Fresenius prices upsized dollar, euro deal, bonds trade up; Charter drops on missed coupon; funds gain $535 million

By Paul Deckelman and Paul A. Harris

New York, Jan. 15 - Fresenius SE successfully priced an upsized offering of dollar- and euro-denominated notes Thursday - the junk bond market's second new deal in as many days, something which hasn't happened since last September, and the first widely distributed high yield deal to come out of Europe since way back in July 2007, at the very beginning of the current credit crisis. When they were freed for secondary dealings, the new bonds traded up smartly from their issue price earlier in the session.

That ongoing credit crunch that has put such a damper on new issuance, both domestically and in Europe, meanwhile continues to bedevil established high yield issuers as well; debt-laden Charter Communications Inc.'s bonds fell after the St. Louis-based cable operator announced that two of its subsidiaries had not made interest payments totaling $73.7 million that came due on Thursday on several series of their outstanding notes, although Charter was seen coming back late in the day from its session lows.

And Smurfit-Stone Container Corp.'s bonds and shares plummeted, and pretty much stayed lower, on investor fears that the Chicago-based company - the second-largest maker of corrugated packaging in North America - may be forced into a bankruptcy filing by the deadly combination of inexorably falling demand for its products and burdensome upcoming debt repayments.

Back in the primary arena, Landry's Restaurants Inc. was heard by high yield syndicate sources to be hitting the road early next week with an offering of two-year notes, the proceeds of which will be used, along with bank credit funds, to refinance the company's two outstanding issues of 2014 bonds.

Funds see $535 million inflow

As trading was winding down for the session, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday $535 million more came into the weekly reporting funds than left them.

It was the seventh consecutive inflow, the fourth consecutive gain of greater than half a billion dollars, and the second inflow of 2009, coming on the heels of the massive $988.3 million cash infusion seen last week, in the period ended Jan. 7.

During that seven-week span of cash additions, dating back to the week ended Dec. 3, net inflows have now totaled $3.335 billion, according to a Prospect News analysis of the AMG figures, and add up to $1.523 billion so far this year.

That healthy inflow figure means the year is certainly off to a better start than was 2008, which began with several consecutive outflows, although the year ultimately ended with a cumulative net inflow total of $2.123 billion, its peak level for the year. It should be noted, however, that most of that total gain was recorded in the final weeks of the year, the surge of funds coming in reflecting the junk market's upturn after the Federal Reserve announcement of a sharper-than-expected interest rate cut and the central bank's pledge to take other measures to stabilize and revive the credit markets and the overall economy.

All of the figures typically exclude distributions, but include any revisions and adjustments to previous weeks' totals.

Another fund-tracking service, EPFR Global, said that by its calculations, weekly-reporting junk fund inflows in the latest week came to $766.3 million, on top of a $910.9 million inflow last week. Cambridge, Mass.-based EPFR's methodology is somewhat different than AMG's, since it includes European, Asian and other international funds, even though the bulk of the funds surveyed are domestic. Its managing director, Brad Durham, noted that for the latest week's figures, 16 of the top 50 funds getting inflows were domiciled outside of the United States, "which probably accounts for the difference" between his company's number and AMG's.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash to and from the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

Fresenius upsized

Fresenius US Finance II Inc. priced an upsized issuance of senior notes due July 15, 2015 (Ba1/BB) in two bullet tranches on Thursday.

The German pharmaceuticals firm priced $500 million of 9% notes at 93.076 to yield 10½%, on top of price talk that had that notes coming to yield 10½%, and to price at a discount of 5 to 10 points.

JPMorgan, Deutsche Bank Securities, Credit Suisse and BNP Paribas were joint bookrunners for the dollar-denominated notes.

Fresenius also priced an upsized €275 million tranche of 8¾% notes at 93.024 to yield 10¼%. The yield came at the tight end of the 10¼% to 10½% yield talk, while the issue price came in line with price talk of a 5 to 10 point discount.

Deutsche Bank Securities, JP Morgan, Credit Suisse and BNP Paribas were joint bookrunners for the euro-denominated notes tranche, which was upsized from €200 million.

Proceeds will be used to repay the bridge loan incurred in the acquisition of Schaumburg, Ill.-based intravenous drug manufacturer APP Pharmaceuticals, Inc., which closed in September.

Although the euro tranche was upsized - with most of it going into European hands, according to an informed source - the dollar tranche remained at $500 million despite reports from market sources that it played to $4 billion of demand.

The company had no need of issuing any additional dollar-denominated notes, a source close to the deal explained.

Hence allocations in the dollar-denominated tranche were severely cut back, sources said.

One high-yield mutual fund manager reported being allocated 6.5% of the original order that the fund placed.

Landry's launches

With the clearing of the Fresenius deal, the active forward calendar contains a single transaction.

Landry's Restaurants, Inc. will begin a roadshow on Tuesday for its $270 million offering of senior secured notes due 2011.

The roadshow will end during the week of Feb. 2.

Credit ratings remain to be determined.

Jefferies & Co. is the bookrunner for the Rule 144A/Regulation S notes.

Proceeds, along with an amended and restated bank credit facility that was announced Thursday, will be used to refinance outstanding debt, including the company's 9½% senior notes and 7½% senior notes, and for general corporate purposes.

The senior notes offer came as Landry's opted to proceed with a term loan that is smaller than originally expected.

The company is now planning on getting a $160 million term loan - which includes a refinancing of the recently obtained $31 million interim term loan - as opposed to a $210 million term loan, the source said.

And the bond offering is set to raise proceeds of $270 million, up from the previously expected amount of $210 million.

Landry's proposed $210 million amended and restated credit facility will also include a $50 million revolver that will basically replace the $50 million revolver recently obtained through the interim credit facility.

Wells Fargo Foothill and Jefferies are the lead banks on the deal.

Landry's has not yet scheduled a bank meeting for the launch of its new credit facility since that is still subject to market conditions, the source remarked.

However, regardless of whether the facility is syndicated or not, the deal will close by the end of February, the source added.

Pricing on the facility is also not yet available.

New Fresenius bonds shoot up

When the new Fresenius 9% notes due 2015 were freed for secondary dealings, a trader saw those bonds having moved up to 95 bid from the 93.076 level at which they had priced earlier in the session - proof, he indicated, that the deal, like all of the other recent junk bond deals, had priced way too cheaply in the first place in the interest of just getting the offering done.

Later on, another trader underscored that point; he saw the bonds having pushed as high as 97.5 bid, 98.5 offered from their earlier levels.

He also saw the Metro PCS Wireless Inc. 9¼% notes due 2014, $550 million of which had priced on Wednesday, trading at 91 bid, 91.75 offered - still well above the 89.5 pricing level, but off a little from Wednesday's late prices in the 91.5-91.75 bid range.

Market indicators mostly off again

Back among the established issues, the widely followed CDX High Yield 11 index of junk bond performance, which had lost a full point on Wednesday, was unchanged on Thursday, a trader said, quoting it at 75 7/8 bid, 76 3/8 offered. The KDP High Yield Daily Index plunged by 77 basis points to 54.38, although its yield only edged up by 1 bp, to 13.85%.

In the broader market, advancing issues continued to trail decliners, by around a nine-to-seven margin. Overall market activity on the last full trading session for the week, reflected in dollar volumes, declined around 5.5% from the pace seen in Thursday's session. Activity is expected to dwindle markedly on Friday, an abbreviated pre-holiday session ahead of Monday's full market close for the Martin Luther King Day observance.

A trader said that from where he sat, the market's "overall mood was very negative. The stock market was down a lot with the Bank of America and Citi news, which affected everybody this morning" - Bank of America has had to go back to government regulators and ask for as much as $20 billion in additional aid, on top of the $25 billion the Charlotte, N.C.-based banking giant has already gotten from Washington, while Citigroup, which has suffered net losses totaling in the billions of dollars over the last four consecutive quarters, is expected to announce its deepest losses yet when it posts fourth-quarter numbers on Friday. Shares of both big banks nosedived, dragging equities sharply lower for most of Thursday, although stocks did rebound late in the session on hopes for the success of the next round of government bank bailouts, to end slightly higher on the session; the bellwether Dow Jones Industrial Average ended up 12.35 points, or 0.15%, at 8,212.49, while the Standard & Poor's 500 index gained 0.13% and the Nasdaq advanced by 1.49%.

With that kind of a sour market tone prevailing for much of the day, "there was a lot of selling going on, especially anything to do with financials."

But a high-yield syndicate source said that the market had been lower earlier Thursday but rallied to end unchanged as the new senior notes from Fresenius were bid up in the secondary market.

Another trader said that Thursday's junk market was "lower, again - but there was not a ton of activity," with much of the trading that was going on centered around the three major "names in the news" - Charter, Smurfit-Stone and Nortel Networks Ltd., whose bonds retreated another couple of points from the levels to which they had fallen on Wednesday after the Canadian telecommunications equipment maker filed for bankruptcy protection.

Looking at the spectacle of those names having slid by multiple points - and some other credits also down by a few points, even without such dramatic news - it seemed clear that "there is a portion of our market similar to the status that it held two months ago," when bids were getting hit left and right and prices were tumbling precipitously. That having been said, however, he added "the better part of the market - the BB names - seems well bid-for.

"No matter what [financial news] show you're watching, everyone is saying how there are better opportunities in fixed-income corporates versus equities. Well, the safest route is obviously to go with the highest quality."

One such issue - relatively speaking, anyway - is the widely held Community Health Systems Inc. 8 7/8% notes due 2015. While the Franklin, Tenn.-based hospital operator's benchmark issue's ratings are actually pretty mediocre, objectively speaking, at B3/B/CCC+, by the current standards of Junkbondland, where numerous major issuers have been beaten down deep into CCC territory, it's practically a blue-chip credit. While the average price of a junk bond has been hammered way down from its year-ago levels, to around 74 cents on the dollar from over 90 cents, according to the Bank of America High Yield Broad Market Index, and even worse, to around 64 cents on the dollar from around 90 cents previously, according to the Merrill Lynch U.S. High Yield Master II Index, Community Health, after going through a rough patch during the November market slide, keeps perking along at relatively robust levels above 90. The trader saw the bonds unchanged Thursday at 92 bid, on fairly active volume of $16 million. At another desk, the bonds were quoted having pushed up a point on the day to 93 bid.

Another credit in the elite pantheon is DirecTV Holdings LLC - an authentic top-tier rated name for junk, at Ba3/BB/BB. Its 7 5/8% notes due 2016 were seen by a market source trading around the 96 level Thursday, up 2 points on the day. Rival satellite TVcaster EchoStar DBS Corp.'s Ba3/BB-/BB- 7% notes due 2013 were also right up there Thursday at 90.5 bid, a gain of more than a point on the day.

Smurfit-Stone rocked by bankruptcy buzz

But such names trading at those kind of rarified high altitudes were not where the junk market was at on Thursday; instead, said another trader, "you just sort of notice every day that something else is trading terribly - there's just so much."

And few credits were trading more terribly than Smurfit-Stone, whose bonds and shares were battered by bankruptcy speculation that roiled the market.

A trader saw Smurfit-Stone's most active issue, its 8% notes due 2017, having fallen to 13.25 bid on a round-lot basis from 17 on Wednesday, with $22 million of the bonds changing hands.

He also saw the company's Jefferson Smurfit Corp. 8¼% notes due 2012 going out at 12.5 bid, well down from prior levels around 17, with $17 million of the bonds traded, while its 8 3/8% notes due 2012 dipped to 12 bid from 16 previously, on turnover of $13 million.

Another trader saw the latter bond having fallen as low as 8 bid, before coming back from that trough to end around 12, still well down from prior levels in the 15.5-16 region. The Jefferson Smurfit bonds were also seen having dropped to around an 8ish bid during the session, although at another desk, they were quoted having ended around 9 bid, although that was said to be down 3 points on the day.

Smurfit Stone's Nasdaq-traded shares, meantime - which have been trading as a penny stock since early November, but which didn't get down to their currently near-worthless levels until Thursday - were in absolute freefall, losing 30 cents, or 83.39% of their little remaining value, to close at 6 cents. Volume of 121 million shares was almost 20 times the usual turnover.

The cardboard-box maker, weighed down with around $3.5 billion of debt, became the disaster of the day in the financial markets after The Wall Street Journal, citing unidentified sources, reported that it has hired bankruptcy lawyers and financial advisers with expertise in corporate reorganizations. The paper said that it had advised lenders last week of its efforts to obtain some $750 million in debtor-in-possession financing as a prelude to a likely Chapter 11 filing. Smurfit-Stone Container declined to comment on the Journal story and other bankruptcy-related speculation sweeping the markets.

The company has been badly hurt by the economic slowdown, particularly in the consumer sector, since it is largely dependent on retail sales to drive demand for the boxes and other packaging materials it makes for consumer goods.

Last month, company executives warned that Smurfit-Stone expects "significantly lower" fourth-quarter earnings due to drastically weakened demand.

Charter gyrates on payment problem

Vying with Smurfit-Stone for The Dog of the Day award Thursday - at least for a while - was Charter Communications, whose bonds initially slid as much as 6 to 8 points, observers said, on the news that several subsidiaries had failed to make nearly $74 million of interest payments due on their bonds. However, those losses seemed to moderate as the day wore on, a trader said, and some of the Charter bonds actually turned back upward to end the day in positive territory.

One of the biggest losers, a market source opined, was Charter's 8% notes due 2012; those bonds were seen down nearly 9 points on the session at 78 bid.

Most other Charter losses, however, were less, with a trader seeing the company's 10¼% notes due 2010 down 2 points on the day at 44 bid, on some $11 million traded, while its 8¾% notes due 2013 were down perhaps a point at 63.5 bid, and its 11% notes due 2015 only slightly lower on the day at 11.25.

Another trader said that the 101/4s had in fact fallen down into the 40s earlier in the day - but he had them coming off their session lows to go home at 50 bid, 52 offered.

"They drifted higher," he said, quoting another market player waggishly suggesting that "companies should pass on their coupons more often - Charter did it and they were higher, in the mid-40s [Wednesday] and now, around 50."

And at another desk, the 101/2s were in fact seen ending the day up 2 points around the 48 level. Its 11% notes due 2015, after falling down to the 10 level, around a point or two lower, came on strong late in the day and ended at 13.5, up more than 2 points.

Charter said that its CCH I Holdings, LLC and Charter Communications Holdings, LLC subsidiaries had not made a total of $73.7 million of scheduled interest payments due Thursday, instead choosing to invoke the standard 30-day grace period to allow the company time to work out some arrangement with the bondholders.

Charter noted that back on Dec. 12, it had announced that it was initiating discussions with its bondholders regarding financial alternatives to improve its balance sheet.

Charter said that it and its subsidiaries had cash on hand and cash equivalents as of Jan. 13 of more than $900 million, which is available to pay operating costs and expenses.

Nortel knocked down, again

Elsewhere, a trader saw Nortel Networks' floating-rate notes due 2011 as one of the most actively traded issues, with $24 million changing hands. He saw those bonds - which had fallen on Wednesday to the 19-20 area from prior levels in the low-to-mid 20s on news the company had filed for bankruptcy, down another 2 points on Thursday to 17.5 bid.

Other Nortel bonds drifting lower included its 10¾% notes due 2016, easing to 18.625 bid from 19.75, while its 10 1/8% notes due 2013 retreated to 17.5 bid from 21.

The company's Northern Telecom Capital Corp. 7 7/8% bonds due 2026, which had lost fully half of their value on Wednesday, plunging to 7.25 bid from the mid-teens, shed an additional point and change to end at 6 bid.

Auto names mostly lower

In the automotive realm, a trader saw General Motors Corp.'s 8 3/8% benchmark bonds due 2033 down 2 3/8 points to 15 bid, 17 offered, while Ford Motor Co.'s 7.45% bonds due 2031 were down 1 1/8 point at 25 bid, 27 offered.

Another trader saw the GM benchmarks up a point at 18 bid, while seeing no sizable trading in the Ford long bonds, which he had last quoted at 25.5 bid, 27.25 offered.

However, looking at the shorter issues, he saw GM's 7.20% notes due 2011 trade down 3 points to 24 bid. GM's 7 1/8% notes due 2013, however, were seen by a market source at 18 bid, down as much as 6 points on the session.

Ford's 6½% notes due 2018 were meantime up by more than 2 points on the day to the 22 level.

In automotive finance, GMAC LLC's 8% bonds due 2031 were seen by a trader having firmed ½ point to 52 bid, though volume in the issue was said to be very light. Its 5 5/8% notes coming due on May 15 were 3/8 point better at 95.375, but again, only on light volume. But GMAC's 6 7/8% notes due 2012 were seen down about 3 points on the day to 65 bid.

A trader saw Ford Motor Credit Co.'s 9 7/8% notes due 2011 down a point at 74 bid, on $6 million traded.

Among the parts suppliers, a trader said that Lear Corp. paper "got hit," seeing its 5¾% notes due 2014 plummet to 28.375 down more than 8 points on a round-lot basis from its levels around 37, earlier in the week, although the bonds were actually down a bit more than 3 points from Wednesday's close in less-than round-lot dealings.

Another market source saw those bonds 6 points lower at around 30.

Lear's 8¾% notes due 2016 fell more than 3 points to about the 25 level.

Spansion misses payment

Spansion Inc.'s floating-rate notes due 2013 were seen languishing around 16 bid, 20 offered in over-the-counter dealings, after the high-tech manufacturer said it would not make the scheduled interest payment on another of its issues, the 11¼% notes due 2016, and that it was "exploring strategic alternatives, including, but not limited to, opportunities to merge with or sell to similar U.S. or foreign businesses."

However, a trader saw no actual activity in the 11 ¼% paper.

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