TXU ends mixed as company fights default allegations; Solo Cup debt crumbling; OPTI rallies

By Stephanie N. Rotondo and Paul A. Harris

Portland, Ore., Feb. 28 ­ Secondary market traders reported a lackluster Monday as credit conferences and month-end pricing gave investors little cause to get much done.

"It was a nothing-special month-end day," a trader said.

Still, the overall market performed better than it did in the previous week, likely helped in part by gaining equities.

Energy Future Holdings Corp. ­ more commonly referred to by its former moniker TXU Corp. ­ was the nom du jour as the company fought allegations of default. The news, which first came out on Friday, resulted in mixed trading in the power producer's debt.

Meanwhile, in the no news is not good news department, Solo Cup Co. bonds continued to be in freefall. There hasn't been anything out to explain the recent declines, and several traders also said they were clueless as to what was causing the slip.

As the overall market closed with a generally firmer tone, so did OPTI Canada Inc.'s subordinated issues, according to traders. Without any fresh news, the bonds tend to fluctuate with the market.

Market indexes improve

Month-end activities and a bevy of JPMorgan conferences this week made for subdued trading Monday, though a trader noted, "In general, the world is a lot better."

Market indexes reflected that positive tone, with the CDX North American High Yield index gaining almost half a point to 104 3/16 bid, 104 5/16 offered. The KDP High Yield index was also better at 75.92, with a 6.65% yield. That compared to a reading of 75.91, with a 6.66% yield, on Friday.

But with many market participants away from their desks attending JPMorgan's High Yield and Leveraged Finance Conference in Miami, Monday's new issues were nearly radio silent.

Credit Acceptance Corp.'s new $100 million add-on 9 1/8% notes due 2017 priced at 106 during the session, but traders reported seeing neither hide nor hair of the bonds.

"I never saw it because it's a small issue," said one market source.

As for the coming week, trading might remain muted due to the slew of conferences scheduled. The high-yield conference goes through Wednesday and two other conferences ­ the Emerging Market Corporate Conference in Miami and the Capital Goods Blue Chip Forum in Las Vegas ­ start Wednesday and end Thursday.

Comstock upsizes

The primary market closed out the month of February on Monday with two issuers - each one bringing a single drive-by tranche - raising $406 million.

Comstock Resources, Inc. priced an upsized $300 million issue of eight-year senior notes (B2/B) at par to yield 7¾%, on top of the price talk.

Bank of America Merrill Lynch, BMO Nesbitt Burns and J.P. Morgan Securities LLC were the joint bookrunners for the deal, which was upsized from $250 million.

The Frisco, Texas-based energy company plans to use the proceeds to fund the tender for its 6 7/8% senior notes due 2012 and to pay down its revolver.

The deal played to a $1 billion order book, according to an informed source, who added that there was a significant "roll" component at play, meaning bond investors who were being taken out of the 6 7/8% notes were keen to retain exposure to the credit.

The par-pricing deal was trading par ¾ bid, 101½ offered in the secondary market, the source added.

Credit Acceptance notes

Meanwhile Credit Acceptance priced a $100 million add-on to its 9 1/8% senior secured notes due Feb. 1, 2017 (B1//) at 106, resulting in a 7.634% yield to worst.

The reoffer price came on top of the price talk.

Credit Suisse Securities ran the books for the quick-to-market issue.

The Southfield, Mich.-based provider of consumer auto loans will use the proceeds to fund a portion of its $125 million share repurchase.

The original $250 million issue priced at 97.495 to yield 9 5/8% on Jan. 25, 2010. The issuer thus realized 2% of interest savings relative to the yield on the original notes.

Biggest February ever

With Monday's deals in the tally, February goes into the record book as the biggest February in the history of the high-yield market.

It is the 11th month of the past 14 to set a new issuance record.

Even though issuance has been muted since mid-month for various reasons, mostly seasonal, the primary market put up $23.4 billion proceeds in 56 junk-rated, dollar-denominated tranches.

The previous biggest February occurred last year; February 2010 saw $15.5 billion in 35 tranches.

In terms of deal volume, this February's 56 tranches narrowly edges 2004's 51 tranches, the previous record.

February 2011's issuance is more than double the $10.5 billion average February issuance going back to February 2001, according to Prospect News data.

Meanwhile, the past month's deal volume tops the 30-tranche February average by 45%.

Perry Ellis $125 million

The forward calendar saw a modest buildup on Monday as Perry Ellis International, Inc. announced plans to price a $125 million offering of eight-year senior subordinated notes during the middle part of the present week.

Bank of America Merrill Lynch and Deutsche Bank Securities are the joint bookrunners for the debt refinancing deal from the Miami-based clothing and accessories designer.

Meanwhile, the on-deck circle contains a single transaction that has been designated at Tuesday business.

J. Crew Group, Inc. is expected to price its $400 million offering of eight-year senior notes (Caa1/CCC+) on Tuesday via Goldman Sachs & Co. and Bank of America Merrill Lynch.

Discussions have been in the context of a yield in the low 8% range, market sources say. However, no official price talk had surfaced by Monday's close.

J. Crew is part of a $3.6 billion calendar of announced deals expected to price by Friday's close.

More announcements, though, are expected, according to a high-yield syndicate official.

Notwithstanding the JP Morgan Global High Yield & Leverage Finance Conference being held in Miami through Wednesday, which could dampen primary market activity somewhat, the February-March crossover week could easily top the $5 billion mark, the source added.

TXU notes diverge

Energy Future Holdings was "probably the most notable" credit of the day, according to a trader.

Traders reported a mixed capital structure on Monday as the company dealt with allegations of default from noteholder Aurelius Capital Management LP.

A trader said the 10¼% notes due 2015 closed at 55 bid, 56 offered, up from levels in the low-50s previously. The 11¼% notes due 2017 were also seen up a couple points in the low 80s.

Another trader said the 10¼% notes were "busy" and about 3½ points higher at 561/2.

A third trader said both the 10¼% and 11¼% notes were "up a solid couple points" at 56 bid, 57 offered and 81 bid, 81½ offered, respectively. However, he also saw the 5.55% notes due 2014 and the 6.55% notes due 2034 "down a solid couple points" at 66 bid, 66½ offered and 44 bid, 44½ offered, respectively.

News of the default allegations, which TXU reported in a regulatory filing on Friday, "definitely got people looking at it," the third trader said. "Guys are just trying to figure out which one is likely to be hurt the worst or benefit the most."

The trader added that there was "no clear answer" because "there's no true event."

In an 8-K filed Friday, TXU said that Citibank NA ­ the administrative agent under the credit agreement in question ­ had received a letter from Aurelius, which alleged that intercompany loans made by Texas Competitive Electric holdings Co. LLC to Energy Future Competitive Holdings Co. did not comply with Texas Competitive's senior secured credit facilities agreements. Aurelius said the agreements maintain that such loans be made on an arms-length basis and, as they were not, the company was in default on $24 billion of debt.

In the regulatory filing, TXU said the claims were "without merit," as the loans were in fact made on an arms-length basis.

But despite its dismissal of Aurelius' claims, Citigroup and TXU held a lender call Monday to discuss the situation.

Aurelius holds about $50 million of the debt in question, which comes to about 0.2% of the total amount. According to the 8-K, no other creditor was listed in support of Aurelius.

TXU, a Dallas-based energy producer, is also slated to present at JPMorgan's high-yield conference this week.

Solo Cup under pressure

A trader said Solo Cup's 8½% notes due 2014 were still "getting hammered," though there hasn't been any news out to explain the recent weakness in the credit.

He called the notes down 3 points at 831/2.

Another trader also placed the bonds at that level, on some "$20-odd million" traded.

A third trader quoted the paper at 84 bid, 85 offered, but noted that there were some late-day prints around "83 and change."

"Seems like it keeps going lower," he said, adding that the issue had traded around 87 last week.

Solo Cup is a Lake Forest, Ill.-based manufacturer of single-use food and beverage packaging products.

OPTI bonds rally

After taking a hit on Friday, OPTI Canada's 7 7/8% and 8¼% notes due 2014 "bounced back," according to a trader.

He quoted the notes at 54½ bid, 55 offered, up from opening levels around 53½ bid, 54 offered.

The senior notes, however, "haven't budged," he said.

Another trader deemed the debt up nearly a point at 543/4.

There was no news out on the Calgary, Alta.-based oilsands producer.

Market mainstays mixed

Elsewhere in the market, NewPage Corp.'s 10% notes due 2012 were seen ending half a point better at 661/2.

In the autosphere, General Motors Corp. and Ford Motor Co. benchmark issues were called unchanged at 32½ bid, 33½ offered and 109 1/8 bid, 110 1/8 offered, respectively.

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