Spectrum leads revived primary; trading still quiet; Energy Future up; funds lose $619 million

By Paul A. Harris and Stephanie N. Rotondo

Phoenix, Nov. 1 - High-yield bond investors were taking an interest in new issues on Thursday but little else.

"The focus is somewhat back on new issues," one trader noted. Another trader noted the "giant Spectrum [Brands Inc.]" deal, as well as a planned deal from William Lyon Homes Inc. and a pricing from PQ Corp.

Still, the secondary market continued to be "on the slower side because there is limited participation."

That limited participation as the New York region recovers from hurricane Sandy has resulted in "spotty trading. There's no real price movers."

The trader also pointed out that it was the first of the month, so some people might also be focusing on wrapping up month-end activities.

Another trader said that offices could be even emptier on Friday due to fuel rationing in New York.

After dropping 5 to 12 points in the previous session, Energy Future Holdings Ltd.'s debt rallied a bit, according to a trader. The bonds had fallen due to quarterly results and concerns about a looming bankruptcy.

Also in the energy space, Edison International Inc. reported its third quarter earnings shortly after Thursday's close. Ahead of the release, however, the utility's debt was unchanged.

$619 million outflows

High yield funds saw $618.6 million of outflows for the week to Wednesday, market sources said, citing a weekly report from Lipper-AMG.

It follows the previous week's essentially flat $9.5 million inflow.

The most recent report represents only the ninth negative week of 2012, according to a Prospect News analysis of AMG's weekly reports.

Inflows have been seen in 35 out of the 44 weeks so far this year.

Spectrum Brands upsizes

The primary market started to regain its legs on Thursday, the second post-hurricane session, as three issuers brought a combined four junk-rated tranches totaling $1.85 billion.

Spectrum Brands priced an upsized $1.09 billion two-part senior notes transaction (B3/B-).

The deal included a $520 million tranche of eight-year notes which priced at par to yield 6 3/8%, at the tight end of yield talk that was set in the 6½% area.

Spectrum Brands also priced a $570 million tranche of 10-year notes at par to yield 6 5/8%. The 10-year notes also priced at the tight end of yield talk which had been set in the 6¾% area.

The total size was increased from a planned $1.04 billion.

Late Thursday morning, prior to news of the upsizing, the order book was four- to five-times oversubscribed, according to a trader who added that the offering was going extremely well.

Barclays was the lead left bookrunner for the quick-to-market deal. Deutsche Bank was a joint bookrunner.

The Madison, Wis.-based consumer products company plans to use the proceeds to fund the acquisition of Hardware & Home Improvement Group.

PQ at the wide end

PQ priced a downsized $600 million issue of 5.5-year second lien senior secured notes (Caa1/B-) at par to yield 8¾%.

The yield printed at the wide end of the 8½% to 8¾% yield talk.

J.P. Morgan, Credit Suisse, Barclays, Jefferies, Mizuho and Morgan Stanley were the joint bookrunners

The deal was cut from an original amount of $720 million, with $120 million of proceeds shifted to the company's term loan, increasing it to $1.22 billion from $1.1 billion. Due to that shift in proceeds, the bond covenants were revised.

The Malvern, Pa.-based producer of specialty inorganic chemicals plans to use the proceeds to repay bank debt.

Checkers upsizes

Checkers Drive-In Restaurants Inc. priced an upsized $160 million issue of five-year senior secured notes (B3/B-) at par to yield 11%, on top of yield talk. The amount was increased from $150 million.

Jefferies was the bookrunner.

Proceeds, including those resulting from the $10 million upsize, will be used together with cash on hand to refinance the company's term loan and to fund a $41.7 million distribution to the parent.

Northern Tier's secured deal

Northern Tier Energy LLC announced a $275 million offering of eight-year senior secured notes on Thursday.

The deal is set to price on Friday or Monday.

Goldman Sachs, Deutsche Bank and J.P. Morgan are leading the debt refinancing deal.

William Lyon Homes sets talk

William Lyon talked its $300 million offering of eight-year senior notes (Caa2/B-) with a yield in the 8½% area.

In a structural change, call protection was extended to four years from three years. The first call premium remains unchanged at par plus 75% of the coupon.

The books close at 11 a.m. ET on Monday, and the deal is also set to price on Monday.

Credit Suisse is the bookrunner for the debt refinancing deal.

BlueScope to start marketing

Australia's BlueScope Steel Ltd. and BlueScope Steel Finance plan to start a roadshow on Friday for a $300 million offering of six-year senior notes (expected ratings B1/BB-).

The roadshow gets underway on the West Coast of the United States.

The deal is set to price during the Nov. 5 week.

Credit Suisse is the bookrunner for the debt refinancing.

Market ends weak

In trading, the high-yield bond market was on the softer side Thursday, though volumes continued to be subdued.

The KDP High Yield Index fell to 74.29, with a 6.08% yield, versus Wednesday's reading of 74.32, also with a 6.08% yield.

TXU paper rebounds

Energy Future Holdings, or TXU as it is also referred to, saw its debt rally after declining heavily in the previous session.

A trader said the 6.55% notes due 2034 "moved up towards 40," ending at 39 bid, 40 offered. That compared to 36 bid, 38 offered on Wednesday.

The Dallas-based utility reported its seventh consecutive quarterly loss on Tuesday, though the loss was narrower year over year.

The loss was $407 million, versus $710 million the year before.

Revenues dropped almost 25% to $1.75 billion, due in large part to milder summer temperatures.

Still, the company is maintaining liquidity, reporting $3.8 billion in cash and equivalents on hand.

But Energy Future continues to labor under a huge mountain of debt - about $37.4 billion - that has resulted in high annual interest expense. As a result, the latest earnings fueled concerns about a the possibility of a bankruptcy filing.

Edison steady ahead of numbers

After the market closed Thursday, Edison International reported its results for the third quarter.

Ahead of the release, traders said the Edison Mission Energy bonds were unchanged in a 48-49 context.

Edison Mission and Edison International bonds tend to trade in line with one another.

For the quarter, the Rosemead, Calif.-based utility provider posted overall earnings of $190 million, or 58 cents per share, versus $426 million, or $1.31 per share, the year before.

The parent company attributed the decline in earnings to "losses at Edison Mission Group and to a delay in the California Public Utilities Commission final decision on Southern California Edison's 2012 General Rate Case."

For its part, Edison Mission saw a core loss of 28 cents per share, which compared to earnings of a nickel per share for the third quarter of 2011. The swing to a loss was attributed in part to reduced generation and higher fuel prices.

The rumor mill has been chattering for months that Edison International might look to put the Edison Mission unit into bankruptcy, given its $3.7 billion in unsecured debt.

Broad market dealings

Among other goings-on in Thursday's session, a trader said Advanced Micro Devices Inc.'s 7¾% notes due 2020 remained active, but unchanged around 83.

Supervalu Inc.'s 8% notes due 2016 were "a little bit better" at 95½ bid, 96 offered.

The trader also said that ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 were 'still" trading at 15 bid, 15½ offered. Another trader quoted the issue at 15 bid, 15¼ offered.

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