Upsized Frontier Communications deal prices; Ford continues to firm, GM bounces; MGM has momentum

By Paul Deckelman and Paul A. Harris

New York, Apr. 3 - Frontier Communications Corp. put the cap on the busiest week that the high-yield primary market has seen in more than a month, pricing a sharply upsized offering of five-year notes, though as has usually been the case with most junk deals lately, the Stamford, Conn.-based broadband operator's bonds came at a steep discount to par to boost their yield to more attractive levels.

Other recent new deals, like Plains Exploration & Production Co. and BWAY Corp., were seen having stabilized a point or so above their respective issue prices.

Ford Motor Co.'s bonds - which have been pretty much holding their own all week, despite the pall which has been cast over the automotive sector by talk that Ford's larger rival, industry leader General Motors Corp., may have to eventually file for bankruptcy - ended the week by pushing several points higher, in line with a surge in its shares.

Meanwhile, GM - whose bonds spent a miserable week being beaten down to around a 10-11 context, about half of where they had been trading just a week earlier - came along for the upside ride, seen having improved by about a point or two.

MGM Mirage's bonds were seen up for a third consecutive session, helped by investor hopes that the Las Vegas-based gaming giant will be able to reach a financing deal that will ensure the viability of its troubled City Center development project in the Nevada gaming capital.

Frontier doubles

The high-yield market made a torrid finish to the March-April crossover week, according to sources on the buy-side and the sell-side.

Working back from the most recent news, Frontier Communications priced a massively upsized $600 million issue of 8¼% five-year senior unsecured bullet notes (Ba2/BB) at 91.805 to yield 10 3/8% in a Friday drive-by deal that doubled in size.

It capped off the biggest week in the junk market since early February: $1.625 billion in five dollar-denominated junk-rated tranches. The week that ended Friday was the third-biggest week so far in 2009 by dollar value.

And it came one day after the high-yield mutual funds saw inflows totaling $980 million, according to AMG Data Services.

Afraid to miss it

The tide of cash now flowing into high-yield is formidable indeed, a high-yield mutual fund manager said on Friday afternoon.

Investors believe that once the market bottoms out it will turn around quickly and push purposefully upward, this investor said.

Recall that trailing the lackluster year of 2002 - rife with high-yield defaults, fallen angels and corporate fraud - in 2003 the Lehman Brothers index returned 29%, the source said.

Turning to the present week, the junk investor said "Seven of the top 10 gainers on Thursday were casinos - the worst performing sector of the high-yield year-to-date.

"That tells me that the riskier stuff is what's running.

"People have cash. Short sellers are covering. And the Street doesn't have any inventory to sell.

"So everything is being bid up."

A word of caution

Pressed for the good news driving this notable march into speculative-grade assets, the investor suggested that a belief may be taking shape that the Public-Private Investment Partnership (PPIP) program announced by the U.S. Department of Treasury could help some of the banks, on the margin.

Also, the buy-sider said, recent data points suggest that housing isn't accelerating to the downside, and might be stabilizing.

"And if the stock market keeps going up companies are going to be able to raise money again by selling stock," the asset manager added.

However having said that, this source, who did not play Friday's Frontier Communications deal, is not quite prepared to subscribe to a belief that the markets have bottomed out.

"We're not there yet," the manager said.

Frontier massively upsized

Frontier Communications priced a massively upsized $600 million issue of 8¼% five-year senior unsecured bullet notes (Ba2/BB) at 91.805 to yield 10 3/8% in a drive-by deal that priced late Friday.

The yield printed in the middle of the 10¼% to 10½% price talk.

The deal was increased from $300 million, and it generated $538.83 million of proceeds.

J.P. Morgan, Credit Suisse and Citigroup were joint bookrunners for the debt refinancing and general corporate purposes deal.

HCA first-lien expected

In the wake of the Frontier Communications' drive-by, there are no deals on the active forward calendar, sources said Friday.

However that is expected to change soon, and perhaps dramatically.

One name that surfaced Friday was HCA Inc.

The company is expected to come back to the new issue market as early as next week with an offering of first-lien notes, perhaps of substantial size, according to a buy-side source.

Banc of America Securities will be involved, the source specified, adding that reverse inquiry is at play in the transaction.

"The company has $10 billion of bank debt to term out over the next couple of years," the buy-sider added.

"They might try to do as much as $1 billion," the source said, alluding to the massive amounts of cash lately reported to be flowing into junk.

"If they were to have to term out the entire $10 billion of that 3.8% debt at 9% or 9¼%, their interest expense will increase by $300 million to $600 million a year," the buy-sider said.

"But even though there is reimbursement risk they will be able to get a deal done now."

Meanwhile an investment banker professed a little skepticism, noting that the 9 7/8% senior secured second-priority notes due 2017 (B2/BB-/B+) which the company priced in mid-February at 96.673 to yield 10½%, traded Friday at 94¼ bid.

Under ordinary circumstances the company might consider waiting for a rallying market to take those notes back into closer proximity to the issue price before bringing another deal, the banker said.

However given the ongoing volatility in the capital markets and the strong tide of cash into the high-yield - all against a backdrop of historic macroeconomic uncertainty - the present circumstances are anything but ordinary.

New deals hold steady

The new Frontier Communications 8 ¼% notes due 2014 were seen having come too late in the session for any meaningful aftermarket activity.

Meanwhile, the three other domestic junk market deals which came earlier in the week were seen having pretty such settled in to their secondary trading range.

For instance, a trader said that BWAY Corp.'s 10% notes due 2014 appeared to have settled in around 90 bid, up about 1 to 1½ points from their issue level.

BWAY, an Atlanta-based manufacturer of rigid plastic and metal containers, priced an upsized offering of those bonds on Wednesday at 87.513 to yield 13½%. The issue was increased to a principal amount of $228.538 to produce proceeds of $200 million - the originally planned deal size - which will be used to redeem an issue of existing bonds

He also said the Plains Exploration deal, which he called "a good name," had firmed to around the 94.5 bid, 95.5 offered area.

Another trader saw those bonds get even better, rising above 95. Plains Exploration, a Houston-based independent oil and gas exploration and production company, priced $200 million of 10% notes due 2016 at 92.969 on Wednesday as an addition to the $365 million of identical bonds it priced on March 3.

However, the other recent deal, for Arlington, Va.-based global power producer AES Corp., was seen still pretty much anchored not far from the 93.977 level at which the company had priced its $535 million offering of 9¾% notes due 2016 on Monday to yield 11%. That deal was upsized from the originally planned $350 million. Those bonds initially traded up slightly after pricing, but then were seen settling in around a 94-94.5 range.

Market indicators move up

Back among established credits, a trader saw the widely followed CDX Series 12 High Yield index of junk bond performance - which soared by 1½ points on Thursday - up more modestly on Friday, adding on ½ point to end at 73½ bid, 74 offered, versus its finish at 72 3/8 bid, 72 5/8 offered at the end of last week.

The KDP High Yield Daily Index meantime was up 21 bps to 53.84, while its yield tightened by 13 bps to 13.13%. A week earlier the index had closed out the week at 53.25, with a yield of 13.44%.

In the broader market, advancing issues remained ahead of decliners, although their lead narrowed to around a 10-to-seven margin.

Overall market activity, measured by dollar-volume totals, fell 19% from the levels seen in Thursday's session.

A trader characterized Friday's market as "still pretty firm."

Market barometer issue Community Health Systems Inc.'s 9 5/8%notes due 2015 were being quoted by a market source up around ¼ point at 95.5 bid, on mid-afternoon volume of over $12 million, making it one of the more actively traded issues, along with perennial actives leader Freeport-McMoRan Copper & Gold Corp.'s 8¼% notes due 2015, which were up about ¼ point at 97.25, on volume of nearly $14 million.

The junk market continued to get encouragement from a resurgent equity market, which closed out the week with a third straight sizable gain, even though the Labor Department reported that unemployment zoomed to 8.5% percent in March, the highest in a quarter-century, while 663,000 additional job losses pushed the nation's jobless ranks past 13 million. That failed to put a dent in the nascent bull charge, which carried the bellwether Dow Jones Industrial Average back above the psychologically potent 8,000 mark, as the index finished up 39.51 points, or 0.50%, at 8,017.59. The Standard & Poor's 500 index gained 0.97%, while the broader Nasdaq composite index advanced by 1.20%.

Ford firming continues

A trader saw Ford Motor Co.'s 7.45% bonds due 2031 up 2½ points to the 33-35 level, noting that Ford's stock "was up pretty good, too," though on no fresh news about the Dearborn, Mich.-based Number-Two U.S. carmaker. Even without an obvious news hook on which to hang an advance, its New York Stock Exchange-traded shares rose by 34 cents on the session, or 11.68%, to end at their day's-high level of $3.25, on volume of 111 million shares, nearly three times the norm.

The trader added, sarcastically, that "everyone is getting excited, because the world is a wonderful place again - never mind that 663,000 people lost their jobs last month."

Ford's auto-loan financing division, Ford Motor Credit Co., came along for the upside ride, with its 7.875% notes due 2010 finishing up a deuce at 84 bid, while Ford Credit's 7% notes due 2013 tacked on a point to end just under 70 bid.

Another trader also saw the Ford long bonds move up to 33-35, "or maybe even a little higher," since "people are happy" that Ford seems to be avoiding the perfect storm that's put larger rival GM on the brink of bankruptcy. "It's great not to be GM,' he added.

A trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 down ½ point at 10 bid, 12 offered.

A second, however, saw GM's long bonds around 11-12, which he called almost a point better than Thursday's close, as the stricken Detroit giant came off the lows down to which the bonds had been beaten over the course of the week, on renewed investor, analyst and media speculation that a concept that at one time would have been dismissed as virtually unthinkable - the formerly mighty blue-chip GM filing for bankruptcy - might soon come to pass.

At another desk, a market source saw the GM 7.40% bonds due 2025 at 12.25, up from 10 on Thursday.

Meanwhile, its 49% owned GMAC LLC auto loan arm's 6 7/8% notes due 2011 gained more than 2 points to end at 66.5 bid, while its 6 7/8% notes due 2012 traded at 57 bid, up a point.

There was no fresh positive news seen out about GM, which remains solidly wedged behind the 8-ball. Bankruptcy speculation picked up On Friday as the company's newly-chosen chief executive officer, Fritz Henderson, told the Financial Times that GM will move quickly into bankruptcy, if necessary.

Hertz comeback continues

A trader said that Hertz Corp.'s 8 7/8% notes due 2014 - which had retreated on Wednesday after a Standard & Poor's ratings downgrade for the Parsippany, N.J.-based car-rental kingpin but which then came back about a point on Thursday - were up about a point to 61 bid, 63 offered, noting that the bonds had been "bouncing around "in the low 60s as they recovered from their mid-week drop following the ratings downgrade.

At another desk, a market source saw those bonds get as good as 63.5 during the session.

Rite Aid rides again

Outside of the autosphere, a trader saw Rite Aid Corp.'s notes continuing to firm, riding the momentum of Thursday's advance, with its 7½% notes due 2017 "right around" 60, or up 1½ points, while its 8 5/8% notes due 2015 were also up a point at 28 bid, 30 offered.

Another trader, who pegged the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator's '17s at 60.25 bid, 61.25 offered, said the bonds had risen on the "promising guidance" offered by company executives, even as the company reported both a wider and a wider-than-expected loss for the most recent fiscal quarter.

Retailers rise on real estate

Elsewhere in the retailing space, the trader said that New York-based Saks Inc.'s 9 7/8% notes due 2011 have been trading at 76.5, versus the 72ish level of just a few days earlier.

"People are saying that real estate is what's really driving" the gains, anticipating that the company might have valuable properties where its stores are located that could be monetized through a sale.

And he said that "everyone is trying to figure out where Macy's Inc. will settle in," now that the Cincinnati-based operator of the eponymous department store chain, and others, has been downgraded to junk status by Moody's Investors Service. Its 5¾% notes due 2014 gained some 2 points on the day to end at 70 bid.

MGM on a hot streak

A trader saw MGM's 13% secured notes due 2013 in a "79ish" context for most of Thursday, but said the bonds had advanced to 81 at the end of Friday's dealings, up a t least a point on the session. Those bonds, he noted, had been in the mid-70s at the beginning of the week, but got a boost on the reported Colony Capital talks about its troubled CityCenter project.

However, at another desk, MGM's 6 5/8% notes due 2015 were seen down nearly a point on the day at 37.5.

But MGM's NYSE-traded shares zoomed by $1.51, or 48.08% on Friday, ending at $4.65, on volume of 35.7 million shares, nearly six times the usual, as The Wall Street Journal reported that Australian billionaire and gambling magnate James Packer is now weighing taking a stake in a stake in CityCenter.

Quoting an unidentified source "familiar with the matter," the paper said that Packer - whose Melbourne, Australia-based gambling company, Crown Ltd., has casinos in Australia and China - "is discussing the possibility of an investment in the project with Colony Capital." MGM and joint venture partner Dubai World are trying to line up $800 million of financing for the project that would allow it to continue accessing its credit line and prevent the ambitious nearly $10 billion Las Vegas Strip development scheme from sliding into bankruptcy.

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