Reynolds American, Range Resources, Unifi price; market bounce seen; funds see $135 million outflow

By Paul Deckelman and Paul A. Harris

New York, May 18 - Reynolds American Inc. priced a billion-dollar-plus three-part mega-deal late Thursday, junk market syndicate sources said. The huge ($1.65 billion) offering followed downsized, considerably smaller pricings earlier in the day from Unifi Inc. and from Range Resources Corp.

Also in the primary arena, talk was heard on another billion-dollar behemoth of an offering, a two-parter from Edison Mission Energy, which was heard to have done some tinkering around with the deal's structure. Talk also emerged on MTR Gaming Group Inc.'s upcoming deal, which could hit the market as soon as Friday, and on American Greetings Corp.'s prospective issue, also seen pricing on Friday.

In the secondary market, traders noted a better tone, as participants cautiously took some issues higher after Wednesday's broad retreat, which had been sparked by a plunge in the equity and Treasury markets on unfavorable inflation news. However, Solo Cup Co. seemed to buck the general trend, continuing to head downward on top of Wednesday's several-points loss.

From out of the distressed-debt market, Movie Gallery Inc.'s bonds - which had already been moving up Wednesday, defying the overall trend - continued to firm on Thursday.

And near the end of the session, 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, $134.8 million more left the funds than came into them.

It was the sixth consecutive weekly outflow, including the $104.6 million decline seen in the previous week, ended May 10. Over that six-week period, outflows have totaled about $642 million, according to a Prospect News analysis of the AMG figures.

Outflows have now also been seen in 13 weeks out of the last 15, dating back to early February, during which time some $1.524 billion more has left the funds than has come into them, according to the Prospect News analysis.

But the AMG data shows a somewhat different trend overall. Year-to-date net flows among fund reporting on a weekly basis are at negative $1,902.6 million, according to AMG, the source added.

However, the source specified, with regard to funds that report to AMG on a monthly basis an entirely different funds flows picture emerges: the monthly reporting funds are in the black, year to date, to the tune of $1,775.7 million.

Hence the year-to-date aggregate flows, which combine both the weekly reporters' and monthly reporters' tallies comes to negative $126.9 million, the source said.

According to the Prospect News analysis of the weekly data, outflows have now also been seen in 16 weeks out of the 20 since the start of the year, against only four inflows, and net outflows during that time have totaled $1.892 billion, up from $1.757 billion the week before.

Those results confirm the continuation of the predominantly negative trend that was in evidence throughout most of 2005, when $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the $3.236 billion net outflow seen in 2004.

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 only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

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

Tough market for deals

The primary market saw three issuers price five tranches that generated a total of $1.98 billion of proceeds.

Of those five tranches, two were downsized.

Two of the five came wide of price talk while the remaining three came at the wide end of talk.

When prodded, the buy-side source agreed that the present high-yield market is a tough one in which to be bringing new deals.

However when invited to join the chorus of voices lamenting the inflation implications of Wednesday's Consumer Price Index data, and blaming the data for the recent chop in the junk market, the buy-sider declined the invitation.

"Everybody has been mentioning the CPI numbers," the buy-sider said.

"One thing that is not being talked about very much is what has happened recently in the commodities markets. The London Metals Exchange has raised its margin requirements three times. The third time they did it is when the markets really started to take a little bit of a header.

"There has been quite a bit of talk about leveraged money in the commodities market. We haven't heard too much about it, but it seems to have thrown a little bit of a wrench into things."

Reynolds American prices $1.65 billion

Thursday's largest amount of issuance came from cigarette maker Reynolds American .

The Winston-Salem, N.C., company priced $1.65 billion of senior secured notes (Ba2/BB) in three tranches. All three tranches were priced, high-grade style, on spreads to Treasuries. And all three came at the wide end of price talk.

The company priced a $625 million tranche of 7¼% seven-year notes at a 237.5 basis points spread to Treasuries, on the wide end of the Treasuries plus 225 basis points to 237.5 basis points price talk. The seven-year notes came at a 99.277 dollar price to yield 7.384%, generating $620.48 million of proceeds.

Reynolds American also priced a $775 million issue of 7 5/8% 10-year notes at a 262.5 basis points spread to Treasuries, on the wide end of the Treasuries plus 250 to 262.5 basis points price talk. The 10-year notes came at a 99.538 dollar price to yield 7.692%, generating $771.42 of proceeds.

In addition the company priced a $250 million issue of 7¾% 12-year notes at a 275 basis points spread to Treasuries, again at the wide end of the Treasuries plus 262.5 to 275 basis points price talk. The 12-year notes came at a 99.484 dollar price to yield 7.817%, generating $248.71 million of proceeds.

Overall the three-tranche acquisition-financing transaction, via Lehman Brothers, JP Morgan and Citigroup, generated $1.641 billion of proceeds.

Unifi, Range Resources downsize

The remaining two deals that priced Thursday paled in size by comparison with Reynolds American.

Both of them were downsized and both came wide of the price talk.

Unifi priced a downsized $190 million issue of eight-year senior secured notes (Caa1/CCC+) at par to yield 11 ½%, 25 basis points beyond the wide end of the 11% to 11¼% price talk. The deal was reduced from $225 million.

Lehman Brothers ran the books for the debt refinancing deal from the Greensboro, N.C., yarn company.

And Range Resources priced a downsized $150 million issue of 10-year senior subordinated notes (B2/B) at par to yield 7½%, 12.5 basis points beyond the wide end of the 7¼% area price talk. The offering was cut from $200 million.

JP Morgan ran the books for the debt refinancing deal from the Fort Worth, Texas-based independent oil and gas company.

$2 billion for Friday

Friday's potential $2.085 billion of issuance - in six tranches from four issuers - figures to top Thursday's $1.981 billion.

News emerged Thursday on several of the deals.

Edison Mission Energy restructured its $1 billion offering of senior notes (B1/B) and talked both tranches.

The company talked a restructured tranche of 10-year bullet notes at a yield in the 7¾% area. The notes had previously been marketed with a 12-year maturity and five years of call protection.

Meanwhile the company left unchanged its tranche of seven-year bullet notes, and talked the notes at the 7½% area.

Tranche sizes remain to be determined. Pricing is expected on Friday morning.

JP Morgan, Citigroup, Credit Suisse, Merrill Lynch & Co. and Goldman Sachs & Co. are joint bookrunners for the debt refinancing transaction.

Elsewhere American Greetings Corp. talked its $200 million offering of 10-year senior notes (Ba2/BB+) at 7¼% to 7½%.

UBS Investment Bank and JP Morgan are joint bookrunners

And MTR Gaming Group Inc. talked its $125 million offering of six-year senior subordinated notes (B3/B-), via Jefferies, at the 9% area with a par issue price.

Also expected to price is the $760 million two-parter from Education Management Corp.

On Wednesday the company shifted the tranche sizes of its offering, upsizing to $375 million from $320 million its offering of eight-year senior notes (B3/CCC+), while downsizing to $385 million from $440 million its 10-year senior subordinated notes (Caa1/CCC+).

Price talk is 8¾% to 9% for the senior notes, while the senior subordinated notes are talked 150 basis points behind the senior notes.

Unifi steady in trading

Back in the secondary market, traders saw the new Unifi 11½% notes due 2014 hanging around their par issue price, with one seeing them unchanged at par and another seeing them slightly easier, at 99.75 bid, 100.625 offered.

Yet another trader said that the notes broke around 99.75, but firmed back to par bid, 100.5 offered. The new bonds "didn't trade very much." He noted that the issue had been downsized, and priced wide of the original price talk of around 10¼% to 10½%. "It drifted up all week, so they had a little difficulty getting the deal done, I think, and it kind of showed in the aftermarket trading."

Overall, he said, "it was a very mild day. We had a little bit of a bounce after this morning's numbers [the Conference Board reporting a 0.1% fall in its index of leading indicators for April, seen as less inflationary than the predicted 0.1% gain], Treasuries started to pull up, and we had a bounce in the stuff that had been shorted."

Amkor, Allied Waste rebound

This was evident in the behavior of some recently priced new issues, he said, with Amkor Technology Inc.'s new 9¼% senior notes due 2016 "probably a point off the bottom" they had hit Wednesday, when they dropped as low as 96.25, although they remain well below their par issue price seen a week ago, and Allied Waste North America Inc.'s 7 1/8% senior notes due 2016 around 97.25 bid, "after being in the 6s" - i.e. 96 and change - on Wednesday, though they too remain still well below their May 4 issue price of 99.123.

A trader said that Range Resources' new 7½% notes due 2009 were at 100.5 bid with no offers late in the afternoon, as "there were no markets in it." The bonds had priced earlier in the session at par.

Another trader agreed that there was "not much trading" in the new bonds, at 100.5 bid, 101 offered. He said that this bond, too, had come wide of original price talk levels, by around 12½ basis points.

Market quiet

One of the traders opined about the overall market that "I can't tell you that there was any one sector that led here, or that was a standout, one way or another."

"Stuff was just kind of bouncing around," another trader said. "It was a kind of quiet day [Thursday]. It seems to be there's a lot of demand in the shorter-term maturities still," with the market starting to see "some two-way flows in '06 and '07 paper."

But apart from that trend, he added "that was pretty much it - there was no really dominating story out there, no dominant issue trading."

Another trader said that he "wouldn't necessarily call it a recovery, over the last few days, I would just say that even though equities were [again] weaker" - the Dow Jones Industrial Average slid another 77 points, on top of Wednesday's 214-point plunge - "you had a little stability in the market. There were some bids there, on some stuff that had gotten kind of cheap. Nothing that I saw was bleeding a whole lot."

He also noted the impact of Bear Stearns high yield conference earlier in the week on market participation, as well as the annual "Memphis In May" music and barbecue festival in that Tennessee city, probably attended, he said, by "half the Street - high yield and all other products."

Delphi climbs

One name which the trader saw some improvement in was Delphi Corp. paper, which had retreated on Wednesday, amid the general market downturn and on general investor angst about the bankrupt Troy, Mich.-based automotive parts supplier's labor situation, following an overwhelming vote by its unionized hourly work force members to give their union chiefs the authority to call a strike against the beleaguered company.

But on Thursday, he said, Delphi's 6½% notes due 2013 was at a wide 74 bid, 77 offered, up about a point from Wednesday's levels.

Another trader agreed that Delphi was a little better bid, with its 6½% notes due 2009 half a point better at 77 bid, 78 offered.

Yet another trader quoted the Delphi 7 1/8% notes due 2029 at 76.25 bid, 77.25 offered, up 1¼ points.

GM unchanged

Elsewhere in the automotive realm, former Delphi parent - and still major Delphi customer - General Motors Corp.'s benchmark 8 3/8% notes due 2033 were seen pretty much unchanged at 73.375 bid, 73.875 offered.

GM investors have been watching Delphi's situation with some degree of nervousness, since the Troy company is GM's largest single parts supplier and a strike by Delphi's 34,000 hourly employees over management's efforts to void their costly contracts and impose a more severe wage and benefits schedule would likely mean massive disruptions to GM's production.

A trader saw GM's General Motors Acceptance Corp. financing arm's 8% notes due 2031 up ¼ point, while rival Ford Motor Co.'s 7.45% notes due 2031 were also up a quarter point, at 72.25 bid, 72.75 offered.

Solo Cup lower

Elsewhere, Solo Cup's 8¼% notes due 2014 were seen at 91.25 bid, 91.75 offered, down nearly a point from their levels Wednesday - when they fell around 2½ to three points on unfavorable quarterly results.

A trader said, however, that the slide was restrained, and probably could have been worse.

"People went through the numbers, and saw that the results were affected by a lot of one-time charges." He also said that calculating the ratio of yield to the company's leverage "shows there's value to the bond, and people see that."

Movie Gallery higher again

Out of the distressed precincts, Movie Gallery's 11% notes due 2012 were seen by a trader up a point, at 72 bid, 73 offered. It was the second consecutive up session for the Dothan, Ala.-based video rental chain operator's bonds.

"We had a bounce from [Wednesday]'s losses," another trader said in looking at the overall market, "which had been triggered by equities." He saw the market pretty steady through 2:30 p.m. ET, when stocks again began to erode, but "the [junk] market remained pretty steady."

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