Junk jumps, but then surrenders most gains; First Data on rebound; Triumph Group slates deal

By Paul Deckelman and Paul A. Harris

New York, May 26 - High-yield bonds had another volatile session on Wednesday, initially trading up in line with stocks, which continued the upside momentum seen near the close of Tuesday's session, fueled by positive U.S. economic data about new-home starts and durable goods orders. But that stock advance faded during the afternoon amid new investor concerns about Europe's debt woes, and the major equity indexes ended in the red. The junk market, meantime, did not do quite that badly, managing to hold onto at least some of its earlier gains and ending up modestly on the day.

First Data Corp.'s bonds - which had gotten clobbered on Tuesday on a combination of overall market dynamics as well as an executive suite purge at the money-losing electronic transaction processing company - were seen to have firmed from the lows hit the previous day.

The benchmark bonds of industrial-sector bellwethers General Motors Corp. and Ford Motor Co. were each seen up around a point on the day.

In the secondary market, Triumph Group, Inc. announced plans for a $350 million bond offering, which will help it pay for its acquisition of Vought Aircraft Industries, Inc. The deal is expected to price early next month.

More immediately, price talk surfaced on DriveTime Automotive Group, Inc.'s $200 million offering of seven-year secured notes, with the order books on the Phoenix-based used-vehicle retailer's deal slated to close Thursday afternoon. Traders theorized that the deal is almost certain to price later Thursday, noting that Friday - with an abbreviated close on tap ahead of next Monday's Memorial Day holiday - is expected to be lightly attended and virtually dead, with many in Junkbondland likely to stretch their three-day holiday weekend into four.

Noting the presence on the forward calendar of several other deals scheduled to wrap up roadshows on Thursday, one trader declared that "if they don't price Thursday - it's wait till June."

DriveTime price talk

No issues priced during the quiet Wednesday session in the primary market.

However despite the fact that the Monday, Tuesday and Wednesday sessions proved to be shutouts, the May 24 week will likely produce at least one new issue.

DriveTime Automotive Group, Inc. talked its $200 million offering of seven-year senior secured notes (B3/B) to yield 12 7/8%, including an original issue discount of 1 to 1.5 points.

The order books close at 3 p.m. ET on Thursday and the deal is set to price after that.

Jefferies & Co., RBS Securities Inc. and UBS Investment Bank are the joint bookrunners for the debt refinancing deal. DriveTime is a Phoenix-based used vehicle retailer.

Triumph starts roadshow next week

Meanwhile, Triumph Group, Inc. will begin a roadshow on Wednesday for a $350 million offering of eight-year senior unsecured notes (Ba3/B+).

That deal is set to price during the June 7 week.

RBC Capital Markets is the left bookrunner. UBS Investment Bank is the joint bookrunner.

Proceeds will be used to partially fund the acquisition of Vought Aircraft.

Long weekend ahead

As to the remainder of deals on the calendar, there was no hard news on Wednesday.

The biggest of the three deals is Citgo Petroleum Corp.'s $1.5 billion two-part offering of first-lien senior secured notes (Ba2/BB+/BB+).

Discussions on pricing, which began in the high 9% range, have moved into the 10% to 11% context, market sources say.

Also the deal's covenant package is being reworked, they add.

Citgo is a Houston-based, U.S.-incorporated refiner owned by Venezuela's PDV America, Inc., a subsidiary of Petróleos de Venezuela, SA.

Citgo plans to sell seven-year notes, which come with four years of call protection, and 10-year notes, which come with five years of call protection.

RBS Securities Inc., UBS Investment Bank, BNP Paribas Securities Corp. and Credit Agricole CIB are the joint bookrunners for the debt refinancing and general corporate purposes deal.

Also, Willbros Group, Inc. is in the market with a $250 million acquisition financing: made up of six-year senior secured second-lien notes (B3/B+). UBS Investment Bank is the bookrunner.

And Cedar Fair, LP has a $500 million offering of 10-year senior unsecured notes (expected ratings B2/B-), via J.P. Morgan Securities Inc., Wells Fargo Securities and UBS Investment Bank.

As reported earlier in these pages, Cedar Fair has been discussed in the 12% yield context, according to a high-yield mutual fund manager.

The status of Citgo, Willbros and Cedar Fair with respect to timing is believed to be day-to-day, a high-yield capital markets banker told Prospect News on Wednesday.

"If we don't hear price talk by [Wednesday's] close, it's hard to imagine that these deals will price before the end of the week," the banker reasoned.

"Friday's a shortened day. And then you have a three-day weekend.

"Given the market conditions we've seen recently it's hard to imagine anyone would want a deal priced on Friday, in which case the notes would barely have a chance to trade ahead of the long weekend."

Price Thursday or go home

A trader confirmed that view, saying the DriveTime deal is almost certain to price on Thursday, even though the books on the deal will be closing fairly late in the session, because "nobody's going to be around on Friday to take their allocations."

He asserted that "after a painful month, and the beginning of summer and a three-day weekend, most people are going to take a four-day weekend."

At another shop, a trader said that Citgo Petroleum's $1.5 billion behemoth of a seven-year offering "is the only thing that's really hanging out there that people are talking about a little bit - and I haven't even heard much about that." He suggested that -- perhaps in light of the somewhat unsettled market conditions which have led to several prospective high yield offerings being pulled off the forward calendar in recent days - "it doesn't seem like they're in a rush to get that deal done."

The first trader meantime said that even if Drive Time - or for that matter, Citgo or any other deal - "does get priced or allocated on Friday, there's going to be no trading in it, because there's going to be nobody around. If I were underwriting, I would try to push it, and get it done [Thursday], so everyone can have a joyous and well-deserved four-day weekend."

Market indicators on the rebound

Among bonds not connected with the new-deal market, a trader saw the CDX Series 14 index up by 1/8 point at 93 bid, 93¼ offered on Wednesday, after having been unchanged on Tuesday.

"We did better early, but then gave it all back."

A market source at another desk saw the CDX opening up as much as ¾ point at a midpoint of 93 3/8, then firming as high as 94 3/8, before coming off that early peak and eventually finishing around 93 1/8, calling that up ¼ point on the day.

The rise and fall of the CDX index, and by extension, the overall cash junk market along with it, mirrored the pattern seen on Wednesday over on the equity side of the fence, where the bellwether Dow Jones Industrial Average - which on Tuesday had come storming back from an initial 250-point drop to end down only about 22 points - did almost an exact flip-flop of that, rising in morning trading by 135 points but then sliding back down as the day wore on and closing the session down by 69.30 points, or 0.69%, to end at 9,974.45 -- the first close below 10,000 since Feb. 8, when the Dow finished at 9,908. Other stocks indexes exhibited a similar trajectory.

Back among junk bonds, the KDP High Yield Daily Index rose by 56 basis points on Wednesday to 69.55, after having slid by 86 bps on Tuesday. The index's yield tightened by 18 bps on Wednesday, to 9.02%, after gapping out by 27 bps on Tuesday.

Advancing issues jumped out ahead of decliners on Wednesday, holding around a seven-to-six edge, after having trailed them for the previous eight consecutive session, including Tuesday, when the decliners held a more than two-to-one advantage.

Overall market activity, represented by dollar-volume levels, fell by about 4% on Wednesday, after having jumped by 50% on Tuesday from the previous day's pace.

Back from the dead - for a while

A trader said that at least initially "the market came roaring back. I wouldn't say buyers came out of the woodwork, but guys were definitely in early, looking to cover shorts and they lifted the Street." He estimated that the CDX 14 contract at one point in the day got as good as 94, up close to 3 points from its recent low around 911/4.

The trader said that "it was a very active day pretty much across the board."

Among the names he saw trading around, apart from the obvious ones like First Data Corp. and General Motors, were such credits as deathcare company Stewart Enterprises, Inc., energy operator Plains Exploration & Production Co. and chemical fertilizer maker CF Industries Holdings, Inc., seeing "definitely better buyers" of the latter company around par. The Plains 10% notes due 2016 "were active again," around 103-1031/2, "around the level where we traded them yesterday [Tuesday]."

"All in all," he said, "it was a pretty good day. Things definitely snapped back." While the market "gave it up a little bit at the end of the day," losing between ¼ and ½ point from the highs, "there definitely was a much firmer tone."

A trader said that "the general consensus today was that it was a little quiet, though things were getting done. We were bouncing off the lows from earlier in the week - but we're not bouncing very high."

Crafting an analogy to the world of retailing, he said that "this whole week, when thing were trading down, was like a big sale at a department store - you go in there, and everything is on sale, but you can't find your size, meaning you're trying to buy stuff, and it's just not there."

He said that "aside from [names like] the GMs trading around, I didn't see anything that constantly came across the screens. There were points during the day when it became very quiet." Adding to the overall sense of quietude, he noted that "you've got a three-day -- and possibly a four-day weekend coming up for most people."

First Data ends firmer

A trader said that "you had some good volume" on First Data, whose bonds have been among the most active - and volatile - for nearly two weeks, ever since the Atlanta-based electronic transaction processor came out with disappointing first-quarter numbers on May 14.

After getting absolutely pounded on Tuesday, down anywhere from 5 to 7 points across the board -- in line with a lower market and following the abrupt announcement that chief financial officer Pat Shannon and two other senior executives had resigned , with the company offering no real explanation -- First Data "definitely came back" on Wednesday, a second trader said.

He saw its benchmark 9 7/8% notes due 2015 advance to 79½ bid from prior levels around 76.

At another desk, a trader said that the First Data bonds "were up a couple of points" from where they were, seeing the 9 7/8s in a 79-80 context, and its 11¼% notes due 2016 gaining 2 or 3 points to finish at 63½ bid.

"There was a lot more volume in these than in the others."

CIT, AIG gain

Also among the financials, a trader said that at his shop, there was some trading in CIT Group Inc.'s 7% notes due 2015, which changed hands at 911/2.

Another trader saw the New York-based commercial lending company's paper up by 1 to 1½ points across the board, with its 7% notes due 2013 - the shortest issue of the five tranches of 7% notes which the company issued late last year following its reorganization - closing out at 95 bid, on "decent volume, again," although he added that "that name always has decent volume."

American International Group Inc.'s debt gained as much as 5 points on the day as the company's top executive told a government oversight committee that taxpayers would see a profit on the $182.3 billion received in a government bailout.

"Pretty generically, across the board I'd say AIG was up 2 to 5 points, that covers about 95% of it," a trader said.

The trader saw the "biggest trading in the long one," the 8.175% notes due 2058, with about $100 million changing hands. He said the bonds traded in a range between 70 and 731/4, calling that "probably up a solid 5 points from yesterday's lower trades."

The trader also saw the 4¼% notes due 2013 up 4 to 5 points around 92 and the 6.90% notes due 2017 "up a couple" at 771/4.

Another trader said the 8.175% notes "seemed to be the most active issue," seeing the paper trade between 71½ and 731/2, closing the day around that 73 mark.

Even AIG's subsidiaries improved, as another market source deemed the 8¾% notes due 2017 of International Lease Finance Corp. - the California-based aircraft leasing unit of the New York insurance giant - over 3 points better at 88 bid.

At a meeting of the Congressional Oversight Panel in Washington on Wednesday, Robert Benmosche, AIG's CEO, said the company was on track to repay the funds received from taxpayers in 2008 and 2009.

"I'm confident you'll get your money, plus a profit," Benmosche said. "We are a strong, vibrant company."

In order to pay back at least part of the funds, AIG is attempting to sell off two of its non-U.S. life insurance divisions. That should generate about $51 billion, which the company intends to use to retire a Federal Reserve credit line.

"AIG is now on a clear path to repaying taxpayers," Benmosche told the panel. "In recent months, we have become less reliant on government aid and have been able to instead tap the capital markets."

Still, some officials had concerns about a full taxpayer recovery.

The U.S. Treasury's chief restructuring officer, Jim Millstein, noted that while the government's common stock stake would likely bring a benefit, it was not clear if its preferred share stake would pay out.

GM, Ford gain

Among the gainers on Wednesday, a trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 gain 1½ points on the session to end at 32 bid, 33 offered, while GM domestic arch-rival Ford's 7.45% bonds due 2031 were likewise up 1½ points at 87 bid, 89 offered.

Another trader saw "pretty good volume" on both the automotive benchmarks.

Eyes on the funds

Market participants on Thursday will be keenly watching for the high yield mutual fund-flow numbers usually put out on Thursday afternoons by AMG Data Services, a closely watched barometer of overall junk market liquidity trends. After a string of 10 consecutive weekly inflows into the weekly-reporting funds dating back to mid-February, which had lifted the year-to-date net inflow total to just over $4 billion, according to a Prospect News analysis of the AMG figures, those funds have so far seen only outflows this month, totaling $2.195 billion. Those outflows -- $127 million in the week ended May 5, $1.69 billion in the week ended May 12, the biggest since 2005, and $378 million in the week ended last Wednesday, May 19 - have cut the year-to-date net inflow figure by more than half to $1.891 billion.

A trader said that "you are seeing some of the larger funds coming in to sell things," while over the previous four-to-six months, they had not been selling paper. He opined that "it could be redemptions.

"I'm not saying it's a mad rush - but certain guys you deal with that normally wouldn't sell paper are coming in and if it's an okay bid, or level, and [even if] it's down from where the market was a week or two ago, but a little bit up from where it was earlier in the week, they're lightening up, and raising some cash - and I don't think they're raising cash to buy new issues."

He said much of the recent selling "has been coming more from some of the big public funds."

-Stephanie N. Rotondo contributed to this report

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