Ford Credit mega-deal leads primary, USG, A&P also price; junk jumps overall; funds gain $613 million on week

By Paul Deckelman and Paul A. Harris

New York, July 30 - Ford Motor Credit Co. brought a massive $1.75 billion quickly-shopped offering of three-year notes to market on Thursday - the second such gigantic drive-by junk deal to come down clattering down the chute in as many days, following HCA Inc.'s successful offering during Wednesday's session.

The new Ford Credit bonds were seen to have moved up modestly when they were freed for secondary dealings - same as the HCA bonds.

One new junk deal that did move up smartly when it was freed was that of Chicago-based building products maker USG Corp., which priced earlier in Thursday's session and then gained 4 points in the aftermarket.

Yet another deal which priced on Thursday was Great Atlantic & Pacific Tea Co. Inc.'s upsized offering of senior secured notes. The iconic Montvale, N.J.-based supermarket operator's new bonds moved up about 2 points in aftermarket dealings.

CPM Holdings, Inc. was heard by high yield syndicate sources to be beginning a roadshow on Friday for the Waterloo, Iowa-based farming machinery maker's offering of five-year secured bonds.

And price talk emerged on Duane Reade Inc.'s now-restructured and downsized bond offering, whose order books are scheduled to close on Friday, with pricing possible soon after.

Among the already established bonds, a trader saw what he called a "feeding frenzy" in Junkbondland, investor sentiment buoyed by the strong gains notched in the equity markets.

Junk funds show $613 million inflow

As trading was wrapping up for the day, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif. - a key barometer of overall market liquidity trends - said that in the week ended Wednesday $613 million more came into weekly-reporting funds than left them.

It was the fifth straight inflow, continuing the trend seen in the previous week, ended Wednesday July 22, when there was a $721.5 million net inflow to the funds. A net of $2.147 billion has come into the funds over those past five weeks. Including the latest week's total, inflows have now been seen in 19 weeks out of the last 20, according to a Prospect News analysis of the AMG numbers, totaling $11.137 billion during that long stretch. Before the most recent five weeks, the funds had seen a rare outflow of $110.1 million in the week ended June 24 - and before that, an incredible 14-week stretch of consecutive inflows, dating back to mid-March, during which time the funds grew by a record $9.1 billion.

With the year now well into its second half, inflows have been seen in 26 of the 30 weeks since it began, versus just four weeks of outflows - the one seen in the June 24 week, plus three weeks of fund losses in late February and early March that totaled $996 million, according to the analysis. Counting the latest week's inflow number, the year-to-date net inflow for the weekly-reporting funds rose to $13.701 billion - a new peak level for the year so far, up from the old zenith of $13.088 billion seen in the previous week.

A market source also said that in the latest week flows into and out of the funds which report on a monthly basis rather than doing so weekly were unchanged, in contrast to the previous week's $47.8 million cash exodus. That unchanged reading left the year-to-date cumulative inflow for such funds at the previous week's $9.714 billion total.

The source further said that on an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $23.416 billion more has come into the funds so far this year than has left them, well up from $22.803 billion the week before.

EPFR sees inflows continuing

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, analysts also noted that the junk funds had racked up their 19th week of inflows in the last 20, with the $1.14 billion cash infusion they calculated - matching the peak level of $1.14 billion reported for the week ended May 13 -- bringing the total year-to-date inflow to $14.82 billion. In the previous week, it said the funds had seen an inflow of $860.1 million, with a year-to-date inflow total of $13.7 billion.

While the EPFR junk figures usually point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers almost always differ somewhat due to EPFR's inclusion of some non-U.S. funds in its universe. 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 market barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they used to - because there is no similar reporting mechanism to accurately track the movements of cash coming into the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

Ford Credit brings big deal

U.S. high-yield issuers priced just over $2.3 billion of junk during the busy Thursday primary market session.

Ford Motor Credit Co. priced a $1.75 billion issue of 7½% three-year fixed-rate notes (Caa1/CCC+/B-) at 91.589 to yield 10 7/8% on Thursday.

The issue price for the quickly shopped deal came within the "low-90s" guidance which was circulated earlier in the day, according to market sources.

Deutsche Bank Securities, Goldman Sachs & Co., Morgan Stanley and RBS Securities Inc. were bookrunners, with Barclays Capital Inc., BNP Paribas Securities Corp., Credit Suisse Securities (USA) LLC, HSBC Securities (USA) Inc. and UBS Securities LLC as co-managers for the general corporate purposes deal.

USG upsizes

USG Corp. priced an upsized $300 million issue of 9¾% five-year senior bullet notes (B1/BB) at 98.086 to yield 10¼% on Thursday.

The yield was printed at the tight end of the 10¼% to 10½% yield talk, while the issue price came rich to the contemplated discount range of 2 to 4four points.

JP Morgan and Bank of America Merrill Lynch were joint bookrunners for the general corporate purposes deal, which was upsized from $250 million.

A&P upsizes too

Great Atlantic & Pacific Tea Co. also upsized its deal.

The Montvale, N.J.-based supermarket operator priced a $260 million issue of 11 3/8% six-year senior secured notes (B3/B-) at 97.385 to yield 12%.

The yield was printed 87.5 bps beyond the wide end of the 11% area yield talk. However the issue price came rich to the discount talk of approximately 3 points. The deal was increased from $225 million.

Bank of America Merrill Lynch ran the books for the bank debt refinancing and general corporate purposes deal.

Duane Reade sets talk

Duane Reade set yield talk at 12½% for its downsized, restructured $300 million offering of six-year senior secured notes (Caa1/B-) on Thursday.

The deal, which has been reduced from $325 million, is set to price on Friday.

Goldman Sachs & Co. is the left lead bookrunner for the debt refinancing deal. Bank of America Merrill Lynch is the joint bookrunner.

In a restructuring announced earlier in the week, the New York City-based drugstore chain company upsized the secured notes tranche to $300 million from $215 million, and eliminated the proposed $110 million subordinated seven-year notes tranche.

CPM roadshow starts Friday

CPM Holdings will start a roadshow on Friday for its $200 million offering of five-year senior secured notes.

Jefferies & Co. is leading the bank debt refinancing deal.

The roadshow is scheduled to conclude on Aug. 12.

Standard & Poor's assigns its B+ ratings to the notes. A rating in the mid-to-high single-B range is expected from Moody's Investors Service.

USG a top performer

Although it was not the biggest deal of the day, USG's upsized $300 million issue of 9¾% senior guaranteed notes due 2014 was the standout performer among the new deals moving over into the secondary realm.

A trader saw those bonds - upsized from the originally planned $250 million - having moved up smartly to 101½ bid, 102½ offered. The bonds had priced earlier in the session at 98.086.

At least two other traders saw the bonds move as high as 102 bid, 102¼ offered.

The first trader said that the sharp appreciation of the building products company's new deal was an example of "what our market is doing here - everything is just gapping in."

A&P an upsider

Another new deal which more than held its own in the aftermarket was the $260 million offering of six-year senior secured notes for A&P.

The supermarket company's new issue priced at 97.385. A trader saw those bonds soon after at 99½ bid, 100½ offered.

Ford Credit posts modest gains

The big deal of the day was Ford Credit's $1.75 billion of 7½% notes due 2012. In line with pre-deal market price talk anticipating that the bonds would price in the lower 90s, the financing arm of the Dearborn, Mich.-based Number-Two U.S. carmaker's bonds came to market at 91.589 to yield 10 7/8%.

After that, a trader said, dealings in the huge new issue of bonds were quite busy: "It's the flavor of the month." He saw the new bonds "wrapped around 92," while another quoted them at 92 bid, 92½ offered.

Yet another trader saw the bonds as low as 91¾ bid, 92 offered.

Among existing Ford Credit issues, its 7 3/8% notes coming due on Oct. 28 were marginally lower at a touch under par. However, its 7 7/8% notes due 2010 were seen about ¼ point firmer at 98½ bid.

Parent Ford Motor Co.'s 7.45% bonds due 2031 continued to firm, up a point at 74 bid, 76 offered.

HCA higher by a little

Another new mega-deal which moved up - albeit, by not much - was HCA Inc.'s $1.25 billion of 7 7/8% senior secured first-lien bonds due 2020. The issue - upsized from the originally planned $750 million - priced on Wednesday at 98.254 to yield 8 1/8%.

There was no aftermarket activity seen that session - but in Thursday's dealings, a trader saw those bonds at 98¾ bid, 99 offered.

The company's 9¼% notes due 2016 were at 104 5/8 bid - realistically, not much changed from the 104-105 context in which they moved around after the pricing on Wednesday.

Arch Coal continues to cook

A trader saw the new Arch Coal Inc. 8¾% notes due 2016, an upsized $600 million of which priced on Tuesday, at 101 1/8 bid, 101 5/8 offered.

That was well up from the 97.464 level at which those bonds - upsized from the originally shopped $500 million - came to market on Tuesday.

Market indicators spring forward

Back among the more established issues, the CDX Series 12 High Yield index - which had been unchanged on Wednesday, was "up a lot" on Thursday, a trader said, seeing it jump 1 1/8 points to finish at 89 3/8 bid, 89 5/8 offered.

Meantime, the KDP High Yield Daily Index, which gained 21 basis points on Wednesday, was up another 35 bps on Thursday to end at 65.90, while its yield tightened by 13 bps to 9.33%.

In the broader market, advancing issues - which had led declining issues for a ninth straight session on Wednesday - continued to dominate them Thursday, by a better than seven-to-five margin.

Overall market activity, measured by dollar-volume totals, eased by around 5.5% from Wednesday's level.

A trader opined that "with the confidence and strength in the equity market" - where the bellwether Dow Jones Industrial Average rose 83.74 points, or 0.92%, to end at 9,154.46, its highest level in nearly nine months while broader indexes were also up -- "everyone just had their buying hats on this morning."

For instance, he saw some of the well-known junk market "barometer" issues up solidly, though on somewhat restrained trading - Greenwood Village, Colo.-based financial transaction processor First Data Corp.'s 9 7/8% notes due 2018 rose 2½ points to 82½ bid, though on just $4 million of turnover, while Franklin, Tenn.-based hospital operator Community Health Services Inc.'s 8 7/8% notes due 2015 were a point better at 103½ bid, though on only $2 million of turnover. There was more activity in Aramark Ltd.'s 8½% notes due 2015, at $9 million, but the Philadelphia-based food services operator and uniform provider's bonds were unchanged at 101.

However, among the busiest issues, he saw Freeport-McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017 about ¼ point higher at 106 bid, with some $60 million of dealings.

The trader noted that it was the first time in a while that the Phoenix-based metals mining company's bonds were back in their usual role of most active issue, after several weeks in which the gyrations of CIT Group Inc. had pretty much held the center stage and dominated the Most Actives lists - including several days in which volume on a given issue would top $100 million.

CIT backs off recent gains

A trader meantime saw CIT's floating-rate notes slated to come due on Aug. 17 at 76 bid, 78 offered, little changed on the day, and down several points from recent levels around 80.

The company is currently tendering for that $1 billion issue of bonds, offering total consideration of $825 per $1,000 principal amount to those holders who tender their securities by the early tender deadline of 5 p.m. ET on Friday - but only offering $775 per $1,000 principal amount to those holders who delay beyond that deadline.

Another trader said the CIT situation is "on hold, which has caused prices to fade - which I think is a bad sign as far as what the market is telling us in regard to that tender offer."

The New York-based commercial lender has warned that even after having been bailed out by its bondholders recently, it could still face bankruptcy if the effort to take out those August floaters at a discount fails.

Among other CIT issues, a market source saw the CIT Group Funding Corp. of Canada 5.20% notes due 2015, down more than 4 points on the day at 65½ bid. Parent CIT's 5.85% notes due 2016 had retreated to 51 bid, down from the 56 level they were trading at on Tuesday.

Wynn a winner on earnings

A trader said he saw Wynn Las Vegas LLC's 6 5/8% notes due 2014 at 92¾ bid, 93¾ offered, which he called a 1½ point gain.

The Nevada-based gaming operator's bonds, he said, had been "steadily climbing" over the past few sessions on improved consumer sentiment, hopes for improved results from its Macau operations and, now, its earnings results.

Wynn posted a second-quarter profit of $25.5 million, or 21 cents per share. While that represented a 90% plunge from the year-earlier $272 million, or $2.42 per share, there was still something to cheer about - excluding one-time items, adjusted net income totaled 9 cents per share, beating analyst expectations of a penny loss per share.

Level 3 lower on earnings

In other earnings news, Level 3 Communications reported disappointing numbers, resulting in 1 to 2 point losses in the bonds.

A trader placed the 8¾% notes due 2017 around 83, down 1½ points. The 9¼% notes due 2014 were seen at 87, compared to 89 previously.

Another market source deemed the 9¼% notes down over 2 points at 87.25 bid.

"The numbers weren't very good," the first trader remarked.

For the quarter, the Broomfield, Colo.-based company saw consolidated revenues of $942 million, compared to revenues of $1.09 billion in 2008. Net loss came to $134 million, or 8 cents per share, versus a loss of $42 million, or 3 cents per share, the year before.

The 2008 loss also included a gain of $96 million from the sale of the company's Vyvx advertising distribution unit.

"The economy continued to be challenging in the second quarter for wireline service providers," said James Crowe, CEO of Level 3, in the news release announcing the results. "As expected, sequential revenue pressure continued in the second quarter, although at a significantly moderated rate.

"We did see improvements in sales and churn, however, they were not as much as we expected," Crowe continued. "We continue to manage our costs aggressively, and for the fifth consecutive quarter, we were able to reduce our operating expenses, and year over year, we improved both our gross margin and adjusted EBITDA margin percentages. In addition, we completed several liability management transactions, which further strengthened our balance sheet."

How high can the indexes fly?

But with the majority of issues up, and some by more than a point, one of the traders, in looking over the market's strong advance, warned that "once again, we have short memories, of how difficult it was to find bids just eight months ago."

Since then, though "our market's done really well," with the Merrill Lynch Master II High Yield Index, for instance, showing year-to-date returns north of 35%.

"It's record-setting, I believe. What an opportunity."

He said "the question is, 'where do we go from here?' - but it seems like everyone is seeing the news of the year-to-date returns and everyone wants some of that action . But as we've seen before over the years - someone always gets left out, and our market just doesn't go straight up, as we've seen in the past."

Stephanie N. Rotondo contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.