Cablevision brings upsized deal, bonds move up; junk mostly off; M&A buzz boosts Elan; funds soar $988 million

By Paul Deckelman and Paul A. Harris

New York, Jan. 8 - CSC Holdings Inc. successfully priced a quickly shopped "drive-by" offering Thursday, the first junk bond deal of the new year, high yield syndicate sources said.

However, the Cablevision Systems Corp. unit's deal, while massively upsized to $750 million of proceeds from the originally planned $500 million and carrying the lowest coupon the junk primary has seen since early last fall, still had to be priced at a steep discount to par to generate enough yield to get the transaction done.

When the new deal was freed for secondary trading, it quickly shot up by several points. Meanwhile, the Bethpage, N.Y. based cable systems operator and sports entertainment company's existing bonds were mixed, with shorter issues firming ahead of the pricing and longer paper falling back.

That fallback fit in with the overall high yield market, which was lower in most spots for a second straight day, causing traders to conclude that the strong rally seen earlier in the week was merely a flash in the pan.

Against that less-than-inspiring backdrop, bonds of Elan Finance plc were solidly higher, spurred on by takeover speculation about the Irish pharmaceutical company, a buyout buzz that also lifted that shares of its parent, Elan Corp.

Bonds of upscale retailer Neiman Marcus Group Inc. were gyrating at mostly lower levels after the upscale Dallas-based retailer reported sharply lower total and same-store sales for December versus a year earlier.

Funds up by $988 million on week

After trading had wrapped up for the day, 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, some $988.3 million more came into the weekly reporting funds than left them.

It was the sixth consecutive inflow, the third consecutive gain of greater than half a billion dollars, and the first of 2009, coming on the heels of the massive back-to-back cash infusions seen over the final two weeks of 2008 - $690.8 million in the week ended Dec. 30 and $729.3 million seen the previous week, ended Dec. 23. A high yield syndicate official said the combined $1.42 billion total influx reported in those two weeks represented the biggest back-to-back inflows since late August 2003.

In that six-week span, net inflows have now totaled $2.8 billion, according to a Prospect News analysis of the AMG figures.

In 2008, a year which had 53 reporting weeks, thanks to a statistical quirk, there were 31 weeks in which net inflows were seen, versus 22 net outflows, with a year-end cumulative net inflow total of nearly $2.123 billion, its high for the year, according to market sources. The year had begun with outflows reported in most weeks, before swinging into positive territory on a cumulative basis in April and never getting back in the red. However, those totals had been relatively modest for most of the year's final quarter, only expanding robustly over the last few weeks of the year.

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

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.

The positive number won't take the buy-side by surprise. Mutual fund managers whom have spoken to Prospect News this week reported seeing money coming in, and thus anticipated another big inflow.

Cablevision deal upsized

Four sessions into the new year the high-yield new issue market roared to life as CSC Holdings, Inc., a subsidiary of Cablevision Systems Corp., priced an upsized $844 million issue of 8½% five-year senior notes (B1/BB) at 88.885 to yield 11 3/8% in a quick-to-market deal.

Cablevision's Thursday drive-by deal generated $750.2 million of proceeds and was upsized from $500 million.

The notes priced in line with the price talk that specified an 8%-handle coupon at approximately 90 to yield in the 11 3/8% area.

JPMorgan, Banc of America Securities LLC, Citigroup, Credit Suisse and Deutsche Bank Securities were joint bookrunners for the deal, which the company brought in order to address upcoming debt maturities.

A better credit in a better market

The Cablevision deal went gangbusters, according to informed sources.

A source close to the deal declined to discuss the book size, but suggested that demand could be inferred based upon the amount by which the deal was upsized - $250 million proceeds, $344 million face.

Another informed source said that a sizable portion of the bonds were placed before the deal was announced, and added that accounts were cut back on allocations.

Yet another informed source said that the deal came 0.25% cheap, which is why the bonds traded up dramatically in the aftermarket.

Asked if any distinctions could be drawn between the Cablevision deal and the mid-December deals - El Paso Corp.'s 12% five-year notes (Ba3/BB-) which priced at 88.909 to yield 15¼%, and Kansas City Southern Railway Co.'s $190 million issue of 13% five-year senior unsecured notes (B2/BB-/) which priced at 88.405 to yield 16½% - the source said that the Cablevision trade represented a better credit in a better market.

One high-yield syndicate official who watched the deal from the sidelines said that the aggregate yield of Cablevision's existing bonds was 10½%. Hence the 11 3/8% yield of the new 8½% notes due April 2014 represents significantly less of a concession to the new issue market than some observers had expected: 7/8% as opposed to the 1% to 1½% concession that people had been watching for.

"That and the fact that the deal was upsized are pretty positive signs for the primary market," the official asserted.

Finally, sources in and out of the Cablevision deal confirmed market color that Prospect News has heard since the beginning of the new year: high-yield investors are interested in big, liquid issues from names they know.

Also in the immediate wake of the Cablevision deal, sources forecast that new issue market volume will increase in the days to come, with several syndicate sources confirming that they were preparing possible deal roll-outs.

On Wednesday evening a high-yield mutual fund manager, who correctly predicted that Cablevision would show up, said that names "rumored in the new issue market" include DISH Network Corp., DIRECTV Group, Inc., Chesapeake Energy Corp. and HCA Inc.

Anyone who doesn't go bankrupt

"Those are the usual suspects," said a money manager from a different mutual fund, when pondering that list on Thursday.

This investor did not play in Cablevision, not being keen on either the sector or the company.

However the investor conceded that Cablevision is the kind of company to which the high-yield new issue market is presently open.

"Right now real companies are often bid only," the investor reflected, adding that high-yield looked a little softer Thursday morning, a hangover from the Wednesday session which saw junk trade off substantially, in line with stocks.

"A couple of things may be marked down half a point or so, but basically the market seems really strong," the investor said.

"Real companies aren't trading down."

New Cablevision catches fire

When the new CSC Holdings 8½% notes due 2014 were freed for secondary dealings, a trader saw them jump almost immediately to 90 bid from their issue price of 88.885.

At another desk a bit later, a trader saw the new bonds continuing to push up strongly, seeing them get as good as 92 bid, 93 offered.

A trader said that Cablevision's existing bonds were mixed ahead of the new issue, with its 8% notes due 2012 dropping back to 91.875 bid from Wednesday's close at 93, on $19 million traded. He noted that at that lower price, the bonds' yield worked out to exactly 11% -- not too far from the 11.375% yield at which the new issue priced, adding "that's why they got knocked down."

He said that Cablevision's short-dated paper, however, was a whole different story, with its floating-rate notes coming due in April firming by ½ point to 100.5 bid, while its 8 1/8% notes maturing on Aug. 15 moved to 100.625 bid from 99.75.

The big new deal "brings a feeling of comfort" to the holders of the short bonds, he said, "that the company will have the cash to pay off those bonds."

Indeed, in announcing earlier in the day that it planned to bring the new debt issue to market, Cablevision specifically said that the deal proceeds would be used to address its and CSC's upcoming debt maturities. Cablevision and its subsidiaries have an estimated $11 billion of net debt, $1.4 billion of which is due in the near-term, consisting of the $500 million of the parent company's floaters due in April, CSC's $500 million of 8 1/8s due in July and the unit's $400 million of August 8 1/8s.

Cablevision's New York Stock Exchange-traded shares meantime finished up $2.64, or $15.90, at $19.24. Volume of 7.1 million shares was more than triple the norm.

Market indicators continue decline

Back among the established issues without new-deal connections, the widely followed CDX High Yield 11 index of junk bond performance, which had declined by 3/8 point on Wednesday, fell back by another 1 1/8 point on Thursday, a trader said, quoting it at 79 3/8 bid, 79 7/8 offered. The KDP High Yield Daily Index dropped by 38 basis points to 55.61, while its yield widened by 17 bps to 13.65%.

In the broader market, advancing issues pretty much surrendered their recent lead over decliners, ending ahead by only a narrow margin. Overall market activity, reflected in dollar volumes, fell nearly 16% from the pace seen in Wednesday's session.

"I think the 'January Effect' is over," flatly declared a trader, looking at the junk market's two-day retreat from the strong, almost euphoric, gains which it had posted the first two days of the week, raising the hopes of some market participants that 2009 would represent a fresh start after the horror show that 2008 eventually turned into. But after that two-day interlude, it was back to the same old, same old - investor worries about the viability of corporate profits in increasingly recessionary economy and whether the moves the federal government has made, or will make, will be enough to pull the economy out of the ditch into which it has stumbled.

Not surprisingly stocks, which often give the junk market its cues, continued to struggle, although Thursday's mixed ending did represent a clear improvement over Wednesday's sharp declines, the worst in a month. The bellwether Dow Jones Industrial Average was again off all day, although it cut its big earlier losses to end only modestly lower at 8,742.46, down 27.24 points, or 0.31%, while the broader Standard & Poor's 500 index actually gained 0.34%, and the still broader Nasdaq composite index moved up by 1.12%.

However, junk was not able to really take advantage of stocks' better showing, a trader said, suffering "another down day, with multiple-point losers."

The recent advance, he insisted, "is over. We need some event to jump-start this or turn it around." The [overriding macroeconomic] trend looks lower again, and things look worse, and things are going to get worse, and things won't get better until 2010."

He added "what a swing within a few days" that the junk market has had. "It is pretty amazing."

Active issues trading lower

The market's return to a negative mindset was highlighted by the downturn in some of the more actively traded credits.

The trader saw Freeport McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017 as perhaps the busiest bond in play on Thursday, with over $41 million changing hands. But while the Phoenix-based metal miner's bonds had firmed smartly over the previous two sessions from the lows they saw on Monday - that in a market where most everything else was up strongly - on Thursday it was back to the downside as the paper fell to 82.5 bid from 87 on Wednesday.

Freeport McMoRan's 8¼% notes due 2015 were likewise lower, though on considerably less active dealings of $13 million. They ended at 85, down from 88.25 previously.

Another actively traded decliner he saw was First Data Corp.'s 9 7/8% notes due 2015, which moved down to 64 bid from 66.5, and which were well below their Tuesday peak level of 70 bid.

Community Health Systems Inc.'s 8 7/8% notes due 2015 were also easier, although not by too much, with the Franklin, Tenn.-based hospital operator's benchmark bonds down just ¾ point on the session at 92.75, which the trader said is "not so bad, actually, in this environment." However, those bonds, following a big drop on Wednesday, remain well under their peak levels above 96 bid seen earlier in the week.

Elan elevated on takeover talk

A notable exception to the generally lower market was Elan Finance's bonds, which were strongly higher, along with its ADR equity and equity options, as the financial markets reacted to buyout buzz linking the Irish drug manufacturer with pharmaceutical giant Pfizer Inc.

A trader saw Elan's 7¾% notes due 2011 at 72 bid, which he called 'at least 6 to 7 points" higher.

Another trader called the 73/4s as much as 10 points better, though around that same 71-73 context.

Over on the NYSE, Elan's American depositary receipts rose $1.11, or 14.62%, to close at $8.70. Volume of 10.1 million shares was triple the usual turnover.

There meantime was frenetic options activity in Elan - volume was some 22 times the usual level - with calls giving the holder the right to buy the security at a specified price outnumbering puts by almost four to one.

While market players were working themselves into a frenzy, spokespeople for both Pfizer and Elan declined comment on the M&A speculation.

Numbers knock down Neiman Marcus

Among the retailers, Neiman Marcus Group's bonds tumbled in response to its poor December sales and to a sense of overall sector weakness brought on as industry leader Wal-Mart reported lower-than-expected same-store sales data for December and cut its fourth-quarter earnings forecast. A trader cited "the Wal-Mart disappointment," which he said had hit all of the retailers, although Neiman Marcus had plenty of its own bad news for investors to be upset over.

The operator of upscale department stores under its own famous name and the equally prestigious Bergdorf Goodman nameplate reported that for the five weeks ended Jan. 3, companywide sales revenues slid 26.4% from year-ago levels, while same-store sales, measuring revenues at established stores open at least a year - the key retailing industry performance metric - swooned by 27.5%. Excluding the somewhat smaller decline recorded by the company's online and mail-order units, same-store sales at the brick-and-mortar Neiman Marcus and Bergdorf Goodman stores fell even further, by 31.2% from a year ago.

Neiman Marcus' 9% notes due 2015, which had finished Wednesday at 52.625 opened down several points, fell as low as the 44 level during the sector, and then bounced back to end at 50, still with a loss of over 2 points on the session. Some $16 million of the bonds traded.

A market source also saw its 10 3/8% notes due 2015 retreat to a round-lot level of 48.5 bid from Wednesday's 52.875, on some $10 million traded. Those bonds also fell as low as 44.

However, not all was gloom-and-doom among the retailing names; a trader said Bon-Ton Stores Inc.'s 10¼% notes due 2014 were up 3 points to 15 bid, 18 offered, on "better-than-expected" December same-stores; the York, Pa.-based department store operator saw that measure fall 5.8%, less than many analysts had been expecting.

GMAC loses ground, but ResCap gains

A trader said that GMAC LLC - whose bonds had firmed strongly at the end of December and continued to glide earlier this month before stalling out - was "down a couple from the beginning of the week," seeing its 5 5/8% notes coming due in May at 95.5 bid, off from levels in a 96-97 context at the beginning of the week. He said the old (i.e. untendered in the automotive finance company's recent debt exchange) 8% bonds due 2031 were "down a couple of points" to around 57 bid, 58 offered. He said there was "not as much volume" in the long bonds as in the shorter issues.

He said that GMAC's 5.85% notes coming due next week were little changed around a par level, but said those are "almost over - everyone knows they're going to be paid off."

He also said the newly issued 6.875% notes due 2011 were at 76 bid, 78 offered, and that the new secured issues are generally about 1½ to 2 points better than similar old, untendered bonds.

Another trader saw the 8s at 57.5 bid, down from 60, on volume of just $1 million, and pegged the 8 5/8% notes at 95.5 bid, down 1½ on the day with $4 million traded.

A trader said that GMAC mortgage lending unit Residential Capital LLC's bonds were "doing well" after GMAC expressed optimism about ResCap's prospects in an SEC filing.

"Even without seeing a story, if you see something gap up in the market, you know there's good news," he said, quoting the ResCap 8½% notes due 2010 as high as 73 bid, 75 offered before ending at 72 bid, 74 offered, still "up a lot from [Wednesday]," maybe 5 points above the upper-60s levels of the previous day.

In that filing, GMAC called ResCap a key subsidiary and declared that if ResCap "were to need additional support, GMAC would provide that support so long as it was in the best interests of GMAC stakeholders. "

GMAC stopped short of giving an absolute guarantee of support, but noted that "GMAC's recently approved status as a regulated bank holding company has increased the importance of its support for ResCap."

A trader meantime saw GMAC's 49% owner General Motors Corp.'s bonds "a little weaker, but not by much," with the benchmark 8 3/8% bonds due 2033 around 20 bid, 23 offered, on "a lot of quoting, but not much actual volume."

At another desk, a trader saw GM's long bonds unchanged at 21 bid in round-lot dealings, on volume of just $2 million, while its 7¾% notes due 2010 eased to 88 bid from 98.875 Wednesday, also on $2 million traded. Even the more active 7.20% notes due 2011 traded only $4 million; he saw the bonds at 29 bid, up from 27 previously.

Lyondell activity continues

From deep in the distressed-debt market, a trader saw bankrupt Lyondell Chemical's 10¼% notes due 2010 "very active" with $14 million traded at 26.5 bid, up ½ point on the day. He saw its 7 5/8% notes due 2026 unchanged at 8 bid on $5 million traded.

At another desk, a trader saw the 9.80% notes due 2020 around 25-26.5, with "one trade" at 27. He saw the 101/4s also quoted in the mid-20s, but said "by no means" did he see a lot of trading.

Houston-based Lyondell won bankruptcy court approval for interim access to its debtor-in-possession funding.

Meanwhile, its Dutch parent, LyondellBasell, said that all options, including divestments, were open for the reorganization of its global operations in the wake of the Chapter 11 filing this week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.