Calendar builds as junk market re-opens; Forest Oil up on asset sale, Nakheel slides; funds gain $189 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 30 - It was back to work for denizens of the junk bond market on Monday after what was, for many, a rare four-day break - but not that many people seemed to be rarin' to go. For one thing, there were no new deals priced - contrary to the expectations of some participants who had forecast a quick post-holiday revival of the busy primary market seen earlier in the month.

But while nothing priced, it didn't mean that nothing was going on. Setting the stage for a primary pickup, a number of issuers did announce plans to do bond deals, including Norcraft Cos., LP/Norcraft Finance Corp., Birch Communications Inc. and Essar Steel Algoma Inc.

The split-rated (Baa3/BB+/BBB) diversified industrial company Otter Tail Corp. also outlined plans for a bond deal, while out of Europe came word that Italian motorcycle and scooter manufacturer Piaggio Group will bring a euro-denominated bond issue to market.

High yield syndicate sources later heard that Norcraft and Essar were hitting the road to market their respective deals to prospective investors.

If the primary market was biding its time, even while looking to the near future, the secondary market was just as subdued. Traders said nothing really stood out - not even seeing any kind of aftermarket trading in big, liquid issues like the Clearwire Communications LLC mega-deal that priced around mid-month, and that same company's near-billion-dollar add-on that came to market last week.

There was some activity - although not all that much - in Forest Oil Corp.'s bonds on the news that the Denver-based independent energy exploration and production company has agreed to sell some assets for $800 million.

There meantime was little activity in MGM Mirage paper, even with all of the negative news swirling around Dubai World, MGM's partner in its ambitious CityCenter development project slated for its official opening Tuesday on the Las Vegas Strip. MGM sought to calm investors' jitters by asserting that the Middle Eastern company's financial woes will in no way affect the CityCenter financing.

Dubai World's Nakheel Development subsidiary's bonds, however, continued a bad slide which had begun last week when the Dubai government said that its wholly owned development arm, Dubai World, would seek to delay scheduled payments on some $60 billion of debt, while it tries to restructure those obligations. That downturn continued Monday, as the government said it would not guarantee its troubled development company's debts.

Junk funds up by $189 million

As trading was finishing up for the session, 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 $189 million more came into the weekly-reporting funds than left them. The numbers generally circulate through Junkbondland on Thursday afternoons, but were delayed this week because of the Thanksgiving Day holiday which saw the market tightly shut down this past Thursday and operating on an abbreviated schedule this past Friday, with few players in and no real dealings seen having gone on.

The latest week's inflow was the 14th consecutive advance, and followed the $359.6 million cash inflow seen in the previous week, ended Wednesday, Nov. 18. It was also the 21st week in the last 22 in which inflows were seen, dating back to mid-June. Some $7.318 billion of net inflows have been seen during that stretch, according to a Prospect News analysis of the AMG figures - a run interrupted only by a lonely $89.9 million outflow recorded in the week ended Aug. 19.

Counting the latest week's number, the year-to-date net inflow for the weekly-reporting funds rose to $18.904 billion, according to the analysis - a new peak level for the year so far, eclipsing the old mark of $18.715 billion recorded the previous week.

With 2009 heading into the final month of the year, inflows, including the latest weekly gain, have now been seen in 42 weeks out of the 47 since the start of the year, according to the analysis, against just five outflows - the Aug. 19 retreat, a $110 million outflow in the week ended June 24, and three weeks of outflows in late February and early March, totaling $969 million. The inflows, on the other hand, include an incredible 14-week run of consecutive gains, dating from mid-March through mid-June, during which time the funds grew by a record $9.1 billion. Including another category of funds - those which report on a monthly basis, rather than weekly - aggregate inflows for the year so far have mounted up to some $28-29 billion.

Such sustained inflows have helped the junk market come roaring back from last year's staggering 25%-plus loss and sharply reduced primary activity totals. Total returns so far this year totaled an eye-popping 52.946% as of Friday's close, according to the authoritative Merrill Lynch High Yield Master II index, a new peak level for 2009, handily beating virtually every other major investment asset class. Meanwhile, the $142.69 billion of new high yield debt issued so far this year globally, as of Friday's close -- $116.185 billion of it domestic - is running some 98.62% ahead of the feeble pace of last year's global primary tally, according to statistics compiled by Prospect News. Domestic new issuance is 96.08% ahead of its year-ago levels.

EPFR sees inflows continuing

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, which uses a different methodology, calculated a $204 million inflow on the week, extending the trend seen the previous week, ended Nov. 18, when it had reported a $744 million gain, which was the biggest cash infusion in 14 weeks, the service said, "as the prospect of low interest rates in the U.S. and Europe well into next year increased investor comfort with this asset class."

The latest inflow brought the year-to-date cumulative total up to some $21.94 billion - its peak level for 2009 so far - versus about $21.73 billion the week before, EPFR said.

While the EPFR junk figures most weeks 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 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.

Essar Steel starts Tuesday

The high-yield market passed a quiet Monday, according to a syndicate banker in New York.

Essar Steel Algoma Inc. will begin a roadshow on Tuesday for a $325 million offering of five-year first-lien senior secured notes, according to an informed source.

UBS Investment Bank is the bookrunner.

Proceeds from the Rule 144A/Regulation S deal will be used to repay bank debt.

Essar is a Sault Ste. Marie, Ontario, integrated steel producer.

Norcraft begins roadshow

Elsewhere, Norcraft Cos., LP and Norcraft Finance Corp. began a roadshow on Monday for a $150 million offering of six-year senior secured notes, according to an informed source.

The roadshow wraps up on Thursday.

UBS Investment Bank is the left bookrunner. Jefferies & Co. is the joint bookrunner.

The notes will be guaranteed on a senior secured basis by Norcraft Canada Corp., a direct, wholly owned subsidiary of companies.

Credit ratings remain to be determined.

Proceeds will be used to redeem the Eagan, Minn., cabinet manufacturer's 9% senior subordinated notes due 2011 and to repurchase a portion of the 9¾ % senior discount notes due 2012 issued by Norcraft Holdings, LP and Norcraft Capital Corp. as part of Norcraft Holdings, LP's previously announced tender offer.

Clearwire deal unseen

Traders saw little or no activity in any of the recently priced new issues, such as Clearwire Communications' 12% senior secured notes due 2015, which priced on Nov. 18 or the Kirkland, Wash.-based wireless broadband services provider's Clearwire Escrow Corp. add-on notes, which came to market last Tuesday.

The latter bonds - increased to $920 million in size from the originally planned $540 million -- had been seen trading last week at 98 bid, up slightly from their 97.945 issue price, which yielded 12½%, while the $1.6 billion of original bonds had been quoted trading about ½ to ¾ point higher than the add-ons.

A trader - who had seen the original tranche "trading at a premium" to the follow-up issue, opined that the immense aggregate size of the Clearwire issue - weighing in at some $2.5 billion - struck him as "especially greedy."

Market indicators seen mixed

Back among statistical measures of market performance not related to the new-deal market, a source saw the CDX Series 13 index up nearly a half point on Monday at 93 bid, 93½ offered , after having edged up 1/8 point on Friday.

The KDP High Yield Daily Index was meantime down 3 basis points on Monday to 69.62, after having fallen by 9 bps on Friday. Its yield tightened by 2 bps to 8.56%, after having widened by 4 bps the previous session.

In the broader market, advancing issues trailed decliners for a second straight session on Monday though only by a relatively narrow 15-to-14 ratio.

Overall market activity, as measured by dollar volume, was many times Friday's virtually dead post-holiday pace.

A trader said that Monday was "one of those days when it took a while to get things moving.

"The day kind of started off slow, as everyone was waiting to see what would happen with Dubai. Then activity started picking up around mid-day."

He said he did not know whether the market's initial lassitude was attributable to it being "a Monday after a long weekend, or you throw in what's going on with Dubai, and maybe Tiger Woods also," he said, referring to the sensational speculation regarding the golf champion's automobile accident and his alleged marital infidelity, which dominated the weekend tabloid headlines and which was a sure-fire conversation-starter Monday at many an office water cooler.

"It wasn't until around mid-day," he said, "that people who were at work actually started working."

Nakheel knocked around

A trader said that Dubai World subsidiary Nakheel Development was "the name of the day," and quoted its 3.1725% euro-denominated notes slated to come due on Dec. 14 as having slid to 58-60, versus 110 bid last week before Wednesday's Dubai government announcement of a delay in its development arm's debt payments, and down also from the lower 80s level to which the bonds had slid post-news at the end of last week.

Fueled by fresh investor worries Monday - particularly when an official of the government of Dubai, Abdul Rahman Al Saleh, director general of the Dubai Department of Finance, said that it would not guarantee Dubai World's estimated $60 billion of debt at the parent company level and at subsidiaries like Nakheel - the bonds got as low as 55, before coming off those lows to end at 58-60.

The trader said that there was "a lot of activity, a lot of quotes" in the bonds.

"When you say you are not paying debt, that's not good."

He also saw the 2¾% euro-denominated notes due 2011 at 421/2-45, versus the mid-80s pre-news last week and the mid-50s at the end of the week.

But little MGM impact

He meantime saw MGM Mirage's 8½% notes due 2010 "right near par" at 98½ bid, 99½ offered, but added that he "didn't see much trading in these things" in the wake of the Dubai developments, even though MGM and Nakheel parent Dubai World are 50-50 joint venture partners in the massive nearly $9 billion CityCenter casino resort, residential and retail project in Las Vegas, which is scheduled to open Tuesday. "I don't know how active MGM was."

MGM said last week, after the initial announcement of the Dubai debt delay, that "CityCenter is fully funded, on schedule and ready to begin welcoming guests."

Analysts and other observers tended to agree; for instance, analyst Joseph Greff of J.P. Morgan wrote in a research note that Dubai World "has already fully funded its entire capital commitment in CityCenter, so there is no risk there."

Greff also pointed out that under the contract between the two companies, should Dubai World look to sell its stake in CityCenter, MGM "would have the right of first refusal to buy out Dubai World's stake."

A trader said that MGM had acknowledged that the money for CityCenter was 'there, in a lock-box," helping support its bonds. He saw MGM's 6¾% notes due 2012 were at 85¼ -- "a small piece traded" at that level, he said.

Forest Oil up on asset-sale plan

A trader said that there was some news out on Forest Oil, which said it would sell its remaining Permian Basin assets in West Texas and New Mexico to SandRidge Energy Inc. for $800 million. The announcement came out late in the day, limiting trading in the bonds of the two energy companies.

While he saw Forest Oil's 7¼% notes due 2019 having traded at 95 bid, 95¼ offered earlier in the day, he said that there was "nothing" trading after the SandRidge announcement. He called the bonds down slightly from closing levels last week.

However, Forest's 8% notes due 2011 moved up to 103¼ bid from prior levels around 1021/2.

He also saw Oklahoma City-based Sand Ridge's 8 5/8% notes due 2015 in "a pretty tight range" around 96¼ bid, 96½ offered. "A couple of million traded," he said, "but they were pretty much unchanged."

He said he was surprised at the overall lack of market response. "When I saw that Forest news, I thought that more people might be talking about [this]."

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