NPC deal prices, moves up; market fades as equities fall; funds break losing streak, post gains

By Paul Deckelman and Paul A. Harris

New York, Dec. 8 - It was pizza party time in Junkbondland on Thursday. Restaurant franchisee NPC International, Inc. came to market with a $190 million issue of eight-year notes following a short roadshow. Traders said investors wanted a slice of the deal, and the bonds moved up in the aftermarket.

That was the only issue to price during the session. Since Monday's strong $2 billion start to the week, the primary market has priced a single, smallish deal each day.

Recent new issues from Ford Motor Credit Co. and Charter Communications Inc. continued to trade at a premium to the bonds' respective issue prices, while the new deal from NII Capital Corp. continued to struggle.

In the secondary arena, traders said that the overall market had what one called a "blah" tone to it, a combination of approaching year-end lassitude, a reluctance to really go out on a limb and take any positions, and the damper thrown over the equity market by the latest manifestation of investors' Euro-pessimism.

The long-awaited appearance of former MF Global Holdings Ltd. chief executive Jon Corzine before a congressional committee probing the financial firm's rapid implosion proved to be anti-climactic, as Corzine said he didn't know where $1.2 billion in missing client money was. The failed company's bonds were little changed.

Secondary statistical performance indicators, recently on a roll, tuned mixed.

But another gauge of the junk market's health - high-yield mutual funds, seen as a proxy for overall liquidity trends - was strongly positive in the most recent week, breaking out of a losing streak that had run since mid-November. Traders called it a sign that investors are still confident about junk.

AMG posts $1.94 billion inflow

As Thursday's session was wrapping up, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $1.94 billion more came into those weekly reporting funds than left them.

That inflow surpassed estimates of a $1.6 billion inflow that circulated as the Thursday session got underway, according to a high-yield mutual fund manager whose fund has not sustained a negative flow, through Wednesday's close, since Nov. 28.

The latest week's inflow was a total turnaround from the two previous weeks, which saw the funds post net outflows totaling $3.18 billion. In the week ended Nov. 30, the cash loss had amounted to $1.01 billion, and that followed the $2.17 billion hemorrhage in the week ended Nov. 23, the fourth-biggest outflow recorded since Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - began tracking fund flows in 1992.

Reflecting the recent streaky and volatile nature of the fund-flow numbers, that giant-sized outflow had meantime broken a previous stretch of six straight net inflows, dating back to early October and totaling $10.31 billion, according to a Prospect News analysis of the numbers. That total includes the spectacular $4.25 billion cash transfusion seen in the week ended Oct. 26 - the biggest single weekly inflow in AMG history.

For the year as a whole, inflows have now been seen in 32 weeks versus 17 outflows, according to the analysis.

Net inflows for the year have totaled $9.819 billion, according to the analysis - up from an estimated $7.879 billion a week earlier, but still below the peak cumulative figure of $11.059 billion, recorded in the week ended Nov. 16.

EPFR sees $2.05 billion gain

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a big inflow in the latest week, breaking a string of recent losses.

It said that a combined total of $2.05 billion more came into the high-yield funds it follows in the week ended Wednesday than left them.

That reversed a skid of three consecutive weeks during which an estimated $3.519 billion more left the funds than came into them, according to a Prospect News analysis of the EPFR figures.

That fund bloodbath included the $1.87 billion decline seen in the week ended Nov. 30.

On a year-to-date basis, the latest cash injection lifted fund-flow totals to an estimated $5.421 billion from roughly $3.371 billion the week before, according to the analysis.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ markedly since they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from EPFR, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the record new-deal borrowing binges seen in both 2009 and 2010 as well as the robust secondary market seen both years.

Those trends had pretty much continued into 2011 as well, although the market hit something of a dry patch in June. It appeared to recover in July - only to run into a brick wall for all of August.

Since then, judging by the patterns recently seen in the fund flows, the junk market has been trying to right itself and come back, although the outflows seen in late November would seem to indicate that there is still work to be done on that score.

Big flows into ETFs

High-yield ETFs have lately seen conspicuous inflows, sources said Thursday.

High-yield ETFs saw about $223 million of inflows on Wednesday, while actively managed funds saw $250 million.

Tuesday and Wednesday saw the fourth- and fifth-largest inflow days to high-yield ETFs since those flows began being tracked.

A banker on a high-yield syndicate desk confirmed that ETFs have been very active.

NPC prices at 10½%

A single deal priced during Thursday's primary market session.

NPC International, Inc. priced a $190 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 10½%.

The yield printed at the wide end of the 10¼% to 10½% price talk.

An investor who participated chalked up the "wide-end" pricing to market conditions.

The deal went well, said the buysider, who added that it seemed as though it was "pretty well subscribed," evidenced by the fact that the newly minted notes were going out at 100¾ bid.

Goldman Sachs & Co. was the left bookrunner for the leveraged buyout financing from the Overland Park, Kan.-based Pizza Hut franchisee. Barclays Capital Inc. was the joint bookrunner.

NPC cleared the announced calendar for the remainder of the week.

However, CVR Energy, Inc. could show up as early as Friday with a $275 million offering of high-yield notes, market sources said.

Deutsche Bank Securities Inc. will be left on the books for the acquisition financing. RBS Securities and Barclays will also be involved.

New NPC pops

When NPC International's new eight-year issue was freed for secondary dealings, a trader quoted the bonds offered at 100¾ bid, versus their par issue price.

A second trader quoted the bonds a little later on bid between 100¼ bid and 100¾ offered, although he did see just one trade at 1001/2. He opined that "all things being considered, that's not a bad showing."

But yet another trader saw the new bonds get as good as 100¾ bid, 101¾ offered.

PHH an aftermarket no-show

A trader said that he had seen absolutely no dealings in the new 9¼% notes due 2016 from PHH Corp.

The Mt. Laurel, N.J.-based outsource provider of mortgage and vehicle fleet management services - which just a week ago had been heard by syndicate sources to have withdrawn a planned $250 million offering of seven-year notes - paid an unexpected visit to the junk market on Wednesday, pricing a $100 million add-on to its existing tranche of bonds.

Those notes priced at 99.01 to yield 9.533%. They had been quoted in Wednesday's aftermarket at 99 5/8 bid, par offered.

Ford Credit still firm

Elsewhere in the new-deal space, traders saw continued firmness in the newly issued notes from Ford Motor Credit.

A trader saw its 5 7/8% notes due 2021 at 102 3/8 bid, calling that up one-eighth of a point.

A second trader said that the bonds "were still active," seeing them trading between 102 and 102½ after having hit an early-morning zenith above 103 bid.

A market source at another shop saw the bonds actually going out a little lower on the day at 102 3/8 bid, versus 102 5/8 late Wednesday, although he said that after that last sizable trade, there were a bunch of smallish odd-lot trades near the close up in a 1041/2-105 context, although the amounts of bonds being traded were too small to be representative.

Strictly on a round-lot basis, volume in the new Fords was about $13 million - well down from the much heavier turnover earlier in the week, though still sizable enough to land near the top of Thursday's junk market most-actives list.

On Monday, the lending arm of Dearborn, Mich.-based automotive giant Ford Motor Co. had priced its $1 billion drive-by issue - upsized from an originally planned $500 million - at 101.8 to yield 5 5/8%, on top of pre-deal market price talk. The new bonds are considered fungible with the existing $1 billion of the notes that priced at par back on July 27.

More than $100 million of the new paper traded Monday afternoon. The bonds moved slightly from their issue price to around the 102 level or slightly above that in initial aftermarket dealings and have stayed there ever since.

Tuesday saw nearly $100 million of the bonds having traded, and Wednesday's total was a not-to-shabby $43 million. Ford Credit's new deal was the busiest credit in each of those sessions.

NII not gaining ground

Traders saw the new 7 5/8% notes due 2021 of NII Capital continuing to struggle on Thursday, trying to not sink below their already discounted issue price.

Although a trader said that he had not seen any of the bonds in the past day or so, at another desk, a trader quoted the bonds as low as 97½ bid, 98 offered.

A market source said that volume was $15 million - not great, but at least respectable on a not-terribly busy trading day. He quoted the bonds ending the day at 97½ bid, down 5/8 from Wednesday's close and down further still from the 98½ level at which the Reston, Va.-based provider of wireless service to Latin America had priced its $700 million issue on Monday, to yield 7.852%.

That deal - upsized from an originally announced $500 million - was a quickly shopped, fully fungible add-on to the company's existing $750 million of those notes, which were sold back in March.

After initially trading as well as 99½ bid, 100½ offered in Monday's secondary market, the bonds came off those peaks and have been mostly alternating between their issue price and levels a half-point to a point lower.

Little change in Charter

A market source saw the Charter Communications 7 3/8% notes due 2020 that priced last week continuing to trade well above the 102 bid level on Thursday.

He pegged the bonds at 102 5/8 bid, not much changed from their levels of late Wednesday.

About $6 million of the new Charters traded.

That quickly shopped $750 million issue - technically sold by the St. Louis-based cable operator's CCO Holdings, LLC and CCO Holdings Capital Corp. subsidiaries - priced on Nov. 30 at par and then was heard to have moved up to 101 bid, 101½ offered in initial aftermarket dealings.

It had firmed to around the 102 area by the end of last week and then pushed above that level earlier this week and has stayed up there since.

The market source actually saw more trading in Charter's established CCO Holdings 6½% notes due 2021. He put volume in the credit at $12 million trading, while seeing the bonds retreat by nearly a point to the 98 level.

Market quiets down

Away from the new issues, a trader characterized Thursday's market as "pretty quiet and uneventful."

A second succinctly described it as "a blah day."

Yet another trader said that "it was just one of those days. We started out very strong, and then Europe took over," referring to continued investor angst over the inability of European banking and political officials to agree on some kind of rescue plan for the continent's debt-ridden economies, "and we faded all day long."

He added that "late in the day, with the news reports that Germany might balk at signing, or agreeing to anything, equities headed south and our market died."

Indicators in turmoil

Stocks did in fact have a pretty rough time of it on Thursday, especially after the head of the European Central Bank, Mario Draghi, said there were no plans afoot for any large-scale ECB purchases of European government debt, throwing cold water on the latest market hopes for a solution.

The bellwether Dow Jones industrial average, which had risen by 45.24 points on Wednesday, its third consecutive gain, on Thursday lost 198.67 points, or 1.63%, to end at 11,997.70.

The Standard & Poor's 500 index dropped by 2.11%, while the Nasdaq lost 1.99% on the day.

Against that somber backdrop, statistical measures of junk market performance - which had been riding a six-session winning streak - turned decidedly mixed on Thursday.

A trader saw the CDX North American series 17 High Yield index plunge by 1½ points on the session to end at 91½ bid, 91¾ offered after having been up by 3/8 of a point Wednesday.

The KDP High Yield Daily index was down by 5 basis points Thursday, to 71.79, after having been up by 4 bps on Wednesday.

Its yield rose by 1 bp on Thursday, to 7.70%, on top of the 3 bps rise on Wednesday.

However, the widely followed Merrill Lynch High Yield Master II index bucked the negative general trend and rose for a seventh straight session, gaining 0.046% on Thursday on top of Wednesday's 0.140% advance.

That gain lifted the index's year-to-date return to 3.382% from 3.334% on Wednesday.

It was the highest year-to-date showing since Nov. 8, when the index registered a cumulative return of 3.891%.

The year-to-date return remains below its recent peak level of 4.28%, recorded on Oct. 28, and is well below its high-water mark for the year of 6.362%, which was set on July 26.

However, it is still well up from its 2011 low point, a 3.998% deficit recorded Oct. 4.

AMR still active

Among specific junk names, a trader said that AMR Corp. "seems like it's a popular [name] today, based on the amount of quotes."

He said that "a boatload" of company unit American Airlines Inc.'s 10½% notes due 2012 ended at 91½ bid, 92 offered.

That, he said, was "about were they were" on Wednesday and pretty much unchanged from where the bankrupt Fort Worth-based airline company's paper had begun the day.

"But there was good volume in that name."

A market source at another desk agreed with the latter point, estimating that over $20 million of the bonds traded, making the credit one of the most active among the junk issues.

But he said that after meandering around Tuesday's levels for much of the session, the American Airlines bonds gained altitude late in the day on a couple of big trades and ended around 93 bid, up a point.

Sprint holds steady

Sprint Capital Corp.'s 6.9% notes due 2019 were mostly trading around an 81-82 context, a trader said, citing "decent volume" and a closing level of 81½ bid, 82 offered, which he said was perhaps down one-quarter point.

More than $14 million of the Sprint Nextel Corp. subsidiary's 6.9% notes changed hands.

Sprint Capital's 8 3/8% notes due 2012 also saw some busy trading, with over $12 million of turnover. The bonds were pretty much little changed at just below the 102 mark.

"That capital structure, Sprint, always trades somewhat actively," one of the traders said.

MF Global a non-event

A trader said that MF Global's bonds traded in a 31-33 range on Thursday, even amid former CEO Jon Corzine's largely anti-climactic Capitol Hill testimony.

The one-time senator told his former congressional colleagues investigating the spectacular demise of MF Global that he had no idea what happened to $1.2 billion of client money that has gone missing since the company collapsed in late October and denied that he was responsible for the kind of risky big bets on European sovereign debt that resulted in the debacle.

The trader meantime saw the failed New York brokerage firm's busted convertible issues, the 1 7/8% notes due 2016 and 3 3/8% notes due 2018, trading within that 31-33 neighborhood.

He also saw the 6¼% straight bonds due 2016 trading between 32 bid and 34 offered, with about $10 million traded. That was "pretty much right where they've been," while the company's 9% notes due 2038 bid stayed at 33 bid, 34 offered.

Year-end beckons

A trader said that generally, it seemed like "as we're grinding towards year-end, nobody wants to be a hero by stepping out on the risk ledge, with what's going on in Europe.

"Nobody gets paid to be a hero" in this kind of market, he asserted.

"So people are just putting up the storm shutters to ride things out for now."

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