Market turns firm; Ford takes the cake; Sprint mixed after earnings; Blockbuster trending up

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Feb. 11 – The high-yield market ended with a positive tone Thursday, helped in part by heavy action in Ford Motor Co.

Traders called the carmaker’s debt the day’s most active, ending unchanged to better, depending on whom you asked. While the bonds were burning up, the company was attempting to wow the crowd at the Chicago Auto Show.

Elsewhere, Sprint Nextel Corp. debt finished the day mixed. The up-and-down movement of the notes came one day after the company released its quarterly results.

Blockbuster Inc. continued to gain ground in Thursday trading. There was still no news out to explain the recent upward movement.

Even Harrah’s Entertainment Inc. was a winner of the day, as the state of Nevada reported yet another month – and year – of declining revenues. Sources said the bonds were trading actively.

Meanwhile, the primary market – recently frenetically busy – was much more subdued and actually saw a significant amount of bad news in the form of postponed deals.

EPFR sees funds losing $1 billion

As the day’s trading was winding down, market participants for a second week awaited the high yield mutual fund-flow statistics generated by AMG Data Services of Arcata, Calif. – a key barometer of overall market liquidity trends – which normally make the rounds of trading desks on Thursday afternoon or early evening. Once more that was not the case this week.

But while the AMG statistics were nowhere to be found, another fund-tracking service, EPFR Global of Cambridge, Mass., which uses a different methodology from AMG, saw a big outflow, with high-yield bond funds losing more than $1 billion in the week ended Wednesday by its measure.

That follows an inflow the previous week of $335 million, which in turn came after the previous week’s $137.4 million outflow.

EPFR said it was the biggest weekly loss since the third quarter of 2008.

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.

Plastipak brings small add on

The only deal that did price Thursday was a small add on from Plastipak Holdings, Inc. It brought a $50 million add-on to its 10 5/8% senior notes due Aug. 15, 2019 (existing ratings B3/B) at 109.00, resulting in a yield of 8.95%.

JP Morgan ran the books for the quick-to-market deal.

Proceeds will be used to repay revolver debt and for general corporate purposes

Chaparral sets talk

Looking ahead to Friday, Chaparral Energy, Inc. set price talk for its $400 million two-part offering of notes.

The Oklahoma City-based oil and gas exploration and development company talked a $200 million tranche of five-year senior secured second-lien notes to yield 9¾% to 10%. The secured notes are non-callable for three years.

Meanwhile Chaparral talked a $200 million tranche of eight-year senior unsecured notes at 12¾% to 13%. The unsecured notes are non-callable for four years.

UBS Investment Bank is the left bookrunner. Credit Suisse Securities and RBS Securities Inc. are joint bookrunners.

Proceeds will be used to repay the company's revolving credit facility.

Parade of pulled deals

Perhaps the most glaring news in Thursday's primary market was the continuing parade of pulled deals.

Kemet Corp. postponed its $275 million offering of eight-year senior notes due to unfavorable market conditions.

As a result of the postponement, the company also announced that it has terminated its tender offer to purchase for cash up to $56.081 million of its outstanding 2.25% convertible senior notes due 2026.

Bank of America Merrill Lynch was the bookrunner.

Proceeds were to have been used to repay substantially all outstanding debt under existing credit facilities and to fund a tender for a portion of the 2¼% convertibles due 2026.

Meanwhile Hudson Products Holdings Inc. delayed its $250 million offering of six-year senior secured second-lien notes (B2//) due to market conditions.

UBS Investment Bank has the books for the debt refinancing deal from the Sugar Land, Texas-based global provider of air-cooled heat exchangers and axial flow-fans.

And Cyprus’s Songa Offshore SE will delay its $200 million offering of seven-year senior notes (Caa1/B+) pending certification of its financial results from the fourth quarter of last year.

Citigroup is leading the debt refinancing and general corporate purposes deal.

Elsewhere, Bombardier Inc. has developed an aversion to the rates that will likely be extracted, should the Montreal-based manufacturer of air and rail transportation equipment company choose to go forward with its $1 billion two-part offering of non-callable senior notes (expected ratings Ba2/BB+), according to a mutual fund manager.

Although no formal price talk had been announced by Thursday's close, the chatter around the deal had the eight-year notes coming with a yield of 8%, and the 10-year tranche coming with a yield of 8¼.

Heading into the present week, the deal had been expected to price before Friday’s close.

JPMorgan, Deutsche Bank Securities and UBS Investment Bank are joint bookrunners for the deal to fund the company’s concurrent tender offers and for general corporate purposes.

Market turns firm

The secondary high yield market had a firm tone to it Thursday, market sources reported.

The CDX High Yield Index improved by ¼ point, according to one source, who saw the Index finish at 95 1/8 bid, 95½ offered.

The KDP High Yield Index was also better at 69.22, yielding 8.79%. On Wednesday, the Index read 69.41, with a yield of 8.72%.

Still, there was a lack of new issues in the market and snowy weather in the Northeast made for some quietness.

Ford takes the cake

Among individual names, there was “tons of Ford trading,” according to a trader, during Thursday’s session.

The trader said the auto maker’s 7 3/8% notes due 2011 were the “most active bond,” trading “up a little” at 101 bid, 102 offered. He added that at least $50 million of the issue changed hands, versus about $2 million the day before.

The trader also saw the 7¼% notes due 2011 around 101½.

Another trader, however, called the Detroit automaker’s benchmark 7.45% notes due 2031 unchanged at 86 bid, 88 offered.

At another desk, a source said a “good chunk of those” 7 3/8% notes traded – about $50 million to $60 million, he said – at 105½ bid, 102 offered.

“That’s kind of right where it has been, maybe a teeny bit better,” he said.

He also pegged the 7¼% notes around 102, on volume of some “$50-odd million.”

On Thursday, Ford Motor took center stage at the Chicago Auto Show, unveiling its newly remodeled Ford Edge, as well as an all-electric truck that is slated to appear sometime in late 2010.

Also on Thursday, auto research firm Edmunds.com issued a report that opined Ford would steal market share from rival Toyota Motor Corp., which has been plagued with recalls of late. Ford is expected to take the second spot in the U.S. with 16.57% market share. Fellow Big Three carmaker General Motors Corp. is expected to retain the first position, with 18.12% of the share.

In GM bonds, a trader said the benchmark 8 3/8% notes due 2033 were ½ point better at 28 bid, 29 offered.

Visteon Corp.’s 7% notes due 2014 meantime ended “about the same,” a trader said, around the 45 level.

Sprint mixed following numbers

Sprint Nextel bonds ended the trading day mixed, as investors digested the earning report put out on Wednesday.

A trader called the 7 5/8% notes due 2011 “kind of active” at 101 bid, 102 offered, deeming that “about ½ point better.” However, the 8 3/8% notes due 2017 were called a point softer at 93 bid, 94 offered.

Elsewhere, a market source said about $10 million of the 7 5/8% notes traded at 101¼, while “$20-odd million” of the 8 3/8% notes moved around 94. He also called the latter issue softer on the day.

And, yet another source saw the 6% notes due 2016 dropping nearly 2 points to 83½ bid.

On Wednesday, the Overland Park, Kan.-based wireless telecommunications company posted its fourth-quarter and full-year 2009 results. The results showed an improvement in free cash flow, which was $666 million for the quarter and $2.8 billion for the year. The yearly flow was the highest annual cash flow since Sprint merged with Nextel.

Net loss for the quarter came to $980 million, or 34 cents per diluted share. For the year, the company saw a loss of 84 cents per share.

Sprint also saw 69,000 retail subscribers leave in the fourth quarter. However, the company pointed out that net post-paid subscriber losses improved by more than 40% in the second half of the year.

“Sprint’s performance built notable momentum during the second half of 2009, leading to a fourth quarter with the best sequential and year-over-year improvement in net post-paid subscriber results in Sprint Nextel history, and positive post-paid net subscriber growth for services carrying the ‘Sprint’ brand,” said Dan Hesse, chief executive officer, in the earnings release. “The company’s continued focus on clear, simple offers, exciting devices, a better customer experience, dependable network performance, and industry leadership in 4G services is resonating with customers.

“We continue to closely manage costs, and in 2009 we generated the highest annual free cash flow since the merger,” Hesse added. “The fourth quarter completion of the Virgin Mobile USA, Inc. and iPCS, Inc., acquisitions, as well as our additional large investment in Clearwire, are important to our future.”

Still, not everyone was convinced that the results meant Sprint had turned a corner.

“Management continued to brag about lower subscriber losses and improved customer satisfaction,” Gimme Credit analyst Dave Novosel wrote in an afternoon comment. “Nevertheless, Sprint is still lowing net subscribers.”

Novosel also noted that while Sprint said it expected to see fewer postpaid losses in 2010, “it did not say add postpaid subs.”

Blockbuster trending upward

Blockbuster bonds remained active and continued to head higher, according to traders.

A trader said the 9% notes due 2012 were “very active” at 18 bid, 19 offered. He called the up about 1½ points on the day.

“There was lots of BBI, as you can imagine,” said another source, adding that the debt was “all over the place.” He saw about $25 million of the 9% notes trade a point higher around 18.

The Dallas-movie rental chain’s bonds have suffered greatly in recent weeks. But Wednesday trading saw the bonds heading higher, with no real news to explain the gains.

However, on Wednesday it was reported that the company had filed for bankruptcy in Portugal, blaming internet piracy for its weakened state.

At the height of its presence in that country, Blockbuster had 27 stores. According to reports, the company now has only 17.

Harrah’s wins despite Nevada losses

Despite the release of yet another disappointing monthly revenue report from Nevada, Harrah’s Entertainment’s debt traded strong.

A market source said a “big hunk” – about $50 million – of the 10% notes due 2018 traded at 74 bid, 75 offered. He said that was “a little bit better, probably a point or two.”

The source also saw the 11¼% notes due 2017 inch up to around 103.

Following the release of Atlantic City’s January revenues, Nevada put out its December and full-year revenues Thursday. Like the Jersey Shore gaming center – which posted an 8.5% decline in wins – the state that is home to Las Vegas saw revenues fall 3.2% to $859.3 million. The Las Vegas Strip, however, saw its revenues increase 6% to $502.1 million. The opening of MGM Mirage’s CityCenter in December was given credit for the gain.

For the year, Nevada reported total revenues of $10.39 billion. That was the lowest level since 2003, when the state won $9.56 billion from gamblers.

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