Clear Channel off on CEO exit, Rite Aid easier; market off amid $1.4 billion funds gain

By Paul Deckelman and Paul A. Harris

New York, June 23 - Clear Channel Communications Inc.'s bonds were seen down by several points on Thursday in an apparent delayed reaction to Wednesday's news that the San Antonio, Tex.-based media company's president and chief executive officer, Mark Mays, will step down from those posts by year-end, although he will remain as chairman of the company's board of directors.

Traders saw more activity in Rite Aid Corp., whose bonds have jinked downward, then upward, and then back downward again this week, before and then after the big drugstore company released first-quarter results which showed a smaller than expected loss.

Overall, though, the traders found most of the day's activity featureless, in light trading, although they detected a somewhat easier tone in the market. The combination of televised soccer, excellent weather in the Northeast and end-of-June family festivities like graduations were seen taking a toll on market attendance and participation.

Primary market activity was quiet and centered around euro-denominated automotive credits. French carmaker Renault SA swooped in with a quickly-shopped €400 million offering of five-year euro medium-term notes.

And Hertz Holdings Netherlands BV - a European arm of U.S. car-rental giant Hertz Global Holdings, Inc. - upsized its planned issue of five-year secured notes to €400 million. Price talk emerged on the deal, which is expected to price on Friday.

French car-rental company Europcar's EC Finance plc unit meantime was heard to be wrapping up the roadshow for its €250 million tranche of seven-year secured notes.

Junk funds jump by $1.4 billion

And as trading was wrapping up for the day, participants familiar with the Lipper FMI 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 $1.391 billion more came into those funds than left them - one of the largest inflows ever recorded and certainly the largest seen in the past several years, according to a Prospect News analysis of the figures provided by market sources.

It was the second consecutive weekly inflow, following the $270.7 million cash infusion seen in the week ended June 16 - the first inflow the junk market had seen since the end of April, breaking a six-week long losing streak which saw a combined net outflow of $4.613 billion mount up, according to the Prospect News analysis. Included in that string of outflows was a massive $1.69 billion hemorrhage in the week ended May 12, the largest such outflow in at least five years and by some accounts, the third-largest since record-keeping started in 1992. Those six weeks of outflows - a sign of continued investor unease with the junk market - coincided with a sharp falloff in high yield primary issuance, as well as a slide in secondary market performance, seen both anecdotally in the reports of traders as well as in various statistical measures of secondary market strength, or the lack thereof.

But this week's huge inflow, like last week's, did not really come as a surprise to many traders, who noted the recently firmer market tone, with the widely followed Merrill Lynch High Yield Master II Index hovering around or above the 5% year-to-date return level, well up from the levels it had held for most of the past month, as well as a strong pickup in junk bond primary market activity. They also cited recent positive daily flows into the mutual funds - signs of a nascent rebirth of investor confidence in the junk market's viability.

Counting the latest week's upturn, inflows have now been seen in 16 weeks out of the 25 since the beginning of the year, including a 10-week winning streak that stretched from late-February through the end of April, during which time $4.443 billion more came into the funds than left them, according to the Prospect News analysis. There have been nine outflows in 2010 - the six most recent, as noted, and three other cash drains recorded in January and in February.

The inflow in the latest week swung the year-to-date cumulative total for the weekly-reporting funds back into the black with a net inflow of $1.186 billion, according to the analysis of the data, versus the $204 million 2010 net outflow recorded the previous week. The funds hit their biggest year-to-date negative number for the year so far in the week ended June 9, with a cumulative deficit of $475 million, while their peak cumulative inflow total for the year was the $4.086 billion recorded in the week ended April 28.

EPFR sees $1.1 billion cash gain

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime also reported an enormous inflow, as some $1.1 billion more came into the funds than left them in the latest week.

It was the second straight inflow reported by EPFR, on top of the $164 million cash infusion seen the previous week. More or less in line with the pattern seen in the AMG figures, the EPFR statistics showed the June 16 inflow to have been the first after five straight weeks of outflows totaling $6.27 billion.

In a research note on Thursday evening, EPFR analysts said that "flows into high yield bond funds, which had their best week since early March, were driven by the perception U.S. interest rates will stay at rock-bottom levels for the rest of the year."

Reflecting the difference between the ways AMG and EPFR calculate their respective fund-flow totals - EPFR includes results from certain non-U.S. domiciled funds as well as the domestic funds - the service's year-to-date net inflow total now stands at $3.62 billion. That's up from last week's $2.434 billion, but thanks to the recent outflows, still well below the peak inflow level of $8.59 billion seen from the beginning of May onward, after 10 straight weeks of inflows starting in late February.

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.

Market indicators move lower

A trader saw the CDX North American HY Series 14 Index down ¾ point on Thursday at 95 bid, 95¼ offered, after having finished on Wednesday unchanged on the session.

The KDP High Yield Daily Index, meantime, dropped by 23 basis points on Thursday to end at 70.70, on top of a 14 bps slide on Wednesday. Its yield rose by 6 bps on Thursday, to 8.61%, after having increased by 5 bps in each of the previous two sessions.

Advancing issues trailed decliners for a second straight session on Thursday, and as had been the case on Wednesday, the difference between the two groups was less than 100 issues out of the more than 1,400 traded.

Overall market activity, represented by dollar-volume levels, fell by 18% on Thursday, on top of Wednesday's 25% drop from the previous session's pace.

A trader said "a lot of things went on wild rides," easing a point or more, although overall trading was fairly light.

A second said that activity was limited because "the name of the game is graduation - it seems like with the month ending and summer starting, a lot of people, after an hour or two this morning, disappeared to graduations - whether college, high school, junior high, or in one case, kindergarten."

Another, ongoing distracting factor was the World Cup, with several matches televised Thursday. "I think a lot of people left after the World Cup - to go to their graduations."

With those factors working against market attendance and participation, he said that the overall market environment was "kind of quiet. Nothing in particular was jumping out - just a little bit of everything here and there."

He saw junk generally down ¼ point first thing in the morning on light volume, and then after that, "today, it's just kind of been no particular theme - you're just seeing a lot of names, left and right, coming across."

At another shop, a trader opined that "people wanted the market to be down - and it really wasn't, is probably the best way to put it."

He saw tech names "down a little bit more than other things," with paper such as First Data Corp. "off a couple of points, probably one of the bigger traders today on the downside. Tech definitely was more under pressure than the rest of the market." The Atlanta-based electronic transaction processing company's 9 7/8% notes due 2015 were seen down a deuce at just over 79 bid.

The trader suggested that "there are still a lot of buyers that are hoping to buy stuff at better levels, but didn't really get a lot of opportunities to do that today. Bids started a little weaker, but I don't think there was a lot of paper that traded at lower levels."

Looking ahead, one of the traders noted that Friday is "the last trade date to have a settlement in June - so it's kind of month-end, quarter-end, half-year-end housekeeping, getting rid of bits and pieces there."

For instance, he said, "someone has a small position in something, and it's the end of the quarter, and they say 'let's get this line item off.' So it may not be a $5 million or a $10 million trade, but it might be $1 million or $2 million. They're in no desperate need to sell things - but if there's a halfway decent bid out, they'll say 'okay - that's one less thing to worry about'."

Clear Channel clocked on Mays exit

A trader said that Clear Channel Communications Inc.'s bonds were lower in apparent response to Wednesday's announcement that its president and chief executive officer, Mark P. Mays, will step down after six years at the helm of the company, leaving those positions by the end of the year. He will remain as chairman.

The trader saw Clear Channel's 10¾% notes due 2016 "down a couple" of points in a 721/2-73 neighborhood.

Another market source saw those bonds down nearly 2 points on the day at just under 73.

The company's $1.3 billion issue of 11% senior PIK toggle notes due 2016 fell slightly below 70, before going out at 70½ bid, down about ½ point from Wednesday's close and well down from pre-news levels Tuesday around 72.

Its 6¼% notes due 2011, on the other hand, were seem little changed at levels just under 97.

Mays - whose father, Lowry Mays, built the company into the largest single owner of AM and FM radio stations in the U.S., starting with one high-powered "clear channel" station in San Antonio in the early 1970s - has been with the company for 21 years in various executive capacities. He is the last member of the founding family to lead Clear Channel, following his father's retirement from day-to-day executive positions executive positions and his brother Randall's relinquishing the company presidency and chief financial officer's post several years ago.

In 2008, the formerly public company was taken private by Thomas H. Lee Partners and Bain Capital Partners, with Mark Mays remaining as CEO.

Rite Aid unchanged to lower

A trader saw Rite Aid Corp. paper such as its 8 5/8% notes due 2015 were staying "right around the levels where they've been the last day or so," quoting them in an 81-83 range.

He meantime saw its 10 3/8% notes due 2016, which he called "a little more active" around 101½ bid, as were its 11 3/8% notes, levels "about where they've been, unchanged from [Wednesday]."

Rite Aid, a second trader observed, "kind of held a lot of [Wednesday's] gains, to end unchanged.

However, another trader said that in general, Rite Aid's bonds were down by ½ to 1 point with its most active issue, the 9½% notes due 2017, down a point at 80¼ bid, and the company's other bonds down between ½ point and a full point, "depending on the [bond's] maturity."

That followed a rise in the Camp Hill, Pa.-based drugstore chain operator's bonds on Wednesday, after it released first-quarter results that included a smaller-than-expected loss.

Also in the retailing sphere, while a trader saw the Rite Aid bonds unchanged, he said that store chain operator Bon-Ton Stores Inc.'s 10¼% notes due 2014 were down ½ point, "wrapped around 99."

He saw Harrah's Operating Co. Inc.'s bonds "hit a little bit as well," about a point or two lower on the day, with its 10% notes due 2018 at 82½ bid, 83½ offered. He said that the Las Vegas-based gaming giant's paper was "definitely a little weaker, though I didn't see any news behind it."

Energy issues mostly steady

A trader said that ATP Oil & Gas Corp.'s 11 7/8% senior secured notes due 2015 "seemed like they stayed right around" a 73-74 level all day, "pretty close to where they were [Wednesday]."

The Houston-based energy exploration and production company's bonds have stayed anchored around those low 70s levels over the past few sessions, as investors speculate what impact the federal government's six-month deepwater-drilling ban, in the wake of the Deepwater Horizon disaster in the Gulf of Mexico may have on companies like ATP, which has most of its proven reserves deep below the Gulf and which would be shut out from them if the ban survives court rulings and is allowed to remain in place.

He meantime saw Deepwater Horizon owner Transocean Inc.'s 6.80% bonds due 2038 around 90 bid, but said that he "really didn't see much activity in those. There were more quotes than trading."

He saw the Swiss maritime oil drilling rig operator's shorter issues, like the 6% notes due 2018, around 93- 931/2, with "some activity" going on in the credit."

Another trader saw ruptured well owner BP Capital Markets plc's shorter paper up slightly, while the beleaguered British oil giant's longer-dated issues were unchanged "on okay volume - nothing exciting in any issue, per se." BP's 5¼% notes due 2013 were seen up more than a point at just over 93 bid.

Bonds of BP's minority partner in the ill-fated well, Anadarko Petroleum Corp. - which have been getting knocked around all week after the Woodlands, Tex.-based energy E&P company's ratings were cut down to junk status by Moody's Investors Service - were seen a little better, its 5.95% notes due 2016 up ¾ point, at 87 bid.

Debt payment no boost for CIT

A trader said that the news that CIT Group Inc. had prepaid $1.25 billion of debt after securitizing receivables and selling assets had little impact on the New York-based commercial lender's bonds on Thursday - even though the prepayment, made Wednesday and disclosed Thursday in a filing with the Securities and Exchange Commission, relieves a portion of the heavy debt burden that has weighed on the company since its exit from bankruptcy last December.

"It wasn't big news," he said, noting that some of the repayment - about $950 million of it - was mandatory, and had thus been anticipated by the market.

He saw CIT's 7% notes due 2013 unchanged at 96½ bid, 97 offered, while longer paper, like the 7% notes due 2017, were down a point at 91 bid, on "a little more activity. So the shorter ones were unchanged and the longer ones down a point."

A market source at another shop meantime saw CIT's '17s down ¾ point at 91¼ bid, while its 7% notes due 2016 closed at 91½ bid, down 1¼ points.

No activity in new deals

Several traders said that they saw no activity Thursday in the recently priced bonds of Case New Holland, Inc., Michael Foods Group, Inc. and Capella Healthcare, Inc., which had all come to market earlier in the week and had all moved up a little - or in Michael Foods' case, as much as three points - when they hit the aftermarket.

"They stayed right where they were - pretty quiet on all three of them."

Inflow could prompt deals

The U.S. primary market sleep-walked through most of the Thursday session, sources said.

Cash bonds were somewhat lower in quiet trading, according to a source from a Boston-based high-yield mutual fund, who spoke in the early afternoon.

Late in the afternoon, however, the channels lit up with the news that the funds took in another sizable burst of cash.

That should result in a much busier new issue calendar, according to a money manager in the Midwest.

The week's most conspicuous loser, among the asset classes, was the equity funds category, which sustained nearly $2.8 billion of outflows, according to the data, the source added.

Investors are moving money out of stocks, and into taxable bonds, the Midwestern money manager said, adding that global bond funds are up 18%, year-to-date.

Renault prices scaled-back deal

Once again, news out of Europe dominated the primary market on Thursday.

Renault SA priced a €400 million issue of 5 5/8% five-year euro medium term notes (Ba1/BB/BB) at a 370 basis points spread to mid-swaps.

The spread came at the wide end of the mid-swaps plus 360 bps to 370 bps price talk.

Although the deal launched as a "small benchmark" sized offer, the company came to market seeking to raise €500 million, according to a market source. Hence the issued amount is believed to represent a downsizing of the transaction, the source added.

JP Morgan, SG CIB and Unicredit led the deal.

Hertz upsizes, sets talk

Meanwhile, Hertz Holdings Netherlands BV upsized its five-year senior unsecured notes offer to €400 million from €275 million.

Also the car rental company talked the notes (B1/B) to yield in the 8½% area.

The deal is expected to price on Friday.

Barclays Capital and JPMorgan are the physical bookrunners for the Rule 144A and Regulation S offering. BNP Paribas, Credit Agricole CIB and Natixis Bleichroeder are the joint bookrunners.

Elsewhere in the euro-denominated junk market, France's Europcar was scheduled to wrap up the roadshow for its €250 million offering of seven-year senior secured notes (expected ratings B2/B+), on Thursday, according to market sources.

There was no price talk or other news on the deal, according to a syndicate source who commented shortly after the London close.

The deal is in the market via physical bookrunners JPMorgan and Deutsche Bank Securities, and joint bookrunners Credit Agricole CIB and SG CIB.

U.S. market quiet

No news surfaced on three dollar-denominated deals set to price during the pre-Independence Day week.

However, DynCorp. International Inc. is expected to price its $455 million offering of seven-year senior unsecured notes (/B/) with a yield in the high 10% range, or possibly as high as 11%, according to a trader from a high-yield mutual fund.

The roadshow, now underway, is scheduled to wrap up on Monday.

Citigroup Global Markets Inc., Bank of America Merrill Lynch, Barclays Capital Inc. and Deutsche Bank Securities Inc. are the joint bookrunners for the LBO and related debt refinancing deal.

Meanwhile, Bankrate, Inc. is presenting its $280 million offering of five-year senior secured notes (B2/B) to investors, on a roadshow that wraps up on Wednesday.

Jefferies & Co. and RBC Capital Markets Corp. are the joint bookrunners for the acquisition financing.

And CKE Restaurants, Inc. also expects to price its $600 million offering of eight-year senior secured second-lien notes (B2/B) during the week ahead.

Morgan Stanley & Co. Inc., Citigroup Global Markets Inc. and RBC Capital Markets Corp. are the joint bookrunners for the LBO and related debt refinancing deal.

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