Univision prices, Freeport McMoRan ahead; TXU dives; funds see $23 million outflow, '07's first

By Michelle Anderson, Paul Deckelman and Paul A. Harris

New York, March 1 - March surely came in like a lion on Thursday, as the global stock retrenchment moved into its third day and high yield issues were seen mostly lower - among them the bonds of bankrupt airline operators Northwest Airlines Corp. and Delta Air Lines Inc., each down several points on higher oil prices and investor valuation concerns, and TXU Corp., which plans to seek additional bids for the Dallas-based power generating company.

In the new-deal arena, Univision Communications Inc. priced its $1.5 billion issue of eight-year notes, and those bonds were seen to have at least held their own when they were freed for secondary dealings - in contrast to the struggle that most of the other new bonds priced in the past few sessions have gone through.

Leucadia National Corp. was also heard to have priced a quickly-marketed $500 million offering of 10-year notes.

And high yield syndicate sources heard that Freeport McMoRan Copper & Gold Inc., which previously was heard to be planning a $6 billion bond offering - which would be the biggest ever junk issue - will hit the road on Friday to begin pitching that Leviathan-sized mega-deal at potential investors.

A high yield investor said late Thursday that the broad market was almost unchanged on the day.

However a sell-side source marked junk down as much as ½ on the Thursday session, saying that high yield bonds traded lower with equities in the morning, and were quiet, as is often the case, in the afternoon.

Consequently junk did not ride higher with stock prices during the second half of the day.

And perhaps dovetailing with that sentiment, AMG Data Services reported $22.7 million of outflows from high yield mutual funds for the week that ended on Wednesday.

Funds see first '07 outflow

And as activity was trailing off for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $22.7 million more left those weekly-reporting funds than came into them.

It was the first outflow reported in 2007, after eight straight weeks of inflows totaling some $856 million, according to a Prospect News analysis of the AMG figures, including the $73.8 million infusion seen in the previous week, which ended Wednesday Feb. 21.

The outflow trims year-to-date cash infusions to the funds that report to AMG on a weekly basis to $839.5 million, one source said.

Meanwhile year-to-date flows among funds that report on a monthly basis now amount to slightly less than $1.490 billion.

Hence the year-to-date aggregate flows, which tally both the weekly and monthly reporting funds, ended Wednesday at $2.329 billion.

Although the outflow seen in the latest week - coinciding with a massive flight-to-quality selloff in the equity markets and a pullback in junk - could be a signal that the liquidity party is over, the positive note on which the new year has begun, liquidity-wise, with inflows now seen in eight out of the nine weeks since the year's beginning, stands in marked contrast to the way the old year ended, with outflows recorded over the last three weeks of 2006, as well as in 34 out of that year's 52 weeks, against just 18 inflows, for total net outflow through the period ended on Dec. 27, the final reporting week of the year, of about $2.998 billion, according to the Prospect News analysis.

Except where noted, the figures exclude distributions and count only those funds that report on a weekly, rather than on a monthly, basis.

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, most recently, hedge funds.

Three new deals

Meanwhile the primary market saw three issuers - each pricing a single tranche of notes - raise over $2.4 billion of proceeds.

The day's biggest transaction, Univision Communications, Inc.'s $1.5 billion LBO deal, came 25 basis points wide of the price talk.

It was the biggest single tranche of junk to price since last Dec. 11.

However afterwards sources on both the buy-side and the sell-side suggested that the Univision execution likely offers a glimpse of how the primary market will become repriced in the wake of Tuesday's big sell-off which came in tandem with steep declines in equity bourses worldwide.

And late in the day Freeport McMoRan Copper & Gold Inc. hit the launch button on a $6 billion two-part deal.

Univision prices $1.5 billion

Umbrella Acquisition, Inc., which will be merge into Univision Communications, Inc., priced $1.5 billion in a single tranche of eight-year senior PIK toggle notes (B3/CCC+) at par to yield 9¾% on Thursday.

The coupon toggles up by 75 basis points if the issuer elects to make an in-kind, as opposed to cash, interest payment.

The yield was printed 25 basis points beyond the wide end of the price talk which had the notes pricing in the 9¼% to 9½% range, with the 75 basis points PIK toggle coupon step-up.

Credit Suisse, Banc of America Securities LLC, Deutsche Bank Securities, Lehman Brothers, RBS Greenwich Capital and Wachovia Securities were joint bookrunners for the LBO deal from the Los Angeles-based Spanish-language media company, the biggest single tranche of junk to price since Ford Motor Credit Co. priced a pair of $1.5 billion tranches on Dec. 11, 2006.

A buy-side source told Prospect News that before Tuesday's big swoop in the capital markets Univision would likely have been looking at a 9¼% yield.

Meanwhile a syndicte official not in the deal said that the entire sell-side had been watching Univision carefully, and was not particularly warmed by what it had seen.

Coming 25 basis points wide of talk, "Univision gives you a good stick in the mud as to where things stand," the source said.

Leucadia prices $500 million

In a Wednesday-Thursday quick-to-market deal, Leucadia National Corp. priced a $500 million issue of senior notes (Ba2/BB) at par to yield 7 1/8%, at the wide end of the 7% to 7 1/8% price talk.

Jefferies & Co., Inc. was the bookrunner for the deal, proceeds from which will be used to fund a portion of an investment in a joint venture with Jefferies & Co.

The issuer is a New York-based holding company with interests in businesses that include manufacturing, real estate, medical product development, winery operations and banking.

US Oncology completes $425 million

US Oncology Holdings, Inc., priced a $425 million issue of six-month Libor plus 450 basis points senior unsecured floating-rate toggle notes (B3/B-) on top of price talk.

Citigroup and Morgan Stanley were joint bookrunners for the debt refinancing and dividend funding deal from the Houston-based cancer treatment and research network.

Price talk on the US Oncology deal notwithstanding, sources told Prospect News that the company had come into market with the expectation of selling the notes at less of a disount.

A buy-sider, who marked the bonds up smartly from the 98.00 issue price at 99.75 bid late Thursday afternoon, said that the company originally was going to try to get it done at 99.00, and chalked up the deeper discount to Tuesday's market descent.

This source added that the order book was rumored to have been two-times oversubscribed.

Meanwhile a source close to the deal said that it had gone very well given that the market was a little shaky in the morning.

A take on the toggle

With two of Thursday's three deals pricing with toggle coupon step-ups should the issuers elect to pay in kind instead of in cash - a feature that began to emerge in earnest late in 2006 - Prospect News asked a high yield investor whether the buy-and-hold accounts were beginning to become accustomed to the toggle feature.

"You're talking to one that isn't," the investor shot back, and added that toggle notes are merely old fashioned PIK notes flying a new flag.

"You used to have a five-year PIK, and then the bond became cash-pay," the investor recalled.

"But if the issuer met certain covenants they could pay cash ahead of time.

"In essence, that was the toggle."

Freeport launches $6 billion

Unveiling a deal that the market has anticipated since early in the fourth quarter of 2006, Freeport McMoRan announced that it will start a roadshow on Friday for its $6 billion two-part offering of senior notes (B2/B+), which are expected to price around March 14.

The company is offering eight-year notes with four years of call protection and 10-year notes with five years of call protection.

JP Morgan and Merrill Lynch & Co. are joint bookrunners the acquisition deal, which is expected to price just before the Ides of March.

Alliance One talks $150 million

Tobacco leaf merchant Alliance One International talked its $150 million offering of senior notes due May 15, 2012 at a yield in the 8½% area on Thursday.

The Wachovia Securities-led debt refinancing deal is expected to price on Friday.

New Univision up despite sloppy market

When the new Univision 9¾% senior notes due 2015 were freed for secondary dealings, a trader said he had seen them move up to 100.75 bid, 101 offered from their par issue price earlier in the session. He called that "not bad for a $1.5 billion deal coming after a sloppy equity market."

He did not see any trading in the new Leucadia National 7 1/8% senior notes due 2017, which also priced at par during Thursday's session, suggesting that the bonds had not yet freed at that time.

And he saw Liberty Mutual Group's new 30-year hybrid securities "trading well," with better buyers emerging and the bid spread on the 7% notes due 2037 tightening to 230 basis points over Treasuries, versus 245 bps at issue.

TXU tumbles on

Back among the established issues, TXU's bonds continued on the roller-coaster ride which they have been on all week since the news emerged about the planned $30 billion-plus buyout of the utility operator by Kohlberg Kravis Roberts and Texas Pacific Group.

The company's bonds initially fell sharply at the prospect that it would be taken over in a leveraged buyout that will greatly increase its already sizable $12 billion debt load. The major credit agencies all either downgraded their ratings on TXU or warned that such a downgrade was likely.

Around mid-week, TXU seemed to steady, with its actively traded 6.55% notes due 2034 actually pushing upwards between 3 and 4 points in Wednesday's dealings. But that issue gave it all back and then some in Thursday's session, dropping more than 4 points on the day to end at around the 89.5 level.

On Thursday, TXU said that it would contact several dozen other potential buyers, in hopes of coming up with a superior bid to the KKR-Texas Pacific offer. Under the terms of its agreement with the two buyout shops, TXU can solicit other bids until mid-April.

Airline issues lose altitude

A trader saw "a lot of volume" in airlines, which he said "went down, but then came back up" off their day's lows to end only moderately lower.

He saw Northwest Airlines' 10% notes due 2009 fall as low as 89 during early trading, but then end at 91 bid, 92 offered, down from closing levels Wednesday around 94. "A pretty good size traded," he observed.

Delta Air Lines' 8.30% notes due 2029 went on "the same kind of a ride," the trader said - way down initially, then off the lows to end moderately lower. He saw those bonds ending at 57 bid, 58 offered - up about 1½ points from their lows of the day, but down about 2 points from where they were on Wednesday.

At another desk, a trader saw the Northwest 8 7/8% notes due 2006 finish down 3 points on the day at 90 bid, 91 offered, while the Delta 8.30s were down a deuce at 57.5 bid, 58.5 offered.

"They tried multiple times to rally," he said, "but couldn't do it with the equity market so unstable."

A market source saw the Delta 8.30s drop as low as 56.25 bid, before coming back from that nadir to end at 59, off 2 points on the session, while Northwest's 9 7/8% notes due 2007 were seen ½ point lower on the day at 95.5. The Eagan, Minn.-based Number-Five air carrier's 7 7/8% notes due 2008, however, lost 4 points to finish at 91.

Over the last couple of days, the first trader said, the Delta bonds had fallen a total of 4 points, with Northwest down in tandem with the Atlanta-based third-biggest U.S. carrier. Observers have cited factors such as the recent rebound in world crude prices - a barometer of likely price movements for jet fuel. Oil prices rose for the seventh straight session, settling at $62.11 a barrel on the New York Mercantile Exchange, the highest level seen in more than two months, pushed upward by declining supplies of refined product, including jet fuel.

Another factor cited was investor skepticism about some of the valuations the two bankrupt airline companies have assigned themselves as they estimate what they will look like when they emerge from Chapter 11, where they have been since September of 2005.

Rite Aid continues retreat

Also on the downside, Rite Aid Corp. continued to struggle a trader said, although he had seen no fresh news on the Camp Hill, Pa.-based drugstore chain operator that might explain the easing.

He quoted Rite Aid's 6 7/8% notes due 2013 having fallen to 88.25 bid, 89.25 offered from prior levels around 90 bid, 91 offered.

That dip followed a similar slide on Wednesday that saw Rite Aid's 9¼% notes due 2013 were down 1¼ points at 100.5 bid, while its 6 7/8% notes due 2028 slid even more - 3½ points - to 78.25 bid. Its actively traded 8 5/8% notes due 2015 lost ¾ point to end at 97.

GM gyrates around

The trader also saw General Motors Corp. bonds bouncing around at lower levels on profit-taking off gains posted Wednesday, when the carmaker's bonds had firmed on the news that 49% owned GMAC LLC will sell a big portfolio of loan assets to Prudential Capital Group.

After those gains, the GM bonds initially fell Thursday, he said, with the benchmark 8 3/8% notes due 2033 dropping to 90 bid, down 2 points from Wednesday's close. But the bonds "came back after they released better-than-expected sales numbers" to end at 92 bid, 93 offered, unchanged on the day.

However, another source saw those same bonds closing down 1½ points at 91.25.

GM said its truck sales were up 7.4% in February, more than offsetting a 3.3% slip in car sales. Overall, vehicle sales rose 3.7% from year-ago levels to 308,411 - well above the 6.8% decline Wall Street had been expecting.

GMAC's 8% notes due 2031, which had firmed smartly on Wednesday, were seen down a point Thursday at 110 bid, 111 offered, the trader said.

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