Ducommun, Harbinger jump after pricing; Rural/Metro on tap; funds see record plunge

By Paul Deckelman and Paul A. Harris

New York, June 23 - The revived high-yield primary sphere saw its second well-received pricing in as many days as Ducommun Inc., which provides services to the aerospace and defense sector, brought a $200 million seven-year issue to market on Thursday, with the new bonds seen by traders having firmed smartly when they hit the aftermarket.

That matched the performance of Wednesday's $700 million 10-year transaction from cable network operator AMC Networks Inc., which also rose solidly after its pricing.

And a trader saw Harbinger Group Inc.'s $150 million add-on offering to its existing 2015 notes rise by more than a point after the holding company priced its deal.

US Airways Group, Inc., which priced a two-part offering off aircraft pass through certificates on Tuesday, made another landing in Junkbondland with a third such tranche of notes.

High-yield syndicate sources heard price talk emerge on ambulance and private fire-protection services provider Rural/Metro Corp.'s eight-year deal, which is expected to come to market after order books are closed at midday on Friday.

There was also talk out on restaurant operator El Pollo Loco, Inc.'s 61/2-year secured deal, which was slightly downsized.

National CineMedia, Inc., an in-theater advertising company, hit the road to market a $200 million issue of 10-year notes.

In the secondary market, Rite Aid Corp.'s somewhat improved quarterly results acted as a tonic for the drugstore chain operator's bonds. But investor worries about whether NewPage Corp. will make its June 30 bond interest payment continued to pummel the papermaker's notes.

Statistical performance indicators mostly pointed south. And, ominously, high-yield mutual funds - considered a proxy for overall market liquidity trends - suffered their fourth straight weekly net outflow, this one a record setter.

Funds outflow: $3.43 billion

As the session was winding down, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, a breath-taking $3.43 billion more left those weekly reporting funds than came into them.

It was the biggest-ever outflow on record and dwarfed the previous week's already sizable $1.6 billion cash drain.

Outflows have now been recorded in each of the last four weeks, totaling $5.938 billion during that stretch, according to a Prospect News analysis of the data.

That sustained blood-letting dropped the year-to-date cumulative inflow total to an estimated $1.883 billion from the previous week's $5.313 billion. The new cumulative total is the lowest since the $1.7104 billion seen in the week ended Jan. 12 and is well below the $7.82 billion estimate seen in the week ended May 25, the peak level for 2011 so far, according to the Prospect News analysis.

With 25 weeks gone in the year, there have now been 17 inflows recorded against eight outflows.

Fund-flow patterns began the new year on a roll with cash infusions totaling more than $8 billion seen over a 14-week stretch from early December through mid-March, including the more than $6 billion taken in during the first 10 weeks of this year.

Since then, however, fund-flow patterns have been choppy: two weeks of declines in March totaling $1.146 billion followed by three weeks of inflows totaling $1.78 billion and then two more weeks of outflows in late April adding up to $190 million. That was then followed by the inflows seen over the next four weeks, totaling $1.14 billion, and then the latest string of cash losses, far overshadowing those gains.

Cumulative fund-flow estimates may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say that the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage, of the total amount of money coming in - fueled the record new deal borrowing binges seen in both 2009 and then in 2010 as well as the robust secondary market seen both years. Those trends have been pretty much continuing in 2011 as well, although the market seems to have hit a dry patch over the last several weeks.

A trader cautioned that the scary-sounding outflow numbers may be deceptive, suggesting that the numbers are skewed - even distorted - by the presence of exchange-traded funds, which are quite different from more traditional mutual funds.

"Really, there should be a distinction between the true mutual fund, which carries a load, and people generally put money in to stay in it for an extended period of time, while the ETFs have become trading vehicles - the favored vehicle for fast money. And there's no load."

He opined that "ETFs continue to lose money, but away from the ETFs, I'm still seeing buyers among the mutual funds, or at least they'll put a bid on bonds at lower levels. And the insurance companies still have money. It's not like it's a wholesale exodus from high yield."

He said that while the mutual funds have lost money over the last four weeks, "it's not a bloodbath by any stretch of the imagination."

"Overall, the spread on high yield has widened out by 75 basis points from around 500 bps [the level seen in early May] to 575 or 580 bps. Yeah, that's painful, but is it disastrous? No. Is it the end of the world? No."

He also noted that with so much other money sloshing around in the junk markets, from hedge funds, insurance companies and other sources, far exceeding the relatively small percentage attributable to the mutual funds, the Lipper/AMG numbers themselves, whether up a lot or down a lot, don't seem to pack the same kind of punch they did just a few years ago.

Back then, he said, "the whole market used to go up or down, depending on the AMG number. Now, it's like [investors say], 'Fine - if they're selling anything good, call me'."

Ducommun prices $200 million

In the primary market, Ducommun priced a $200 million issue of seven-year senior notes (B3/B-) at par to yield 9¾% on Thursday.

The yield printed at the wide end of the 9½% to 9¾% price talk.

Credit Suisse and UBS were the joint bookrunners for the acquisition financing.

The Ducommun deal had the market mostly to itself and had decent momentum, according to an informed source.

During the afternoon, as the equity markets plowed back most of the considerable ground they gave up early on Thursday, demand for Ducommun strengthened, the source added.

Harbinger drives by

Harbinger Group priced a $150 million add-on to its 10 5/8% first-priority senior secured noted due Nov. 15, 2015 (Caa1//) at 101 to yield 10.259% in a Thursday drive-by.

The reoffer price and yield came on top of price talk.

Credit Suisse Securities (USA) LLC was the bookrunner.

Proceeds will be used for working capital by Harbinger and its subsidiaries and for general corporate purposes, including the financing of future acquisitions and investments.

The original $350 million issue priced at 98.587 to yield 11% on Nov. 5, 2010, so despite Thursday's rocky market conditions, Harbinger realized 1.13% of interest savings with the add-on versus the yield on the original print.

Harbinger rolled out its consent two weeks ago, so the drive-by came as no surprise to investors who were already in the name, an informed source said.

A lot of people who were in the original notes were keen to stay in the credit, the source said, and noted that the original deal, at $350 million, was not immense, so the group of investors was relatively compact.

Talking the deals

The final full week of June will likely come to a relatively quiet close.

Rural/Metro Corp. talked its $200 million offering of eight-year senior notes (Caa1/CCC+) with a yield in the 10% area on Thursday.

Citigroup Global Markets Inc. is the left bookrunner. Credit Suisse Securities (USA) LLC and Jefferies & Co. are the joint bookrunners.

Elsewhere, El Pollo Loco adjusted the tranche sizes and set price talk for its upsized $287.5 million debt refinancing package.

The Costa Mesa, Calif.-based restaurant operator downsized its 61/2-year second-lien senior secured private notes offering to $105 million from $110 million.

Price talk on the notes is 12½% cash plus 4½% PIK, offered at a price of 97 and yielding in the 17.8% area.

El Pollo Loco also lifted its six-year first-lien term loan (B) to $170 million from $160 million and raised pricing.

Jefferies & Co. Inc. is the placement agent for the notes and the arranger for the credit facility.

National Cinemedia starts roadshow

National Cinemedia began a roadshow for its $200 million offering of 10-year senior notes (expected B2/B).

J.P. Morgan Securities LLC, Barclays Capital Inc., Credit Suisse Securities (USA) LLC, Macquarie and Morgan Stanley & Co. Inc. are the underwriters for the debt refinancing.

New Ducommun does well

When the new Ducommun seven-year notes were freed for secondary market dealings, a trader said that the defense and aerospace industry services provider's deal jumped to the 102-103 area from their par issue price earlier in the day.

"The deal went pretty well; it was allocated to people that wanted to own it."

A second trader also agreed with the assessment that the Carson, Calif.-based company's new issue had done pretty wel, and pegged the $200 million of bonds at 102¼ bid, 103¼ offered.

Harbinger heads higher

A trader said that Harbinger Group's new 10 5/8% add-on deal "was pretty good," seeing the bonds get up to 102½ bid, 103½ offered - well up from the 101 level at which the New York-based consumer products and life insurance holding company priced the tranche earlier.

However, a second trader said that he had not seen that add-on trading around.

New US Air not sighted

Although US Airways Group made its second visit of the week to the junk market to price an issue of five-year airline pass-through certificates, traders did not see the latest tranche, which priced at par.

One or two mentioned that such secured airline paper usually doesn't get around much in the junk precincts.

A trader did see the Tempe, Ariz.-based airline holding company's $293.94 million of 7 1/8% split-rated (Ba2/BBB) class A certificates due 2025 at par bid, 100¼ offered and its $94.28 million of 9 ¾% class B certificates (B2/B+) due 2020, at par bid, 100½ offered.

Both halves of the deal priced at par on Tuesday.

AMC hangs in there

A trader said that AMC Networks 'new 7¾% notes due 2021 "were holding their own," quoting the bonds at 101 3/8 bid, 101 7/8 offered.

A second trader saw them do even better, at 101½ bid, 102 offered.

The company - being spun off from corporate parent Cablevision Systems Corp., the Bethpage, N.Y.-based telecommunications, cable and sports-team operator - priced its $700 million offering of the bonds at par on Wednesday.

This marked the first sizable deal that the junk market had seen in some time, and investors promptly took those bonds up to straddle the 102 bid level.

Market indicators turn lower

Away from the new deal arena, the mixed to a little better tone in the secondary market seen on Wednesday ran out of gas during Thursday's dealings, as evidenced by statistical measures of market performance.

A trader saw the CDX North American Series 16 HY Index fall by half a point on Thursday to end at 99¾ bid, par offered, after having eased by 1/8 point on Wednesday.

The KDP High Yield Daily Index lost 4 basis points on the day to end at 74.76, after having risen by 10 bps on Wednesday. Its yield edged up by 1 bp to close at 6.98% versus the 3 bps narrowing seen on Wednesday.

And the Merrill Lynch High Yield Master II Index's two-session winning streak - a bounceback after the 13-session losing streak dating back to June 2 - came to an abrupt end on Thursday.

The index lost 0.133% to return 4.333%. On Wednesday, it had risen for a second straight session, by 0.148%, for a year-to-date return of 4.473%. The index remains well below its year-to-date peak level of 6.071%, which was reached about a month ago on May 20.

Rite Aid rallies on numbers

Among specific names, Rite Aid "traded up initially on numbers, dipped with the market, but finished basically unchanged on the day," according to a trader.

Another trader said the 9½% notes due 2017 - the day's most active Rite Aid issue - were "higher earlier in the day, then they started to drift down." He saw the bonds trading in a range of 87¼ to 90, with ending levels being 88 bid, 88½ offered.

Another market source called the 8 5/8% notes due 2015 half a point better at 90 bid.

"They had a skinnier loss," a trader said, referring to the Camp Hill, Pa.-based drugstore chain's quarterly results, which came out on Thursday.

For the first fiscal quarter, Rite Aid saw a net loss of $63.1 million, or 7 cents per share. That compared to a loss of $73.7 million, or 9 cents per share, the year before.

Analysts polled by Thomson Reuters were expecting an average loss of 12 cents per share.

Same-store sales were also better, seeing a 0.8% gain. In dollars, however, sales were mostly steady at $6.39 billion.

For the current fiscal year, Rite Aid said it is expecting total sales to $25.7 billion to $26.1 billion and a net loss of 42 cents to 64 cents per share. Wall Street is anticipating sales of $25.65 billion and a loss of 53 cents per share.

"While Rite Aid continues to experiment with different kinds of stores and remodelings, we think it will remain challenged by larger competitors who have more financial flexibility," Gimme Credit LLC analyst Kim Noland wrote in an afternoon report

"Despite slightly improved EBITDA [of $263 million], Rite Aid is levered above 7x.

"The good news is that liquidity near $1.2 billion is adequate, and the company affirmed its fiscal 2012 guidance," Noland added.

More knocks for NewPage

A trader said that there's was "mostly Street trading, back and forth" in NewPage Corp.'s beleaguered bonds, which have been trading lower most days for the past two weeks, often in heavy volume, on investor fears that the Miamisburg, Ohio-based coated-paper manufacturer may be unable to make the $100 million interest payment on its $1.7 billion of 11 3/8% first-lien senior secured notes due 2014 that is scheduled for the last day of the month.

NewPage did not respond to several e-mails and phone calls from Prospect News on Thursday seeking information on whether the company will, in fact, make the coupon payment as scheduled or, alternatively, not pay the coupon and instead invoke the standard 30-day grace period.

The trader said that on Thursday there was "good volume" in the name, although "not extraordinarily heavy," with the 11 3/8s trading at bid levels between 90 and 91 all day versus recent levels in the 93-94 area, he said.

He saw NewPage's 10% second-lien senior secured notes due 2012 around 26-27 bid, around the same levels they've recently held.

The 10s trade many dozens of points behind the first-lien bonds, despite their ostensibly secured status because of a perceived lack of sufficient company assets to cover both tranches in the event of a restructuring.

Stephanie N. Rotondo contributed to this report

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