DriveTime prices, Willbros awaited; ATP slides more on Gulf mess; funds spit up $1.35 billion

By Paul Deckelman and Paul A. Harris

New York, May 27 - DriveTimeAutomotive Group Inc. priced a $200 million offering of seven-year secured notes on Thursday, the first pricing in a moribund domestic primary sector in nearly a week. Traders did not see any initial aftermarket in the Phoenix-based used-car retailer's new bonds, a portion of which are being taken down by the company's chairman, and by its chief executive officer, in exchange for a like amount of existing notes they hold.

Also in the primary arena, price talk emerged on Willbros Group., Inc.'s $250 million offering of six-year secured notes. However, despite expectations that the issue's pricing might take place late in the Thursday session, it had not been seen by the time the day's activity wrapped up.

Market participants were skeptical about the likelihood that the Willbros deal, or other calendar offerings from Citgo Petroleum Corp. or Cedar Fair LP, might appear during Friday's session, noting that with an 2 p.m. ET close scheduled ahead of the Memorial Day holiday weekend, many people will be opting to skip that abbreviated session entirely and make a four-day vacation out of it.

In the secondary market, volatility was again the name of the game as Junkbondland once more followed the lead of equities, which rebounded strongly from Wednesday's drubbing after China reassured investors it doesn't plan to sell the European debt it holds. Besides lifting stocks, that also sent many junk names up by multiple points in busy trading, including First Data Corp. and industrial bellwethers General Motors Corp. and Ford Motor Co.

But the day's most noticeable movement was to the downside, as ATP Oil & Gas Corp.'s bonds slid anew in response to the federal decision to extend for six months the moratorium on offshore energy drilling activities that Washington imposed in the wake of the Gulf of Mexico oil rig disaster and subsequent giant oil spill. Several other energy names with offshore exposure were also seen softer.

Junk funds surrender $1.35 billion

And as trading was winding down for the day, participants familiar with the 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, some $1.35 billion more left those weekly reporting high yield funds than came into them - a sign of investor unease with the junk market.

It was the fourth consecutive cash exodus that the junk market has seen, including the $378 million outflow recorded in the previous week, ended Wednesday, May 19. Over the past four weeks, the junk funds have seen a net outflow of $3.545 billion, according to a Prospect News analysis of the AMG figures. That cumulative loss also includes an even more massive $1.69 billion cash hemorrhage seen in the week ended May 12, the largest such outflow in at least five years and by some accounts, the third-largest since record-keeping started in 1992.

The year-to-date net inflow has now dropped to $541 million, well down from its peak level for the year of $4.086 billion, which had been seen in the week ended April 28, according to the Prospect News analysis. However, it is still managing to remain in positive territory and hold above its low point for the year, a net outflow of $357 million seen in the week ended Feb. 17, which had been the first such year-to-date net loss for the funds since early April of 2008, according to the analysis.

Even counting the latest week's downturn, inflows have still now been seen in 14 weeks out of the 21 since the beginning of the year, including a 10-week winning streak that stretched from late-February through the end of April, during which time $4.443 billion more came into the funds than left them, according to the analysis. However, the momentum seems to have clearly shifted. There have been seven outflows in 2010 - the four most recent, as noted, and three other cash drains recorded in January and in February, with the latter two each over $900 million, for a total of $1.9 billion.

As has been the case over each of the last few weeks, the latest outflow came as no real surprise to many traders and other market sources, who noted that the sharp downturn in the secondary junk market's performance seen over the past week, both anecdotally and as measured by widely followed statistical indexes, was a sure tip-off that there had been considerable redemptions from the funds.

EPFR sees $1.89 billion cash exit

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime also reported that $1.89 billion more left the funds than came into them in the latest week.

That cash exodus follows a $1.11 billion bleed seen the previous week, ended May 19. Following the pattern seen in the AMG figures, the EPFR statistics have now shown four consecutive weeks of outflows, totaling $5.11 billion, including a $2.1 billion hemorrhage seen in the May 12th week, which EPFR said was the worst single outflow since the first quarter of 2005.

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 - those four outflows, taken together, have brought the service's year-to-date net inflow total down to $3.47 billion, versus its peak level of about $8.59 billion seen in the last week of April after 10 straight weeks of inflows starting in late February.

Any and all cumulative fund-flow 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 barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they did in the past. Last year's strong pattern of inflows - with AMG reporting over $20 billion having come in to the weekly-reporting funds over the course of the year, along with over $10 billion more into funds which only report on a monthly, rather than weekly basis, and EPFR posting similarly robust numbers - was seen as a proxy for the overall surge of liquidity into the junk market from all sources, which helped to fuel record 2009 new-issuance of over $160 billion and unprecedented secondary returns topping 57%.

The same pattern of strong fund flows - producing the same kind of strong primary and secondary performances - had mostly been holding sway over the first months of this year as well, at least until recently.

CDX drops on outflow

The CDX High Yield 14 index had been up 2 points in the middle of Thursday afternoon ahead of the fund flow news, an investor said. Immediately on the release of the data the index fell 3/8 to ½ point, the investor added.

However, the outflows appear to have been concentrated at the beginning of the one week reporting period, the source added.

Negative flows were substantial on Thursday and Friday, May 20 and 21, the portfolio manager said.

Flows were much more neutral during the ensuing Monday and Tuesday sessions, the source added.

By Wednesday flows returned to the positive, in line with the strength seen in the stock market, the investor said.

DriveTime prices atop talk

DriveTime Automotive Group, Inc. and DT Acceptance Corp. completed the week's first deal, a $200 million issue of 12 5/8% seven-year senior secured notes (B3/B) that at 98.854 to yield 12 7/8%.

The yield printed on top of the yield talk. The reoffer price came in line with discount talk of 1 to 1.5 points.

Of the issue, a face amount of $163 million represents new money. The remaining $37 million face amount was acquired by Verde Capital Corp. and by Raymond C. Fidel, the DriveTime Automotive chief executive officer, in exchange for other outstanding notes.

Hence, gross proceeds resulting from the placement were $161.132 million.

Jefferies & Co., RBS Securities Inc. and UBS Investment Bank were the joint bookrunners.

The Phoenix-based used vehicle retailer will use the proceeds to repay debt.

Traders saw no aftermarket activity on Thursday in the new notes.

Willbros talks six-year notes

Willbros Group, Inc. talked its $250 million offering of six-year senior secured second-lien notes (B3/B+) to yield in the 12% area.

Final terms on the deal were expected to be released Thursday afternoon. However no terms were available as Prospect News went to press Thursday night, market sources said.

The deal is now expected to be priced on Friday morning, according to one market source.

UBS Investment Bank is the left bookrunner. Credit Agricole CIB and Credit Suisse are joint bookrunners for the acquisition deal.

Day-to-day deals

Meanwhile it has been radio silence on Citgo Petroleum Corp.'s $1.5 billion two-part offering of first-lien senior secured notes (Ba2/BB+/BB+), market sources say.

The company plans to sell seven-year notes and 10-year notes.

Citgo is a Houston-based, U.S.-incorporated refiner owned by Venezuela's PDV America, Inc., a subsidiary of Petróleos de Venezuela, S.A. (PDVSA).

The issue will be secured by refineries in Louisiana, Illinois and, as of 2011, in Texas, a market source explained.

However, the Venezuelan aspect of the deal can't be helping it, sources say.

Setting aside any political considerations, PDVSA's short maturity bonds are trading in the mid-40s to the mid-50s, yielding between 17% and 18%, according to an emerging markets buy-side source.

And although emerging markets in general have been hit hard during the latest round of volatility, Venezuela has underperformed the rest of the asset class, the buy-sider said.

Discussions on the Citgo deal's pricing, which began in the high 9% range, more recently moved into the 10% to 11% context, market sources said.

Also the deal's covenant package is being reworked, they added.

RBS Securities Inc., UBS Investment Bank, BNP Paribas Securities Corp. and Credit Agricole CIB are the joint bookrunners for the debt refinancing and general corporate purposes deal.

Meanwhile there has been no news on Cedar Fair, LP's $500 million offering of 10-year senior unsecured notes (expected ratings B2/B-) via J.P. Morgan Securities Inc., Wells Fargo Securities and UBS Investment Bank.

The roadshow was scheduled to wrap up on Thursday.

Although discussions began in the low 9% range, thanks mainly to market volatility the deal first began to get traction in the 11s, a buy-side source said, adding that such a rate is not to the company's liking.

Most recently accounts have been canvassed regarding the possibility of getting a 10-handle deal done, the source added.

"They have to get the deal done, or face being in violation of a leverage test covenant," the source said.

Market indicators continue bounce

Among bonds not connected with the new-deal market, a trader saw the CDX Series 14 index jump by 1¾ points to 94¾ bid, 95¼ offered on Thursday, after having been up by 1/8 on Wednesday.

The KDP High Yield Daily Index meanwhile rose by 22 basis points on Thursday to 69.77, after having jumped by 56 bps on Wednesday - although those two advances followed an 86 bps slide on Tuesday. The index's yield narrowed by 6 bps on Thursday to 8.96%, after having tightened by 18 bps on Wednesday, although that did follow a 27 bps gapping out on Tuesday.

Advancing issues led decliners for a second straight session on Thursday, by around an eight-to-five ratio, after having bested them on Wednesday for the first time in nine sessions, holding around a seven-to-six edge.

Overall market activity, represented by dollar-volume levels, fell by around 9% on Thursday, after having first jumped by 50% on Tuesday from the previous day's pace and then having fallen by 4% on Wednesday.

Late Thursday morning junk was firm on low volumes and thin liquidity, according to a trader working for an East Coast mutual fund.

One market source mentioned hearing about a substantial trade in the bonds of Sallie Mae.

And given the ongoing volatility, as early as Wednesday investors began paring exposures heading into the upcoming long weekend, the trader said.

Drilling halt hammers ATP bonds

A trader said "the most exciting" thing going on in Thursday's session was the dramatic fall in ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015, hurt by the continued uncertainty about the Houston-based energy exploration and production company's industry in the wake of the continuing environmental problems in the Gulf of Mexico more than a month after the disastrous oil-rig explosion there. President Obama's news conference Thursday - during which he said that a moratorium on offshore drilling would be extended by six months - did not help matters.

"They're a deepwater E&P company with lots of undeveloped reserves," he noted, "and when Obama said he was not going to give any more deepwater permits" in the wake of the Gulf disaster and the continued inability so far of well owner BP and the government to definitively cap the leaking well, "the bonds and stock both headed south."

He saw the 11 7/8s plunge to around a 79-81 context on Thursday, well down from an 87-90 range the previous session.

Another trader said that in the morning Thursday, the bonds were seen offered at 89, with no bids. By mid-day it was offered at 851/2, without, "when Obama was giving his speech. Then after Obama spoke, "they were probably offered even cheaper than that."

The company had priced $1.5 billion of the bonds at 99.531 to yield 12% back on April 19 - the day before the Deepwater Horizon marine drilling rig exploded and capsized, killing 11 people and unleashing an oil spill even bigger than the one produced by the ill-fated tanker Exxon Valdez in 1989.

While those bonds had initially traded as high as 103 bid after pricing, and appeared little changed on the first news of the Gulf disaster, they eventually began sliding, first back below par and then down through the 90s after that on the realization that the oil spill was going to be larger, more costly and more damaging than initially thought, threatening the viability of offshore oil drilling, and they have continued to trade at levels well below issue in the weeks since then.

"It's a pretty interesting situation," the first trader opined, "a combination of delays in their ability to drill, and what the liability is if there is ever a spill."

ATP's Nasdaq traded shares meantime dropped as low as $11.13 - down more than 11% intraday, following Obama's discussion of the rig disaster at his news conference - before coming off those lows to finish at $12.05 - still down 49 cents, or 3.91%, on volume of nearly 12 million shares, more than four times the norm. He said that "the vast majority of the decline has to do with BP."

A market source at an energy-oriented buyside shop meantime theorized that bonds of some other companies with offshore exposure might be likely to trade softer in the wake of the extended drilling halt. Among such names, he said, were exploration and production operators Energy XXI (Bermuda) Ltd., W&T Offshore, Inc. and Stone Energy Corp., along with such marine-oriented oilfield service credits as Hercules Offshore, Inc. and Hornbeck Offshore Services, Inc. The latter's 8% notes due 2017, for instance, were being quoted down around the 96 level, versus recent levels around par.

However, one of the traders disagreed that such high yield energy names would get socked, noting that the shares of most of the names on that list, with Hornbeck the major exception, were higher on the session while the bonds traded inconclusively - suggesting, he said, that reports that BP's "top kill" procedure for finally capping the leak might actually show positive results - although this will not be known definitively until the weekend at the earliest - and a rise in energy prices might be combining to offset the fears about an offshore shutdown.

For instance, he said that the 6% notes due 2018 of BBB credit Transocean Ltd. - which actually owns the sunken Deepwater Horizon and which has been blamed for the accident by BP, for whom "RIG" was doing contract drilling - traded as low as a par handle on Thursday but then finished the day at 102 bid, up by several points on the day, although they remain well below the 110 level at which those bonds had been trading before the drilling rig explosion.

He also noted that some high yield energy names were also strengthening because a halt in offshore activity would suddenly make the oil and gas reserves of onshore E&P companies more valuable and help the oilfield service names who do drilling for them.

High yield energy benchmark name Chesapeake Energy Corp.'s 6¼% notes due 2018 finished the day up a deuce at 98 bid.

First Data rebound continues

A trader said that "a lot" of First Data Corp.'s 9 7/8% notes due 2015 were trading Thursday between 80½ and 811/2, which he called up about ½ point from previous levels in a 793/4-80½ context. That continued the firming trend seen during Wednesday's session versus the considerably lower levels earlier in the week, notably on Tuesday, after the money-losing Atlanta-based electronic transactions processor unexpectedly announced that its chief financial officer Pat Shannon had resigned, along with two other senior executives, offering little in the way of explanation for the executive shakeup.

While volume was off a little from Wednesday's levels, they were "still pretty active," he said.

Another trader saw the 9 7/8s open around 80 bid, then trade up to 801/2. Later in the day, the benchmarks were mostly anchored around the 80 range, although he saw them finishing up at around 811/2, "so it's recovering" from Wednesday's levels around 79-791/2. "So you had a little bit of a bounceback today," he said.

Autos on upside ride

A trader saw General Motors Corp.'s 8 3/8% benchmark bonds due 2033 up a point on the day, trading on "either side of 33." He said the bonds had started the day at 32 bid, and then "throughout the day worked their way up" to finish at 33.

The GM long bonds were among the busiest issues of the session, another market source said, in quoting them up around a point at 33.

Another trader saw the benchmarks up a point at 33 bid, 34 offered, while GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 rose 1½ points to end at 88½ bid, 90½ offered.

Harrah's is higher

A trader saw "pretty good volume" on Harrah's Operating Co. Inc. 10% notes due 2018, seeing the Las Vegas-based casino giant's paper up about 1¼ points at 79¼ bid.

A market source at another desk saw those bonds around 1½ points better on the day at 79½ bid.

Cross-town rival MGM Mirage's 6 5/8% notes due 2015 meantime gained 1¼ points to close the day at just over 78, while its 8½% notes coming due this September moved up by around ¼ point, though on brisk trading, to finish at a bit over par.

A market participant saw the company's 7½% due 2016 rise to around the 80 bid level, up nearly 3 points on the day.

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