Charter up on asset sale, B/E Aerospace on contract buzz; junk funds see 2nd big inflow, $1.14 billion

By Paul Deckelman and Paul A. Harris

New York, Sept. 4 - Charter Communications Holdings Ltd. bonds firmed on Thursday, on news that the St. Louis-based cable operator - in the midst of trying to turn its financial situation around - had agreed to sell several cable systems in a $765 million deal. Also on the upside, B/E Aerospace Inc. bonds and shares were higher on market buzz that the aircraft components maker would soon announce a major contract. On the downside, GenCorp. and Salton Inc. bonds were quoted lower after the companies reported weak quarterly numbers.

On the primary scene, no deals were heard to have actually priced Thursday, but the forward calendar continued to build, with Broder Brothers heard to be ready to take a $175 million offering of seven-year notes on the road starting Friday, while Brazilian brewer and beverage maker AmBev will be selling $300 million of ten-year notes. Energy operator Tom Brown Inc. was heard preparing a $225 million two-part note sale.

The emergence of new deals was inevitable, given the huge $3.258 billion net inflow of new money into high-yield mutual funds recorded last week - and the trend of ample market liquidity continued this week, as market participants familiar with the weekly fund flow statistics compiled by AMG Data Services Corp. of Arcata, Calif. told Prospect News that some $1.143 billion more came into the funds than left them in the week ended Wednesday.

A bond trader called it "a pretty good number for the market. You'd think that [after the huge inflow last week], the funds would give something back and turn negative in reaction," but that was not the case.

It was the second straight week of inflows, ending a previous five-week hemorrhage of money from the funds, which are seen as a reliable barometer of overall junk market liquidity trends, even though the mutual funds only hold a relatively small percentage of the total assets present in the high yield universe. Moreover, it was also the second straight week in which the inflow number topped the psychologically potent $1 billion mark, and the combined inflow over the past two weeks of $4.401 billion has almost erased the approximately $4.996 billion of outflows recorded over the previous five weeks, according to a Prospect News analysis of the AMG figures.

Counting the latest weekly inflow, a net total of approximately $16.814 billion has come into the mutual funds since the beginning of the year, counting only those funds which report on a weekly basis and excluding distributions. On top of that, another $5.965 billion has come into funds which report on a monthly, rather than a weekly basis, for a total mutual funds year-to-date inflow of approximately $22.779 billion, according to the Prospect News analysis. Clearly, the funds are flush with cash ready to be put to work, and by extension, so is the overall junk bond market.

During Wednesday's session Prescott Crocker, fund manager of the Evergreen High Yield Bond Fund, told Prospect News that the record-breaking inflow posted during the pre-Labor Day week had come courtesy of "market timers who left in July and August and came back when they saw the market moving up."

On Thursday, as the market masticated upon the news of another massive inflow, a sell-side source said that although there could be little doubt that market timing was at play the inflows also possibly represent a growing appetite for risk.

"As investors become less risk-averse money flows into riskier assets like equities and high yield," said the sell-side official.

"A lot of people freaked out a year-and-a-half ago when the stock market began to fall and it was apparent that the internet boom was over. Everyone was just reeling for a while. Now there is this brief moment where everyone seems to feel like the stock market is up. The S&P is up something like 16% year to date; 12% in the past 12 months.

"Those are not amazing returns, but people had convinced themselves at this time last year that stocks were just heading down, down, down. Now with the stock market moving up, although people are wary of all of these scandals, investor sentiment is probably better."

Earlier in the session a sell-side source paraded out a set of numbers that he said point to a relatively flat funds flow picture over the course of summer 2003.

"In the week ending June 11, 2003 there was a $1.7 billion inflow," said the source. "When you factor in month-only reporting funds, which had total assets under management of just under $124 billion, that number, with the outflows that we saw during the weeks July 30 through Aug. 13, plus market value changes - because the data we show is not only inflows but market value changes - after peaking at $127.6 billion for the week ending June 23, dipped down as low at $117 billion.

"What has been impressive is that we have seen some market value recovery. As of last week total assets under management are back up to $122.5 billion.

"Over that intervening two-and-a-half months, despite having substantial outflows, you're pretty much flat in terms of total assets under management."

In secondary action, Charter Communications bonds firmed after the company announced that it would sell several cable systems serving 235,000 customers in New York, Pennsylvania, Florida, Maryland, Delaware, and West Virginia to Atlantic Broadband LLC for $765 million. It was the latest - and the largest - of several recent sales by Charter of what the company considers to be non-core assets, as the third-largest U.S. cable operator tries to regain its once-robust financial health by selling assets and attempting to pare down its more than $17 billion of total debt.

Charter's benchmark 8 5/8% notes due 2009 were quoted as much as three points better on the session at 80 bid, while its zero-coupon/9.92% discount notes due 2011 were up a deuce at 72 bid.

Elsewhere, B/E Aerospace bonds were "really strong," a trader said, pulled along by a nearly 10% rise in the company's stock on market speculation that the Wellington, Fla.-based maker of aircraft cabin systems, which would supposedly take effect in the fourth quarter.

There was no official announcement of any kind relating to any such contract, but it was reported on briefing.com that the big contract was "in the pipeline," and on other sources of market information as well.

The trader cited the big contract buzz as the key component in the rise in its 9½% notes to closing levels around 91 bid, 92 offered, from Wednesday's levels at 88 bid.

Another trader agreed with the proposition that with the stocks and bonds of airlines having recently firmed smartly on investor perception that the improving economy and likely lower fuel prices in the last third of the year will help the carriers, it would stand to reason that they may order more planes or may refurbish and re-fit the ones they have - and B/E, which sells seats and other cabin components to both the aircraft manufacturers and to the airlines themselves, would benefit.

Equity investors obviously agreed, taking B/E's Nasdaq-traded shares skyward on Thursday; they traded as high as $5.70 before closing at $5.49, up 49 cents (9.80%) on volume of 1.1 million shares, about double the norm.

Also on the upside, a trader said that some names were just "gappin' up," citing Corrections Corp. of America's 7% notes, now trading at 102.5 bid, driving the yields down to a very unjunk-like 6.80%-6.90% area, and the Kmart Corp. real-estate passthrough bonds, which are secured by the leases on the retailing giant's store locations. "The real estate paper was flying," he opined, "since real estate is really hot. Everybody is scrambling for it."

He quoted the 8.80% passthrough bonds in the lower 60s, up about 10 points from recent levels, and the 8.99% passthroughs at 50 bid, up 12 points.

He also said that investors were "scurrying around" Greyhound Lines Inc. paper, following Standard & Poor's affirmation of the rating on its 11½% notes due 2007 at CC and its upgrade in the bus operator's corporate credit from CC to CCC. The notes, trading at 66 bid, 69 offered on Wednesday, motored up to 71.5 bid, 74.5 offered on Thursday.

On the downside, Collins & Aikman Products Co.'s bonds were down about three to four points after the Detroit Free Press reported that the Troy, Mich.-based maker of automotive components would lose a contract to supply plastic bumper parts to DaimlerChrysler's Jeep division, a contract which the paper said was potentially worth $90 million, accounting for about 2% of Collins & Aikman's revenues.

A trader quoted its 10¾% senior notes as having fallen to closing levels at 84.5 bid, 86.5 offered from 87 bid, 89 offered on Wednesday, while its 11½% subordinated notes due 2006 fell to 72 bid, 74 offered from levels in the upper 70s Wednesday.

A market source said that several companies which reported disappointing earnings saw their bonds quoted at notably lower levels, including GenCorp. Inc., whose 9½% notes due 2013 fell as low as 96 bid Thursday before ending at 98, still well down from Wednesday's 103 bid; and Salton Inc., whose 10¾% notes due 2005 have moved down to 88 bid from prior levels in the mid-90s (the company makes the popular - but apparently not popular enough - "George Foreman" electric hamburger grilling machines and other small appliances). He also saw restaurant chain operator Sbarro Inc.'s 11% notes due 2009 about half a point lower at 87.5 bid on unappetizing financial results.

Gap Inc. reported a 4% gain in comparable-store sales at outlets open at least a year from year-ago levels, somewhat below the 7% gain analysts were expecting from the San Francisco-based apparel retailer, whose comeback from poor performance levels of the previous several years has been one of the junk market's big success stories since last fall. Despite falling short of expectations, however, its bonds held firm, with the 2007 bonds hovering at 105.75 bid, 106.75 offered, slightly under Wednesday's 106.5 bid, 107.5 offered; a trader said the move was "nothing dramatic," and another said that Gap "hung in there."

Meanwhile the new issue market flickered to life as four prospective U.S. and emerging markets issuers lit the candle, representing the level of activity sources forecast in the wake of the massive pre-Labor Day inflow to the high-yield mutual funds.

The roadshow starts Friday for Tom Brown, Inc.'s offering of $255 million 10-year non-call-five senior subordinated notes due 2013 (expected ratings Ba3/BB-), which are expected to price late in the week of Sept. 8, via Goldman Sachs.

The Denver-based independent oil and gas exploration and production company's offering will be comprised of units. Each $1,000 par value unit will be comprised of $512 principal amount from Tom Brown, Inc. and $488 principal amount from Tom Brown Resources Funding Corp.

One source close to the deal said that the company would gain a tax advantage by issuing part of the deal through the Canadian issuer.

The roadshow also starts Friday for Broder Brothers' $175 million of seven-year senior notes (B3/B-), which are expected to price on or about Sept. 16 via UBS Investment Bank and Banc One Capital Markets.

From the emerging markets, Innova S de RL de CV, a satellite television service in Mexico, was heard to be poised to hit the road in the coming week with $200 million of senior unsecured notes in seven-year non-call-four and 10-year non-call five tranches (B2/B+). Citigroup and JP Morgan will run the books.

And Brazilian brewer AmBev (Companhia de Bebidas das Americas) announced an offering of $300 million of 10-year notes through its Companhia Brasileira de Bebidas subsidiary in a Thursday press release. According to an informed source Citigroup will run the books, although no timing was heard.

Price talk of a yield to worst in the 11% area emerged Thursday on Unilever NV's offering of $277 million accreted value of 0%/10.67% senior discount notes due May 15, 2013 (B3/B) issued by JohnsonDiversey Holdings Inc. Citigroup is the bookrunner on the cleaning and hygiene products maker's deal, which is expected to price on Monday.

And price talk is 11% area on CSN's $150 million of five-year notes, according to a market source who added that the Brazilian steel-maker's deal is expected to price on Friday via JP Morgan. The company pulled a deal on Aug. 1, citing market conditions, according to the source.

And one source told Prospect news that B&G foods is heard to be coming to the market with a $200 million deal, although no syndicate names or timing were heard.

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