Omnicare drives by; Cincinnati Bell dives on acquisition; funds bleed $1.7 billion

By Paul Deckelman and Paul A. Harris

New York, May 13 - Omnicare Inc. priced a drive-by offering of $400 million 10-year senior subordinated notes on Thursday, according to high yield syndicate sources. They saw the Covington, Ky.-based pharmaceutical services provider's quickly marketed bonds come to market at par, and then firm slightly in aftermarket dealings.

Joining the forward calendar were deals from restaurant/arcade operator Dave & Buster's Inc., shopping a $200 million issue that will price next week, and vehicle wheelmaker Titan International, Inc., with no details on the timing or tenor of the $150 offering immediately available.

Among overseas issuers, Chinese shopping center developer Renhe Commercial Holdings Co. Ltd. priced a $300 million issue of five-year paper at a little below par; meanwhile, price talk emerged on German automotive components supplier TMD Friction Finance SA's €160 million offering of seven-year secured notes, which is expected to price Friday during the European afternoon.

In the secondary market, Cincinnati Bell Inc.'s bonds were being battered by investor unease over the Ohio-based telecommunications provider's plans to acquire Texas data-center operator CyrusOne for around $525 million - with plans to tap the capital markets for nearly twice that much.

FelCor Lodging Trust's bonds firmed , helped by the news that the lodging-industry REIT had filed with the Securities and Exchange Commission for a more than $200 million stock offering, with some proceeds earmarked for debt paydown.

Blockbuster Inc.'s bonds were busily traded ahead of the stricken video-rental giant's late-afternoon earnings report - and were heard to have fallen on the disappointing numbers that came out.

Junk funds surrender $1.7 billion

And as market dealings were closing up for the day, participants familiar with the weekly high yield mutual fund-flow numbers compiled by AMG Data Services of Arcata, Calif. - considered a reliable barometer of overall junk market liquidity trends - said that in the week ended Wednesday $1.69 billion more left those weekly-reporting high yield funds than came into them - a sign of investor unease with the junk market.

As was the case last week - when the funds saw an outflow of $127 million for the period ended May 5 - the downturn, and the fact that it was a significantly large one, did not really come as any kind of a surprise, given the steep fall which Junkbondland saw at the end of last week, particularly last Thursday, too late for that week's AMG number.

It was the first back-to-back outflows seen since mid-February, when there were two massive cash hemorrhages in the weeks ended Feb. 10 and Feb. 17, each more than $900 million, totaling some $1.9 billion, according to a Prospect News analysis of the AMG figures.

The two-week losing streak abruptly snapped a string of 10 straight weeks of inflows, dating back to the week ended Feb. 24 and continuing through the week ended April 28, during which time $4.443 billion came into the funds, according to the Prospect News analysis.

In the 19 weeks since the beginning of this year, inflows have still now been seen in 14 of those weeks and outflows in just the remaining five, although the big cash loss seen over the last two weeks has, at least temporarily, reversed the previously strong inflow momentum.

The latest week's outflow dropped the year-to-date cumulative net inflow to $2.259 billion, down from the previous week's $3.959 billion.

The year-to-date fund flow totals have gyrated between a high of $4.086 billion seen in the April 28 week and a net outflow of $357 million seen in the week ended Feb. 17, which had been the first such year-to-date net loss for the funds since early April of 2008, according to the analysis.

EPFR sees $2.1 billion cash bleed

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime also reported that $2.1 billion more left the funds than came into them in the latest week.

Its analysts declared in a Thursday evening research note that flows "finally began to mirror the growing risk aversion and fears about the sovereign debt of weaker eurozone countries that have been roiling global markets for several weeks now."

That massive cash exodus - which EPFR said was the biggest in five years - followed the $10 million outflow seen in the previous week. Following the pattern seen in the AMG figures, the EPFR statistics - not counting the latest week - had shown straight weeks of inflows from mid-February to late April, lifting the funds from their two-week rut in the Feb. 10 and Feb. 17 weeks, which EPFR calculated to have produced $1.76 billion of combined outflows.

Reflecting the difference in the way AMG and EPFR calculate their respective fund-flow totals, the latter - which includes results from certain non-U.S. domiciled funds as well as the domestic funds - said that on a year-to-date basis mutual funds are now showing around a $6.47 billion net inflow, down from $8.58 billion the week before, which in turn was down slightly from the peak level for the year of $8.59 billion seen the week before, ended April 28.

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 barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they did in the past. Last year's strong pattern of inflows - with AMG reporting over $20 billion having come in to the weekly-reporting funds over the course of the year, along with over $10 billion more into funds which only report on a monthly, rather than weekly basis, and EPFR posting similarly robust numbers - was seen as a proxy for the overall surge of liquidity into the junk market from all sources, which helped to fuel record 2009 new-issuance of over $160 billion and unprecedented secondary returns topping 57%.

Inflows resumed early this week

Although the outflow represents an ominous dark cloud, there is an unmistakable silver lining, according to a high-yield mutual fund manager.

Most of that $1.7 billion mass of cash left the market last Thursday and Friday, when volatility in the global capital markets ramped up because of concerns over the sovereign debt of Greece, and possibly of other eurozone members, the manager said.

Monday was pretty much neutral in terms of cash flows, the manager added.

Tuesday and Wednesday saw inflows, the source asserted.

Hence the rally in high-yield is almost certain to resume, according to this investor.

Omnicare oversubscribed

Meanwhile the primary market continued to operate at a moderate pace, on Thursday.

Omnicare, Inc. priced a $400 million issue of 10-year senior subordinated notes (Ba2/BB) at par to yield 7¾%.

The yield printed at the tight end of the 7¾% to 8% price talk.

J.P. Morgan, Barclays Capital, Citigroup and SunTrust Robinson Humphrey were joint bookrunners for the quick-to-market deal.

Proceeds will be used to fund a tender for $225 million of the company's 6¾% senior subordinated notes due 2013, as well as to refinance bank debt, and for general corporate purposes.

The deal was three- to four-times oversubscribed, according to an investor who participated, and who added that allocations were pretty disappointing.

Renhe prices $300 million

In the high yield-emerging markets crossover space, China's Renhe Commercial Holdings Co. Ltd. priced a $300 million issue 11¾% senior notes due May 18, 2015 (Ba2/BB/) at 99.08 to yield 12%.

The yield printed on top of price talk.

Bank of America Merrill Lynch, BOC International and JPMorgan were the bookrunners.

Proceeds will be used to finance existing projects, to acquire and develop new projects and for working capital.

TMD sets price talk

Germany's TMD Friction Finance SA talked its €160 million offering of seven-year senior secured notes (B3/B) to yield in the 10¾% area.

The company also made changes to the bond's debt incurrence covenants. The fixed charge coverage ratio increased to 2.25 times from 2 times. The consolidated senior secured leverage ratio decreased to 3 times from 3.5 times.

The books close at 9 a.m. ET and the deal is expected to price after that.

Credit Suisse and Quirin Bank are the joint bookrunners.

Dave & Busters starts roadshow

Games Merger Corp. (Dave & Busters, Inc.) began a roadshow on Thursday for a $200 million offering of eight-year senior notes (B3/B-).

The roadshow wraps up on Wednesday and the notes are expected to price that day.

JP Morgan and Jefferies & Co. are joint bookrunners.

Proceeds will be used to help fund the acquisition of Dave & Busters by Oak Hill Capital Partners.

New Omnicare edges up

When Omicare's new 7½% senior subordinated notes due 2020 were freed for secondary dealings, a trader saw the new bonds firm slightly to 100½ bid, 101½ offered, versus their par issue price earlier in the session.

Wednesday's Mylan deal holds gains

A trader said that Pittsburgh-based generic and specialty pharmaceuticals maker Mylan Inc.'s new bonds, which priced on Wednesday "traded well. They started to trade well last [i.e. Wednesday] night, and continued to do so today."

He saw the $550 million of 7 5/8% notes due 2017 get as good as 102 bid, before fading at the close, and said the bonds went home "wrapped around 1011/2," near the 101¼ bid, 101¾ offered level at which the bonds had gone home on Wednesday after their initial aftermarket dealings and well up from the 99.972 level at which the tranche had priced earlier Wednesday to yield 7 5/8%.

He meantime saw the other half of that deal - the $700 million of 7 7/8% notes due 2020, which had priced on Wednesday at 99.97 to yield 7 7/8%, and which had then moved up to a 101-101¾ context - also "doing well," quoting them going out wrapped around 1011/4.

The $1.25 billion two-part deal was upsized from the originally announced $1 billion.

Kratos holds premium

And the trader saw Kratos Defense & Security Solutions Inc.'s new 10% senior secured notes due 2017 going out at 101 bid, 102 offered.

That was around the level at which the San Diego-based defense contractor's $225 million issue of the bonds - upsized from the originally announced $200 million - had traded late Wednesday, after having priced at par earlier that session.

Waiting for Regal

A trader, noting that Regal Cinemas Corp.'s prospective $250 million add-on offering of 8 5/8% notes due 2019 has been at the top of the forward calendar in anticipation of a pricing "for four or five days" - even though the deal was first announced last Wednesday and had been expected to come to market last Thursday, before all hell broke loose in the capital markets - opined that "it will get done when it gets done."

He suggested that the Knoxville, Tenn.-based movie theater operator, which is concurrently going for a senior secured credit facility will likely "do the term loan first - they'll get the bank facility done before they price the bonds, getting [the loan] completely done instead of doing them simultaneously.

"But we'll have to wait and see on that one."

Market indicators turn mixed

Among bonds not connected with the new-deal market, a trader saw the CDX Series 14 index down 3/8 point on Thursday to end at 98 bid, 98½ offered, after having risen by a full point on Wednesday.

The KDP High Yield Daily Index, however, rose by 17 basis points on Thursday to 71.83, on top of the 51 bps jump seen on Wednesday. The index's yield meantime narrowed by 6 bps to 8.23%, on top of the 17 bps tightening on Wednesday.

Advancing stayed ahead of decliners for a second straight day on Thursday, holding a seven-to-six edge.

Overall market activity, represented by dollar-volume levels, fell by 16% on Thursday, after having gained 13% on Wednesday.

A trader said that the market "was better for most of the session, and then faded into the close."

Among specific issues, he saw the Synovus Financial Corp.'s 2013 bonds active, moving up to the 92-93 area,

Dean Foods Co.'s bonds 7% notes due 2016 were "active," he said, and up "more than 2 points" to around the 94½ level, investors apparently shrugging off a Moody's Investors Service downgrade of the Dallas-based food products company's speculative grade liquidity rating to SGL-3 from SGL-2, although the agency did keep the company's corporate family rating at Ba3 with a stable outlook.

He also saw Freescale Semiconductor Inc.'s bonds up another point on the day, on top of gains notched on Wednesday, saying that the Austin, Tex.-based computer-chip maker "continues to grind higher."

He suggested that "tech tends to be more of a higher-beta space, than others, so it tends to rally more on rallies and sell off more on sell-offs."

FelCor firms up

A market source was quoting FelCor Lodging LP's 10% notes due 2014 at just under the 105 bid mark, up 2½ points on the day.

The Irving, Tex.-based lodging-industry REIT filed with the SEC for a $201.3 million stock offering, with proceeds slated for debt repayment and to fund new hotel purchases.

Cincinnati Bell gets bopped

A trader said that "the big mover of the day" from where he sat was Cincinnati Bell, whose bonds "were down anywhere from 2 to 4 points, depending on which issue," following the Midwestern telecommunications company's announcement of its plans to buy CyrusOne, a Texas-based data center operator, for about half a billion dollars.

Cincinnati Bell's 8¼% notes due 2017 were seen to have retreated more than 2 points on the day to the 98½ bid level, while a trader at another shop pegged its 8¾% notes due 2018 at 96½ bid, 97½ offered, down 3 points on the session. However, at another desk, the latter bonds were being quoted going out around 99, still down nearly 2 points on the day.

Yet another market source saw the '18s off as much as 4 points on the day at just under the 97 mark.

The company meantime outlined its plans to borrow nearly $1 billion via bank debt - although an unsecured bond offering is also a possibility - with about half of the sum being used for the CyrusOne purchase and the rest used to refinance existing debt, pay fees and for general corporate purposes.

Blockbuster busted on numbers

A trader said that Blockbuster Inc.'s bonds "were pretty active on the day" ahead of the late-afternoon release of the troubled Dallas-based movie-rental company's first-quarter numbers, which he described as "poor, at the low end of Street estimates."

He saw the company's 9% notes due 2012 at a wide 21-22½ range and said they were ending down a point on the day. He saw Blockbuster's 11¾% notes due 2014 at 681/2-70, and said that was also down a point.

Earlier, just as the numbers were hitting the market but before anyone had a chance to react to them, he had quoted the 9s around 22 bid,, on "a lot of trading there," while having seen the 113/4s trading around a 69-71 context. As the numbers came out, he said the bonds "were jumping all around" and predicted they "probably would be tailing lower."

Another trader, commenting after the numbers had been out for a while, saw the bonds down 3 points on the session around 19 bid, 20 offered.

The Dallas-based movie rental chain posted a net loss of $65.4 million, or 33 cents per share, for the quarter ending April 4. That compared to net income of $27.7 million, or 12 cents per share, the year before.

Analysts had expected the loss to be around 14 cents per share.

Total revenue fell to $939.4 million from $1.09 billion in the first quarter of 2009 and same-store sales declined by 7.8%.

Blockbuster finished the quarter with $109.9 million in cash and equivalents. Free cash flow was negative $54.8 million.

"During the first quarter we continued progress to recapitalize our business," stated Jim Keyes, chairman and chief executive officer, in the earnings release. "We have had encouraging discussions with both financial and strategic partners and expect to have additional details to report by our annual stockholders' meeting in late June.

"In spite of competitive challenges, we experienced better domestic rental same-store comparables trends and achieved a number of goals to establish a significant competitive advantage going forward," he added. "Most important was our success in securing agreements with key studio partners to ensure our customers receive day-and-date, cross-channel access to hot new releases. We now have a 28 day rental advantage on nearly 50% of major new releases."

Blockbuster has struggled of late with the advent on On Demand and movie rental kiosks, such as RedBox. Rival Movie Gallery Inc. - which filed for bankruptcy earlier this year for the second time in three years - recently announced it was shuttering all of its stores. The problem, as many market players see it, is the so-called "brick-and-mortar" business model. As more and more consumers gravitate towards the Internet or more convenient rental methods - such as RedBox or NetFlix - the company's market share has deteriorated.

But with the closure of Movie Gallery, that leaves Blockbuster as the sole major chain movie renter. And that could work in the company's favor, at least in management's opinion.

"We believe Movie Gallery store closings could favorably affect hundreds of Blockbuster locations," said Tom Casey, chief financial officer, in the release.

Still, Casey noted: "We expect the next 12 to 18 months will remain challenging."

Paper names a mixed bag

A trader saw Smurfit-Stone Container Corp.'s bonds trading in a 921/2-94 context, which "covers most of the Smurfits," including their 8¼% notes due 2012 and the 8% notes due 2017.

"Maybe that's down by a point," he said, "but there was not much volume in that."

He said that NewPage Corp.'s 10% notes due 2012 were "virtually unchanged" on "not much activity," quoting them around the 65-66 level where they have recently traded. He saw the Miamisburg, Ohio-based coated-paper maker's 11 3/8% notes due 2014 likewise unchanged ending around 981/2.

He saw Catalyst Paper Corp.'s 7 3/8% notes due 2014 around a 58-60 level on "not much activity." He said: "The quote's lower - but I didn't see trading in that." He meantime saw the Richmond, B.C.-based paper maker's 8 5/8% notes due 2011remaining around 91-93. "I didn't see many quotes in Catalyst at all."

The trader said that the bonds of Cascades, Inc. - which reported a decline in earnings versus a year ago due to higher raw materials costs - remained mostly around the par-102 level.

-Stephanie N. Rotondo contributed to this report

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