Expedia, Cricket price deals; Hexion, Huntsman tumble as merger at risk; funds see $134 million outflow

By Paul Deckelman and Paul A. Harris

New York, June 19 - Expedia Inc. and Cricket Communications Inc. each successfully priced new deals on Thursday, Expedia's having been downsized from its originally intended size and pricing at a discount to boost its yield and Cricket's having been upsized and pricing at par. Also in the new-deal arena, Fox Acquisition Sub LLC was heard by high yield syndicate sources to be planning to hit the road starting Monday to market a new issue of eight-year notes to potential investors.

In the secondary market, the apparent collapse of the planned merger between Huntsman Corp. and Hexion Specialty Chemicals Inc. caused the bonds of both companies to slide 13 or 14 points.

An even bigger plunge was that of Thornburg Mortgage Inc., investors belatedly reacting to its warning earlier in the week that its ability to survive as a company is in doubt.

Noranda Aluminum Holding Corp.'s bonds fell on indications that the aluminum producer will not be redeeming debt with the proceeds from an equity offering, as expected

Funds fall by $134 million on week

And as trading was winding down for the session, market participants familiar with the high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday, some $133.8 million more left those funds than came into them - the first outflow after 11 straight weeks of inflows, including the cash infusion of $56.2 million seen in the previous week, ended June 11.

Over that 11-week stretch, inflows totaled $3.001 billion, according to a Prospect News analysis of the figures, far outweighing the $409.6 million of net outflows which had been seen over the three weeks immediately before that.

The results over the previous 11 weeks represented a sharp break away from the negative fund-flow trend which had dominated earlier in the year. However, even counting the latest week's downturn in the flows, inflows - after trailing outflows pretty much all year - remain solidly ahead, with 15 inflows and 10 outflows seen in the 25 weeks since the start of 2008, according to the Prospect News analysis.

That sustained recent inflow surge also more than completely erased what previously had been a sizable year-to-date outflow totaling $1.067 billion as of the week ended Wednesday, March 26, the last week in which a net outflow had been seen.

According to market sources, net inflows from the weekly-reporting funds since the start of the year, excluding distributions but including previous adjustments and revisions, are now estimated at $1.799 billion, down from $1.933 billion the previous week.

The sources also said that in the latest week, funds which report on a monthly basis rather than weekly were unchanged, their year-to-date net inflow still at $2.609 billion.

On an aggregate basis - combining the year-to-date net inflows of the monthly and the weekly reporters - $4.408 billion more has come into the high yield funds this year than has left them.

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 10% to 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, more recently, hedge funds.

A trader said that the outflow reported Thursday was "by no means a large number, so it doesn't mean it's the [absolute] end" of the recent trend of inflows. "It's just another bump in the road."

Expedia downsizes

Thursday turned out to be a day of contrasts in the primary market.

Two issuers priced deals, one of which was upsized and priced at the tight end of price talk, while the other was downsized and priced on top of upwardly revised talk.

Expedia Inc. priced a downsized $400 million issue of 8½% eight-year senior notes (Ba2/BB) at 98.572 to yield 8¾% on Thursday.

The notes came in line with revised price talk of an 8½% coupon at a discount to yield 8¾%. Earlier yield talk was in the 8½% area.

The deal was downsized from $500 million, but came at the high end of the $375 million to $400 million range which underwriters announced early Thursday.

JP Morgan and Banc of America Securities were joint bookrunners for debt refinancing and general corporate purposes deal from the Bellevue, Wash., online travel services company.

Cricket upsizes

Meanwhile Cricket Communications, Inc., the operating subsidiary of Leap Wireless International, Inc., priced an upsized $300 million issue of seven-year senior notes (B3/B-) at par to yield 10% in a Thursday drive-by.

The issue was upsized from $200 million.

The yield came at the tight end of the 10% to 10¼% price talk.

The deal went well, according to the source, who added that the order book was well oversubscribed.

Goldman Sachs & Co., Morgan Stanley, Citigroup and Deutsche Bank Securities were joint bookrunners for the working capital and other general corporate purposes deal from the San Diego-based wireless telecommunications company.

Fox launches $230 million

Fox Acquisition Sub will start a roadshow on Monday for its $230 million offering of eight-year senior notes.

The roadshow is set to wrap up on July 1.

Deutsche Bank Securities, UBS Investment Bank and Banc of America Securities are joint bookrunners for the deal, which will help fund Oak Hill Capital Partners' acquisition of eight FOX network affiliated television stations from News Corp. for approximately $1.1 billion in cash.

New Expedia notes hold near issue price

A trader saw the new Expedia 8½% notes due 2016 trading at 98.75 bid, 99.25 offered on the break, versus the bonds' pricing earlier in the session at 98.572.

Traders said the new Cricket Communications 10% notes due 2015 came too late in the session for any meaningful aftermarket.

New Lender Processing notes push upward

Among other recently priced issues, the new Lender Processing Services Inc. 8 1/8% notes due 2016 were seen by a trader to have moved up a point to around the 101 level, from the par level at which the company priced its downsized $350 million of 8 1/8% notes due 2016 late Wednesday. He said that the bonds started the day at 100.5 bid, 101.5 offered, "and then just tightened around 101," going out at 100.875 bid, 101.125 offered.

He also saw the new PetroHawk Energy Corp. 7 7/8% notes due 2015 bid at 98.25-98.5, though with no offerings seen. The company priced an upsized $300 million of the bonds on Monday at 98.75 as an add-on to its existing tranche of like notes.

He said that when those bonds priced and then broke, "they traded up to 99. People were looking for them. But then, the market kind of got crappy." He said that at this point, "the sponsor is just keeping them bid [at that 98.25-98.5 level] there. It didn't look like many were for sale."

Market indicators in retreat

A trader said that the widely followed CDX junk bond performance index was down about ¼ point on the session Thursday, quoting it at 95 5/8 bid, 96 offered. The KDP High Yield Daily Index meantime fell 19 bps to 74.71, while its yield widened by 6 bps to 9.62%.

In the broader market, advancing issues trailed decliners by a nearly five-to-three margin. Activity, represented by dollar volume levels, was 6% from Wednesday's levels.

A trader said that "the first hour or so was actually active. Stocks opened up 25 to 30 points, initially, and we seemed to be catching a little momentum. Then once stocks turned around" - they came off their early peaks to bounce around at lower levels most of the day before turning back upward, the bellwether Dow Jones Industrial Average ending at 12,063.09, up 34.03 points on the day, or 0.28% - "it seemed like we came to an abrupt halt."

Hexion, Huntsman bonds fall as merger collapses

Perhaps the biggest story in the junk market Thursday was the apparently broken engagement between Huntsman Corp. and Hexion, which had offered to buy the Salt Lake City-based chemical manufacturer last year for $6.5 billion but which now wants out, citing the deterioration in Huntsman's finances since then, which have allegedly made the deal no longer feasible.

That triggered a slide in most bonds of both companies.

A trader said that Hexion's 9¾% notes due 2014 "were the one that everyone was all over." He quoted that issue of the Columbus, Ohio-based chemical maker's bonds trading at 94.5 bid, 95.5 offered, well down from levels around 108 which the bonds had held before the news late Wednesday that it seeks to scrub the merger deal.

Another trader saw the Hexion bonds drop as low as 91 bid, 92 offered before coming off those lows to finish at 95 bid, 96 offered." They bounced 2 or 3 points [off the lows,]," he said, "but they still got murdered," ending down 13 points on the day.

A market source at another desk saw them going home at just above the 95 level, down nearly 13 points, in very busy round-lot dealings. Another source, who quoted the bonds finishing around 95, said that over $40 million of the notes had changed hands by the middle of the afternoon, far more than any other issue.

As for Huntsman - which has gone to court in order to force Hexion to live up to the terms that the latter company proposed when the two sides agreed last year on a merger - a trader saw its 11 5/8% notes due 2010 "down only slightly" at 104.25 bid, 105.25 offered. However, he saw its 7 3/8% notes due 2015 and 7 7/8% notes due 2014 both down around 14 points, with the 7 3/8s at 90.75 bid, 91.75 offered, down from the 104+ level they held pre-news, and the 7 7/8s dropping to 93.5 bid, 94.5 offered from prior levels around 107.

Another trader said that Huntsman "got destroyed", especially in the morning, when the bonds fell sharply, although they "came back" a little. Even so, the bonds still ended way down, its 7 3/8s off 12 points at 91 bid, 92 offered, while its 7 3/8s dropped as low as 90 bid, 91 offered before finishing up at 93.5 bid, 94.5 offered, which he called down more than 10 points on the day.

Hexion - controlled by an affiliate of Apollo Management LP - said that it no longer thinks it can complete the deal because of Huntsman's increased debt load and because of the latter company's lower-than-expected profits. Hexion said the combined companies couldn't survive on heavy debt financing, and added that it doubted whether Deutsche Bank AG and Credit Suisse Group AG would even provide the necessary financing because of Huntsman's deterioration.

Noranda knocked down as debt redemption falters

Elsewhere, a trader said, Apollo Management figured in another situation that caused a junk bond name to fall sharply. He said that Noranda "was supposed to do an equity offering and use some of the proceeds to redeem bonds - but now, Apollo is going to keep the money if they do anything in the equity market."

The Franklin, Tenn.-based aluminum company - which plans to raise up to $250 million in an initial public offering - filed an amended S-1 prospectus with the Securities and Exchange Commission in which it stated "All shares of our common stock are being sold by the selling stockholders. We will not receive any proceeds from the sale of our common stock by the selling stockholders."

That, change, he said, caused Noranda's floating-rate notes due 2014 to drop to 84 bid, 85 offered from previous levels around 90.5 bid, 91.5 offered.

He also said that sector peer Aleris International Inc.'s bonds - which had been seen on the rise over the last several sessions in very active dealings, though on no news - lost about 2 points on the day, its 10% notes due 2016 dipping to 74.5 bid, 75.5 offered.

Thornburg tumbles, finally

Thornburg Mortgage - whose 8% notes due 2013 had managed to hold their ground Wednesday as investors digested the warning contained in its latest quarterly SEC filing - finally threw in the towel Thursday, in an old-fashioned capitulation.

Traders said its bonds were the disaster of the day. One saw them plunge to 55 bid from prior levels at 71. Another saw them get "crushed" and finish at 55 bid, 58 offered, down 18 points.

A trader said that "there will be a lot of unhappy people" who bought the bonds around 68-69 during the early part of the session, only to see them plummet all the way down to 41 at one point, before coming off that low and finishing at 57.75 .

In its quarterly SEC filing, Thornburg warned that its future is still up in the air, even after having reached a deal several months ago to raise new capital. Thornburg must still complete a tender offer to repurchase at least 90% of outstanding preferred stock as part of the deal to receive the new investment from a group led by MatlinPatterson, according to the filing.

In that same mortgage sector, another trader saw Residential Capital LLC's 6½% notes due 2013 drop 3 points to 46 bid, 48 offered, and saw ResCap parent GMAC LLC's 8% bonds due 2031 lose 1 point to 72. GMAC's 6¾% notes due 2014 lost 1½ points to end at 73.

Bond insurer Radian Group's nominally investment-grade rated 7¾% notes due 2011 fell 6 points to 73 bid, 75 offered, in line with a plunge in its shares, which fell in tandem with other bond insurance stocks.

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