CGG sells upsized deal; secondary sloppy amid move to quality; funds see $680 million outflow

By Paul A. Harris

St. Louis, April 21 - The news in the high yield was mixed on Thursday, as evidence continued to build suggesting that a flight to quality is underway in the junk market.

The primary market saw three small deals price, totaling $315 million and €150 million.

Among them was a four-B deal from Paris-based Compagnie Generale de Geophysique (CGG) which upsized by $15 million to $165 million and priced at the tight end of price talk.

On the other hand Dayton, Ohio paper company NewPage Corp. downsized the subordinated tranche (Caa2/CCC+) of its multi-tranche deal by a further $125 million to $225 million, after downsizing it by $50 million earlier in the week. NewPage also widened talk on the subs, as well as on its two secured tranches. That deal is now poised to price on Friday.

Meanwhile in the secondary market traders characterized the Thursday session as a "sloppy" one, and said that among existing issues junk failed to catch much of a lift from the surging stock market, which saw the Dow Jones Industrial Average surge ahead by over two-percent.

"It just stopped the bleeding," said one trader, adding that in the end not a lot of bonds had changed hands on Thursday.

10 in a row

And late Thursday sources told Prospect News that AMG Data Services is reporting a $680 million outflow from high-yield mutual funds for the week ending Wednesday, April 20.

Trailing the previous week's $196 million outflow, it is the 19th negative flow in the past 21 weeks.

It was the 10th consecutive negative flow, as the market continues to close in on the record of consecutive negative flows from the funds: 13 consecutive negative weeks from Sept. 22, 2000 to Dec. 15, 2000.

Year-to-date outflows now total in excess of $6 billion.

One market source commented that while the AMG number continues to carry weight as an indicator of market sentiment, it is not truly telling the story of the liquidity of the asset class.

"I think the trend is important to look at," the source said. "But I don't think it has the same effect that it used to have.

"There are some people who have some cash out there. But everybody has to be selective. Nobody wants to put it to work because they are concerned that if they buy today it will be cheaper tomorrow.

"But it's hard to pound the table about this asset class and start hollering about the triple-Cs - which are getting killed - until you see default rates tick up in the second half of the year.

"I think you are still going to see some pain out there."

Three small deals

Evidence that investors are shopping the "quality" aisles of the high-yield store was seen Thursday in the upsized $165 million CGG transaction.

The Paris-based provider of geophysical services to the petroleum industry priced its 10-year senior notes (Ba3/BB-) at par to yield 7½%, on the tight end of the 7½% to 7¾% price talk.

Credit Suisse First Boston and BNP Paribas were joint bookrunners for the debt refinancing deal.

Elsewhere NationsRent Cos., Inc. priced a $150 million issue of 10-year senior notes (Caa1/B-) at par to yield 9½%, wide of the 9¼% area price talk.

Jefferies & Co. ran the books for the debt refinancing deal from the Fort Lauderdale, Fla., equipment rental company.

And Milan, Italy, scooter-maker Piaggio SpA priced €150 million of seven-year senior notes (B2/B) at par to yield 10%, on top of revised talk.

Earlier in the session talk on the Lehman Brothers, Deutsche Bank Securities and Caboto-led deal was revised inward from 10¼% area.

Airlines mixed

Among existing issues, airline paper "was a mixed bag" on Thursday, according to one trader.

The short paper of Northwest Airlines firmed despite negative earnings news.

On Thursday the company announced a net loss of $458 million or $5.28 per common share for the first quarter of 2005.

Doug Steenland, president and chief executive officer, said, "Our results were disappointing. Record high fuel prices and increasingly noncompetitive labor costs on the expense side and excess capacity and competitors' pricing decisions on the revenue side negatively affected our performance during the quarter.

"Last month, we increased Northwest's annual labor costs saving target to $1.1 billion from $950 million. In addition, we asked our unions to agree to a freeze of their current defined benefit pension programs and allow the airline to introduce new defined contribution pension plans."

Steenland added that Northwest is realizing $300 million in annual pay and benefits cuts for pilots and salaried employees, and said that the company continues to negotiate with its other unions.

But even in the face of the negative earnings report one trader spotted the company's 8 7/8% notes due 2006 firmer on Thursday.

"Northwest Airlines, which has gotten killed over the last two to three weeks and has fallen faster than a lot of the airlines, was better," said the trader, who spotted the 2006 paper closing at 82.25 bid, 83.25 offered, up from 80 bid, 81 offered on Wednesday.

"The earnings news was bad," the trader conceded, "but I believe the liquidity picture, at least in the intermediate term, is giving some investors reassurance.

"Most of the airlines seem to have cash. AMR still has $3 billion of cash. Continental also has the liquidity to get through.

"Oil prices are still super-high, though. So over the long term I don't think any of these guys can really operate in this environment, because there is only so much cost that you can wring out with cost-cutting measures.

"But through 2005 and 2006 a lot of these guys have the liquidity to service their debt.

"So we're seeing that on the short end."

The trader had Continental Airlines 8% bonds due 2005 "a little better" on the day, also. The notes were at 98.25 bid, 99 offered, up from 97.50 bid, 98.25 offered two days ago.

"A lot of the short stuff moved back up because they had gotten cheap," the trader said.

"But the long stuff is going to continue to languish because there is no transparency there. No one knows how they are going to be able to service that stuff.

"But even the long paper, today was a little better."

For example, the trader said, Delta Airlines 8.30% bonds due 2029 finished at 28.50 bid, 29.50 offered, up about a point from Wednesday.

However another trader marked the Delta '29s at 29 bid, down on the session.

This source, meanwhile, saw the Northwest 8 7/8% due 2006 at 81.50 after the earnings call, also softer.

Voltage drain continues for Calpine

Elsewhere Thursday the existing issues of San Jose, Calif., energy producer Calpine Corp. also seemed to languish on the heels of news earlier in the week that one of its units will restate earnings.

"Calpine was off pretty dramatically," one trader said, adding that the unsecured paper was "off a couple of points."

The source had the Calpine 8½% bonds due 2008 trading at 62 bid, 63 offered, and the 8½% bonds due 2011 closing at 61 bid, 62 offered.

Another trader, noting that Calpine's 2008 bond are "off eight points over the past week," said that the notes started the day at 59.50 bid, 60.50 offered, and had firmed to 60.50 bid, 61.50 offered by the close.

"At least the bleeding stopped and there was a little bit of a recovery," the trader commented.

"But it's been pretty ugly.

"Calpine has a weak balance sheet to begin with. They are one of these triple-Cs that ran so much when the times were good, and now the air is coming out of the tires.

"And there have been headlines and rumors. There was a rumor, Friday, about the coupon not being made. And they had to restate some results.

"So it just came in."

Meanwhile a distressed trader merely said: "Calpine continues to drift down. The one-year paper in high yield is down almost 15%."

Adelphia edges up

Elsewhere in the secondary market, one trader failed to express much excitement about the news that Comcast and Time Warner, America's two largest cable companies, won the auction for bankrupt rival Adelphia in a deal worth approximately $17.6 billion.

"The Adelphia paper is a little better," the trader said.

"That story is pretty well finished unless someone comes in with a substantially higher bid which, with a breakup fee of over $400 million, would be a pretty difficult to do.

"Just on the strength that there actually is a deal the paper is up a point or two across the board. But it's not that active.

"This is the endgame, I guess."

Kerr-McGee continues to leak

The new name in junkland, Oklahoma City-based energy company Kerr-McGee Corp., saw its paper widen on Thursday.

The company recently had its ratings cut precipitously to speculative-grade by all three ratings agencies after it announced a $4 billion share buyback to head off its proxy fight with investor Carl Icahn.

One trader said that the Kerr-McGee 6 7/8% notes due 2011 had widened 10 to 15 basis points, trading on a spread to the 10-year U.S. Treasury.

"They are leaking out a little each day for the past couple of days, said the source who added that the notes opened at 195 bid, "and got hit," then traded to 197 bid, "and that got hit," then to 199, at which they were again hit.

"They traded as wide as 205, which is approximately a 103.0 dollar price."

Meanwhile the trader had the 7% notes due 2011 going the opposite way, having opened at 99 bid, 99.50 offered, then trading as high as par.

"But that's an OID, and it was trading on a wider spread to begin with," the trader explained.

Some recent issues holding water

Traders and other sources surveyed Thursday afternoon were able to produce no secondary levels for the new issues from NationsRent, CGG or Piaggio. However they noted that some recent issues appear to be holding in, in the aftermarket.

Most notable, according to one trader, was the Brown Shoe Co., Inc. 8¾% notes due 2012, which priced at par on Tuesday, in a $150 million issue (B1/BB-).

Sources at the time noted that the deal priced in its original structure and within original price talk (8½% to 8¾%).

One trader had the par-pricing notes trading 101 bid, 102 offered on Thursday, and added that they have "hung in there pretty well."

Another recent issue, the Chesapeake Energy 6 5/8% notes due 2016, which priced at 99.16, have also "held in fairly well," according to the trader who saw them at 99.25 bid, 99.75 offered.

However another trader had them market at 98.50 bid, and added: "They priced at 99.16, and when they first came they traded slightly above that price, but never got back there."

Downsized NewPage for Friday

Looking ahead to the Friday session, the primary market anticipates terms on a downsized, restructured and re-talked NewPage Corp. deal.

The company downsized its bond offering to $775 million from $900 million on Thursday, and widened price talk on all three tranches that will be offered to investors.

As a substitute for the $125 million by which the deal was downsized the company plans to sell a tranche of 8.5-year PIK for life notes, to be issued at the holding company-level, to equity sponsor Cerberus Capital.

The retail offering is now comprised of a downsized $225 million tranche of eight-year non-call-four senior subordinated notes (Caa2/CCC+). Price talk was revised to 12% from 11 3/8%-11 5/8% on Thursday. The tranche was downsized from $350 million after having been previously decreased from $400 million.

The company also plans to sell $550 million of second-lien senior secured bonds (B3/CCC+) in two tranches. The seven-year non-call-two floating-rate notes, were talked at three-month Libor plus 600 to 625 basis points, revised from 550 basis points. Meanwhile the seven-year non-call-four fixed-rate notes were talked Thursday at 10% area, revised from 9 3/8% to 9 5/8%. Tranche sizes remain to be determined.

Earlier in the week the secured tranches were upsized from $500 million.

Goldman Sachs & Co. has the books.

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