Junk jumps with stocks, United Rentals up on sale buzz; funds see $48 mln outflow; Ceva to sell $1.4 bln

By Paul Deckelman and Paul A. Harris

New York, July 12 - High-yield bonds were up almost across the board on Thursday, traders said, taking their cue from sharply higher stocks - the benchmark Dow Jones Industrial Average zoomed over 280 points to record levels not too far south of the magic 14,000 mark - spurred by better investor sentiment and an easing of the jitters seen earlier in the week.

Retailing names were up as store chains reported better same-store sales, giving a boost to such names as Dollar General Corp., Claire's Stores Inc. and Bon-Ton Stores Inc.. M&A buzz lifted United Rentals, Inc.'s bonds.

Still, not everyone was convinced by the market's gains.

"It might be a short-covering rally," one high yield syndicate official cautioned, during a mid-Thursday morning telephone conversation with Prospect News.

"But some of the buyout paper, such as Dollar General, has traded up a little," the official added

"I don't think anyone is calling this the turn of the market, but there is a nice little lift going on,"

Later in the day a trader saw Dollar General rallying, along with the wider market, up about 2 points from the day's lows at 94.5 bid, 94.75.

Shortly after the close a buy-side source said that junk had been much better bid on the day, but warned that we could see "more erosion in the bond tier," especially if there is more bad news about the fallout from subprime mortgages.

In the primary market there was very little activity.

Just one prospective issuer stepped forward. However it was a prospective big issuer.

Ceva Group, plc launched $1.4 billion of dollar-denominated and euro-denominated senior notes

Funds see fifth straight outflow

On the funds flow front, the news remained negative with respect to cash flows seen by high yield mutual funds, although the pace of outflows seems to be dwindling.

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 $47.5 million more exited those weekly-reporting funds than came into them.

It was the fifth outflow in as many weeks, including the $222.8 million leakage seen in the previous week, ended July 3. Those outflows, collectively have now completely wiped out whatever cumulative inflows had built up over the first half of the year - over $1.6 billion at their peak in early June, according to a Prospect News Analysis of the AMG figures - with the 2007 total having now swung to a $33.4 million net outflow from the previous week's $14.1 million inflow.

However among the funds which report on a monthly basis to AMG, the flows paint an altogether different picture.

Having seen a $46.3 million inflow for the most recent period, the monthly reporting funds had racked up a total of $4.689 billion of new money for 2007 to Wednesday.

Hence the aggregate flows, which combine the year-to-date totals of both the weekly and monthly reporting funds, stood at positive $4.656 billion to July 11.

The sudden shift into negative territory for the weekly numbers comes about even though inflows have still been seen in 19 weeks out of the 28 since the start of the year, versus just nine weekly outflows - although the inflows have been relatively small in most of those weeks, and the recent outflows have been sizable.

Up until the latest losing streak, the fund-flow numbers seemed to have successfully regained the positive momentum they showed at the beginning of the year, when an aggregate total of some $862 million came into the funds in the first two months, according to the Prospect News analysis. That stretch run was then interrupted by a choppy four-week period in March, characterized by alternating weeks of outflows and inflows, none larger than $25 million. Over the next 11 weeks, though - through the week ended June 6 - with 10 inflows seen in that time, the funds had a net total infusion during that period of $786.9 million, according to the analysis. After that came the current downturn.

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. Also, 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.

Ceva launches $1.4 billion

Ceva Group will start a European roadshow on Monday for its $1.4 billion offering of senior notes which it intends to place in dollar-denominated and euro-denominated tranches.

Credit Suisse, Morgan Stanley, Bear Stearns, UBS Investment Bank, JP Morgan and Goldman Sachs & Co. are joint bookrunners.

Proceeds will be used to help fund the acquisition of logistics and supply chain management company, EGL Inc., by Ceva Group, an Apollo Management portfolio company.

Elsewhere there was silence in the primary market.

An informed source told Prospect News that ATM operator Cardtronics Inc.'s $125 million add-on to its 9¼% senior subordinated notes due Aug. 15, 2013 (Caa1/B-), via Banc of America Securities, could be priced on Friday.

However no price talk was available as Prospect News went to press Thursday night.

Also French real estate developer Groupe Akerys is in the market with a €300 million offering of seven-year senior notes via BNP Paribas, Calyon Securities and SG Corporate & Investment Banking, and that deal might price on Friday, sources say.

Not that distressed

A buy-side source told Prospect News on Thursday afternoon that in spite of the fact that the new issue market has seen six prospective issuers postpone 11 tranches totaling $4.45 billion since June 26, the junk market is not all that distressed.

"There has been a bulge of going-private activity," the investor said, adding that deals in the run-up to the recent weakness in the junk market came with "poor covenants and a lot of leverage.

"And then there was the subprime situation," the buy-sider added.

The source added that a lot of the demand for the weak-covenant, high-leverage LBO-funding paper was from the same people that had been buying in the subprime market, which has caused "some indigestion."

The source also warned that there could be more erosion in bond prices if CDOs and hedge funds need to sell bonds because they can't sell their subprime assets.

However, the buysider added, if issuers and their underwriters improve the terms a little, and put in better covenants, deals should be able to come.

This investor has steadfastly adhered to an optimistic macro-economic outlook, and would not be swayed from that optimism during the Thursday telephone conversation with Prospect News.

The U.S. economy remains positive, the investor asserted, adding that presently distressed housing sector is a small negative, representing about one-half of one-percent of drag on the gross domestic product.

And outside of the CDOs and hedge funds, even more turbulence in the subprime sector won't hurt too much, the buysider added.

United Rentals climbs on buyout buzz

Back in the secondary realm, United Rentals' 7% notes due 2014 were up 4 points on the session to 101.5 bid. That rise was in line with a jump of $1.18 (3.6%) to $34.07 in the Greenwich Conn.-based construction equipment rental company's New York Stock Exchange traded shares Thursday following a report the industry leader may be near a sale.

A London-based information service, DealReporter, carried an item saying that a sale announcement could be made shortly.

Back in April, the company said it was putting itself on the auction block, hiring UBS Investment Bank and Credit Suisse as advisors in any possible transaction.

Hexion wins Huntsman, but not much bond boost

Also in the M&A arena, Hexion Specialty Chemicals Inc. emerged as the winning bidder in the buyout war for Huntsman Corp., which chose the Columbus, Ohio-based company's $6.51 billion acquisition offer over a $5.6 billion offer which it had previously accepted from Swiss chemical manufacturer Basell AF. The difference between the two offers made it more profitable for Salt Lake City, Utah-based Huntsman to choose the Hexion deal, even though it will now have to pay Basell a $200 million break-up fee for backing out of its previous deal. Apollo Management LP, Hexion's corporate parent, will front Huntsman half of the break-up fee.

All of that news did not do much for the bonds of either Huntsman or Hexion, both of which had gone up several weeks ago when the latter group emerged as a second bidder for Huntsman. "There was nothing crazy there," a trader said. "It had been expected" that Hexion would win when Basell declined to enter into a bidding war, he said.

He saw Huntsman's 7 7/8% notes due 2014 unchanged at 106.5 bid, 107.5 offered, while Hexion's 9¾% notes due 2014 were up perhaps ½ point at 109 bid, 110 offered.

Basell's withdrawal from the Huntsman sweepstakes perhaps brings the company, owned by billionaire Len Blavatnik, back into the picture as a possible buyer for another chemical marker, Houston-based Lyondell Chemical Co. Speculation that Blavatnik might buy the latter company had faded some weeks back when he made his ultimately unsuccessful bid for Huntsman. But with Huntsman now out of the picture, Lyondell's bonds were seen a bit better, its 8¼% notes up ½ point at 105.5 bid, and its 6 7/8% notes up a point at 99 bid, 99.75 offered.

Retailers on a roll

News that a number of store chains had posted improved same-store sales in June - a key retailing industry metric - helped give high yield retail names a boost, particularly Dollar General's 10 5/8% notes, which a trader saw at 94.25 bid, 94.75 offered, up 2 points from Wednesday's close and up 3 points from the recent lows the bonds had hit earlier Wednesday before starting to come back.

Another trader who also saw the Dollar General bonds up smartly, said it was on "nothing specific, except people hit 'em pretty hard, because there were a lot left over from their [recent new] deal." Then, he said, when the bonds were cheapest, they were getting taken up as the market started to turn back upward. He quoted the issue at 94.5 bid, 95 offered, up 1½ points.

Also seen up was Claire's Stores - like Dollar General, a recent "mega-leveraged deal" in the junk market, the first trader noted. Claire's 10½% notes were 2 points better at 90 bid, 91 offered, while its 91/4s were also up a deuce at 94.5 bid.

Still, another trader said of the three recent issues of Claire's Stores: "They can't hold a bid.

"They are certainly a disappointment to anyone who holds them."

Another trader also saw Bon-Ton Stores' bonds come off their early lows regain about two points of lost ground and end unchanged at 98.5 bid, 99.5 offered.

Realogy better

Among other recent new issues, Realogy Corp.'s bonds were up 2 points on the day according to a trader who added that Realogy "definitely feels better."

He quoted Realogy's 10½% notes at 94 bid, 94.5 offered, and its 12 3/8% notes at 89 bid, 89.5 offered, and added that he was not particularly active in the company's toggle notes, but said that they tend to trade 1 to 1.5 points behind the senior paper.

Tembec rebounds from tumble

In the distressed-debt precincts, a trader saw the bonds of Canadian forest products company Tembec Inc. bouncing back strongly Thursday, following several sessions of decline linked to the strong Canadian dollar and the company's recent announcement of a temporary closing of one of its Ontario sawmills due to soft demand for the hardwoods produced there.

He quoted Tembec's paper "up a couple of points," with its 8 5/8% notes due 2009 finishing at 56.5 bid, 57.5 offered, its 8½% notes due 2011 at 50 bid, 51 offered, and its 7¾% notes due 2012 at 49 bid, 50 offered - all told, up about 2½ points across the board.

The bonds had previously been going down, market participants said, because of the strength of Canada's dollar, which has been trading at about 95 U.S. cents, its highest level in 30 years, helped by strong prices for oil, a key Canadian export commodity. The strong loonie increases the costs of products such as lumber and paper sold by Tembec and other Canadian forest product companies in the U.S. and other foreign markets.

Sea Containers sinks a little

Elsewhere, Sea Containers Ltd.'s bonds were down about a point across the board, against the backdrop of a generally stronger market, although the trader had not seen any specific bad news out about the bankrupt Bermuda-based maritime and railroad transportation company.

Its 10¾% bonds that were to have come due last year eased to 91 bid, 93 offered, its 7 7/8% notes due 2008 moved down to 87 bid, 89 offered, while its 10½% notes due 2012 ended at 90 bid, 92 offered.

Dura up, other parts makers idling

Among the automotive supplier names, a trader saw Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 move up to 71 bid, 72 offered from 68 bid, 70 offered previously, while the bankrupt Rochester Hills, Mich.-based vehicle components manufacturer's 9% notes due 2009 likewise gained 3 points, moving up to 13 bid, 14 offered.

No news was seen out on the company, whose bonds had moved up smartly at the end of last week and the beginning of this week on news that it had agreed to sell its Atwood RV components business for $160 million.

Also in that sector, "nothing" was happening in Remy International Inc., after an active session Wednesday - but little real price movement - for the troubled Anderson, Ind.-based electrical systems maker's bonds.

The trader saw Dana Corp.'s bonds better, saying the bankrupt Toledo, Ohio-based parts maker "was up 2 points, making up what it lost [Wednesday]." He saw its 6½% notes due 2008 up a deuce at 104.25 bid, 105.25 offered.

And the trader saw "nothing" going on with Collins & Aikman Products Co.'s 10¾% notes due 2011, quoted at 2.5 bid, 3.5 offered, the same level they've held for a very long time, even as the U.S. Bankruptcy Court in Detroit confirmed the Troy, Mich.-based automotive interior components manufacturer's reorganization plan, a key step in its effort to emerge from Chapter 11.

Spectrum off on EBITDA warning

A trader saw Spectrum Brands Inc.'s bonds drop after the Atlanta-based consumer products manufacturer revised its full-year EBITDA projections downward.

He saw the company's 11¼% notes due 2013 ending at 84 bid, 86 offered, down 3½ points from Wednesday's close, but off a full 5 points from its Thursday peak level around 89 bid, 90 offered.

The company cut its full-year EBITDA expectations to $260 million to $264 million, well down from $282 million previously.

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