Pioneer Drilling, tw telecom deals price, firm smartly; Zayo awaited; funds gain $314 million

By Paul Deckelman and Paul A. Harris

New York, March 4 - Pioneer Drilling Co. and tw telecom holdings, inc. were heard by high yield market sources to have successfully priced new eight-year offerings of $250 million and $430 million, respectively, during Thursday's session.

Secondary market sources meantime said that when the Pioneer and tw telecom deals were freed for trading, each new issue moved up solidly from their respective pricing levels.

Not so for the week's big deal, the $1.4 billion issue from HCA Inc., whose new 10-year senior secured notes remained mired right around their issue price. But other newly priced offerings from the likes of Solutia Inc. and Reddy Ice Corp. were seen holding at their higher initial aftermarket levels.

Back in the primary sphere, price talk was heard on Zayo Group LLC/Zayo Capital, Inc.'s upcoming offering of seven-year senior secured notes, with books on the deal scheduled to close Friday morning. Also seen as possible Friday pricings were Learning Care Group (US) No. 2 Inc. and Garda World Security Corp.

Among issues having no new-deal connections, Huntsman International LLC firmed on news the chemical company will tender for some of its other bonds.

Blockbuster Inc. jumped by several points following bullish comments by its CEO in a CNBC interview.

Junk funds see $314 million inflow

And as trading was winding down for the session, market participants familiar with the fund-flow statistics generated by AMG Data Services of Arcata, Calif. - a closely watched indicator of overall junk market liquidity trends - reported that in the week ended Wednesday some $314 million more came into those weekly-reporting high yield funds than left them.

A trader said that at his shop, they were estimating an inflow somewhere between $300 million and $500 million, but he expressed some surprise that this week's figure came in at the low end of that range.

It was the second consecutive cash infusion for the junk market as it continued to bounce back from two massive outflows seen before that -- $984 million in the week ended Feb. 10, followed by another $916 million in the week ended Feb. 17 - which reflected at least a temporary state of heightened investor angst, leading to a spate of redemptions from the funds.

However, between the latest inflow and the $470 million liquidity injection reported last week for the period ended Wednesday, Feb. 24, inflows the past two weeks have now totaled $784 million, according to a Prospect News analysis of the AMG figures. That, in turn, has lifted the year-to-date net inflow total for 2010 to $427 million, according to the Prospect News analysis, from roughly $113 million last week. Fund flows have gyrated between a peak cumulative inflow level of $1.576 billion in the week ended Jan. 20 and a net outflow of $357 million seen in the Feb. 17th week - the first such year-to-date net loss for the funds since early April of 2008, according to the analysis. In the nine weeks since the beginning of this year, AMG has reported six inflows, including this week's, against three weeks of outflows, the analysis indicated.

EPFR sees $476 million cash gain

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime reported that $476 million more came into the funds than left them in the latest week. That followed the $632 million inflow seen in the previous week, which - like the reported AMG inflow - also lifted the funds from a two-week rut in the Feb. 10 and Feb. 17 weeks which had seen some $1.76 billion of combined outflows.

Reflecting the difference in the way AMG and EPFR calculate their respective fund-flow totals, the latter said that on a year-to-date basis mutual funds are now showing a $1.56 billion net inflow, widening from $1.08 billion in the previous week, though still well down from the year-to-date peak of over $2 billion seen at the beginning of the month.

Any and all cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

The flow of money into and out of the junk bond funds is seen as a generally reliable barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they did in the past. Last year's strong pattern of inflows - with AMG reporting over $20 billion having come in to the weekly-reporting funds over the course of the year, along with over $10 billion more into funds which only report on a monthly, rather than weekly basis, and EPFR posting similarly robust numbers - were seen as a proxy for the overall surge of liquidity into the junk market from all sources, which helped to fuel record new issuance of over $160 billion and unprecedented secondary returns topping 57%.

tw telecom prices tight to talk

During the Thursday primary market session, tw telecom Holdings priced a $430 million issue of 8% eight-year senior notes (B2/B-) at 99.284 to yield 8 1/8%.

The yield printed at the tight end of the 8¼% area price talk.

Proceeds will be used to fund a tender for the company's 9¼% senior notes due 2014.

Pioneer Drilling sells $250 million

Elsewhere, Pioneer Drilling priced a $250 million issue of 9 7/8% eight-year senior notes (B3/B) at 95.75 to yield 10.677%.

The yield printed wide of the 10½% area price talk.

Bank of America Merrill Lynch, Goldman Sachs & Co. and Wells Fargo Securities were joint bookrunners for the debt refinancing.

Zayo talks $225 million

Meanwhile Zayo Group LLC and Zayo Capital, Inc. talked their $225 million offering of seven-year first-lien senior secured notes to yield 10½% to 10¾%, with approximately 1 point of original issue discount.

The books close at 11 a.m. ET on Friday.

Morgan Stanley & Co. Inc. and RBC Capital Markets Corp. are joint bookrunners.

Proceeds will be used to pay down bank debt and interest rate swaps and for general corporate purposes.

New tw trades up

When the day's new issues finally made it to the aftermarket, a trader said that "both broke with big premiums" to their respective issue prices.

A trader said that at his desk, "we've been trading a **** load" of the new tw telecom bonds, seeing the Littleton. Colo.-based telecommunications operator's new 8% notes due 2018 having moved up to 101¾ bid, 102 offered, after the $430 million offering had priced earlier at 99.284 to yield 8 1/8%.

A second trader also saw the bonds around that same area.

Pioneer pops in aftermarket

A trader said that Pioneer Drilling Co.'s new 9 7/8% notes due 2018 had gained about 2 points on the break, quoting the bonds as trading around a 97 context.

Another trader initially saw the bonds at 96-97 - but by the end of a five-minute phone conversation, he was quoting them as having moved up to 97½ bid, 98½ offered.

The San Antonio, Tex.-based contract energy drilling company's deal had earlier priced at 95.75.

A third trader also saw them at 97½ bid, 98½ offered.

Reddy Ice remains hot

A trader said that Reddy Ice's new bonds - both the downsized $270 million of 11¾% first-lien senior secured notes due 2015 which priced last Friday at par and the $30 million add-on, which also priced at par on Wednesday - "have done pretty well."

He saw the Dallas-based packaged ice company's new bonds at 101½ bid, 102 offered.

Solutia is solid

A trader said that Solutia Inc.'s 7 7/8% notes due 2020 were trading in a 100½ bid, 101 offered context, "so those are hanging in pretty well."

The St. Louis-based chemical company had priced its $300 million issue on Tuesday at 99½ to yield 9.748, and it had pushed above par on Wednesday and had stayed there.

"We saw continuing buy interest," he added.

HCA issue marooned

On the other hand, a trader said that HCA Inc.'s 7¼% first-lien senior secured notes due 2020 remained "dead in the water, basically stuck in the mud." The bonds were seen mired around 99 bid, just under the 99.095 level at which the Nashville-based hospital operator's $1.4 billion issue of bonds - upsized from the originally announced $1 billion - had priced on Tuesday to yield 7 3/8%.

"Basically, guys that put in [for the new bonds] got very full allocations," he said, lessening the need for anyone to buy the deal in the secondary market. "I think guys used it as a cash surrogate and it just stuck right at new issue.

"They're going nowhere fast."

Appleton up again

A trader said that Appleton Papers Inc.'s recent 10½% senior secured notes due 2015 - $305 million of which had priced on Jan. 29 at 98.035 to yield 11%, only to cascade down to levels below 90 in the days and weeks that followed on investor concern about its coated-paper niche industry and then rebound in recent days - "are almost back up to new-issue [level], quoting the bonds at 97 bid, 98 offered. He noted that the Appleton, Wis.-based paper maker's bonds had gained 2 points in each of the past three sessions to bring them up to current levels.

Sector peer NewPage Corp.'s bonds meantime "continued to be somewhat volatile," another trader said, seeing the Miamisburg, Ohio-based coated-paper company's 11 3/8% notes due 2014 trading around 971/2-98. He saw its 10% notes due 2012 trading around a 591/2-60½ context, but said there had only been about $3 million or $4 million tops of the latter bond trading, "not much at all. By far, the 11 3/8s were the most active," with between $25 million and $30 million having changed hands.

New Page's bonds, and those of other paper companies like Appleton, have been firm over the past two sessions on news that the U.S. Commerce Department has decided to slap duties on coated-paper imports from China and Indonesia on the grounds that subsidies from their respective governments give the imports an unfair market advantage. NewPage, Appleton and several other companies had filed unfair trade practice complaints with Commerce in order to get that ruling.

Market indicators stay strong

Among bonds not connected with the new-deal market, a trader saw the CDX Series 13 index up by 1/8 point on Thursday to end at 97¾ bid, 98¼ offered, after having gained ¼ point on Wednesday.

The KDP High Yield Daily Index meanwhile gained 11 basis points on Thursday to finish at 71.13, after having risen by 14 bps on Wednesday. Its yield came in by 4 bps on Thursday to 8.15%, after having narrowed by 6 bps on Wednesday.

Advancing issues topped decliners for a fifth straight session on Thursday, by about a four-to-three margin.

Overall activity, measured by dollar-volume levels, was up around 8% from Wednesday's pace.

A trader declared that "the market is firm."

However, another trader said that Thursday was "a slow-go."

He said that the secondary "was beginning to loosen up. We're seeing a little bit of trading here this afternoon. But it was a slow-go, most of the day" for the rest of the market. "Nothing really jumped out."

Huntsman higher on tender news

A market source saw Huntsman International's 7 3/8% notes due 2015 up about 1½ points at 97 bid, 98 offered, while at another shop, the Salt Lake City, Utah-based chemical company's issue was pegged at just under 98 bid, up 1½ points.

The gains were attributed to news reports that Huntsman plans to tender for its euro-denominated 6 7/8% notes due 2013 and 7½% notes due 2015, offering to buy back those bonds via a modified Dutch auction process, using the proceeds from an anticipated offering of senior subordinated debt.

Blockbuster bounces on CEO spin

A market source said that Blockbuster Inc.'s 9% notes due 2012 jumped nearly 4 points on the session to above 24 bid, in line with a strong surge in its shares, triggered by bullish comments from the Dallas-based movie-rental company's chief executive officer during a CNBC interview.

A source at another desk pegged the bonds up 4½ points to just under 25, on active volume of more than $20 million traded. Its New York Stock Exchange-traded shares - now languishing deep in penny-stock territory - zoomed some 32.84%, or nearly 10 cents per share, to end at 40 cents per share, on more than six times normal volume of about 26 million shares.

Despite the company's well-publicized trouble in preserving its once-dominant share of the movie rental market against encroachments by pesky upstarts like Netflix Inc. or Coinstar Inc's ubiquitous Redbox rental kiosks, forcing it to close many of its money-losing traditional brick-and-mortar stores to cut costs, CEO James Keyes was upbeat during the interview Thursday.

He proclaimed that Blockbuster "has a bright future" and is "in the middle of a dramatic transformation" that includes a lessening of its nearly "total reliance on DVDs" and development of a "a different form of distribution for both DVDs and digital content.

"We are," Keyes said, "building new channels."

Buyout buzz of little use to AK Steel

Another Wall Street story Thursday had little impact in Junkbondland. Equity investors got excited speculating that AK Steel Holding Corp. could be a buyout target - but the junk market did not join the parade, with the West Chester, Ohio-based specialty steel producer's 7¾% notes due 2012 seen unchanged at 100½ bid on a strictly round-lot basis. While there was some trading activity going on in smaller pieces, there too, the closing level a shade above 101 was little changed from Wednesday's close.

A trader said the $530 million of outstanding bonds "are so short that they can't really trade up, because they're callable. They're not really moving - because they can't go up." At current prices, the AK issue is trading at yields of 5% or below, which he termed "ridiculous."

AK's NYSE-traded shares, however, gained $1.56, or 6.84%, to close at $24.37, on volume of 26 million shares, triple the norm, on talk that the company - the fourth-biggest U.S.-based steel concern - might be in play. One name being bandied about as a possible acquirer was Brazil-based Compania Siderurgica Nacional. AK declined comment on what it termed "market speculation."

Even without the takeover talk, AK securities were trading at firm levels in wake of company announcements earlier in the week of higher steel prices to offset rising materials costs. AK announced plans to raise its prices on carbon steel orders by $40 per short ton, effective immediately, while also tacking on a $330 per ton surcharge upon all electrical and stainless steel shipments next month.

Visteon upside ride out of gas

In the autosphere, Visteon Corp.'s bonds - which had shot up more than 40 points over three sessions from Friday through Tuesday on good quarterly and full-year numbers and improved investor sentiment about the auto industry in the face of strong February sales -- continued to trade in the mid-80s on Thursday, the level to which they had fallen on Wednesday from Tuesday closing levels around 90, as their surge fizzled out.

A market source said the bankrupt Van Buren Township. Mich.-based automotive components company's 7% notes due 2014 finished at 84½ bid, actually up about ½ point from Tuesday's close, though down a point on a round-lot basis, with about $5 million changing hands. Its 8¼% notes coming due this Aug. 1 , which had ended Wednesday around an 88 level, dropped back to 841/2, trading on top of the 7s, though in light dealings of under $5 million.

At another desk, the 7s were seen down more than two points on the session at 83½ bid.

A trader said that General Motors Corp.'s benchmark 8 3/8% bonds due 2033 were unchanged at 31½ bid, 32½ offered and domestic arch-rival Ford Motor Co.'s 7.45% bonds due 20-31 were likewise steady at 89½ bid, 90½ offered.

Energy Future seen energetic

A trader said that there had been "a lot" of Energy Future Holdings Corp.'s -- the old TXU - bonds trading in the lower 50s, citing the 6.50% bonds due 2024 and the 6.55% bonds due 2034. "It's been pretty active," he said.

A source saw the TXU 2034s ending up more than 1½ points above 531/2, characterizing the movement as mostly in smaller pieces rather than round lots, while the 2024s gyrated around a point higher for part of the day before coming back in to finish little changed at 53.

The first trader said that he was not really sure why the bonds traded - although he cited market rumors that the Dallas-based utility operator and merchant power producer "might come back and try to do an exchange [for the bonds] again." The company tried last fall to get holders of over $6 billion face amount of various series of bonds to tender their paper in exchange for about $4 billion of new notes, but got a positive response from the holders of only $357 million of the bonds.

Things not so right at Rite Aid

Rite Aid Corp. posted yet "another disappointing sales report," in the words of Gimme Credit LLC analyst Kim Noland. As a result, traders saw the Camp Hill, Pa.-based company's bonds slipping.

A trader said the 9 3/8% notes due 2015 was the most active issue under the Rite Aid umbrella, ending down at 84 bid, 85 offered. That compared to "86-ish" on Wednesday, he said.

At another desk, a source said about $9 million of the 9 3/8% notes moved, closing down about ½ points to around 841/4.

The source also saw $4 million to $5 million of the 9½% notes due 2017 finish around 821/2, also down 1½ points on the day.

And, another trader called the 8 5/8% notes due 2015 about 2 points weaker at 84 bid.

For the five weeks ending Feb. 27, Rite Aid same store sales fell 3.2% compared to year-ago levels. Total sales dropped 4.5% to $2.43 billion from $2.54 billion.

For the quarter that also ended Feb. 27, same store sales declined 2.4% on total sales of $6.44 billion. Sales were down 3.7%.

And, for fiscal 2009, Rite Aid's same store sales slipped 0.9% on total sales of $25.57 billion. Total sales for fiscal 2008 were $26.18 billion.

"We think yet another consecutive decline of sales doesn't bode well for year-end numbers, but the company did not say it would miss its guidance and our estimate is already at the low end," Noland wrote in an afternoon note to clients.

-Stephanie N. Rotondo contributed to this report.

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