Upsized MarkWest deal prices; NXP up on joint venture; energy names gain; funds gain over $700 million

By Paul Deckelman and Paul A. Harris

New York, April 10 - MarkWest Energy Partners, LP successfully priced an upsized offering of 10-year notes on Thursday, high yield syndicate sources said. When the new bonds were freed for secondary dealings, they moved higher.

The new deal by the natural-gas production and transportation authority comes at a time when oil and gas prices are at or near record levels. That environment is also helping other energy producers and transporters; bonds of such energy-related credits as El Paso Corp., Chesapeake Energy Corp. and Energy XXI Gulf Coast Inc. were seen higher.

But the most heavily-traded name of the day was NXP BV, after the Netherlands-based semiconductor manufacturer announced plans for an asset sale - structured like a joint venture - to rival European chipmaker STMicroelectronics. That pushed NXP's bonds up more than 2 points on the day, and helped boost the recently battered bonds of domestic chipmaker Freescale Semiconductor Inc.

Rite Aid Corp.'s fourth-quarter results and the drugstore chain operator's bearish guidance for the coming fiscal year proved to be a bitter pill for its bondholders to swallow, causing those notes to slip by a point or so in fairly active trading.

Fund flows jump by over $700 million on week

Late in the day, market participants familiar with the high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif. said that in the week ended Wednesday over $700 million more came into those funds than left them - dwarfing the previous week's cash infusion, estimated at a revised $442 million, which itself was had been the biggest such gain in more than six months.

Those two weeks of inflows totaled over $1.1 billion, according to a Prospect News analysis of the figures, far outweighing the $409.6 million of net outflows which had been seen over the previous three weeks.

One high yield syndicate official said that it was the biggest weekly positive cash flow since the week of June 1, 2005 when the funds saw inflows totaling $973 million.

The latest results represented a sharp break away from the negative fund-flow trend which had dominated for most of this year. With 15 weeks now in the books, outflows have been seen in nine of them, versus six inflows, according to a Prospect News analysis of the AMG figures.

Net outflows from the weekly-reporting funds since the start of the year are now estimated to have swung into the black for the first time this year, to around the positive $100 million neighborhood, versus the previous week's estimated cumulative outflow of $624.8 million, according to market sources.

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 only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

MarkWest upsizes

In the Thursday primary market MarkWest Energy Partners priced an upsized $400 million issue of 8¾% 10-year senior notes (B2/B) at 99.183 to yield 8 7/8%.

The yield was printed at the tight end of the 9% area price talk.

JP Morgan, RBC Capital Markets and Wachovia Securities were joint bookrunners for the capital expenditures and debt refinancing deal, which was upsized from $250 million, and which generated $396.732 million of proceeds.

Sources pointed to the upsizing, the tight pricing relative to price talk, and the fact that the new notes traded up in the aftermarket, and said that the deal went well.

...And trades up

When the new MarkWest Energy 8¾% notes due 2018s were freed for secondary dealings, several traders saw the bonds having shot up to about 101 bid, 102 offered from 99.183 at the pricing earlier in the session. One saw them at 101.5 bid, 101.625 offered.

A trader noted that besides having firmed solidly from the level at which they had priced, the bonds had also been considerably upsized to $400 million from the originally talked $250 million.

"Wow," he exclaimed, look at the market that we're in."

He said that the good reception accorded to the deal was "a function of a little bit more [investor] confidence, and the additional inflows" which junk bond land has now seen over the past two weeks, particularly in the latest week.

The trader said he had seen "a little more activity in a few select items," particularly later in the day, and suggested that "it may have been a function of the recent inflow," talk about which began making the rounds of people still around at their desks some time after 4 p.m. ET, when the first news stories hit the tape. He said that some of that activity may have come from "a), the funds that received the inflow, and b), the people [that] became aware of it, realizing that an inflow like that may cause, if not a rally, at least an uptick in the market."

Market indicators seen mixed

A trader saw the widely followed CDX index of junk bond performance unchanged Thursday at 93 7/8 bid, 94 3/8 offered. Meanwhile, after some initial weakness, the KDP High Yield Daily Index came off its intraday lows to end up 2 basis points at 74.39, while its yield narrowed by 2 bps to 9.57%.

In the broader market, advancing issues again trailed decliners by a small margin. Overall activity, reflected in dollar volumes, declined by around 14% from Wednesday's levels.

A trader who saw that decline characterized the session as "a very slow day," and said that outside of the big names to which news was attached, "nada" - nothing much - was going on.

NXP gains on asset-sale news

NXP paper, a trader said, "rallied quite a bit" before coming back in slightly, though it ended still up on the day. He quoted the company's 7 7/8% notes at 96, off their high of 98.5, but still but 2 points better on the day, and said that NXP's 9½% notes traded as high as the lower 90s before settling back in to around 87.

NXP, another trader said, was definitely "one of the movers," noting the heavy volume in the issue, with over $54 million of the 91/2s having traded heading into the home stretch, and brisk activity in the 7 5/8s as well. He saw the latter bonds go home 2 points higher on the day at 95 bid, 96 offered.

NXP was "very active," another trader said, quoting the 91/2s as having gotten as good as 93 before going out at 86.5 bid, 86.75 offered, up from around the 85 area "two days ago."

A market source saw the 91/2s ending at 88, up some 3 points on the session, while the 7 7/8% notes due 2014 were better than 2¼ points, closing above 96.

Those bonds got a boost from the news that NXP - formerly the semiconductor unit of Dutch tech giant Philips Electronics NV - will merge its operation that makes chips for wireless applications, with that of rival STMicroelectronics. The merged company, which is seen having annual revenues of $3 billion, will squarely take aim at U.S.-based competitor Texas Instruments. The combination is expected to produce some $250 million of annual savings by 2011.

Although the deal is structured as a joint venture between equals - the company will be incorporated in the Netherlands, NXP's base, and headquartered on STMicro's home turf in Switzerland, with STMicro naming its chief executive officer and NXP selecting its finance chief - observers noted that it is, for all intents and purposes, really an asset sale by NXP to STMicro. The latter company will pay NXP $1.55 billion and will take an 80% stake in the joint venture, with NXP holding the other 20% - for now. The two companies also agreed on a future exit mechanism for NXP's remaining 20% stake, involving put and call options, exercisable beginning three years from the formation of the joint venture, at a strike price based on actual future financial results, with a 15% spread.

A trader said that the NXP news proved to be a welcome tonic to the high yield tech sector, which has been under pressure over the past few sessions after Advanced Micro Devices Inc. warned that its first-quarter sales would come in substantially below its own projections, analyst expectations and its 2007 fourth-quarter revenue totals.

One of those names which had been on the downside, Austin, Tex.-based computer-chip maker Freescale Semiconductor, was higher on Thursday, its 10 1/8% notes due 2016 up 2 points to 71 bid, 72 offered on the NXP news. Another source saw the bonds as good as 72.25.

At another desk, Freescale's 8 7/8% notes due 2014 were seen up a point at 81 bid, while its 9 1/8% notes due 2014 firmed to 73.5 bid.

Energy names mostly better

Energy names were seen mostly better, helped by an environment in which crude oil is trading at near-record levels around the $110 per barrel area while natural gas prices are their highest in two years. Besides facilitating the market's good response to the MarkWest deal, existing energy bonds were mostly higher.

One was El Paso, whose 7% notes due 2017 were seen up 1½ points to the 104.5 level, while another source saw the bonds up about 1 3/8 at that level.

Chesapeake Energy's 6½% notes due 2017 firmed by a point to about the 98.5 level, while Energy XXI Gulf Coast's 10% notes due 2013 was up a point to 86.

Mid-American Energy Holdings' 6½% bonds due 2037 firmed to above 103.75.

Rite Aid off after numbers

Elsewhere, Rite Aid's bonds fell after the Camp Hill, Pa.-based drugstore chain operator reported a big fiscal 2008 fourth-quarter loss - and warned that it expects to lose money in fiscal 2009, its third straight year in the red, and said that sales would come in below analysts expectations.

A trader saw the company's 6 7/8% notes due 2013 off 2 points to 66.5 bid, 67.5 offered, blaming the negative guidance for the slide, while its 9 3/8% notes due 2015 dropped a point to 79 bid. Another trader saw its 9½% notes due 2017 slipping about ¼ to ½ point to 79 bid.

"In this environment we're in," he opined, let there be any kind of bad news and the market shows "no mercy."

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