Navistar, Navios, Murray deals price, new bonds firm; Universal Orlando pushed up; funds gain $329 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 22 - Navistar International Inc. successfully priced a $1 billion offering of 12-year notes on Thursday - the first dollar-denominated mega-deal to hit Junkbondland in weeks (not counting Calpine Corp.'s unusual recent loans-for-new bonds transaction). The Warrenville, Ill.-based truck and bus manufacturer's new paper was later heard to have firmed solidly when they hit the secondary market.

Also pricing and the moving up in the aftermarket were offerings from Navios Martime Holdings Inc./Navios Maritime Finance (US) Inc., which was slightly upsized, and from Murray Energy Corp.

High yield syndicate sources meantime heard that the $625 million two-part offering being shopped around by Universal City Development Partners Ltd. and UCDP Finance Inc. - better known as Universal Orlando, the operator of the eponymous Florida movie studio and related theme park - is now likely to price on Monday, after having originally been expected to come to market at the end of next week.

But the high yield primary lost a prospective deal for a second straight session, as Donnington Holdings, the parent company of the Donnington Park motor sports track in Derby, England, withdrew its planned sale of £135 million seven-year secured notes. That followed Wednesday's decision by Deluxe Entertainment Services Group Inc. to likewise not go forward with its planned $600 million secured bond issue.

Traders meantime said that apart from the continued busy pace of primaryside activity and mostly firmer aftermarket trading in those newly-minted bonds, including such recent new deals as Mohegan Tribal Gaming Authority and Boise Inc., the secondary side was relatively quiet and featureless. Among the issues not connected with new deals that were seen doing anything, SLM Corp.'s split-rated bonds remained on the upside following bullish projections from company officials. Starwood Hotels & Resorts Worldwide's bonds were seen unchanged to a little higher - despite decidedly inhospitable quarterly numbers from the White Plains, N.Y.-based lodging giant.

Junk funds up $237 million

As trading was winding down for the day, 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 $329.4 million more came into the weekly-reporting funds than left them.

It was the ninth consecutive gain, and followed the $237 million cash inflow seen in the previous week, ended Wednesday, Oct. 14, and was the 16th week in the last 17 in which inflows were seen, dating back to mid-June. Nearly $6.22 billion of net inflows have been seen during that stretch, according to a Prospect News analysis of the AMG figures, interrupted only by a lonely $89.9 million outflow recorded in the week ended Aug. 19.

Counting the latest week's number, the year-to-date net inflow for the weekly-reporting funds rose to $17.773 billion, according to the analysis - a new peak level for the year so far, eclipsing the old mark of $17.444 billion recorded in the Oct. 14 week.

With 2009 now well into its fourth and final quarter, inflows, including the latest weekly gain, have been seen in 37 weeks out of the 42 since the start of the year, according to the analysis, against just five outflows - the Aug. 19 retreat, a $110 million outflow in the week ended June 24, and three weeks of outflows in late February and early March, totaling $969 million. The inflows, on the other hand, include an incredible 14-week run of consecutive gains, dating from mid-March through mid-June, during which time the funds grew by a record $9.1 billion.

Such sustained inflows have helped the junk market come roaring back from last year's staggering 25%-plus loss and sharply reduced primary activity totals. Total returns so far this year totaled an eye-popping 51.079% as of Wednesday's close, according to the authoritative Merrill Lynch High Yield Master II index, handily beating virtually every other major investment asset class. Meanwhile, the $114.368 billion of new high yield debt issued so far this year globally, as of Wednesday's close -- $97.663 billion of it domestic - is running 65.2% ahead of the anemic pace of last year's global primary tally. Domestic new issuance is more than 72% ahead of its year-ago levels.

EPFR sees inflows continuing

Meanwhile, another fund-tracking service, Cambridge, Mass.-based EPFR Global, which uses a different methodology, calculated a $391 million inflow for the week, following the $488 million gain seen the week before. The latest inflow was the 17th week in a row, its analysts said, and also was the 31st such cash infusion into the junk funds in the last 32 weeks.

The inflow brought the year-to-date total up to $20.4 billion, EPFR said, from $20.01 billion the week before.

"With U.S. firms routinely meeting - or beating - expectations for their 3Q09 earnings, investors moved more money into funds that will give them exposure to the main beneficiaries of increased U.S. demand," EPFR said - mainly bond funds like junk, as well as other fixed income categories, and equity funds. The big losers, for the umpteenth time, were money market funds, which have been bleeding cash all year.

While the EPFR junk figures most weeks point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers almost always differ somewhat due to EPFR's inclusion of some non-U.S. funds in its universe. 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 market barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe.

Pension funds, banks buying junk

Despite the flow of cash, mutual funds don't seem to be the drivers of the market anymore, a mutual fund manager told Prospect News, as word of the latest inflow circulated the market.

Pension plans are putting money into high-yield, the source said, and added that banks, many of which presently enjoy a borrowing cost of 27 basis points, also seem to be looking more closely at high yield.

This buy-side source, who professed to personally be seeing inflows, conceded that recent market news - particularly that which bears upon default rates - is apt to suck more cash into high-yield.

On Thursday Standard & Poor's announced that it has reduced the U.S. 12-month junk default rate projection to 6.9%.

"Goldman Sachs put out a piece earlier this year that forecast a 14% default rate for 2010, with cumulative losses amounting to 40% over three years," the investor said.

"That's outrageous.

"Now, JP Morgan has put out a default rate during the past two weeks that forecasts a 4% default rate for 2010.

"I think the JP Morgan number is too low, but the Goldman number was obviously too high."

Navistar loan-holders roll into bonds

In the primary, three issuers combined to price $1.9 billion face amount of bonds on Thursday, each one bringing a single tranche of junk.

In Thursday's primary market Navistar International Corp. priced a $1 billion issue of 8¼% 12-year senior notes (B1/BB-) at 96.328 to yield 8¾%.

The deal priced on top of price talk.

However a syndicate source said that the Navistar print actually came at the tight end of the initial 8¾% to 9% guidance.

The offering was two-times oversubscribed.

Credit Suisse, Bank of America Merrill Lynch, J.P. Morgan Securities Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Goldman Sachs & Co. were bookrunners.

Many of Navistar's bank loan holders, who are being taken out in this refinancing, demonstrated an eagerness to roll into the bonds, in order to maintain exposure in the name, the syndicate source added.

Murray Energy sells $500 million

Meanwhile on Thursday Murray Energy Corp. priced a $500 million issue of 10¼% six-year second-lien senior secured notes (Caa1/B+) at 98.889 to yield 10½%.

They yield printed atop the price talk.

Goldman Sachs & Co. ran the books for the bank debt refinancing from the Pepper Pike, Ohio-based coal producer.

Bank loan holders also rolled into the new Murray notes, in a big way, according to a buy-side source who added that because of it allocations would be pretty bad.

Navios upsizes

Elsewhere Navios Maritime Holdings Inc. and Navios Maritime Finance (US) priced an upsized $400 million issue of 8 7/8% eight-year first priority ship mortgage notes (Ba3/BB-) at 98.603 to yield 9 1/8% on Thursday.

The yield printed at the tight end of the 9¼% area price talk. The deal was increased from $375 million.

Bank of America Merrill Lynch and JPMorgan were joint bookrunners.

Proceeds will be used to repay bank debt and purchase vessels. The company will set up a $105 million escrow account to purchase the vessels, which are expected to be delivered during the second quarter of 2010.

Navios Maritime is a Piraeus, Greece-based seaborne shipping and logistics company.

Campofrio for Friday

Spain's Campofrio Food Group set price talk for its €500 million offering of seven-year senior notes (B1) at the 8½% area on Thursday.

The offering is expected to price on Friday morning, London time.

Deutsche Bank and RBS are leading the deal, which is the only transaction on the calendar scheduled for the final session of the Oct. 19 week.

Meanwhile Donington Holdings withdrew its £135 million offering of seven-year first-lien notes due to lack of interest among investors, market sources said on Thursday.

The Derby, England-based motor racing enterprise was attempting to refinance its redevelopment of Donington Park for Formula One racing.

Citigroup was leading the deal.

Universal City moves up timing

Looking toward the final week of October, Universal City Development Partners Ltd. moved up timing for its $625 million two-part offering of notes.

The deal is now set to price on Monday, following an investor call scheduled for 11 a.m. ET, Monday morning.

Initial timing on the deal had a brief roadshow starting on Monday, and pricing expected on Oct. 30.

The offering is comprised of $400 million of six-year senior notes, which come with three years of call protection, and $225 million of seven-year senior subordinated notes, which come with four years of call protection.

J.P. Morgan Securities Inc., Bank of America Merrill Lynch, Barclays Capital Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. and Morgan Stanley & Co. Inc. are joint bookrunners for the debt refinancing and general corporate purposes deal.

Navistar a star in secondary

When the new Navistar International 8¼% senior notes due 2021 were freed for secondary dealings, a trader saw the $1 billion issue having moved up to 98½ bid, 99 offered.

That was well up from the 96.328 level at which the truck and bus manufacturer's mega-deal had priced earlier in the session

Navistar, a second trader declared, "really performed well right out of the box." He said people at his shop first saw them at 99 3/8 bid; then the bonds began to tighten up, so that toward the end of the day, they were seeing them as tight as 98 7/8 bid, 99 1/8 offered.

"Navistar," he added, "performed like a rock star."

The deal, yet another trader said "did really well," ending at 98¾ bid, 99¼ offered.

Smooth secondary sailing for Navios

The similar sounding, but completely separate, Navios Maritime 8 7/8% ship mortgage notes due 2017 also moved up in the secondary, traders said.

One saw the offering "right out of the box with a par bid, and then kind of move up" to 100½ bid, 101½ offered. Going out, he said, the bonds were bid at 101.

"That was one ship people were happy to see come into the harbor," he quipped, noting the 2½ to 3 point jump from the 98.603 level at which the Greek commodity cargo shipping company's $400 million offering priced earlier in the session.

A second trader said he saw those bonds going out at 100½ bid, 101½ offered.

Murray moves up

The first trader said that Pepper Pike, Ohio-based coal producer Murray Energy's $500 million of new 10¼% senior secured notes were being offered as high as 103¼ -- although he saw no bid side - soon after they had priced late in the session at 98.889.

He attributed the lack of any two-sided markets in the new credit to the fact that it came to market very late in the day.

A second trader, meantime, did peg the new bonds at 102 bid, 103 offered.

Mohegan, Boise take a back seat

One of the traders noted that the new issues hit the market during the last hour or so of trading "and took up a lot of resources," crowding out activity in other credits, including some of the issues which had priced as recently as Wednesday.

For instance, he said that he had seen no trading in Mohegan Tribal Gaming's $200 million offering of 11½% senior secured second-lien notes. The Uncasville, Conn.-based operator of the Mohegan Sun casino resort priced the issue on Wednesday at 96.243, to yield 12¼%, and it had moved up to a 971/2-98 context in the aftermarket.

He likewise saw not much trading in Idaho-based paper and packaging maker Boise Inc.'s new 9% senior notes due 2017.

"Very, very early this morning," there was a 101½ bid, he said, but then nothing else.

"That one came in kind of quietly," he said.

The company had priced its deal Wednesday at 99.297, to yield 9 1/8%, and those bonds were seen having moved up on the break to a 101-102 context.

Neither that trader nor several others queried by Prospect News, meantime saw any activity Thursday in Holly Corp.'s $100 million add-on to its existing $200 million of 9 7/8% notes due 2017. The Dallas-based petroleum refiner priced those notes at 101 to yield 9.589%.

"The last we saw in the original [issue] was a week ago, at the 1021/2-103½ level," he said. Those bonds had priced at 94.105 back on June 5 to yield 11%.

Market indicators mostly firmer

Back among the existing bonds not connected with the new-deal market, a trader saw the CDX Series 13 index down up ¼ point on Thursday at 94¼ bid, 94¾ offered, after having fallen by 5/16 point on Wednesday.

Meanwhile the KDP High Yield Daily Index rose by 14 basis points on Thursday to end at 70.08, after having gained 4 bps in Wednesday's dealings. Its yield narrowed by 1 bp to 8.49% on Thursday, after having come in by 2 bps the session before.

However, in the broader market, advancing issues fell behind decliners Thursday, breaking a three-session winning streak, although the difference was just a relative handful of issues - a few dozen out of the more than 1,400 tracked.

Overall market activity, as measured by dollar-volume levels, declined by 9% from Wednesday's pace.

The junk market "was a little better" on the day, a trader said.

Another trader, though, said that Thursday's secondary market was characterized by "pretty low volume. A lot of the focus was on some of the new issues." Apart from that, he said, "it actually was really kind of quiet. I don't think there was anything in particular that moved either up a lot or down a lot.

"There really wasn't a whole lot trading. I think if you look at the volume, it seemed almost like a vacation day."

Commenting on the latest in the rapidly lengthening string of weekly inflows to the junk mutual funds, he characterized it as "unbelievable. It's crazy."

With all of that money coming in, he said, "regardless of what the stock market does, we'll probably still have a firm tone to our market, because people still got to be invested."

However, he pointed out that "they're using a lot of this money that comes in to play the new issues. The secondary has kind of been really unchanged - not moving around at all."

Sallie Mae still solid

A trader saw continued firming in Reston, Va.-based education lender SLM Corp., on top of the gains which Sallie Mae's split-rated (Ba1/BBB-/BBB-) bonds had notched on Wednesday after company officials delivered positive guidance during a conference call with investors on Wednesday.

He saw its short-dated paper, like the 4% notes due 2010, up by about 1½ points on the day at 99 bid, 101 offered. Its medium-duration paper, like the 5% notes due 2013, gained a point on the day to end in an 81-85 range, while longer-term paper, like the 5.625% bonds due 2033 gained ½ point to 63-66.

That was a continuation - though on a more moderate level - of the trend seen on Wednesday, when the shorter notes were seen up between 4 and 5 points on the day, while the medium-duration bonds were ahead by 2 or 3 points and the longer-term paper was perhaps a point or 2 higher.

At another desk, a trader saw the 5.45% notes due 2011 around a 96-98 level, up about ½ point or so.

The bonds - which trade among both junk and investment grade accounts, due to the split rating - have gained the past two sessions after company executives on their conference call Wednesday outlined their expectations for the coming several quarters --- including earnings next year in excess of $1.50 per share, helped by a decline in loan losses.

Starwood steady despite numbers

Elsewhere, despite what one trader called "crappy numbers," Starwood Hotels & Resorts Worldwide saw its bonds holding their ground.

The trader called the notes "basically unchanged," the 7 7/8% notes due 2012 at 104¼ bid, 104¾ offered. The 6¼% notes due 2013 ended at 99¼ bid, 100¼ offered and the 6¾% notes due 2018 at 95¾ bid, 96¾ offered.

"Their stock was off 57 cents, so that tells you the numbers were not good," he said.

But another trader called the 7 7/8% notes "up like everything else" at "104 and change." He said the notes had been "grinding higher" since last week, when they were trading around 102 bid, 103 offered.

For the third quarter, the owner of Sheraton, W and other branded hotels posted a 64% decline in profit. Net income came to $41 million, or 22 cents per share, compared to $113 million, or 62 cents per share, for the same quarter of 2008.

A market source said that expectations had been at 25 cents per share, "so they are way under."

Total revenues declined 32% to $1.22 billion, while revenue per available room - or Revpar - fell 20.3% worldwide. In the United States, Revpar dipped under 20%, though elsewhere Revpar declined by 21%.

"Over the past 12 months we have focused on cost containment and debt reduction, which positions us well to 'Own the Upswing'," commented Frits van Paasschen, chief executive officer, in an earnings release.

"Our increasingly fee-based, capital-efficient business model will grow as Revpar recovers and as our pipeline translates into unit additions. Our owned hotels are skewed towards the high end and have been particularly hard-hit over the past twelve months, implying they are poised for a strong rebound as the world economy recovers. And with half of our hotels outside of the United States, we will benefit from secular growth in international markets.

"With the $6 billion Sheraton Revitalization Program nearly complete, I can't think of a better time to aggressively re-launch the brand than into the early stages of an upcycle," he concluded.

CIT holds steady

A trader saw CIT Group Inc.'s short-dated paper, like the 6 7/8% notes and 4 1/8% notes coming due at the beginning of November, in a 68-70 range, essentially unchanged from Wednesday's levels.

He also saw both medium duration issues like the 5.60% notes due 2011 and longer paper like the 5.40% notes due 2016, in a 62-66 context.

There were no new developments seen Thursday in the company's efforts to convince bondholders to go along with its previously announced offer to exchange as much as $29 billion of existing debt for new paper with longer maturities, a move aimed at cutting the troubled New York-based commercial lender's $42.8 billion debt load by some $5.7 billion if bondholders participate fully.

However, the response to the exchange offer - even with recently revised terms - has been tepid, with the company's biggest bondholder, billionaire investor Carl C. Icahn, criticizing company recapitalization plans and putting forward his own loan plan.

A market source at another shop saw the 4 1/8% notes move up as much as 2 points to 70¾ bid, while also seeing the company's 4¾% notes due 2010 at 64 bid.

Another source also quoted the latter bonds at that level, saying they were down a deuce on the day.

Tronox little traded

Traders saw little activity among the recently busy bonds of Tronox Worldwide LLC, whose 9½% notes due 2012 had fallen to levels in the mid 50s, about an 8 to 10 point drop from where they had been a week ago, following an equally fast surge over the course of the previous week sparked by positive guidance from the troubled Oklahoma City-based chemical pigments manufacturer.

Stephanie N. Rotondo contributed to this report

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