GM cruises as junk jumps; SemGroup tumbles on no news; new Ticketmasters up; funds lose $71 million

By Paul Deckelman and Paul A. Harris

New York, July 17 - High yield bonds were up for a second consecutive session on Thursday, this time strongly so, as the junk market took its cue from a resurgent equity sphere riding the crest of lower oil prices and favorable earnings data from such key companies as International Business Machines Corp. and J.P. Morgan Chase & Co.

One of the big winners in junk bond land was General Motors Corp., whose widely traded benchmark paper was seen up by several points in heavy trading. GM towed some related names higher, including its 49%-owned automotive finance unit GMAC LLC, and domestic arch-rival Ford Motor Co.

Elsewhere on the upside, Six Flags Inc.'s bonds rose after the New York-based theme park operator said that it was on track to become free cash flow-positive for the first time in the company's history.

Ticketmaster's newly priced eight-year notes were seen having firmed solidly when the bonds were freed for secondary dealings, although the same could not be said for HSN Inc. - like Ticketmaster, currently a unit of IAC/InterActiveCorp. being spun off by its parent - whose new bonds were seen only modestly changed from the discounted level at which they had priced on Wednesday.

Little was seen going on in the new-deal arena on Thursday.

Back among the established names, the disaster of the day was clearly SemGroup LP, whose bonds tumbled, along with its shares and its bank debt, although there was no firm news out during the trading day on the Tulsa, Okla.-based energy pipeline company that might explain the bizarre collapse. Long after the close, it said that the company was experiencing liquidity problems and would have to look at strategic alternatives, possibly even including a bankruptcy filing.

Funds fall by $71 million on week

And as trading was winding down for the day, 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, some $70.6 million more left the weekly-reporting funds than came into them. It was the second straight outflow, following the $45.2 million cash exodus seen in the previous week, ended July 9.

Outflows have now been seen in four weeks out of the last five, dating back to the week ended June 18; during that time, the funds have lost a net of $813.676 million, according to a Prospect News analysis of the AMG figures. 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 Prospect News analysis. Before April, outflows had been recorded in most weeks.

With the year slightly more than half over, inflows, after that slow start, remain solidly ahead, with 16 inflows, versus 13 outflows seen in the 29 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 adjustments and revisions, are now estimated at $1.119 billion, down from $1.19 billion the previous week. At its peak, the 2008 net inflow totaled $1.933 billion in the week ended June 11.

A market source meantime said that in the week ended Wednesday, funds which report on a monthly basis, rather than on a weekly one, showed an approximately $0.7 million outflow, in contrast to the previous week's $54.6 million inflow. That brought the year-to-date total inflow for the monthly reporters down to $3.069 billion. On an aggregate basis combining the weekly- and the monthly-reporting totals, year-to-date inflows for high yield mutual funds stand at $4.189 billion, down from $4.26 billion the previous week.

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, more recently, hedge funds.

Market indicators surge forward

A market source pegged the widely followed CDX junk bond performance index up 5/8 point on Thursday, quoting it at around 93¼ bid, 93½ offered. The KDP High Yield Daily Index rose by 35 basis points to end at 71.21, while its yield tightened by 10 bps to 10.50%.

In the broader market, advancing issues led decliners by a two-to-one margin. Activity, represented by dollar volume, rose about 5% from the levels seen in Wednesday's session.

"With oil prices collapsing and the stock market off to the races," a trader said, junk was up from the get-go. "Things were really heating up in high yield. We saw the market move ½ to ¾ point on the sort of weak stuff and a good 1 point or more on the go-go type names."

He said that "there's some real buying interest, and we're seeing it coming in from a variety of different accounts."

However, he acknowledged that "on the flip side of that, there have been some guys who look at this as an opportunity to sell, and to up-trade." These participants, he said, view the current surge as "just a bear-market rally, and they don't believe in the move and will be looking to sell."

On the whole, he said, the sudden change in market tone "has created a lot of opportunity and a lot of trading. It was a very active day," the likes of which had not been seen for some time - certainly not so far this month. Up until Thursday, "it's been spotty - here and there you have some activity - but this is probably the most active day we've had here in quite a while."

He said that upswing extended pretty much "across the board - we've been trading some gaming names, some telecom, some retailers. It's been a smattering, across the board, with no particular sector" dominating.

Another trader agreed that "obviously, there was a much better tone" on Thursday. "No question about it, there were accounts jumping in that had been on the sideline for weeks, putting money to work."

Although the AMG number came in negative - albeit modestly so - he said that "I wouldn't be surprised if next week's AMG number is up. I believe that we'll have market-timers jumping back in - if they haven't already." Barring anything dramatic, "I would expect and up number next week."

Most junk players, he said, will likely view the current turnaround - however long it may last - "as a buying opportunity, because they'll have the comfort level of the equity market and financials rebounding."

GM jumps as junk rolls

With the junk market as a whole trading much better, there was a lot of activity in one of high yield's flagship names, General Motors. Taking their cue from equities - where GM's New York Stock Exchange-traded shares surged by $1.37, or 11.93%, to $12.85, in leading the bellwether Dow Jones Industrial Average up by 207.38 points, or 1.85%, to close at 11,446.66 - GM's bonds were seen having firmed smartly.

A market source said that its 8 3/8% bonds due 2031 were about ¼ point higher at 53.25, on very active trading. Elsewhere, traders saw that benchmark issue doing even better, one quoting the bonds up 3½ points on the day to 56.5 bid, while another trader saw them closing at 55.5 - down from its day's highs at 56.875, but still up from 54 on Wednesday.

Among GM's shorter issues, its 9.40% notes due 2021 gained more than 3 points to end at 58, while a source saw its 6¾% bonds due 2028 up as much as 5 points on the session, closing above the 46 level, in busy dealings.

Besides being carried along with the pretty much the rest of the financial markets, the bonds, and the company's shares, were also seen benefiting from belated investor response to the ambitious package of cost-cutting and capital raising measures which GM's chief executive officer, Rick Wagoner, unveiled at mid-week. He said that GM would generate $10 billion of internal cost savings and other ways of improving its balance sheet over the next two years, while looking to borrow between $2 billion and $3 billion, and generating a like amount by selling non-core assets.

The strength in GM led related issues higher, with a trader seeing GMAC's 8% bonds due 2031 up 2½ points at 61.5, while its 6 7/8% notes due 2012 were ½ point better at 64. At another desk, the 8s were seen having risen nearly 4 points to about the 62 level.

A trader saw Ford Motor's 7.45% bonds due 2031 get as high as 56 bid before closing at 55, up from 53.5 on Wednesday. However, another actually saw those Ford bonds coming down from their earlier peak and ending in the 52 area, down half a point.

Among the parts suppliers, a trader saw Lear Corp.'s 8½% notes due 2013 up more than a point at 83.625 bid, while its 5¾% notes due 2014 gained nearly 2 points to end just above 75. But Delphi Corp.'s 6.55% notes that were to have come due in 2006 were off nearly a point at 17 bid.

The joys of Six

Apart from the autosphere, Six Flags' bonds jumped on its predictions that its performance to-date has positioned it to be free cash flow positive for the first time in the company's history.

A trader saw its 9 5/8% notes due 2014 closing at its day's high of 49, up from 45 on Wednesday, quipping "that one's a roller-coaster ride." He saw its 9¾% notes due 2013 move up 2½ points to 49.5.

At another desk, the 9 5/8s were seen up more than 4 points at 49.

Six Flags made its projections as it released the results of customer surveys conducted by independent market research firm Delta Market Research of Hatboro, Pa., claiming that its overall guest approval ratings through mid-July of the 2008 peak operating season "remain at or above all-time highs, maintaining last year's record scores." Delta surveyed visitors at 12 Six Flags branded locations, giving the company high marks in such areas as ride safety, park cleanliness and fast-moving lines at the food stands, among others.

Six Flags also boasted that 78% of the customers polled said that they would "definitely" recommend Six Flags to a friend and 72% would "definitely" visit again this year or next.

Those gaudy numbers also helped Six Flags' NYSE-traded shares - which had plunged 44% on Wednesday to less than 50 cents per share - shoot back up by 39 cents, or 8.25%, to 87 cents, on more than four times their normal volume.

SemGroup stumbles, paper tumbles

But while GM and Six Flags were sizzling, SemGroup's bonds were fizzling, although nobody seemed to know exactly why. A trader saw its 8¾% senior notes due 2015 all the way down around 40 bid in morning dealings, from levels at 98 on Wednesday, and by the day's end, he had seen those bonds fall even further, to around the 28 bid, 31 offered level.

Another trader also quoted them offered at 31, down from about 96-97 previously while a third saw the bonds having actually been beaten down to 23 bid, 28 offered.

Subsidiary SemGroup Energy Partners LP's shares plummeted $11.80, or 51.75% - the biggest price decliner of the day on the Nasdaq, percentage-wise - to close at an even $11 per share. Volume of 5.7 million shares was an astounding nearly 84 times the usual turnover of about 68,000.

One of the bond traders scoffed that "there's no way that the notes should be trading at 20 or 30, if the stock is still trading at $10, especially if [the issue size] is only $600 million." With the bonds down that low, "the stock should be below a buck."

During the trading day, what was going on was shrouded in mystery. The company did not return e-mails and phone calls seeking an explanation or comment on the unusual decline in its securities, and there were no news stories circulating that might neatly explain it.

On Thursday evening, however, long after the day's transactions had wrapped up, SemGroup Energy Partners issued a statement, saying that it had been informed by parent SemGroup, LP that the latter company "is experiencing liquidity issues and is exploring various alternatives, including raising additional equity, debt capital or the filing of a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code."

The president and chief executive officer of the Energy Partners subsidiary, Kevin Foxx, further stated that "until our parent advises us of their course of action, we cannot fully evaluate and are not yet prepared to comment on how any such action taken by our parent might affect [SemGroup Energy Partners]."

During the day, in the absence of definitive hard news, there was speculation on investment-oriented internet bulletin board and blogsites of all kinds of reasons for the slide in the shares and bonds.

"There's a lot of theories as to why they are lower," a trader said, "but I don't know if any of them are true. None of them can be substantiated."

The company had held a conference call for members of its bank lending group on Tuesday, the contents of which were not publicly announced, while the parties present were restricted, or sworn to secrecy. "Whatever was said on the bank call," he said, "drove these things lower."

A source in the bank loan market said that SemGroup's term loan had been trading in a mid-to-upper 90s context on Tuesday before the conference call, but then had dropped to 65 bid, 75 offered late Wednesday and had careened further downward, to 45 bid, 55 offered, on Thursday.

Late in the session, Moody's Investors Service and Fitch Ratings each downgraded the company's credit status, citing their respective concerns about its liquidity position and ability to continue meeting its covenant requirements.

Moody's cited the impact of energy price gyrations, noting that "while SemGroup has been running an operationally sound business with attractive regional business niches and adequate hedged margins, in Moody's view the over 50% rise in sector oil prices since March 31, 2008 is likely to have pressured its liquidity position and highly volatile hydrocarbon prices would have been challenging to its hedged trading business. Given where oil prices have run since March 31, 2008, we anticipate much higher funding needs for (a) hydrocarbon inventories and accounts receivables and (b) the posting of much higher cash margin deposits given that the rapid pace of price increase would yield market prices that exceed the prices of existing exchange traded hedges."

New Ticketmaster bonds trade up

Among the recently priced issues, traders saw Ticketmaster's downsized $300 million issue of 10½% senior notes due 2016 as having firmed smartly to the 102 bid, 102.5 offered level after having priced at par on Wednesday.

A trader said that at his shop "we really didn't trade any" of the bonds, and said dealings in them were kind of thin. There were no real sellers and guys weren't reaching for them. It seems like guys [mostly] got what they wanted" when the deal was allocated. Nonetheless, he said, "they settled to a nice premium."

On the other hand, the HSN 11¼% notes due 2016, a downsized $240 million of which had priced Wednesday at 99.352, settled in at 99.5 bid, par offered, "again on light trading."

At another desk, a trader saw the Ticketmasters at 102.125 bid, 102.625 offered, while the HSN paper had moved up to 99.75 bid, 100.5 offered.

All quiet

No issues were priced and no deal announcements were made on Thursday.

Some market observers had been anticipating terms to surface on the Interval Acquisition Corp. $300 million offering of eight-year senior notes (B1/BB) via Morgan Stanley.

However trailing the close no terms had been heard, according to a market source.

Earlier in the week those notes were talked at 10¾% to 11%.

Interval Acquisition is one of three deals related to spin offs of entities from IAC/InterActiveCorp.

The other two were priced on Wednesday, and they both came wide of the price talk.

Ticketmaster priced its downsized $300 million (from $400 million) issue of eight-year senior notes (Ba3/BB) at par to yield 10¾%, 25 basis points beyond the wide end of the 10¼% to 10½% price talk.

Also HSN, Inc. priced a slightly downsized $240 million (from $250 million) issue of 11¼% eight-year senior notes (Ba2/BB) at 99.352 to yield 11 3/8%, 37.5 basis points beyond the wide end of the 10¾% to 11% price talk.

A trader from a high-yield mutual fund told Prospect News that the new Ticketmaster notes were doing well, at 102 bid, late Thursday.

The new HSN notes, meanwhile, were trading flat to issue price, the trader said.

© 2015 Prospect News.
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