AGCO prices; NCO Group, Landry's slate; MannKind out; Sears gains in firm market; funds lose

By Paul Deckelman and Paul A. Harris

New York, Nov. 28 - The high-yield market returned to full operation on Monday after the holiday-abbreviated previous week, with primaryside action on several fronts.

There was one pricing seen - a quickly shopped, split-rated 10-year offering from AGCO Corp., which priced late in the day.

The forward calendar built a little, as business services firm NCO Group Inc. was heard to be in the market with a $300 million bond deal, while restaurant and gaming operator Landry's Acquisition Co. unveiled plans for a $90 million add-on to its existing 2015 notes.

Both deals are meant to partially fund acquisitions by those companies and there were no immediate details on the timing of the respective transactions.

But while those deals joined the calendar, biopharmaceutical company MannKind Corp. was heard to have abandoned its planned $370 million bond deal.

In the secondary realm, traders saw a generally firm market, with more issues generically a half-point to 1 full point higher and statistical performance indicators back on the upside after struggling last week.

Sears Holdings Corp.'s bonds were better, as were Rite Aid Corp.'s bonds, perhaps due to a lift on investor bullishness following reports of robust Thanksgiving weekend retail sales. Some traders were not convinced that was a factor.

Springleaf Financial Services' bonds were seen up by a point or more, but with no specific news out about the consumer lender.

And owing to the holiday-related schedule disruptions at the end of last week, high-yield mutual fund-flow numbers made the rounds on Monday. Normally, those numbers are released on Thursday.

The liquidity barometer showed massive cash loss, the first such hemorrhage seen in nearly two months.

Negative flow for primary

No new issues priced as players resumed their places on Monday following the extended Thanksgiving weekend.

The most recent news on cash flows to and from high-yield funds came in negative.

The high-yield mutual funds saw $2.17 billion of outflows for the week to Nov. 23, according to a weekly report from Lipper-AMG, a market source said.

It was the first negative flow in seven weeks, terminating a streak that saw a whopping total of $10.3 billion of inflows into funds that report on a weekly basis - a run that included the history-making $4.25 billion inflow for the week ended Oct. 26.

The outflow reported for the most recent week also is the fourth largest outflow on record, the market source added.

Also during the week to Nov. 23, bank loan funds saw $197 million of outflows, according to the Lipper-AMG report, the market source said.

Landry's brings add-on

Monday's primary market session generated a scant amount of news.

Landry's Acquisition Co., a wholly owned subsidiary of Landry's Inc., plans to bring to market a $90 million add-on to its 11 5/8% senior secured notes due Dec. 1, 2015 via sole manager Jefferies.

The deal represents the third time that the company has tapped the issue.

Timing remains to be determined. A market source, however, expects the bond sale to take place by the end of this week.

Meanwhile, the company will hold a lender call on Tuesday to launch a $50 million add-on term loan.

The proceeds will be used to help fund the acquisition of McCormick & Schmick's Seafood Restaurants Inc. for $8.75 per share in cash, for a total equity value of $131.6 million.

Landry's priced the original $406.5 million issue at 98.427 to yield 12% in November 2009. Subsequently, the company tapped the issue twice, pricing a $47 million add-on at 106.0 to yield 10.186% in April 2010 and an $87 million add-on at 104.25 to yield 10.498% in December 2010.

AGCO priced a split-rated $300 million issue of 10-year senior notes (Ba1/BBB-) at par to yield 5 7/8%.

J.P. Morgan, Mitsubishi, Rabobank and SunTrust were the joint bookrunners.

The acquisition financing deal was transacted on the investment-grade desk, market sources said, and generated little interest among high-yield investors.

Seeking persuasive evidence

In addition to AGCO, the high-grade market saw five deals price on Monday, while the high-yield market was shut out.

"You can do that with high-grade deals," a high-yield syndicate banker remarked.

"You're ready to go. You get a big rally in equities. And you pull the trigger," the banker added, making reference to big rallies in the big stock indexes in Europe and the United States. The Nasdaq, for example, rallied 3.5% on the session.

"With high yield, you need a few more days in the green, especially given the volatility that we have seen in the past few months," the syndicate source added.

However, based on Monday telephone conversations with sources on the buyside and sellside, the primary market is expected to be at least somewhat active as the week progresses.

MannKind news no shock

A trader yawned at the news that MannKind will not be doing a deal.

"I don't think that anybody is surprised by that fact," the trader declared.

He noted that the Valencia, Calif.-based biopharmaceutical company's 3.75% convertible notes due 2013 have recently been trading in the lower 50s - an indicator of market confidence or lack thereof, he said.

Word that the company would bring a senior discount note bond deal began circulating in the market two months ago, and MannKind had hung around on the forward calendar ever since.

He said that if the market had been "super frothy, it had an outside chance."

But it couldn't get done in the currently unsettled environment, even given several straight weeks of strong new-deal issuance before last week, the trader said.

"So I don't think anybody is surprised," he reiterated, "that the deal didn't get done."

Superior regains lost ground

A trader said that the new 7 1/8% notes due 2021 of Superior Energy Services, Inc. were trading on Monday at 101 bid, 101½ offered.

That was up from around the 100 5/8 bid, 101 3/8 offered neighborhood where the bonds were seen on Wednesday, the last official full trading session of last week. That was down from the peak levels around and above 101 at which those bonds traded after pricing at par last Monday.

Another trader, who also saw the New Orleans-based oilfield services company's upsized and quickly shopped $800 million issue around the 101 level on Monday, suggested that the new deal was "just movin' with the market," which had a general upside bias.

Market seen firmer

Away from the new deals, a trader said that Monday's session was "just one of those kind of days where the market opens up big and there's really not a lot for sale, and people are just raising their bids against no real kind of offerings."

A second trader said that the market was fairly quiet, although leaning toward the upside. He estimated that things were about a half-point better pretty much across the board.

But at another desk, a trader declared that Junkbondland "did pretty well today," noting the gains in the statistical performance indexes, which finally turned upwards after seven straight sessions on the downside.

For instance, he saw the CDX North American series 17 High Yield index jump to 89 bid, 89¼ offered on Monday, up by 1¼ points from where he had seen the index finish on Wednesday and close out the week during Friday's lightly traded half-day session.

The KDP High Yield Daily index rose by 16 basis points Monday to 70.78, after having fallen by 22 bps on Friday.

Its yield declined by 4 bps on Monday, to 7.99%, after having risen by 6 bps on Friday.

And the widely followed Merrill Lynch High Yield Master II Index gained 0.308% on Monday, versus Friday's 0.092% loss.

Retailers on a roll

Among specific issues, a trader said that Rite Aid paper was "something that I saw trade a lot of," perhaps in reaction to a rise in the Camp Hill, Pa.-based drugstore chain operator's stock, and those of other retailers following reports of strong Thanksgiving weekend retail sales by leading U.S. retailers.

Rite Aid's New York Stock Exchange-traded shares rose by 8 cents, or 7.27%, on Monday, to end at $1.18. Volume of 9.3 million shares was about normal.

The trader said that "a good amount of size" of the 9½% notes due 2017 traded, quoting the bonds at 84½ to 85, which he said was about where the bonds were last week, or maybe up by a half-point.

A second trader saw those bonds going home at 85½ bid, which he said was up by a half-point on the day. But he said that "at one point, earlier, they got as good as 87, but then they came back in. So they had been dramatically higher earlier."

A market source at another desk saw about $10 million of the bonds trade, making it one of the more active junk issues on the day.

He pegged them up a half-point overall on the session and a full-point in just round-lot trading at 85 bid.

Rite Aid's 10 3/8% notes due 2016 were little-changed around the 106 level, although they had been as low as 104½ earlier in the session with more than $9 million changing hands.

Rite Aid's 8 5/8% notes due 2015 were up a half-point, at just over 91 bid.

The first trader observed that he had seen "a lot of higher-coupon stuff trading."

Sears soars

A trader said that Sears Holdings' 6 5/8% notes due 2018 gained 1¼ point on the day to close at 77¾ bid, on "pretty good volume."

A market source at another desk estimated that more than $10 million of the Hoffman Estates, Ill.-based department store operator's bonds had changed hands.

However, while several traders cited the carryover from the retailing industry's strong "Black Friday" - the kick-off to the all-important year-end holiday sales season - another trader was not convinced.

He said that from where he sat, "it doesn't appear there was any great surge" in the sector's bonds.

"Generically, they rallied with the market, up by maybe a half-point to a point, but they didn't outperform [the market] despite Black Friday."

As if in agreement, another market source quoted the Sears bonds at 78 bid, but said that was actually down a point.

Financials are firm

Elsewhere, a trader said that Springleaf Financial Services - the company formerly known as American General Finance Corp. back when it was a part of the AIG empire - was "another big trader."

He saw the Evansville, Ind.-based consumer lender's 6.90% notes due 2017 quoted up about 1 point, at 64 bid, 65 offered, on "a lot of volume."

However, a second trader located the bonds at 67 bid, 68 offered, which he called up 2 or 3 points on the day, seeing the rise as part of a general trend of better high-yield financials that also included Ally Financial Inc.

Over $20 million of the Springleaf bonds were trading, although a source saw them backing off the highs around 66-67 to finish at 64½ bid, which was up about 2 points on the day overall. That was actually off a point from the most recent prior round-lot levels about a week ago.

A trader said that Detroit-based automotive and residential lender and online bank Ally Financial's 8% notes due 2031 went home "up a couple of points," at 94 bid, 95 offered.

And the former GMAC LLC's Minneapolis-based mortgage lender, Residential Capital LLC's 9 5/8% notes due 2015 were trading in a 60- to 62-range all day, finishing at 61 bid going out, which he called "unchanged to up a point, depending on which side of the market you're quoting. So, in effect, they really didn't do much."

He saw "just a couple of trades" in the bonds.

Also in the financial world, a trader saw MF Global Holdings' 6¼% notes due 2016 at 34 bid, 35 offered, which he said was about unchanged from the levels seen last week, though well up from last week's lows around 28-30½ bid.

The bankrupt New York financial firm's bonds had moved up on Wednesday, the last real trading session last week. The bounce was helped by news that CME Group, which runs the Chicago futures exchange where MF did much of its trading, more than doubled the size of a fund to help expedite the return of client cash, raising it to $550 million from an original $250 million.

CME also said estimates that as much as $1.2 billion of client money might have gone missing - amid allegations the company may have improperly co-mingled the funds with its own - are likely too high.

The trader opined that with no firm answers yet on where that missing money might be, "it sounds like people are going to go to jail."

Canadian junk active

In Canada's high-yield bond market, investors in Cara Operations Ltd.'s debt subscription receipts due Dec. 1, 2015 likely are to get their money back, an informed bond source said Monday.

Fairfax Financial Holdings Ltd. last week submitted a C$71 million rival offer for takeover target Prime Restaurants Inc.

Cara offered to buy Prime Restaurants in a deal valued at C$59 million and sold C$76 million in 9 1/8% debt subscription receipts due Dec. 1, 2015 on Nov. 8 to fund the acquisition. The receipts priced at 99 to yield 7.42%. The subscription receipts were scheduled to be fungible with Cara's existing 9 1/8% notes due 2015 once the company's acquisition of Prime Restaurants closed in January.

Cara had said if the deal did not close in January, receipt holders would be refunded.

"Looks like Fairfax is going to win the bid for the company, so bondholders if they participated in the new deal, will get their money back at 99, plus accrued interest," the source said. "But existing investors who owned the original notes still get the 3% consent fee and the money's already hit investors' accounts, so it's basically back to square one."

Vaughan, Ont.-based Cara is Canada's largest full-service restaurant operator with brands that include Swiss Chalet Rotisserie & Grill, Harvey's and Montana's Cookhouse.

Secondary trading mostly was quiet over the day, though bonds were "slightly better bid," a trader said.

High-yield issues from Canadian energy operators, Paramount Resources Ltd. and Connacher Oil & Gas Ltd., traded up 2 points to 3 points Monday on news of asset sales, a trader said.

Paramount Resources announced it would spin off some assets and the company's 8¼% series 2 senior unsecured notes due 2017 rose 2 points to 102 bid, 104 offered, a trader said on Monday.

The company sold C$300 million of the notes at par on Nov. 30, 2010.

Paramount Resources announced Monday that will reorganize its oil sands and carbonate bitumen interests into a new subsidiary, Pixar Petroleum Corp.

Calgary, Alta.-based Paramount Resources is an oil and natural gas exploration, development and production company.

Connacher Oil's Canadian-dollar 8¾% notes due 2018 traded up 3 points on the day to 95 bid, 97 offered on news of asset sales, a trader said.

Connacher Oil sold the C$350 million tranche of notes due Aug. 1, 2018 at par on May 20.

On Monday, the company announced that it increased its cash balance to C$120.3 million on the sale of some property and its shares of Gran Tierra Energy Inc.

"With our increased cash balances and liquidity-raising initiatives, we remain confident that we will meet all of our 2012 financial obligations, including the repayment of C$100 million in convertible debentures due in June 2012," Richard A. Gusella, Connacher's chairman and chief executive officer, said in a statement.

The crude oil and natural gas company is based in Calgary, Alta.

Cristal Cody contributed to this report

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