TXU unit shops deal; most Wednesday bond issues firm, though XM lags; funds gain $240 million

By Paul Deckelman

New York, Oct. 14 - After Wednesday's pricing parade of upsized deals, most of them quickly marketed drive-by offerings, the high-yield primary market pretty much got back into a calendar-building mode on Thursday.

Only one deal was actively shopped around: Texas Competitive Electric Holdings Co. LLC and TCEH Finance Inc. But that $300 million issue of 101/2-year secured bonds had priced by press time late on Thursday night and was expected to come to market on Friday morning.

Otherwise, medical devices maker Accellent Inc. announced plans for a $315 million bond deal. Syndicate sources heard that the offering will be pitched to would-be investors via a roadshow starting early next week. Acellent will use the proceeds to fund a tender offer for existing bonds.

That will also be the case with M/I Homes, Inc., although concrete plans for such a bond deal have not yet been hammered out.

And Omnova Solutions Inc., which announced a $250 million eight-year issue earlier this week, is expected to hit the road with its deal this coming Monday, with pricing the following week.

Sino-Forest Corp. ended its roadshow a day early and priced an upsized $600 million issue of seven-year notes.

Among Wednesday's more than $2 billion of new paper, the new bonds from Clearwater Paper Corp., Manitowoc Co. Inc. and Regency Energy Partners LP/Regency Energy Finance Corp. were seen by traders to have moved up by several points when they broke into the secondary market Thursday. However, XM Satellite Radio Inc.'s new offering stayed tethered to its par issue price.

The junk market meantime continued to attract new money with Lipper/AMG reporting about a $240 million inflow to junk mutual funds in the latest week, the sixth-straight cash injection.

Junk funds gain $240 million

As things were wrapping up for the session, market participants familiar with the weekly Lipper FMI high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. - considered a reliable barometer of overall market liquidity trends - said that in the week ended Wednesday, $239.764 million more came into those funds than left them.

It was the sixth straight weekly inflow, following the $365.985 million cash infusion seen in the previous week ended Oct. 6, according to a Prospect News analysis of the figures provided by market sources. During that time, net inflows have totaled about $3.831 billion.

The latest week's inflow brought the year-to-date cumulative total for the weekly reporting funds to $8.8 billion, although that was off from the $9.246 billion, a new peak level for the year, seen in the previous week. Cumulative fund-flow totals may be rounded up or down and could include unannounced revisions and adjustments to figures from prior weeks.

Inflows have now been seen in 29 out of the 41 weeks since the beginning of the year, while there have been 12 outflows, the analysis indicated.

EPFR sees $773 million inflow

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime reported a $773 million inflow in the latest week, which followed a $265 million inflow the week before.

Reflecting the difference between the ways AMG and EPFR calculate their respective fund-flow totals, although the two services' numbers generally point toward the same trends, EPFR includes results from certain non-U.S. domiciled funds as well as the domestic funds. Its year-to-date net inflow total now stands at an estimated $21.373 billion, a new peak level for the year, versus the old peak of some $20.6 billion seen the week before.

Analysts say the continued flow of fresh cash into Junkbondland - and the mutual funds that represent but a small, though quantifiable, percentage of the total amount of money coming in - has fueled the new-deal borrowing binge as well as the robust secondary market.

Sino-Forest makes early visit

There was one pricing seen, syndicate sources said, for Sino-Forest Corp., which came to market with an upsized $600 million issue (Ba2/BB/BB+) of seven-year guaranteed senior notes.

Those bonds priced at par to yield 6¼%, at the tight end of pre-deal price guidance of 6¼% to 6 3/8%. The deal was upsized from the $500 million originally announced.

The offering came to market a day early, the sources noted, with the conclusion on Thursday of concurrent twin roadshows pitching the deal to investors in Asia and the United States. The marketing campaign, which started on Tuesday when the offering was first announced, had originally been expected to wrap up with a presentation on Friday in Los Angeles.

Bank of America Merrill Lynch and Credit Suisse Securities (USA) LLC were the joint bookrunners.

Sino-Forest, which has executive offices in Toronto and Hong Kong, operates forest plantations in China, selling timber, logs and engineered wood products. It plans to use the net proceeds from the offering for general corporate purposes, including, but not limited to, the acquisition and replanting of tree plantations.

Texas Competitive now seen for Friday

Back on the domestic scene, Dallas-based power generation and electric utility Texas Competitive Electric Holdings and TCEH Finance shopped a $300 million offering of 101/2-year senior secured second-lien notes around to potential investors on Thursday.

Market participants were expecting it to price after the order books closed at the end of business Thursday, but syndicate sources said that the quick-to-market deal, in fact had not priced by late Thursday and would likely come on Friday morning.

The deal is being done by Citigroup Global Markets, Inc., the left-hand lead joint-bookrunner. Other bookrunners are J.P. Morgan Securities LLC, Goldman Sachs & Co. and Credit Suisse.

Price talk on the deal indicated a 15% coupon for the issue, pricing at par. Such a coupon, with a projected maturity in April 2021, would be in line with the $335.905 million of 15% senior secured second-lien notes due April 1, 2021, which the company recently issued in connection with a below-par exchange offer concluded earlier this month. The offer took out about $478 million of its two series of outstanding 10¼% notes due 2015 and its outstanding 10½%/11¼% senior toggle notes due 2016. The new bonds would have indenture covenants substantially similar to those of the earlier 15% issue.

In announcing the new deal on Thursday, Texas Competitive Electric Holdings and TCEH, both subsidiaries of Energy Future Holdings Corp. - the company formerly known as TXU Corp. - said they plan to use the net proceeds from the bond offering to repay borrowings under the senior credit facility and/or to buy back some more of those outstanding 2015 and 2016 bonds.

Upcoming deals to fund tenders

Use of new bond deal proceeds to either pay down credit facility debt or to buy back soon-maturing or high-coupon bonds has been the main driver of the surge in new junk issuance this year, which now stands at well over $200 billion - a new record and around twice the amount sold just a year earlier, which itself set the old all-time record, north of $160 billion.

And two more bond deals will fall into that category.

Accellent, a Wilmington, Mass.-based provider of manufacturing and engineering services to the medical devices industry, was heard by the syndicate sources to be bringing a $315 million offering of seven-year senior subordinated notes to market early next week, with the .net proceeds to finance its separately announced tender offer for its $295 million of outstanding 10½% senior subordinated notes due 2013.

Goldman Sachs will be the left-side joint bookrunner on the deal, to be joined by UBS Investment Bank.

And M/I Homes, Inc. plans an offering of senior notes in the near future as a condition to the completion of a tender offer for the company's existing bonds announced on Thursday.

However, the Columbus, Ohio-based homebuilder offered no specifics as to the size, structure or likely timing of that future bond issue.

In declining to provide specifics to Prospect News, Phillip G. Creek, the company's chief financial officer, executive vice president and treasurer, said, "We'll see how the tender offer goes and what the market conditions are" at that time.

The company is required to complete a private placement of senior notes as a condition of its tender offer for its $200 million of 6 7/8% senior notes due 2012. It plans to use the net proceeds of the future bond deal, along with cash on hand, to fund the purchase of those 2012 notes under that offer and to pay related fees and expenses.

Omnova hits the road

An exception to the general rule that most of the bond issues now coming to market will be used to fund debt buybacks and paydown is Omnova Solutions, whose bond deal will instead go to fund some merger & acquisition activity.

The Fairlawn, Ohio-based maker of emulsion polymers and specialty chemicals will begin a roadshow this coming Monday for its previously announced $250 million offering of eight-year senior notes, high-yield primary market sources said on Thursday.

That bond deal is expected to price the following Monday, Oct. 25, the sources said.

Deutsche Bank Securities, Inc. will be the left-hand lead joint bookrunner for the offering, with Jefferies & Co. Inc. as the other joint bookrunner, while KeyBanc Capital Markets will be the deal's lead manager.

Omnova plans to use the proceeds from the bonds and from a new $200 million term loan to fund its previously announced $300 million acquisition of French chemical company Eliokem International SAS, repay or replace all amounts outstanding under its existing term loan and to pay related fees and expenses.

Wednesday deals mostly gain...

The four deals that priced on Wednesday came to market too late in that session for any kind of appreciable secondary activity - but at least three out of the four were making up for lost time on Thursday.

A trader saw Manitowoc's 8½% notes due 2020 trading around 101 3/8 bid, with over $100 million of the upsized $600 million issue of those new bonds changing hands.

A second trader saw the issue ending around 101¼ bid, 101½ offered and opined that probably even more than that $100 million traded because the Trace bond tracking system's methodology counts any junk trades of over $1 million as if it were $1 million - even if the trade was $5 million or $10 million.

The Wisconsin-based industrial equipment maker's deal moved up to its current levels after pricing at 99.165 on Wednesday.

A trader saw Regency Energy's 6 7/8% notes due 2018 at 102½ bid, well up from the par level at which the Dallas-based natural gas company's $600 million offering had priced Wednesday. He saw some $86 million of the new bonds changing hands.

The best performer of all among the new deals was Clearwater Paper's $375 million of 7 1/8% notes due 2018. Traders saw those bonds get as good as 104¼ bid, well up from their par issue price, although they were seen going home Thursday around 103 bid, 103½ offered.

...but not all

The dog of the day among the new deals was XM Satellite Radio, which one trader quipped was wholly appropriate since "they have a dog as their emblem" - and indeed, parent company Sirius XM Radio Inc.'s corporate logo actually does feature a cartoon dog listening to the radio.

The New York-based satellite broadcaster's $700 million of 7 5/8% notes due 2018 had priced at par on Wednesday, but did not stray far from that level, perhaps getting as good as 100 3/8 bid before ending the day right around issue as bids got hit.

Existing TXU paper gains

Traders saw gains in Texas Competitive Electric Holdings' existing paper, which may be taken out, in part, using the proceeds of its new bond deal.

A trader quoted its 10½% toggle notes due 2016 at 57 bid, up 1½ points, while its 10¼% notes due 2015 moved up to 64 bid, 64½ offered, also a 1½ point gain.

Market indicators turn mixed

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index down ½ of a point on Thursday at 99¼ bid, 99¾ offered, after having been up 3/16 on Wednesday for a second consecutive session.

However, the KDP High Yield Daily index meantime gained 6 basis points on Thursday to close at 74.24, after having risen by 15 bps on Wednesday. Its yield tightened by 1 bps to 7.30%, after having come in by 5 bps Wednesday.

The Merrill Lynch High Yield Master II index failed to set a new 2010 peak level for the first time in more than two weeks. It fell by 0.04% Thursday, after having gained 0.298% on Wednesday. Its year-to-date return eased to 13.527% from Wednesday's 13.572%, the peak return for the year.

Advancing issues led decliners for a 14th consecutive session on Thursday, although their advantage narrowed to just a relative handful of issues - maybe a couple dozen out of the more than more than 1,500 traded, versus Wednesday's winning margin of better than four to three.

ATP stays easier

A trader saw continued activity in ATP Oil & Gas Corp.'s bonds, which have been gyrating around this week, first up smartly on Tuesday after the government called an early end to its moratorium on off-shore energy drilling, then down on Wednesday in line with a plunge in the company's shares, which got clobbered due to some heavy hedge-fund selling and unfounded rumors disseminated through a widely followed stock-trading website that a company executive would make bearish comments at an investors conference later Wednesday.

He said the Houston-based energy exploration and production company's 11 7/8% second-lien senior secured notes due 2015 again "went on a little ride today." He saw the bonds start out the session around 93 bid, and actually trade as well as 93½ bid, 94 offered, but then "they drifted lower," at one point being quoted as low as 91½ bid, 92 offered. He saw the bonds going out at around 92½ bid, 93 offered.

"So they tried to take them higher, but it didn't work."

The Nasdaq-traded shares, which had dropped nearly 6% on Wednesday on 2½ times the normal volume, reverted to more normal trading on Thursday, off just 9 cents, or 0.57%, to end at $15.75 per share on nearly normal volume of about 3 million shares.

MBIA up on mortgage woes

A trader saw MBIA Inc.'s 14% surplus notes due 2033 "a little higher" at 52 bid, 53 offered, gaining a point for a second consecutive session, perhaps helped by a sharp rise in the Armonk, N.Y.-based mortgage insurer's shares.

The company's New York Stock Exchange-traded equity zoomed on Thursday by $1.81, or 16.18%, on volume of 19.7 million shares, nearly five times the norm.

MBIA, along with other mortgage-insurer names, got a boost from the escalating problems of big banks that are accused of improper procedures in the handling of home loan originations and foreclosures. Emboldened by the news that state attorneys general all across the country are investigating the banks, investors speculate they will be able to put back private mortgage insurance claims on big banks.

MBIA, in particular, is already at war with the banks, suing mortgage sellers, such as Bank of America's Countrywide Financial unit and Credit Suisse Group AG, over loans that failed to meet their promised quality - but which were securitized anyway into bonds that MBIA insured and took a loss on.

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