Market 'strong like a bull'; Hertz up despite weak numbers; MGM higher; waiting on new deals

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., April 29 - High yield rallied significantly on Wednesday, according to a syndicate official. Cash was up ½ to 1 point, this official said.

"The market is strong like a bull," was how one trader characterized the tone of the day.

The CDX High-Yield 12 index ended 1¾ points higher at 77 ¾ bid, after being up as much as 2 points earlier in the session.

The index came off a little towards the end of the day with equities, the syndicate official explained.

The KDP High Yield Index was likewise better, ending at 57.71, with a yield of 12.09%, compared to Tuesday's level of 57.04, with a yield of 12.29%.

"It was a very active Wednesday," a trader said. "Everything was up easily ¾ to a point."

Among specific names Hertz Global Holdings Inc.'s paper closed higher Wednesday even as the company posted a wider first quarter loss.

Traders saw the debt gaining at least 2 points on the day. Company management said that it was continuing to look for ways to improve profits, in addition to the job cuts already in place.

Also, Qwest Communications International Inc. reported earnings. A 37% increase in profit helped the give the telecommunications company's bonds a 1 to 3 point boost.

Meanwhile, General Motors Corp.'s bonds were relatively stable, though with a downward bias.

MGM Mirage bonds were seen firmer, as one market player said owning the company's assets would be "a good thing." Late in the day, the company also announced that it had inked a new agreement with Dubai World and a source speculated that the news would result in more gains on Thursday.

Chasing the secondary

Early in the Wednesday session a leveraged capital markets banker sounded a warning.

There has been a remarkable run up in the secondary, the banker asserted.

"I think it will be better if things cool down slightly because there is no fundamental reason for this run up.

"Bonds were oversold, but not to this extent."

Later in the day a source from a high-yield syndicate desk provided some numbers.

As of Tuesday the Merrill Lynch High-Yield 100 index, comprised of the 100 most liquid names in the market, was yielding 10.395%, down 110 basis points in the past month, the source said.

It began the year at 13 5/8%.

"Part of the reason for this rally is that dealer inventories are dwindling rapidly," the sell-sider commented.

"And inflows have been so massive that there is a ton of cash chasing a very limited amount of supply," the source added, referring in part to the weekly inflows reported by AMG Data Services, which have been averaging more than $500 million per week over the past month.

Where are the deals?

The new issue market remained utterly quiet on Wednesday, despite forecasts from sources that deals are coming.

"You're definitely going to see supply catch up with demand," a syndicate official said.

Issuers remain on the sidelines awaiting some assurance that if they launch a deal they won't end up saddled with a ruinous interest rate, the source added.

However, some of the companies in question could come next week, or they could come tomorrow, the official said.

Starwood, DaVita, Rite Aid

The market could possibly learn of two deals on Thursday, sources say.

El Segundo, Calif.-based dialysis services provider DaVita Inc. continues to be identified as a likely near-term issuer, according to sources on both the buy-side and the sell-side.

Elsewhere Starwood Hotels & Resorts Worldwide Inc., a former investment-grade name, is expected to come with its first ever high-yield offering, perhaps before the end of the week, via JP Morgan.

Another near-term candidate is Rite Aid Corp., a banker said late Wednesday. Citigroup will possibly have the books.

Ingles Markets for Thursday

Meanwhile the only deal officially in the market is from Asheville, N.C., supermarket chain Ingles Markets, which plans to sell $500 million of eight-year senior notes via Banc of America Securities and Wachovia Securities.

Price talk is expected Thursday morning, and the deal is expected to price on Thursday afternoon.

Credit ratings remain to be determined.

Proceeds will be used to fund the tender for the company's existing 8 7/8% senior subordinated notes due 2011, as well as to repay certain other debt, fund capital expenditures and for general corporate purposes.

Meanwhile on Wednesday Solutia Inc.'s German subsidiary, Flexsys Verkauf GmbH, upsized its two-year senior unsecured term loan to $74 million from $50 million, and priced it at Libor plus 850 basis points with a 3.5% Libor floor and an original issue discount of 95.

Jefferies was the lead bank on the deal that was done off the high-yield desk and syndicated through one-on-one roadshows.

At launch, pricing on the term loan was indicated at 12% plus an original issue discount that was still to be determined. It was unknown whether final pricing would end up as fixed-rate or floating-rate.

Proceeds will be used to provide additional liquidity to parent company Solutia.

Flexsys is a producer of a chemical used in tire manufacturing. The company has an 85% market share in Europe.

Hertz improves despite weak numbers

In trading car rental company Hertz saw its bonds improve at least 2 to 3 points despite posting a wider loss for the first quarter of 2009.

A trader said about $21 million of the 8 7/8% notes due 2014 traded at 77.25, a gain of nearly 3 points. Another trader deemed the paper better by more than 3 points at 77 bid, 78 offered.

For the quarter ending March 31, Hertz posted a loss of $163.5 million, or 51 cents per share. That compared to a loss of $57.7 million, or 18 cents per share, the year before.

Revenue dropped 23% to $1.6 billion. Sales were impacted by turmoil in the economy, which has led to higher unemployment and declining home values.

"We continue to generate strong cash flow and maintain significant liquidity in the midst of the global recession," said Mark P. Frissora, the Park Ridge, N.J.-based company's chairman and chief executive officer, in a statement. "Additionally, we are improving profit retention sequentially, mitigating the effect of declining revenues on adjusted and GAAP earnings. We are maintaining our focus on yield-managing high quality revenue with tighter fleets to optimize cash flow and liquidity."

Qwest boosted by results

Qwest Communications' debt got a boost after the Denver-based telecommunications provider reported a 37% increase in first-quarter profit.

A trader said the 7 7/8% notes due 2011 moved up just over a point to 99.25, while the 7.90% notes due 2010 ended unchanged at 99.5. The floating-rate notes due 2013 inched up to 90.75.

Another trader quoted the 6½% notes due 2017 at 86 bid, 88 offered, a point better day over day.

A source at another desk pegged the 7 5/8% notes due 2015 at 96.5 bid, 97.25 offered, a gain of over 2 points.

Qwest reported net income of $206 million, or 12 cents per share. That compared to income of $150 million, or 8 cents per share, the year before.

However, revenue fell 6.6% to $3.17 billion. Qwest said the decline was due to the transfer of nearly 100,000 wireless customers to Verizon from Sprint.

The company also reiterated its full year forecast, speculating that it would bring in $1.4 billion to $1.5 billion in adjusted free cash flow in 2009.

"Disciplined execution and focus on cost controls have produced a strong start to the year given the current economic climate," said Edward A. Mueller, Qwest's chairman and CEO, in a statement. "We are seeing tangible results from our focus on our key strategies to perfect the customer experience, including demand for our leading data services and strong results from our partnerships. We continue to tightly manage spending and investments to preserve financial strength and mitigate near-term economic pressures."

GM bonds slip, loans gain

General Motors' bonds closed the day either down some or unchanged, depending on whom you asked.

A trader called the 7.70% notes due 2016 down ½ point at 9 1/8. That was also the level at which the 7.20% notes due 2011 closed, though those were weaker by nearly a point.

The trader also saw the benchmark 8 3/8% notes due 2033 at 8.5, nearly 2 points softer.

Another trader, however, called the paper unchanged at 8.25 bid, 9.25 offered.

At another desk, a trader quoted the Detroit carmaker's debt generically at 9.5 bid, 11 offered. Specifically, he placed the 7.20% notes at that level, deeming it unchanged on the day.

Elsewhere in the autosphere, Ford Motor Co.'s benchmark 7.4% notes due 2031 closed a point higher at 49 bid, 51 offered, according to a trader.

MGM paper moving up

MGM Mirage paper closed the day stronger, as one analyst speculated that investing in the company would at some point be "a good thing."

A trader saw the bonds gaining anywhere from ½ to 3 points on the day, the 6 5/8% notes due 2015 at 50, the 8 3/8% notes due 2011 at 30 3/8, the 6% notes due 2009 at 73 and the 6¾% notes due 2012 at 53.

Another source deemed the 6 5/8% notes over 3 points better at 51 bid.

Yet another trader called the 6% notes up a point at 70 bid, 72 offered.

Daniel Och, founder of Och-Ziff Capital Management Group LLC, was quoted as saying at the Super Return private-equity conference in Miami that "at some point coming out of the cycle, owning the best assets on the Las Vegas Strip would be a good thing to do."

Och was referring to MGM's near-monopoly of the gaming center and how, once the recession hits bottom and recovery begins, that will mean more money to the company.

Still, it is no secret that MGM, like its counterparts, has struggled amid a weakening economy. As such, the company has sold assets and is considering selling off more, including potentially some of its Las Vegas properties. Steve Wynn has reportedly expressed interest in the Bellagio.

Furthermore, late Wednesday, the casino operator announced that it had reached an agreement with its CityCenter joint venture partner Dubai World. Under the new deal, the project is fully financed and Dubai World has agreed to drop its lawsuit against MGM. The suit was originally filed as Dubai World claimed that auditor comments regarding MGM's ability to continue as a going concern constituted a breach of contract.

One source expected the CityCenter news would result in an upturn in Thursday's session.

Broad market mostly better

Elsewhere in the land of distressed bonds, CIT Group Inc.'s bonds regained some of the ground it had lost during Tuesday trading.

A trader said the 5.60% notes due 2011 moved up over 2 points to 65, while the 5.80% notes due 2011 gained just under 2 points to around the same level. The 5.65% notes due 2017 jumped 4 points to 50.75.

There was no news to explain the move, as was the case in the previous session.

Among retailers, Rite Aid Corp.'s issue of 9½% notes due 2017 "just continues to rally," a trader said, pegging the securities around 51.

Bon-Ton Stores Inc.'s 10¼% notes due 2014 closed around 31 and Neiman Marcus Group Inc.'s 9% and 10 3/8% notes due 2015 ended around 50.

TXU Corp.'s 10 7/8% notes due 2017 firmed by 3 points to 64.25, a trader said.

Sirius XM Satellite Radio Inc.'s debt ended unchanged to higher, possibly as investors prepare for the company's earnings next week.

One trader called the 9 5/8% notes due 2013 unchanged at 60.5, while another saw the 13% notes due 2013 jump over 4 points to 65.25 bid.

The company will release its quarterly results on May 7.

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