Neiman Marcus better despite numbers; GMAC ignores upgrade; Wendy's deal may fund dividend

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., June 10 - The high-yield secondary market ended Wednesday's session mostly firmer, traders reported, with strength seen across a variety of sectors, not in one particular arena.

Neiman Marcus Group Inc. was a popular name after the company posted its quarterly earnings. But despite the swing to a net loss, the retailer's debt managed to gain ground.

GMAC LLC's paper finished the session mixed, essentially disregarding a ratings upgrade. One trader said that the financial realm was the sector du jour.

Elsewhere, Hawker Beechcraft Acquisition Co. LLC remained on an upward path. News out Wednesday indicated that the company's parent might be looking to pick off assets of troubled insurance provider American International Group Inc.

Meanwhile net asset valuations were up Wednesday about ¼ point, but the indexes were down by that same amount, according to a high-yield mutual fund investor.

Only one deal priced during Wednesday's primary market session.

However there were several offering announcements, including a $550 million deal from Wendy's International Holdings, LLC that includes, among its various uses of proceeds, a possible dividend payment to stockholders.

Hence it qualifies as the first deal in over a year to have a possible dividend payment among its uses of proceeds.

And cash keeps rolling into the high-yield asset class, sources say.

Interpublic upsizes

Interpublic Group of Cos., Inc. priced Wednesday's only issue of junk, an upsized $600 million of 10% eight-year senior unsecured notes (Ba3/B+/BB+).

The notes priced at 97.958 to yield 10 3/8%, at the tight end of the 10 3/8% to 10 5/8% yield talk. The issue price came within the context of the approximately 2 points of original issue discount price talk.

Morgan Stanley & Co. Inc., Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and UBS Investment Bank were joint bookrunners for the debt refinancing, general corporate purposes and working capital deal that was upsized from $500 million.

The Interpublic deal was likely three- to four-times oversubscribed, a high-yield mutual fund manager reckoned.

It traded up a point and a half on the break, the source added.

Allocations, while not severe, were parsimonious, the buy-sider said.

"We put in for a lot and got a little."

Flood watch: $2 billion per week

Interpublic was the only the fourth deal to price thus far this week.

On Wednesday one syndicate banker admitted he had been expecting higher volume.

"It could be that we've flooded the market," the banker said.

"Maybe people are taking a breather."

However an investor countered that although it is true that the dealers have been flooding the market, the flood tide will undoubtedly continue because the buy-side has a lot of cash to put to work, and a lot of high yield companies still have debt which they need to refinance.

Meanwhile an investment banker put the flood tide of cash into perspective.

Counting ongoing coupon payments, plus inflows to the mutual funds that report to AMG Data Services on a weekly basis, in addition to those that report on a monthly basis, approximately $2 billion per week has been flowing into junk, the banker said.

And whereas earlier in the recessionary year of 2009 participation in new junk deals was largely limited to high-yield mutual funds, lately the range of participants has expanded, the banker said.

"The buyer base is definitely becoming a bit broader," said the banker, who cited the "186 accounts" that took part in Tuesday's CMS Energy Corp. deal.

"It was beyond the mutual funds that you had been seeing earlier in the year," the banker commented.

To recap, CMS priced a $300 million issue of non-callable 8¾% 10-year senior unsecured notes (Ba1/BB+/BB+) at 98.374 to yield 9%.

The new notes were at 101½ bid at Wednesday's close, the banker added.

Connacher price talk

Although Interpublic was the only deal to price by Wednesday's close, early in the session sources professed the expectation that Connacher Oil & Gas Ltd. would price its $150 million offering of five-year senior secured first-lien notes (Caa2) in an a.m.-to-p.m. drive-by.

Later Connacher set price talk for the notes at 13½% to 13¾%, discounted by approximately 6 to 7 points, and specified that the order books would close at 10 a.m. ET Thursday, with pricing expected after that.

Credit Suisse is the bookrunner for the general corporate purposes deal.

Wendy's starts roadshow Thursday

Wendy's International Holdings will begin a roadshow on Thursday for its $550 million offering of seven-year senior unsecured notes.

Marketing runs until Tuesday. The notes are expected to price Tuesday or Wednesday.

Credit Suisse, Citigroup and Banc of America Securities LLC are joint bookrunners.

Proceeds will be used to optionally prepay approximately $125 million of senior secured term loan debt. Remaining proceeds will be distributed to Wendy's/Arby's Group, which will use them for general corporate purposes. Those purposes may include working capital, the funding for key strategic growth initiatives including new unit development, acquisitions of other restaurant companies, repayment or refinancing of debt and - the part that caught attention in the market - the return of capital to its stockholders, including through stock repurchases and/or dividends.

That possible dividend payment represents the first time that such a possible use of proceeds has shown up in a junk deal in over a year, sources say.

On May 7, 2008 DirecTV Holdings LLC and DirecTV Financing Co., Inc. priced a $1.35 billion issue of seven-year senior notes (Ba3/BB) at par to yield 7 5/8%, with proceeds earmarked for general corporate purposes including the funding of a dividend to its parent, DirecTV Group.

The possible dividend payment in the Wendy's deal elicited some exclamations of amazement, late Wednesday.

"I didn't think there was that much money out there, but maybe there is," said a high-yield mutual fund manager.

CB Richard roadshow

Meanwhile CB Richard Ellis Services, Inc. will run a Thursday-to-Monday roadshow for its $400 million offering of eight-year senior subordinated notes.

The deal is expected to price early next week.

Bank of America Securities LLC, Credit Suisse and JP Morgan are joint bookrunners for the debt refinancing deal.

Market indexes mixed

Back in the secondary, the CDX High Yield Index fell ¼ point to 84.25 bid, 84.75 offered, according to one market player.

But the KDP High Yield Daily Index improved to 63.40, yielding 10.25%, compared to levels of 62.96, with a yield of 10.38% on Tuesday.

"The market had some more of a rally," a trader said. "But again, it seems pretty much across the board, no specific sector."

The trader added that it was the more liquid names that were taking over, as "guys are filling in their portfolios."

Neiman better despite numbers

Neiman Marcus Group's debt headed for higher ground Wednesday, despite a swing to net loss.

Neiman's bonds "pretty much led the retail sector," a trader said.

He saw the 9% notes due 2015 gaining 3½ points to 64, while the 10 3/8% notes due 2015 moved up almost 4 points to 64.25.

At another desk, a trader quoted both issues at 63 bid, 64 offered. However, he said the notes hit a high of 66 before settling back in.

"Looks like they went up and then backed off," he said.

One other trader quoted the 10 3/8% notes at 63.5 bid, 65.5 offered.

"Up 2 on the day, were as high at 67-68 and gave some back at the end of the day," he said.

For the third quarter of fiscal 2009, Neiman had a net loss of $3.1 million, compared to net earnings of $55.4 million in the third quarter of fiscal 2008.

Operating earnings for the quarter were $50.3 million, compared to $148.6 million in the comparable period last year.

Total revenues for the quarter were $810.1 million, compared to $1.06 billion in the prior year.

And, adjusted EBITDA for the quarter was $105.3 million, compared to EBITDA of $202 million in the third quarter of fiscal 2008.

During the company's conference call, Stacie Shirley, vice president of finance, said Neiman was comfortable with its current level of liquidity - the company had $229 million in cash as of May 2 - and that the focus remained on preserving financial flexibility.

"Although we still have a significant amount of work to do, we are pleased with our progress to date," Shirley said.

In more Neiman happenings, information surfaced on Wednesday that the company will be coming to market with a $500 million asset-based revolving credit facility to refinance its existing $600 million asset-based revolver that matures on Oct. 6, 2010, according to a market source.

The new revolver will be launched with a bank meeting on Thursday via Bank of America and Wells Fargo.

Price talk on the revolver is Libor plus 425 basis points with an unused fee that can range from 75 bps to 100 bps based on availability, the source said.

Rite Aid quieter but firmer

Among other retailers, Rite Aid Corp.'s bonds were "not as active" as they have been of late, a trader said, but they were seen closing the day firmer.

The trader called the notes anywhere from ½ to ¾ point better, the 9½% notes due 2017 going home at 67.25 and the 9 3/8% notes due 2015 at 68.25.

The modest gains come after Fitch Ratings affirmed its rating on the drugstore chain, but revised its outlook to stable from negative.

Also, Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 were "again up," according to a trader. He saw the notes hitting a new high of 84, compared to levels around 81-82 on Tuesday.

"Earlier in the year they were in the 30s," the trader commented.

GMAC shakes off upgrade

GMAC paper ended the session mixed even though it received a ratings upgrade from Moody's Investors Service.

One trader pegged the 6 7/8% notes due 2012 at 79 bid, 81 offered, unchanged. Another trader called the 7¾% notes due 2010 up a touch at 98 3/8, while the floating-rate notes coming due June 15 fell ½ point to 42.25. The floaters due Nov. 11 were steady at 71.5.

The rating agency upped GMAC's senior unsecured rating to Ca from C previously, citing the company's support from the U.S. government. However, Moody's said it was reviewing other parts of the company's debt structure, as concerns remained regarding GMAC's ability to raise additional liquidity, as required by the current bank "stress test."

"Capital inflows, partial government ownership, and GMAC's importance to reviving GM and Chrysler point to a lower probability of near-term default," wrote Moody's senior analyst Mark Wasden in a statement. "However, the challenges GMAC faces in executing its business strategy and the resultant uncertainties for bondholders remain a constraint on GMAC's credit."

Elsewhere in the world of finance, Capital One Finance Corp.'s 6¾% notes due 2037 increased "a little over a point," a trader said, to around 68.

SLM Corp., better known as Sallie Mae, saw its 5 3/8% notes due 2014 jumping over 3 points to 79.5, on $18 million traded.

Hawker heading higher

Hawker Beechcraft's notes continued to fly higher, according to market sources. News reports indicated that one of the aircraft manufacturer's parent companies, Onex Corp., was considering making a bid for an AIG subsidiary.

A market source pegged the 8½% notes due 2015 at 46 bid, a gain of over 2 points on the day. But another called the paper unchanged, also at 46.

Yet another source placed the 8 7/8% notes due 2015 at 30 bid, 32 offered, up a point on the day.

Hawker's parent company is reportedly making a play for International Lease Finance Corp., the world's largest aircraft leasing company.

Broad market firms

Among other issuers, Isle of Capri Casinos Inc.'s 7% notes due 2014 gained 3 points to 82.5 bid, 84.5 offered. The gains came after the company released its quarterly earnings.

Also in the gaming sector, a trader said MGM Mirage's subordinated paper, like the 8 3/8% notes due 2011 fell a point to the 85.5-86 range, "leaving them offered."

In the autosphere, General Motors Corp.'s 8 3/8% notes due 2033 inched up to 11.5 bid, 12.5 offered, while Ford Motor Co.'s 7.45% notes due 2031 improved by a point to 69 bid, 71 offered.

Freeport-McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017 gained over ½ point to end at 101.5.

Sara Rosenberg contributed to this article.

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