Goodyear, TXU drive by; new Goodyears gain, upsized United Rentals up next; funds post gains

By Paul Deckelman and Paul A. Harris

New York, Feb. 23 - The up-till-now fairly sedate high-yield primary market showed more life on Thursday, stringing together its first $1 billion-plus day in more than a week. Goodyear Tire & Rubber Co. rolled in with a quickly shopped $700 million issue of 10-year notes, which will be used to fund the redemption of some of its existing bonds.

After those bonds priced at par, they were seen having firmed by more than a point in initial aftermarket dealings. There meantime was not too much activity, or price movement, in the Goodyear bonds slated to be taken out with the new-deal proceeds.

Also on the primaryside, the Texas utility operator formerly known as TXU was back in the market again, bringing an add-on to the big offering of 10-year secured notes that it priced earlier this month. Those bonds were not seen trading around.

Syndicate sources heard that United Rentals Inc. had upsized its $2 billion-plus three-part mega-deal, which is expected to come to market on Friday. Price talk also emerged on the offering, which is heard to be solidly oversubscribed.

In the secondary market away from the new deals, it was more of the same old same old as Chesapeake Energy Corp.'s recent issue of bonds continued to trade heavily.

There was also brisk activity in Sears Holdings Corp., in line with a surge in the retailer's shares following quarterly numbers. Although those results were pretty bad, investors seemed to be heartened by the company's assurances that it has plenty of liquidity as well as moves to monetize some assets that were announced on Thursday.

Statistical junk market performance indicators turned unequivocally higher across the board after several days of mixed results.

And high-yield mutual fund flows - a good proxy for overall Junkbondland liquidity trends - showed weekly gains for the 12th straight time.

AMG posts $837 million inflow

As Thursday's session was drawing to a close, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $837 million more came into those weekly reporting funds than left them.

It was the eighth consecutive gain so far in the new year, and it came on the heels of the $1.77 billion cash injection seen by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division, in the week ended Feb. 15.

There have been no outflows so far in 2012, and net inflows have totaled about $11.79 billion, according to a Prospect News analysis of the numbers, up from $10.96 billion the week before.

It was also the 12th consecutive inflow overall, a streak that dates back to early December. Over that almost three-month stretch, net inflows have totaled $14.9 billion, according to the Prospect News analysis.

EPFR sees $1.34 billion inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a 12th straight week of inflows.

Some $1.34 billion more came into those funds than left them during the week ended Wednesday. That followed a $2.25 billion cash addition the previous week.

On a year-to-date basis, with no outflows seen so far in 2012, inflows have totaled $23.39 billion, EPFR said.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ because they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from EPFR, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's fairly strong performance so far this year and relatively active new-deal developments.

Goodyear prices $700 million

The Thursday primary market saw a pair of issuers raise $1.05 billion. Each priced a single tranche of notes.

Goodyear Tire & Rubber priced a $700 million issue of 10-year senior notes (B1/B+/B) at par to yield 7%.

The yield printed on top of price talk, which was downwardly revised from previous talk in the 7¼% area.

Deutsche Bank Securities Inc., BNP Paribas Securities Corp., Citigroup Global Markets Inc., Credit Agricole Securities (USA) Inc., Goldman Sachs & Co. and Wells Fargo Securities, LLC were the joint bookrunners for the quick-to-market issue.

TXU upsizes

Energy Future Holdings Corp., the parent of TXU Energy, priced an upsized $350 million add-on to its senior secured second-lien notes due March 1, 2022 (Caa3/CC) at par to yield 11¾%.

The notes were issued through Energy Future Intermediate Holding Co. LLC and EFIH Finance Inc.

Goldman Sachs, Citigroup, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC were the bookrunners for the quick-to-market deal, which was upsized from $200 million.

Proceeds will be used to fund a dividend.

The original $800 million issue priced at 98.535 to yield 12% on Feb. 2.

United Rentals upsizes, talks

United Rentals upsized its three-part high-yield notes offering by $625 million, increasing the overall size to $2.83 billion from $2.2 billion on Thursday.

The Greenwich, Conn.-based equipment rental company also set price talk for all three tranches of notes.

An upsized $750 million tranche of senior secured notes due July 2018 (/BB-/) is talked with a yield in the 5 7/8% area. The tranche was upsized from $650 million. The notes are non-callable for three years.

A $750 million tranche of senior unsecured notes due May 2020 (/B/) is talked with a yield in the 7 3/8% area. The notes are non-callable for four years.

A $1.33 billion tranche of senior unsecured notes due April 2022 (/B/) is talked with a yield in the 7 5/8% area. The notes are non-callable for five years.

The combined size of the two unsecured tranches was increased to $2.08 billion from $1.55 billion.

All three tranches are expected to price on Friday.

Morgan Stanley, Bank of America Merrill Lynch and Wells Fargo are the joint bookrunners.

The proceeds of the Rule 144A with registration rights notes, together with an ABL facility and/or cash on hand, will be used to pay the cash consideration for the proposed acquisition of RSC Holdings, Inc. and to refinance RSC's existing senior secured debt.

The issuing entity will be UR Financing Escrow Corp., which will be assumed by UR Sub Corp.

Good bounce for Goodyear

When Goodyear's new 10-year bonds were freed for aftermarket dealings, a trader saw them at a par bid, same as their issue level, "first thing out of the box." He later saw the bonds firm to 100½ bid.

A second trader still later saw those bonds having moved up to 101¼ bid, 101¾ offered.

New deals oversubscribed

Before the Goodyear bonds had priced, yet another trader opined that that deal - along with the day's other new issue, from TXU, and the big United Rentals mega-deal that's expected to come to market on Friday - were all "multiple times oversubscribed. If investors leave their desk to go to the bathroom, they can miss out on a deal."

The first trader also heard that Goodyear was oversubscribed, adding that "they shrunk the price talk from 7¼% to 7%, I presume because they had problems allocating."

He furthermore said that the United Rentals deal was also enormously popular with junk investors. He "heard that there was a good $12 billion in orders there [on a $2.85 billion deal, even after its upsizing] amongst all of the issues."

Speaking generally about the new-deal market, he declared that "it's more of the same. With rates so low, it's a food fight on the allocation, and then a lot of guys buy it to flip, and it doesn't seem to go anywhere until you clear those guys out on to the next one."

Existing Goodyears little moved

While the new Goodyear bonds were being quoted higher once they began trading, the Akron, Ohio-based tire giant's existing bonds did not follow along.

Its 10½% notes due 2016, which will be redeemed by the company using the new-deal proceeds plus cash on hand, were already trading around the anticipated takeout level north of 109 and pretty much stayed there on Thursday even as the quick-to-market new deal priced.

A market source quoted those bonds going out at the 109.8 level, which was up perhaps a half-point on a round-lot basis from their previous levels. About $6 million of the bonds changed hands.

Goodyear's 8¼% notes due 2020 traded at 108 bid, down 1 point on the day.

TXU bonds aftermarket no-show

Energy Future's add-on to its 11¾% notes due 2022 priced too late in the session for any kind of aftermarket activity.

ViaSat gains altitude

A trader said that ViaSat Inc.'s new 6 7/8% notes due 2020 opened up at 102½ bid, 103¼ offered during the morning - up from the 101¼ bid, 101¾ offered level at which those bonds went home on Wednesday.

And it was well up from the par level at which the Carlsbad, Calif.-based satellite communications systems provider's $275 million offering priced earlier Wednesday as a drive-by transaction.

After that higher opening, the trader said that by the afternoon, he was seeing the bonds at 103¼ bid, "but I haven't seen a lot of trading in it."

He noted the deal's smallish size, saying "they're up a bit, but I couldn't tell you there was a lot of volume in the trading."

Chesapeake hangs among actives

For yet another day, Chesapeake Energy's recently priced 6.775% notes due 2019 were "the top volume leader," a trader said.

"It still seems to be a fairly active bond, although today's activity was diminished" from recent levels.

A second market source said that well over $30 million of the bonds changed hands on Thursday, putting it at or near the top of the most-actives list. He quoted the bonds as high as 101 7/8 bid, although others in the market thought it was going home around 100½ bid.

The Oklahoma City-based natural gas exploration and production company's quickly shopped $1.3 billion issue, upsized from an originally announced $1 billion, priced at 98.75 Feb. 13 to yield 7%, and it quickly became the most popular bond in the junk world. More than $50 million of the bonds traded in the aftermarket after the pricing, then an astounding $450 million traded the following day, and $150 million traded each of the next two days. By last Friday, volume had tapered off a little to the $50 million to $60 million area, but Chesapeake remained the heaviest trader.

The bonds held around or perhaps a little above their issue price for the first several sessions of trading, but they managed to finally break par last Friday and have hung in there a little above par ever since.

Noting the continued heavy activity in the bond, now nearly two weeks after its pricing, the first trader said, "That's amazing. It just makes you wonder about if the market was more two-sided, where stuff like the gas E&P bonds would be."

'Difficult' trading environment

Away from the new deals, a trader lamented that "it's been a difficult market to trade."

He said that "it's ridiculous, this market, like pushing on a string.

"It's not a trader's market. It's not two-sided. It's just a one-way market and pretty thinly traded."

Sears busy but stable

One of the busiest bonds of the day, with over $30 million changing hands on a round-lot basis, was Sears Holding's 6 5/8% notes due 2018. But they were seen about unchanged to either up or down a half point in an 87 context, even though the Hoffman Estates, Ill.-based department store operator's stock surged following the company's release of its fourth-quarter results and announcements of two big asset sales aimed at boosting liquidity.

"Sears had a big day; its stock popped," a trader said, seeing the bonds vying for supremacy among the most-actives with the Chesapeake issue.

But he saw the bonds little changed in the 87¼ bid area, calling them maybe a half-point different from where they had been, "but there was a lot of volume."

Another trader said the Sears bonds were about unchanged up around the 87-plus level. He said, "I guess the news was in the wind, because it was unchanged on Trace."

Sears' Nasdaq-traded shares zoomed by as much as 24% in intra-day dealings before finally settling in up by $9.72, or 18.66% on the day, at $61.80.

While the fourth-quarter results themselves were disappointing - both the chief executive officer and the chief financial officer called the results "unacceptable" - the executives touted the company's solid liquidity, at over $3.2 billion, and the strong roster of assets that back up its secured credit facility and that are available for possible sale.

And Sears on Thursday separately announced plans to sell 11 of its stores to a shopping-center real estate investment trust company to generate $270 million of proceeds and plans to spin off to its shareholders some of the specialty stores that it runs in addition to its iconic Sears and Kmart department store chains. The spinoff will be done via a rights issue that aims to raise between $400 million and $500 million for the parent company. (See related story elsewhere in this issue.)

Chrysler cruising along

Elsewhere, one of the traders said that Chrysler Group LLC "was up near par, kind of an all-time high for them. We haven't seen that level since they came to market last year."

The Auburn Hills, Mich.-based automaker, now a division of Italy's Fiat, priced a downsized $3.2 billion issue of five- and 10-year secured senior notes May 19, 2011, bringing in a $1.5 billion tranche of eight-year notes at par to yield 8% and a $1.7 billion tranche of 10-year notes at par to yield 8¼%. After initially moving a little higher, the bonds proceeded to go into a skid and have not been seen near their respective issue levels until now.

Market indicators positive

After two sessions in which statistical measures of junk market performance were mixed, though pretty much with a higher bias, those signposts were more definitely positive on Thursday.

A market source said that the CDX North American Series 17 High Yield index shot up by 1 1/8 points on Thursday to close at 98 bid, 98¼ offered after having eased by 1/8 point for the previous two sessions.

The KDP High Yield Daily index meantime rose for a fourth consecutive session on Thursday, gaining 10 basis points to end at 74.31,after having added on 5 bps on Wednesday. Its yield declined by 6 bps to 6.58% after having come in by 3 bps on Wednesday.

And the widely followed Merrill Lynch High Yield Master II index notched its fifth consecutive daily advance Wednesday, gaining 0.203% on top of Wednesday's 0.137% rise.

The latest gain lifted the index's year-to-date return to 4.501%, a new peak level for 2012. That eclipsed the previous high of 4.29%, which was recorded on Wednesday.

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