Inverness, Owens-Brockway price upsized deals; new Goodyears firm; junk stays strong; funds gain $822 million

By Paul Deckelman and Paul Harris

New York, May 7 - The junk bond primary arena's busiest week in nearly a year continued unabated on Thursday, with the pricing of two more new issues, for Inverness Medical Innovations Inc. and Owens-Brockway Glass Container Inc. The two companies each upsized their quickly marketed offerings, and combined to price $1 billion of new paper, bringing the week's grand total to nearly $8 billion.

The Owens-Brockway bonds priced too late in the session for any meaningful aftermarket action. However, a trader saw the Inverness deal struggling to stay around its issue price when those bonds began trading. Goodyear Tire & Rubber Co.'s Wednesday mega-deal, on the other hand, moved up sharply in the secondary - a not unexpected move, given the Akron, Ohio-based tire maker's relatively cheap pricing.

For yet another session, a junk market awash in cash and having accounts eager to put money to work, moved solidly higher. Among the gainers were such names as MGM Mirage, whose bonds have firmed over several sessions on relatively benign quarterly numbers and hopes for a better future and car-rental rivals Hertz Corp. and Avis Budget Car Rental LLC. Probably the biggest gainer was the previously underperforming Bon-Ton Department Stores Inc., whose beleaguered bonds jumped more than 10 points after the York, Pa.-based retailer reported a smaller-than expected drop in its April sales and asserted that it is in good shape, liquidity-wise.

Junk funds show $822 million inflow

And 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 $822.4 million more came into the weekly reporting funds than left them. It was the eighth consecutive inflow, including the $435.4 million cash infusion seen in the previous week, ended April 29.

That eight-week winning streak has generated around $5.5 billion of inflows, according to a Prospect News analysis of the AMG figures. With 18 weeks of the year now behind us, inflows have been seen in all but three of them - a losing streak back in late February and early March which saw cumulative outflows of $996 million.

Including the latest week's inflow number, the year-to-date net inflow for the weekly reporting funds has swelled to $7.879 billion, according to the analysis, up from $7.057 billion the week before.

Those numbers include exchange-traded funds; excluding such ETFs, market sources put the week's inflow figure at $777.5 million, with a total of about $4.5 billion having come in over the past eight weeks, including the previous week's $327.6 million cash infusion.

However it is calculated, the massive multibillion-dollar flow of funds into high yield is seen as having been largely responsible 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 four months of the year - except for a lull in both the primary and secondary spheres for several weeks that largely coinciding with the 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.

A market source also said that in the latest week, funds which report on a monthly basis rather than doing so weekly were up $2.112 billion on the week - quite a change from the week before, when the total was unchanged from the previous week. The year-to-date cumulative inflow for such funds now stands at $8.086 billion, versus $5.973 billion the previous week.

The source further said that on an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $15.965 billion more has come into the funds than has left them, compared with the previous week's aggregate figure of approximately $13.03 billion.

EPFR data parallels AMG

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, analysts also noted that the junk funds had notched an eighth straight week of inflows, with the $724 million cash infusion they calculated pushing year-to-date inflows to well over $7 billion. EPFR had seen a $574.2 million inflow the week before.

While the EPFR junk figures usually 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.

EPFR's managing director, Brad Durham, noted a continuation of the pattern which began to emerge in late March and which has been seen since then, of "cash coming off the sidelines and bypassing [equity] funds geared to developed markets," in favor of asset classes perceived to carry more risk but also to promise more reward, including high yield, as well as emerging market equity and bond funds.

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 considerably 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.

Primary sees $1 billion

The primary market saw two upsized seven-year deals price for a combined face-amount total of $1 billion.

Owens-Brockway Glass Container Inc. priced a $600 million issue of 7 3/8% senior notes (Ba3/BB). And Inverness Medical Innovations, Inc. priced $400 million of 9% senior subordinated notes (B3/B-).

Both deals doubled in size.

Noting that the latest AMG figures, a market source said the week's number extends a phenomenal eight-week run of inflows that totals $5.5 billion.

Given all of that cash, which the institutional investors need to put to work, sources expect a flurry of new issue activity.

Syndicate sources say that at least two new deals will launch Monday.

Although they declined to furnish issuer names they allowed that the offerings would emanate from the power/energy and natural resources spaces.

Amid all of this positive news, market sources began wondering aloud how much farther high yield has left to run.

"We're seeing yields grind pretty tight," one syndicate source cautioned.

"We have to consider the possibility that with all of the issuance that's expected to come, the market could be headed toward a brick wall."

Owens-Brockway doubles size

Owens-Brockway priced an upsized $600 million issue of 7 3/8% seven-year senior notes (Ba3/BB) at 96.724 to yield 8% on Thursday.

The yield printed on top of the yield talk.

J.P. Morgan, Banc of America Securities and Deutsche Bank Securities were joint bookrunners for the debt refinancing and general corporate purposes deal.

Inverness a blowout

Elsewhere in Thursday's primary market Waltham, Mass.-based medical diagnostics company Inverness Medical Innovations doubled the size of its high-yield bond offer to $400 million from $200 million and priced it in the middle of yield talk.

The new Inverness 9% seven-year senior subordinated notes (B3/B-) priced at 96.865 to yield 9 5/8%.

Price talk was 9½% to 9¾% with an original issue discount of 2 to 3 points.

The deal was a blowout, according to an informed source, who added that the $400 million of available bonds played to a quality book containing between $1.2 billion and $1.3 billion of orders.

UBS Investment Bank was the left bookrunner. Goldman Sachs & Co. and Banc of America Securities LLC were joint bookrunners.

Proceeds will be used for general corporate purposes including potential acquisitions.

New Inverness issue in trouble

When the new Inverness Medical Innovation 9% senior subordinated notes due 2016 were freed for secondary dealings, a trader saw the bonds at 97¼ bid, 97¾ offered, up modestly from 96.865 level at which the Waltham, Mass.-based healthcare technology vendor had priced its $400 million of new notes - doubled in size from $200 million originally - to yield 9 5/8%.

However, another trader later in the afternoon flatly declared that the new deal "did not go well."

He saw the earlier 97-area bids getting hit, with the bonds falling back to 96¼ bid, 96 7/8 offered, well below their issue price.

"They really came in," he exclaimed. "There was a little bit of indigestion at the end of the day on a lot of these deals."

Good showing for Goodyear

A trader meantime saw the new Goodyear 10½% notes due 2016 treading around 99 3/8 bid, 99½ offered range at mid-afternoon. Although he said that was actually off a little from the day's earlier peak ay 98¾ bid, par offered, that level still remained smartly above the 95.846 level at which the company had priced its issue - upsized to a cool $1 billion from the original $500 million - to yield 11 3/8%.

That minor slippage continued as the session wore on-a second trader a little later saw the bonds at 99 bid, 99½ offered, and somewhat after that another trader saw them going home at 98½ bid, 98¾ offered. "They settled in a lot" from the day's highs, he said although the new bonds did remain comfortably above their issue price.

The rise from that issue level was hardly unexpected - several traders on Wednesday had presciently and correctly predicted, based on the pre-deal market price talk of a yield in the 11½% area and an approximately 5 point original issue discount, that when the new Goodyear bonds moved into secondary, they would shoot right up to a near-par level, allowing investors to reap a tremendous windfall from the cheap pricing level, given the $1 billion size of the deal.

They also noted that the company's existing bonds have been trading considerably richer - the 7.857% notes due 2011trading at 96 for around a 9.8% yield, and the 8.625% notes due 2011 doing even better, around 98.5, for a 9.2% yield, and said that the new deal would likely move into a state of relative equilibrium with those older credits.

Recent deals get a lift

The market's overall strength on Thursday was meantime seen benefitting other recently priced deals - even such so far underperforming names as Ryland Group Inc. and Starwood Hotels & Resorts Worldwide Inc.

Ryland's 8.40% notes due 2017 were quoted by a market source at 98.375; the Calabasas, Calif.-based homebuilder's $230 million issue, upsized slightly from $225 million originally, priced last Thursday at 98.006 to yield 8¾%, and had been struggling to stay at or above that level.

Meanwhile, White Plains, N.Y.-based international lodging giant Starwood's 7 7/8% notes due 2014 were seen Thursday at 96 bid. The company had priced its $500 million offering of the bonds, also last Thursday, at 96.285 to yield 8¾%, but those bonds had initially traded down by as much as 2 points from their issue price and were consistently seen subsequently trading around a point below issue.

Yet another new deal to come out of that busy April 30 session, Eden Prairie, Minn.-based national supermarket operator Supervalu Inc.'s 8% notes due 2016, were quoted Thursday at 100½ bid. The company's $1 billion of new bonds, doubled in size from the originally planned $500 million, had priced that session at 97 to yield 8.58%, but immediately began moving up on the break and continued to hold to levels around a 99ish context in the days that followed, before firming further on Thursday.

Market indicators keep pointing north

Back among the established issues, a trader saw the CDX Series 12 High Yield index - which had soared by 1½ points on Wednesday -add on another ½ point on Thursday, to end at 81 3/8 bid, 81 7/8 offered.

The CDX had rocketed up 2 points Thursday morning, but gave up most of those gains as the day wore on and the stock market took a beating, a syndicate official said.

The KDP High Yield Daily Index, which had jumped by 74 basis points on Wednesday, meantime rose another 52 bps on Thursday to 60.74, while its yield tightened by 25 bps to 11.19%.

Advancing issues easily led decliners for a seventh straight session, continuing to top them by a seven-to-four margin.

The cash market was largely unchanged on the day, the source added.

However HCA Inc.'s 9 5/8% notes gained as much as 3 points as the company announced it would make its upcoming coupon payment in cash, even though the bond indentures allow HCA to make a PIK payment.

Overall market activity, measured by dollar-volume totals, rose by 18% from Wednesday's levels.

A trader said he saw "a lot of stuff that jumped right through the roof," including such credits as MGM and Bon-Ton. It seemed to him that "people are just buying everything."

He further opined that "the high yield and distressed bond world was definitely feeling better." As for the reason for the recent radically better tone, certainly when compared to the depths of despair seen in early March, he suggested it might be a combination of factors, such as equities improving and "people putting money to work."

The current surge, he said, "just seems like it's rolling across," boosting the primary market as well as the secondary. That, in turn, he said, creates still more interest in the secondary realm, as investors say "okay, I'm paying [this amount] for a new issue - what else should I buy?"

He said "you look at that and say 'maybe I should buy some of these [existing bonds] - these seem cheap, based on what I'm paying for new issues'. It seems like some of that is going on."

Overall, he said of the market, "when in doubt - it's up!"

Freeport bonds firm smartly

Among specific issues, a big mover - and the busiest junk bond, with over $37 million traded on the session - was Freeport-McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017. The Phoenix-based mining company's issue was quoted by a trader at around the 100 3/8 mark - a better than 3 point gain on the session.

Another very active issue was First Data Corp.'s 9 7/8% notes due 2015, considered something of a proxy or bellwether for the overall market. A market source saw the Greenwood Village, Colo.-based financial transaction processor's issue up nearly a point on the session at 71 bid, on busy trading of over $24 million.

MGM move continues

A trader said that MGM Mirage's bonds "jumped up through the roof," and said that the company's 13% secured notes due 2013 were rarely seen any more as a distressed issue along with the rest of the capital structure, having firmed to 99½ bid, par offered from levels around 80 two weeks ago and 85-87 a week ago.

Among the company's longer paper, he saw the 6 7/8% notes due 2016 having pushed up to the mid-60s, at a 64-65 context.

The Las Vegas-based gaming giant's shortest issue, its 6% notes coming due on Oct. 1, inched up 1/8 point on the day to 90 7/8 bid, for about a 33% yield to maturity, on busy dealings of some $28 million.

MGM's bonds have been on a roll over the past few sessions, given a boost by the company's report of a first-quarter profit - even though this was attributable to a one-off event, the sale of one of its many casinos, rather than any fundamental improvement - although company executives also hopefully said that the disastrous downturn in advance bookings that has played havoc with the company's finances may finally be subsiding.

Investors were also buoyed by the recent news that the company had reached agreement with lenders on providing the financing that will be needed to complete its nearly-finished CityCenter real estate development project on the Las Vegas Strip, thus forestalling any possibility that the joint-venture with Dubai World would default on its loan agreements and possibly drag 50% parent MGM down with it.

Another market source saw the gaming company's 6 5/8% notes due 2015 at 66 bid, up 2 points, although the MGM-owned Mandalay Resort Group's 6½% notes slated to come due on July 31 were down around 2 points at the 96 level.

No hurting for Hertz, Avis

Another consumer-oriented sector which has been badly hurt by the economic downturn has been the car-rental industry, but the two main names were seen better on Thursday, after one of them reported numbers.

Park Ridge, N.J.-based industry leader Hertz Corp.'s 8 7/8% notes due 2014 gained more than 2 points to close at above the 88 level.

Its main rival, Parsippany, N.J.-based Avis Budget Car Rental's 7 5/8% notes due 2014 were up as much as 9 points to the 47 level, about the same level to which its 7¾% notes due 2016 also rose.

The bonds got a boost on signs that Avis was, to use its memorable advertising slogan, trying harder - and that those efforts were paying off, with better -than expected quarterly numbers.

For the first quarter, total company EBITDA was negative $9 million, compared to positive $31 million in the first quarter of 2008. Excluding unusual items, EBITDA for the quarter was negative $3 million.

Although Avis' net loss did increase on a year-over-year basis, the company did perform better than estimates were expecting, the second trader explained.

Avis' net loss for the first quarter was $45 million, or $0.44 per share, compared to net loss of $12 million, or $0.11 per share, in the same period last year. Analyst estimates on per share net loss had been around $0.63 per share.

Revenues for the quarter were $1.194 billion, down 17% from $1.445 billion in the comparable 2008 period.

"Business conditions continued to deteriorate through the first two months of the quarter," said Ronald L. Nelson, chairman and chief executive officer, in a news release. "Although volumes seemed to stabilize in March, we nonetheless faced challenging conditions as both leisure and commercial demand declined significantly as a consequence of the overall economic environment.

"Our rigorous focus on cost saving initiatives combined with aggressive fleet management allowed us to keep fleet levels in line with demand and deliver on our planned EBITDA performance," Nelson added.

Bon-Ton better on smaller sales slippage

In what may have been the biggest move of the session, a trader saw sharp upside in Bon-Ton Department Stores Inc.'s 10¼% notes due 2014, which rose to 45 bid, 50 offered from prior levels in the mid-30s after the company reported a smaller than expected drop in April in same-store sales, the retailing industry's key performance metric, and reassured investors about its liquidity status.

After peaking at 45, he said, "then they settled down to 42-44, which is still up a lot."

Another market source also saw the bonds get as good as 47 bid, up some 13 points on the day, before coming off that peak to finish at a round-lot level of 45, still up 11 points, although several smaller late-date trades were seen in the upper 30s, still a 4 point gain on the day.

The retailer saw its comparable store sales fall 5.1% for the four weeks ending May 2, versus year ago sales. Total sales dropped 4.7% to $199.4 million, compared to $209.2 million in 2008.

For the quarter, comparable sales were seen declining 8.6%, while total sales fell 8% to $644.5 million from $700.2 million.

"We were pleased with April sales results, which slightly exceeded our expectations," said Tony Buccina, vice chairman and president of merchandising, in a press release.

"Disciplined inventory management resulted in a decrease in comparable store and clearance inventories of 11% and 16%, respectively; consequently, we are in a fresher inventory position as compared with the prior year. Our best performing businesses were children's, hard home, cosmetics and ladies' moderate sportswear. Our weakest performing businesses were furniture and men's better sportswear."

"We ended April with excess borrowing capacity under our revolving credit facility of $165 million, well above the required minimum availability of $75 million," added Keith Plowman, executive vice president and chief financial officer. He noted the company expects to receive an estimated $30 million tax refund in the second quarter.

Big GM loss no big deal

A trader saw General Motors Corp.'s 8 3/8% bonds due 2033 unchanged at 7 bid, 8 offered, apparently shrugging off the not-unexpected news of the troubled carmaker's $6 billion quarterly loss. He meantime saw rival Ford Motor Co.'s 8% bonds due 2031 likewise unchanged at 53 bid, 55 offered.

Another market source saw GM's bonds gyrating around in active dealings, mostly in small odd-lots. On that basis, the bonds ended at around 7 bid, actually up more than a point from late Wednesday's levels, although they finished well off their day's highs above 9 bid. On a round-lot basis, the bonds were seen going home at 8 bid, little changed.

In its somewhat shorter paper, GM's 7.40% bonds due 2025 finished down 1½ points on the day at 6½ bid.

A trader saw GM's 49%-owned GMAC LLC 8% bonds due 2031 get as high as 65 bid, 67 offered. He said that the issue was "another one that jumped out of its skin, with a lot of trading today." Overall, he said that GMAC "across the board was up anywhere from 2 to 5 points."

GMAC unit Residential Capital LLC's 8 7/8% notes due 2015 gained more than 5 points on the session, to end at 62 bid.

Stephanie N. Rotondo contributed to this report.

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