Indiana Downs brings upsized deal; GM gyrates on better sales, GMAC also; funds see $140 million inflow

By Paul Deckelman and Paul A. Harris

New York, Oct. 18 - Indiana Downs LLC/Indiana Downs Capital Corp. was heard by high-yield syndicate sources Thursday to have successfully priced an upsized two-part offering of five- and six-year notes. The larger piece of that deal, consisting of cash-pay senior secured paper, was up smartly when it was freed for aftermarket dealings, junk bond traders said.

Elsewhere in the new-deal arena, Melrose Resources plc was heard getting ready to hit the road early next week to market an offering of eight-year euro-denominated notes.

General Motors Corp. bonds were heavily traded, jumping around on market response to the Detroit giant's announcement that its global sales for the third quarter rose a solid 4% from a year earlier, with GM's international business not suffering the malaise its domestic operations have.

Gyrations were also seen in the bonds of GMAC LLC - still 49% owned by the automaker - as investors wondered whether the good news coming from the former General Motors Acceptance Corp.'s erstwhile corporate parent could counterbalance continued murky prospects for the home mortgage industry, which GMAC participates in through its Residential Capital Corp. unit.

A high yield syndicate official marked the broad market lower on Thursday.

Fourth straight inflow

And as trading wound down for the session, market participants familiar with the weekly high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif. said that in the week ended Wednesday, $139.6 million more came into weekly reporting funds than left them.

It was the fourth consecutive inflow those funds have seen, following the $26 million inflow seen in the previous week, ended Oct. 10, and two considerably larger inflows seen in the two weeks before that - $221 million in the week ended Oct. 3 and the $465.8 million inflow recorded the week before that, ended Sept. 26. That latter infusion was the largest since a nearly $974 million inflow in early June 2005.

Those four inflows follow a lengthy string of outflows which had begun around mid-year, completely wiping out the roughly $1.6 billion cumulative inflow which had built up over the first half of the year and plunging the year-to-date fund flow numbers deeply into the red.

Even with the last four weeks of inflows, that 2007 cumulative total remains decidedly on the downside, at $1.243 billion, although that deficit is less than the prior week's $1.383 billion.

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 only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

Indianapolis Downs upsizes

Indianapolis Downs, LLC, in conjunction with Indiana Downs Capital Corp., priced an upsized $425 million two-part notes transaction on Thursday.

The Shelbyville, Ind., racetrack, off-track betting and gaming company priced an upsized $375 million tranche of five-year senior secured notes (B3/B) at par to yield 11%. The tranche was upsized from $345 million, and priced on top of price talk.

In addition the company priced a $50 million tranche of six-year senior subordinated secured PIK notes at par to yield 15½%. The yield was printed on top of price talk which had been lowered on Thursday from the 16½% area.

Jefferies & Co. ran the books.

Sherritt prices C$225 million

Elsewhere Sherritt International Corp. priced a C$225 million issue of 8¼% seven-year senior unsecured debentures.

National Bank Financial and GMP Securities were the bookrunners for the deal from the Canadian diversified resource company.

Europe awakes

Away from North America, Melrose Resources plc will start a roadshow on Monday for the first European deal to come forth since the mid-summer freeze-up in the credit markets.

The company plans to sell €250 million of eight-year senior subordinated notes via Merrill Lynch.

Melrose Resources is a U.K.-based oil and gas exploration and development company.

And Singapore's United Test & Assembly Center, a semiconductor testing and assembly company, is expected to launch a $475 million equivalent offering of eight-year notes next week, via ABN Amro, JP Morgan and Merrill Lynch & Co.

The transaction could include euro-denominated issuance as well as PIK notes.

Proceeds will be used to help fund the buyout of the company by TPG Capital and Affinity Equity Partners.

New Indiana Downs senior bonds trade up

When the new Indiana Downs 11% senior secured notes due 2012 were freed for secondary dealings, a trader saw them trading at 101.75 bid, 102.75 offered, well up from their par issue price earlier in the session.

He did not see the smaller piece of that deal - the $50 million of 15½% PIK subordinated notes due 2013 - which had also priced at par.

GM jumps around

General Motors' bonds were among the most actively traded of the session, with a market source seeing the carmaker's benchmark 8 3/8% paper due 2033 seen having pushed up to just above the 91, up nearly a point from Wednesday's finish. The bonds had zig-zagged back and forth from lows around 89 to highs above 92 before finally coming to rest somewhere in the middle.

"GM went on a ride for a while," a trader said, although he saw them ending on the downside at 90 bid, 91 offered, versus 91.5 bid, 92.5 offered late Wednesday. However, he had seen the bonds improve from their lows around 87.5 bid, 88.5 offered. "They were down four points," he said, "but only ended down 11/2."

Yet another trader, though, saw those bonds ½ point better, at 90.25 bid, 9.75 offered

A market source saw GM's 7 1/8% notes due 2013 down ¾ point at 93.75.

Most of the traders agreed - even as they disputed where the bonds ended and whether that represented a gain or loss from Wednesday - that the GM paper had gotten some kind of a lift from the good sales figures. GM said its worldwide sales rose to a record 2.38 million vehicles in the third quarter of 2007, although sales in North America - its largest market - fell 6%, due to softness in demand as a result of the weak economy in the United States, which is the dominant market in North America.

But outside the United States and North America, sales in Latin America, Africa and the Middle East rose 22%, Asia-Pacific sales were up 16% and European sales rose 15%. Non-U.S. sales now account for 56% of total sales.

However, GM bears noted that the company is expecting soft sales in 2008.

GMAC bounces around

Traders meantime saw GMAC's actively traded 8% notes due 2031 all over the lot, bouncing crazily around most of the day. One or two said that the bonds had gotten a lift from GM's good sales news - but others were not so sure, believing that the issue was still weighed down by Standard & Poor's warning Wednesday that it might cut GMAC's ratings, and those of its Residential Capital mortgage lending unit, because of continued softness in the U.S. mortgage business.

One said the GMAC bonds had gone home Wednesday at 96.5 bid, 97.5 offered, traded down to 90 bid, 91 offered Thursday, before coming off that low to finish at 93.5 bid, 94.5 offered, still down 3 points on the day.

A market source indicated the GMAC benchmark had bounced around between a low print of 91 and a high of around 96.5, before going out at 93.75 bid, down ½ point on the day.

Another market source said the 8s had fallen to 92.75 bid, 93.5 offered from 94.25 the previous day.

However, a trader at another shop said the bonds were "up pretty good" at 93.5 bid, 94 offered, which he compared with a Wednesday level at 91.5 bid, 92.5 offered.

Hovnanian lower

Outside of GM and GMAC, a trader saw Hovnanian Enterprises Inc.'s bonds lower across the board. He saw no specific news about the Red Bank, N.J.-based builder, but said the drop was because "the whole housing industry [is terrible]."

He quoted Hovnanian's 8 7/8% notes due 2012 down 2 points at 74 bid, 76 offered, and its 8 5/8% notes due 2017 also down a deuce at 82 bid, 84 offered.

Overall, a trader saw the widely followed CDX index of junk market performance down 3/8 point at 99¼ bid, 99½ offered. The KDP High Yield Daily Index was down 0.11 at 80.03, while its yield widened by 3 basis points to 7.87%. Declining issues led advancers nearly three to two.

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