Sun Healthcare, MSX deals price; Fedders continues rise; funds see $19 million outflow

By Paul Deckelman and Michelle Anderson

New York, March 22 - Sun Healthcare Group Inc. was heard to have successfully priced a downsized $200 million offering of eight-year subordinated notes, high yield syndicate sources said. The new bonds firmed smartly after their par pricing, secondary market players reported.

Also pricing was a $205 million offering of units for MSX International Inc., consisting of notes issued by three of the Warren, Mich.-based automotive industry company's wholly owned subsidiaries.

Elsewhere in the new-deal arena, price talk emerged on U.K. battery-recycling company Eco-Bat Technologies' upcoming issue of 10-year fixed-rate PIK loan paper, expected to price off junk desks on Friday.

In the secondary market, besides the movement in the new Sun Healthcare bonds, traders said not all that much was actually going on, as the market seemed to take a breather while it digested the news that came out of Wednesday's wrap-up session of the Federal Open Market Committee's March meeting.

One of the more notable gainers, they said, was Fedders Corp., still basking in the warm afterglow of the announcement earlier in the week that the troubled Liberty Corner, N.J.-based air-quality products company had successfully completed $90 million of new financing with Goldman Sachs.

Traders saw homebuilders treading water, even in the wake of the Fed's apparent move away from a tightening bias - although Technical Olympic USA Inc.'s bonds continued to retreat. However, KB Homes was only slightly lower, despite a sharp drop in its fiscal first-quarter profit from a year ago and a bearish outlook offered by executives on the company's conference call. But the company did report a sizable decline in its backlog of unsold homes.

Chiquita Brands International Inc.'s bonds were up, helped by a recovery in the first months of the year in banana sales and prices.

Back on the downside, however, Tembec Inc. continued to take its lumps, with the strong Canadian dollar helping to depress the Montreal-based forest products company's overseas sales.

Funds swing back into the red

And as activity was trailing off for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $18.7 million more left those weekly-reporting funds than came into them.

It was the third such outflow in a period of four weeks, following the previous week's $25.4 million inflow. Over the past four weeks, net outflows have totaled $27 million, according to a Prospect News analysis of the AMG figures - in stark contrast to the $856 million of inflows rolled up in the first eight weeks of 2007, according to the analysis.

Including the latest week's leakage, year-to-date inflows among the weekly reporters now total some $829 million, according to the Prospect News analysis, down from $847.7 million the week before. Inflows have now been seen in nine weeks out of the 12 since the beginning of the year. In 2006, outflows were seen in 34 weeks out of 52, totaling $2.998 billion, the analysis said. Inflows were seen in 18 of those weeks, largely concentrated in the latter part of the year.

The figures exclude distributions and count only those funds that report on a weekly, rather than on a monthly, basis.

The flow of money into and out of the junk bond funds is seen as a barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to.

Sun prices inside talk

In the primary market, Sun Healthcare priced $200 million of new 9 1/8% senior subordinated notes due 2015 (B3/CCC+), syndicate sources said. That deal had originally been expected to total $250 million principal amount, before it was reduced following a successful equity offering.

"Sun Healthcare went really well," a junk bond primary market source said, noting that the bonds priced inside talk that envisioned a yield in the 9¼% to 9½% range.

The Rule 144A deal, which is non-callable for the first four years after issue, was brought to market via joint book-running managers Credit Suisse, CIBC World Markets and UBS Investment Bank.

Proceeds will be used to fund the Irvine, Calif.-based long-term and post-acute healthcare provider's acquisition of Harborside Healthcare Corp.

MSX International prices units deal

Also pricing was MSX International's offering of note units (B2/CCC+), which was slightly upsized to $205 million from the originally planned $200 million.

The 205,000 units were seen by a market source as having priced at 99.25 with a 12½% coupon. Price talk had called for a coupon in the 12¼% to 12½% range at a price of between 99 and 99.5.

Each unit consists of a total of $1,000 of paper from three of the company's subsidiaries - $350 of MSX International UK plc five-year senior secured notes, $325 of MSX International Business Services France, SAS five-year senior secured notes and $325 of MSX International GmbH five-year senior secured notes. Unless a separation occurs, bondholders will not be able to separately transfer the notes of each issuer.

Jefferies & Co. brought the Rule 144A/Regulation S offering to market. Proceeds will be used for debt repayment.

Price talk emerges on EB

A primary market source said that those two pricings essentially emptied the new-issue cupboard for the week, with only EB Holdings Inc. left to go.

That €600 million of fixed-rate PIK loan paper due 2017 (Ba3/B+) is expected to price Friday at a price of 99, with a coupon between 10¾% and 11%.

The company, the parent of British battery recycling company Eco-Bat Technologies, plans to use the proceeds of the deal to repay existing PIK notes and to fund a dividend for its shareholders.

Credit Suisse and Citigroup will be joint bookrunners on the deal.

The primary market source said that nothing was going on beyond that, observing: "I think everybody's on spring break this week."

Sun bonds move up

When the new Sun Healthcare 9 1/8% eight-year notes were freed for trading, they moved up to 102.5 bid, 103 offered from their par issue price. A trader said that the bonds had been "pretty thinly allocated," with "not a lot of trading in it."

Another trader had a slightly different take on the bond's movements, noting that the rise from par show showed that "this market is still very resilient, bidding this up by more than 2 points."

Neither trader saw the new MSX notes in the aftermarket.

Aventine holds gains, Pinnacle falls

Among the issues which had priced on Wednesday, the second trader saw Aventine Renewable Energy Holdings Inc.'s new 10% senior notes due 2017 hanging in at 101 bid, up from the par level at which the Pekin, Ill.-based ethanol producer's new bonds had priced.

However, he saw Peak Finance LLC/Pinnacle Foods Finance Corp.'s two issues of new bonds each trading down from the levels they held after pricing Wednesday at par.

The Cherry Hill, N.J.-based branded food processing company's new 9¼% senior notes due 2015, which had initially edged up to 100.25 bid, 100.75 offered in Wednesday's aftermarket, had dropped back to 99.25 bid, 99.75 offered.

And its 10 5/8% senior subordinated notes due 2017, which had gotten as good as 100.75 bid, 101.75 offered, fell back to 99.5 bid, par offered on their second day of trading.

A dull day

Back among the established issues, a trader said, market features were "pretty hard to find. It was a pretty quiet day."

He said that the market "opened up like it was trying to do better - but it couldn't follow through. Very few names were trading." He likened the junk mart's behavior to that of the equity markets, which he said "opened up - and then kind of died."

He opined that "it's getting close to the end of the quarter, and you had the Fed do its thing [Wednesday] and the market didn't follow through on the equity side. In the Treasury market as well, he noted, the long bonds were down about ¾ point, and 10-year government paper was off as well.

"Everyone [on Wednesday] thought it was great news" that the FOMC's language in announcing that it was keeping interest rates steady seemed to veer away from its previously hawkish implied threat to boost rates again if need be, "but now it looks like there's some sort of reassessment going on. I don't think that there was a lot of flow in the secondary market for people to be sticking their heads out and lifting offerings. So they'll wait and see what comes at them in the [primary] calendar.

"I would just say there's not a lot of impetus to do anything."

Fedders continues to get better

A trader saw Fedders' 9 7/8% notes due 2014 jump to 59 bid, 61 offered, which he called a 4 point gain from prior levels.

At another desk, the bonds were seen even better, at 62.5 bid, although that was considered only about a point or so gain from prior levels.

The bonds continue to ride the momentum of the announcement late in the trading day Tuesday that the company had completed its $90 million secured financing deal with Goldman Sachs.

Market players anticipate that Fedders - which did not make the scheduled March 1 coupon payment on its bonds, rather invoking the standard 30-day grace period - is now in a position financially to make the payment, if it so chooses.

Investors still wary about homebuilders

Bonds of homebuilders were seen generally easier Thursday, as market optimism about possibly lower interest rates down the line as a result of the Fed's words ran up against the reality that the housing market remains weak. However, the bonds were seen only slightly lower.

A trader saw Hovnanian Enterprises Inc.'s 8 5/8% notes due 2017 down ½ point at 101 bid, 102 offered, and saw KB Home's 7 1/8% notes due 2018 "probably [off] the same" at 95.5 bid, 96.5 offered.

He noted that the latter company was out with its fiscal first-quarter numbers and its forecasts for the coming year - unpleasant reading for investors in the sector.

KB reported that earnings slid 84% year-over-year to $27.5 million (34 cents a share) from $173.3 million ($2.01 a share) a year earlier. Revenue declined 19% to $1.78 billion.

KB chief executive officer Jeffrey Mezger warned analysts and investors on a conference call following the release of the results that housing market is unlikely to improve this year and projected that revenue and earnings will continue to fall versus 2006's already lower levels.

However, there were some hopeful elements in the data released by the Los Angeles-based homebuilder, the nation's fifth-biggest. Mezger noted that the rate of buyers cancelling out of deals fell sequentially to 31%, an improvement over 48% in the fourth quarter. Its backlog of 18,406 unsold houses worth $4.8 billion was down 31% and 34% respectively from a year earlier. And KB said that subprime borrowers account for just 5% of its backlog and were a relatively modest 13% of all of its customers last year.

A trader said that troubled Florida homebuilder Technical Olympic's bonds were lower, with its 10 3/8% notes due 2012 down 1½ points to 75.5 bid, 76.5 offered.

However, he noted that "they had already been at these levels, but popped [Wednesday] after the Fed. So they're not pushing any new lows - just stabilizing."

Chiquita better

Outside of the homebuilders, traders saw improvement in Chiquita Brands' bonds, with the Cincinnati-based fruit and vegetable importer's 7½% notes due 2014 up a point at 91 bid, a source said, while another source called those same bonds 1½ points better at 90.5.

The company said earlier in the week that said banana sales and prices rose in January and February, led by a recovery in North American sales.

Tembec tumble continues

In the distressed-debt markets, traders saw a continued slide in Tembec bonds, connected with the effect a stronger Canadian dollar will likely have on its sales in the United States and elsewhere outside of Canada.

The forest products company's 8 5/8% notes due 2009 fell 2½ points to 72.5 bid, 73.5 offered, a trader said, although he saw its other bonds - its 8½% notes due 2011 and 7¾% notes due 2012 - down just a point, in the 63 bid, 64 offered area.

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