DISH, Spirit deals price; Tops plans offering; Delta coupon grows; funds gain $317 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 24 - DISH Network Corp. was heard by syndicate sources to have successfully brought an upsized offering of 10-year add-on notes to market on Thursday.

Also pricing during the session were deals from Spirit AeroSystems, Inc. and Pregis Corp., the latter a euro-denominated mirror offering to an existing tranche of floating-rate notes.

Buffalo-area supermarket operator Tops Markets LLC and the affiliated Tops Holding Corp. were shopping a six-year senior secured deal around for pricing next week.

Meanwhile, price talk emerged on American Airlines, Inc.'s offering of three-year senior secured notes, which could price Friday.

American rival Delta Air Lines Inc.'s new two-part mega-deal was showing signs of a split personality, with the first-lien piece of the offering continuing to trade above its Wednesday issue price - but the second-lien tranche languishing well below issue. This was true even though the Atlanta-based air carrier is obligated by the terms of the latter paper's transaction to boost the interest it will pay on those bonds, now that the second-liens have received a weak CCC+ rating from Standard & Poor's.

Elsewhere among bonds which priced on Wednesday, satellite operator GeoEye Inc.'s new paper was seen having solidly gained altitude versus its issue price several points below par.

Outside of the new-deal arena, Momentive Performance Materials Inc.'s bonds were seen up multiple points as the provider of silicates and quartz compounds to high-tech users released relatively favorable preliminary fiscal third-quarter results, and announced that its revolving credit facility lenders had agreed to easier covenant terms through year's end.

But some of Rite Aid Corp.'s bonds eased after the company released second-quarter results and, significantly, lowered its full-year guidance, citing continued "tough" economic conditions.

Junk funds up $317 million

And as trading was finishing up for the session, 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, $317 million more came into the weekly-reporting funds than left them.

"There you go," a secondary trader said, adding that "it just keeps coming."

It was the fifth consecutive gain, and followed the $414 million cash inflow seen in the previous week, ended Wednesday, Sept. 16, and was the 12th week in the last 13 in which inflows were seen, dating back to mid-June. Some $5.047 billion of net inflows have been seen during that stretch, according to a Prospect News analysis of the AMG figures, interrupted only by a lonely $89.9 million outflow recorded in the week ended Aug. 19.

Counting the latest week's number, the year-to-date net inflow for the weekly-reporting funds rose to $16.601 billion, according to the analysis - a new peak level for the year so far, eclipsing the old mark of $16.284 billion recorded in the Sept. 16 week.

With 2009 now just about three-quarters over, inflows, including the latest weekly gain, have been seen in 33 weeks out of the 38 since the start of the year, according to the analysis, against just five outflows - the Aug. 19 retreat, a $110 million outflow in the week ended June 24, and three weeks of outflows in late February and early March totaling $969 million. The inflows, on the other hand, include an incredible 14-week run of consecutive gains, dating from mid-March through mid-June, during which time the funds grew by a record $9.1 billion.

Such sustained inflows have helped the junk market come roaring back from last year's staggering 25%-plus loss and sharply reduced primary activity totals. Total returns so far this year totaled an eye-popping 48.111% as of Wednesday's close, according to the authoritative Merrill Lynch High Yield Master II index, up from 46.184% a week earlier, handily beating virtually every other major investment asset class. Meanwhile, the $99.781 billion of new high yield debt issued so far this year globally, as of Wednesday's close -- $85.841 billion of it domestic-is running almost 61% ahead of the anemic pace of last year's global primary tally. Domestic new issuance is nearly 74% ahead of its year-ago levels.

EPFR sees inflows continuing

Meanwhile, another fund-tracking service, Cambridge, Mass.-based EPFR Global , which uses a different methodology, calculated a $575 million inflow for the week, following the $242 million gain seen the week before. The latest inflow was the 13th week in a row, its analysts said, "as investor appetite for exposure to fixed income assets moved up another notch," carrying most bond fund categories - including emerging markets, global and U.S. bond funds, as well as high yield - along on "a tide of liquidity." It was also the 27th such cash infusion into the junk funds in the last 28 weeks.

The inflow brought the year-to-date total up to $18.5 billion from $17.92 billion the week before, EPFR said.

While the EPFR junk figures most weeks 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. 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 market barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe.

DISH upsizes add-on

The primary market saw $700 million and €125 million of issuance on Thursday, as three issuers each brought a single tranche of notes each.

DISH Network priced a $400 million add-on to its 7 7/8% senior notes due Sept. 1, 2019 (existing ratings Ba3/BB-) at 101.75 to yield 7.617% on Thursday.

Deutsche Bank Securities ran the books.

Proceeds will be used for general corporate purposes.

The original $1 billion priced at 97.467 to yield 8¼% on Aug. 13.

Spirit AeroSystems prices atop talk

Spirit AeroSystems priced a $300 million issue of 7½% eight-year senior notes (B2/BB) at 97.804 to yield 7 7/8%.

The deal priced on top of price talk.

Bank of America Merrill Lynch, Credit Suisse Securities, Morgan Stanley & Co. Inc. and Barclays Capital Inc. were joint bookrunners.

Proceeds will be used to repay debt under the company's senior secured revolving credit facility and for general corporate purposes.

Pregis taps 2013 floaters

Meanwhile Pregis Corp. priced a €125 million issue of notes mirroring its Euribor plus 500 bps senior secured floating-rate notes due April 15, 2013 (B2/B) at 94.00.

The issue came on top of the 94 price talk.

Credit Suisse and Barclays Capital were joint bookrunners.

Proceeds will be used to repay outstanding debt under the Deerfield, Ill.-based protective packaging producer's senior secured credit facilities.

The original €100 million issue priced at par in October 2005.

American Airlines for Friday

American Airlines set price talk for its $450 million offering of senior secured notes due 2012 (B2) at 10¾%.

The deal is expected to price on Friday.

Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. Inc. are leading the debt refinancing deal.

Tops Markets for next week

Tops Holding Corp. and Tops Markets, LLC plan to price a $250 million issue of six-year senior secured notes next week via Morgan Stanley and Bank of America Merrill Lynch.

Proceeds, along with funds from an ABL facility and cash on hand, will be used to refinance bank debt and the company's warehouse mortgage agreement, pay the related swap agreement termination costs and make a distribution to equity holders.

DISH deal slightly better

A secondary trader opined that "there's a lot of high-end stuff coming [to market]. I can't believe people are able to do deals at these levels."

When the new DISH 7 7/8% notes due 2019 were freed for secondary activity after their late-session pricing, he saw the quickly shopped $400 million add-on offering to the company's identical existing bonds - upsized from the originally announced $300 million - trading into a 102 bid from the 101¾ pricing level, which yielded 7.617%.

GeoEye bonds orbit higher

A trader saw GeoEye's 9 5/8% senior secured notes due 2015 trading at par bid, 102 offered. That was well up from the 97.262 level at which the Dulles, Va.-based satellite imaging provider priced its $400 million offering - upsized from the original $350 million - to yield 10¼%.

Another trader added that there was "a lot of GeoEye activity this morning." He saw those bonds at 102 bid early in the day, and then at 1011/2, and after that they got as tight at 101 1/8-101¼ -- although he did not know whether anything actually traded there. Going home, he saw the bonds at 101½ bid, 102½ offered, "so they came back again.

"That [10]2 offering might still be there," he said, "but I don't know, different people had it."

Nebraska Book paper straddles issue price

Nebraska Book Co.'s $200 million of 10% senior secured notes due 2011 were being quoted at 99 bid, 99¾ offered, a trader said - versus the 99½ level at which the Lincoln, Neb.-based college textbook distributor's issue priced on Wednesday to yield 10.277%.

Delta deal response divided

A trader saw the new Delta Air Lines 9½% first-lien senior secured notes due 2014 at 99 bid, though with none offered, versus the 98.563 level at which that $7590 million of paper was priced late Wednesday to yield 9 7/8%.

However, he quoted the other half of that $1.35 billion behemoth offering, Delta's $600 million of 11¾% second-lien senior secured notes due 2015, bid at 93¾ -- well below Wednesday's issue price of 95.228, to yield 13% - but saw no offerings.

Another trader saw the second-lien notes "first thing this morning" at 94-95, and then they eroded down to a 93¾ bid level , although late in the day, they climbed back up to 94½ bid, 96½ offered.

Meanwhile, he saw the first-lien paper in a 993/4-par context.

The trader also noted that the second-lien notes were being listed by at least one news-service as 12¼% notes, rather than the 11¾% coupon widely reported late Wednesday and early Thursday, and commented that "they may have raised the coupon on this thing," - as it turned out, because Standard & Poor's rated the bonds after their pricing at CCC+ (see related story elsewhere in this issue).

According to a stipulation buried deep within the deal's terms, Delta would pay an additional 25 basis points of interest on the bonds if S&P were to initially assign them a B- rating - and that would go up to an extra half-point of interest if the agency assigned the bonds a rating of CCC+ or lower, or if it did not assign any rating by Oct. 28, one month after the settlement date.

S&P, in fact, did announce on Thursday that it had assigned a CCC+ rating and a 6 recovery rating to the second-lien notes, with the 6 recovery rating indicating S&P's expectation of minimal recovery at best - in the zero to 10% range - in a payment default scenario.

North American Energy surge subsides

Tuesday's deal from North American Energy Alliance LLC - which had firmed smartly on Wednesday - seemed to have run out of upside momentum Thursday, with a trader detecting no trace of it on Trace, nor any over-the-counter markets in it.

The New York-based utility owner and operator's $205 million of 10 7/8% senior secured second-lien notes due 2016 had priced Tuesday at 97.739 to yield 11 7.8%, then jumped to 101 bid at the break on Wednesday, finally going home that session as high as 102¼ bid.

Market indicators seen mixed

Back among the existing bonds not connected with the new-deal market, a trader saw the CDX Series 12 index down by ½ point on Thursday to 94¾ bid, 95¼ offered, after having gained ½ point in Wednesday's dealings.

The KDP High Yield Daily Index rose by 4 basis points on Thursday to 69.20, while its yield narrowed by 1 bp to 8.31%, moderating the trend of strong gains seen on Wednesday when the index had gained 25 bps and its yield tightened by 9 bps.

In the broader market, advancing issues managed to lead decliners for a 16th straight session on Thursday, although by only a couple dozen issues, versus Wednesday's better than eight-to-five margin.

Overall market activity, as measured by dollar-volume levels, eased by about 4% Thursday from Wednesday's pace.

A trader said that "we saw some decent volume" in Thursday's session, "although some issue might be lower.

"The high-yield market continues to be flush with cash. It seems like the entire market has been re-priced here."

But the big trend in the market of late, he said was that "it's just been a new-issue feeding frenzy."

Freeport-McMoRan remains most active

The most active issue of the day, he noted, was Freeport-McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017 - an issue which is usually either right at the top of the Most Actives list on any given day, or at least near there.

On Thursday, some $44 million of those bonds changed hands, going out at 107 1/8 bid, up a tad from Wednesday's 107 close. There was no fresh news seen out on the Phoenix-based metals mining company, whose bonds have risen smartly in recent weeks in tandem with the sharp rise in gold prices.

Crossover credits remain popular

Also showing up on the Most Actives list were a trio of split-rated quasi-junk crossover names that attract players from both sides of the divide between Junkbondland and investment-grade territory.

Reston, Va.-based education financing company SLM Corp. was slightly to the upside, its 5.45% notes due 2011 up ¼ point at 94¾ bid, with $41 million traded by day's end.

However, at another desk, a market source quoted Sallie Mae's 8.45% notes due 2018 down 1½ points at the 79½ bid level.

DirecTV Holdings LLC's 7 5/8% notes due 2016 were unchanged at 1073/4. Nonetheless, some $39 million of the El Segundo, Calif.-based satellite broadcasting company - and DISH arch-rival's - bonds changed hands.

Watson Pharmaceuticals Inc.'s 5% notes due 2014 were ½ point better at 102½ bid, on volume of $35 million. The Corona, Calif.-based drug-maker's $450 million of bonds priced a month ago at 99.589 to yield 5.095%, as half of a two-part deal totaling $850 million, which attracted a fair amount of junk account interest despite coupons which are small by traditional junk standards.

Momentive moves up....

A trader saw Momentive Performance Materials's 9¾% notes due 2014 at 76¾ bid, well up from 67¼ on Wednesday, after the Albany, N.Y.-based provider of high-technology materials solutions to the silicones, quartz and ceramics markets announced preliminary results for the fiscal third quarter that will end on Sunday - including GAAP operating income of approximately $35 to $45 million, well up from $17.6 million a year earlier, although sales slid to approximately $550 million to $570 million from $699.9 million and adjusted EBITDA eased to approximately $84 to $94 million from $115.9 million a year ago.

Volume of $23 million was among the busiest junk issues.

Momentive also said that its revolving credit facility lenders had agreed to waive compliance by Momentive with the senior secured leverage ratio maintenance covenant set forth in its credit agreement for the fiscal quarters ending Sept. 27 and Dec. 31 of this year, subject to certain conditions. It also said that the applicable margin on revolving credit facility borrowings under the agreement was increased by 125 basis points. In addition, Momentive agreed to pay a one-time fee in an amount equal to 0.25% of the revolving facility commitment of each revolving facility lender that was a party to the waiver and amendment and to reimburse certain fees and expenses incurred in connection with the waiver and amendment.

...while Rite Aid retreats

A trader saw Rite Aid Corp.'s 9½% notes due 2017 down a point at 82 bid, on busy volume of $31 million.

That followed the Camp Hill. Pa.-based drugstore chain operator issuing lowered full-year guidance, citing the continued tough retailing environment.

For the full fiscal year ending in February, Rite Aid now expects to lose $390 million to $615 million, or 48 cents to 74 cents per share - a sharp deterioration from its earlier projections, released in June, that it would lose between $265 million and $490 million, or 33 cents to 59 cents per share.

Rite Aid also cut its revenue forecast to a range of $25.7 billion to $26.2 billion from $26.3 billion to $26.7 billion.

Not all investors were spooked by that gloomy outlook - others focused on the fact that Rite Aid had cut its loss for the second quarter to $120.4 million, or 14 cents per share, after preferred dividends. That compares with a loss of $227.4 million, or 27 cents per share, a year ago.

Rite Aid's 8 5/8% notes due 2015 ended around the 83 level, up 1½ points.

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