Upsized GMAC prices, Noranda as well; Tembec on a tear; funds see $82 million inflow

By Paul Deckelman and Paul A. Harris

New York, May 10 - GMAC LLC successfully priced a quickly shopped $2 billion two-part offering of junk bonds Thursday - double the amount that the former financing arm of General Motors Corp. had originally intended.

Also pricing during the session was a dollar-denominated deal for Noranda Aluminum Holding Corp. and a euro-denominated issue for SGL Carbon AG.

Elsewhere in the primary market Thursday, Dynegy Inc. announced plans to sell $1.1 billion of new senior notes in a private placement. Pre-deal market price talk meantime emerged on pending offerings from Spansion Inc., New World Resources BV and VeraSun Energy - the latter offering now restructured into a one-part deal rather than a two-parter.

In secondary dealings, Tembec Inc.'s bonds continued on a tear - with traders puzzled over what was driving the Canadian forest products company's paper higher. Some argued it was linked to the fluctuations in the Canadian dollar, but others doubted that could be the reason.

Elsewhere, Bon-Ton Stores Inc.'s bonds were seen pushed down sharply after the retailer reported a double-digit percentage drop-off in last month's same-store sales, a key retailing industry performance measure.

A high yield syndicate official speaking after the close said that the junk market managed to keep a decent tone throughout the day Thursday, despite a significant sell-off in stock prices.

"There was some selling out in front of the new issue calendar, but no outright shedding of credit risk," the source added.

Meanwhile in the middle of the afternoon a source from a hedge fund said that high yield-tracking CDX 100 index was 1/16 lower.

Funds see another inflow

And as activity was trailing off 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 $81.6 million more came into those weekly-reporting funds than left them.

That followed the $209.4 million inflow seen in the previous week, ended May 2.

That extends year-to-date flows among funds reporting on a weekly basis to $1.309 billion, the source added.

Meanwhile funds that report to AMG on a monthly basis took in $356 million during the most recent period, extending their year-to-date flows to $3.764 billion.

Hence year-to-date aggregate flows, which tally both the weekly and monthly reporting high yield mutual funds, were $5.073 billion through Wednesday.

It was the fourth straight inflow and the sixth in the last seven weeks, as the fund-flow numbers seem to be regaining the momentum they showed at the beginning of the year, when an aggregate total of $862 million had come into the funds in the first two months, according to a Prospect News analysis of the AMG figures. 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 past seven weeks, though, with six inflows seen, the funds have had a net total infusion during that period of $484.4 million, according to the Prospect News analysis.

On a year-to-date basis, inflows have now been seen in fully 15 weeks out of the 19 since the start of the year, according to the analysis. Those fund-flow figures exclude distributions.

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.

GMAC massively upsized

In the primary market two issuers combined to price three dollar-denominated tranches.

GMAC LLC completed a massively upsized $2 billion sale of senior notes (Ba1/BB+) in two tranches in a quick-to-market Thursday transaction.

The finance company, part owned by General Motors Corp., priced an upsized $1 billion tranche of two-year floating-rate notes at par to yield Libor plus 125 basis points.

The floating-rate tranche, which was upsized from $500 million, priced at the tight end of the Libor plus 125 to 128 basis points price talk.

GMAC also priced a $1 billion tranche of 6 5/8% five-year fixed-rate notes at a 217 basis points spread to Treasuries.

The fixed-rate notes came at an original issue discount of 99.619, resulting in a yield of 6.716%. The tranche was upsized from $500 million.

Barclays Capital, Citigroup, Credit Suisse and Deutsche Bank Securities were joint bookrunners for the off-the-shelf transaction.

Noranda tight to talk

Elsewhere Noranda Aluminum Holding Corp. priced a $510 million issue of eight-year senior unsecured floating-rate PIK toggle notes (B3/B-) at par to yield six-month Libor plus 400 basis points.

The yield came at the tight end of the six-month Libor plus 400 to 425 basis points price talk.

The coupon steps up to 475 basis points should the issuer elect to make an in-kind, as opposed to cash, interest payment.

Merrill Lynch & Co., Citigroup and Goldman Sachs & Co. were joint bookrunners for the LBO deal.

SGL Carbon upsizes

Germany's SGL Carbon AG priced an upsized, restructured €200 million issue of eight-year senior floating-rate notes (Ba1/BB+) at par to yield three-month Euribor plus 125 basis points on Thursday.

The interest rate was priced at the tight end of the Euribor plus 125 to 150 basis points price talk.

The size of the issue was increased from €175 million.

The tenor of the notes was lengthened to eight years from seven years.

Deutsche Bank and Morgan Stanley were joint bookrunners for the debt refinancing deal.

Friday's deals

A sell-side source remarked well after Thursday's close that all deals presently on the road are expected to price by Friday's close.

News surfaced during the session on some of that business.

Computer memory company Spansion Inc. set price talk for its $550 million offering of six-year senior secured floating-rate notes (B1/B+) at Libor plus 300 to 325 basis points.

Banc of America Securities LLC is the left bookrunner.

VeraSun Energy Corp. set price talk for its restructured $450 million offering of 10-year senior notes (B3/B-) at the 9½% area on Thursday.

The Brookings, S.D.-based producer of ethanol withdrew a proposed seven-year tranche of notes.

Lehman Brothers, Morgan Stanley and UBS Investment Bank are joint bookrunners.

And New World Resources BV set price talk for its €300 million offering of eight-year senior notes at 7½% to 7¾%.

Morgan Stanley, Barclays Capital and Citigroup are the bookrunners.

Noranda bonds move up

When the new Noranda bonds were freed for secondary dealings, a trader saw them improved a little to 100.5 bid, 101 offered, versus their par issue price.

He did not see the GMAC bonds trade in the secondary market.

Another trader observed that "apparently, people liked the company - but the structure, I guess not." He called the nine-year issue, non-callable for just the first year, "a little funky" - but allowed that the bonds "broke to a premium,", pushing up to 100.5 bid, 101 offered, "so it was trading OK."

Among other newly priced deals, he said that Constellation Brands Inc.'s new 7¼% notes due 2017, which had priced at par on Wednesday but then did not progress much further than that when freed for aftermarket dealings later Wednesday, pushed as high as 101 bid Thursday before settling in around 100.75 bid, 101 offered.

Firm opening fades

Back among the established issues, the second trader said, "it seemed like the market opened very firm, and things traded up right out of the chute, and lifted offerings." He added that "we had a lot of guys who tried to put cash to work, adding to small pieces here and there, as they looked for ways to put money to work."

However, he said, "toward the end of the day, there was the equity sell-off, and things [in the junk market] felt weaker."

But he said that weakness likely "will not last. If equities turn around, or if you have anything selling off, even the slightest bid, anybody who now has cash will come in and put it to work. They'll be buying cash bonds wherever they can."

At another desk, a trader said there was "not much to report," beyond the new deals pricing. "It was pretty quiet."

He saw the overall junk market down by perhaps 1/16 point, with the widely followed CDX performance index at 100.375 bid, 100.625 offered.

He saw the frequently traded automotive benchmark issues a little easier, perhaps pushed down by supply concerns as GMAC dumped $2 billion of new paper on sector investors.

GM's 8 3/8% notes due 2033 were seen down ¼ point at 90.75 bid, 91.25 offered, while arch-rival Ford Motor Co.'s flagship 7.45% notes due 2031 were ¼ easier, at 80.125 bid, 80.625 offered.

Tembec continues climb - but why?

Traders saw Tembec bonds - which had firmed handsomely on Wednesday - continuing to gain on Thursday as the Canadian dollar, whose strength cuts into the overseas sales of Canadian companies by pushing up the price of their exports, was again weaker.

A trader saw Tembec's 8 5/8% notes due 2009, which had jumped anywhere from 3 points to 5 points on the session on Wednesday, up nearly another point on Thursday, ending at 63.75 bid, 64.75 offered.

Another trader saw the bonds at 64 bid, 65 offered, up a point, but he was puzzled by the recent strengthening trend. He dismissed the suggestion that it was linked to fluctuations in the Canadian currency; while the dollar was "moderately weaker" for a second straight day, he didn't see it as "having much impact" on the Tembec bonds. "It was just up on no news," he said.

Yet another trader agreed that the currency fluctuations probably weren't what was keeping the bonds up, suggesting investor hopes of a restructuring might be propping up the issues.

At another desk, the company's 8½% notes due 2011 were seen up an additional point at 56.

Also out of that Canadian forest products sector, one of the traders saw Vancouver-based Ainsworth Lumber Co.'s 7¼% notes due 2012 up a point at 74.25 bid, 75.25 offered, saying that its latest quarterly numbers were considered "OK numbers" - probably a relative term meaning "not as bad as expected," since the company posted a net loss for the quarter of C$22.8 million on sales of C$135 million, compared to net income of C$22.7 million on sales of C$292.6 million a year ago.

The company said the decrease in net income and sales is primarily the result of deteriorating prices for its OSB board lumber products, in combination with reduced shipment volumes due to production curtailments.

Another trader called the number "absolutely terrible," and suggested that technical factors like short-covering and restructuring hopes were the catalyst for the rise.

"They'd be better off if they just closed down operations to save money." he said, opining that the company's fortunes might turn up "if there's another hurricane somewhere and they need to order a lot of OSB boards for rebuilding," as happened in the U.S. Southeast in the wake of 2005's disastrous Hurricane Katrina.

Bon-Ton's beleaguered bonds

Bon-Ton Stores' bonds were among the most busily traded on Thursday, with its 10¼% notes due 2014 plummeting 2½ points on the day to the 105 bid level.

That followed the York, Pa.-based furniture and apparel retailer's announcement that its same-store sales - that is, sales at outlets open at least a full year, a key performance metric for retailers - nosedived 13.4% in April, a far wider downturn than the 9.3% that analysts, on average, had been expecting. Total store sales, counting outlets opened since last year, or those which may have closed, were even worse, down 13.7% to $211.9 million, versus $245.6 million a year earlier.

The company blamed its "disappointing," sales results for the month of weather-related problems in its core territories in the Northeast and the Midwest.

Tenet not terribly healthy

A trader said that Tenet Healthcare Corp.'s bonds "continued to slosh around" in response to quarterly earnings figures that he termed "mediocre at best," released earlier in the week.

He saw the Dallas-based hospital operator's 9 7/8% notes due 2014 at 102 bid, 102.25 offered, while its 9¼% notes due 2015 were "right around par."

Tenet reported on Tuesday that with admissions down about 2% during the quarter from year-ago levels, its earnings before taxes were around break-even, although the company showed a profit on the strength of a $93 million income tax gain. After-tax profit rose 7% to $93 million (20 cents per share), while revenue grew 3%, to $2.28 billion.

"They continue to disappoint," the trader said, "but people are still giving them the benefit of the doubt for the turnaround."

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