DISH dominates trading, Sprint also seen busy as market winds down; fund inflows continue

By Paul Deckelman and Paul A. Harris

New York, Dec. 22 - DISH DBS Corp. remained the favorite "dish" of high yield investors on Thursday. The satellite telecaster's bonds continued to dominate the Junkbondland most-actives lists, such as they were, on a relatively quiet day. DISH has been gaining over the past several sessions on speculation the company may sell some of its communications spectrum space - or even the whole company - to wireless giant AT&T, Inc. following the latter's failure to obtain more spectrum space by buying smaller peer T-Mobile Corp.

There was also a pick-up from Wednesday's trading levels in Sprint Nextel Corp.'s bonds, which have also traded actively over the last few days on the fallout from the failed AT&T/T-Mobile deal, since Sprint competes with both companies and vigorously opposed their planned combination.

Apart from those AT&T news-linked issues, traders saw relatively lackluster trading on the final full trading session of this week before Friday's abbreviated pre-holiday dealings, although they said the market seemed to have a generally firmer tone, helped along by equity market gains. Statistical measures of market performance were again on the upside.

The new International Lease Finance Corp. bonds that came to market earlier this week continued to trade a little above their par issue price.

And Ford Motor Credit Co. LLC's recent offering of 10-year bonds was seen having firmed solidly over the last session or so.

But they are unlikely to be joined by any more deals this year, with primaryside players having pretty much gone home for the holidays.

The primary market produced no news on Thursday, as expected, and market sources continued to profess the belief that 2011 new issue activity is now concluded.

AMG posts $260 million inflow

However, the high-yield asset class continues to attract cash even though the new deal market has been notably dormant heading into year's end, with no new issues since 99 Cents Only Stores Inc. priced a $250 million issue of 11% senior notes due 2019 (Caa1/CCC+/) on Dec. 14.

As Thursday's session was closing out, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $260 million more came into those weekly reporting funds than left them - a positive sign for junk and for a likely renewal of new-issue activity once the traditional holiday lull ends.

It was the third straight cash infusion for those funds, following on the heels of the $455.67 million inflow seen in the previous week, which ended Dec. 14, and before that, the massive $1.94 billion gain seen in the week ended Dec. 7.

Those three inflows, totaling more than $2.65 billion, represent a total turnaround from the two weeks before that, which saw the funds post net outflows totaling $3.18 billion, including the $2.17 billion hemorrhage seen in the week ended Nov. 23, the fourth-biggest outflow recorded since Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - began tracking fund flows in 1992.

Reflecting the recent streaky and volatile nature of the fund-flow numbers, that giant-sized outflow had meantime broken a previous stretch of six straight net inflows dating back to early October and totaling $10.31 billion, according to a Prospect News analysis of the numbers. That total included the spectacular $4.25 billion cash transfusion seen in the week ended Oct. 26 - the biggest single weekly inflow in AMG history.

For the year as a whole, inflows have now been seen in 34 weeks versus 17 outflows, according to the analysis.

Net inflows for the year have totaled $10.54 billion, according to the analysis - up from an estimated $10.28 billion a week earlier but still below the peak cumulative figure of $11.06 billion, which was recorded in the week ended Nov. 16.

EPFR sees $13 million gain

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a third straight week of inflows, which has broken a string of recent losses.

But it wasn't a very large addition - just $13 million, well under the $336 million more that came into the high-yield funds it follows than left them in the week ended last Wednesday and the giant-sized $2.05 billion cash infusion the week before that.

Those inflows followed, and have reversed, a skid of three consecutive weeks during which an estimated $3.52 billion more left the funds than came into them, according to a Prospect News analysis of the EPFR figures, including a big $1.87 billion decline seen in the week ended Nov. 30.

On a year-to-date basis, the latest cash injection lifted fund-flow totals to an estimated $5.76 billion from roughly $5.75 billion the week before, according to the analysis.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ markedly since they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from EPFR, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years.

Those trends had pretty much continued well into 2011 as well, although the market hit something of a dry patch in June and then appeared to recover in July - only to run into a complete brick wall for all of August.

Judging by the patterns seen in the fund flows since then, the junk market has been trying to right itself and come back, although the trend has been for several weeks of outflows alternating with several more weeks of inflows, and so on.

A junk trader, on hearing the news of the AMG fund-flows number, remarked "that's not bad - I knew guys were getting [at least] a little bit of money in."

A fund manager whose portfolio includes both junk bonds and bank loans commented that flows remain positive, steady and strong.

Every day during the past week has been positive, the buysider said. In fact, since Nov. 29, this investor's fund has seen only a single day of negative flows.

AIG unit's bonds hold gains

With nothing happening in the way of new deals coming out of the primary, as is usually the case around this time of year, secondary players were scrambling around looking for something to do, including trading in recent new issues.

They saw a little bit of activity continuing Thursday in International Lease Finance's new 8 5/8% notes due 2022.

However as was the case on Wednesday, Thursday's dealings were pretty restrained - just one round-lot trade and a few odd-lots.

That stood in marked contrast to Tuesday, the first full day of trading in them, when they were very active. By some estimates, more than $50 million of the bonds turned over.

A trader saw the bonds on Thursday continuing to edge up, quoting them going out at 100½ bid, 101 offered.

ILFC is the Los Angeles-based aircraft-leasing division of New York-based insurance giant American International Group Inc. It priced $650 million of the bonds - upsized from an originally expected $500 million - at par on Monday, and they traded between 99½ and par in the aftermarket. The split-rated (Ba1/BBB-/BB) bonds mostly appealed to junk traders, rather than to high-grade accounts. On Tuesday, the bonds were seen having moved up in heavy dealings to bid levels between 100 3/8 and 100 5/8, and the rise continued Wednesday and then on into Thursday.

New Ford Credits firmer

There were also some dealings on Thursday in the recent Ford Motor Credit 5 7/8% notes due 2021, with more than $8 million of the bonds changing hands at levels as high as more than 105 bid, although a market source noted that such an exalted level came on only one smallish trade and was not truly representative.

Even on a round lot basis, the bonds were seen having firmed to 103¼ bid, up about a half-point from Wednesday's close.

Ford Motor Credit, the loan-financing arm of Dearborn, Mich.-based automotive giant Ford Motor Co., had priced its $1 billion drive-by add-on transaction on Dec. 5 at 101.8 to yield 5 5/8%, versus the 5 7/8% yield at which the original $1 billion tranche of those bonds had priced back in August.

After pricing, the new bonds quickly shot above 102 bid and mostly stayed in that vicinity before moving a little higher this week.

Heavy initial dealings of more than $100 million on each of the first several days the bonds traded have given way to more normal-sized trading activity.

Investors wish for DISH

But trading in the recently priced deals was just a sideshow.

As was the case on both Tuesday and Wednesday, the biggest name in high yield on Thursday was DISH DBS, whose bonds were pushed up in busy dealings for a third straight day on speculation that AT&T may be looking to either buy unused broadcast spectrum from the Englewood, Colo.-based satellite television broadcaster or even buy the company outright.

"DISH paper remains active - probably the most active name in the high yield space," a trader observed. "It just keeps moving up."

"DISH continued to be pretty firm," a second trader agreed, citing "continued speculation that they may hook up with AT&T. Other than that, there was nothing doing."

He said depending on the issue, the DISH paper was up anywhere from a quarter-point to a full point on the day "across the complex."

He saw the company's 6¾% notes due 2021 trading around 107 bid.

A market source saw considerable activity in several other DISH issues. Its 7¾% notes due 2015 gained a point to close at 110½ bid on volume of over $16 million.

Almost as busy were the company's 7 1/8% notes due 2016, which turned over more than $15 million of the bonds. They were up around three-eighths of a point.

Its 7 7/8% notes due 2019 traded above the 113 mark on volume of $10 million.

Another trader quoted the DISH 7% notes due 2013 as trading up around "107 and change." At that price, he said, the spread over Treasuries is 260 basis points and the yield is 2.88% with a call on Oct. 1, 2013, "which tells me the I-G guys are buying it. So what we have are high yield guys reluctant to sell. But it could move up to investment grade."

Sprint notes trade around

Also busy in the wake of the AT&T/T-Mobile story was Sprint Nextel's bonds and subsidiary Sprint Capital Corp.'s bonds, although the trader said that "it wasn't as busy as DISH."

However, he allowed that the Overland Park, Kan.-based No. 3 U.S. wireless carrier's paper was "second only to DISH" in terms of activity levels. He called the bonds up a half-point to a full point on the day.

A second trader said that Sprint Capital's 6 7/8% notes due 2028 had "decent volume," trading most of the day in a 71-72 context before going out at 71, which he said was unchanged on the day.

Another market source, while seeing the bonds at 71 as well, called that down nearly 2 points, on volume of around $10 million.

He said Sprint Capital's 8¾% notes due 2032 were unchanged at 80½ bid on about $5 million of volume.

Parent Sprint's 6 7/8% notes due 2013 were trading firmer at an even par bid, with about $7 million traded.

Sprint's bonds had firmed smartly on Tuesday and stayed higher Wednesday and Thursday as the company saw its vocal objections to the combination of AT&T and T-Mobile vindicated.

Sprint had vehemently opposed the efforts of No. 2 industry player AT&T to buy T- Mobile, now the No. 4 U.S. wireless firm, in hopes of being able to leapfrog the current industry leader, Verizon Wireless.

Sprint, already far back from both Verizon and AT&T in terms of subscribers and revenues, feared that letting the one-time "Ma Bell" buy T-Mobile would put it at an even greater competitive disadvantage.

Federal authorities agreed, with both the Justice Department and the Federal Communications Commission filing objections on antitrust grounds that threatened to derail the whole deal, ultimately causing AT&T to forget about doing its transaction.

Indicators move up

Statistical measures of junk market performance, which firmed solidly on Tuesday and Wednesday, made it three in a row on Thursday.

A trader saw the CDX North American series 17 High Yield index up 9/16 point on Thursday to end at 92 3/8 bid, 92¾ offered after having gained 3/8 point on Wednesday.

The KDP High Yield Daily index rose by 9 bps Thursday to finish at 71.90 after having gained 5 bps on Wednesday.

Its yield came in by 3 bps for a second straight session on Thursday, to 7.61%.

And the widely followed Merrill Lynch High Yield Master II index posted a sixth consecutive gain. Its 0.149% gain followed Wednesday's 0.112% rise.

The latest gain lifted the index's year-to-date return to 3.786% on Thursday from Wednesday's 3.632% close. Thursday's reading was the highest since the 3.891% recorded on Nov. 8.

Year-to-date returns meanwhile remain below the recent peak level of 4.28%, recorded on Oct. 28, and are well below the index's high-water mark for the year of 6.362%, which was set on July 26.

However, they are still well up from its 2011 low point, a 3.998% deficit recorded Oct. 4.

© 2015 Prospect News.
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