NRG, Charter price deals; GM, GMAC bonds off after numbers; funds see $270 million outflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 26 - NRG Inc. priced its huge, restructured $3.6 billion offering Thursday to strong demand, with the new bonds heard to have firmed smartly when they were freed for secondary dealings. Also pricing was a quickly-shopped offering of four-year notes from Charter Communications Inc. and a downsized tranche of eight-year notes from Exopack Holding Corp.

Also in the new-deal arena, Ineos Group Holdings plc and Indalex Aluminum Solutions restructured their respective deals, and price talk appeared on both of them. The Ineos offering could price as soon as Friday, market sources said. So could a new offering from Compagnie Generale de Geophysique.

In the secondary sphere, General Motors Corp. reported its fourth quarter and 2005 earnings results and, as expected, the world's largest automaker lost a ton of money - but what was not expected was just how much red ink there actually was.

Its bonds retreated, as did those of its General Motors Acceptance Corp. financing unit - especially since GM executives offered no real progress reports on their efforts to sell a majority stake in GMAC - a transaction which is apparently proving to be more difficult than first imagined.

However, the bonds of former GM subsidiary Delphi Corp. - now mired in bankruptcy - were stronger, on signs that the giant carmaker might be close to an agreement with its problem child and with the United Auto Workers union on the extent of GM's Delphi-connected liabilities.

And after trading had wound down for the week, market participants familiar with the weekly high yield mutual fund low numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $270.3 million more left the funds than came into them. It was the third straight week of outflows, coming on top of the previous week's $129 million hemorrhage. In those three weeks, outflows have totaled some $405.75 million, according to a Prospect News analysis of the AMG figures. Outflows have now been seen in three out of the four three weeks since the start of the new year, for a cumulative 2006 net outflow of about $396.95 million, according to the Prospect News analysis.

The latest outflow was also the sixth in the last seven weeks, dating back to mid-December, during which time outflows have totaled about $1.247 billion, according to the analysis. That in turn confirmed the predominantly negative trend that was in evidence throughout most of 2005, when around $11.483 billion more left the funds than came into them, according to the Prospect News analysis. That was a much more severe bleed than the approximately $3.236 billion net outflow seen in 2004.

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 only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

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

$4.25 billion of issuance

Issuance topped $4.25 billion in Thursday's with four dollar-denominated tranches pricing in the primary market.

It represents an historic level of issuance, topping May 11, 1999's $4.17 billion.

Leading the way was NRG Energy Inc.'s $3.6 billion mega-deal, with two par-pricing tranches coming at the tight end of price talk.

Although the NRG deal did not downsize, it did undergo a structural change during marketing as the company abandoned a proposed tranche of floating-rate notes.

In fact, much of Thursday's primary market news involved modifications in the structures of deals that priced or are currently in the market.

Meanwhile a source marked the broad market unchanged during the session on Thursday, and commented that the secondary market held in despite the massive supply of new issuance.

NRG draws huge demand

Terms on the NRG $3.6 billion deal were heard early in the Thursday session.

The Princeton, N.J.-based independent power producer priced two tranches of senior fixed-rate notes (B1/B-/B) in a restructured two-part transaction.

NRG priced a $2.4 billion issue of 10-year notes at par to yield 7 3/8%, on the tight end of the 7 3/8% to 7 5/8% price talk.

The company also priced a $1.2 billion issue of eight-year notes at par to yield 7¼%, 12.5 basis points inside of the 10-year notes. That was also tight to price talk that had the eight-year notes coming 12.5 basis points to 25 basis points inside of the 10-year notes.

A $300 million tranche of floating-rate notes was eliminated from the deal and the proceeds were shifted to the fixed-rate tranches, with two-thirds of the proceeds going to the 10-year tranche, which was upsized from $1.2 billion, and one-third to the eight-year tranche, which was upsized from $1.1 billion.

Morgan Stanley and Citigroup were joint bookrunners for the massive acquisition deal.

Superlatives flew in the wake of the terms, along with multiples of oversubscription on the deal that frankly stymied the imagination. One buy-side source said simply that a lot of accounts were said to have been "zeroed," meaning that they were able in the end to purchase no bonds whatsoever.

In terms of size, NRG's $3.6 billion represents one of the biggest junk deals ever, although smaller than the financing for the late-1980s leveraged buyout of RJR Nabisco.

Charter upsized add-on

Also completing a restructured transaction Thursday was CCH II LLC, a subsidiary of Charter Communications Inc. Charter priced an upsized, restructured $450 million add-on to its 10¼% senior notes due Sept. 15, 2010 (Caa1/CCC-) at 97.75, resulting in a 10 7/8% yield.

The yield came in the middle of the 10¾% to 11% price talk.

JP Morgan, Credit Suisse and Deutsche Bank Securities were joint bookrunners for the debt refinancing deal from the St. Louis cable TV and high-speed internet services provider that was upsized from $400 million.

A proposed tranche of seven-year notes was dropped.

Exopack downsizes

Finally, Boca Raton, Fla., packaging firm Exopack Holding Corp. priced a downsized $220 million issue of eight-year senior notes (B2/B-) at par to yield 11 ¼%, wide of the 10 7/8% to 11 1/8% price talk.

Goldman Sachs & Co. ran the books for the issue which was downsized from $235 million.

Ineos downsizes, restructures

Also introducing structural changes was chemical firm Ineos Group Holdings PLC, which trimmed its mega-deal by €750 million to €2.355 billion equivalent from €3.105 billion equivalent, meanwhile dropping dollar- and euro-denominated floating-rate notes tranches from the transaction.

The €750 million, meanwhile, was shifted to the company's credit facility.

The company talked the dollar-denominated tranche at a yield in the 8½% area and the euro-denominated tranche at the 8% area. Tranche sizes remain to be determined.

Pricing is expected on Tuesday.

Merrill Lynch & Co., Barclays Capital and Morgan Stanley are joint bookrunners.

Meanwhile Indalex Aluminum Solutions talked a restructured $280 million offering of eight-year second-lien notes at 11% to 11¼%.

Earlier in the week the notes were changed from the originally announced senior unsecured structure, with second-lien security being added. Subsequently a proposed tranche of second-lien floating-rate notes was abandoned.

JP Morgan is leading the deal.

Indalex is expected to price on Friday.

CGG driving through

The only other deal that is expected to price during Friday's session is Compagnie Generale de Geophysique's $165 million add-on to its 7½% senior notes due May 15, 2015 (existing ratings Ba3/BB-), via Credit Suisse and BNP Paribas. The original $165 million issue priced at par in April 2005.

No price talk had been heard as Prospect News went to press Thursday night.

NRG up in trading

When the new NRG Energy bonds were freed for secondary dealings, they quickly moved up to levels above 101 from their par issue price. By the end of the session, a trader said, the 7¼% senior notes due 2014 were hovering at 101.625 bid, 101.875 offered, while its 7 3/8% seniors due 2016 were at 101.75 bid, 102 offered. At another desk, a trader said that both tranches finished up around 101.5 bid, 102 offered.

Charter Communications' new 10¼% notes due 2010, which priced at 97.75, got as good as 98.75 bid, 99.25 offered.

Among other recently priced issues, a trader saw CRC Health Corp.'s new 10¾% senior notes due 2016, which priced on Wednesday at 98.511 and then popped up to bid levels around par-100.5, gaining further, pushing up to 101.25 bid, 101.75 offered.

Those bonds "continue to do well," said another trader, who saw them get as good as 101.75 bid, 102 offered.

He saw Boyd Gaming Corp.'s new 7 1/8% notes due 2016, which priced Wednesday at 99.5, as having moved little from their issue price, hanging in at 99.5 bid, 99.75 offered. Meantime, EchoStar DBS Corp.'s 7 1/8% notes due 2016, which priced last week at 99.612, had retreated to 98.375 bid, 98.875 offered.

Among the established issues, a trader said, "the market had some pretty good two-way flows. I think the market for the most part still had a nice, firm tone to it. I don't see anything just trading through the roof, but there's certainly money being put to work out there."

GM lower on earnings

GM's bonds were seen down about a point on the day, following the release of the carmaker's fourth-quarter and year-end results, with its benchmark 8 3/8% notes due 2033 at 71.5 bid, 72.5 offered, while its 7 1/8% notes due 2013 were at 76.

GM announced that it lost $4.8 billion ($8.45 per share) in the quarter, versus a $99 million loss (18 cents per share) in the year ago period. For the year, it lost $8.6 billion - far wider losses than Wall Street had been expecting. The bulk of the losses came from GM's underperforming North American operations, where GM recently announced plans to close a number of plants and reduce headcount by thousands of positions.

Besides the sheer magnitude of the loss - which prompted GM's chief financial officer, Fritz Henderson, to admit during the company's conference call with analysts that "frankly, there were no highlights" to the year - there was some dismay in the bond market over the lack of any real developments in he company's efforts to sell a controlling stake in GMAC. Such a sale could swell GM's coffers by anywhere from $10 billion to $15 billion - although GM, for all of its losses, has no liquidity problems, with $20.5 billion in its cookie jar as of the end of the year. More importantly, the sale of control of GMAC to a presumably stable, secure deep-pocketed financial firm would bring the unit's ratings back to investment grade, greatly reducing its borrowing costs. GM said back in October that it would sell a majority stake in GMAC, but nothing has happened since then, other than several potential buyers publicly distancing themselves from the idea, and Henderson and other GM executives said on the call that GM could get by, sale or not.

GMAC's 8% notes due 2031 were being quoted down 1½ points on the session at 99 bid, 99.75 offered, while its 6 7/8% notes due 2011 were down by the same amount at 93.5 bid, 94.5 offered, while its 7¾% notes due 2014 were half a point lower at 99.5 bid, 93.5.

Delphi rises on GM remarks

While GM's bonds and GMAC's were lower, Delphi "was actually up two points on positive comments on the conference call," a trader said, in quoting the bankrupt Troy, Mich.-based automotive electronics manufacturer's 6½% notes due 2009 up two points at 57.5 bid, 58.5 offered.

GM said that it had taken a $2.3 billion charge associated with benefits at Delphi, and said that it expects to spend between $3.6 billion and $12 billion on benefits promised to Delphi workers. GM further estimated its total liability would be at the low end of that range. - seen by some as a sign that GM might be near an agreement with Delphi and the UAW on just what Delphi obligations it will assume.

Apart from GM, arch-rival Ford Motor Co.'s 7.45% notes due 2031 were seen down ¼ point at 72 bid, 73 offered, a trader said, while its Ford Motor Credit Co. 7% notes due 2013 were unchanged at 89 bid, 90 offered.

Earnings boost Tenneco

Tenneco Automotive Inc.'s 8 5/8% notes were up 1½ points at 98.75 bid, 99.25 offered, while its 10¼% notes due 2013 were likewise up 1½ at 111.75 bid, 112.25 offered, after the Lake Forest, Ill.-based automotive parts maker announced that it had swung to a fourth-quarter profit of $8 million (18 cents per share) from a year-ago $19 million (45 cents) loss.

Bowater steady on results

Also releasing earnings was Greenville, S.C.-based paper manufacturer Bowater Inc., which had a very difficult year, company executives said, between falling demand for newsprint, its primary product, and higher energy and wood costs. But the company's executives also touted the progress that Bowater had made in 2005 at trimming debt, and said they anticipated doing still more debt reduction this year, using asset sales (see related story elsewhere in this issue).

Bowater's bonds were seen little changed, with its 6½% notes due 2013 holding steady at 89 bid, 90 offered, and its 9% notes due 2009 at 102.75 bid, 103.75 offered.

Tembec gyrates on news

Bowater competitor Tembec Industries Inc. was also out with poor results, and its bonds "were bouncing all over the place," a trader said, quoting the Montreal-based forest products company's 8½% notes due 2011 at 44 bid, 44.5 offered, while its 7¾% notes were at 43 bid, 43.5 offered.

Tembec "was up initially on their asset sale," said another trader - the company announced the sale its oriented strand board business based at Saint-Georges-de-Champlain, Que., to Jolina Capital Inc. for $98 million - "but then they missed their numbers and lost their gains, with the 8½% notes closing at 45 bid, 46 offered.

Affiliated Computer sinks

Affiliated Computer Services Inc.'s 5.2% notes due 2015 were seen down several points late in the session after the company announced plans to buy back up to $3.5 billion of its shares, funding the buyback with new debt.

The company's debt ratings are nominally investment grade, but news of the coming debt issue - a credit facility of up to $5 billion - sparked some fears that it could be dropped to junk status. Moody's Investors' Service in fact did drop the ratings to two notches to a just-above-junk Baa3 - but warned that another downgrade is possible due to increased leverage concerns.

The bonds - which had been trading at 91 at the start of the week and were still at 90.625 at the open Thursday - dropped as low as 86.5 late in the day, with several large trades seen in the 87 area, the closing level. Its 4.70% notes due 2010 were unchanged at 95.125.

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