Tube City prices tight to talk, Open Solutions comes also; tech names off; funds see $181 million inflow

By Paul Deckelman, Paul A. Harris and Ronda Fears

New York, Jan. 18 - Tube City IMS Corp. was heard by high yield primary market sources to have priced its downsized offering of eight-year notes on Thursday - and to have done so at a yield 25 basis points inside of previously circulated price talk.

The new-deal market also saw a successful pricing of Open Solutions Inc.'s eight-year offering. Both transactions deals were well received when they crossed over into the aftermarket, traders said.

Besides those deals, the primaryside also saw the emergence of price talk on two other upcoming issues, for Pilgrim's Pride Corp. and for Stallion Oilfield Services, with pricing for both seen possible on Friday.

In the secondary arena, besides the success of the two new deals and continued firmness in Aramark Corp.'s new bonds, which priced on Wednesday, traders saw a generally quiet, though well-bid-for market. There were no real standout performers, either to the upside or the downside, with most issues trading within about a half-point range.

Some of the tech names, such as Amkor Technology Inc. and Freescale Semiconductor, were seen easier in line with a fall in high-tech stocks after industry leader Intel Corp. released disappointing profitability guidance.

On the upside, Tribune Corp.'s bonds were quoted firmer, although in relatively light trading, as a bidding war for the Chicago-based media giant seemed to be shaping up.

Cablevision Systems Corp. bonds also remained in demand in the wake of the rejection by its board of what is perceived by investors to be an inadequate buyout offer from the Dolan family, which had wanted to take the Bethpage, N.Y.-based cable system operator private.

A scorching hot high yield market advanced 1/8 point on the day, according to one senior syndicate official who added that junk is up 3/8 to ½ point on the week.

Demand for bonds betrayed itself Thursday in the two deals that were completed in the primary market.

One sell-sider, who said that the Lehman Brothers Global High-Yield Index aggregate yield-to-worst spread was around 255 basis points on Thursday morning - already 15 basis points narrower on the year - said that spreads are presently closing in on two-year tights.

Funds continue on the upside

And as activity wound down for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $180.9 million more came into weekly-reporting funds than left them.

That followed the $50 million net inflow seen in the previous week, ended Wednesday Jan. 10. Year-to-date inflows total $463.2 million, up from the previous week's $282.3 million total, according to a Prospect News analysis of the AMG figures.

A sell-side source told Prospect News late Thursday that given high yield's approximately 11% return in 2006, retail interest in the asset class has no doubt been rekindled.

The source chalked the young new year's positive numbers up to "some latecomers to the game."

Meanwhile the high yield mutual funds that report to AMG on a monthly basis have reported $708.3 million of inflows thus far in 2007.

Hence year-to-date aggregate flows, which tally both the weekly and monthly reporters, are $1.178 billion to Wednesday.

That positive note on which the new year has begun liquidity-wise, with inflows now seen in each of the three weeks since the year's beginning, stands in marked contrast to the way the old year ended, when outflows were recorded over the last three weeks of 2006 among the weekly reporting funds. During that three-week stretch, a net total of $148.1 million more left the funds than came into them, according to the Prospect News analysis.

That final hemorrhage was a fitting way to end a year which mostly saw capital leaking out of those funds. For 2006, through the period ended on Dec. 27, the final reporting week of the year, the junk funds saw a net outflow of $2.998 billion, with outflows recorded in 34 out of the year's 52 weeks, and inflows seen in just 18 of them, according to the Prospect News analysis.

But that overall negative figure is somewhat deceptive; most of the 2006 outflows took place in the first half of the year, with the year's second half actually seeing a net inflow of some $638 million, with that positive trend apparently now carrying over into the new year as well.

The figures exclude distributions and count only those funds that report on a weekly, rather than on a monthly, basis.

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.

Open Solutions tight to talk

Glastonbury, Conn.-based software-maker for banks, thrifts, and credit unions Open Solutions priced Thursday's biggest deal - a $325 million issue of eight-year senior subordinated notes (Caa1/CCC+) - at par to yield 9¾%, on the tight end of the 9 7/8% area price talk.

Wachovia Securities, JP Morgan and Merrill Lynch & Co. led the LBO transaction.

An informed source said that the order book for Open Solutions came together really well and added that the new 9¾% notes due 2015 were bid up in the secondary market.

Tube City 25 bps inside talk

Also pricing 9¾% senior subordinated notes due 2015 on Thursday was Glassport, Pa., provider of outsourced services to steel mills, Tube City.

A downsized $225 million issue of 9¾% notes (B3/B-) priced at par, coming 25 basis points below the 10% to 10¼% price talk.

The company shifted $25 million to its term loan, increasing the size of the loan to $165 million from $140 million.

Credits Suisse was the bookrunner for the acquisition financing.

A source close to the deal, noting that the yield to maturity came 25 basis points inside of the talk, said that Tube City had gone very, very well.

Sell side sources measuring both transactions at the end of Thursday's session said that both deals must have been multiple times oversubscribed.

One source who had watched the Open Solutions deal noted the credit ratings on the notes, Caa1 from Moody's and CCC+ from S&P, and remarked: "You don't get a six-C deal with high leverage done at 9¾% if the market is not incredibly hot."

The Friday deals

Two U.S.-based companies plan to price deals on Friday - although, given the present temperature of the market and the buy-side's apparently intense thirst for paper, drive-by deals are a distinct possibility in the near term, sources say.

On Thursday Pilgrim's Pride Corp. circulated price talk on its $450 million two-part offering of high yield notes.

The Pittsburg, Tex., poultry producer talked its $250 million tranche of eight-year senior notes (B1/B) at a yield in the 7 5/8% area.

Meanwhile Pilgrim's Pride talked its $200 million tranche of 10-year senior subordinated notes (B2/B) at the 8 3/8% area.

Lehman Brothers and Credit Suisse are joint bookrunners for the merger-financing transaction.

One informed source said that Pilgrim's Pride is significantly oversubscribed.

Meanwhile Stallion Oilfield Services talked its $300 million offering of eight-year senior unsecured notes at 9½% to 9¾%.

UBS Investment Bank is leading the debt refinancing and general corporate purposes deal, which, like Pilgrim's Pride, is expected to price before the Friday close.

Tube City, Open Solutions trade up

When the new Tube City 9¾% senior subordinated notes due 2015 were freed for secondary trading, one trader saw them get as good as 102.5 bid, 103 offered, up from their par issue price.

"The new deals did pretty well," said another trader who saw the bonds at 102.5 bid, 102.75 offered, "with better buyers" who latched onto the bonds right out of the gate.

He saw the Open Solutions 9¾% subs, also due 2015, at 101.75 bid, 102.75 offered on the break, finally settling in around 102, again well up from their par issue price.

"Both deals traded well, and there seemed to be buyers on the break."

Meanwhile, Aramark's 8½% senior notes were seen at 102.5 bid, 103, and its floating-rate 2015 seniors were at 102.5, both about half a point better than the 102 levels to which they had risen in initial secondary trading, after both tranches of the Philadelphia-based food services and professional hospitality services company's new deal had priced at par on Wednesday.

Market has been firm

Beyond those new deal names now trading in the secondary, several traders described things as pretty quiet.

"It was reasonably well bid," one said. "It sort of opened a little heavy, but there were buyers right out of the chute.

"We saw a reasonably-sized bid list over the last couple of days, all secondary-type paper that was scooped up rather quickly and easily. We had a lot of participation from a variety of accounts, in a variety of names, that all traded up."

He saw packaging and specialty chemical makers dependent on petroleum feedstocks firmer in the wake of the continued slide in petroleum prices, but noticed no real trading in specific energy names like Chesapeake Energy Corp. or Forest Oil Corp., even with the crude price downturn.

Oil down again - but no help to airlines

In Thursday's dealings, light sweet crude for February delivery briefly dipped below the psychologically potent $50 per barrel mark on the New York Mercantile Exchange at one point during the session for the first time since May 2005, easing to $49.90 before moving back up above that benchmark to end at $50.48, still down $1.76. Crude prices fell on a larger-than-expected jump in crude oil stocks and gasoline inventories.

The crude price downturn, however, had no positive impact on the energy-intensive airline industry sector, whose bonds had recently been rising as crude was falling on investor hopes that prices for jet fuel, a key petroleum distillate, would also moderate.

In fact, a trader saw Delta Air Lines Inc.'s bonds actually down 2 points on the session, with the bankrupt Atlanta-based Number-Three U.S. carrier parent's benchmark 8.30% notes due 2029 at 68 bid, 70 offered, and Northwest Airlines Corp.'s bonds unchanged, with the bankrupt Eagan, Minn.-based Number-Five U.S. carrier parent's 9 7/8% notes due 2009 at 107 bid, 109 offered, the 10% notes due 2009 at 106 bid, 108 offered, and its 7 7/8% notes due 2008 at 103 bid, 105 offered.

Tech takes a tumble

A sell off in semiconductor and computer industry stocks Thursday after microchip king Intel Corp. said that price cuts will cause this year's gross margin, or profit after production costs, to narrow to about 50% of sales from 51.5% last year, and Apple Computer forecast sales of $4.9 billion and earnings of 56 cents a share for its fiscal second quarter, below Wall Street expectations, had ripple effects in the junk bond market, with high-tech names there also seen lower.

Amkor Technology's 7¾% notes due 2013 were down about ¼ to ½ point at 95, while Freescale Semiconductor's 8 7/8% notes due 2014 were off about the same amount, to finish at par bid.

Tribune gains on takeover developments

Tribune Corp.'s bonds were seen better, although trading was relatively light, as the debt was pushed higher by the latest developments in the takeover battle for the company, which publishes such high profile newspapers as The Chicago Tribune and the Los Angeles Times, and is a large broadcaster as well.

Tribune's 4 7/8% notes due 2010 moved up to about 97 from Wednesday's closing levels around 95, although its 5¼% notes due 2015 were little changed at around 87.375.

A trader at another shop, though, said that the five-year credit default swaps contracts had widened out sharply to 163-173 bps, from 131-138 bps on Wednesday.

The company's largest shareholder, the Chandler Family, has proposed a $7.6 billion buyout transaction, prompting a rival bid from a pair of California-based billionaires, supermarket tycoon Ron Burkle and magnate and philanthropist Eli Broad.

Cablevision continues gain

A family-based attempt to take over another media company has come to an apparent end, and that heartened Cablevision investors for a second straight day.

The cable system's CSC Holdings 7 7/8% notes due 2018 were seen a point better at 102.63 bid, on top of gains notched in other issues of the company's debt and its shares on Wednesday after a special committee of the company's board rejected a buyout bid from the controlling Dolan Family.

Analysts had called that $30 per share offer for the New York metropolitan area cable powerhouse clearly inadequate.

Waiting for Health Management

A trader said that Heath Management Associates Inc.'s 6 1/8% notes remained around the easier levels, "down a couple of points," to which they had fallen on Wednesday, after the Naples, Fla.-based hospital operator announced plans to borrow $3.25 billion on the bank debt market and return $2.4 billion of that to its stockholders in the form of a $10 per share special dividend, causing Standard & Poor's to downgrade its ratings to junk status.

The bonds - which fell to around 94 on Wednesday from pre-news levels at 96, were quoted a tad firmer on Thursday at 94.5, but remained well below where they had begun the week.

"I didn't really see much trading in them," he said. Even with its fall to junk status - Moody's Investors Service meantime does not rate the bonds - "they were a BBB, so it hasn't really broken into our market yet."

Elsewhere in that hospital operator segment, he saw HCA Corp. "probably a little softer on the day, down maybe 1/8 or 1/4. Tenet [Healthcare Corp.] was probably up 1/8 or 1/4."

At another desk, a market source saw Dallas-based Tenet's 6 3/8% notes due 2011 down ½ point, around 93.

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