Tyson slates deal as Precision Drilling drops out; Sprint up on results; funds add $255 million, 12th straight inflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 19 - Tyson Foods Inc. on Thursday announced plans to sell $500 million of five-year notes, as part of an overall financing push by the Springdale, Ark.-based company, the world's largest meat producer. The sale of the notes is expected by be completed in March, along with closing of a new credit facility.

Meanwhile, a deal which won't be appearing anytime soon is Precision Drilling Trust's $250 million issue of six-year senior notes. The offering was a big no-show on Wednesday, and the Canadian energy company announced Thursday that its offering has been postponed due to unsettled market conditions.

In the secondary arena, Sprint Nextel Corp. and its Sprint Capital Corp. subsidiary were seen solidly higher in response to the Overland Park, Kan.-based telecommunications company's quarterly numbers which, while certainly not anything to celebrate, as the company posted a sizable loss, were not as bad as some in the market had feared.

Also in the communications sphere, Charter Communications Inc.'s bonds were off for a second straight session, the strong run-up they experienced after last week's announcement of Charter's debt restructuring plan apparently now over.

Junk funds show $255 million inflow

As trading was wrapping up for the day, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday some $255 million more came into the weekly reporting funds than left them. It was the 12th consecutive inflow and the seventh inflow of 2009, against no outflows, and follows the $533.879 million cash infusion seen last week, in the period ended Feb. 11.

During that 12-week span of cash additions, dating back to the week ended Dec. 3, net inflows have now totaled $5.425 billion, according to a Prospect News analysis of the AMG figures. The massive flow of funds into high yield is seen primarily responsible for the recently strong pace of new issuance, as well as the more than 4% year-to-date return seen in Junkbondland so far, versus last year's staggering loss.

On a year-to-date basis, 2009 inflows now stand at $3.608 billion so far this year, up from the previous week's total of $3.353 billion, according to the analysis.

In contrast, 2008 began with several consecutive outflows, and such losses dominated the first part of the year, although last year ultimately ended with a cumulative net inflow total of $2.123 billion, its peak level for the year. It should be noted, however, that most of that total gain was recorded in the final weeks of the year, the surge of funds coming in reflecting the junk market's upturn after the Federal Reserve announcement of a sharper-than-expected interest rate cut and the central bank's pledge to take other measures to stabilize and revive the credit markets and the overall economy.

A market source also said that in the latest week, there was no change in funds which report on a monthly basis rather than a weekly one; for the year to date, such funds have seen a cumulative inflow of $1.759 billion. On an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $5.367 billion more has come into the funds than has left them.

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, the week's inflows to domestic and foreign-based high yield funds totaled $245.7 million, on top of the previous week's $686.97 million, bringing the year-to-date total to $3.66 billion. EPFR also noted that inflows have now been seen in 12 consecutive weeks.

While the EPFR figures point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers usually differ due to EPFR's inclusion of some non-U.S. funds in its universe.

All cumulative totals can include unannounced revisions and adjustments to figures from prior weeks.

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 comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash to and from the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

Best fund flows since 2003

The present streak of mutual fund inflows is the longest run of consecutive positive flows since the late 2003-early 2004 period which saw 13 straight inflows, a syndicate official noted. However that streak generated a total of $4.0 billion, $1.4 billion less than the current streak.

In terms of a run of inflows that generated a greater dollar amount than the present one, it is necessary to dial back to spring 2003, which saw an 11-week run of consecutive positive flows generating $12 billion.

Year to date the funds that report on a weekly basis have seen $3.6 billion of inflows according to AMG, the syndicate official said.

Hence 2009 is seeing the strongest start, with respect to cash inflows to the high-yield mutual funds, since the start of the epochal year 2001.

Rally unwinds

Meanwhile the CDX High Yield 11 index fell 3/16 of a point on Thursday to close at 72¼ bid, according to the syndicate official.

"It was roughly flat," the source commented.

However the data point bears some significance, the syndicate official conceded.

At 72¼ bid, Thursday saw the index close just 1/8 point higher than the starting point of its present rally which began in mid-December, according to this official's reckoning.

That rally took the index to a high of 80½ bid on Jan. 6.

"It's interesting that this rally occurred at what is typically the quietest two weeks of the year," the syndicate source remarked.

Similar trajectories

As the CDX High Yield index ended the Thursday session just 1/8 point higher than where it began its two-month rally, so the 12-week run of inflows to the high-yield mutual funds appears to be tracking a similar trajectory, the syndicate official observed.

For the past three weeks the amounts flowing into the funds, as reported by AMG, have been declining, the source noted: the inflow was $725.5 million for the week to Feb. 4, $533.9 million for the week to Feb. 11 and $255 million for the present week.

"You're already seeing the beginning of the reversal as high-yield is correlating more closely with the equity markets, given how equities have performed over the past week," the syndicate source said.

Fortunes of the road

Thursday did produce some primary market news - namely, the second "full roadshow" deal of 2009.

Tyson Foods Inc. began marketing its $500 million offering of senior bullet notes due 2014 (Ba3/BB) via JPMorgan, Banc of America Securities, Barclays Capital and Wachovia Securities.

That deal is expected to price late in the final week of this month.

Elsewhere on Thursday the market learned that the only other deal to run a full roadshow thus far in 2009 came up short of the mark.

Precision Drilling Trust postponed its $250 million offering of senior notes due 2015, citing currently unfavorable market conditions.

"The trust closed the offering of 46 million trust units [on Wednesday] that provided gross proceeds of $172 million," Kevin Neveu, president and CEO of Precision Drilling, stated in a Thursday press release announcing the postponement of the notes offer.

"Precision will continue to use the committed financing that it has in place. The unsecured financing is committed through a bridge facility and under its terms the drawn portion will convert to long-term financing on or before Dec. 23, 2009, if not refinanced. The rate of interest Precision is paying on the unsecured bridge facility is currently fixed at 17% per annum."

Precision will use the equity proceeds, and if necessary draw on the unsecured bridge, to purchase any of the Grey Wolf convertible notes tendered in a change-of-control offer which expires later in March. If all convertible notes are tendered, Precision expects to draw an additional $98 million for a total of $236 million on the unsecured bridge.

Precision also has a $1.2 billion secured credit facility which includes a $400 million revolver.

At the end of 2008, the trust had cash of approximately $50 million, with only $88 million drawn under the revolver, providing it with ample liquidity, the Thursday press release stated.

The overall blended floating cash interest rate before amortization of upfront costs on the secured facility is currently 8%.

"Precision's management team is experienced in operating through the cycles in the land drilling industry," Neveu said.

"As such, we are taking all necessary steps to reduce expenses and capital expenditures in order to increase cash flow that will be applied to reduce our debt balance going forward. We believe that our cash flow generation, coupled with our equity offering, will enable us to significantly reduce the overall debt balance by the end of 2009. We also believe that the equity offering provides additional assurance, positioning Precision to comply with its debt covenants going forward."

Deutsche Bank Securities and RBC Capital Markets were joint bookrunners for the bond deal.

Precision, headquartered in Calgary, Alta, is a provider of energy services to the oil and gas industry.

Market indicators turn mixed

While the syndicate official saw the CDX index lower, a trader observed the CDX High Yield 11 index of junk bond performance, which was unchanged on Wednesday, stay that way again on Thursday. He quoted it at 72¼ bid, 72 ¾ offered, the same level the syndicate official saw. Another market source meantime pegged it at a mid bid-asked level of 73, up from around 72½ on Wednesday.

The KDP High Yield Daily Index was meanwhile up by 5 basis points on the day at 53.85, while its yield tightened by 6 bps to 13.27%.

In the broader market, advancing issues remained behind decliners, though only by a narrow margin.

Overall market activity, measured by dollar-volume totals, fell about 5% from the levels seen in Wednesday's session.

A trader said he saw it "a little quiet, because a lot of people are out." Having been kicked off with the Presidents' Day legal holiday this past Monday, he noted that "it's a vacation week, and schools are [in many areas] closed.

On top of that, he pointed out, "stocks feel crummy," with the bellwether Dow Jones Industrial Average falling 89.68 points, or 1.19%, to 7,465.95, its lowest level in six years. Broader market indices like the Nasdaq (down 1.71%) and the Standard & Poor's 500 (off by 1.20%) reflected that drop, which in turn was making people "miserable."

Another trader characterized Thursday's junk market as "kind of spotty." While he saw Tuesday as "pretty much painful, with the holiday week, [Wednesday] we saw a huge uptick in activity. However, he reiterated that Thursday's action was "spotty, at best," with most of the dealings "earnings driven, like Sprint, and like GameStop," whose bonds also firmed. Early upside action in such names later "died down around lunchtime," leaving only "a little" afternoon activity to watch.

Sprint springs forward

He said that "we saw a flurry this morning in the Sprint Nextel complex after earnings."

Another trader said that Sprint "had good numbers, and did get a good pop today."

While the fourth-quarter results were by no means strong, "they were better-than-expected," which pushed the company's 6% notes due 2016 to 67 bid, 69 offered, up 3 points on the day.

A market source at another desk saw those bonds up 3½ points to the 68 level, with a busy volume of more than $20 million of the notes having traded by mid-afternoon.

Meantime, subsidiary Sprint Capital Corp.'s 7 5/8% notes due 2011 were, in fact, by far the most actively traded junk issue, with nearly $60 million having changed hands by mid-afternoon at around 86 bid, up 4 points on the day, while its 6.90% notes due 2019, also busily traded with over $10 million of volume, likewise firmed to 68.25 bid. Its 8 3/8% notes due 2012 were also 4 point winners at 82.

Sprint Nextel, the third largest mobile phone carrier in the nation, posted a loss of $1.62 billion, or 57 cents per share. Excluding certain costs and expenses, the loss fell to just 1 cent per share, versus an expected loss of 4 cents per share. Sales revenue dropped 14% to $8.43 billion.

In 2008, Sprint lost 4.5 million customers, the company said. However, it is expected that defections will decline in 2009. The company also plans to complete its workforce reductions in the current quarter.

However, Fitch Ratings cut Sprint's issuer default rating to BB from BB+, despite the better-than-expected report. The agency said that the downgrade reflected, in part, uncertainty regarding operating trends in 2009.

Charter choke continues

Elsewhere, a trader saw more easing in Charter Communications' bonds, which had declined on Wednesday after several straight days of gains on the company's plans for restructuring its debt.

He said its Charter Communications Holdings 10¼% notes due 2010 had dipped to 80 bid, 82 offered. "They were a little higher [Wednesday]" - that particular shop had seen them at 82.5 bid, 84.5 offered "so they're down a couple of points."

However, he said that the company's 8 3/8% notes due 2014 held steady at 87 bid, 89 offered, "about the range they've been in."

At another desk, a trader pegged the CCH II LLC 10¼% notes due 2013 down 1½ points at 82 bid, 83 offered, while seeing Charter's 10% notes due 2014 "about as low as you can go" at 2 bid, 4 offered.

A market source located the CCO Holdings LLC 8¾% notes due 2013 down a deuce at 82 bid.

The Charter bonds had risen smartly last week and at the start of this week, in the wake of last Thursday's announcement that the St. Louis-based cable operator -- burdened with some $21 billion of bank and bond debt - had reached agreement with an ad hoc committee of bondholders on a partial restructuring which will reduce its approximately $11 billion of bond debt to just $3 billion by giving the holders of the other $8 billion a mixture of new debt, cash, new equity shares and warrants to buy such shares. Charter's existing stockholders, including its biggest investor, software billionaire Paul Allen, would be completely wiped out, but Allen will still retain 35% of the voting shares in the new company.

Charter said it would implement the restructuring plan by means of a pre-packaged bankruptcy filing to take place by April 1.

GameStop gains on positive projections

A trader said that GameStop Corp.'s 8% senior notes due 2012 "have been active, pretty much in the same par-101 context that they've been in, but we're seeing more activity today, on guidance in the higher end of their [previously projected] '09 range."

The Grapevine, Tex.-based retailer of video game products and personal computer entertainment software said that for the fiscal fourth quarter ended Jan. 30, it expects to report quarterly profit at the high-end of its expectations, in the area of $1.33 to $1.34 per share - a 17% to 18% increase over the year-earlier quarter, and a better return than the previously predicted $1.29 to $1.34 a share.

The nation's largest video game retailer also said that full year 2008 earnings per share should range from $2.39 to $2.40, an increase of 33% over the prior year. GameStop also said that full-year sales increased 24% to $8.8 billion, versus $7.1 billion in fiscal 2007, while comparable store sales, the key retailing industry metric, increased 12.3% for the full year.

Looking ahead, GameStop said that it expects to outperform the retail sector again this year, despite the current global recession. The company projects total fiscal 2009 sales growth between 10% and 120%, with comparable-store sales up 4% to 6%. Earnings per share will be up 18% to 22%, while the company projects opening more than 400 stores during the year.

MBIA slide continues

Back on the downside, a trader saw MBIA Inc.'s 14% surplus notes due 2033 "down a little more" at 37 bid, 39 offered; that followed Wednesday's more than 10-point plunge in the New York-based bond insurer's paper on the news that it is sequestering its lucrative municipal bond insurance business in a newly created entity separate from its overall business, to protect it from exposure to risky credits like mortgage-backed securities, which have led to major problems for MBIA.

S&P on Wednesday downgraded that main business by five notches, warning of the impact on its revenues from the loss of the muni insurance premiums to the new unit.

Autos spin their wheels

In the autosphere, a trader said that the sector "felt a little softer," although Ford Motor Co. "kind of hung in there after the last couple of days."

A second trader saw General Motors Corp.'s benchmark 8 7/8% bonds due 2033 "actually" up ½ point at 15.5 bid, 16.5 offered, while Ford's 7.45% bonds due 2031 were unchanged at 18.5 bid, 20.5 offered.

Another characterized autos generally as "a little softer," but said that Ford "hung in there."

Among the suppler names, while Goodyear Tire & Rubber Co.'s bonds got some bounce from the not-as-bad-as-expected quarterly numbers it posted on Wednesday - the 9% notes due 2015 gained more than 2 points to end around 78.5 bid, while its 7.857% notes due 2011 rose nearly 3 points to the 83 level.

However, Lear Corp.'s 5¾% notes due 2014 fell 3 points to 21.

CDS auction boosts Smurfit Stone

A trader said that Smurfit Stone Container Corp. "had their auction" to set a price at which the bankrupt Chicago-based packaging materials company's credit-default swaps would be settled, pushing the bonds up a little above that point on short-covering.

He saw the company's bonds like the Jefferson Smurfit 8¼% notes due 2012 moving up a point to 9 bid, 10 offered, a bit above the 8.88% settlement price.

Rite Aid mixed after loan news

Rite Aid Corp.'s 6 7/8% notes due 2013 gained a point to 22.25 bid, 24 offered, apparently helped by positive financing news from the Camp Hill, Pa.-based drugstore company, which completed a $225 million second-lien facility. But a market source saw its 8 5/8% notes due 2015 down nearly 3 points to the 26 level.

No financing news yet for NOVA

A trader saw NOVA Chemicals Corp.'s bonds "down from yesterday," with the 7.40% notes coming due April 1 at 57 bid, 59 offered, even though the company's shares rose 10%, but on no news.

A market source at another desk called the bonds 1½ point losers, down to the 58 level.

Calgary, Alta.-based NOVA is required by the recently amended terms of its credit facility to raise $100 million by the end of this month and another $100 million at the end of June; NOVA's bonds had shot up solidly earlier in the month on speculation that two financial units owned by the Alberta provincial government would provide Nova with the needed funds, but the bonds had come right down again after provincial officials denied that any such loan was in the works.

Earlier this week, CEO Jeff Lipton, speaking at a Morgan Stanley Global Basic Materials Conference, expressed optimism that NOVA would still be able to do a deal with its lenders to raise needed funds to satisfy its credit facility terms. Lipton said that NOVA hoped to be able to provide an update on its financial situation "soon."

Stephanie N. Rotondo contributed to this report.

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