Amkor advances on guidance, convertible sale; GM jumps, junk generally better; funds gain $790 million on week

By Paul Deckelman and Paul A. Harris

New York, March 26 - Amkor Technology Inc.'s bonds were seen sharply higher - although volume was restrained - after the Chandler, Ariz.-based semiconductor industry packaging and testing provider updated its guidance and announced plans to fortify its capital position with a convertible debt deal.

General Motors Corp.'s bonds and shares were solidly higher, helped by the news that 12% of its hourly workforce has accepted a buyout offer from the carmaker, as well as president Barack Obama's announcement that his administration will soon unveil the next part of its plan to help the troubled U.S. auto industry - if those companies push ahead with extensive restructurings. Also on the upside were such sector names as Ford Motor Co. and its Ford Motor Credit Co. loan financing arm.

Fiscally challenged gaming powerhouse MGM Mirage's bonds were seen points better - even in the face of a looming Friday deadline to make a payment on the loan financing its ambitious Las Vegas development project, with a published report indicating that the company has hired a bankruptcy lawyer to help prepare a possible Chapter 11 filing for the project.

Battered builder Hovnanian Enterprises Inc. was among that sector's names that were firming on a double-dose of good news - the unexpected rise in new-home sales announced on Wednesday, as well as an analyst's estimation that there may finally be a light at the end of the tunnel for the housing industry.

Junk in general was seen mostly better, taking a cue from a revived equity market.

Primary arena activity, however, remained muted.

Junk funds show $790 million inflow

And as trading was wrapping up for the session, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif. - a key barometer of overall market liquidity trends - said that in the week ended Wednesday some $789.9 million more came into the weekly reporting funds than left them. It was the second consecutive inflow, including the $375 million cash infusion seen in the previous week, ended March 18, which had broken a losing streak of three consecutive outflows going back to the week ended Feb. 25 and totaling about $996 million, according to a Prospect News analysis of the AMG figures.

The $1.165 billion of inflows seen over the past two weeks would seem to represent a reversion to the pattern seen before the preceding three outflows - seven consecutive inflows from the beginning of the year through the week ended Feb. 18, totaling $3.608 billion, according to the Prospect News analysis, and an astounding total of 12 consecutive inflows, going back to the week ended Dec. 3 and totaling some $5.425 billion, according to the analysis.

Including the latest week's inflow number, the year-to-date net inflow for the weekly reporting funds has been brought back up to about $3.777 billion, according to the analysis, from around $2.987 billion the week before.

A market source also said that in the latest week, funds which report on a monthly basis rather than weekly were unchanged on the week. For the year to date, such funds have seen a cumulative inflow of $4.838 billion.

The source also said that on an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $8.615 billion more has come into the funds than has left them, compared with the previous week's aggregate figure of $7.825 billion.

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, the week's net inflow from domestic and foreign-based high yield funds totaled $836 million, on top of the previous week's $388.5 million inflow. That brought its calculation of the year-to-date net inflow total up to $3.486 billion from $2.65 billion previously.

While the EPFR junk figures usually point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers generally differ somewhat due to EPFR's inclusion of some non-U.S. funds in its universe.

Any and all cumulative fund-flow totals 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 market barometer of overall high yield market liquidity trends - although they comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash coming into the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

The case for junk

The massive inflow which AMG reported Thursday makes sense to an asset manager from a mutual fund whose portfolio includes bonds, predominantly high-yield, and stocks.

"Junk spreads are very wide, and everybody remembers the fabulous returns of the previous cycle," said the investor, who spoke on background.

"Also people are coming to high-yield based on a good experience because year-to-date high-yield has a positive performance."

The double-B sector of the Merrill Lynch Master II index had a dollar price of 75.50 as of Thursday, the investor said - up from 72.70 at the beginning of the week.

The double-B sector of the index yields 12.83%, in from 13.37% at the beginning of the week, the buy-sider added.

The JP Morgan Global High-Yield index has positive year-to-date return of 5.18%.

"Even factoring in bankruptcies you're still several points to the positive year-to-date," the investor said.

These returns come as the S&P 500 stock index has returned negative 7.8% year-to-date, the buy-sider pointed out.

"You have junk outperforming stocks. And you have high income and capital appreciation."

Stars aligned for junk

The year-to-date total positive return of high-yield is beating out every other sector, the asset manager said.

The reasons are various:

• Risk-free rates are low and expected to stay low;

• During the past month equity markets have seen huge rallies. "The sentiment in high-yield is always linked to equities," the source pointed out; and

• There has not been any material, unexpected bad news in the high yield market, the investor asserted.

"GM and Chrysler are trucking along," the asset manager remarked. "They haven't filed bankruptcy.

"Everybody talks about defaults going from 5% to 10%. But it hasn't happened so far."

All quiet in the primary

The Thursday session produced no primary market news.

BWAY Corp., the only issuer in the market, began a roadshow on Thursday for its $200 million offering of five-year senior subordinated notes (B3/B-).

The deal is expected to price during the middle part of next week via joint bookrunners Deutsche Bank Securities and Goldman Sachs.

Meanwhile dealers say they are preparing deals, some of which will likely turn up next week.

Market indicators extend gains

A trader saw the widely followed CDX High Yield 11 index of junk bond performance - which gained ½ point on Wednesday - up ¼ point in Thursday's trading, quoting it at 70½ bid, 71 offered.

The KDP High Yield Daily Index meantime rose by 45 basis points to 53.07, while its yield tightened by 13 bps to 13.48%.

In the broader market, advancing issues held their advantage over decliners, by an 11-to-six margin.

Overall market activity, measured by dollar-volume totals, was down more than 1% from the levels seen in Wednesday's session.

A trader said that in his mind, "there's no question that we are rallying here," adding that "all the stuff is flying, and on decent volume."

Another trader opined that "the big thing is that the cash keeps coming into the marketplace. There is no calendar, and it's getting harder and harder to find offerings, so buyers are kind of chasing stuff."

He saw market volume "up a little bit today," although he characterized it mostly as "chasing offerings, and it's just the same kind of names - the big issues are trading up a lot because they can trade."

Among the names in that category, he said were Sprint Nextel Corp., "up a point," while First Data Corp. bonds "continue to go up," and Freeport-McMoRan Copper & Gold Inc. "is always at the top of the volume leaders."

He further noted that Amkor's bonds "had a big pop" on its convertible note sale news, although he did say that away from the big 'go-go' names, "it was kind of scattered. People are just looking for offerings, and guys that were considering selling are now saying 'it looks like it's going up - I'll wait.'

"So it's a little difficult finding the right side on some things. The only good thing about that is that some of the fear is coming out of the buying in the marketplace, and it's starting to filter down to the lower part of the credit curve, where you're starting to see bids for distressed paper that you weren't seeing before."

Helping to improve sentiment in the junk market was yet another positive day in stocks - the third in four days this week, including Monday's huge rally. In Wednesday's dealings, the bellwether Dow Jones Industrial Average tacked on another 174.75 points, or 2.25%, to finish just a proverbial stone's throw below the psychologically potent 8,000 mark, at 7,924.56. In the broader markets, the Standard & Poor's 500 index rose 2.23%, and the Nasdaq composite index positively shone with a 3.80% advance.

Shares rose as big consumer brands Best Buy, ConAgra Foods Inc. and Dr Pepper Snapple Group Inc. all had positive earnings news. A strong auction for new benchmark 10-year Treasury notes calmed investors' qualms about the government's ability to fund the massive stimulus and other spending packages being proposed by the administration and passed by Congress, while the latest economic data, including fourth-quarter GDP, would seem to indicate that the economy is not deteriorating as sharply as previously feared.

Capmark one of the few notable losers

Back in the junk market, the first trader, in reiterating that "there is no question that we are on the upswing," noted, for instance, that among the most actively traded bonds, he saw just one credit that was on the downside - Capmark Financial Group Inc.'s 5 7/8% notes due 2012, which lost a point on the session to 20 bid, on mid-afternoon volume of $21 million.

That the Horsham, Pa.-based commercial real estate-oriented financial services firm's paper could be lower on a day that most of the rest of the junk market was riding high, he said, was just another indicator that Capmark is truly in "dire straits."

The company - which is in active talks with its lenders on modifying the terms of its senior credit facility and its bridge loan - announced earlier in the week that while holders of over 90% of the outstanding $833 million of the latter debt had agreed to Capmark's request to postpone the maturity of that loan - previously extended to Tuesday - to April 9, one holder of $48 million of that debt refused to go along, and has demanded immediate repayment of what it is owed.

MGM moves up - for now

Conversely, he said that "you know that our market is doing well when even MGM Mirage is rallying." He saw Las Vegas-based gaming giant's 5 7/8% notes due 2014 at 35.5 bid, up from 33.5 on Wednesday, on fairly active mid-afternoon volume of $13 million. He saw the company's 8½% notes due 2010 up ¼ point at 42.25, on $7 million traded, while its 6 5/8% notes due 2015 due 2015 firmed by ½ point to 35.5 bid, on $5 million of volume.

Another trader said that MGM's 6 7/8% notes due 2016 were up 2½ points at 34 bid, 37 offered.

Yet another said MGM "seems to be active," with its 13% secured notes due 2013 at 75 bid, 77 offered, which he called "a tad better."

He also called the 5 7/8s unchanged on the session at 35 bid, 37 offered, but up about 2 points over Wednesday and Thursday.

MGM's New York Stock Exchange-traded shares were meantime up 23 cents, or 8.04%, at $3.09, on volume of 6.2 million shares, about 20% above normal volume.

But the acid test of how well MGM's bonds and shares manage to hold up, even in the face of the company's well-publicized financing problems and the decline of gaming revenues at its casinos in Las Vegas and elsewhere could come as early as Friday, when a $220 million payment is due on MGM's grandiose City Center resort and casino development project on the Las Vegas Strip - and joint venture partner Dubai World, which earlier in the week sued MGM Mirage for breach of contract related to the project, citing its shaky financial condition, has signaled that it will not provide its half of the scheduled payment.

The Wall Street Journal, attributing its information to unidentified sources familiar with the situation, was reporting on its website on Thursday night that MGM had hired the well-known law firm of Weil, Gotshal & Manges LLP "to help prepare a possible Chapter 11 court filing for City Center as well as to explore other options," and said that such a filing could come as soon as this weekend, if ongoing talks between MGM, Dubai World and the project's lenders fail to produce a solution to its financing problems.

Converts catalyst for Amkor advance

But the biggest story of the day in the junk world was the powerful surge in Amkor Technology's bonds, propelled by the news that the company will sell $240 million of convertible notes, and on its updated financial guidance, seen a little more favorable than previous projections.

A trader saw Amkor's 7 1/8% notes due 2011 up 11 or 12 points at 92 bid, calling the trading "pretty active."

He saw the company's 9¼% notes due 2016 "very active" in a 70-74 range before going home at 74 bid, up 11 points on the session.

Amkor's 7¾% notes due 2013, he said "were not as active as the others," but were "up even further," reaching highs around 75-77 from Wednesday levels as low as the 50s and 60s. He noted that those bonds "began the week at 65, so they're up 11 points, but they're not as active as the others."

Amkor, another trader said, "had a big pop," pegging the 91/4s, its "high-volume" issue, at 74.

Earlier in the afternoon, yet another trader had calculated that some $17 million of the latter bonds had changed hands, making it one of the day's more active junk credits, at 73.75 bid, up from 67 on Wednesday.

He saw considerably less mid-afternoon volume on the other two issues - just $2 million on the 7 1/8s, which moved to 91.25 on a round-lot basis from 79.5 two days ago, and $3 million for the 73/4s, which firmed to 77 bid from 63.5 on Monday.

Amkor announced late Wednesday that it will raise $240 million by selling convertible notes due 2014. Most of the pending issue is already spoken for, with the company's chief executive officer, James J. Kim, and affiliates he controls, agreeing to buy $150 million of the notes. Kim and the affiliates could take down another $50 million of the issue, depending on market conditions.

Amkor also got a boost from slightly more favorable earnings guidance it released. While Amkor still expects a first quarter sales decline in the area of 30% to 34% from fourth-quarter levels, that's still an improvement of sorts from its earlier warning that sales for the quarter could plunge as much as 38%.

It also said that gross margin for the first quarter should come in between 8% and 12% of net sales, an improvement from its previous prediction that ranged from 5% to negative 2%.

GM better on buyout

A trader saw General Motors' benchmark 8 3/8% bonds due 2033 up 1½ points at 20 bid, 22 offered, while at another desk, a trader said that the benchmarks had firmed to the 20 bid, 21 offered level from 18 bid, 19 offered earlier.

"There were trades around 20-21," he said, "There was some trading - but it was not really, really active."

A market source at another desk saw the '33s up some 3 points on the day, trading above 21.

Among other GM issues, a trader saw the Detroit giant's 7.20% notes due 2011 move up nearly 2 points on the day to 27 bid, on volume of $7 million traded.

GM's NYSE-traded shares moved up 42 cents, or 14.05%, to $3.41, on volume of 22 million shares, nearly 1½ times the usual level.

GM got a jump-start from the news that 7,500 of its 62,000 hourly workers represented by the United Auto Workers union, or about 12% of that work force, had accepted the company's offer of lump-sum buyouts of as much as $45,000. While the number was less than GM had hoped for - it had offered the buyouts to some 22,000 of the workers, in hopes that at least half would go for them - it was still more than most industry analysts had expected, and helps the beleaguered carmaker to further cut its labor costs. Including the latest dose of buyouts, GM has already downsized its hourly work force by some 60,000 positions since 2006.

GM is fighting desperately to bring its labor costs more in line with its shrunken market share, as it attempts to restructure itself to ensure continued federal assistance.

On that latter front, president Obama said Thursday that in the coming days, his administration would outline the next phase of its multi-step plan to help the troubled U.S. auto industry. However, that help is predicated on the carmakers, particularly GM and equally embattled Chrysler LLC, pushing ahead with sweeping restructurings of their operations and finances.

Ford also gains

The president's statement was seen also helping the bonds and shares of GM domestic arch-rival Ford Motor Co. A trader saw its 7.45% bonds due 2031 unchanged at 28.5 bid, 29.5 offered, although another saw the Ford long bonds around 30 bid, which he called a ½ point gain.

And yet another trader saw the Ford '31s move up to 31 from 28.375 on Wednesday, although he pointed out that it was on only about $2 million of bonds traded.

Ford Credit's bonds meantime continued to post gains, with a trader seeing its 7% notes due 2013 up 3 points to 68.5 bid.

Another trader said that Ford Credit's 7 3/8% notes slated to come due on Oct. 28 were up "only 1/2" point, though at "a pretty rich" level of 90 bid, 92 offered, while another saw those bonds at 91 bid, or a 25% yield to maturity.

Elsewhere in the autosphere, a trader saw Hertz Corp.'s 8 7/8% notes due 2014 "trading right in there" at 59 bid, 60 offered, up 3 points "on decent volume."

Another trader said those Hertz bonds had been "all over the lot today," seeing them go as low as 57.5 bid and as high as 59, finally going out at 59 bid, 60 offered.

Homebuilders handsomely higher

A market source saw Hovnanian Enterprises Inc.'s 6 3/8% notes due 2014 up more than 3 points at 28.5 bid.

At another desk, the Red Bank, N.J.-based builder's 6% notes due 2010 were quoted doing even better, jumping to the 93 level in fairly active trading from prior levels in the mid-80s.

Hovnanian's NYSE shares jumped 24 cents, or 14.12%, to $1.94 on slightly above normal volume of 3.8 million.

The bonds got a boost as Deutsche Bank analyst Nishu Sood said that sectors like real estate investment trusts and financial companies have replaced the homebuilders as investors' favorite whipping boys in the current economic downturn, and shares of those companies have now fallen even further than the builders have.

Sood said he is cautiously hopeful that with the burst housing bubble now behind them, shares of such builders may be close to bottoming out and are poised for recovery in the second half, if the right conditions fall into place.

The building sector got an unexpected jolt of good news Wednesday as the Commerce Department reported that new-home sales rose 4.7% in February to a 337,000-unit annual pace - the fastest rise since last April, although admittedly, that rise came against January's 332,000-unit pace, the slowest since the department began keeping records of such things back in 1963.

Also in the building sector, other active bonds Thursday included Beazer Homes USA Inc.'s 8 5/8% notes due 2011, trading at 33.5 bid, and Toll Brothers Finance Corp.'s 5.95% notes due 2013, at 89 bid. However, another market source saw Beazer's 6½% notes due 2013 down nearly a point, falling to the 23 level.

Outback bonds bounce, post-tender

A trader said a bond "that's taken off" is OSI Restaurant Partners LLC, the Tampa, Fla.-based operator of casual dining restaurants like the Outback Steakhouse chain.

Back on Feb. 18, the company announced that it would tender for a portion of the $488.2 million of outstanding 10% notes due 2015, setting the price via a modified Dutch auction process. The company announced on Monday that it had accepted for purchase some $240 million of the bonds, spending approximately $73 million to buy the debt

He said the bonds were tendered at "30 and change," but are now up to 34 bid.

"I don't know if people are getting squeezed in a short or what - but they're 34 bid," he declared.

Another trader saw the bonds having moved even beyond that level to 35.5 bid, versus 34.375 previously, on $5 million traded.

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