Upsized Cedar Fair bonds price, firm; oil names up on BP oil well cap; funds up $1.28 billion

By Paul Deckelman and Paul A. Harris

New York, July 15 - Cedar Fair, LP and two subsidiaries finally came to market with a quickly shopped $405 million issue of eight-year notes on Thursday - nearly two months after the Sandusky, Ohio-based amusement park operator first shopped its bond deal around to potential investors. The new issue was downsized from the deal originally pitched to investors in May and had some covenant changes to make it more appealing, but it was upsized from the $300 million envisioned by junk marketeers when they first speculated this week that the postponed deal would be revived.

When the new bonds were freed for secondary dealings, traders saw them up by well more than a point from the below-par level at which they priced.

British issuers were making waves in Thursday's primary, with Care UK Health & Social Care plc, a provider of outsourced services to the U.K.'s government-run health-care system, pricing a £250 million issue of seven-year senior secured bonds, while consumer electronics retailer DSG International plc was heard getting ready to hit the road on Monday with a £150 million offering of five-year notes.

NXP BV's recently priced $1 billion tranche of eight-year senior secured notes, meantime, continued to trade well above par, holding most of the gains notched when the Dutch semiconductor company's new deal began trading on Wednesday, a day after the mega-deal priced.

In the secondary market away from the new deals, bonds of companies connected with the Gulf of Mexico oil spill disaster, such as BP plc and Anadarko Petroleum Corp., gained a point or more across the board, helped by the news that BP had finally managed to cap the leaking undersea well on a test basis. So far, the plug seemed to be holding. ATP Oil & Gas Corp., whose bonds have been hammered down since the accident on investor worries about the government's deepwater drilling ban in the Gulf, was also seen on the upside.

Skilled Healthcare Group Inc.'s bonds shot up smartly, along with its shares, on the news that the embattled nursing home operator and class-action plaintiffs who were granted a huge damage award against the company by a jury last week had agreed to settlement talks for their dispute, raising the possibility that it will not be forced into bankruptcy as a result of the giant judgment.

Junk funds gain $1.28 billion

And as the day's dealings were wrapping up, participants familiar with the Lipper FMI weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. - considered a reliable barometer of overall junk market liquidity trends - said that in the week ended Wednesday, $1.275 billion more came into those funds than left them.

The inflow to junk comes in conjunction with a $2.1 billion-plus inflow into high-grade bonds, according to a mutual fund manager who believes that for purposes of maximizing returns, investors are focusing on triple B bonds, the lowest echelon of investment-grade corporates, and double B bonds, the highest - and safest - echelon of junk.

The $1.275 billion net inflow into high-yield funds was a solid comeback from the previous two weeks, which had seen a total of $498.443 million more leaving the funds than coming into them, according to a Prospect News analysis of the figures provided by market sources, including the $166 million outflow seen in the week ended July 7.

The latest week's net inflow is one of the largest on record - but only the second-biggest this year so far, taking a backseat to the $1.391 billion cash infusion seen in the week ended June 23, which is believed to be the biggest inflow seen in the junk market since August 2003, according to the Prospect News analysis.

Investors will try to figure out whether the huge inflow marks a definitive end to the recent back-and-forth pattern, with several weeks of inflows alternating with several weeks of outflows, seeming to stand as a symbol for junk players' continued uncertainty about the chances of a strong market showing given current financial and macroeconomic conditions. Fund flows began their zig-zagging with several consecutive weeks of large outflows in May and June following the strong bull run seen in the first four months of the year - including one 10-week winning streak that had seen a net total of some $4.44 billion come into the market, according to the analysis - which had yielded a robust primary and a sizzling secondary.

"I think that if people weren't expecting this AMG number, I would be surprised," said one of the traders. He noted that the market "felt pretty firm all week - even though the Street's tried to take things down in the cash market periodically, the bid has always been there.

"I think the Street is light inventory and was trying to take the overall levels down just in order to cover some of the shorts."

With 2010 just a little past the halfway mark, inflows have now been seen in 17 weeks out of the 28 since the beginning of the year, while there have been 11 outflows.

The inflow in the latest week raised the year-to-date cumulative total for the weekly reporting funds up to $1.963 billion, according to the analysis of the data, versus the roughly $688 million 2010 net outflow recorded the previous week. The funds hit their biggest year-to-date negative number for the year so far in the week ended June 9, with a cumulative deficit of $475 million, while their peak cumulative inflow total for the year was the $4.086 billion recorded in the week ended April 28.

EPFR sees $1.2 billion inflow

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime reported a $1.2 billion inflow in the latest week, more than reversing the previous week's $113 million outflow. Before that, there had been a three-week string of inflows reported by EPFR, including an enormous $1.1 billion cash infusion seen in the June 23 week.

Reflecting the difference between the ways AMG and EPFR calculate their respective fund-flow totals - EPFR includes results from some non-U.S. domiciled funds as well as the domestic funds - the service's year-to-date net inflow total now stands at $5.03 billion. That's up from last week's $3.511 billion, though still well below the peak inflow level of about $8.59 billion seen at the beginning of May after 10 straight weeks of inflows starting in late February.

Any and all cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

Cedar Fair prices

The primary market sparked back to life on Thursday. Cedar Fair ended a six-week stretch on the forward calendar's day-to-day section, the primary market's version of limbo.

Cedar Fair priced a $405 million issue of 9 1/8% eight-year senior unsecured notes (B2/B-) at 98.613 to yield 9 3/8%.

The yield printed at the tight end of the 9½% area price talk.

The deal size increased from the $300 million announced on Thursday morning. However, the size was ultimately decreased from the $500 million offering that was taken on an investor roadshow during mid-May, with the $100 million difference being shifted to the company's credit facility.

The bond deal also featured covenant changes.

JPMorgan, Wells Fargo Securities and UBS Investment Bank were the joint bookrunners.

Proceeds will be used to repay bank debt.

Plays to $2 billion book

The order book for Cedar Fair's $405 million deal contained north of $2 billion, according to a mutual fund manager who played the deal.

Allocations were disappointing for this investor, who got into the deal in May via reverse inquiry.

The investor saw the new 9 1/8% notes due 2018 trading at 100 3/8 bid, 100¾ offered, which translates to a yield of approximately 9%.

"That's maybe 200 basis points inside of discussions that took place in May," the investor said.

"At 9%, it's maybe too tight, although the technicals do support it to a certain extent."

A disappointing allocation notwithstanding, this investor will not chase the paper higher in the secondary market.

"But I'm not going to sell it, either," the source added.

It paid to wait

Improving market conditions translated into impressive interest savings for the company.

When Cedar Fair initially roadshowed its bond deal in May, the market was widening due to the global capital markets volatility that sprang from eurozone credit events.

Having come to market with a 10% rate in mind, the buyside saw the market volatility and ensuing correction as an invitation to suggest that 10¾% to 11% would be more appropriate, a buyside source said.

The company subsequently put out feelers at 10½% but refused to go higher.

A stalemate ensued, during which the company spent six weeks in the calendar's day-to-day section.

Ultimately, however, by getting the deal done with a 9 3/8% yield on Thursday, Cedar Fair printed 162.5 bps inside the high end of that "market correction" talk of 10¾% to 11%, the source added.

Care U.K.'s £250 million

Earlier on Thursday, during the European session, Care UK Health & Social Care priced a £250 million issue of seven-year senior secured notes (confirmed B2/expected B+) at par to yield 9¾%.

The yield printed on top of the price talk.

Citigroup, Royal Bank of Scotland, BNP Paribas, HSBC and ING were the joint bookrunners.

Proceeds will be used to fund the leveraged buyout of the company by Bridgepoint Capital.

Big pipeline, orderly march

With positive cash flows and a rallying high-yield asset class, issuers with an eye toward opportunistic debt refinancing are likely keen to enter the market through a window that now appears open.

However, dealers may attempt to stretch out the forward calendar, according to one buyside source.

"The dealers say that there is an incredibly large backlog of deals," the investor said.

"But they also say they're going to hold the calendar down to about $3 billion to $4 billion, per week, in an attempt to keep the appetite for paper alive.

"They don't want to kill the golden goose."

DSG to start Monday

The Thursday session saw one new deal announcement.

United Kingdom-based electronics retailer DSG International will begin a brief roadshow on Monday for its up to £150 million offering of five-year fixed-rate guaranteed notes.

The roadshow for the Regulation S-only offer wraps up on Wednesday.

Barclays Capital, BNP Paribas, Citigroup, HSBC and Royal Bank of Scotland are joint bookrunners.

Proceeds will be used to fund the concurrent tender offer for up to £140 million of the company's 6 1/8% notes due 2012, of which there are £300 million outstanding.

New Cedar Fair notes firm

When the new Cedar Fair 9 1/8% notes due 2018 were freed for secondary dealings, a trader saw the notes move up to around par bid, 101 offered, while a second quoted them at 100¼ bid, 101 offered.

That was well up from the 98.613 level at which the bonds had priced to yield 9 3/8%.

"I hope people are happy," a trader said of the new deal. "People wouldn't buy it with a 10-handle a month ago." He was also not very impressed by the fact that there had been some covenant changes from the deal originally shopped around in late May, noting that "they could have done that a month ago too."

He acknowledged, though, that a month ago, conditions in the junk market were much worse and made any kind of new deal very difficult. "Now, we've got everyone running in the same direction again."

NXP holds most gains

Tuesday's new deal from NXP, which had firmed smartly on Wednesday after those 9¾% senior secured notes due 2018 were freed for the aftermarket, were seen hanging on to most of the gains they had notched, although they traded off their highs from the previous session.

A trader saw the $1 billion issue, which had been upsized from its originally announced $600 million size, trading as high as 102¾ bid "first thing this morning, but then they backed off a little," going home at 102½ bid, 103 offered. That was down from Wednesday's exalted trading levels at 103¼ bid, 103¾ offered, though still well up from par, where the Eindhoven, Netherlands-based semiconductor company had priced its offering.

A second trader said that if he had played in the NXP deal, "I'd probably look to sell it here, in a 103-4 area, just because I think there are other things you could do with your money."

And he opined that the heavily leveraged company - it still has several billion dollars of debt on its books even after a series of exchange transactions and buybacks last year and this year, leaving the credit rating on the new bonds no better than Caa1/CCC+ - is "not out of the woods yet - they're not fixed. Essentially what they did was they termed out and took on more debt. So I don't see a fix in there."

The company's existing paper, meanwhile - which had firmed on Tuesday on news of the new deal, since NXP plans to use the proceeds to redeem a portion of its more than $3 billion in outstanding bonds, and which then mostly continued to gain on Wednesday - was seen a little firmer during Thursday's session as well.

A trader saw the company's 7 7/8% senior secured notes due 2014 trading around par on "still decent volume." "That's all part of the trade versus the [new] 93/4s, because the bonds are trading at par. It is what it is."

Those bonds had been trading before Tuesday's announcement that a new deal was coming to take out a portion of the 7 7/8s and other existing bonds, somewhere around the 97 level.

A market source pegged the bonds at 100¼ bid, calling them up ¼ point, with over $22 million traded, making them one of the day's busiest high-yield issues. The source also saw the company's 9½% notes due 2015 trading around the 94 level, also up ¼ point; those bonds have firmed since the new-deal announcement from their pre-news level of 87½ at the start of the week.

Vanguard shows some vigor

Another relatively recently priced name was Vanguard Health Holding Co. II, LLC, which along with Vanguard Holding Co. II, Inc. priced a $225 million add-on issue to its 8% senior notes due 2018 on June 29 at 96.25 to yield 8.686%.

A trader saw the Nashville-based hospital operator's bonds on Thursday at 99 bid, though just on odd-lot dealings, "but you have to remember, earlier in the week, these things were trading at 97. So they're up 2½ points, roughly, and you can't find a seller."

He added that "north of [a yield of] 8%, they still represent some value in this market."

Clear skies for upcoming deals

The trader meantime predicted that some of the upcoming deals on the forward calendar will do well.

"Interactive Data [Corp.] will go OK," he said, while Calumet Specialty Products Partners LP, "given the amount of cash around that they have, if they can put together covenants, and a structure that [investors] are comfortable with, that will do fine as well."

Market indicators turn mixed

Among established issues having no new-deal connections, a trader saw the CDX North American HY Series 14 Index gain ¼ point on Thursday to end at 96 7/8 bid, 97 1/8 offered after having lost 5/8 point on Wednesday.

The KDP High Yield Daily index meantime was up by 12 bps on Thursday to end at 71.62 after having gained 9 bps on Wednesday. Its yield, however, rose by 1 bp Thursday to 8.34% after having come in by 4 bps on Wednesday.

Advancing issues led decliners for a ninth consecutive session on Thursday, holding around a seven-to-five margin for a second straight day.

Overall activity, represented by dollar-volume levels, fell by 21% on Thursday on top of Wednesday's 1% decline.

A trader suggested that "there was not a heck of a lot of excitement - it was a typical mid-summer afternoon."

However, another trader saw "a flurry of activity" in "a host of names," including Affinity Group Holding, Inc. and DynCorp International Inc. He also said that Freescale Semiconductor Inc.'s bonds "were pretty active," as were Harrah's Operating Co. Inc., MGM Mirage and General Growth Property Inc., the latter helped by the news that the troubled Chicago-based shopping center, currently reorganizing, had filed a restructuring plan that calls for it to be split into two companies.

He went on to say that "people are looking for paper in the secondary market, plain and simple, and they're looking for ideas. If a certain bond starts to move, what you find is you have four or five people trying to chase after it, and it becomes kind of laughable - very lemming-like."

Gulf energy names rise

A trader said that bonds of the companies involved in the Gulf of Mexico oil spill were higher on the day, buoyed by the news that the ruptured well's majority owner, BP, seems to have finally hit on the right solution for the continued massive oil leak into the gulf, as a cap device it put on the leaking well seems to have for now stopped the flow of oil. "It looks like they may have plugged it," he said.

The cap is currently being tested to see whether it can sustain the pressure of the leaking oil when BP resumes drilling its relief wells, which are the long-term fix for the problem.

"Oil was the big news of the day," another trader exclaimed. "I hope they can get the leak stopped. It seems like they're close."

A trader saw BP's bonds up 1½ points across the board, with the bonds of the well's 25% owner, Anadarko Petroleum, and those of Transocean Ltd., the sinking of whose Deepwater Horizon submersible drilling rig after a fiery explosion on April 20 led to the whole disaster, up about a point each across the board.

Another trader said that "you've got high-yield guys playing in [Anadarko], and you've got investment-grade guys playing in them."

BP's 5¼% notes due 2013 were up a point to 1½ points, a trader said, as were the British oil giant's 5¾% notes due 2019.

He saw Anadarko's 5.95% notes due 2016 in a 96ish context and its 6.20% bonds due 2040 at 87-88, which he called up a point.

Transocean's 6% notes due 2018 were a point better at 98½ bid, while its 6.8% bonds due 2038 gained a point to end at 95.

A trader meantime said ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 were in a 72-73 context and "may be up with all of the other Gulf names." Houston-based energy exploration and production operator ATP had nothing to do with the Deepwater Horizon disaster, as BP, Anadarko and Transocean did, but its bonds got hammered all the way down into the 60s from their pre-accident near-par level, and have only come a little bit back from that since then, on investor fears that the company will be hurt by the tough restrictions the government slapped on deepwater drilling in the gulf in the wake of the accident, since most of its proven gas and oil reserves are in the deepwater sector.

ATP, another trader said, was up a point at 73 bid.

One of the traders said that "as long as that thing [the cap] stays on there for the next day or two, you should start seeing all of these gulf names slowly creeping back up."

Skilled Healthcare higher

A trader said that Skilled Healthcare's bonds "have kind of been bouncing around" at higher levels on the day, buoyed by the news that the Foothill Ranch, Calif.-based nursing home operator and its legal opponents have agreed to seek mediation for their dispute, in the meantime staying all legal moves in the class-action case.

He saw the 11% senior subordinated notes due 2014 open the day bid at 871/4, up about 8 points from the 79ish-level where those bonds had gone home on Wednesday. "Then they backed off about two hours later," falling to about 84 bid, but by the end of the day, he saw them at the 85 bid level.

Another trader saw the bonds start out up 7 points on the day around 87 bid, then they "trailed off" to 83-84 before ending at 85 bid, 85½ offered. He said there was "decent volume for such a small [$129.46 million] deal."

A market source said that upwards of $10 million of the bonds had traded, a relatively large amount for a credit that normally sees only about $1 million or so moving around.

Skilled Healthcare's New York Stock Exchange-traded shares meantime zoomed as much as 45.7% in initial trading, moving as high as $3.28 from Wednesday's close at $2.25, but that paper came in to finish the day at $2.78 - still up 53 cents, or 23.56% on the day. Volume of 2.7 million shares was more than four times the norm.

Hurdles remain

The bonds and shares jumped on news developments that could allow the beleaguered company to avoid bankruptcy, a prospect it faced after a jury last week socked Skilled Healthcare with a humongous damage judgment in a class-action suit.

The suit arose from a complaint that was filed in 2006 claiming that some of the company's California-based facilities were understaffed and misrepresented the quality of care provided in their facilities

A jury in Humboldt County, in the far northern part of the state, ruled that the company should pay $613 million in statutory damages and $58 million in restitutionary damages to the plaintiffs, and the jury had yet to hear the punitive damages phase of the trial. With the punitive damage phase of the trial set to begin Thursday, Skilled Healthcare, seeking to head off a ruinous final judgment, came to an agreement with the plaintiffs.

Under their mediation stipulation, in effect through Aug. 9, the plaintiffs have agreed not to seek to convert the previously announced jury verdict in the litigation to an actual judgment, nor to try to get control over the company's property.

Also through Aug. 9, the company has agreed not to transfer or otherwise impair its assets outside of bankruptcy and not to file for Chapter 11.

The mediation stipulation is subject to approval by the Humboldt County Superior Court of California and was scheduled to be submitted to the judge on Thursday.

News of the mutual standstill agreement and the possibility that the dispute can be settled through negotiation is a positive for the company - which does not have anywhere near the money needed to pay the kind of huge damages the jury awarded the plaintiffs, nor even the financial wherewithal to post a bond of 150% of the judgment amount in order to proceed with an appeal.

However, Skilled Healthcare still faces daunting hurdles. Analyst James L. Bellessa Jr., a senior vice president at D.A. Davidson & Co., wrote in a research note on Thursday that the possibility of a settlement reduces the chance of a bankruptcy filing, which he had previously put at 90%. However, with "no assurances that the talks will be successful, we handicap the chances the company will stay out of bankruptcy and avoid wiping out shareholders at 40%" - meaning he still sees a 60% chance that the company will have to seek protection under the bankruptcy court umbrella.

Bellessa continues to rate the shares as "underperform," the rating to which he lowered them last week on the news of the verdict, although he did raise his target price - which he had lowered to $1.00 from $9.00 previously to reflect the 90% chance of bankruptcy - to $2.40, noting "the high level of uncertainty surrounding the ultimate outcome of this lawsuit."

NewPage yield seen attractive

A trader said that "the trade that everyone's doing" in NewPage Corp. paper is "either selling the seconds and the subordinates and buying the seniors or just buying the seniors outright." However, he said the latter bonds - the 11 3/8% guaranteed senior secured notes due 2014 - "were getting a little bit ahead of themselves. Between 14% and 15% [yield], they probably represent fair value right now, until you know whether you're going to have to go through a restructuring." He saw the bonds trading around a 901/2-91½ context, while the Miamisburg, Ohio-based coated paper manufacturer's 10% notes due 2012 are around 52 bid. "I didn't even bother to look for them today, I've been watching the 11 3/8s," he declared.

"What you can do is either sell the 10s and buy the 11 3/8s - sell two [10% notes] and buy one [11 3/8% note]," but he added that "I wouldn't do that at all. If anything, I would buy the 11 3/8s and just wait it out."

Stephanie N. Rotondo contributed to this report

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