Smithfield, XM lead $1.95 billion deal parade; Toys, RSC slate; funds lose $110 million as winning streak ends

By Paul Deckelman and Paul A. Harris

New York, June 25 - Rushing to cram as many new deals in as possible before both the end of the second quarter and the holiday-shortened upcoming week, the junk bond market saw a quartet of deals totaling nearly $2 billion price, with upsized dollar-denominated offerings from Smithfield Foods, Inc., Univision Communications Inc. and XM Satellite Radio Inc. There was also a Canadian dollar-denominated deal from Viterra Inc.

The forward calendar meanwhile continued to grow, with Toys "R" Us Inc. announcing a planned deal, which is expected to price next week, and RSC Holdings Inc. and One Communications Corp. also heard by high yield syndicate sources to have begun lining up investors for their prospective new deals.

Those sources also saw price talk emerge on Alliance One International Inc.'s $600 million offering of seven-year notes, which is expected to price during Friday's session.

The impact of the new deals was felt even in the secondary market. When the new XM Satellite and Univision deals began trading, market participants saw those offerings each lifted by several points from their respective issue prices. The new Smithfield and Viterra bonds priced too late in the session for any meaningful aftermarket activity.

Solo Cup Co.'s bond offering, and Belden Inc.'s, which both priced on Wednesday, were seen by traders holding above issue price - in the case of Solo, well above issue, and even above par.

Toys "R" Us' existing bonds were meantime up by several points in fairly active trading on the news that the Wayne, N.J.-based specialty retailer is doing a bond deal and using the proceeds to pay down existing debt, and Smithfield's outstanding bonds were also seen firmer.

Traders did not see a whole lot of activity in credits that were no new-deal linked.

Junk funds lose $110 million

As trading was winding down for the session, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif. - a key barometer of overall market liquidity trends - said that in the week ended Wednesday, some $110.1 million more left the weekly reporting funds than came into them.

That broke a 14-week stretch dating back to the week ended March 18, which had seen $9.1 billion of cumulative inflows during that time, according to a Prospect News analysis of the AMG figures, including the $358.5 million cash infusion recorded during the previous week, ended June 17.

The outflow was only the fourth seen this year, against 21 weeks of inflows so far. The only other outflows occurred during a three-week losing streak back in late February and early March which saw cumulative outflows of $996 million, according to the analysis.

Including the latest week's outflow number, the year-to-date net inflow for the weekly reporting funds eased modestly to $11.555 billion, according to the analysis, down from the year's peak level of $11.665 billion, seen the week before.

Excluding exchange-traded funds, as some calculations do, outflows in the latest week totaled $150.1 million. The previous weekly inflow, calculated on that same basis, was $323.3billion, contributing to a $7.3 billion 14-week total inflow.

No matter how the fund flows are calculated - with or without the ETFs -- 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 - while down from the peak levels of an astounding 30% seen earlier in June-remain strong, in excess of 28%, handily beating virtually every other major asset class, while the roughly $60 billion of new high yield debt issued so far this year globally is on pace to easily top last year's anemic primary tally. However, analysts will be watching carefully over the next several weeks to see if the latest week's inflow was merely a fluke, an overachieving market stopping for a breather as it heads into the second half of the year, or whether it is a harbinger of a systemic cooling off of a junk market finally running out of gas.

A market source also said that in the latest week there was no change in the funds which report on a monthly basis rather than doing so weekly, versus the $23 million inflow seen in the previous week. That left the year-to-date cumulative inflow for such funds at $9.492 billion.

The source further said that on an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $21.048 billion more has come into the funds so far this year than has left them, versus the prior week's aggregate figure of $21.158 billion.

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.

The outflow failed to surprise the syndicate official who noted that lately the weekly inflows AMG has reported have been less robust.

The sudden reversal could render next week's formidable calendar more challenging, the banker remarked.

Smithfield oversubscribed

The primary market generated a generous amount of news on Thursday.

A trio of issuers priced a combined total of just under $1.7 billion, each with a single tranche of notes.

Smithfield Foods priced an upsized $625 million issue of 10% five-year senior secured notes (Ba3/BB-) at 96.201 to yield 11%.

The quickly shopped deal, which was upsized from $500 million, priced on the tight end of the 11% to 11¼% yield talk. The issue price came toward the cheap end of the 3 to 4 points of discount talk.

JP Morgan, Barclays Capital and Morgan Stanley were joint bookrunners for the debt refinancing and general corporate purposes bullet deal.

A syndicate source said that Smithfield was two-times oversubscribed.

Univision a blowout

Elsewhere Univision Communications priced a $545 million issue of 12% five-year senior secured notes (B2/B-/B+) at 93.006 to yield 14%.

The yield was printed on the tight end of the 14% to 14¼% yield talk. The issue price came rich to the 90 area price talk.

Deutsche Bank Securities, Banc of America Securities, Wachovia Securities, Mizuho and Credit Suisse were joint bookrunners for the deal to fund the tender for the Los Angeles-based Spanish-language media company's 7.85% notes.

Allocations will be severe, an informed source commented, adding that the order book was multiple times oversubscribed.

XM upsizes

Meanwhile XM Satellite Radio priced an upsized $525.75 million issue of 11¼% four-year senior secured notes (Caa1/B) at 95.093 to yield 12 7/8%.

The yield was printed in the middle of the 12¾% to 13% yield talk. The issue price came toward the cheap end of the 4 to 5 points discount talk. It was increased from a planned $350 million.

J.P. Morgan ran the books for the debt refinancing and general corporate purposes deal.

Viterra prices C$300 million

Also on Thursday Viterra priced a C$300 million issue five-year senior notes (Ba1/BB+) at par to yield 8½%.

The deal came on top of price talk.

TD Securities led the transaction.

Viterra played primarily to Canadian accounts, an informed source said. However there were some U.S. accounts in the deal, the source added.

Friday's deals

At least two announced transactions are expected to price before the Friday close.

Alliance One International set price talk for its $600 million offering of seven-year senior unsecured notes at the 10¾% area on Thursday.

Credit Suisse, Deutsche Bank Securities Inc., Goldman Sachs and ING are bookrunners for the debt refinancing deal from the North Carolina-based leaf tobacco merchant.

Elsewhere, in one of several new offerings rolled out on Thursday, RSC Equipment Rental Inc. and RSC Holdings III set price talk for their $300 million offering of eight-year first-lien senior secured notes (B1/BB) at 10½% to 10¾%.

Deutsche Bank Securities, Banc of America Securities, Morgan Stanley, JP Morgan and Wachovia are joint bookrunners for the debt refinancing.

The calendar builds

The holiday-abbreviated June-July crossover week figures to be a busy one in the primary market as issuers and dealers rush to get deals done ahead of the three-day Independence Day holiday weekend.

Two more offerings were announced on Thursday.

One Communications is expected to price a $275 million offering of first-priority six-year senior secured notes (expected B-) early next week, via Morgan Stanley and JP Morgan.

Proceeds will be used to repay bank debt.

Elsewhere TRU 2005 Re Holding Co. I, LLC, a subsidiary of Toys "R" Us, Inc., plans to price a $950 million offering of eight-year senior notes (expected ratings B3/B+) in the middle part of next week.

Banc of America Securities, Deutsche Bank Securities, Goldman Sachs and Wachovia are joint bookrunners for the debt refinancing deal.

New XM Satellite bonds gain altitude

When XM Satellite Radio's new 11¼% senior secured notes due 2013 broke into the secondary market, several traders each saw the bonds at 98 1/8 bid, 98 5/8 offered at mid-afternoon. That was solidly above the 95.093 level at which the company - now a part of New York-based monopoly satellite broadcaster Sirius XM Radio Inc. following last year's merger between then-rivals XM and Sirius - priced its issue to yield 12 7/8%.

Later in the day, a trader saw the $525.75 million of new bonds, upsized from the originally planned $350 million, at 98 bid, 98½ offered, while a second saw them at 98 ¼ bid, 98 ¾ offered.

Univision moves arriba

Also moving up in the secondary was the $545 million issue of new 12% senior secured notes due 2014 brought to market by Los Angeles-based Spanish-language media company Univision Communications.

Those bonds - upsized from the originally planned $500 million - priced earlier in the session at 93.006 - but by the end of the day, a trader had them going home at a solid 97½ bid, 98 offered, while a second saw them at 97 ½ bid, 98 ½ offered, a "pretty good" rise for the new paper.

Solo Cup, Belden seen better

The new Smithfield Foods and Viterra issues priced too late in the day for any secondary activity. Meanwhile, investors were buying two other new issues - Solo Cup Co.'s 10½% senior secured notes due 2013 and Belden Inc.'s 9¼% senior subordinated notes due 2019, both of which priced on Wednesday.

Highland Park Ill.-based disposable cup, plate and utensil maker Solo's $300 million deal came to market at 97.928 to yield 11 1/8%, and quickly shot up to 100½ bid, 100¾ offered on the break. In Thursday's dealings, the new bonds were seen pretty much holding those gains at 100¼ bid, 100¾ offered.

St. Louis-based electric wire and cable maker Belden's $200 million issue of bonds priced at 96.866 to yield 9¾%, but came too late Wednesday for secondary trading. On Thursday, a trader saw those bonds at 97¾ bid, 98¼ offered, while another saw a 98½ bid, but no right side.

Toys bonds trade terrifically

Among the established bonds of companies bringing new deals to market, Toys "R" Us was tops, with one of its issues - the 7 5/8% notes due 2011 seen up as much as 10 points, day-over-day, although a market source pointed out that counting only round-lot trades of $1 million and up, the gain was more like 5 points.

At least $20 million of the bonds changed hands, making it one of the day's most widely traded junk issues. Those bonds had finished on Wednesday at 82 bid; at their peak level on Thursday, the bonds had risen more than 10 points to a 92ish context, also the final round-lot level, although the market source pointed out that several smaller trades later in the day brought the close down to around 86, for about a 4 point gain.

The company's other actively traded issue, the 7 5/8% notes due 2013, was seen by market participants going home at 82, up some 7 points from earlier in the week, although on considerably less volume than the 2011 bonds.

Smithfield stronger on deal news

Smithfield Foods' bonds were also seen better on the day, apparently spurred on by the new-deal news.

A trader said that Smithfield' 7¾% notes due 2017 were trading around 72-73, which he called "not that much different from yesterday [Wednesday] on that."

However, he saw its 7% notes due 2011 around a 95-96 range, with "a lot of trading in those." He saw them having risen from morning levels at 92-94, with "good volume there."

At another desk, though, the 7s were quoted down nearly 2 points on the day at 94.5 bid.

A market source elsewhere saw some gyrations in the Smithfield, Va.-based meat processor's long bonds, which had finished on Wednesday around the 76 level, but which opened at 72 on Thursday and ended just below 73. However, on a round-lot basis, that represented a 2½ point jump from the 70ish level at which the bonds had traded on Tuesday, the last prior sizable trade.

The source also saw the 7s up around 3½ points on the day, closing just above 95, on "considerable" volume of around $12 million traded. Its short issue, the 8% notes coming due Oct. 15, closed just below 101, up a little more than a point, though mostly on smaller-sized trades.

Market indicators feel firmer

Back among the established issues with no new-issue connections, the CDX Series 12 High Yield index - which had gained over 1½ points on Wednesday - was seen by a trader to have retreated 3/8 point on Thursday to end at 82¾ bid, 83¼ offered.

The KDP High Yield Daily Index, which had gained 24 basis points on Wednesday, rose another 17 bps on Thursday to end at 62.04, while its yield tightened by 5 bps to 10.70%.

In the broader market, advancing issues - which jumped out to a nearly six-to-five lead over decliners on Wednesday - managed to hang onto their advantage on Thursday, but only by a considerably narrower margin.

Overall market activity, measured by dollar-volume totals, fell nearly 11% versus Wednesday's levels.

A trader said that the broader market was "unchanged to a touch better on the day, maybe ¼ to ½ point better, but on very, very light volume - this whole week has been a struggle, volume-wise. We're just under $1.3 billion, which is very, very light."

A second trader characterized the session as "another ugly day," noting the lack of real activity in most issues.

Yet another called things "pretty quiet - people are buying those new issues, and that's about it."

The first trader saw "nothing dramatic." Noting the AMG outflow figure, "the first outflow we've seen in a while," he continued that "we really haven't seen selling really trickle down. People have been focused on the new issues and getting their plans ready for the Fourth of July next week."

Ford fall seen steadying

A trader saw Ford Motor Co.'s 7.45% bonds due 2031 up ½ point at 55½ bid, 57½ offered, while bankrupt domestic arch-rival General Motors Corp.'s 8 3/8% bonds due 2033 lost ¼ point to 12¼ bid, 13 ¼ offered.

Another trader saw Ford's short-term bonds "bid well in trade," but said that there was "not much volume in the longer ones," such as the 7.45s which he saw "pretty much unchanged" at 55 bid, 56 offered.

The Ford long bonds, after having peaked around the 70 bid area two weeks ago - more than double where they had stood at the start of the second quarter in April-have not so gradually been coming down since then, initially losing several points a day. However, they seem to have stabilized over the last several sessions around the mid to upper 50s, on declining volume, a possible sign that the retreat in the Dearborn, Mich.-based carmaker's bond may have run its course.

Rite Aid rally fades

A trader said that Rite Aid Corp.'s bonds - after having pushed solidly higher in busy trading on Wednesday in response to the company's less-than-expected fiscal first-quarter loss, were little-traded during Thursday's session. "I can't say that I saw a lot of activity in those," he declared.

However, at another desk, the Camp Hill, Pa.-based drugstore chain operator's 6 5/8% notes due 2015 were seen ½ point better at 65 bid.

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