Flow of cash lifts market; Tower, United Components price

By Paul A. Harris

St. Louis, June 5 - Another formidable wave of cash that was reported to have washed onto high yield shores - a bounding $1.45 billion inflow, according to AMG Data Services - appeared to lift all boats in Friday's secondary market activity, with airline and telecommunications paper firming notably.

And some of the recently priced bonds have been seen romping higher in the aftermarket, with one source reporting that Williams Cos.' new 8 5/8% notes of 2010, which priced Thursday at par, moved up to 104 bid Friday.

In the primary terms were heard on two U.S. deals and one emerging markets issue. And one new offering, from Latrobe, Pa. flavored water maker Le-Nature's, Inc., sprang aboard the forward calendar with a deal that hits the road on Tuesday.

During Friday's session, sources in both the primary and secondary markets contemplated the late-Thursday news of a $1.45 billion inflow to high-yield mutual funds for the week ending June 4.

"I think it makes sense," said one official. "You look at all the fundamentals and it appears that the economy has turned. It turned about five or six months ago when these spreads started bottoming out and started doing better."

This source added that if you only look at the funds flows numbers you are draping the biggest part of the cash picture, with regard to money presently allocated to high yield.

"The junk mutual funds are the tip of the iceberg," the official said. "There is so much money that has been allocated to that asset class from insurance funds, state funds, pension funds...

"I think the mutual funds are a good indication of which way the money is flowing. And it's obvious that it's chasing performance. But that's a small portion of what is available for this product.

"You're not selling all of these deals week after week with just mutual fund money. I mean the mutual fund money is $18 billion. There's a lot of money from a lot of sources."

Another source, asked if it made sense that cash would flow into high yield in the face of a strongly rallying stock market, responded in the affirmative.

"On the surface you would expect that since people seem to think the stock market is hot again, money will circulate out of junk and into stocks," this source said. "But I don't think we're there yet.

"Also high yield has gotten a lot of attention in the press. There are people bringing these new closed-end funds. So I think there is still a lot of cash that needs to be put to work. And there is still a lot of retail demand out there.

"And this is all happening in the face of lackluster economic numbers. But I think the technicals are so good that unless stocks really crap out we're probably going to have another week of rallying in the secondary and everybody trying to do new issuance, with deals getting done at the tight end of price talk."

Among traders and secondary market observers who spoke Friday with Prospect News the verdict was unanimous: the market rallied remarkably.

"Everything's better across the board, today," said one trader.

This source pointed to zooming airline bonds as an example of securities that not long ago catalyzed phobic reactions among investors, but are now seen to be making their ways purposefully north.

"People are still looking for airlines," said the source. "You had a Goldman report a couple of days ago that said the worst is over. You've had Delta, Northwest and Continental all do convertible deals. Continental did a $150 million deal.

He saw Continental's 8s of 2005 up to 90.5 bid, 92.5 offered from 88 bid, 89 offered on Thursday.

"So they're still moving up," he commented.

He also saw Northwest Airlines' 8 3/8s of 2004 up a couple of points at 94.5 bid, 96.5 offered from 92.5 bid, 94 offered Thursday.

"All the short stuff is flying."

Another aftermarket source said that Northwest's short paper was up about half a point, while the medium-maturity bonds were up three to four points. Ditto, Delta Airlines, this source added.

Yet another market observer told Prospect News that all of the wind beneath the airlines' wings is likely blowing in the direction of investors who, in playing the indexes, shied away from airline debt because of the bad news earlier in the year.

"They were cheating," suggested this source. "They were playing the indexes but not the bad stuff. Well I've got a news flash: that stuff performs too.

"Now that it's taking off everybody's scrambling because they're out of weight as far as the indexes are concerned. So it's going to be driven higher just because people are trying to get into it."

So much for the "A" word. Friday's session also produced some lift for securities in the "T"-sector as well.

"Even the telecommunications names are better today," said a trader.

He saw Time Warner Telecommunications' 9¾% notes of 2008 at 92 bid, 93 offered, up 1½ points from 90.5 bid, 91.5 offered on Thursday and 89 bid, 90 offered on Wednesday.

This source also remarked upon movement in Levi-Strauss' 11 5/8% notes of 2008.

"Today I saw a trade at 89. Those are up three points over yesterday's bid" of 86 with the offer at 88.

Also faring remarkably in the aftermarket are some of the recently priced junk bonds.

Williams' 8 5/8% notes of 2010, $800 million of which were sold at par on Thursday, were seen at 103.5 bid, 104.5 offered in secondary trading by one source.

Premcor Inc. sold an upsized $300 million of 7 ½% 12-year notes at par, on Thursday. Those were seen at par bid, 100.25 offered on Friday.

SPX Corp. priced $300 million of 6¼% eight-year bonds on Thursday. Those were seen at 100.75 bid, 101.25 offered, on Friday.

And to invoke the "T"-word just one more time, Triton PCS' 8½% notes of 2013, which priced at par at the end of May, were seen 106.25 bid, 107.25 offered on Friday.

Meanwhile during Friday's session in the primary market terms were heard on two offerings that were sold in the U.S. and one emerging markets corporate.

R.J. Tower Corp. priced a 10-year notes offering at a discount. The subsidiary of Grand Rapids, Mich. auto parts supplier Tower Automotive, Inc. sold $258 million face of 12% 10-year senior notes (B1/B) at 97.205 to yield 12½%.

Price talk was for a yield in the 11½% area. JP Morgan and Banc of America Securities ran the books.

Also on Friday United Components Inc. sold a downsized offering of $230 million 10-year senior subordinated notes (B3/B) at par to yield 9 3/8%, at the inside of the 9½% area price talk, via Lehman Brothers and JP Morgan. The deal was reduced by transferring $25 million to the company's new credit facility.

And from the universe of emerging markets corporates, terms were heard Friday on PT Bank Negara Indonesia's $100 million of subordinated notes due June 1, 2013 (B3/CCC+), which reportedly priced at par, coming with a coupon of 7 ½% for the first five years, and then increasing to Treasuries plus 774 basis points. Deutsche Bank Securities, BNI Securities and Trimegah Securities were the underwriters.

One new deal bubbled up on the forward calendar Friday. The roadshow begins Tuesday for Le-Nature's $150 million of 10-year senior subordinated notes, expected to price in the early part or middle of the week of June 16 via Wachovia Securities.

And finally on Friday price talk of 8 5/8%-8 7/8% emerged on CBD Media LLC's $150 million of 10-year subordinated notes (B3/B-). The Cincinnati yellow pages publisher's deal is expected to price early in the week of June 9, via Lehman Brothers and Banc of America Securities.

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