MarkWest Energy deal prices; GM bonds accelerate on Kerkorian advice

By Paul Deckelman and Paul A. Harris

New York, June 30 - The high yield primary market slammed the lid on the first half of 2006 on Friday by pricing MarkWest Energy Partners LP's offering of 10-year senior notes, although the deal came at a sizable discount to par. That cleared the forward calendar, with no further activity expected till after the upcoming Independence Day holiday, since little activity is anticipated in Monday's abbreviated (2 p.m. ET recommended early close) pre-holiday session.

In the secondary market, it seemed as though the holiday break had already begun, with one trader declaring that for all intents and purposes, "the market was only open half a day."

However, the one name which was in fact actively traded in an otherwise sedate session was General Motors Corp., whose bonds firmed smartly, along with its shares, on the news that major shareholder Kirk Kerkorian is urging that the troubled carmaker enter an alliance with Nissan Motor Co. and Renault SA - and said that those two carmakers were interested in purchasing a significant minority interest in GM. That GM news also towed the bonds of its arch-rival, Ford Motor Co. higher, as well as the bonds of many of the struggling automotive parts makers, including the bankrupt, Troy, Mich.-based former GM subsidiary - and still its largest supplier - Delphi Corp.

A high yield sell-side source said the junk market had a good tone Friday morning trailing the GM news.

"But by noon the market just fell off a cliff," the source added, specifying that high yield players in the U.S. were abandoning their posts ahead of a four-day - and in some cases, apparently, 4½ day - weekend surrounding Independence Day.

MarkWest prices $200 million

The last pre-Fourth of July action in the primary market came from Denver-based natural gas gathering and transmission company MarkWest, which priced a $200 million issue of 8½% 10-year senior notes (B2/B) at 98.35 to yield 8¾%, at the wide end of the 8½% to 8¾% price talk.

RBC Capital Markets, JP Morgan and Wachovia Securities were joint bookrunners for the debt refinancing deal.

Mega-deals push week over $5 billion

Tallying the MarkWest deal, the pre-Fourth of July week saw slightly more than $5.65 billion of new junk price in 11 dollar-denominated tranches.

Most of that tally came from two issuers, Windstream Corp. and Nortel Networks Ltd., which priced a combined five tranches that generated $4.503 billion of proceeds.

Windstream priced $2.546 billion ($2.503 billion of proceeds) of senior notes (Ba3/BB-) in two parts on Wednesday.

The Little Rock, Ark.-based telecommunications company created by Valor Communications Group Inc.'s acquisition of Alltel Corp. Inc.'s landline telecom business, priced $800 million of seven-year notes at par to yield 8 1/8%. The yield came at the wide end of the 8% to 8 1/8% price talk, which had been revised from 7¾% to 8%.

The company also priced $1.746 billion of 8 5/8% 10-year notes at 97.547 to yield 9%, the notes came on top of the price talk, which had been revised from earlier talk that had the notes pricing in a range of 8 1/8% to 8½% (3/8% to ½% wide of the original talk on the seven-year notes).

Merrill Lynch & Co. and JP Morgan were joint bookrunners.

Nortel Networks, meanwhile, priced $2 billion of senior notes (B3/B-) in three tranches on Thursday: a $1 billion tranche of five-year floating-rate notes at par to yield three-month Libor plus 425 basis points, on top of price talk; a $550 million tranche of seven-year bullets at par to yield 10 1/8%, in the middle of the 10% to 10¼% price talk; and a $450 million of 10-year non-call-five paper at par to yield 10 ¾%, at the wide end of the 10½% to 10¾% price talk.

JP Morgan and Citigroup ran the books.

At the close of Friday's session year-to-date new issue volume stood at just under $69.57 billion in 198 dollar-denominated tranches.

Hence in a year-over-year comparison 2006 continues to wallop 2005 in terms of proceeds generated by new issuance. At the June 30, 2005 close year-to-date issuance was just a smidge over $52 billion. However 2006, with its 198 tranches, continues to lag 2005 in terms of deal volume: by the June 30, 2005 close 210 tranches had priced.

Quiet ahead

A sell-side source told Prospect News on Friday that while a burst of new business is anticipated in the leveraged loan market, post-Fourth of July, the high yield primary market is not necessarily expected to come roaring out of the gates.

Citing Thursday's report from AMG Data Services, that $379.3 million of outflows had been sustained by the high yield mutual funds for the week to June 28 - bringing 2006 net flows from funds that report to AMG on a weekly basis to negative-$3.638 billion - this source said that the liquidity of the asset class is possibly less stellar than was roundly believed to be the case in early- and mid-spring.

Regardless, as the United States prepares for Independence Day's bombs bursting in air, the calendar has only two deals crossing over from pre-Fourth of July to post-.

Headwaters Inc. a Utah-based provider of energy and construction related products, remains in the market with a $150 million offering of 10-year senior subordinated notes (B3/B), a debt refinancing deal via Morgan Stanley.

And Toronto-based mining, exploration and development company Coalcorp Mining Inc. continues to market its dollar-denominated notes and warrants units offering, the size of which remains to be determined.

GMP Securities is leading that deal.

MarkWest up in trading

When the new MarkWest Energy Partners 8½% senior notes due 2016 were freed for secondary dealings, a trader saw the Denver-based natural gas company's new bonds at 99.125 bid on the break, up from their issue price at 98.35.

He saw Nortel's floating-rate notes due 2011 at 101.75 bid, 102 offered, while the Brampton, Ont.-based telecommunications network equipment provider's 10 1/8% notes due 2013 were at 102 bid, 102.5. He did not see any activity in the company's 10¾% notes due 2016. All three tranches had priced at par on Thursday.

At the same time, he saw both tranches of Windstream's new bonds - its 8 1/8% notes due 2013 and 8 5/8% notes due 2016 - trading at around 102.25 bid, 102.5 offered. The seven-year bonds had priced at par on Wednesday, while the 10-years had priced at 97.547.

Another trader, who saw the other new bonds all at similar levels, saw the Nortel 103/4s as high as 103.25 bid.

GM jumps on Kerkorian move

But the trading in new-deal connected notes was at best a sideshow on Friday, since the junk market's main focus, a trader said, was GM.

"It was all GM, all the time," he opined, quoting the carmaker's benchmark 8 3/8% notes due 2033 at 80 bid, 80.625 offered, which he said was at least 3½ points higher. Among the shorter GM issues, he saw the company's 6.85% notes due 2008 1½ points better at 93.75 bid, 94.75 offered.

Another trader saw a more restrained rise in the 8 3/8% GM long bonds, to 78.25 bid, 79, which he called up 2½ points. He also saw the bonds of the company's General Motors Acceptance Corp. financial subsidiary 1½ points higher, with GMAC's 8% notes due 2031 trading at 95.25 bid, 95.75 offered.

A market source at another desk called GM's 7 1/8% notes due 2013 up 3½ points at 84 bid, while the 8 3/8s were seen having risen as much as five points to 81.5 bid.

GM's New York Stock Exchange-traded shares jumped $2.35 (8.56%) to $29.79. Volume of 55.3 million shares was more than four times the norm.

The GM bonds and shares, as well as the company's bank debt, were taking their upside ride in response to the news that 9.9% shareholder Tracinda Corp., controlled by octogenarian billionaire investor Kerkorian, said in a Securities and Exchange Commission filing that the current strategic alliance between France-based Renault and Japan's Nissan has created "tremendous engineering, manufacturing and marketing synergies, resulting in substantial benefits and cost savings" to both companies.

Kerkorian appears to be trying to play matchmaker between GM - of which he is the third-largest shareholder - and the other two companies. He also reportedly sent the chiefs of Nissan and Renault, Carlos Ghosn and Louis Schweitzer, a letter touting the benefits of bringing GM into their partnership.

Tracinda urged GM's board to form a committee to "immediately and fully explore this opportunity together with management."

GM said that it will take Kerkorian's suggestions under advisement by its board of directors. The board is reported to have met Friday, but results of that meeting were not publicized. It said that it has not received any offers or proposals from Renault and Nissan about entering into an alliance with them.

Even though the Kerkorian news gave the bonds a solid boost, one of the traders was not really impressed.

"I don't know," he said, "I have my doubts. I think we may see a little selling in here, because there's a lot of question marks on this thing right now. I heard some people speculating that this [alliance with Renault and Nissan] may not be the best fit.

"But who knows?" he added. "Kerkorian is trying to move the process along, and it kind of keeps [GM chairman and chief executive officer Rick] Wagoner in the hot sea, that's for sure."

GM lifts other auto names

The GM news provided a boost for other automotive bonds. A trader saw GM rival Ford's 7.45% notes due 2031 up 1¼ points at 71.75 bid, 72.25 offered, while the latter's Ford Motor Credit Co. financing arm's 7% notes due 2013 were ¾ point better at 86 bid. 86.25 offered.

Among the auto parts supplier names, he said, Southfield, Mich.-based interior and seating components maker Lear Corp.'s 5¾% notes due 2014 were ¾ point better at 81.5 bid, 82.5 offered, while its 8.11% notes due 2009 were around half a point better, he said, at 97.25 bid, 97.75 offered.

Even the bankrupt auto parts companies got into the act, with former GM unit Delphi's 6.55% notes due 2006 a point better at 84 bid, 85 offered, while its 6½% notes due 2013 and 7 1/8% notes due 2029 were each seen half a point better at 78 bid, 79 offered.

Bankrupt Toledo, Ohio-based parts maker Dana Corp.'s 6½% notes due 2008 were unchanged at 84.25 bid, 85.5 offered. Its 5.85% notes due 2015 were ¾ point better at 75.5 bid, 76.5 offered and its 7% notes due 2028 were a point up at 77.5 bid, 78.5 offered.

Bankrupt Novi, Mich.-based vehicle frames maker Tower Automotive Inc.'s 12% notes due 2013, however, were unchanged at 66 bid, 68 offered.

Market mostly quiet

Apart from the automotive names, the junk secondary was quiet. Case in point was Bally Total Fitness Holding Corp., whose bonds held steady at 104 for its 10½% notes due 2011 and 98.5 for its 89 7/8% notes due 2007 - even as the Chicago-based fitness chain operator's NYSE-traded shares fell 52 cents (7.12%) to $6.78, on volume of 2.2 million shares, seven times the norm. There was no fresh news out on the company, which earlier in the week had released its quarterly financial results.

Xerox zooms

Late in the day, a market source said Xerox Corp. bonds were solidly better, quoting the Stamford, Conn.-based copier and office imaging giant's 7 1/8% notes due 2010 at levels as high as 107 - a better than six-point gain.

There seemed to be no ready explanation for the rise, with Xerox's only recent news being relatively minor in the grand scheme of things - an announcement that it has entered into what it only called a "multimillion-dollar deal" to put 1,200 Xerox color printers into Staples Inc. stores across the country, as well as the news that handheld computer maker Palm Inc. will pay Xerox $22.5 million to file a long-contested patent infringement suit.

Overall, a trader said, "high yield definitely had a positive tone" Friday, although he said that it was "nothing exciting because the volume was low, with a lot of people filtering out. Monday's going to be dead, and Wednesday's going to probably be dead. Next week [i.e. the week ending July 7] is going to be dead - but there was a little bit of buying out there."

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