Hertz, Cablevision mega-deals lead primary parade; funds see $319 million outflow

By Paul Deckelman and Paul A. Harris

New York, Dec. 15 - The primary sphere was definitely in the driver's seat Thursday, led by Hertz Corp.'s approximately $2.8 billion equivalent three-part offering of dollar- and euro-denominated bonds. Also pricing was another $1 billion issue, for Cablevision Systems Corp., as well as pricings for several smaller issuers - Stripes Acquisition/Susser Finance, SGS International Inc. and Gerresheimer Glas AG. Meantime, price talk emerged on two other big deals that could come to market as soon as Friday - $1.13 billion of bonds for Paxson Communications Corp. and $850 million for Mirant Corp.

That hefty burst of activity brought the session's total to $4.8 billion of dollar-denominated issuance, the biggest day in over six years.

In the secondary sphere, most of the action was centered around the new issues, which were generally well received once they were freed for secondary dealings.

Among established issues, Calpine Corp. bonds traded inconclusively - neither convincingly up nor down - on the day the troubled San Jose, Calif.-based power generating company pressed its case in a Delaware courtroom - and was heard to be looking into lining up $2 billion of debtor-in-possession financing, a sure sign that a bankruptcy filing is likely near.

And as trading wound down for the session, market participants familiar with the weekly fund-flow statistics compiled by AMG Data Services of Arcata, Calif., told Prospect News that $318.8 million more left the finds than came into them in the week ended Wednesday. It was the first outflow after two straight weeks of inflows - including $361 million in the week ended Dec. 6 - that had totaled $586 million, according to a Prospect News analysis of the AMG figures.

The fund flows - considered a generally reliable barometer of the overall liquidity trends - thus revert back to the pattern seen in the previous 11 weeks, when outflows totaling roughly $3.306 billion that hemorrhaged from the funds during that time, according to the Prospect News analysis.

Outflows have now been seen in 13 weeks out of the last 16 and in 19 weeks out of the past 23. During that latter timeframe, net outflows have totaled about $4.137 billion, according to the analysis.

For the year so far, outflows have now been seen in 39 weeks of the 50 since the start of the year, against only 11 weekly inflows. Cumulative net outflows for the year total around $10.951 billion, according to the analysis, worse than $10.632 billion last week.

The latest week's outflow reinforces the conviction that the junk funds have recently reverted to the trend seen earlier in the year, when outflows totaling about $6.776 billion were seen in 15 straight weeks from mid-February through late May, according to the analysis. After that, there was a short period in which no clear trend could be seen, with about a month of inflows and outflows showing up on alternating weeks - but since July money has been almost consistently flowing away from the funds, with the exception of the previous two weeks.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants as a gauge of market liquidity trends, and because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Highest issuance since May 1999

Thursday's issuance volume was the highest since May 11, 1999, which saw $4.2 billion. That session, more than half a dozen years ago, saw Lyondell Chemical Co. price $2.4 billion and International Game Technology do $990 million. Other issuers who priced junk bonds that day included Crown Castle International, Alaska Communications Systems Group and Dolphin Communications.

Prior to Thursday, 2005's biggest session had been that of July 27, which as $3.99 billion of bonds price including the massive SunGard Data Systems $3 billion transaction.

The Hertz deal

Thursday's biggest issuance came from Hertz Corp.

The company priced a downsized amount of approximately $2.4 billion and €225 million in three tranches.

The Park Ridge, N.J, vehicle rental company priced a $1.8 billion tranche of eight-year senior notes (B1/B/BB-) at par to yield 8 7/8%, tight to the 9% area price talk. The dollar-denominated senior notes tranche was downsized from $1.95 billion.

Hertz also priced a €225 million tranche of eight-year senior notes (B1/B/BB-) at par to yield 7 7/8%, at the tight end of the 8% area price talk.

In addition the company priced a $600 million tranche of 10-year senior subordinated notes (B3/B/B+) at par to yield 10½%, inside of the 10¾% area price talk.

Deutsche Bank Securities, Lehman Brothers, JP Morgan, Goldman Sachs & Co. and Merrill Lynch & Co. were joint bookrunners for the massive LBO deal.

Sources roundabout the market said that all three tranches did quite well.

In particular, the company realized significant interest savings with its $600 million issue of subordinated notes, which source reckoned to be between four and five times oversubscribed.

One buy-side source recounted that the Hertz sub notes had been pro forma-ed at 11% to 11¼%, officially talked at 10¾%, and priced at 10½%.

A sell-side source, speaking later, said that the entire transaction had been a blowout, and added that the mindset of junk investors seems to be dramatically transformed from that which prevailed around Thanksgiving.

"Investors are optimistic," the sell-side official asserted, adding that there had been some doubts expressed that the market could absorb the massive Hertz deal.

"There were concerns about a downward credit cycle," the official added, pointing to the Delphi Corp. and Delta Air Lines bankruptcies.

Since then people's economic outlooks appear to have improved, the source said, adding that investors appear to once again be seeing good value in high-yield.

Cablevision's dividend deal

Also in Thursday's mega-deal category was CSC Holdings Inc. (Cablevision Systems Corp.)'s $1 billion issue of 10-year senior unsecured notes (B2/B+) which priced at par to yield 8 3/8%.

The yield came at the wide end of the 8¼% to 8 3/8% price talk.

Merrill Lynch & Co., JP Morgan, Banc of America Securities, Bear Stearns & Co., Citigroup and Credit Suisse First Boston were joint bookrunners for the issue, proceeds from which will be used to repay bank debt and help fund a special dividend to shareholders if declared by the board.

In the wake of the transaction, sources told Prospect News that the notes were straddling par in the aftermarket.

One informed source, hearing those levels, said that they sounded appropriate.

Characterizing Cablevision as "a well-known issuer," the source said that the $3 billion dividend that the company intends to fund with its bond and bank deals could be construed as "an unusual use of proceeds."

However, the informed source said, the increased leverage that the debt will place upon the company appears to have been "priced in" with regard to the bonds.

The source said that there appears to have been a concession of 0.375 to where Cablevision's existing 6¾% note due 2012 had been trading, which the source characterized as "reasonable."

"Those bonds were yielding less before the news got out and people understood what Cablevision was up to," the source said. "So the real concession to the 6¾% notes was more like 50-plus basis points.

"That seems fair."

The rest of the deals

Also pricing Thursday was Atlas Pipeline Partners LP, which completed a $250 million issue of 10-year senior notes (B1/B+) at par to yield 8 1/8%.

The Wachovia Securities-led debt refinancing deal came in the middle of the 8% to 8¼% price talk.

Elsewhere SGS International, Inc. priced a $200 million issue of eight-year senior subordinated notes (Caa1/B-) at par to yield 12%.

The yield came 50 basis points beyond the wide end of the 11¼% to 11½% price talk.

UBS Investment Bank and Lehman Brothers were joint bookrunners for the LBO issue.

Stripes Acquisition and Susser Finance priced a $170 million issue of eight-year senior notes (B2/B) at par to yield 10 5/8%, at the tight end of the 10¾% area price talk.

Banc of America Securities and Merrill Lynch & Co. were joint bookrunners for the deal, which will refinance debt related to the acquisition of the company.

And Germany's Gerresheimer Alpha GmbH priced a €60 million add-on to its 7 7/8% senior notes due March 1, 2015 (Caa1/B-) at 98.50, resulting in a yield of 8.107%.

The issue price came at the tight end of the 98.00 to 98.50 price talk.

JP Morgan ran the books for the glassmaker's acquisition financing.

Squaring up, getting flat

In the early afternoon a buy side source marked the high-yield market up slightly on the day.

"The markets are getting kind of thin," the source said. "Guys on the Street are focused on squaring up and getting flat, away from names that are not news-event driven."

Just before the close, however, another source marked junk down by as much as a quarter of a point.

And late in the day sources told Prospect News that AMG Data Services is reporting a $318.8 million outflow from high-yield mutual funds for week to Wednesday.

That outflow trails back-to-back weekly inflows: $361 million for the previous week and $225 million for the week to Nov. 30.

Prior to those there had been a streak of 11 consecutive outflows.

Hertz up in trading

Even in the secondary market, new issuance "took center stage today [Thursday]," a trader said, noting that most of the activity was concentrated in the new bonds' aftermarket dealings.

For instance, when the new Hertz bonds were freed for secondary activity, they were seen to have firmed smartly from their par issue price earlier in the session.

The trader saw the Hertz 8 7/8% senior notes due 2014 as having moved up to "a very tight" 102.125 bid, 102.25 offered, while the new 10½% senior subordinated notes due 2016 did even better, going as high as 103 bid, 103.375 offered. It isn't all that often that a subordinated piece with a longer tenor outdoes a senior bond with an earlier maturity, but, he explained, the difference was "that big coupon. I heard that it was pretty attractive, that people were going to really latch onto this one. Any way, it's pretty interesting. There's a lot of confidence in that deal."

"They were trading it until it hurts," (Hertz) another trader quipped, pegging the Park Ridge, N.J.-based vehicle rental giant's new 8 7/8 bonds at 102 bid, 102.5 offered, the 101/2s at 103 bid, 103.5 offered - helped along, he said, by the fat coupon - and the new 7 7/8% senior euro-denominated notes due 2013 at 103.25 bid, 103.75 offered, "so this thing went very well."

A trader saw Cablevision's new 8 3/8% notes due 2015 straddling their par issue price at 99.75 bid, 100.25 offered. Another trader confirmed that the Bethpage, N.Y.-based cable-TV operator's bonds were just barely treading water, hanging in at 99.75 bid, 100.375 offered.

Among the smaller issues coming to market Thursday, a trader saw Atlas Pipeline Partners' new 8 1/8% senior notes due 2015 having pushed up to 101 bid, 1001.5 offered from their par issue price, while Stripes Acquisition/Susser Finance's new 10 5/8% senior notes due 2013 did even better, advancing to 102 bid, 102.75 offered.

"All of the new deals," with the exception of Cablevision, he said, "did very well."

Yet another trader said that the new Hertz bonds "rocketed up as much as three points," with the 10½% notes at 103 bid, 103.5 offered and the 8 7/8s at 102 bid, 102.5 on "a lot of demand," while the Cablevision bonds managed to edge up perhaps to 100.5 bid, 101 offered at the end of the day, but "nothing crazy."

He saw the Atlas Pipeline bonds at 101 bid, 101.5 offered, while the Stripes bonds were at 101.5 bid, no offers.

A trader saw Skilled Healthcare Group Inc.'s new 11% senior subordinated notes due 2013, which had priced Wednesday at 99.333, as being "pretty well received," having moved up to 101 bid, with no offers.

Calpine higher

Back among the established issues, this trader said, Calpine's bonds were up a point on the day, with the company's 8½% notes due 2011 moving up to 22 bid, 23.5 offered, "on comments the attorney made for the company" during the court hearing in Wilmington, Del. to the effect that "the company may be going for a possible financial transaction, such as DIP financing, which would mean that they're filing for Chapter 11, or a debt exchange. So there was just some rumblings."

On the other hand, another trader saw Calpine bonds as mixed, with its 8½% notes due 2008 first trading down half a point on the session, but recovering a little later in the day to end up ½ at 27 bid, 28 offered, while its secured bonds, like the 9 7/8% notes due 2011, were down; he saw the latter bonds losing 1½ points on the day to end at 75 bid, 76 offered.

"There was some more babble between the lawyers, more garbage and verbiage," yet a third trader said, in estimating Calpine's secured second-lien bonds, like its 8½% notes due 2010, down half a point at 75 bid, 75.5 offered, while its 2006 unsecured bonds, like the 10½% issue, were at 36 bid, 37 offered, the 8½% notes due 2011 at 22 bid, 23 offered, and the 8½% '08s at 26.75 bid, 27.5 offered.

"The unsecured paper is probably up half a point, secured paper is off half a point to a point." While he said that he had seen "no evidence of it from pricing action out there," the idea that the badly troubled Calpine might be lining up DIP funding in preparation for a bankruptcy filing was "an interesting rumor and probably true. I don't doubt that one."

A bank loan market source told Prospect News Thursday that Calpine is looking to line up a $2 billion DIP facility.

General Electric Capital Corp., JPMorgan, Credit Suisse First Boston and Deutsche Bank are all rumored to be bidding on the lead role for the DIP, the source said.

"Basically all the big banks are looking at it. The guess is that it will get sorted out early next week," the source added.

Meanwhile in court on Thursday, Calpine told the Delaware Supreme Court that if it was ordered to do so, Calpine could repay $312 million of improperly spent asset-sale proceeds before the Jan. 22 deadline set by the state Chancery Court in a recent ruling. An attorney for the embattled power producer said that Calpine is in the process of attempting to enter into financing transactions, although it would prefer to have more time to do so than less. Calpine is challenging the ruling by the Chancery court that it had acted improperly in spending the money - from the sale of its natural gas assets this past summer - to buy natural gas from its plants, an expenditure that its secured bondholders and their bond trustee contend should not be allowed and should be repaid, sooner rather than later.

Dana steady ahead of S&P cut

Elsewhere, traders said that Standard & Poor's action in dropping the ratings on automotive components supplier Dana Corp to B+ from BB (subordinated debt to B-) came too late in the day to affect Thursday's trading.

They quoted the company's 6½% notes due 2009 at 80 bid, 82 offered and 7% notes due 2029 at 71 bid, 73 offered pre-news.

Rite Aid unchanged or earnings

And traders saw little or no movement in Rite Aid Corp.'s bonds, even as the Camp Hill, Pa.-based drugstore chain operator reported a net loss for the fiscal third quarter versus a small year-ago profit.

A trader quoted Rite Aid's 6 7/8% notes unchanged at due 2028 at 71 bid, 73 offered, and its 6 7/8% notes due 2013 "maybe off a little" at 82 bid, 83 offered.

Rite Aid executives told analysts on a conference call meantime that the current fiscal fourth quarter would be strong, and said the company was in a good liquidity position, as a result of a refinancing of the company's bank debt during the third quarter (see related story elsewhere in this issue).

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.