Emmis prices upsized deal, Celestica, Corning price also; funds see $384 million outflow

By Paul Deckelman and Paul A. Harris

New York, June 16 - The revived primary market continued to bat out new deals at a brisk pace, with broadcaster Emmis Communications Corp. heard to have upsized a drive-by issue of seven-year floating-rate notes. Other issuers successfully bringing new deals to fruition included a pair of technology names, Canadian electronics manufacturer Celestica Inc. pricing an eight-year issue and U.S. tech producer Corning Inc. bringing in a 10-year split-rated issue. Spanish gaming firm Grupo Cordere priced a 10-year issue of euro-denominated notes.

In the secondary market, things were seen as dull and quiet. A trader quipped that it was "like a typical summer Friday - only on Thursday."

The automotive sector - which had pulled into the fast upward-bound lane on Wednesday on news reports that General Motors Corp. was confident of being able to wring sizable concessions on its healthcare costs out of the United Auto Workers Union - was limping along in the breakdown lane on Thursday, after the UAW said that it would not accept GM's June 30 deadline for coming to an agreement, dashing market hopes for a quick solution to the troubled automotive giant's massive healthcare-cost problems.

Overall sources put the high-yield market slightly better on Thursday, noting that junk seemed to move in tandem with equity prices, which had also seen some improvement on the day.

And after trading wound down for the session, market participants familiar with the junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that some $383.59 million more left the high-yield mutual funds than came into them in the week ended Wednesday.

That brought to a screeching halt the nascent trend of mutual fund inflows, which had seen $1.085 billion of new inflows come into the market in the previous two weeks, including $109 million in the week ended June 8, according to a Prospect News analysis of the AMG figures.

It would seem to represent a reversion to the prior trend of massive and continual outflows, which had seen $6.776 billion of net cash move out in a 15-week stretch dating back to mid-February, according to the Prospect News analysis. That long losing streak has set the tone for the year as a whole, with outflows now having been seen in 19 weeks out of the 24 since the start of the year, against just five weeks of inflows. Net outflows since the start of the year now total $7.109 billion, up from $6.725 billion the previous week, according to the analysis.

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

The AMG numbers are seen as a measure of overall market liquidity trends - and the upsurge over the previous two weeks was linked to both a better tone in the secondary market, and a sharp rise in new-deal issuance.

A trio of issuers

Three high-yield issuers priced deals on Thursday, clearing the calendar of announced deals for the week of June 20.

Emmis Communications priced an upsized $350 million issue of seven-year senior floating-rate notes (B3/B-) at par to yield three-month Libor plus 587.5 basis points, right on top of the price talk.

Banc of America Securities ran the books for the stock repurchasing deal from the Indianapolis-based diversified media company.

Elsewhere Celestica Inc., a Toronto-based electronics manufacturing services provider, priced a $250 million issue of eight-year senior subordinated fixed-rate notes (B2/B) at par to yield 7 5/8%, again right on top of the price talk.

Again Banc of America Securities, this time joined by Citigroup and Deutsche Bank Securities, led the debt refinancing deal.

A market source told Prospect News that the new Celestica bonds broke to 100.25 in the aftermarket.

Meanwhile in Europe, Grupo Cordere priced a €335 million issue of 10-year senior notes (B2/B) at par, Thursday morning, to yield 8¼%, at the tight end of the 8¼% to 8½% price talk.

Credit Suisse First Boston and Morgan Stanley were the bookrunners debt refinancing and acquisition funding deal.

Looks a bit like high yield

Sell-side junk sources also took note, Thursday of a split-rated $100 million offering from glass and ceramics company Corning, Inc.

Corning priced a $100 million issue of 6.05% 10-year senior unsecured notes (Ba2/BBB-/BBB-) at 99.691 on Thursday to yield 6.092%, via Citigroup.

The issue came at a 200 basis points spread to Treasuries.

The sources said that the deal looked a bit like high yield.

Spreads coming back in?

One market source noted Thursday morning that high-yield spreads in the Merrill Lynch broad high yield index averaged 383 basis points at Tuesday's close, which is the tightest they have been since late April.

Medical Services, Tenaska better in trading

In the secondary market, traders said that they had seen no signs of the new Celestica 7 5/8% notes due 2013 by the close. The Emmis and the Corning deals had not priced by the time trading wrapped up.

Among recently priced bonds from other issuers, a trader said that Qwest Corp.'s 7 5/8% senior notes due 2015 and floating-rate notes due 2013, which have moved pretty much in tandem since their June 8 pricing, were at 100.5 bid, 101.5 offered.

Medical Services Co.'s new second-priority senior secured floating-rate notes due 2011 were seen trading at 99.25 bid, 909.75 offered, "at a slight premium" to Wednesday's issue price at 99.

Tenaska Alabama Partners LP's 7% notes due 2021, which priced at par on Monday, were observed having firmed since then to 101.25 bid, 101.5 offered.

But Rafaella Apparel Group Inc.'s new 11¼% notes due 2011 haven't been seen since the $172 million issue priced on Monday at 95.

Auto sector down

Back in the secondary market, autos were a little softer," a trader said, "on the talk about the unions not being in a hurry to negotiate with GM."

He quoted that company's benchmark 8 3/8% notes due 2033 as having fallen to 84.25 bid, 85.25 offered from prior levels around 88.

Another trader, who saw the GM bonds drop to 84 bid, 85 offered from 88, noted that the world's largest automaker's bonds had "run up when it looked like GM would be able to talk to the unions" on the healthcare cost problems.

But now, he said, "the new story is they're not even close to talks" - a setback to those who envisioned that the union and GM might come up with an agreement on union concessions soon.

GM, already beset with rising raw materials costs as well as a downturn in vehicle sales - particularly in its profitable but gas-guzzling SUVs and light trucks - told shareholders at its annual meeting in Detroit last week that health benefits add $1,500 to the price of every vehicle GM makes, "making them non-competitive against the Japanese manufacturers," who now control about a third of the U.S. car market - while GM, which accounted for about half of the cars and trucks sold in the U.S. in the 1950s and early 1960s, now sells only one in four in the States.

CEO Rick Waggoner told the annual meeting that the company will spend more than $5.6 billion this year on health coverage for 1.1 million people - but only about 160,000 of those are current employees, with most of the rest being retirees and their families.

About 120,000 of the current workers are salaried members of the UAW, who pay only 7% of their own healthcare plan costs in the form of co-pays for their doctor visits and prescriptions, with no monthly premiums and no deductibles.

That prompted Boston Globe syndicated columnist Jeff Jacoby to muse in print "is General Motors an automobile manufacturer that provides healthcare benefits for its workers? Or is it a health insurance provider that also happens to make cars?"

GM's shares and bonds had climbed Wednesday after the company had said that it had imposed a June 30 deadline for reaching agreement with the UAW on doing something to cut those healthcare costs

But on Thursday, the head of the union, Ron Gettelfinger was quoted by The New York Times as flatly denying that the union had agreed to any such deadline. "Certainly, that's not our deadline. We do not have a deadline. We are a key player in this, right?" the paper quoted the union chief as saying, and it also said that the UAW would not go along with any moves to help GM by having its members pay deductibles and monthly premiums at the same scale as their supervisors, which amount to 27% of the costs, far more than the hourly employees' 7%.

Equity analysts, including Robert Barry of Goldman Sachs, cautioned in research notes Thursday that GM was unlikely to get any quick relief from the union on the healthcare cost problem, and said the recent stock price run up was therefore unwarranted.

That pushed the shares lower Thursday and in turn helped to drop the GM bonds down to the 84-85 level - and with them went the bonds of other automotive companies that had climbed along with GM, one of their major customers, on the initial hopes for a quick settlement.

Delphi, Visteon, Dura down

A trader saw former GM unit Delphi Corp.'s 6½% notes due 2009 three points lower at 86, 87 offered, while former Ford Motor Co. unit Visteon Corp.'s 8¼% notes were 1½ points lower at 95 bid, 96 offered.

Another trader saw Delphi's 2013 bonds at 78 bid, 79 offered.

A market source saw Dura Automotive's 9% notes due 2009 down a point on the day at 73 bid, while Arvin Meritor Inc.'s 8¾% notes due 2012 were likewise down a point at 104.

Steel gains

Outside of the autos, things were described as very quiet and dull, although a trader saw steel issues up about a point to 1½ points.

The market, he said "was kind mixed," with the CDX index opening lower and staying there. "The market just never got going," he said.

Another one, who saw the market "going a touch sideways," with just "minimal flow," added that "I'd be better off on a beach, drinking a pina colada."

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