High-yield generally weaker; new issues stall; Anadarko active, ends mixed; Rite Aid slips

By Stephanie N. Rotondo

Portland, Ore., Sept. 23 - The high-yield market ended Thursday's session on the softer side and new issuance dropped of from the flurry seen earlier in the week.

But that let other secondary names see some action. Anadarko Petroleum Corp., for example, was deemed one of the top traders of the day in terms of volume. New issues had previously taken the top spots.

Also active was Rite Aid Corp., which announced earnings before the market bell rang. The numbers disappointed investors, and mounting pressure caused the bonds to fall anywhere from half a point to 1½ points on the day.

In an unsurprising move, Blockbuster Inc. said it officially filed for bankruptcy. The company managed to gain approval from senior bondholders of a pre-pack plan that would give all new equity to that class of investor. On the news, the subordinated issue dropped a few points, while the senior notes initially traded down, then back up.

Market indexes drop

Market indicators turned negative Thursday as issuance of new paper fell off.

The KDP Daily High Yield index dropped to 72.68 from 72.89 on Wednesday, and the yield widened to 7.86% from 7.80%.

The CDX North American HY Series 14 index closed about half a point softer at 97½ bid, 97¾ offered.

Still, according to a few traders, it could have been worse.

"The market started off ugly, but did a pretty good job of coming back," a trader said, adding that bonds were generally either down about a quarter-point or unchanged.

On the other hand, the trader said that "opportunistic buyers" were coming in, leaving him to speculate that some of the recent new issues "will firm up a bit."

Funds see $824 million inflows

Although the primary market passed a comparatively quiet Thursday, with three issuers raising just $597 million and each one bringing a single tranche deal, evidence surfaced that investors continue to add fuel to the fires of the hard-rallying high yield bond market.

The high-yield mutual funds saw $824 million of inflows for the week to Wednesday, according to Lipper-AMG.

This follows the previous week's massive $1.191 billion inflow and extends year-to-date inflows to $8.311 billion among funds which report to Lipper-AMG on a weekly basis.

The Lipper-AMG number represents a mere fraction of the cash picture of the high-yield bond asset class, observers say.

Nevertheless, as an indicator of the direction in which cash is flowing and the volume at which it is flowing, the number is closely watched, Lipper-AMG added.

For mutual fund managers, the flows amount to a challenge to get all of that incoming cash invested, inviting the dealers to keep the new deal pipeline full.

Evertec, atop talk

Evertec, Inc. priced Thursday's biggest deal, a $220 million issue of restructured eight-year notes (Caa1/B-) at par to yield 11%, on top of price talk.

In the restructuring, a year was added to the tenor of the notes, which were sold as eight-year notes with four years of call protection. The issue had been in the market with a seven-year tenor and three years of call protection.

There were also modifications made to the covenants.

Bank of America Merrill Lynch and Morgan Stanley & Co. were the joint bookrunners.

Proceeds will be used to fund the acquisition of a 51% stake in Evertec by Apollo Group.

Liberty Tire at the wide end

Elsewhere, Liberty Tire Recycling Holdco, LLC and Liberty Tire Recycling Finance, Inc. priced a $200 million issue of 11% six-year senior notes (B3/B) at 98.929 to yield 11¼%.

The yield printed at the wide end of the 11% to 11¼% price talk.

Bank of America Merrill Lynch ran the books.

Proceeds will be used to repay the company's U.S. and Canadian credit facilities, to repay its second-lien agreement and for general corporate purposes.

Titan tight to talk

Finally, Titan International Inc. priced an upsized $200 million issue of seven-year senior secured notes (B1/B+) at par to yield 7 7/8%.

The yield printed at the tight end of the 8% area price talk.

Goldman Sachs & Co. ran the books for the deal, which was upsized from $175 million.

Proceeds will be used to finance a tender for the company's 8% senior unsecured notes due 2012, with any remaining proceeds going for general corporate purposes, including financing potential future acquisitions and repayment of other existing obligations.

Stoneridge seven-year deal

The Friday primary market session is shaping up to be even quieter than Thursday.

Stoneridge, Inc. talked its $175 million offering of seven-year senior secured notes with a 9% to 9¼% yield.

Books close at 10 a.m. ET on Friday.

JP Morgan and Deutsche Bank Securities are the joint bookrunners for the debt refinancing.

BreitBurn starts roadshow

One new offering rolled out on Thursday.

BreitBurn Energy Partners LP and Breitburn Finance Corp. will begin a roadshow on Friday in Boston for a $250 million offering of 10-year senior notes (expected ratings B3/B+).

An investor call is set for Monday.

The deal is expected to price on Sept. 30 or Oct. 1.

Barclays Capital, Wells Fargo Securities, BMO Nesbitt Burns and RBC Capital Markets are joint bookrunners for the debt refinancing deal.

New issues take a breather

After seeing new issue upon new issue break into the marketplace this week, market sources saw few new pieces of paper coming on Thursday.

"There was not a lot of new issues," a trader said. He added that even trading volume in recent deals - which had previously been dominating the market - was more muted than it had been.

CHC Helicopter SA's new $1.1 billion issue of 9¼% notes due 2020 priced late Wednesday at 98.399 and on Thursday, a trader said, adding that it "looked like it could have gone ugly early," but that it "never broke through that 98 bid at least."

He quoted the issue at 98¼ bid, 98 3/8 offered.

Rhodia SA's new $400 million issue of 6 7/8% 10-year notes also priced Wednesday, at par. A trader said the bonds were "still holding in" at par ¾ bid, 101 offered.

And, Freescale Semiconductor Inc.'s recent 10¾% notes due 2020 came in slightly to par ¼ bid, par ¾ offered, down from par ½ bid, 101 offered previously.

"The only one that has really crapped out is GenOn [Escrow Corp.], which is just useless," a trader said. He noted that both issues of the $1.225 billion two-part offering, which included $675 million of 9½% notes due 2018 and $550 million of 9 7/8% notes due 2020, were trading about 1½ points below issue price.

Anadarko active, mixed

In the secondary world, Anadarko Petroleum's debt was one of the most - if not the most - active names of the day, according to traders.

"I don't know why they aren't investment grade," a trader said, seeing the 6.45% notes due 2036 at 97¾ and the 6.95% notes due 2019 at 1081/2. He deemed the former unchanged and the latter up almost a point.

Another trader said more than $75 million of the 6.45% notes turned over at that 97¾ mark. Another $60-plus million of the 6.95% notes changed hands at 1083/4.

On Wednesday, Moody's Investors Service took Anadarko off of review for possible downgrade, confirming its Ba1 rating.

The company had previously been placed on review due to its 25% interest in the Macondo well, which exploded on April 20.

Earnings pressure Rite Aid

Rite Aid's bonds "didn't do too [well] at all," a trader said after the company reported its second-quarter results for fiscal 2011.

He said the bonds were down 1½ points across the board, with the 9½% notes due 2017 getting "banged the worst." Those notes dropped "a solid 2 points" to 81 7/8 on $25 million to $30 million traded.

The trader added that about $60 million to $70 million total of Rite Aid debt changed hands. Among other issues trading were the 9 3/8% notes due 2015 and the 10 3/8% notes due 2016, which ended around 83¾ and 103¾ bid, 104¼ offered, respectively.

Another trader said the credit was 'a few points lower," with the 9½% notes trading the most actively around 82.

For the quarter ending Aug. 28, the Camp Hill, Pa.-based drugstore chain reported a net loss of $97 million, or 23 cents per share, on revenues of $6.2 billion, a 2.5% decline from the year before. Net loss in the second quarter of fiscal 2010 came to $116 million.

Analysts polled by Thomson Reuters had expected to see a loss of 17 cents per share on $6.19 billion in revenue.

Adjusted EBITDA came to $181.2 million.

In addition to lower sales, Rite Aid said the wider net loss was because of expenses related to the retirement of its $648.0 million tranche 4 term loan due 2015 under its senior secured credit facility.

Also, the company repurchased nearly $94 million of its 8½% notes due 2015, added a new $1 billion revolving credit facility due 2015 - replacing a $1.175 billion facility - and issued $650 million of 8% senior secured notes due 2015.

The refinancings and retirements resulted in a $13 million decrease in annual interest expense.

"As we said at the start of the year, we made the strategic decision to invest now in initiatives designed to grow our business long term, including our new wellness+ customer loyalty program and the expansion of our immunization capabilities," said John Standley, president and chief executive officer, in the earnings release.

"While the start-up costs of those investments have had a negative impact on our results this quarter, we're excited about the impact we're seeing so far. At the same time, we remain focused on reducing costs and operating more efficiently. Our continued strong liquidity and recent refinancing give us even more runway to deliver on our initiatives."

In the release, Rite Aid also noted that it had revised its fiscal 2011 guidance, forecasting sales to be between $25 billion and $25.4 billion for the year.

Adjusted EBITDA also narrowed to between $875 million and $950 million, which in turn resulted in a total net loss expectation of $400 million to $590 million.

"We were disappointed by [Rite Aid's] second fiscal quarter report - results were weak and it dropped its forecast," wrote Gimme Credit LLC analyst Kim Noland in an afternoon note to clients.

"Recent sales and earnings have been disappointing and the only good news is that recent refinancings are keeping the company liquid and extending debt maturities."

Blockbuster slips on filing

After months of restructuring negotiations, Blockbuster filed for bankruptcy on Thursday, giving the company over to the senior noteholders.

"That's been coming for so long, I'm glad it finally happened," said one trader.

The trader said the bonds reacted by weakening several points.

"It's the first bond that I can remember in the last six to seven months that has gone down on a filing," he said.

He placed the 9% subordinated notes around 2 and the 11¾% senior notes due 2014 at 46 bid, 47 offered.

Another trader placed the 9% notes at 2½ bid, 3½ offered, "down on the day a couple," while the 11¾% notes opened at 49 bid, 51 offered, though they climbed up to 53 bid, 54 offered by the end of business.

At another shop, the 9% notes were placed at 2 bid, 3 offered. Of the 11¾% notes, the trader said they started "down around 50 for a second," and then "somebody lifted them," leaving them 53 bid, 54 offered.

According to the terms of the company's pre-packaged bankruptcy, about 80% of senior noteholders agreed to provide $125 million in bankruptcy financing, which would then be converted to exit financing. Holders of the 11¾% notes will receive all the new equity in the company, while subordinated noteholders and shareholders get nothing.

"I'm not sure how much value there is for the secured holders," said Mary Ross Gilbert, a managing director covering the retail and consumer industries at Imperial Capital.

"They weren't aren't adequately protected and then they are going to get be primed with the debt debtor in possession financing to a certain extent," although approximately $250 million of the 11¾% notes will be "rolled-up" into the DIP at a discount and will be second in line to the primary borrowings.

As such, "even the secured class will have unsecured claims for the portion that wasn't covered on a secured basis," she added.

There is also some doubt about whether the restructuring effort will even help the company going forward.

"This restructuring isn't going to make it better," a trader said. "I don't know what could possibly be there that could have value."

Furthermore, he opined, Blockbuster could turn out to have more liabilities than assets.

"On the one hand, it is positive that 'insiders' are willing to add fresh money," wrote Gimme Credit LLC analyst Kim Noland in an afternoon note to clients. "On the other hand, maybe no banks were willing to lend."

Following news of the filing, Moody's cut Blockbuster's rating to D from Ca, while Fitch Ratings dropped the rating to D from RD.

Blockbuster is a Dallas-based movie rental chain.

Broad market in the red

In the rest of the secondary market, Community Health Systems Inc.'s 8 7/8% notes due 2015 dipped slightly to end around 106, according to a trader.

NewPage Corp.'s 11 3/8% notes due 2014 were also softer around 891/2.

Another market source said General Motors Corp.'s 8 3/8% notes due 2033 closed up modestly at 32 5/8 bid, 33 1/8 offered, while rival Ford Motor Co. saw its 7.45% notes due 2031 slipped half a point to 99½ bid, par ½ offered.

However, another source called GM's benchmark paper "pretty much unchanged" around 323/4.

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