Mueller Water deal prices; NewPage, post-IPO news GM off, U.S. Steel up; funds up $50 million

By Paul Deckelman and Paul A. Harris

New York, Aug. 19 - Mueller Water Products, Inc. priced a $225 million offering of 10-year notes on Thursday, high-yield syndicate sources said. It was the day's sole pricing, as the junk-bond primary market continues the relatively leisurely pace it has adopted this week, in sharp contrast to last week's veritable buzz saw of nearly continuous new-issue activity.

Traders said that when the Atlanta-based water pipes and flow-control equipment maker's new bonds moved into the aftermarket, the new deal firmed smartly from its below-par issue price.

NRG Energy, Inc.'s recently priced mega-deal continued to firm from its Tuesday issue price, while Monday's Toys 'R' Us - Delaware, Inc. deal held most of its secondary gains.

Away from the new issues, NewPage Corp.'s bonds continued to lose ground, falling another couple of points despite a lack of any obvious fresh bad news about the paper company.

Also on the downside were General Motors Corp.'s bonds following the late-Wednesday announcement elaborating on the carmaker's plans for an initial public stock offering.

United States Steel Corp.'s bonds firmed, apparently helped by takeover speculation about the company.

Junk funds gain almost $50 million

And as the session's activity was winding down, participants familiar with the Lipper FMI weekly high-yield mutual fund-flow numbers compiled by AMG Data Services of Arcata, Calif. - considered a reliable barometer of overall junk-market liquidity trends - said that in the week ended Wednesday, $49.55 million more came in to those funds than left them.

It was the sixth inflow in as many weeks, following on the heels of the $574.8 million cash injection seen the previous week, which ended Aug. 4, although this was the first one of that group that failed to even break $50 million - a possible sign of lessened investor interest in Junkbondland.

Over those six weeks, inflows have totaled $4.159 billion, according to a Prospect News analysis of the figures provided by market sources. The latest addition raised the year-to-date cumulative total for the weekly reporting funds to $4.847 billion, according to the analysis - a new peak level for 2010, versus the previous peak level of $4.797 billion recorded the week before. The funds hit their biggest year-to-date negative number so far in the week ended June 9, with a cumulative deficit of $475 million.

With the 2010 third quarter now well under way, inflows have now been seen in 22 weeks out of the 33 since the beginning of the year, while there have been 11 outflows, the Prospect News analysis of the data indicated. After a strong start to the year, including a stretch from late February through late April that saw 10 consecutive weekly inflows totaling over $4 billion, the flows turned negative for six weeks in May and early June, with about that same total amount of net outflows. After that, the flows were choppy, with several weeks of gains followed by several weeks of losses until the current surge began in mid-July.

Any and all cumulative fund-flow totals can include unannounced revisions and adjustments to figures from prior weeks.

Mueller Water prices at talk

The Thursday primary market session saw a single deal clear.

Mueller Water Products, Inc. priced a $225 million issue of 8¾% 10-year senior notes (B1/B+) at 98.37 to yield 9%, on top of the price talk.

Bank of America Merrill Lynch and Goldman, Sachs & Co. were the joint bookrunners for the bank debt-refinancing deal from the Atlanta-based manufacturer and marketer of drinking water transmission, distribution and treatment facilities.

Calendar empty

With the clearing of the Mueller Water deal, the primary market's business for the Aug. 16 week appears to be concluded, a debt capital markets banker said well after Thursday's close.

One other deal had been expected to price during the present week, but it has been pushed back into the post-Labor Day period.

Late last week RAAM Global Energy Co. talked its $200 million offering of five-year senior secured second-lien notes with a 12½% area yield.

Global Hunter Securities and Knight Libertas are the joint bookrunners.

That deal is now September business.

The Lexington, Ky.-based oil and gas company came to the high-yield market in order to raise cash to repay bank debt and to use for general corporate purposes.

With Muller Water pricing and RAAM Energy pushed into September, the active forward calendar is empty.

It is possible that the new deal market could see a slight amount of business during the more than two weeks that remain before the extended Labor Day holiday weekend in the United States, sources said.

In any case, primary market business for the remainder of the summer is expected to be very slow, they added.

Mueller moves up

When Mueller Water Products' new 8¾% notes due 2020 were freed for secondary dealings, traders saw the bonds post solid gains.

One said that "we traded a bunch of it" around 100 3/8 bid, 100¾ offered, well up from the 98.37 level at which the $225 million deal had priced.

"It was up," he said. "And it worked pretty well for the people that got involved in it."

He said that there was "pretty decent demand" for the new Mueller issue. "The worry for some people," he said, was that the company has the option of increasing its outstanding asset-backed facility, which is senior to the new issue, by $150 million. "So some people are concerned about that - but all things considered, the issue traded pretty well. Then it ran out of steam, and now we'll just have to see where it settles."

A second trader saw the new bonds "absolutely" having a good break, quoting them at 100¼ bid, 100¾ offered, while a third also saw the new bonds at that level.

NRG issue up

A trader saw NRG Energy's 8¼% notes due 2020 having moved up to 101 1/8 bid, 101½ offered.

The Princeton, N.J.-based power-generating company priced $1.1 billion of those bonds on Tuesday at par, upsized from the originally announced $700 million.

They initially moved up to around 100¾ bid, 101 3/8 offered when they were freed for the secondary and continued to move up to present levels.

Toys trades steady

The trader also saw Toys 'R' Us' new 7 3/8% senior secured notes due 2016 trading at 101 bid, 101 3/8 offered.

That's around the same level where the Wayne, N.J.-based specialty retailer's $350 million issue had traded in initial aftermarket dealings following their par pricing on Monday. The bonds have hung in at or above 101 bid ever since.

"I haven't seen NRG or Toys give anything back," a second trader said. While he was "really not seeing much" of NRG in Thursday's session, he noted that Toys 'R' Us "still has its mid-101 handle."

Ford Credit deal quiets down

Ford Motor Credit Ltd. saw strong institutional interest in the Canadian secondary bond market soon after the company priced C$550 million of 7½% notes due 2015 at par in a private placement on Aug. 11, but "at this point, it's died off," a trader said Thursday.

The notes were seen trading at 101¼ bid, 101½ offered.

"It has ridden up a little bit," the trader said. "It's fairly tightly held, so we're not seeing much two-way at this point."

Secondary activity picked up soon after the deal from the Canadian unit of Ford Motor Co.'s auto loan financing unit, Ford Motor Credit Co., priced off the investment-grade syndicate desks.

The trader said that there were "no huge sizes, but a lot of interest through brokers, mostly institutional."

The placement agents were BMO Nesbitt Burns, RBC Capital Markets and Scotia Capital.

Market indicators turn mixed

Away from the new-deal sector, a market source saw the CDX North American HY Series 14 index lose ½ point on Thursday, to 97 bid, 97¼ offered, after having gained ¼ point on Wednesday.

The KDP High Yield Daily index meantime edged down by 2 basis points Thursday to end at 71.90 after having eased by 1 bps on Wednesday. Its yield rose by 1 bp Thursday to 8.24% after having come in by that same amount on Wednesday.

The Merrill Lynch High Yield Master II index finished higher for a fourth straight session on Thursday, continuing to bounce back after having been down for the previous four sessions last week. Its year-to-date return rose by 0.063% to end the day at 8.696%, up from 8.628% on Wednesday. However, it still remains below its peak level for 2010 so far, the 9.085% recorded on Aug. 9.

Advancing issues fell behind decliners on Thursday after having led them the previous three sessions. However, the difference between the groups was only a couple of dozen issues out of more than 1,400 tracked. On Wednesday, the gainers had led the decliners by around a seven-to-six margin for a second consecutive day.

Overall activity, represented by dollar-volume levels, fell 24% on Thursday after having held steady on Wednesday.

A trader said that there wasn't too much going on. "I really did not catch much" of anything, he said.

"Once you get a little bored, you get distracted and doing other things, so it feeds on itself. Basically, that's why people disappear and leave early.

"If you're not plugged in to something [specific], you know, it's August, and you want to drift."

At another desk, though, a trader said that he had seen "a lot of 'bids-wanted' and 'offers-wanted' today" in names like Trico Marine Services, Inc. "You've got people trying to figure out what's going on with the restructuring there."

The Woodlands, Texas-based provider of marine services to the energy and undersea cable industries is currently in negotiations with its lenders, but it warned earlier this month that that it may still need to seek bankruptcy protection even if those talks to restructure its debt obligations were successful. He said that Trico's operating company 11 7/8% notes, currently trading around 90, "look somewhat attractive."

"There's still good cash demand for any number of names," he added. "Some people are saying there's nothing going on - but we found ourselves pretty busy."

However, yet another trader characterized Thursday as "just a slow market."

NewPage notes 'cratering'

Among specific issues, NewPage debt was "still getting smacked," a trader told Prospect News.

The trader said the 11 3/8% notes due 2014 "lost a little more ground," ending around 80, with $40 million to $50 million trading.

The trader also saw the 10% notes due 2012 "down another couple points" to 341/2, while the "really sub stuff," the 12% notes due 2013, were "offered as cheaply as 18."

A second trader said the 11 3/8% notes were "down another almost 3 points," also around the 80 mark.

Yet another market source quoted the notes at 80 bid, 80½ offered, down from 83 bid, 84 offered previously.

"Thos things started cratering yesterday," the trader said.

There hasn't been any news out on the Miamisburg, Ohio-based coated papermaker. But market sources agree that something is up.

"It's a little ugly out there right now for them. It's been brewing for a while," a trader said.

"It's definitely causing some angst."

Earlier this month, the company posted a net loss of $174 million, a significant increase from the prior year's net loss. This resulted in a CreditSights research note, which said the company's "very thin" liquidity cushion could be its undoing come 2011.

GM drops as market mulls IPO

A trader said that General Motors' benchmark 8 3/8% notes due 2033 "had a wide range," seeing the Detroit auto giant's bonds trade down to around 34; "then, they kicked back up" to finish around 34½ bid, 35 offered, which he called down ½ point on the day.

"It was not that big a deal," he said, "not that much. It was within a 1-point move. If you open the day at 34¼ to 35¼ and it trades in between, it doesn't mean a whole lot. It didn't go wild - it traded down a little bit, and there was decent activity."

However, a second trader said later on that the bonds were going out down 1¼ points, falling to 33¼ bid, 34¼ offered.

And yet another trader saw them down even further, quoting them off 1¾ points at 33½ bid, 34½ offered. GM domestic arch-rival Ford's 7.45% bonds but 2031 were meantime down 1 point at 96½ bid, 97½ offered.

The bonds moved around as investors evaluated GM's announcement, made around the close of trading on Wednesday, that it had filed the paperwork with the Securities and Exchange Commission in preparation for its long-awaited stock offering, which could take place as soon as October. GM, now 61% owned by the U.S. government, with other large stakes held by Canada's government and the United Auto Workers union health-care trust, sees the stock sale as a vital first step toward eventually shedding government ownership by giving Washington a means to sell at least part of its big stake.

However, in its 700-page S-1 filing with the SEC, GM - while outlining the reasons why investors might want to buy the stock, and also the risks that such buyers might face - did not say how many shares would be up for sale and how many of those would be Uncle Sam's, nor did it set a target share price or say how much in proceeds it expects to generate.

Analysts have bandied the figure of $20 billion around for possible total proceeds - a fraction of the roughly $70 billion that GM owes the U.S. and Canadian governments and the union health-care trust. They expect GM to slate several additional sales, assuming the first one goes well.

However, they caution that right now, the IPO market is weak - and GM, with losses totaling nearly $100 billion over the five years preceding last year's Bankruptcy Court reorganization, may be a tough sell for investors. On the other hand, they note that the company was able to shed tens of billions of dollars of debt and union contract obligations through its reorganization, and it has been in the black for the last two quarters. GM earned $2.2 billion in the first half of this year despite depressed U.S. auto sales, helped by overseas sales in fast-growing countries like Brazil and China. In the latter country, for instance, GM is the top non-Chinese carmaker in terms of sales and sells more Buicks there than it does in the United States.

U.S. Steel strong

Another long-time U.S. industrial icon fallen upon hard times in recent years is Pittsburgh-based U.S. Steel - a major supplier to GM and other domestic carmakers - which years ago tumbled from its perch as the world's biggest steel manufacturer and is now perhaps No. 10 worldwide in terms of total sales.

Takeover rumors involving U.S. Steel possibly being an acquisition target of the company that has assumed its old position as the world's biggest producer, Luxembourg-based ArcelorMittal, pushed U.S. Steel's shares up on Wednesday, while its bonds were seen firmer on Thursday - even though analysts doubt that such a takeover transaction will ever take place, due to U.S. antitrust and national security concerns.

A market source said U.S. Steel's 6.05% notes due 2017 were seen going home at 102 bid, up from their about par closing price seen Wednesday, although on a round-lot basis, the bonds only gained a point, to 99 bid, on volume of about $5 million.

The steelmaker's 7 3/8% notes due 2020 hit a high of 103¼ bid, up some 2½ points on a round-lot basis, although only a couple of million in bonds were traded.

Cristal Cody and Stephanie N. Rotondo contributed to this report

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