Dollar General rises again, Six Flags, Bombardier up; Fresenius deal downsized; funds gain $137 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 4 - Dollar General Corp.'s bonds rose for a third consecutive session on Thursday, riding the momentum generated by the strong quarterly numbers which the Goodlettsville, Tenn.-based discount retailer reported on Thursday.

Also pushing upward on better quarterly results was transportation equipment manufacturer Bombardier Inc. Fellow Canadian manufacturer Nortel Networks Corp. got a boost from news of major contracts for its telecommunications gear.

Six Flags Inc.'s bonds were taking an upside ride, although there was no major news out on the New York-based theme park operator that might explain its strength.

On the downside, Tekni-Plex Inc.'s bonds traded at sharply lower levels, although there seemed to be no news out that might explain that sudden slide.

Also lower was Terex Corp., in line with a slide in the Westport, Conn.-based heavy equipment manufacturer's shares after it lowered its full-year sales and profit guidance.

In the primary arena, Fresenius Kabi was heard to have modestly downsized its upcoming bridge to high yield bonds financing, while concurrently increasing the size of the bank debt component of its borrowings.

A source from a high-yield mutual fund marked the junk market ½ point lower with equities on Thursday, noting that the major U.S. stock indexes took a 3% dive.

Meanwhile the primary maintained remained mostly quiet, suffering from what one syndicate official termed "a Labor Day hangover."

"We expected that we would have heard more by now," the official said, adding that activity will likely pick up next week.

This source acknowledged visibility on new issue business that will likely surface during the next two weeks.

Funds rise by $137 million on week

As trading was wrapping up for the session, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif. said that in the week ended Wednesday $137.293 million more came into the weekly-reporting funds than left them.

It was the second straight inflow, following the $44.7 million cash infusion seen in the previous week, ended Aug. 27, as well as the sixth inflow seen in the last seven weeks, according to a Prospect News analysis of the AMG figures. During that stretch, net inflows have totaled $502.063 million, according to the Prospect News analysis.

However, over the somewhat longer term, although there have been seven inflows seen during the last 12 weeks, dating back to the week ended June 18, against just five outflows, the funds have still lost a net $294.353 million during that time, according to the Prospect News analysis, mostly due to the massive $651.2 million outflow seen in the week ended June 25. Before that had come a run of 11 consecutive weekly inflows, stretching from early April through mid-June, during which time some $3 billion of inflows were recorded, according to the analysis. Prior to April, outflows had been recorded in most weeks, with net outflows totaling around $1 billion.

But with the calendar third quarter now in its final month, inflows, after that slow start, remain solidly ahead, with 22 inflows versus 14 outflows seen in the 36 weeks since the start of 2008, according to the analysis.

According to market sources, net inflows from the weekly-reporting funds since the start of the year, excluding distributions but including previous retroactive adjustments and revisions, are now estimated at $1.621 billion, up from $1.484 billion the previous week. At its peak, the 2008 net inflow totaled $1.933 billion in the week ended June 11, the final week of the 11-week run of straight inflows.

A market source meantime said that funds which report on a monthly basis, rather than weekly, saw an inflow of $428.058 million in the week ended Wednesday.

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 comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash seen in recent years such as insurance companies, pension funds and hedge funds.

Shortly before the funds flow data began circulating, a source from a high-yield mutual fund said that accounts could be sitting on some pretty strong cash positions, but doing so with the expectation that redemptions are imminent.

Market indicators seen lower

The widely followed CDX index of junk bond performance was down ½ point, said a trader who quoted it at 92 9/16 bid, 92 13/16 offered. The KDP High Yield Daily Index meantime lost 6 basis points to end at 70.57, while its yield was 3 bps wider at 10.61%.

In the broader market, advancing issues trailed decliners by a nine-to-seven margin. Activity, represented by dollar volume, was down 20% from the levels seen on Wednesday.

A trader said that the market had "been quiet, with not too much going on" Thursday, versus the more active environment seen on Wednesday, when there were a number of large movers directly linked to news in the marketplace, including Dollar General, Liberty Media Corp., Isle of Capri Casinos Inc. and Revlon Consumer Products Corp.

Another trader said that high yield "generally was pretty quiet, a little softer, but relative to equities was not too bad, today, anyway."

While junk bonds were a little lower, stocks tumbled badly as investors reacted to higher initial unemployment claims numbers and lower August sales figures from many retailers; taken together, those numbers portray an economy that is still stumbling along. The bellwether Dow Jones Industrial Average nosedived by 344.65 points, or 2.99%, to end at 11,188.23 - its worst one-day drop since the 358-point plunge seen back on June 26. Broader indexes were also beaten down, with the Standard & Poor's 500 index falling 38.15 points, or 2.99%, identical to the Dow's dive, to 1,236.83, and the Nasdaq composite index off 74.69 points, or 3.20%, to close at 2,259.04.

Yet another trader said that while high yield "typically really tracks equities, this is the first time in a long time that the Dow was getting crushed, but there were bids out there in high yield that were not being hit." He said that the seeming divergence of the two markets was a function of either "players believing that high yield has bottomed out, or accounts being flush with cash and/or not seeing redemptions."

He said that "over the last few months, what we've been through, typically with the Dow down over 300 points, there would be very few, if any [junk bond] bids lingering around, looking for bonds, and that's the case today."

To be sure, the trader cautioned, for the most part, "there's nothing moving higher, necessarily - but there are bids out there for paper that are not being hit. That stuck out today."

Dollar General continues climb

For a third straight day, Dollar General's 11 7/8% notes due 2017 were on the rise; those bonds had pushed higher on Tuesday, ahead of Wednesday's release of fiscal second-quarter results, and they had continued to firm on Wednesday, jumping more than 2 points on pretty good numbers. On Thursday, the bonds continued to glide on that momentum.

A trader called them up ½ point at 97.5 bid, 98.5 offered, while seeing the company's 10 5/8% notes due 2015 also ½ point better at 102.5 bid, 103.5 offered.

A second trader "once again," the 11 7/8s were "up there" among the actives, guesstimating that some $25 million of bonds had changed hands by mid-afternoon. He saw them at 98 in round-lot trading, versus the previous day's close at 97.75, "so they continue to move up, even in this downdraft of the equity market, and on huge volume."

Another market source also said the bonds were easily among the most active issues, and saw them finishing even better, pegging them up 1½ points to as high as 99.25 bid near the close of trading, although that movement was largely due to some smallish odd-lot transactions late in the session.

The rise followed the strong numbers posted on Wednesday, when Dollar General said that in the fiscal second quarter ended Aug. 1, it had net income of $27.7 million, versus a year-earlier net loss of $68.8 million. EBITDA increased to $200.1 million in the 2008 second quarter from $5.8 million a year earlier, when the results were impacted by a change of ownership. Sales for the quarter increased by 11.2% to $2.61 billion, versus $2.35 billion a year ago, with the key retailing industry metric of same-store sales jumping 10.1%.

However, even though the numbers were quite good, amid a generally softer retailing industry, the second trader noted that "over the last few months, good numbers [frequently] were meaningless," as more often than not, panicky investors "threw out the baby with the bath water," taking many companies' bonds lower even if those companies reported half-way decent results. But now, he said, the environment had changed enough so that "things matter - facts matter."

Bombardier flies high on Q2 data

Another company whose bonds were seen pushing upward on the strength of positive quarterly numbers was Montreal-based aircraft and railroad equipment manufacturer Bombardier, whose 6.30% notes due 2014 were being quoted up a point at 97.5. A trader at another desk saw the bonds up ½ point at 97 bid, 98 offered.

The world's third-largest maker of commercial aircraft, after U.S.-based Boeing and Europe's Airbus, earned $246 million, or 14 cents a share, in the fiscal second quarter ended July 31 - a sharp turnaround from its loss of $71 million, or 5 cents a share, a year earlier. Revenue increased 22% to $4.93 billion.

Company executives said that a stronger business jet market was largely responsible for the turnaround - although they cautioned that the market could see some slowdowns in the coming months.

Still, Bombardier's order backlog stood at $57.2 billion, up from $53.6 billion at the start of the year, and the executives predicted on their conference call following the release of the results that its sales of commercial aircraft to airlines would likely pick up later in the year.

Nortel gains on contract wins

Toronto-based telecommunications equipment manufacturer Nortel Networks' 10 1/8% notes due 2013 were seen at 94.25 bid, which a trader called up a point, while at another desk, the bonds were seen up 1½ points to that same level.

Another trader saw its 10¾% notes due 2016 up ½ point to 92.75 in active dealings of more than $13 million.

Nortel got a boost from its announcement that two more companies - Bell Canada and Alaska Communications Systems - have selected its 40-gigabit optical networking equipment for their systems. That comes on top of recently announced contract wins from telecom operators Rascom and Southern Cross, and brings to 21 the number of companies that have ordered the equipment from Nortel, including Verizon Business, a unit of U.S. telecom giant Verizon Communications. That contract was announced last year.

Nortel also said that China Cable Television Network has upgraded its bandwidth capabilities to increase network capacity and allow delivery of more channels at higher quality, with a metro ethernet system from Nortel.

Six Flags flying, again

Another upsider was Six Flags, although traders said they did not see any significant news other there that might explain the renewed rise in the amusement park company's bonds, which have been at stronger levels since the announcement several weeks ago of good preliminary attendance and revenue totals for the current third quarter, so far.

On Thursday, its 9 5/8% notes due 2014 were seen up another 3 points to 61.5 bid, a market source said. A trader at another shop saw the bonds up 2½ points on the day to 61.25 bid, on "decent volume" of about $9 million.

Tekni-Plex takes a tumble

Just as puzzling was a sharp fall in Tekni-Plex's 8¾% notes due 2013. A market source saw those bonds - which had last traded in the lower 80s around the middle of last month - suddenly fall to about the 76 level Thursday, on several large-volume trades.

No fresh news was seen out on the Somerville, N.J.-based packaging company that might easily explain the 7 point falloff.

Terex tumbles, as well

Another downsider was Terex, whose 8% notes due 2017 fell to 97.5 bid, 98.5 offered Thursday, which a trader called down a point on the day, while its 7 3/8% notes due 2014 were likewise off a point at 97.75 bid, 98.75 offered.

Another trader had the 8s down 1¼ points at 98 bid.

That coincided with a plunge of $9.30, or 19.65%, in its New York Stock Exchange-traded shares, which closed at $38.02, on volume of 10.5 million, more than 3 times the norm.

The shares tumbled, and the bonds stumbled, after the maker of equipment for the mining, construction, shipping, utility and processing industries cut its full-year earnings expectations, citing slumping demand and higher materials costs.

It now expects to post a profit of $6.35 to $6.65 per share for the year - down from its previous projections of earnings in a range of $6.85 to $7.15, and well below Wall Street's expectations of per-share profits of around $7.08 to $7.10.

Countrywide active, but little changed

Elsewhere, a market source said that Countrywide Financial Corp.'s 6¼% notes due 2016 were one of the day's most actively traded issues, with over $50 million of the notes having changed hands by mid-afternoon, about twice the activity level of the next nearest issue. The bonds gyrated despite no fresh news seen out on the Calabasas, Calif.-based mortgage lender, which is now part of Bank of America Corp.

The notes, which had finished Wednesday at 81 bid on a $5 million round-lot trade, shot up above the 83 mark in opening dealings, but then quickly moved lower in active large-block trading, going as low as its 81 bid opening, and then getting back above the 82 mark later in the session.

Another trader, quoting the bonds around 81.5 bid, said those bonds "may have been active - but they didn't go anywhere."

The trader also saw Realogy Corp.'s 10½% notes due 2014 up 1½ points at 61 bid, 62 offered.

Bond insurer MBIA Inc.'s 14% surplus notes due 2033, which had shot as high as 88.5 bid earlier in the week, lost 2 points to end at 86.5.

Auto bonds stuck in neutral

Among the big automotive benchmark issues, a trader saw General Motors Corp.'s 8 3/8% bonds due 2033 unchanged at 49 bid, 50 offered, while domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were likewise steady at 50 bid, 51 offered.

However, another trader saw the GM bonds at 49.375 bid, which he said was 5/8 point below the previous round-lot level of an even 50, and saw GM financing unit GMAC LLC's 6 7/8% notes due 2011 down 1 1/8 points from Tuesday's level "on decent volume." He saw the Ford bonds "actually up 1/8" point in round-lot trading at 51.125 bid.

Yet another trader saw the GM long bonds staying at 49, while GMAC's 8% bonds due 2031 were likewise unchanged at 54 bid.

Fresenius downsizes bonds

Thursday's sole nugget of primary market news had to do with deal shrinkage.

Although sources are saying that the leveraged loan market is in considerably worse shape than high yield, Fresenius Kabi nevertheless downsized its bridge to high-yield bonds loan by $350 million to $1.3 billion from $1.65 billion, and upsized its bank deal by $250 million, increasing its size to $2.45 billion.

The bank deal launches Monday in Europe and Wednesday in the United States.

An informed source expects the bond deal to launch in late September or early October.

Credit Suisse, JP Morgan and Deutsche Bank Securities are joint bookrunners for the bonds.

Proceeds will be used to help fund the acquisition of Schaumburg, Ill.-based intravenous drug manufacturer APP Pharmaceuticals, Inc., to refinance APP's existing senior credit facility, and for general corporate and working capital purposes.

One-deal market

With timing on the Fresenius bonds remaining to be determined, the lights went down on the new issue market, Thursday, with only one deal being marketed.

Although price talk on Clear Channel Communications Inc.'s $980 million tranche of 10¾% senior cash-pay notes due 2016 (Caa1/CCC+) is expected before the end of the week, no news on the deal was heard Thursday.

Pricing is expected early next week.

One source close to the deal said that the notes were discussed as recently as last week in the context of a reoffer price in the 70s.

Deutsche Bank Securities, Morgan Stanley, Citigroup, Credit Suisse, RBS Greenwich Capital and Wachovia Capital Markets are leading the LBO financing, which is part of the legacy supply of deals that became hung up when the credit markets went into correction during the summer of 2007.

The bond portion of the financing also includes $1.33 billion of 11% senior PIK toggle notes due 2016, with a 75 bps step up if the PIK option is exercised.

On Aug. 1 underwriters converted Clear Channel's $2.31 billion bridge loan into the senior unsecured notes.

Elsewhere on the legacy LBO front, an informed source said that SunGard Data Systems Inc. is expected to price $700 million of senior unsecured notes during the next two weeks, in order to refinance the bridge loan related to its acquisition of a majority stake in GL Trade, according to a market source.

Goldman Sachs & Co., Citigroup and Lehman Brothers will lead the deal. KKR Capital Markets is one of the initial lenders.

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