CMS prices 10-years; new Rite Aids move up; positive market tone, but Quiksilver clobbered

By Paul Deckelman and Paul A. Harris

New York, June 9 - CMS Energy Corp. successfully priced a $300 million issue of 10-year notes on Tuesday, as the high yield primary continued to percolate along at a popping pace. The Jackson, Mich.-based power generating company's deal appeared too late in the session, however, for any kind of an aftermarket presence.

The forward calendar kept building as well, with a new-deal announcement from Miami-based internet technology provider Terremark Worldwide, Inc., which is bringing an eight-year offering of secured notes to market.

Price talk was meantime heard for Penn Virginia Corp.'s $250 million offering of seven-year notes, with that offering expected to price on Thursday morning.

Rite Aid Corp.'s new issue of seven-year notes, part of the big drugstore chain operator's comprehensive refinancing plan for its near-maturing debt, was seen having moved up solidly to around, or even above, par from the low-98 level at which the bonds priced on Monday. The company's outstanding bonds meantime mostly moved up.

Also among the more established issues, traders said the overall tone in Junkbondland was a little more positive than it had been over the past few sessions when the market seemed to be laboring to keep pace with the tremendous recent new-issue surge.

Ford Motor Co.'s bonds continued their inexorable move up, fueled by market optimism about the prospects for the sole member of Detroit's traditional "Big Three" not mired in bankruptcy.

On the downside, Quiksilver Inc.'s bonds - which had firmed on Monday, helped by the news of the Huntington Beach, Calif.-based surf and swimwear maker's having lined up new financing - gave all that gain back and then some on Tuesday, done in by investor angst over the company's cautious fiscal third-quarter outlook, as well as analysts' concern that the high interest charges the company is going to have to pay for its new funding will prove to be a major drag on its finances.

Junk caught a "sneaky bid" at the end of the Tuesday session, according to a trader at a high-yield mutual fund, who marked it up ½ point on the day.

"I think it has been pretty quiet," the investor remarked.

"But some people are saying it has been 'quietly busy.'"

Cash continues to pour into the asset class, according to this investor, who is seeing $3 million to $5 million per day rolling in and needing to be put to work in high yield.

CMS prices $300 million

Only one new issue priced on Tuesday.

CMS Energy priced a $300 million issue of non-callable 8¾% 10-year senior unsecured notes (Ba1/BB+/BB+) at 98.374 to yield 9% on Tuesday, according to an informed source.

The deal priced on top of the 9% area price talk.

Although it was transacted off the high-yield desk, between one-third and one-fourth of the accounts that participated were high-grade accounts, the source said.

Barclays Capital Inc. and Deutsche Bank Securities Inc. were active bookrunners.

Approximately $150 million of the deal was done before it ever got out of the gate, according to a buy-side source, who added that there was about $3.5 billion of orders chasing the remaining $150 million.

That $3.5 billion book size was just about right, a source close to the deal confirmed, but added that it was just a little bit shy of that mark.

The concession CMS paid to its existing paper was 62.5 basis points, the source added.

Penn Virginia sets talk

Penn Virginia set price talk for its $250 million offering of seven-year senior notes (BB-) at 11% to 11¼% on Tuesday.

The order books close Wednesday at 4 p.m. ET except for West Coast meetings.

The deal is expected to price on Thursday morning.

J.P. Morgan Securities Inc. is the lead-left bookrunner. Banc of America Securities LLC, Wachovia Securities LLC, Barclays Capital Inc. are joint bookrunners.

Proceeds will be used for general corporate purposes, which may include, among other things, additions to working capital, repayment or refinancing of existing debt or other corporate obligations, financing of capital expenditures and acquisitions, and investment in existing and future projects.

Interpublic for Thursday

Interpublic Group of Cos., Inc. will price its $500 million offering of eight-year senior unsecured notes on Wednesday, according to a high-yield mutual fund manager.

No official price talk has been set, however unofficial guidance is the 10½% area, the manager added.

"I think they're getting a little bit of pushback on covenants, but I suspect it's going to be just fine," the investor remarked.

Morgan Stanley & Co. Inc., Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and UBS Investment Bank are joint bookrunners for the deal.

Terremark launches $400 million

Terremark Worldwide plans to price a $400 million issue of eight-year senior secured first-lien notes (B2/B-) next week, following a six-day roadshow.

Credit Suisse, Jefferies & Co. and RBC Capital Markets are the joint bookrunners for the debt refinancing and general corporate purposes from the Miami-based information technology company.

New CMS issue unseen, Rite Aid rises

The new CMS deal priced too late in the session for any meaningful secondary activity.

Among the deals which priced on Monday, a trader quoted Rite Aid's new 9¾% notes due 2016 having risen to 100¼ bid, 100½ offered from their pricing level of 98.196.

A second trader saw the new Rite Aid bonds at par bid, 100½ offered.

Another quoted them at 99 7/8 bid, 100 3/8 offered.

A trader said the deal "traded straight up" once it had been freed, noting that it was made more attractive by its senior secured status, making it pari passu with the company's new bank credit deal. With a yield above 10%, he continued, it was "very well received. People were buyers on the break, up 2, 3 points."

The Camp Hill, Pa.-based operator of the third-largest U.S. retail pharmacy chain priced its $410 million issue - upsized slightly from the originally envisioned $400 million - at that level to yield 10 1/8%. The pricing came as part of the company's previously announced comprehensive plan to refinance its September 2010 debt maturities. Besides the bonds, the refinancing includes a new $525 million senior secured term loan due June 2015 and a new $1 billion senior secured revolving credit facility due in September 2012, for which Rite Aid said it had obtained $900 million in commitments.

Rite Aid's established bonds were meantime also seen higher, with one of the traders pegging its 10 3/8% notes due 2016 a point better at 90 bid, 91 offered, although he said he saw "not that much" trading going on there.

A second trader saw the 10 3/8s rise to 91¾ bid from 89¾ on Monday, on volume of $6 million, while its 9 3/8% notes due 2015 were unchanged at 67 bid, on $9 million of volume.

Rite Aid's most active issue, he said, was the 7½% notes due 2017, which pushed up to 79 5/8 bid from 79 on Monday, on volume of $20 million.

Clearwater floats along

Monday's other new issue, from Spokane, Wash.-based paper producer Clearwater Paper was seen continuing to trade above its issue price, though a little off the peak level at par bid, 101 offered at which those bonds had been seen on the break on Monday.

A trader saw the $150 million of new 10 5/8% notes due 2016 "up a little bit too," quoting the bonds as trading in a 99-par context, up from the 98.792 level at which those bonds had priced to yield 10 7/8%.

The bonds, he said, "weren't off to the races, by any means, but they were better than issue."

Holly still higher, but Western wallows

The trader also saw Holly Corp.'s new 9 7/8% notes due 2017 still "up a point or two" from the level at which the Dallas-based petroleum refiner had priced its $200 million deal on Friday.

Those bonds priced at 94.105, to yield 11%, and had almost immediately firmed smartly to a 96-97 context.

He also saw Western Refining Inc.'s fixed-rate notes continuing to struggle; the El Paso, Texas-based petroleum refiner - a Holly competitor - had priced $325 million 11¼% senior secured notes due 2017 on Friday at 91.445 to yield 13%. On Tuesday, the trader said, the bonds remained below their issue price, at 90½ bid, 91½ offered. "I think there are new-issue sellers on that one," he said.

At another desk, a market source estimated Holly's bonds at 96.5 bid, 97 offered, while also seeing Western Refining's no better than 90½ bid, 91½ offered. The other half of Western's Friday bond deal, its $275 million of floating-rate senior secured notes due 2014, were meantime trading at 91½ bid, 92 offered Tuesday, versus the 92 level at which they had priced to yield 375 basis points over the three-month Libor rate

United Rental tries to rebound

Another recent deal that has been an underperformer after a promising start, the first trader said, was United Rentals North America Inc.'s $500 million of 10 7/8% notes due 2016. The Greenwich, Conn.-based industrial equipment company priced that offering - upsized from the originally planned $300 million - last Tuesday at 97.04 to yield 11½%.

"It's interesting," he said. "You saw that deal come, and it traded up immediately by a couple of points, then came right back down, and now they're trying to grind that higher." He quoted the bonds at 97½ bid, 98 offered, although another participant quoted them at 96½ bid, 97½ offered.

Market indicators seen firmer

Apart from the new deals, a trader saw the CDX Series 12 High Yield index - which eased by 3/8 point on Monday - gaining 5/8 point Tuesday to end at 84¼ bid, 84¾ offered.

The KDP High Yield Daily Index, which had risen by 17 basis points on Monday, gained another 6 bps on Tuesday to close at 62.96, while its yield tightened by 3 bps to 10.38%.

In the broader market, advancing issues - which had led decliners for an amazing 15th consecutive session on Monday - continued to hold the high ground on Tuesday, leading by a better than six-to-five edge.

Overall market activity, measured by dollar-volume totals, jumped 55% versus Monday's levels.

There "definitely was more of an activity level today, more of a buzz," a trader concurred.

He said that the high yield market generally "still has a very positive tone. I think that other than credit-specific news" about one company or another that might send that issue's bonds lower, "I really don't see any paper weaker, or heavy, or more supply than demand.

"It still seems to be a bull market that we are in, especially with all of the [mutual fund] inflows," which act as a reasonably accurate indicator of overall junk market liquidity trends. In the week ended last Wednesday, AMG Data Services reported a $917.8 million inflow to weekly-reporting junk mutual funds - and that massive dollop of cash was only the third-biggest cash infusion of the year, behind two others each totaling very nearly $1 billion.

Another trader said the junk market "seemed like it was a little bit firmer than it had been over the last couple of days."

He said that "a little bit softer tone" had been seen on Monday when equities opened lower and staying in negative territory for most of the session before their late rally.

Junk, he said, has lately felt "a little bit tired. A lot of new issues have come and guys are on the fence as to what they're looking to do with them - buy, sell or hold." A lot of the new bonds "have raced to significantly higher levels" than where they were issued, "so adding becomes a little bit problematic, particularly at significantly higher levels."

The current situation, he opined "is kind of strange - on the one hand, you do have very strong technicals, with lots of cash coming in last week," with the AMG inflow, "and a lot of guys already sitting on a lot of cash."

He said that "the flip side is that there's nervousness about the market overall - people are talking about the equity market being fully priced at this point, and they're looking for a pullback there. I think if that occurs, clearly, our market will follow suit."

In Tuesday's dealings, he said, "you did have a move up in Treasuries today, and corporate spreads are a little bit better, and our stuff was trying to do better, but it's tough. There are sellers around of certain names, though there is a deep bid just below the market here, with the strong cash technical that overlays everything."

"Flow-wise," he continued "there's been an awful lot of new-issue, obviously, but guys are also looking to add to certain secondary names - it's not every name, and not everything is a buy, but for core names, solid BB type credits, there are buyers."

He concluded that "there's a lot of hunting and pecking, trying to get stuff done - but there's enough activity to keep you busy, that's for sure."

Quiksilver gets quashed

Among specific issues, a trader saw Quiksilver's 6 7/8% notes due 2015 fall to 64 bid, 65 offered on Tuesday, after having risen by several points on Monday to as high as a 69-70 context.

Early on, he said, there had been some trades in a 68-70 range, "but then they proceeded to move down during the day, ending down about 5 points at 64 and change."

People, he said, "did not like what the company reported in its filings" on Monday.

Quiksilver "got whacked," another trader said, seeing the bonds drop to 63 bid, 65 offered, although he estimated the carnage at only 3 or 4 points on the session.

Another trader - noting the fact that the Quiksilver bonds had risen Monday on its financing news - opined "easy come, easy go," in seeing the bonds falling to 64½ bid from a round-lot close Monday of 70, on $13 million of volume, adding: "Ouch!"

The company's New York Stock Exchange-traded shares meantime plunged 71 cents, or 19.61%, to end at $2.91. Volume of 8.5 million shares was almost six times the norm.

The company's bonds had risen on Monday after it announced a restructuring plan that included a $150 million five-year term loan arranged with Rhone, an international private equity firm, as well as a $200 million credit facility from Bank of America and General Electric Capital Corp.

Analysts viewed the completion of those financing transactions as a positive - but some fretted that the new money comes at a steep cost. For instance, analyst Jim Duffy of Thomas Weisel Partners LLC said in a research note that while lining up the financing is a good thing, by allaying near-term liquidity concerns, the cost of that financing - a 15% interest rate on the Rhone loan, plus warrants for 20% of Quiksilver's equity -- is "daunting." He calculated that interest payment on the Rhone loan, the credit facility and other debt obligations will cost Quiksilver as much as $110 million annually.

Investors were also put off by the company's guidance for the fiscal third quarter, which it released on Tuesday even as it reported better second-quarter numbers - a swing to a small profit versus year-ago red ink. For the current fiscal third quarter, however, Quiksilver's chief executive officer, Robert B. McKnight, warned in a statement that he has not seen any improvement in overall business trends.

"With customers proceeding cautiously in this uncertain market, orders for the second half are building more slowly than in past periods and we continue to look for opportunities to streamline the business and improve profitability," McKnight cautioned.

Quiksilver expects third-quarter revenues to be no higher than the mid-teen percentage range.

Ford continues to fly

A trader called Ford Motor Co.'s paper "well bid-for" in "active" trade, seeing its 7.45% bonds due 2031 up 1 to 1½ points at 68 bid, 69 offered. He also saw Ford's 7 3/8% notes slated to come due in October at 98 bid, 99 offered, and "well bid-for," adding that the carmaker's "longer paper is up more than the shorter."

A second trader, while locating the 7.45s at 68 bid, 70 offered, called them unchanged on the day.

Another trader called the 7.45s up 2 more points to 70 bid, on $16 million traded. He saw the 7 3/8s up ½ point at 981/2, on $14 million.

The Dearborn, Mich.-based Number-Two domestic carmaker's bonds, yet another trader said, "continue to strengthen." He said the 7 3/8s "continue to get higher as they come closer and closer to maturity," seeing them up ½ point on the day at 98 bid, 99 offered.

Ford's long bonds have steadily pushed to their current lofty levels from quotes under 30 seen at the beginning of April, as the carmaker successfully completed a debt exchange offer that greatly reduced its obligations, and continued to demonstrate that it did not need federal bailout money to survive, unlike embattled rivals General Motors Corp. and Chrysler LLC, both of whom are currently in bankruptcy.

A trader meanwhile said that GM's 8 3/8% benchmark notes due 2033 were "up a little," around 11 bid, after having been "bouncing around for days" in a 10-11 range.

Another trader said they were ½ point better at 11 bid, 12 offered.

Among the automotive financing credits, a trader saw GMAC LLC's 8% bonds due 2031 at 74, up about a point, but he said that there was only "some trading, not a lot," reiterating that the bonds were being quoted around, but on "not many trades."

Another trader said the Detroit-based automotive and residential lender was "showing a little bit of strength on the day, with its 6 7/8% notes due 2012 at 84½ bid, 86 offered, up a point, while its 6 7/8% notes due 2011 were ½ point better at 87 bid, 89 offered.

He called its 8% bonds due 2031 unchanged on the day at 72½ bid, 73½ offered, adding "still, it's up what, 20 points from a month and a half ago? It's up significantly."

Builders looking better

A trader saw some of the homebuilders "showing some strength," among them Hovnanian Enterprises Inc.'s 8 5/8% notes due 2017 at 54 bid, 56 offered, up ½ point on the day.

He theorized that the Red Bank, N.J.-based builder and some of its sector peers "in general have been looking a little stronger because they've been getting cash back from taxes over the last couple of years, some refunds here and there.

"It's not that the housing market is great - it's just that it's not quite so abysmal as it was before. A lot of guys have unloaded a lot of debt, or a lot of property. They're trying to balance things out. Some things are even getting to be cash flow-positive, or at least cash flow-neutral, in a lot of cases, even though it's not very much."

Los Angeles-based KB Home's 5 7/8% notes due 2015 gained a point to 87 bid.

Another notable sector names, the trader said, was William Lyon Homes Inc., which on Monday announced the closing of its previously pending tender offer for several series of outstanding bonds.

"They didn't get as many [bonds] tendered as they were hoping for," he said - about $53 million principal amount out of $465 million outstanding for the Newport Beach, Calif.-based builder's three series of notes - "but they have about $115 million in liquidity -- enough cash right now to make all interest payments on all bonds for at least the next two and a half years."

He saw the company's 10¾% notes due 2013 up a point at 32 bid, 36 offered.

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