Jack Cooper drives by, euro, Canadian deals price ahead of Thanksgiving, funds off $87 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 24 - Before high yield players were able to head home for their Thanksgiving turkey and stuffing, there was a little bit of business to take care of on Wednesday, the operative word being "little."

With little going on during the session, little-known issuer Jack Cooper Transport, Inc., a Kansas City, Mo.-based company that transports new cars from factories to the dealerships, drove by with a surprise $122.5 million offering of five-year notes, the day's only pricing in the U.S. dollar-denominated primary sphere.

Also pricing were a C$200 million five-year secured paper deal from Vaughn, Ont.-based restaurateur and airline foodservice company Cara Operations Ltd., as well as a downsized euro-denominated offering from Netherlands-based electronics concern 3W Power Holdings SA.

No deals were heard to have joined the Junkbondland forward calendar - or to have left it, for that matter, an issue of no small concern to primaryside players, given the loss of three deals this week alone - Ship Finance International Ltd. on Monday and Performance Foods Group, Inc. and Spencer Spirit Holdings, Inc./Spencer Gifts LLC on Tuesday, all done in by borrower perceptions of deteriorating market conditions.

In the secondary market, traders said things were mostly uneventful, with reduced volume levels.

Statistical performance measures were seen unchanged to easier.

Junk funds lose $87 million

And as the session was finishing up, market participants familiar with the weekly AMG high yield mutual fund flow numbers compiled by Lipper/FMI - considered a reliable barometer of overall market liquidity trends - said that in the week ended Wednesday $86.97 million more left those weekly-reporting funds than came into them.

It was the second consecutive outflow, following the $722.8 million cash bleed seen the previous week, ended Nov. 17 - and, according to a Prospect News analysis of the figures, the first time back-to-back outflows have been observed since early summer, when the funds lost $332.443 million in the week ended June 30 and followed that with a $166 million decline in the week ended July 7. The total outflow over those two summer weeks was $498.443 million; over the latest two weeks, the losses have totaled $809.77 million, according to the analysis.

The twin outflows are no big surprise to junk market players, given the way the market has clearly struggled since returning from the Veterans' Day holiday earlier this month

The loss of cash brought to a screeching halt the 10-week winning streak, stretching from early September right up to the week ended Nov. 10, during which time net inflows to the funds totaled some $5.639 billion, the analysis indicated.

The latest week's outflow brought the year-to-date cumulative total for the weekly reporting funds down to $11.624 billion from the previous week's $11.711 billion and from the $12.434 billion recorded in the Nov. 10 week, the peak level for 2010 according to the analysis.

Cumulative fund-flow totals may be revised upward or downward and could include unannounced revisions and adjustments to figures from prior weeks.

Inflows have now been seen in 33 out of the 47 weeks since the beginning of the year, while there have been 14 outflows, the analysis indicated.

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

Cara prices C$200 million

Wednesday's primary market news came from Canada and Europe.

Cara Operations sold C$200 million five-year senior secured second lien guaranteed notes at par to yield 9 1/8%, on the tight end of the 9¼% area price talk.

Scotia Capital Inc. was the lead manager of the sale.

Proceeds will be used to repay short-term bank debt.

3W plays to retail investors

Meanwhile in Europe, 3W Power Holdings priced a downsized €100 million issue of five-year senior subordinated notes at par to yield 9¼%.

The reoffer price and yield printed on top of the price talk. The amount was reduced from €125 million.

Close Brothers Seydler Bank AG was the bookrunner.

The deal mainly to retail investors, according to high-yield sources in Europe.

A big week ahead

Meanwhile in the United States, the primary market took a breather ahead of the four-day Thanksgiving holiday weekend, as expected, sources said.

However the post-Thanksgiving week figures to see the new issue market resume its brisk pace, they added.

JP Morgan is expected to announce eight deals on Monday, according to a buy-side source.

New Jack Cooper unseen

Traders said they had seen no dealings in the new five-year bonds from Jack Cooper Transport, noting that the deal appeared fairly late in the session, when most people had already headed home.

One market source, noting that the automotive transport company is not exactly a household name among junk market players - he did not think the company had done an issue previously - quipped that he "didn't know Jack about them."

American Reprographics improves

A trader saw American Reprographics Corp.'s new 10½% notes due 2018 at 99¼ bid, 99½ offered, having moved up, though on not much trading, from the 97.824 level at which the Walnut Creek, Calif.-based documents management company had priced its deal on Tuesday to yield 11%.

The company's original $220 million offering was downsized to $200 million, its maturity was cut to six years from the originally announced eight years, and call protection was likewise lowered to three years from the originally planned four years.

The eventual yield was well wide of the initial guidance of a low-9% area yield initially whispered around, and even the revised unofficial guidance envisioning a yield in the mid-to-high 9% range.

ClubCorp back around issue

A trader saw ClubCorp Club Operations Inc.'s' new 10% notes due 2018 at 95½ bid, 96½ offered in Tuesday's trading, "but this morning, they were offered where they had been bid," estimating Wednesday's level around 94½ -951/2, "with no bidder."

The Dallas-based golf and country club operator's deal had come to market on Monday at a price of 94.767 to yield 11%. While they had gotten as good as 96 bid, 97 offered in initial aftermarket dealings Monday, they began falling back down on Tuesday and Wednesday to their current levels.

Dunkin' still above par

A trader saw Dunkin' Brands $625 million of 9 5/8% notes due 2018 in the par to 100½ area. That's down from the recent highs above 101 which the Canton, Mass.-based donut shop and ice cream store franchiser's deal had hit in recent sessions.

However those levels are still well up from the 98.5 at which the issue had priced on Nov. 15, to yield 9.9%.

The new bonds had moved well up from issue, to above par in the aftermarket the same day that they priced, and continued to firm over the next few sessions before apparently plateauing and then coming off their peak.

Secondary indicators mostly lower

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index edge upward by about 1/8 point on Wednesday to 99½ bid, 99 5/8 offered, after having nosedived by 1 3/8 points on Tuesday.

However, the KDP High Yield Daily index meantime fell by 11 basis points on Wednesday to close at 73.58, after having retreated by 15 basis points Tuesday. Its yield rose by 4 bps to 7.49%, on top of Tuesday's 6 bps gain.

The Merrill Lynch High Yield Master II index lost 0.14% on Wednesday, after having fallen by 0.34% on Tuesday. That left its year-to-date return at 13.542%, down from Tuesday's 13.701% and down as well from the 2010 peak level of 15.602% reading recorded on Nov. 9.

Advancing issues trailed decliners for a fourth consecutive session on Wednesday, although the difference between the two groups was just a couple dozen issues out of the more than 1,100 which traded, versus Tuesday's six-to-five margin for the losers.

Overall activity, represented by dollar-volume levels, swooned by 55% on Wednesday, after having risen by 41% on Tuesday from the previous session's volume level.

A trader saw little or nothing in the way of actual trading, noting that many people had made an early exit after making their required pro-forma appearances earlier.

"Everyone's resting for turkey day," he declared.

The messages on his screen, he said, "haven't even moved."

Another summed up the session as "just one of those days - as you can imagine."

He said that "even with equities rallying" - and rally they did on positive economic data, with the bellwether Dow Jones Industrial Average finishing up 150.91 points, or 1.4%, to end at 11,182.28 and broader indexes up by a similar percentage - "my stuff was either flat, or there were some sellers out there. Just because the equity market goes up now, high yield is not following suit all the time. It seems pretty darn heavy."

He said that in his consumer-oriented concentration - sectors like retail, healthcare and gaming - "I had a really non-eventful day, only 1/8-point type moves if anything was traded."

Mohegan goes nowhere

For instance, he said, Mohegan Tribal Gaming Authority's bonds, such as its 8% notes due 2012, didn't go anywhere even though the Uncasville, Conn.-based operator of the big Mohegan Sun resort on Tuesday reported disappointing fiscal fourth-quarter results.

"EBITDA was down a little bit (about 10.7% year over year), the numbers were softer than they had anticipated, they were off year over year, even from last year," which was a bad year in general for gaming in the midst of the recession, which cut into consumer discretionary spending.

He said that one of the items mentioned on the company's conference call - and "they've been talking about this for a long time - is that the payment that [the Authority] is going to give to the Mohegan Tribal Council may be less than it had been in the past, so that might give a little boost to the really short paper," the 8% notes.

However, he added that "really, there have been sellers of that, so I don't think anyone is really in love with this paper, before or after [the numbers]. The only buyers you see out there" are for the Authority's other two issues, the 6 1/8% notes due 2015 and the 7 1/8% notes due 2014. He attributed that preference to the relative cheapness of the 2014-2015 notes, with bids around 65 to 70, while the 8% notes are up around 87-88 bid.

"So I think there are buyers for the middle of the curve, if you want to call it that.

Another trader said that there's "a lot of nervousness" about the company. He said Tuesday's earnings for the fiscal fourth quarter and fiscal year ended Sept. 30 were "a little light."

The trader said that the 8% paper, by rights "should be trading at either 101," anticipating their redemption, "or at 50." He further noted that "they don't carry the greatest rating - it's a CCC credit."

"There's a lot of uncertainty, in this market and in that industry."

"It's highly levered," the first trader said, with some $1.64 billion of debt on the books - although that's less than rival Connecticut tribal gamer Foxwoods' $2 billion - "and the coverage is kind of crappy." But he added that if Mohegan had Foxwood's debt and organizational troubles, "those 8% of '12s would be at $50, not $90."

Going long on the short stuff

Away from Mohegan specifically, he said that generally, in looking at the gaming space, "the rule of thumb, at least if you look at the Isle of Capris and the Boyd Gamings of the world, what I consider to be your second tier," is to stay short, in terms of maturities.

"Even if it doesn't belong there, short stuff has just been moving up stronger and stronger because people have been looking to stay really short on the maturity side and trying to grab as much yield as they can, and they've driven up a lot of the short-term paper."

He noted that Harrah's Entertainment Inc.'s short-maturity bonds, like its 8% notes coming due in February and 5 3/8% notes due 2013 are trading at around par and the mid-90s, respectively, while its somewhat longer paper, like its 5 5/8% notes due 2015 and 6 ½% notes due 2016, are trading in the 70s.

"Where they're going to be paid off or not, I think people are believing that short stuff is going to be refinanced again."

However, he cautioned "that game has gotten a lot more difficult - look what happened with Burlington" [Coat Factory Warehouse Corp.] which last week was heard to have pulled its proposed $500 million bond offering.

"They were going to take out their two [existing] pieces, the 11 1/8% and the 14½%, but they squashed the whole deal.

"I think you're going to see a lot more of that."

He opined that "it's tough - I don't think the market is nearly as good as a lot of these people claim to believe that it is."

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