Noble, El Paso price deals; Ford falls on outlook cut; BCE up as bondholders win; funds add $191 million

By Paul Deckelman and Paul A. Harris

New York, May 22 - Noble Group and El Paso Corp. were heard by high yield syndicate sources to have successfully priced new junk bond deals in Thursday's market. The latter deal was upsized by $100 million. Several high yield participants said they had seen no aftermarket activity in the Noble five-year notes, although some emerging markets-oriented investors may have taken positions in the Chinese company's new issue. El Paso's new offering was meanwhile seen tethered to its par issue price, while its existing bonds continued to retreat.

Among secondary issues not having any new-deal connections, Ford Motor Co.'s paper was seen lower after the carmaker backed away from its previous projections of a return to profitability next year; now Ford executives are saying that at best, they anticipate ending the year at break-even.

NRG Energy Inc.'s bonds were lower, as investors expressed some concern over the Princeton, N.J.-based power generation company's $11 billion bid to acquire Calpine Corp.

BCE Inc.'s bonds were quoted at higher levels after a Canadian court sided with its bondholders, who are challenging the Montreal-based telecommunications company's pending buyout deal; they successfully argued that the transaction would harm their interests while profiting company shareholders.

Sources marked the broad market lower on Thursday.

A source from a high yield mutual fund, speaking just after the close, said the junk market was down, especially long automotive paper, which the source was marking down about 2 points from Wednesday.

"We had two tough days with stocks on Tuesday and Wednesday, and high yield held its ground," the buy-sider said.

"Finally today you saw it start to slow down. Some of the major liquid names softened today by half a point to a full point."

The buy-sider remarked that it is necessary to see Thursday's softness in high yield against the backdrop of the liquidity of the market and the coming three-day Memorial Day weekend.

"You have a lot of people trying to close things down and keep things level as they get ready to take off for the long weekend," the buy-sider said.

Funds up by $191 million on week

And as trading was winding down for the session, market participants familiar with the high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif. said that in the week ended Wednesday, $191 million more came into those funds than left them. It was the eighth consecutive inflow, following the cash infusion of $120.9 million seen in the previous week, ended May 14.

Over that eight-week stretch, inflows have totaled $2.663 billion, according to a Prospect News analysis of the figures, far outweighing the $409.6 million of net outflows which had been seen over the three weeks immediately before that.

The results over the past eight weeks have represented a sharp break away from the negative fund-flow trend which had dominated earlier in the year. With 22 weeks now in the books, inflows - after trailing outflows pretty much all year - have now pulled ahead, with 12 inflows and nine outflows seen since the start of 2008, according to the Prospect News analysis.

That winning streak also erased what previously was a sizable year-to-date outflow totaling over $1 billion as of the week ended Wednesday, March 26, the last week in which a net outflow had been seen.

According to market sources, net inflows from the weekly-reporting funds since the start of the year, excluding distributions, are now estimated at $1.588 billion, up from $1.397 billion the previous week.

The market sources meantime saw no change whatsoever this week in the total assets of funds which report on a monthly, rather than a weekly basis; for the year-to-date, net inflows to such funds continued to total $1.578 billion.

On an aggregate basis - consolidating the year-to-date net inflows of the weekly-reporting funds and the monthly reporters - the high yield funds have seen $3.166 billion more come into them than leave them so far this year.

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 only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - 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, more recently, hedge funds.

El Paso upsizes

The only U.S. issuer to price junk on Thursday was Houston-based natural gas company, El Paso Corp.

El Paso priced an upsized $600 million issue of 10-year senior bullet notes (Ba3/BB-) at par to yield 7¼%, which was the wide end of the 7% to 7¼% price talk.

An informed source said that the deal was well oversubscribed.

Deutsche Bank Securities, Goldman Sachs & Co. and JP Morgan were joint bookrunners for the debt refinancing deal, which was upsized from $500 million.

A buy-side source who spoke to Prospect News on Thursday afternoon watched the El Paso deal from the sidelines.

"It's a good credit, but you're only getting 7¼%," the buy-sider lamented.

"The way oil and gas is going the bonds could go up a little bit, I suppose."

Noble Group prices $500 million

China's Noble Group priced a $500 million issue of five-year fixed-rate senior notes (Ba1/BB+/BBB-) at par to yield 8½% on Thursday.

The yield was printed in the middle of the revised 8 3/8% to 8 5/8% price talk, and on the tight end of the original 8½% to 8¾% talk.

Citigroup and JP Morgan were the physical bookrunners for the debt refinancing deal from the Hong Kong-based commodities trading company.

Could come in waves

An investment banker who spoke after Thursday's close said that given the drift of recent financial headlines, perhaps the most prominent ones having to do with crude oil prices, it would not be too surprising to see a little bit of a pullback in the high yield primary market.

"El Paso got a good deal done today, but if they waited another week they might have paid more," the banker remarked.

"At a certain level corporate issuers that have good ratings, the kind that have been approaching opportunistically over the past two weeks, are apt to hold off now and wait for another good pocket.

"We're expecting to see issuance come in waves for the rest of the year."

Secondary passes on new El Paso

When the new El Paso 7¼% senior notes due 2018 were freed for secondary dealings, a trader saw the paper at par bid, par ¼ offered, right around its par issue price earlier in the session.

The Houston-based natural gas exploration, production, storage and transmission company's established 7% notes due 2017, which had moved downward on Wednesday when news of the big new upcoming deal had first hit the market, continued on that path on Thursday. A market source quoted the bonds down 1½ points at 102 bid, while at another desk, the bonds were pegged 2 points lower at 101.

Noble little seen

Several high yield traders said that they had not seen any traces of the new Noble Group 8½% notes due 2013, which priced earlier in the day at par. There were some indications, however, that aftermarket trading in the Hong Kong-based commodities trading company had taken place, perhaps involving accounts more oriented towards emerging market debt than conventional domestic high yield accounts - although the new issue had been marketed and priced in the United States.

According to syndicate sources, the bonds had pushed as high as 101 from their par issue price, before closing at 100.625 bid, 101 offered.

Nothing happening with Nortel

Among other newly priced issues, a trader said that the new Nortel Networks Ltd. 10¾% notes due 2016, which priced Wednesday as an add-on to the Toronto-based telecommunications equipment manufacturer's similar outstanding bonds, were hovering slightly above their 99 issue price, at 99.25 bid, 99.75 offered.

Another trader saw the bonds at 99 bid, 99.5 offered. Nortel's outstanding 10 1/8% notes due 2013 meantime traded down ½ point at 98.5. Its floating-rate notes due 2011 were quoted a bit over 94 bid.

Market indicators move down

Back among the established issues with no new-deal links, a trader said, the widely followed CDX junk bond performance index was down by ½ point to 96 7/8, 97 1/8 offered. The KDP High Yield Daily Index fell by 28 bps to 76.26, while its spread widened by 7 bps to 9.13%.

In the broader market, advancing issues trailed decliners by a better-than five-to-four margin. Activity, represented by dollar volume levels, fell nearly 10% from Wednesday's pace.

Pre-holiday lull begins

A trader said that most issues were "plus or minus ¼ point" from Wednesday's levels in "very quiet" trading on the last full session before the three-day Memorial Day holiday break (the debt markets will have a 2 p.m. ET close on Friday, and U.S. financial markets across the board will be shuttered on Monday.) Even though Thursday was ostensibly a "normal" session, he said that even at mid-afternoon, an hour or so before the close, "it's really dead out there. The market is pretty much closed as it is. Most firms were half-staffed today, let alone [Friday]."

Another trader concurred that "nothing" was happening, and a third called it "really dead today."

Ford falters as profitability pushed further away

He did see some downside in Ford's 7.45% bonds due 2031, which on Wednesday had been trading around the 73.5 bid level. The longtime Number-Two U.S. carmaker (a distinction it lost last year to Japanese upstart Toyota) "had crappy news out - that it's not going to be profitable for the next hundred years," he said, sarcastically, and the bonds dropped to 71 bid, 72.5 offered, down a point or so from Wednesday.

Another trader saw the bonds down 2½ points at 70.5 bid, 71.5 offered. At another desk, a market source saw the bonds among the most actively traded junk issues on the day and said they lost 2 points to end at 71.5.

The Ford Motor Credit Co. 7% notes due 2013 were meantime down nearly 3 points to the 86 bid level, the source said, while at another desk, those bonds were called 1 point losers, down to 87.

The Ford bonds were uselessly spinning their wheels after the company updated its previously issued guidance, which called for it to return to profitability next year. Now, Ford expects to be "about break-even" in 2009 before taxes and special items, according to its chief executive officer, Alan Mulally, who told analysts and investors on a conference call that "unless there is a fairly rapid turnaround in U.S. business conditions, which we are not anticipating, it now looks like it will take longer than expected to achieve our North American automotive profitability goal."

While Ford sales in overseas markets are expected to remain strong, its core North American operations remain a drag on the company's profitability.

Ford surprised Wall Street last month when it unexpectedly swung to $100 million profit from a year-earlier loss - but the weakening U.S. economy and higher gas prices have dashed any hopes of building momentum on that unexpected victory. Ford said that to cope with the continued downturn in its sales caused by the economy's woes and higher fuel costs - which undermine sales of big, high-margin products like pickup trucks and sport-utility vehicles - it will make further cuts in its domestic vehicle output, on top of the previous reductions.

Ford - which had already cut its formerly 100,000-person workforce by one-third over the past year or so, largely through buyouts of more senior, higher-paid workers - may be forced to cut thousands of additional workforce slots to save money. Mulally said Ford would detail steps to cut more jobs in July. It will also give details on its efforts to push faster into the market for smaller and more fuel-efficient cars, at that time.

Bell Canada better on court ruling

A Canadian court ruling gave a boost to the 9½% notes due 2010 of BCE Inc. - the former Bell Canada, which is in the middle of trying to be bought out by an investor consortium led by the Ontario Teachers Pension Plan in a $51 billion deal that would be the largest buyout in Canadian history. BCE's bondholders had objected to the terms of the deal, which they said helped the stockholders at their expense, and they went to court.

On Wednesday, a five-judge panel of the Quebec Court of Appeal set aside a previous lower court ruling permitting the buyout, finding that BCE had "never attempted to justify the fairness and reasonableness of an arrangement that results in a significant adverse economic impact on the debenture holders while at the same time it accords a substantial premium to the shareholders."

The 9½% notes - which had previously last traded in March, when they fell in response to the earlier court ruling - moved up some 2½ points on Thursday to the 106 level, a market source indicated, on the strength of one very large round-lot transaction.

The company announced its intention of appealing the Quebec court ruling and ultimately proceeding with its transaction. However, investment banks financing the deal have reportedly sent the buyers a set of revised terms, including higher interest rates, tighter loan restrictions and stronger lender protection that far exceeded the original terms.

NRG noteholders not pleased with Calpine offer

NRG Energy's $11 billion offer to buy Calpine Corp. was seen as the catalyst for a retreat in its bonds Thursday. A market source saw its 7.25% notes due 2014 half a point lower in brisk trading, to the 101 level.

Another source called its 7 3/8% notes due 2016 more than 2 point losers, knocking those bonds down to just under 99. At another desk, those bonds were seen 2 points lower at 99.

Spectrum seen backing off

Elsewhere, Spectrum Brands Inc.'s 7 3/8% notes due 2015 were being quoted down 2½ points to around the 70 level, a day after making gains on the news of a big asset sale.

But a trader at another desk said that the erosion in the bonds wasn't that severe; he said that the notes were trading in a narrow 69.75-70.25 range, which was only down a little - ¼ to ¾ point top - from Wednesday's last round-lot trading at 70.5 bid, 70.75 offered. He said the Thursday quote looked like a more substantial retreat if it were matched against the absolute last trades on Wednesday, which were small odd-lot transactions up around 72, but he said that the smaller trades were "not indicative" of where the bonds should really be.

He also saw Spectrum's 11% notes due 2013 actually up about 5/8 point at 89.

The Atlanta-based consumer products producer's bonds rose Thursday on the news that it will sell its pet-care products division to small-appliance maker Salton Inc. for $692.5 million in cash, although that purchase price could be reduced if the pet division's 2007 adjusted EBITDA is less than $89.9 million. The cash proceeds will be used for debt paydown. The deal terms also include total debt payment by Salton of $222.5 million, less an amount equal to unpaid interest since the dates of the last interest payments.

Aaron Hochman-Zimmerman contributed to this report

© 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.