Dynegy, Rite Aid mega-deals price; Trump jumps on buyout buzz; funds see $15 million inflow

By Paul Deckelman and Paul A. Harris

New York, May 17 - Dynegy Holdings Inc. came to market Thursday with an upsized $1.65 billion deal, restructured into a two-part offering. When the Houston-based power generating company's new bonds moved into the secondary arena, they did not go far, according to traders.

On the other hand, Rite Aid Corp.'s two-part mega-deal seemed to be fairly well received in aftermarket action, the traders said.

Also pricing was a 10-year deal for Swift Energy Corp.

In the secondary realm, apart from the movements in the new Dynegy and Rite Aid bonds, and in the Mueller Water Products Inc. bonds which priced late Wednesday, Trump Entertainment Resorts Inc.'s bonds were on a roll, with the Atlantic City, N.J.-based gaming operator's paper given a boost on the news that it has received some indications of interest from potential buyers.

Also on the deal-making front, KB Home's bonds were higher in active trading after the Los Angeles-based homebuilder said it might accept an offer to sell its 49% stake in French developer Kaufman & Broad SA.

But Clear Channel Communications Inc. bondholders were singing the buyout blues - albeit softly - on the prospect that the San Antonio, Tex.-based radio and outdoor advertising giant might be taken private via a giant-sized leveraged buyout that would add billions of dollars of additional debt to its balance sheet, most of it senior to existing bonds.

A sell-side source marked the broad market flat on Thursday.

Funds see another inflow, though a small one

And as activity was winding down for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $15.2 million came into those weekly-reporting funds than left them.

That followed the $81.6 million inflow seen in the previous week, ended May 9.

That pinch of green extends to $1.324 billion the year-to-date positive flows seen by funds reporting to AMG on a weekly basis.

Meanwhile, the source added, fund which report on a monthly basis saw net redemptions totaling $3.8 million, whittling year-to-date positive flows among the monthly reporting funds to $3.761 billion.

Hence year-to-date aggregate flows, which tally both the weekly and monthly reporting funds, were $5.085 billion to the Wednesday close, the source said.

The latest week represented the fifth straight weekly inflow and the seventh in the last eight weeks, according to a Prospect News analysis of the AMG figures. On a year-to-date basis, inflows have now been seen in fully 16 weeks out of the 20 since the start of the year.

The fund-flow numbers seem to be regaining the positive momentum they showed at the beginning of the year, when an aggregate total of $862 million had come into the funds in the first two months, according to a the Prospect News analysis. That stretch was then interrupted by a choppy four-week period in March, characterized by alternating weeks of outflows and inflows, none larger than $25 million. Over the past eight weeks, though, with seven inflows seen, the funds have had a net total infusion during that period of $499.6 million, according to the analysis.

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, most recently, hedge funds.

Dynegy upsized, restructured

Meanwhile the primary market continued to haul the mail as three issuers combined to complete five tranches generating proceeds topping $3 billion.

Dynegy Holdings priced $1.65 billion of senior unsecured notes (B2/B) in an upsized, restructured two-tranche transaction on Thursday.

The company priced a $1.1 billion tranche of 12-year notes at par to yield 7¾%.

Price talk was revised to 7¾% from previous talk of 7¾% to 7 7/8%.

The dollar amount of the 12-year tranche came within the expected $1 billion to $1.15 range.

In a structure that was added subsequent to the launch of the deal, the Houston electricity company also priced a $550 million tranche of eight-year notes at par to yield 7½%.

Price talk was 7 3/8% to 7½%.

The dollar amount of the eight-year tranche came within the expected $500 million to $650 million range.

JP Morgan, Citigroup and Credit Suisse were joint bookrunners.

The deal was upsized from $1.1 billion. However the total amount of issuance came $50 million short of the $1.7 billion maximum amount of the increase that was announced on Wednesday.

Proceeds will be used to repay a significant portion of the $1.8 billion of net debt (debt less restricted cash and investments) of the entities acquired by Dynegy in the LS Power combination.

The company will use the additional proceeds from the upsizing to repay a greater portion of acquired debt, including debt related to the LSP Gen Finance, Kendall and Ontelaunee facilities.

An informed source said that the deal was very well subscribed, and added that the new Dynegy Holdings 7½% eight-year notes broke at par bid, 100.75 offered, while the new 7¾% 12-year paper broke at par bid, 100.50 offered.

Rite Aid completes $1.22 billion

Meanwhile Rite Aid priced $1.22 billion of senior notes (Caa1/CCC+) in two tranches.

The Camp Hill, Pa., drugstore chain priced an $810 million tranche of 9½% 10-year notes at 98.394 to yield 9¾%, on top of price talk.

Rite Aid also priced a $410 million tranche of 9 3/8% 8.5-year notes at 98.50 to yield 9 5/8%, at the wide end of the price talk.

Citigroup was the bookrunner for the acquisition deal.

Swift Energy drives through

In drive-by action, Swift Energy priced a $250 million issue of 10-year senior notes (B1/BB-) at par to yield 7 1/8% on Thursday, in the middle of the 7% to 7¼% price talk.

JP Morgan and Credit Suisse were joint bookrunners for the debt refinancing and general corporate purposes deal from the Houston oil and gas exploration and production company.

Pressed for color, an informed source remarked that Swift came at the mid-point of talk, and spotted the new bonds 100.25 bid at the Thursday close.

Quiet Friday on tap

Primary market sources also noted that the hard-charging new issue market, which has already seen issuance nearing the $7 billion mark this week, is poised to catch its breath on Friday.

As of late Thursday, no issues were scheduled to price.

Nor was any price talk heard on the business beyond Friday's close.

However, as Swift Energy, Ford Motor Credit Co. LLC, GMAC International Finance BV and Kansas City Southern de Mexico, SA de CV have already demonstrated this week, the primary market's drive-through window is open.

A robust rise for Rite Aid

When the new Rite Aid bonds were freed for secondary dealings, traders saw the drugstore operator's paper firm a solid 1½ points on the break and pretty much hold those gains.

One trader saw the 9½% senior notes due 2017 push up to 99.75 bid, par offered, from their issue price earlier in the session of 98.394.

"Those bonds were up right out of the gate," observed another trader, who also pegged the 91/2s at 99.75, and who saw the new 9 1/8% notes due 2015 improve to 99.875 bid from 98.54 at issue.

Rite Aid's existing bonds were also being quoted up, with its 8 5/8% notes due 2015 seen ¼ point better above the 97 level, while its 6 7/8% notes due 2013 rose a point to 90. Another source saw the 8 5/8s doing even better, up some 3 points on the day to levels north of 99.

Mueller bonds move up

Another newly priced issue which seemed to find favor once it was freed for secondary dealings was Mueller Water Products' new 7 3/8% notes due 2017, seen by one trader at 101.5 bid, 102 offered, well up from the par issue price seen late Wednesday, when the bonds came too late in the session for any meaningful dealings.

Another trader saw a slightly more conservative rise, but said that at the end of the day, the bonds had achieved a respectable 1 point gain over issue to 101 bid, 101.25 offered, after having gotten as good as 101.25 bid, 101.5 offered.

New Dynegy not very dynamic

On the other hand, Dynegy Holdings' new bonds seemed to generate little electricity among aftermarket participants, with its 7¾% notes due 2019 unchanged from their par issue price at par bid, 100.25 offered, while its 7½% notes due 2015 managed to edge up to 100.5 bid, 100.75 offered, from par.

And Swift Energy's new 7 1/8% notes due 2017 did even worse once they began trading, seen at 99.75 bid, 100.25 offered, straddling their par issue price.

Trump jumps

Back among the established issues, traders said that one of the big winners on the day - and one of the most actively traded issues - was Trump Entertainment Resorts' 8½% notes due 2015.

"These were all over the place and are still moving around," a market source said, quoting the bonds up 2½ points on the day to 101.5 bid, 102.5 offered, while another source pegged them doing even better, up 3 points on the day at above the 102 level, reflecting the late-day surge of buying interest in the bonds.

That was also reflected in the behavior of the company's Nasdaq-traded shares, which actually fell 36 cents (2.68%) during the regular session to end at $13.07 - but which then zoomed $1.92 (14.69%) to $14.99 in after-hours trading, spurred by the company's announcement - made after the 4 p.m. ET Wall Street closing bell - indicating that it "has recently received preliminary and conditional indications of interest from parties proposing to acquire the company." It did not elaborate as to the identity of the potential suitors, the amount of the offers, or what conditions any bid would carry.

Trump, which operates three hotel-casino complexes in Atlantic City, announced in March that it had hired Merrill Lynch to assist it in evaluating strategic alternatives, including the possible sale of some or even all of the company.

While the company's two locations on the Boardwalk and one in the city's marina district are seen as potentially attractive for a gaming operator wishing to either enter or expand an existing presence in the Atlantic City market - the second-biggest U.S. gaming venue after Las Vegas - it has been hurt by a lack of diversity, since it no longer owns any gaming properties outside the New Jersey city at a time when the casinos there are facing new competition from slot machine gambling in nearby Pennsylvania and coping with municipal restrictions on indoor smoking.

After years of losses, the company reorganized and emerged from Chapter 11 about two years ago - with eponymous company founder Donald J. Trump still officially chairman and still acting as the front man, but stripped of actual operational control over the enterprise. It has not been profitable since its emergence from Chapter 11.

KB up on possible French sale

Elsewhere, KB Home's bonds were seen better on the news that it is considering the possible sale of its stake in French homebuilder Kaufman & Broad SA.

KB's 5 7/8% notes due 2015 were seen up ¾ point and its 5¾% notes due 2014 were up 5/8 point, at levels around 93.75 and 94, respectively.

The company said it may accept a €601 million offer from Paris-based buyout firm PAI Partners for its Kaufman & Broad stake.

It said it is in exclusive talks with PAI to sell its 49% stake in the French firm at €55 per share, a 3.5% increase in the price it was originally offered.

KB said it is thinking about bidding au revoir to the French market in order to concentrate its full attentions on its core U.S. operations, which have been hurt by the industrywide slump of recent months.

Technical Olympic up on loan news

Elsewhere among the homebuilders, a trader was quoting Technical Olympic USA Inc.'s 10 3/8% notes due 2012 up 2½ points at 80 bid, 81 offered, citing the Florida-based builder's announcement that it had received a commitment for $500 million in term loans.

However, other traders saw the bonds little affected by the news, one saying they "were gyrating a little" before ending up "trading in a range."

He saw the 10 3/8s unchanged at 78 bid, 80 offered, while its 8¼% notes due 2011 were steady at 94 bid, 96 offered.

Clear Channel deal talk causes concern

On the downside, a trader saw Clear Channel Communications' 5½% notes due 2014 down ¼ to ½ point around the 85.75 bid, 86.75 offered area, while its credit default swaps widened sharply to around 276 bps - up nearly 20 bps from a day earlier.

That reflected concern in the debt markets over a Wall Street Journal report that Highfields Capital Management and Fidelity Investments, the broadcasting giant's two largest institutional shareholders, are expected to drop their previous opposition to a proposed $19.6 billion buyout of the company and vote for a sweetened $39.20-a-share offer being made by private-equity players Bain Capital and Thomas H. Lee Partners.

Bondholders are worried about the company's plans to borrow $22 billion - some in bonds, most in bank debt - to finance the deal and provide working capital, borrowing they say will worsen its credit metrics and which will mostly rank ahead of the existing bonds in the new capital structure.

Apart from that, a market source said that overall, "things were going sideways, with a lot of unchanged stuff. Some credits were up, some credits were down," and apart from names with specific news attached to them, like Trump or KB Home, "there was no overwhelming buying activity."

© 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.