc.'s 8¼% notes due 2020 at 100 3/8 bid, 101 3/8 offered, about in line with the aftermarket levels at which the Princeton, N.J.-based power generating company's new mega-deal had been trading since the $1.1 billion issue, solidly upsized from the originally announced $750 million, priced on Aug. 17 at par. But NRG's existing 7 3/8% notes due 2016 were seen having eased around ½ point to 1011/2.

At another shop, a trader said that besides NRG, several other recent energy deals, like Arch Coal Inc.'s $500 million of 7¼% notes due 2020, which priced at par on Aug. 2, and PetroQuest Energy Inc.'s $150 million of 10% notes due 2017, which priced at par on Aug. 12, "are holding in there."

St. Louis-based Arch Coal's crosstown arch-rival, Peabody Energy Corp., saw its 6½% notes due 2020 lose nearly a point on the day, but they still traded at 103, well up from the par level at which Peabody's $650 million issue had priced on Aug. 11.

In fact, the trader continued, "most of the higher-quality 6% and 7% [area] coupons that came recently are still pretty much trading in the same range as they have been trading in for the past week.

"I haven't seen any selling."

Market indicators turn mixed

Away from new-deal territory, a market source saw the CDX North American HY Series 14 index ease by 1/8 point on Thursday for a second consecutive session, falling back to 96 bid, 96 3/16 offered.

The KDP High Yield Daily index meantime edged downward by 1 basis point Thursday to end at 71.61 after having dropped by 18 bps on Wednesday. Its yield increased by 2 bps to 8.35% after having risen by 4 bps on Wednesday.

The Merrill Lynch High Yield Master II index gained 0.056% on Thursday after having eased on Wednesday. It ended the day with a year-to-date return of 8.483%, versus Wednesday's 8.422%. The index still remains below its peak level for 2010 so far, the 9.085% recorded on Aug. 9.

Advancing issues jumped back ahead of decliners on Thursday after having been down the previous five sessions. Their winning margin was about six-to-five, versus the seven-to-five edge that declining issues had on advancers on Wednesday.

Overall activity, represented by dollar-volume levels, fell by 20% on Thursday after having risen by around that same percentage on Wednesday.

Traders pretty much confirmed what the tale of the tape indicated - that Thursday was one pretty quiet and mostly boring day.

"We were active in the energy space," one of them said, "but there was nothing exciting going on."

Motorola active

A trader said that Motorola's 7½% notes due 2025 were "active today," though he wasn't sure why. "Pretty fat price too," he added, seeing the debt trading around 121.

He remarked that the 121 price "looks like one big trade."

A market source at another desk, though, saw the Schaumburg, Ill.-based electronics manufacturer's bonds trading a little above the 119 bid level. Activity was brisk, with more than $20 million of the bonds having changed hands heading toward the close, making it one of the busiest junk issues on the day, though on no news.

Motorola's 6% notes due 2017 meantime were trading around 108½ bid on more than $8 million traded, also one of the day's busy issues.

First Data seen firmer

Another busy name on the day was Atlanta-based electronic transaction processor First Data. Its 9 7/8% notes due 2015 were quoted by one market participant at just under 79 bid, up 2 points on the session, while a second saw those bonds up nearly 2 points at 78¾ bid. More than $11 million of the bonds had traded heading into the final hour.

But First Data's 10.55% notes due 2015 were also quoted down 3 points on the day, on no news, at 76½ bid.

Hovnanian gets hit

A market source saw Hovnanian Enterprises' 10 5/8% notes due 2016 at 98¼ bid, down 3 points on the session.

Another, however, only saw the Red Bank., N.J.-based homebuilder's bonds down about 1 point on the day, at 98½ bid, versus its most recent prior round-lot levels.

The fall in the builder's bonds comes just a day after the Commerce Department reported that new-home sales slumped 12.4% in July from a year ago to a 276,000-unit annual pace - the slowest pace since the department began keeping records in 1963. June's pace was meantime revised downward to 315,000 units annually. Wall Street was looking for a 330,000-unit rate for July.

Those poor numbers followed by a day Tuesday's existing-home sales data from the National Association of Realtors, which showed sales of existing homes having nosedived by 27.2% in July to an annual pace of 3.83 million units, the slowest since May 1995. Wall Street had been expecting a more moderate 12% decline to a 4.7 million-unit annual rate.

MGM firms post-Dubai news

A trader said his shop had "been involved in MGM [ Resorts International Inc.] paper, as both buyers and sellers," although there was not much other information available.

A market source said that the Las Vegas-based gaming giant's 6 5/8% notes due 2015 gained more than a point to 80 bid.

The company's bonds had eased on Wednesday on news reports that Dubai World, MGM's partner in the gaming company's gigantic CityCenter development project on the Las Vegas Strip, is restructuring. The reports said that the state-owned conglomerate's plan is to sell off about $20 billion in assets, including its stake in MGM Resorts.

Blockbuster blips upward

One of the day's biggest movers came from out of deeply distressed territory, as Blockbuster's bonds gained multiple points.

A trader called Thursday's session "a quiet day" and said the only thing he really saw was Blockbuster, although there was no fresh news out about the troubled Dallas-based movie-rental company that might explain such a rise.

He said that Blockbuster's 11¾% senior secured notes due 2014 "traded up a couple of points" to climb above the 50 mark, versus recent bid levels in a 46-47 context. He said the bonds got as good as 51 bid, 52 offered before easing slightly from that peak to end around 50 bid, 52 offered, calling it up around 3 points versus Wednesday's finish.

Trico little traded post-Chapter 11

A trader said that he had not seen Trico Marine Services Inc.'s bonds "in a while" and said that its bonds were not much changed on the announcement late Wednesday that the Houston-based provider of maritime services to the energy and telecommunications industries had filed for Chapter 11 protection for its U.S. operations and its Cayman Islands holding company, with other divisions not included in the bankruptcy filing.

He said that Trico's 11 7/8% senior secured notes due 2014 had been trading around 87 and that the issue was really "the only one" to watch. The company's other bonds, such as the 3% notes due 2027, were in "single digits."

He quoted the 11 7/8s in a bid range of 86 to 88, which was "about where they started the day, so there was not much of a move." At one point, the bonds dropped as low as 84 bid, 85 offered and were ending bid around 85 or 86, which he called unchanged on the day.

He said that "they've been between 85 and 87 the last few days," noting that the secured bonds were a completely different credit than the company's other paper, with more security. He meantime saw the 8 1/8% notes due 2013 about unchanged at 18 bid, 19 offered. "That's where they have been, so there was no change, but there was a bit of activity."

Another trader noted that the bankruptcy filing "didn't include the 11 7/8s, so the whole capital structure was bid-for today." He estimated the 11 7/8s at 86½ bid, while the 8 1/8s were in the high teens.

"I would say there better buyers around on both."

NewPage shrugs off barbs

Traders said that NewPage Corp.'s bonds were not much moved on a negative assessment of the Miamisburg, Ohio-based coated-paper manufacturer put out Wednesday by Credit Sights, in which the advisory service warned that NewPage's debt was "increasingly toxic" and advised investors to "stay out of the name."

One said that NewPage's 11 3/8% senior secured notes due 2014 started the day at 81 bid, 82 offered and ended right at that same level, while its 10% notes due 2012 were a little easier at 32 bid, 34 offered, "so it doesn't sound like a whole bunch has changed."

He suggested that "maybe that news is already in the price."

Another trader agreed that "everyone has pretty much made that decision" on NewPage, which is why their bonds are trading at 20 points under par. "They've already been trading in that 81-82 range, so there was really no breakdown." He said that between $10 million and $15 million of the bonds traded Thursday and "maybe more."

Autos hold steady

A trader saw General Motors Corp.'s 8 3/8% benchmark bonds due 2033 around 32 bid, 32½ offered, which he called pretty much unchanged on the day, though on "decent volume."

He said that Ford Motor Co.'s 7.45% bonds due 2031 ended unchanged on "just a couple of trades. GM has been the active one over the last week."

At another desk, a trader said that the GM benchmarks were down 1/8 point at 32 bid, 32½ offered, while the Ford long bonds were unchanged at 97½ bid, 98½ offered.

Dex is vexed

A trader said that Dex One Corp.'s 12% senior subordinated PIK notes due 2017 traded at bid levels around 74-75. He noted that the Cary, N.C.-based Yellow Pages publisher's notes' pay 50% cash and 50% PIK. He said that "people are kind of running away from that, a little."

Stephanie N. Rotondo contributed to this report

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