Upsized Wendy's, Quicksilver Resources deals price; SLM strengthens on contract news; funds gain $358 million

By Paul Deckelman and Paul A. Harris

New York, June 18 - Wendy's International Holdings LLC and Quicksilver Resources Inc. priced upsized bond offerings on Thursday - the latter company moving up its anticipated timetable by a day in response to solid market interest in a deal which one primary source termed "a blowout."

The new Wendy's notes were heard to have firmed slightly from the deal's issue price when they broke into the secondary. The Quicksilver deal, however, priced too late in the session for any aftermarket activity.

RailAmerica Inc.'s new offering of eight-year notes, which had come to market on Wednesday, were seen by traders having risen about a point from their issue price.

However, another Wednesday deal - for Paetec Holding Corp. - "couldn't get out of its own way," as one trader put it.

Away from the new-deal arena, traders saw brisk activity - including considerable junk-market interest - in SLM Corp.'s split-rated bonds, which firmed on the news that the Reston, Va.-based education financing concern, along with three sector peers, had won a huge contract to administer government education loans.

Also in the financial realm, E*Trade Financial Corp.'s bonds were points higher for a second consecutive session, lifted by the news that the New York-based online brokerage and mortgage provider will give holders of two series of its notes new convertible debt in exchange for those existing notes. However, the gains - while certainly respectable - paled in comparison with the surging advances those bonds had generated on Wednesday, and volume was likewise considerably more restrained.

Inflows hit a record

Meanwhile cash inflows to junk broke into record territory on Thursday, as the high-yield mutual funds saw their 14th consecutive week of inflows, according to a market source who keeps close track of data provided by AMG Data Services of Arcata, Calif.

The funds that report on a weekly basis saw $358.5 million of inflows for the week to Wednesday, according to AMG.

That brought to 14 the number of consecutive weeks of inflows - the most consecutive weeks of weekly inflows ever, the source said.

During those 14 weeks the funds which report on a weekly basis to AMG have seen $9.1 billion of inflows.

The previous week, ended June 10, saw a $566.9 million cash infusion.

With 24 weeks of the year now in the books, inflows have been seen in all but three of them - a losing streak back in late February and early March.

Including the latest week's inflow number, the year-to-date net inflow for the weekly reporting funds has swelled to $11.665 billion, according to the analysis, up from $11.307 billion the week before.

Excluding exchange-traded funds, as some calculations do, inflows in the latest week totaled $323.3 million, with about $7.3 billion of total inflows over the last 14 weeks. The previous weekly inflow, calculated on that same basis, was $454.3 billion.

No matter how the fund flows are calculated, the bottom line is that the massive multibillion-dollar flow of funds into high yield is seen as the major catalyst for the relatively strong pace of new issuance and the solidly positive year-to-date returns that have been seen in Junkbondland for most of the first five months of the year and now into the sixth - except for a lull in both the primary and secondary spheres for several weeks that largely coincided with the aforementioned three weeks of outflows.

The sustained inflows have helped the junk market bounce back nicely from last year's staggering 25%-plus loss and sharply reduced primary activity totals. Total returns so far this year are estimated at an astounding approximately 29%, while the more than $50 billion of new high yield debt issued so far this year is on pace to easily top last year's anemic primary tally.

A market source also said that in the latest week, funds which report on a monthly basis rather than doing so weekly showed a $23 million inflow, versus the previous week's $680.9 million cash addition. That left the year-to-date cumulative inflow for such funds at $9.492 billion, versus $9.469 billion the previous week.

The source further said that on an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of some $21.158 billion more has come into the funds so far this year than has left them, versus the prior week's aggregate figure of about $20.776 billion.

EPFR sees inflows continuing

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, analysts also noted that the junk funds had racked up their 14th consecutive week of inflows, with the $666.3 million cash infusion they calculated pushing the total over those 14 weeks to $9.6 billion and the year-to-date inflow total to $11.9 billion. In the previous week, it said the funds had seen an inflow of $754.38 million, with a year-to-date inflow total of $10.5 billion.

While the EPFR junk figures usually point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers differ due to EPFR's inclusion of some non-U.S. funds in its universe. All cumulative totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

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 comprise less of the total monies floating around the high yield universe than they used to - because there is no similar reporting mechanism to accurately track the movements of cash coming into the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

A week of weakness

But the notable cash inflows pointing to the market's technical strength came as sources marked prices lower for the fourth consecutive session.

Cash bonds were down ½ to 1 point on the day, a trader said.

The CDX High-Yield 12 index dropped 1 1/8 points, the source added.

"The index is getting crushed," the trader remarked.

Earlier in the Thursday session a leveraged capital markets banker said that the CDX has lost 4 points in four days.

The decline is being led by lower quality on-the-run bonds, sources remarked.

The existing paper of Freescale Semiconductor, Inc., Neiman Marcus Group and TXU Corp., as well as the Biomet Inc.10 3/8% senior PIK toggle notes due October 2017, have suffered the brunt of the sell-off, according to a high-yield mutual fund manager.

However the source conceded that higher quality paper, such as HCA Inc.'s bonds, has also traded lower, albeit by more modest amounts.

The lower quality paper ran up the hardest during the course of the spring rally, which may be one reason it is being hit the hardest in this week's sell-off, sources say.

And seeing how hard the lower-quality on-the-run paper has rallied, investors may be abandoning it in favor of a more attractively priced new issue market, they add.

"We're still getting cash in," the mutual fund investor said.

"We're not selling anything, but we're being more careful about what we buy."

Quicksilver a blowout

Quicksilver Resources Inc. priced an upsized $600 million issue of 11¾% 6.5-year senior notes (B2/B-) at 97.717 to yield 12½% on Thursday.

The yield was printed at the wide end of the 12¼% to 12½% yield talk. The price came within price talk for approximately 3 points of original issue discount. The deal was increased from $425 million.

Credit Suisse, Deutsche Bank Securities and J.P. Morgan were joint bookrunners for the deal.

Proceeds, along with proceeds from sale of an interest in oil and gas leases, royalty interests, mineral interests and related assets to Eni US Operating Co. Inc. and Eni Petroleum US LLC, will be used to repay the remaining debt under the company's second-lien term loan facility due 2013.

The deal was a blowout, according to an investor who spoke just before final terms were announced.

The 12½% yield was on the generous side, said the source.

That was one reason this money manager was gloomy about the prospects of a less-than-generous allocation of the new Quicksilver paper.

Wendy's sees covenant pushback

Credit Suisse also led the Wendy's/Arby's Restaurants, LLC $565 million issue of 10% seven-year senior unsecured notes (B2/B+) which priced at 97.533 to yield 10½% on Thursday.

The yield was printed 50 basis points beyond the wide end of the 9¾% to 10% price talk.

The deal was subject to investor pushback with respect to the covenants dealing with the restricted payments basket, sources said.

Proceeds will be used to optionally prepay about $125 million senior secured term loan debt and to make a distribution of the remaining proceeds to Wendy's/Arby's Group, which will used for general corporate purposes. Those purposes may include working capital, the funding for key strategic growth initiatives, including new unit development, acquisitions of other restaurant companies, repayment or refinancing of debt and the return of capital to its stockholders, including through stock repurchases and/or dividends.

Ardagh sets guidance

Ardagh Glass Finance plc set price guidance for its €300 million offering of seven-year first-priority senior secured notes at 9½% to 9 5/8% on Thursday.

The deal is expected to price on Friday.

Citigroup has the books for the Rule 144A and Regulation S offering, which is being run off the high-yield desk in London.

Proceeds will be used to repay the Dublin-based glass container manufacturer existing senior debt and for general corporate purposes.

Wendy's deal a little firmer

When the new Wendy's 10% notes were freed for secondary dealings, a trader saw that $565 million of bonds - upsized from the originally planned $550 million - as having moved up a little, to 98 bid, 98½ offered, from the 97.533 level at which the Atlanta-based fast-food franchisor priced the bonds earlier in the day.

Recent issues a mixed bag

Recently priced issues were something of a mixed bag.

A trader saw the new 9¼% notes due 2017 from Jacksonville, Fla.-based regional railroad operator RailAmerica as having firmed to 96¾ bid, 97½ offered - up from the 95.923 level at which the company had priced its $740 million of bonds on Wednesday to yield 10%. The deal had been upsized from the originally planned $700 million.

"It opened up a point," another trader said, "and basically stayed right there," quoting the bonds in a 97-97¼ context.

Yet another market source saw the bonds bid at 971/4.

Another Wednesday deal that also seemed to be holding its own was Miami-based information technology company Terremark Worldwide Inc.'s $420 million offering - upsized from an original $400 million - of 12% senior secured first-lien notes due 2017.

Those bonds priced at 95.134 to yield 13%, and a market source saw them Thursday around 96¼ bid, 96¾ offered.

However, it was quite a different story for the third member of the trio of Wednesday deals, Paetec Holdings' $350 million of 8 7/8% senior secured notes due 2017, which priced at 96.549 to yield 9½%.

A trader said the Fairport, N.Y.-based telecommunications company's deal "just never got out of its own way," seen trading during the session as low as 95 bid.

Market indicators continue slide

Back among the established issues, a trader saw the CDX Series 12 High Yield index - which had fallen by 1½ points on Wednesday - fall again, this time by an even point on Thursday to end at 81¾ bid, 82¼ offered.

The KDP High Yield Daily Index, which had plummeted by 78 basis points on Wednesday, lost another 35 bps to end Thursday at 62.15, while its yield widened by 11 bps to 10.66%.

In the broader market, advancing issues - which were down for a second straight session on Wednesday - were again on the downside on Thursday, trailing the decliners by a three-to-two ratio.

Overall market activity, measured by dollar-volume totals, fell nearly 18% versus Wednesday's levels.

A trader said that compared with the market environment earlier in the week, or at the tail end of last week, "definitely, there's a different tone. I would categorize the market as being heavy."

A second trader characterized Thursday's session as "kind of a dreary day - the market was off right out of the chute, and it seemed like things were opening up significantly lower in some spots."

Despite the presence of new-deal issues doing better, like the Rail America issue, "it feels like the market's run out of gas a little bit," he said. "The new-issue flow has kind of slowed down a little bit. With the equity market trading a little bit on the soft side, we've seen guys pausing in their buying.

"The technical situation is still around - there's plenty of money on the sidelines, but while guys are buying specific credits, they're hoping to buy 'em on the cheap, not just lifting them anymore."

Liquid issues among leading losers

The first trader noted that earlier in the week, some big, liquid issues sometimes seen as market bellwethers had been getting hit "a point, a point-plus," while the overall market's easing was more restrained, maybe ¼ or 3/8 point - but those atypical losses by the barometer issues were "the leading indicator of the weakness in our market."

He said it was not so much a case that "the overall market is tanking - but there's clearly a different sentiment."

He further pointed out that such barometer issues as Community Health Systems Inc.'s 8 7/8% notes due 2015, First Data Corp.'s 9 7/8% notes due 2015 and Aramark Corp.'s 8½% notes due 2015 were all lower, with Franklin, Tenn.-based hospital operator Community Health's issue being particularly busy, with over $25 million traded. He saw the bonds down 5/8 point to 96¼ bid.

Greenwood Village, Colo.-based electronic transaction processor First Data's issue, meanwhile "continued to get whacked," losing 1¼ points to end at 68½ bid, on $10 million traded. He also saw Philadelphia-based food service operator and uniforms provider Aramark's bonds easing by just ¼ point to 96¼ bid, on $3 million of turnover.

Another notable loser on the session, he said, was Goodyear Tire & Rubber Co.'s 10½% notes due 2016, which lost nearly 2 points on the day to end at 991/4, with $12 million traded. The Akron, Ohio-based tiremaking giant's issue, he said, "seems to be one that sticks out - a recent new issue [Goodyear priced $1 billion of the bonds on May 6] and a strong credit."

Sallie Mae a strong performer

Probably the busiest bonds in Junkbondland were SLM Corp.'s - Sallie Mae's -- several split-rated (Ba1/BBB-/BBB) issues, made suddenly popular by the news that the company was one of four selected to share a huge federal education-loan servicing contract.

A trader saw three of its issues at the top of the high yield most actives list at mid-afternoon, with the busiest being the 5% notes due 2015. He saw those bonds rise to a round-lot bid of 771/2, up from 77 a week ago, with $40 million of the bonds traded.

He also saw its 8.45% notes due 2018 up 1½ points on the day at 85½ bid, on volume of $32 million. Sallie Mae's floating-rate notes coming due next July were ¼ point better at 911/2, with $15 million traded.

Later in the session, a market source quoted the 5% notes at 81 bid, up more than 3 points on the day.

Sallie Mae - along with competitors Nelnet Inc., American Education Services/PHEAA and Great Lakes Education Loan Services Inc. - will share in a contract to service $550 billion of federal student loans. There was no immediate word on how much each company would stand to make on the big deal - although FBR Capital Markets analyst Matt Snowling said in a research note that it should be "a meaningful source of growth" for Sallie Mae, as well as for NelNet - the only two of the four which are publicly traded - "in the years to come."

The contract comes just at the right time for Sallie Mae, which along with other private education lenders faces the prospect of sharply reduced revenues if president Barack Obama's proposal that the government stop subsidizing those lenders and instead make the loans directly to students, thus saving about $4 billion annually.

E*Trade improvement continues

E*Trade Financial's bonds gained for a second straight session on news that the company will take out some bond debt via an exchange offer, although the gains were much smaller than Wednesday's dramatic advances, and came on greatly reduced volume.

A trader characterized the paper as "up a couple of points."

A second saw its 8% notes due 2011, one of the issues being exchanged for new convertible debt, move up to 102½ bid from the 99½ level to which the bonds had soared on Wednesday. Some $5 million changed hands. He also saw its 12½% notes due 2017, some of which will also be taken out by the exchange offer, rise to 95½ from 86½ on Wednesday, though on $3 million.

E*Trade's 7 3/8% notes due 2013, which are not included in the exchange offer, was the busiest issue, with volume of $8 million, as the bonds finished up 2 points at 82.

At another desk, its 7 7/8% notes due 2015 - another issue not included in the exchange offer - rose more than 5 points to 80 bid.

The E*Trade bonds had firmed across the board on Wednesday - with the 8s and the 121/2s doing especially well, quoted up as much as 20 points or more after the company announcement that it will give holders of all of the 8s and much of the 121/2s new convertible notes, as part of an overall $1.2 billion plan to strengthen the company's balance sheet.

Ford skid continues

In the automotive arena, Ford Motor Co.'s 7.45% notes due 2031 continued to fall, dropping to 58½ bid from 621/2, on $6 million traded.

At another desk, a trader saw the Ford long bonds fall 4½ points to 58 bid, 60 offered.

Those bonds - which had firmed solidly over the last two months as investors bet that the Dearborn, Mich.

-based Number-Two U.S. auto producer would be able to survive the financial fires which have consumed rivals General Motors Corp. and Chrysler, forcing them into bankruptcy - peaked at about the 70 bid level late last week, but have since declined precipitously to current levels.

Also among the auto names, a trader saw GM's 8 3/8% bonds due 2033 at 12½ bid, up slightly from 12 1/8, though on just $3 million traded, while another saw the GM benchmark bonds down ½ point at 12 bid, 13 offered.

A trader saw Troy, Mich. -based automotive components supplier Arvin Meritor Inc.'s 8¾% notes due 2012 "down multiple points" at 62½ bid, versus Wednesday's 66, on $7 million traded.

CCC bonds take a licking

A trader saw Smurfit-Stone Container Corp.'s 8% notes due 2017 among the more actively traded bonds, with $14 million changing hands as of mid-afternoon. He saw the Chicago-based packaging concern's bonds dip to 32.5 bid from prior round-lot levels at 35. But at another desk, the company's 8¼% notes due 2012 were seen a point better at 35 bid.

The first trader also saw Fairpoint Communications' 13 1/8% notes due 2018 drop to 21.25 bid from 25 previously, on $10 million traded, while Momentive Performance Materials was "another one that got whacked," its 11½% notes due 2016 falling back to 27 7/8 from 32 on Wednesday.

"It seems like the more distressed, CCC area, seems to be getting hit more than the overall market," he said. "My guess is there's some profit-taking going on," following the recent strong run-up among the more distressed part of the junk market.

"Guys wanted to realize the gains before the gains were gone - because we know how quickly they could have been lost."

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