Upsized Mariner, U.S. Oncology price; junk tone softer; Michaels up on results; funds jump $918 million

By Paul Deckelman and Paul A. Harris

New York, June 4 - Mariner Energy Inc. and U.S. Oncology Inc. brought upsized deals to market on Thursday. When the Mariner bonds were freed for aftermarket dealings, they moved up, traders said, with U.S. Oncology appearing too late in the day for any such dealings.

High yield syndicate sources meantime heard price talk on pending bond issues for Western Refining Inc. and Holly Corp., both of which are expected to price on Friday

Back in the secondary realm, Michaels Stores Inc.'s bonds moved up solidly in apparent response to favorable fiscal first-quarter numbers that the Irving, Tex.-based art supply retailer reported late Wednesday.

Other solid gainers were Clear Channel Communications Inc. - apparently buoyed by the likelihood that one of its subsidiaries will tap the capital markets in order to generate the funds to repay an intracompany note which the unit owes to its parent - and Teck Resources Ltd., one of whose executives delivered an upbeat assessment of the Canadian coal company's prospects at an investment conference.

Ford Motor Co.'s bonds continued on in the passing lane, adding another couple of points to its gains, while troubled domestic arch-rival General Motors Corp. continued to steer along in a ditch.

Junk funds show $918 million inflow

As trading was wrapping up 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 $917.8 million more came into the weekly reporting funds than left them. It was the twelfth consecutive inflow, including the $622.7 million cash infusion seen in the previous week, ended May 27.

That 12-week winning streak has generated $8.2 billion of inflows, according to a Prospect News analysis of the AMG figures. With 22 weeks of the year now in the books, 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 $10.74 billion, according to the analysis, up from $9.822 billion the week before.

No matter how the fund flows are calculated, the bottom line is that the massive multibillion-dollar flow of funds into high yield is seen as the major catalyst 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 five months of the year - except for a lull for several weeks that largely coincided with the aforementioned 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 totals.

A market source also said that in the latest week, funds which report on a monthly basis rather than doing so weekly showed a $620.4 million inflow, versus the previous week's unchanged level. That left the year-to-date cumulative inflow for such funds at $8.788 billion, versus $8.168 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 $19.529 billion more has come into the funds than has left them, versus the prior week's $17.991 billion.

EPFR sees inflows continuing

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, analysts also noted that the junk funds had racked up their 12th consecutive week of inflows, with the $829.03 million cash infusion they calculated pushing the total over those 12 weeks to $8.19 billion and the year-to-date inflow total to $10.5 billion. In the previous week, it said the funds had seen an inflow of $872.1 million.

While the EPFR junk figures usually point essentially in the same direction as AMG's, the precise numbers almost always differ somewhat due to EPFR's inclusion of some non-U.S. funds in its universe. 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 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.

"People watch the NAVs go up every day, and just keep pouring money in," a high-yield mutual fund manager remarked.

Stating that cash flows always drive short-term performance in high-yield, this investor said that how long and how far the junk rally extends will ultimately depend upon how much supply comes to the market.

A high-yield syndicate official, meanwhile, said that given the present circumstances the supply will certainly continue to come.

Thursday tops $1 billion

For the third time this week the new issue market generated more than $1 billion of business on Thursday.

Two issuers combined to price $1.075 billion - each one bringing a single tranche of junk.

US Oncology priced a massively upsized $775 million issue of 9 1/8% eight-year second-lien senior secured notes (Ba3/B) at 97.926 to yield 9½%.

The yield was printed at the wide end of the 9¼% to 9½% all-in yield price talk, while the discount came in line with the price talk of approximately 2 points of original issue discount.

Morgan Stanley, Deutsche Bank Securities, JP Morgan and Wachovia Securities were joint bookrunners for the quick-to-market deal debt refinancing which was upsized from $465 million.

Before the deal upsized, an investor professed a liking for the 9½% yield.

However, the source counseled, if the deal upsizes you have to be more price sensitive.

Mariner Energy oversubscribed

Meanwhile Mariner Energy priced an upsized $300 million issue of 11¾% seven-year senior notes (B3/B+) at 97.093 to yield 12 3/8%.

The yield was printed at the tight end of the 12½% area price talk.

Credit Suisse, Banc of America Securities LLC, JP Morgan, Wachovia Securities and Citigroup were joint bookrunners for the debt refinancing and general corporate purposes deal which was upsized from $250 million.

Citing the particulars of the execution, the upsizing and the pricing relative to talk, a syndicate source said that the deal went very well, and played to an order book that was substantially oversubscribed.

Friday slate

The Friday session will get under way with three deals expected to price in front of the weekend.

Western Refining set price talk for its $600 million offering of eight-year senior secured notes (B3/BB-) at 12½% to 12¾% with about 8 points of original issue discount.

Banc of America Securities LLC, Goldman Sachs & Co., RBS Securities Inc. and Wachovia Securities LLC are joint bookrunners for the debt refinancing.

Also Holly Corp. set price talk for its $200 million offering of eight-year senior unsecured notes (B1/BB) at 10¼% to 10½%, with 2 to 3 points of original issue discount.

UBS Investment Bank is the left lead bookrunner for the acquisition financing and general corporate purposes deal. Banc of America Securities LLC and Goldman Sachs & Co. are joint bookrunners.

Terms on both are expected Friday.

Terms could also surface for IFCO Systems NV's €180 million offering of secured notes due 2016 (/BB-/), via Deutsche Bank Securities Inc.

Books closed noon Thursday, London time, a market source said.

Mariner moves up

After Houston-based independent oil and gas exploration and production operator Mariner Energy's deal priced, a trader saw those 11¾% notes due 2016 move up to 98½ bid, 99¼ offered from the bonds' pricing level of 97.093, which yielded 12 3/8%.

Valeant remains firm, Domtar around issue

A trader said that he "did not see a lot of flow" in the new issues from Valeant Pharmaceuticals International Inc. and Domtar Corp., both of which priced on Wednesday.

At another desk, a trader saw Valeant's 8 3/8% notes due 2016 at 98 3/8 bid, 98 7/8 offered. The Aliso Viejo, Cal.-based pharmaceutical company priced its $365 million offering of those bonds, upsized from the originally envisioned $300 million, at 96.797 to yield 9%. The new bonds had firmed several points in Wednesday's initial aftermarket activity.

Domtar's $400 million of new 10¾% notes due 2017, on the other hand, were at 96¼ bid, 96¾ on Thursday. The Montreal-based paper company had priced the bonds, upsized from the original $250 million, at 96.157, to yield 11½%.

Owens Corning off easier levels

A trader saw a considerable amount of junk market interest in Owens Corning, which priced a $350 million split-rated (Ba1/BBB-) issue of 9% notes due 2019, upsized from the originally planned $250 million. The Toledo, Ohio-based insulation maker priced those bonds at 98.386 to yield 9¼%, and they were being quoted afterwards in a 98-99 context. Although the bonds had priced off the investment-grade desks, some junk accounts were playing in the deal.

"I wouldn't say it traded great - but it traded OK."

He said that late Wednesday and particularly on Thursday, "until equities started to rally a bit" later in the session, "you could have bought bonds around 98. However, with the overall junk market boosted by the late rise in equities, Owens Corning felt "a tad better," around 98¼ bid, 98¾ offered.

Virgin Media bonds extend gains

A trader saw the recent Virgin Media Finance plc 9½% notes due 2016 firming in active trading for a second straight session, quoting them at 98 7/8 bid, up ¼ point, on $16 million traded. That followed a solid rise of more than 3 points on Wednesday.

The New York-based provider of U.K. broadband services had priced the $750 million of bonds a week ago at 95.574, to yield 10 3/8%.

Western Refining expected to be 'active'

A trader said that "it seems like a lot of the initial activity surrounding the changing hands of a lot of the [new] bonds has happened already. My guess is we'll see a couple of deals early next week, and maybe some [Friday] to price some of this stuff."

He said that he was hearing that the Western Refining deal slated for Friday's market "is going to be active." For one thing, he said, at a projected $600 million, "it's bigger in nature" than Thursday's Mariner Energy deal.

However, he said there "seems to be a divided opinion" in the market about the El Paso, Tex.-based petroleum refiner. He drew a parallel between the prospective credit and NRG Energy Inc.'s $700 million offering on Tuesday of this week of 8½% notes due 2019, which the Princeton, N.J.-based wholesale power generating company priced at 98.348 to yield 8¾%. That deal, he said, "wasn't trading like a champ" in the secondary, having fallen down to levels at its issue price, "or slightly below it. Just muddling along."

"When the thing popped on the break, like most of these deals pop on the break if they've priced them cheap, people were quickly hitting bids. It felt like they were setting shorts, or they were just flipping out of what they owned."

As for Western, he said, "we'll see. That is the one that probably should trade a bit." With the size of the Western deal, "there's a lot of paper to trade."

Borrowing binge won't end 'anytime soon'

But by no means will it be the recently ultra-active primaryside's last hurrah, he suggested.

"There's money" out there, he said - a point particularly underscored by the latest huge inflow into the junk mutual funds, which are a proxy for overall high yield liquidity trends. "There's money fueling this, and I don't see this stopping anytime soon.

"I would expect all of these bankers to continue to tap this market while they can."

Market indicators remain mixed

Among the established issues, a trader saw the CDX Series 12 High Yield index - which lost a point on Wednesday - down another ¼ point on Thursday, easing to 83¼ bid, 83¾ offered.

The KDP High Yield Daily Index, which had edged downward by 4 basis points on Wednesday, eased by another 7 bps Thursday to close at 61.54, while its yield widened by 6 bps to 10.59%.

However, in the broader market, advancing issues - which had led decliners for a 12th consecutive session on Wednesday - did so again on Thursday, continuing to hold a better than seven-to-five advantage.

Overall market activity, measured by dollar-volume totals, zoomed by over 52% versus Wednesday's levels.

A trader said that "we didn't have the kind of new issue flurry" on Thursday that had been seen over the previous several sessions, when the new deals came clattering down the chute one after another, "five or six deals over the past day or two," and "so it was back to [more] normal."

During that time earlier in the week, he said, the market had "been consumed" by names like NRG and Owens Corning.

He said that there had been "such a lull in the new issue calendar for a while that it's got everybody excited one way or another."

Michaels a market masterpiece

A trader saw a "huge jump" in Michaels Stores bonds, in the wake of favorable earnings which the art-supply store chain operator reported late Wednesday. He saw its 11 3/8% subordinated notes due 2016 zoom to 72 1/8 from prior levels at 59 on Tuesday, the most recent prior round-lot level, on $35 million traded, making it the most actively traded issue, he said.

A second said that "the Mikes were topical with numbers out." He saw the 11 3/8s having "moved up a bit to a 72-72½ context from the 60s earlier, although he said "the seniors really didn't trade much - the subs did."

Yet another trader saw "a lot of volume in the name," with the 11 3/8s up a dozen points at 72-72.5, on "a lot of volume all day long."

The company's 10% senior notes due 2014 hit a high of 843/4, which he called up 5 points, but added that there was "a lot more volume in the other issue."

He suggested that investors "must like that [quarterly earnings] news."

Late Wednesday, the company reported a profit in the fiscal first quarter ended May 2 of $4 million - a sharp rebound from its loss of $20 million the year before. The better results were partially attributed to a $15 million decline in interest expense.

Revenues increased 0.6% to $852 million, even though same store sales at outlets open at least a year - the key retailing industry economic performance metric - fell 2% and gross margins slipped to 37% from 38.5%.

Michaels also reported adequate liquidity and lowered debt levels, which in turn lowered its interest costs. Quarter-end debt levels totaled $3.957 billion, down approximately $22 million from the prior year. During the quarter, Michaels made a $5.9 million amortization payment on its senior secured term loan.

As of the end of the fiscal first quarter, it had $32 million in cash and approximately $539 million of availability under its revolving credit facility. As of Tuesday, the day before its financial announcement, borrowing power under the credit facility was approximately $530 million.

Teck tacks upward

Elsewhere, a trader saw Teck Resources' 5 3/8% notes due 2015 move up to 81¾ bid from prior levels at 80, on some $7 million of activity.

At another desk, a market source saw the Vancouver, B.C.-based energy and mining concern's 6 1/8% bonds due 2035 firm to 66¾ bid.

Teck's bonds, as well as its shares got a boost from positive investor response to a company presentation at Goldman Sachs' Basic Materials Conference in New York.

During that mostly upbeat presentation, Teck vice-president of external affairs Doug Horswill said that the company would benefit from rising demand for the coking coal which its Fording Canadian Coal Trust unit produces. Horswill declared that China "has embarked on a program of rationalizing their steel business. This will require them to import more coking coal."

He told attendees at the conference that Chinese officials had contacted Teck to discuss supplying part of the up to 30 million tons of seaborne coking coal annually which the country will need to sustain four new giant steel mills being built along its coast.

Horswill also predicted brisk demand from its non-Chinese customers for Teck-produced coal.

He said the company will produce between 18 million and 20 million tons of coal this year - and may consider raising that target to meet demand.

Clear Channel clearly higher

A trader said that Clear Channel Communications bonds were "popping today," seeing its 6¼% notes due 2011 push up to 46½ bid from 40½ , on $17 million traded, while its 10¾% notes due 2016 rose to 33 bid from 291/2, with $12 million traded. Its 5½% notes due 2014 gained a point on $12 million traded to end at 22. "Obviously, there's something out there, something going on in Clear Channel," he said.

At another desk, a market source pegged the San Antonio-based media company's 5% notes due 2012 at 33½ bid, up more than 4 points on the session, and saw the 51/2s up nearly 3 points at 231/2.

Clear Channel may have gotten a boost from the plans of its 89%-owned Clear Channel Outdoor Holdings Inc. subsidiary to consider a bond issue or other financial options to enable the latter to pay off a $2.5 billion intercompany note that it must pay to its parent next year.

That would keep Clear Channel from a potentially serious financial problem, according to Moody's Investors Service, which said in a research note that "if the market refinancing is completed and repayment of the intercompany debt occurs, it would essentially remove the possibility of a near term bank facility covenant breach at Clear Channel."

The parent company, wrote Moody's senior vice president Neil Begley in a research note, "would only need to hold the cash proceeds to avert such a breach as the covenant is a net secured debt (secured debt minus cash on hand) covenant."

"Alternatively if the [subsidiary] were to exchange intercompany debt for parent secured debt that would also alleviate covenant breach pressure," the Moody's analyst added.

Ford is hot, GM is not

In the autosophere, rebounding Ford Motor Co.'s bonds continued to sizzle, while those of its bankrupt Detroit rival, General Motors, continued to fizzle.

A trader saw Dearborn. Mich.-based Ford's bonds continuing to firm, its 7.45% bonds due 2031 going out at 671/4, up from 65 on Wednesday, on volume of $9 million.

Another trader agreed that Ford's long bond had gained a point or two to around the 66-67 mark. "There was some activity there," he said.

Ford's auto-credit arm's paper was doing even better, with its 7 3/8% notes coming due on Oct. 28 quoted by one market source as high as par bid - up almost 5 points on the session. Volume was $32 million - one of the busiest bonds of the session.

A trader meantime saw GM's 8 3/8% benchmark bonds due 2033 retreat to 11½ bid from 121/4, on $11 million traded. He saw its 7.20% notes due 2011 ending at 12 bid, actually up ¼ point on the day, on $2 million traded.

Another trader said that an 11-12 context "seemed to be where [GM notes] were hanging out." He said the benchmark issue "usually trades higher than the other bonds," pegging them at 11½ bid, 12½ offered, on "a good amount of volume."

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