Ford, Cricket mega-deals lead primary; GM bonds up on revised debt-swap plan; funds see 11th gain, $623 million

By Paul Deckelman and Paul A. Harris

New York, May 28 - Ford Motor Co. paid its first visit to the junk bond new-deal arena in more than a year, driving away with a trunkload of fresh money after its credit unit priced a benchmark-sized five-year issue. However, in a sobering sign of the times, the Dearborn, Mich.-based carmaker - though considered the financially strongest of Detroit's embattled "Big Three" - had to price its deal nearly 20 points below par, slashing its potential proceeds, in order to boost its yield to a level sufficient to get the deal done. The new issue was little moved when it crossed over into the secondary market, leading at least one trader to opine that the deal "doesn't look well received at all."

Ford's big offering was one of two billion dollar-plus mega-deals to hit Junkbondland on Thursday, the other coming from Leap Wireless International Inc.'s operating unit, Cricket Communications Inc.

Also pricing was a considerably smaller bond offering from Verso Paper Corp., as well as a split-rated deal from Pride International Inc.

The new Cricket bonds took no leaps in secondary dealings, but traders saw both the Verso and Pride offerings having moved up.

Price talk emerged on Virgin Media Finance plc's upcoming dollar- and euro-denominated offering, which is expected to price on Friday morning.

The forward calendar meantime gained a new entrant, as Valeant Pharmaceuticals International announced plans for a seven-year note offering, with high yield syndicate sources hearing the Aliso Viejo, Cal.-based drug maker getting ready to hit the road on Monday to market its deal to potential investors.

Among recently priced issues, Harrah's Operating Co.'s billion-dollar bond issue from Wednesday briefly held a hot hand, firming smartly from its issue price - but at the end of the day, those new bonds were right back where they had started.

Among the established names, General Motors Corp.'s bonds firmed by several points, given a jump-start by the news that the faltering Detroit giant - now widely expected to file for bankruptcy by the beginning of next week - was continuing to negotiate a debt-exchange offer to its bondholders, somewhat improved from the offer which they overwhelmingly rejected. But even though a bondholder committee not previously on board expressed support for the revised deal, other bondholders seemed underwhelmed, and said they were still being unfairly penalized and asked to sacrifice much more than other creditors, such as the company's labor unions.

Junk funds show $623 million inflow

As trading was finishing 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 $622.7 million more came into the weekly reporting funds than left them. It was the eleventh consecutive inflow, including the $368 million cash infusion seen in the previous week, ended May 20.

That 11-week winning streak has generated around $7.2 billion of inflows, according to a Prospect News analysis of the AMG figures. With 21 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 around $9.822 billion, according to the analysis, up from about $9.2 billion the week before.

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 five months of the year - except for a lull in both the primary and secondary spheres for several weeks that largely coincided 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 totals.

A market source also said that in the latest week, funds which report on a monthly basis rather than weekly were unchanged, versus the previous week's $17.4 million inflow, which left the year-to-date cumulative inflow for such funds at $8.168 billion.

The source further said that on an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $17.991 billion more has come into the funds than has left them, versus the prior week's aggregate figure of $17.3682 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 11th consecutive week of inflows, with the $872.1 million cash infusion they calculated pushing the year-to-date inflow total to some $9.6 billion, or more than 15% of the funds' collective assets. In the previous week, it said the funds had seen a $283 million inflow.

EPFR's managing director, Brad Durham, noted that the latest inflow into the junk funds was "their second best weekly tally, year-to-date, against a backdrop of further consolidations, bankruptcies and government bail outs of major issuers." The service had calculated that in the week ended May 13 some $1.14 billion more came into the funds than left them - the largest weekly inflow since the EPFR began keeping track of weekly changes in the funds several years ago.

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. 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 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.

Cricket brings $1.1 billion

The primary market continued to generate copious amounts of news on Thursday.

Four issuers, each pricing single tranches, sold a total of $2.425 billion and €800 million.

Perhaps it is notable that not a single one of the Thursday tranches was upsized.

Leap Wireless International subsidiary Cricket Communications priced a $1.1 billion issue of 7¾% seven-year senior secured notes (Ba2/B+) at 96.134 to yield 8½% on Thursday.

The yield was printed on top of price talk.

The drive-by deal went very well, according to an informed source who added that Leap is an issuer known well to high-yield investors.

Goldman Sachs was left lead bookrunner for the debt refinancing. Deutsche Bank Securities was joint bookrunner.

Ford Credit prices $1.1 billion

Elsewhere Ford Motor Credit Co. LLC priced a $1.1 billion issue of 8% five-year notes (Caa1/CCC/B-) at 82.036 to yield 13% on Thursday.

The discount came in line with the 82.00 area price talk.

J.P. Morgan Securities Inc., Banc of America Securities LLC, Barclays Capital Inc., Deutsche Bank Securities Inc., RBS Securities Inc., Calyon Securities (USA) Inc., Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., Morgan Stanley & Co. Inc. and UBS Securities LLC were the underwriters for the general corporate purposes deal.

Verso in line with talk

Verso Paper Corp. priced a $325 million issue of 11½% five-year senior secured notes at 91.968 to yield 13¾%.

The deal, which had been the subject of reverse inquiry, came in line with price talk that specified an 11½% coupon at approximately 8 points of original issue discount to yield 13¾%.

Credit Suisse and Citigroup were joint bookrunners for the debt refinancing.

Pernod prices on a spread

French alcoholic beverage company, Pernod Ricard SA, a fallen angel, priced an €800 million issue of 7% 5.5-year senior fixed-rate notes (Ba1/BB+/BB+) at mid-swaps plus 400 basis points.

The spread came at the tight end of the mid-swaps plus 400 to 425 bps revised price talk. That revised talk was narrowed from the initial mid-swaps plus 425 to 440 bps price talk.

The notes were priced at 99.822 to yield 7.05%

Deutsche Bank Securities, Natixis Bleichroder, RBS Greenwich Capital and SG Corporate & Investment Banking were joint bookrunners.

A senior capital markets banker in London expects more European primary market activity involving four-B rated issuers and fallen angels such as Pernod.

One to look for is cable operator Nexans SA (BB+), which did a non-deal roadshow, the banker said.

Talking the deals

Virgin Media Finance plc set price talk for its $650 million equivalent offering of seven-year senior notes at 10¼% to 10½% on Thursday.

The notes are expected to be issued in dollar- and euro-denominated tranches, with tranche sizes to be determined.

Pricing is expected on Friday morning.

J.P. Morgan, Deutsche Bank, Goldman, Sachs & Co., RBS, BNP Paribas, HSBC, Calyon Securities and Crédit Agricole CIB are joint bookrunners.

Elsewhere Terex Corp. set price talk on Thursday for its $300 million offering of seven-year senior notes at the 11¼% area, with 2.5 to 3 points of original issue discount.

The deal was expected to price on Thursday afternoon, however no terms were available as Prospect News was going to press, according to a market source.

Credit Suisse, UBS Investment Bank and Citigroup are joint bookrunners.

Interface launches $150 million

Interface, Inc. expects to price a $150 million offering of senior secured notes due Nov. 1, 2013 (expected ratings B1/BB-) early next week.

Banc of America Securities LLC, Citigroup and Wachovia Securities are joint bookrunners for the deal to fund the tender for the Atlanta-based floor covering company's 10 3/8% senior notes due 2010.

Valeant roadshow starts Monday

Valeant Pharmaceuticals International will begin a roadshow on Monday for its $300 million offering of seven-year senior unsecured notes.

The deal is expected to price late next week.

Goldman Sachs & Co. is the left lead for the deal from the Aliso Viejo, Calif. pharmaceuticals company, which will use the proceeds to redeem or retire debt and/or equity securities. UBS Investment Bank is joint bookrunner.

New Ford bonds parked near issue price

When the new Ford 8% notes due 2014 were freed for secondary dealings, a trader said that the bonds were trading a little below their 82.036 issue price, quoting them at 81 bid, 83 offered.

At another shop, a trader saw the bonds a little tighter than that, at 82 bid, 82¾ offered - but he said that Ford's new deal "doesn't look well received at all."

He suggested that under the recent barrage of new issues - over a dozen last week alone, and additional new deals to digest this week, including three mega-deals in two days, for Ford, Cricket and Harrah's - "the market is getting a little tired," with the sluggish performance of the well-publicized Ford issue an example of that fading strength. "This Ford one doesn't smell right at all," he asserted.

Among Ford's established issues, even with Ford Credit dominating the day's attention in the primary with its big new offering, a trader said that Ford's benchmark 7.45% bonds due 2031 did not trade in any kind of significant size.

He saw Ford Credit's 7 3/8% notes slated to come due on Oct. 28 unchanged at 973/4, on volume of $18 million.

A second trader estimated the Ford long bonds were up ½ point on the day at 57 bid, 59 offered.

Another market source saw the Ford Credit 7% notes due 2013 down a deuce at 80, although its 7 3/8% notes due 2011 were up by that same amount at 91.5 bid, and the 7 3/8% October bonds were seen 2¼ points better, at just under 99.

Verso paper pops....

Verso Paper Corp.'s new 11½% senior secured notes due 2014 were seen to have pushed solidly higher on the break to 93¼ bid, 93 5/8 offered.

The Memphis-based paper producer had priced the $3265 million issue earlier in the session at 91.968 to yield 13¼%.

A trader at another desk meantime saw the new bonds at 93½ bid, 94 offered.

...while Cricket paper stops

While Verso was pushing upward, the day's other new issue was settling in around where it had priced.

A trader saw Cricket Communications' new 7¾% senior secured notes due 2016 at 96 bid, 97 offered.

The San Diego-based wireless telecom company had priced the $1.1 billion of new bonds earlier in the session at 96.134 to yield 8½%.

New Harrah's bonds hurtle around

Among recently issued paper, a trader called the action in the new Harrah's Operating 11¼% senior secured notes due 2017 "the biggest, most unbelievable turnaround" on the day.

The Las Vegas-based gaming giant had priced its $1 billion issue on Wednesday at 96.225, to yield 12%, and they had not traded in secondary after that pricing.

On Thursday, he said, the bonds traded as high as 99 bid in morning dealings. But that effort to take the bonds higher flopped, and by the day's end, they had backed down to 96¼ bid, 96 3/8 offered.

Tough climb for tower bonds

Another recent issue running into "tough" conditions, he said, was American Tower Corp.'s 7¼% notes due 2019. The Boston-based communications antenna tower operator's $300 million issue priced on Wednesday at 98.279 to yield 7½%. However, by Thursday afternoon, the bonds were trading below issue, at 97¼ bid, 97 3/8 % offered.

Calpine can't catch a bid

"The other [bond] that didn't go any place," the trader said, was Calpine Corp.'s recently priced 8% notes due 2016. The San Jose, Calif.-based independent power producer's Calpine Construction Finance Co. LP and CCFC Finance Corp. subsidiaries priced the $1 billion issue on May 12 at 95.488 to yield 8 7/8%.

Since then, he said, "they couldn't get out of their own way," trading on Thursday at 94¾ bid, 95 bid.

Apria Health bonds head higher

But not all of the recently priced issues were struggling. A trader saw Apria Healthcare Group Inc.'s

11¼% notes due 2014 "really pick up steam," quoting the Lake Forest, Calif.-based healthcare products and services provider's new issue as having moved up to 97 bid from Wednesday levels around 96 1/8.

Apria priced its $700 million issue - upsized from $600 million originally - at 97.05 on May 21 to yield 12%, but the bonds had mostly remained at or below issue for most of the time since then.

AMC hears applause

AMC Entertainment Inc.'s 8¾% notes due 2019 were getting some rave reviews from investors on Thursday. The Kansas City, Mo.-based movie theater operator had priced $600 million of the bonds, upsized from the original $300 million, on Wednesday at 97.582 to yield 9 1/8%.

As of Thursday afternoon, a market source said, the bonds had traded up to 100.25 bid.

Higher grade paper intrigues junk players

The trader said that for a second straight session, there was considerable junk market interest in 6-B credit Allegheny Technologies Inc. (Baa3/BBB-). The Pittsburgh-based diversified metals producer's $350 million offering of 9 3/8% notes due 2019, upsized from $300 million originally, had priced on Wednesday at 99.204 to yield 9½%, and then subsequently moved up to 100½ bid, 101 offered.

On Thursday, he said, those bonds got as good as 102 bid, before going out at 101½ bid, 101¾ offered. He said "there was" junk investor interest in the credit, "with that coupon. You had a lot of junk players playing in that one."

There was also junk market interest in the split-rated (Ba1/BBB-) Pride International 8½% notes due 2019, which priced off the high-grade desks at 99.641, or 487.5 bps over comparable Treasuries, to yield 8.533%. The Houston-based oilfield services company's bonds were quoted by a trader as having moved up smartly after pricing, to 101 bid, 101½ offered.

Market indicators seen mixed

Back among the established issues, a trader saw the CDX Series 12 High Yield index - which lost ¼ point on Wednesday - up by ¼ point on Thursday at 79¾ bid, 80 offered.

The KDP High Yield Daily Index, which had gained 25 basis points on Wednesday, eased by 2 bps to close Thursday at 61.34, while its yield widened by 2 bps to 11.05%.

Advancing issues - which led decliners for a seventh straight session on Wednesday - continued to hold a seven-to-five lead on Thursday.

Overall market activity, measured by dollar-volume totals, rose by 14% from Wednesday's levels.

A trader suggested that following the frenetic recent activity in the primary sector, "the market might be suffering from a little indigestion." With all that's been going on, he said, "it's nuts. On some days, after a while, you walk home like the Aflac duck."

Weighing on the market, he said, was the fact that "the economic news is questionable" combined with the lackluster performance in the most recent government bond auction.

"Even though the portfolio managers have cash, with the inflows and all, they're just a little bit cautious."

A second trader called Thursday's session "sort of a blah day - but it is what it is.

"All of the news today was in equities."

GM gyrates higher on new plan

The major news was General Motors Corp.'s announcement of a revised debt-exchange plan to replace the one so resoundingly rejected by the carmaker's bondholders. In addition to giving the bondholders a 10% stake in the revised company, GM is offering them warrants to buy another 15%. It said a bondholder committee had endorsed the offer as the best they were likely to achieve.

A trader saw GM's benchmark 8 3/8% bonds due 2033 having pushed up to 8¼ bid from prior round-lot levels around 7, helped by the news.

Another trader saw GM's bonds trading in an 8-10 context, saying there had been "a little razzle-dazzle in the name" on the news - but also opining that it seemed like "more of the same," with many GM bondholders also expressing opposition to the supposedly sweetened offer, saying it did not represent very much of an improvement and still left the bondholders holding the short end of the stick relative to the union creditors.

But late in the day, a market source noted that the benchmark bond had been lifted in large-block trading to its day's peak of around 11, for a 4 point gain on the day.

GM's 7.20% notes due 2011 were seen going out at 8 bid, up 2 points from Wednesday's close, though only up marginally on a round-lot basis, while its 7 1/8% notes due 2013 finished around 1½ to 2 points higher around the 8½ level.

A trader meantime said that GMAC LLC's recently rising bonds "seemed like they stopped going up,"quoting them down about a point, with its widely quoted 8% notes due 2031 hanging around the mid-70s.

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