American Airlines prices three-year deal, bonds firm; Momentive has momentum; telecom active

By Paul Deckelman and Paul A. Harris

New York, Sept. 25 - American Airlines Inc. priced a $450 million issue of three-year senior secured notes on Friday, high yield syndicate sources said.

When the Fort Worth, Tex.-based airline giant's new bonds migrated over to the secondary side, they were seen having firmed modestly.

Also on the new-deal front, price talk emerged on Stream Global Services Inc.'s upcoming issue of five-year secured notes. The Wellesley, Mass.-based provider of outsourced customer and technical support services is expected to price that issue around the early to middle part of the week, with order books scheduled to close on Tuesday.

Among recently priced bonds, QVC Inc.'s mega-deal, which came to market early in the week and then pushed solidly higher in secondary dealings, was seen to have come a little bit off its peak levels, but the bonds continued to trade well above issue.

On the other hands, Blockbuster Inc.'s recently priced secured notes issue was trading just a little bit above its pricing level, and its existing bonds were seen down another several points, as they continued to give up all of the gains they notched last week on news that the company was doing a new deal.

Apart from new-deal related names, Momentive Performance Materials Inc.'s bonds - which rose solidly on Thursday on the company's not-so-bad quarterly numbers and news of modifications in its credit facility terms - were seen continuing to gain on Friday.

Some telecommunications issues were seen active on Friday on no particular news, including Sprint Capital Corp. and Qwest Communications International Inc. unit U S West Communications Inc.

There was weakness in the high-yield market on Friday, in tandem with a sell-off in stock prices, a market source said.

Meanwhile the primary market passed a relatively quiet session, with a single deal pricing.

American Airlines, atop talk

American Airlines sold a $450 million issue of 10½% three-year senior secured notes (B2/B) at 99.366 to yield 10¾%, in deal that went well, according to a syndicate banker.

And with three sessions still left to play out before the end of the month, the junk bond new issue market has already seen its biggest September ever, according to a sell-side source.

American Airlines' $450 million issue of 10½% three-year senior secured notes (B2/B) came to market at 99.366 to yield 10¾%.

The yield printed on top of the price talk.

Citigroup, Deutsche Bank Securities and Morgan Stanley were joint bookrunners for the bank debt refinancing deal from the Fort Worth, Texas-based passenger air carrier.

Despite the weakness in the overall market, the new American Airlines paper firmed in the aftermarket, a source said.

Biggest September ever

With three sessions left to play out, September 2009 has been far and away the biggest September ever in the high-yield primary market, a sell-side source said on Friday.

A look at Prospect News data bears out this source's color.

To the close on Friday, the market has seen $18.06 billion in 38 junk-rated, dollar-denominated tranches.

By comparison, last September saw slightly less than $8.03 billion in just seven tranches.

Compared to the present, still unfolding, month, the next biggest September was that of 2005, during which $11.47 billion priced in 42 tranches (a bigger month than the present one, in terms of deal count). Not far behind was September 2003, with $11.41 billion in 38 tranches.

Not surprisingly, the weakest September in the Prospect News record book was that of 2001, almost two-thirds of which played out against the news of the terrorist attacks of 9/11. That September saw just $363 million price in two tranches. Prospect News' data goes back to Jan. 1, 2001.

$5 billion week

The week to Friday saw $5.23 billion of proceeds raised in an even dozen tranches - the seventh week this year to top the $5 billion mark.

However it wasn't as big as the previous week, which saw $8.15 billion in 16 tranches.

The week ahead may not be quite as robust, one syndicate official forecast on Friday.

The week ahead

As the September-October crossover week gets underway, only two straight-up junk deals from U.S. issuers are positioned on the active forward calendar.

Stream Global Services set price talk for its $200 million offering of five-year senior secured notes (B1) at 11% to 11¼% on Friday.

The books close mid-day Tuesday, New York time. Pricing is expected after that.

Goldman Sachs & Co. is the left lead bookrunner for the debt refinancing and general corporate purposes deal from the Boston-based business-to-business software services provider. Wells Fargo Securities, RBC Capital Markets Corp. and Morgan Stanley & Co. Inc. are joint bookrunners.

Also slated for the week ahead is the Tops Holding Corp./Tops Markets, LLC $250 million issue of six-year senior secured notes.

Morgan Stanley and Bank of America Merrill Lynch are joint bookrunners for the Buffalo, N.Y.-based grocery store chain's deal.

Proceeds, along with proceeds from the ABL facility and cash on hand, will be used to refinance bank debt and the company's warehouse mortgage agreement, to pay the related swap agreement termination costs and to make a distribution to equity holders.

New American Airlines seen firmer

When American Airlines' new issue of 10½% senior secured notes due 2012 were freed for secondary dealings, a trader saw them gain a little altitude, to par bid, 100½ offered.

That was up from the 99.366 level at which the $450 million issue had priced earlier in the session.

Little movement in new Delta bonds

Traders saw little additional activity in the new bonds of American rival Delta Air Lines Inc. The Atlanta-based Number-Three U.S. air carrier, behind industry leader American and Number-Two United Airlines, priced an upsized and restructured $1.35 billion two-part secured bond issue on Wednesday, with the five-year first-lien tranche then trading up from their issue price - but the six-year second-lien piece falling below issue.

The $750 million of 9½% first-lien notes due 2014, which priced at 98.563 to yield 9 7/8%, had been seen on Thursday trading at 99¾ bid, par offered, while the $600 million of 11¾% second-lien notes due 2015, which priced at 95.288 to yield 13%, fell as low as 93¾ bid, before coming off that bottom to get back to around 94½ bid, 96½ offered. Besides the stated coupon, Delta is also to pay the holders of the latter notes an additional 50 basis points of interest, as stipulated by the deal terms, because the bonds were given a CCC- rating by Standard & Poor's.

QVC mega-deal stays above issue

The week's other $1 billion offering, from West Chester, Pa.-based televised shopping network operator QVC, meantime managed to hold at levels above its issue price.

The 7½% senior secured notes due 2019, which priced on Tuesday at 98.278 to yield 7¾%, were seen having moved up to the 101-102 level by mid-week. However, as the week was ending , a trader said that the bonds had been pushed up a little too much by what he called the "frothy" action of the overall market; he saw those bonds having come down a little to levels around 99¾ bid, 100¼ offered, still trading above issue.

The technically split-rated issue - classified as junk by both S&P and Moody's Investors Service, though considered investment grade by Fitch Ratings (Ba2/BB+/BBB-) attracted interest from both junk accounts and high-grade investors.

Blockbuster battering continues

A trader said that he "did not see a lot of volume" on Blockbuster Inc.'s 9% notes due 2012 on Friday, "just a couple of trades in the 65-66 range," which he called down around three points from recent levels, as the bonds retreat even further away from the peak levels around 75-76 which they had held just recently.

He also said that the recently priced 11¾% senior secured notes due 2014 were trading around a 95-96 context. "I wouldn't say they were terribly active, but 95-6 seems to be where they are. The last few days, it seems like they've been in that 95 [area]. I don't think there was much activity in that."

The Dallas-based DVD, Blu-Ray and video game rental company priced $675 million of the secured notes on Sept. 17 at 94, to yield 15.21%, and the issue - nearly doubled in size from the originally planned $340 million - immediately began moving up smartly, shooting up as high as par bid late in that session. But after reaching that zenith, powered by a combination of investor enthusiasm for the new bonds' fat coupon and secured status and short-term players "flipping" what some traders said was a too cheaply priced deal, the bonds started to come off that peak and then continued to lose ground over the next few sessions before finally settling in around the 95 region.

The existing 9% notes, mean time, had begun firming from the upper 60s almost as soon as the deal was announced, aided by investor confidence that doing the deal would let Blockbuster shore up its balance sheet and gain financial flexibility by getting rid of term loan and revolver debt. They continued to gain even as the deal was priced, hitting a peak around 76, before starting to come off that high, and have now receded below where they were when the offering was first announced.

Market indicators remain mixed

Back among the existing bonds not connected with the new-deal market, a trader saw the CDX Series 12 index down by a full point on Friday to 94¼ bid, 94¾ offered, after having lost ½ point in Thursday's dealings. Though well below its mid-week peak at 95¾ bid, 96 offered, the index still finished a little ahead of the 93¾ bid, 94¼ offered finish recorded the previous Friday, Sept. 18.

The KDP High Yield Daily Index fell by 15 basis points on Friday to 69.15, while its yield widened by 5 bps to 8.36%, in contrast to Thursday, when the index rose by 4 bps and the yield narrowed by 1 bp. Though off from the week's peak levels of Thursday, the index finished above its week-earlier level of 68.69, which the yield was in from 8.49% a week before.

In the broader market, advancing issues managed to lead decliners for a 17th straight session on Friday, although by only a couple dozen issues out of a total of about 1,300, as was also the case on Thursday.

Overall market activity, as measured by dollar-volume levels, fell by nearly 20% Friday from Thursday's pace.

A trader characterized Friday's session as "a lot of hurry up and wait."

It was, he emphasized, "a boring day."

Momentive momentum continues

A trader said that Momentive Performance Materials' bonds "jumped a bunch," quoting the company's 9¾% notes due 2014 between 77 and 78 on "a lot of activity." He said there was "trading on both sides, a lot of it."

He said that its 10 1/8% notes due 2014 "had some trading," moving up around 10 points to 71½ bid, 72¼ offered. "It was not as much trading as the others, but they did end the day up, like, 10 points."

He cited the news that the company had negotiated an adjustment to its revolving credit facility loan terms.

He called the name - which is usually not seen trading around - "one off the beaten path."

At another desk, a market source - noting the strong surge in the Momentive 9¾% bonds seen on Thursday, when they rose into the mid-70s from prior levels around 67 on the loan terms news and the company's release of apparently not-unfavorable quarterly numbers - said that the bonds had risen another point or two Friday to around a 78 bid level, with volume of nearly $20 million traded by mid-afternoon, making it the busiest junk issue on an otherwise fairly sleepy Friday. It was the second consecutive session that the 93/4s showed up at or near the top of the Most Actives list.

Yet another source pegged Momentive's 11½ bonds due 2016 at just under 66, calling them up more than 2 points on the day.

On Thursday, Momentive, an Albany, N.Y.-based provider of high-technology materials solutions to the silicones, quartz and ceramics markets, announced preliminary results for the fiscal third quarter that will end on Sunday, including GAAP operating income of approximately $35 to $45 million, well up from $17.6 million a year earlier, although sales slid to approximately $550 million to $570 million from $699.9 million and adjusted EBITDA eased to approximately $84 to $94 million from $115.9 million a year ago.

Momentive also said Thursday that its revolving credit facility lenders had agreed to waive compliance with the senior secured leverage ratio covenant in its credit agreement for the quarters ending Sept. 27 and Dec. 31 of this year, subject to certain conditions. It further said that the margin on revolving credit facility borrowings was increased by 125 basis points. In addition, Momentive agreed to pay a one-time fee of 0.25% of the revolving facility commitment of each lender agreed to the waiver and amendment.

Phone issues busily traded

Traders noted a fair amount of activity in several telecommunications related issues, though on no specific news about any company.

For instance, one of the most actively traded bonds of the day was U S West Communications' 7½% notes due 2016, which saw nearly $20 million having traded by mid-afternoon. The bonds moved up nearly 3 points to about the 91½ level on several very large round-lot transactions. Later in the day, the bonds came back down to around an 88-89 context, about where they had started, although a market source noted that all of those later trades were smallish odd-lot deals that might not be representative of the bonds' actual worth.

There was no fresh news out on the company, now a part of Denver-based telecom operator Qwest.

A market source saw Sprint Capital's 6 7/8% bonds due 2028 having moved up 3½ points on the session to around the mid-85 mark, in fairly active dealings.

Another source saw those bonds up 2½ points at 83½ bid.

The Overland Park, Kan.-based wireless operator's Sprint Capital Corp. unit's 7 5/8% notes due 2011, though were down ½ point at about 1021/2, on volume of around $10 million. There was no fresh news seen out about the company, the Number-Three U.S. wireless operator after Verizon Wireless and AT&T Mobility.

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