Junk stumbles as equity tumbles; three price, two shelved; funds in first fall since February

By Paul Deckelman and Paul A. Harris

New York, May 6 - The junk market's moderate but mostly orderly retreat of the past two sessions turned into a full-blown rout on Thursday, countless issues were seen down multiple points, many of them in pretty heavy trading. Bids were getting hit left and right, regardless of the fundaments of the credits involved, with most of the action in the big liquid names, as market players sought to cut back on their exposure to junk. Big losers included such familiar names as Harrah's Operating Co., Rite Aid Corp., Ford Motor Co. and the latter's main rival, General Motors Corp.

Junk was seen having again followed the lead of the equity markets, which continued to get hammered on growing fears that the festering Greek debt problem may cause further contagion throughout Europe and elsewhere and bring the modest worldwide recovery from the 2008-09 recession to a shuddering halt. And as if that weren't enough to worry about, Wall Street was shaken at mid-afternoon by a bizarre episode in which an apparent typographical error on a sell order - substituting the word "billion" for "million" - triggered a computerized trading binge that knocked the bellwether Dow Jones Industrial Average down by nearly 1,000 points, or almost 10% of its value, before the mistake was discovered. Most of those losses were erased, but stocks still had their worst finish in a long time.

While all of this was going on, the primary market saw three deals price - a euro-denominated offering from Britain's International Power Finance plc, and dollar-denominated secured bond offerings from homegrown issuers OnCure Holdings, Inc. and American Petroleum Tankers Parent LLC.

Penske Automotive Group, Inc. announced plans for a $250 million offering of senior subordinated notes. But while market sources thought the deal could price Thursday afternoon, it didn't happen. Another deal expected Thursday, but which also proved to be a no-show was Regal Cinema Corp.'s $250 million add-on deal.

And two other deals were heard by syndicate sources to have been postponed due to suddenly unsettled market conditions - Americold Warehouse Investment Portfolio LLC, which according to market buzz had also been expected to price Thursday, and Jones Apparel Group, Inc.'s $250 million offering of 10-year paper; The latter was heard to have been shelved just hours after the New York-based fashion house and retailer had announced its bond-issue plans.

Junk funds lose $127 million

And as trading was winding down for the session, market participants familiar with the 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 $127 million more left those weekly-reporting high yield funds than came into them - a sign of investor unease with the junk market.

The downturn did not surprise some market participants, who noted that with junk sliding precipitously over a three-day span, particularly on Tuesday and Wednesday, which would be counted in this week's flow totals, such a pullback was to be expected.

It was the first cash exodus since the week ended Feb. 17, which saw an outflow of $917 million; after that, there had been an amazing 10 straight weeks of inflows, during which time $4.443 billion came into the funds, according to a Prospect News analysis of the AMG figures, including the $220 million cash injection seen in the previous week, ended Wednesday, April 28.

In the 18 weeks since the beginning of this year, inflows have still now been seen in 14 of those weeks and outflows in just the remaining four, although these included two massive cash hemorrhages seen in mid-February, each north of $900 million, totaling $1.9 billion, according to the Prospect News analysis.

The latest week's outflow dropped the year-to-date cumulative net inflow to $3.959 billion, down from $4.086 billion, its peak level for the year so far, according to the analysis.

The year-to-date fund flow totals have gyrated between last week's peak cumulative inflow level and a net outflow of $357 million seen in the week ended Feb. 17, which had been the first such year-to-date net loss for the funds since early April of 2008, according to the analysis.

EPFR sees $10 million cash loss

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime also reported that some $10 million more left the funds than came into them in the latest week.

That cash infusion followed the $876 million inflow seen in the previous week. Following the pattern seen in the AMG figures, the EPFR statistics - not counting the latest week - showed 10 straight weeks of inflows, lifting the funds from their two-week rut in the Feb. 10 and Feb. 17 weeks, which EPFR calculated to have produced some $1.76 billion of combined outflows.

Reflecting the difference in the way AMG and EPFR calculate their respective fund-flow totals, the latter - which includes results from certain non-U.S. domiciled funds as well as the domestic funds - said that on a year-to-date basis, the mutual funds are now showing around an $8.58 billion net inflow, down slightly from the peak level for the year of $8.59 billion seen the week before.

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

The flow of money into and out of the junk bond funds is seen as a generally reliable barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they did in the past. Last year's strong pattern of inflows - with AMG reporting over $20 billion having come in to the weekly-reporting funds over the course of the year, along with over $10 billion more into funds which only report on a monthly, rather than weekly basis, and EPFR posting similarly robust numbers - was seen as a proxy for the overall surge of liquidity into the junk market from all sources, which helped to fuel record 2009 new-issuance of over $160 billion and unprecedented secondary returns topping 57%.

'Negative' day

Thursday turned out to be a day for "negatives" relating to the junk market, as with most other asset classes apart from Treasuries and gold, sources said.

Among them, they noted the outflows from high-yield mutual funds after 10 consecutive weeks of cash inflows.

And although Greece as a topic has been late to the conversation in high-yield land, "Greece" became a topic du jour during Thursday calls with junk market watchers.

Asset prices, be they those of bonds or stocks, are unlikely to turn around until there is clarity on how the Eurozone intends to deal with the debt crisis in Greece, in particular the €8.5 billion of Greek sovereign bonds that come due on May 19, a high-yield fund manager insisted during the late morning.

This source rang back in the late afternoon to share news that European Central Bank president Jean-Claude Trichet told reporters that the bank at its Thursday meeting did not even discuss the possibility of backstopping those Greek bonds.

"What you are seeing in all of these sell-offs, is the markets pressuring Germany and the ECB to deal with this issue," the fund manager asserted.

American Petroleum prices

Meanwhile, the primary market remained active, with three issuers, each one bringing a single tranche of notes, pricing $495 million and €250 million face amounts of junk, on Thursday.

American Petroleum Tankers Parent LLC priced a $285 million issue of 10¼% five-year first-priority senior secured notes (B1/B+) at 97.203 to yield 11%.

The yield printed at the wide end of the 10¾% to 11% yield talk.

Credit Suisse and UBS Investment Bank were joint bookrunners.

Proceeds will be used to refinance existing secured debt and to fund final new build payments.

OnCure brings $210 million

Also printing notes on the wide end of price talk was OnCure Holdings, Inc.

The Englewood, Colo.-based manager of radiation oncology treatment centers priced a $210 million issue of 11¾% seven-year senior secured notes (B2/B) at 98.261 to yield 12 1/8%.

Yield talk was for the 12% area.

The reoffer price came slightly cheap to discount talk of approximately 1.5 points.

Jefferies & Co. ran the books for the debt refinancing and general corporate purposes deal.

International Power comes tight to talk

Meanwhile in Europe, International Power Finance (2010) plc priced a €250 million issue of 7¼% seven-year senior notes (Ba3/BB) at 99.33 to yield 7 3/8%.

The yield printed at the tight end of the 7½% area price talk.

Barclays Capital and Deutsche Bank Securities were the global coordinators. Citigroup and RBS Securities were joint bookrunners for the general corporate purposes deal.

Americold bails on bonds, stock

Americold Warehouse Investment Portfolio postponed its $325 million offering of 10-year senior secured notes, on Thursday.

The postponement came on the heels of the trust's abandonment of its initial public offering of common shares, sources said.

Price talk on the high-yield bonds moved up twice, on Wednesday.

The Atlanta-based temperature controlled warehouse real estate investment trust lifted talk to the 7 7/8% area from the 7¾% area.

The 7¾% area talk, meanwhile, was a revision of last week's 7 5/8% area price talk.

Price talk on the IPO, meanwhile, decreased to $9 to $11 per share, from earlier talk of $14 to $16.

Goldman Sachs & Co., Deutsche Bank Securities Inc. and RBC Capital markets Corp. were the bookrunners for the bond deal, which was upsized to $325 million from $300 million on Wednesday.

Proceeds from the bonds and the IPO were to be used to fund the acquisition of assets from Versacold and for general corporate purposes.

Soon after abandoning the junk deal the company began feeling out accounts for what would be required to get the financing done - in essence, inviting them to structure a deal - without the equity component, according to sources familiar with the matter.

Recounting the recent northward march of Americold price talk, one fund manager reflected that two weeks ago, when the company rolled out the bond deal, pricing discussions were taking place in the low 8% context.

Jones Apparel postpones

Also on Wednesday, Jones Apparel Group, Inc. postponed its $250 million offering of eight-year senior notes because of unfavorable market conditions.

Citigroup, JP Morgan, Bank of America Merrill Lynch, SunTrust Robinson Humphrey and Wells Fargo Securities had been joint bookrunners for the public deal that was being marketed in a Thursday drive-by transaction.

The New York-based apparel company had planned to use the proceeds for general corporate purposes, including funding the acquisition of Stuart Weitzman Holdings, LLC.

Penske expected Friday

Meanwhile Penske Automotive Group, Inc. talked its $200 million offering of 10-year senior subordinated notes (Caa1/B-) at the 8¾% area on Thursday.

The order books were set to close at 3 p.m. ET, on Thursday, with the deal expected to price after that.

However the deal has been delayed until Friday, according to a market source.

JP Morgan and Bank of America Merrill Lynch are joint bookrunners.

The Bloomfield Hills, Mich.-based automotive retailer will use the proceeds, together with cash flow from operations, working capital and availability under its U.S. credit agreement, to purchase its 3½% senior subordinated convertible notes due 2026.

Meanwhile, Regal Cinemas Corp. was expected to price a $250 million add-on to its 8 5/8% senior unsecured notes due on July 15, 2019 on Thursday.

However no news about the deal was available as Prospect News went to press on Thursday night.

Credit Suisse, Barclays Capital, Bank of America Merrill Lynch and Deutsche Bank Securities are joint bookrunners for the public deal.

The Knoxville, Tenn.-based motion picture exhibitor will use the proceeds, along with proceeds from a concurrent senior secured credit facility, to repay a portion of its senior secured term loan and to redeem its existing senior subordinated notes.

The original $400 million issue priced at 97.561 to yield 9% on July 9, 2009

Although no official price talk has surfaced, the deal was discussed in the context of a 102.0 reoffer price, according to a high-yield mutual fund manager.

American Petroleum Tankers gains a little

A trader saw American Petroleum Tankers's new 10¼% notes at 97¼ bid.

That was up slightly from the 97.203 level at which the New York-based oil tanker operator had priced its upsized issue earlier in the session.

A second trader saw the bonds at 97¼ bid, 98¼ offered.

OnCure offering little seen

A trader said that OnCure Holdings Inc.'s 11¾% senior secured notes due 2017 had been offered "a couple of times" at 98¾ -- but without a bid, after its morning pricing and subsequent move into the aftermarket.

At another desk, a trader saw the bonds at 98 bid, 99 offered.

Among recently priced offerings, a trader saw Beazer Homes USA Inc.'s 9 1/8% notes due 2018 at 97½ bid, 98½ offered. The Atlanta-based builder had priced $300 million of the bonds at par on Monday and they had even moved slightly above that context in initial aftermarket dealings, before Thursday's market debacle.

A trader saw ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 plunge 4 points on the session to end at 92 bid, 94 offered, on "a lot of action."

He noted that the Houston-based energy exploration and production company's $1.5 billion offering had priced at 99.531 to yield 12%. That issue priced on April 19 - the day before the disastrous oil drilling rig explosion in the gulf of Mexico which left 11 workers dead and touched off a massive oil leak into the gulf, threatening the coastline of Louisiana and other states in the region.

The trader attributed all of the subsequent erosion in the bonds to investor angst about the likely economic and political outcomes of the oil rig disaster.

Patriot Coal Corp.'s 8¼% notes due 2015 were being quoted by a market source at 99¾ bid, up from the 99.279 level at which the St. Louis-based coal producer had priced its $250 million offering on April 28, although the new level was off a little from the par to 100½ context in which some of those bonds traded in the aftermarket

Market indicators' nosedive deepens

Among bonds not connected with the new-deal market, a trader saw the CDX Series 14 index plummet by 3 full points on Thursday to end at 94¾ bid, 95¼ offered. That slide came on the heels of a 1½ point retreat on Wednesday and a 1 point decline on Tuesday.

The KDP High Yield Daily Index meantime plunged another 91 basis points on Thursday to end at 71.38, on top of a 62 bps freefall on Wednesday and a 20 bps slide on Tuesday. Its yield gapped out by 34 bps to 8.42%, after having widened by 22 bps on Wednesday.

Advancing issues trailed decliners for a third straight session on Thursday, as the latter widened their advantage to better than two to one.

Overall market activity, represented by dollar-volume levels, rose by 4% on Thursday from the levels seen the previous session.

"Guys pushed the wrong buttons on computers," one trader said, "and everything is down. It all got whipped around."

"He said that "nobody was paying any attention" to anything of a fundamental nature, like earnings results - and a lot of junk names were out with their quarterly numbers - or any other news developments. Instead, he said, "people just cared about holding onto some dough, so you sell what you can."

"On days like today, they move to the really liquid names, that's where you'll see the big trades in the big active names." He cited heavy trading in credits such as GMAC Financial Services, Ford Motor Co. and CIT Group Inc.

Relatively ignored, on the other hand, were the not-so-popular names like NewPage Corp., even though the Miamisburg, Ohio-based papermaker was out with first-quarter numbers (see related story elsewhere in this issue). He quoted the company's 10% notes due 2012 as having fallen 3 points to around 66, but said he "did not see much activity" in it, despite there being earnings news out.

He characterized Thursday's session as "basically an ugly day all around." The "questionable names saw a lot of selling."

A second trader used virtually identical language, including the "ugly day" reference.

GM, Ford sideswiped by market carnage

A trader said that General Motors's bonds "got whipped around" amid the general market downturn, quoting the Detroit-based top U.S. carmaker's benchmark 8 3/8% bonds due 2033 as having fallen from 34 bid at the opening to as low as 29 intraday, before coming off those lows to end at 32 bid, which he called down 2 points on the day.

"A huge amount traded," he said, "a gazillion."

He said that GM domestic arch-rival Ford Motor Co.'s bonds "went on the same kind of round-trip," before Ford's 7.45% bonds due 2031 closed down 1 point to 1½ points at 88½ bid, 89 offered.

At another desk, a trader said that GM "was taking a pretty good hit," seeing the 8 3/8% bonds drop to a low of 30 bid before ending around 31½ bid, 32 offered, down more than 2 points on the session. And he saw the Ford 7.45% bonds due 2031 do even worse, down 5 points on the day."

A laundry list of losers

A trader said that the market's downturn was widespread, quoting a lengthy list of credits down multiple points, including Harrah's Operating, whose 10% notes due 2018 plummeted 12½ points, while the Las Vegas-based gaming giant's 10¾% notes due 2016 lost 41/2.

Harrah's crosstown rival in Vegas and other gaming jurisdictions, MGM Mirage, saw its 7½% notes due 2016 down 4 points.

He also saw Rite Aid Corp bonds taking it on the chin, with the Camp Hill, Pa.-based Number-Three U.S. drugstore retailer's 7½% notes down 12 points, its 9½% notes off 6½ points, its 8 5/8% notes due 2015 down 5 points and its 10¼% notes due 2019 off by 3½ points by the close.

"And it just goes on and on" he said.

While he said those and other big-losing bonds "may have bounced back" off their lows when stocks came part of the way back after the weird computerized selloff at mid-afternoon, still, he said "if it was a bid, it got hit."

"Looks like it's going to be a long, hot summer in the city."

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