Junk eases with Treasuries; Nutro Products, Packaging Dynamics price deals; $152 million funds outflow

By Paul A. Harris

St. Louis, April 13 - The high-yield market traded lower with Treasuries during the abbreviated Thursday session in front of the three-day Easter weekend.

Meanwhile the primary market saw $465 million of issuance in three tranches from two issuers, as Nutro Products Inc. priced a deal that was downsized with proceeds shifted to the bank loan market. Also Packaging Dynamics Corp. completed its transaction on top of price talk.

Elsewhere the existing bonds of Calpine Canada dropped again on Friday.

And according to a market source, AMG Data Services reported a $151.5 million outflow from high-yield mutual funds for week to April 12.

The source added that AMG reported year-to-date flows for funds that report on a weekly basis of negative $1.41 billion.

The latest loss of cash undoes a $50 million inflow the previous week which in turn followed a $200 million outflow the week before that.

It means the past four weeks have seen two inflows and two outflows after six straight weeks of outflows, dating back to early February. Over the last 10 weeks, net outflows have totaled $1.033 billion, according to a Prospect News analysis of the AMG statistics.

Counting the latest week's result, inflows have now been seen in four weeks out of the 15 since the start of the year against 11 outflows, and net outflows have totaled $1.40 billion in that time.

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

Nutro leads primary action

The day's largest dollar-amount of new issuance came from California pet and livestock food producer Nutro Products, which priced a downsized, restructured $315 million two-part LBO deal via JP Morgan.

The company priced a downsized $165 million issue of seven-year senior floating-rate tranche (B3/CCC) at par to yield six-month Libor plus 400 basis points, on the tight end of the six-month Libor plus 400 to 425 basis points price talk. The floating-rate notes issue was downsized from $180 million.

Nutro Products also priced a downsized, restructured $150 million issue of 10-year senior subordinated fixed-rate notes (Caa1/CCC) at par to yield 10¾%, on the tight end of the 10¾% to 11% price talk. The issue was downsized from $165 million. Call protection on the fixed-rate notes was decreased to three years from four years, with the first call premium set at par plus 75% of the coupon, or 108.063.

The whole deal was reduced $50 million from the planned size of $365 million.

In the bank loan market Nutro Products upsized its term loan B to $470 million from $440 million and flexed the pricing inward to Libor plus 200 basis points from 225 basis points.

A bank loan investor said that the original 225 basis points spread to Libor had been "cheap," and added that even if it comes at 200 "it's a little bit of a gift."

Meanwhile a bank loan trader commented that the pressure on U.S. Treasuries - with the 10-year going out Friday at 5.04%, according to one source - only serves to amplify the already keen interest in floating-rate assets among institutional investors, which helps to explain the migration of financings away from high yield and into bank loans.

"It's been such a huge phenomenon recently because we have had so many more investors familiar with the bank loan market," the source commented.

"Before, you didn't see as much money move because some of these investors weren't doing loans. But the institutional market for loans has doubled in the past three to four years."

Packaging Dynamics on top of talk

Also on Thursday, Packaging Dynamics priced a $150 million issue of 10-year senior subordinated notes (B3/B-) at par to yield 10%, on top of the price talk.

Deutsche Bank Securities and Jefferies & Co. were joint bookrunners for the acquisition financing from the Chicago-based producer of flexible packaging products.

Week's issuance tops $3 billion

With the two Nutro Products tranches and the Packaging Dynamics deal both in the bag by Thursday's close, the new issue market ended the holiday shortened week to April 13 having seen $3.14 billion of dollar-denominated issuance.

In terms of dollar amount it comes up short when compared to the $4.44 billion that priced in the previous five-session week. However in terms of deal volume the four session week ending April 13 produced an even dozen dollar-denominated tranches, while the five-session week to April 7 produced only 11.

At Thursday's close the market had seen $39.4 billion of year-to-date issuance in 107 dollar-denominated tranches as 2006 continues to pull ahead of 2005.

At the April 13, 2005 close the market had seen slightly less than $33.2 billion of issuance in 126 tranches.

Secondary off with Treasuries

Toward the middle part of Thursday morning, a trader told Prospect News that bonds in the secondary market seemed a little lower with Treasuries.

The source added, however, that Delphi Corp.'s 7 1/8% bonds due 2029 were at 66.25 bid, up a quarter to half a point.

However, the source said, expectations that GM's parts supplier could be subjected to wildcat strikes by members of the United Auto Workers Union would likely put pressure on that paper.

Later in the shortened session another trader saw the Delphi 6½% bonds maturing in 2013 at 64.50 bid, 65.50 offered, flat on the session.

Calpine Canada weakens again

Elsewhere the trader said that the paper of Calpine Canada Energy Finance continued to be under pressure on Thursday.

In recent days sources have told Prospect News that the focus has been on Calpine Canada's 8½% senior notes due May 1, 2008 because of a theory among certain investors that bondholder have "a double-dip claim" on both Calpine Canada and Calpine Corp.

Specifying that the paper was trading 60 bid, 61 offered Thursday morning, the source said that the bonds had been 65 bid a week ago and had been down almost a point a day over the past four or five days.

"It continues to be 'rumor-central,'" the trader said, reiterating that assertions as to the validity of the "double-dip" theory continue to fly.

Given that the perception is that holders of Calpine Canada bonds may have claims on both that entity as well as Calpine Corp. Prospect News asked the trader whether, logically, there should be more pressure on the Calpine Corp. paper, on the possibility that the entity could see claims from elsewhere on the capital structure.

That indeed seems like it should be the case, the trader agreed.

"There are a couple of guys who bought a couple of billion worth of bonds before Calpine filed bankruptcy," the source explained.

"I don't think those guys have sold a bond. So the flow in those bonds is so tight that anybody who does a trade of any consequence moves the market.

"If there are buyers of the Calpine Corp. bonds, and the Calpine Canada bonds are selling off, Calpine Corp. bonds should be going down, but they are staying where they were, or going up.

"It's a little bit of a supply-demand phenomenon in the Calpine Corp. bonds because the short is so bad in that paper."

Later in the session another trader spotted the Calpine Canada 8½% notes due 2008 trading at 61.50 bid, 62.50 offered, unchanged.

Pockets of strength in a spotty market

One trader late Thursday commented that trading on the day had been spotty but said a couple of names were up.

One of the positive moves the trader saw was in Radiologix Inc.'s 10½% senior notes due December 2008.

The notes traded up, the source added, in spite of the fact that on Wednesday Standard & Poor's downgraded the imaging company's corporate credit rating to B- from B+ and its senior unsecured debt to CCC+ from B, adding that the outlook is negative.

According to S&P the downgrade reflects "the increasing probability that Medicare reimbursement cuts mandated by the Deficit Reduction Act of 2005 will affect the company following the legislation's implementation on Jan. 1, 2007."

The agency added that reimbursement under Medicare represents about 26% of the company's total revenue.

Nevertheless the trader said that Radiologix 10½% bonds were going out Thursday at 81.50 bid, 82.50 offered, up 2.50 on the bid side from the Wednesday close.

Of course the ratings agency's action on Radiologix did not occur in a vacuum, but rather came amid a spate of downgrades for companies likely to suffer from the impacts of the act.

Another of those companies was MedQuest Inc.

S&P lowered Medquest's corporate on Wednesday to B- from B and secured bank loan to B from B+ and MQ Associates Inc.'s senior unsecured debt rating to CCC from CCC+. Again the outlook is negative.

Nevertheless, the trader said that on Thursday MedQuest's paper was holding in.

Medquest is stronger," the trader asserted, "up three points over the course of the week."

The source said that Medquest's bonds were at 82.50 bid, 83.50 offered.

And although they had not seen much activity on Thursday, two weeks ago they were 73 bid, 74 offered, the source added.

Duane Reade higher

Also moving in something of a contrary direction, the trader said, were the bonds of New York drugstore chain Duane Reade Inc.

The company's most recent earnings news was negative, the trader said, but the paper is definitely up.

The trader said that the Duane Reade bonds were two points stronger at 80 bid, looking for an offer.

"Their numbers came out a couple of weeks ago, and they went from 75 bid to 70 bid. They got downgraded but people are still buying them up.

"So there is something going on there."

The trader said that aside from those names the market was heavy on Thursday, and added that with Treasuries off half a point it was difficult to be sanguine about the week ahead.

"That's significant," the source said, referring to the sell-off in government paper.

"I think you're obviously going to see some widening with the Treasury market giving up.

"I think high-yield is going to be heavy on Monday."

The week ahead

As the primary market resumes in the post-Easter week there are two deals currently on the road that are expected to price before the April 21 close.

Sensata Technologies BV is shopping its $900 million equivalent of dollar- and euro-denominated senior notes (B2) and dollar-denominated senior subordinated notes (Caa1) via Morgan Stanley, Banc of America Securities and Goldman Sachs. Pricing is expected late in the week.

Also Mariner Energy, Inc. is roadshowing its $250 million offering of seven-year senior notes (B3/B-) via Lehman Brothers and JP Morgan. The roadshow is expected to conclude on Wednesday.

Finally, the roadshow starts Tuesday for P.H. Glatfelter Co.'s $200 million offering of 10-year senior unsecured notes (Ba1/BB+).

Credit Suisse has the books for the deal.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.