Tropicana prices but GEO drops out; airlines head back down; funds see $47 million outflow

By Paul Deckelman, Paul A. Harris and Ronda Fears

New York, Dec. 14 - For the first time this week, there were no billion-dollar deals pricing in junkbondland Thursday - but the market did come very close to making it four days in a row, as Tropicana Entertainment LLC/Tropicana Finance brought in a $960 million offering. Those bonds were little changed from their par issue price when they moved over to the secondary side.

Elsewhere in the primary market, price talk emerged on retailer Dollarama's $200 million offering of six-year bonds. But The Geo Group Inc. was heard to have withdrawn its planned $275 million bond offering.

In the secondary market, airline bonds continued their bumpy ride - way up one day, retreat, up again, retreat again - as Northwest Airlines Corp. and Delta Air Lines Inc. paper eased in line with a slide in the companies' stock triggered by higher world crude oil prices.

For the third consecutive day sources were marking the broad high-yield market lower on Thursday.

However it seems notable that sources on both the buy-side and the sell-side were reticent to attribute the softness to the approximately $11 billion of issuance seen so far this week, or to the approximately $17.6 billion that has priced since Thanksgiving.

One source said Thursday that the softness is more likely attributable to junk investors beginning to position themselves for year end.

Funds back on the downside

And as activity wound down for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $46.6 million more left the junk funds than came into them.

That continued a recent choppy pattern dating back to mid-November, which saw a two-week losing streak about offset by the $266.6 million inflow seen last week, ended Dec. 6.

Still, according to a Prospect News analysis of the AMG figures, even though a negative trend has been in effect so far this year, now including three out of the last four weeks, since around the middle of the year inflows have held sway, totaling about $739 million, with 13 such infusions seen in the last 24 weeks.

However, despite that show of strength during the third quarter and much of the current fourth, the year-to-date figures continue to tell a very different story.

Counting the latest week's result, the funds have hemorrhaged $2.897 billion since the start of the year, up from the previous week's $2.85 billion net outflow total, according to the analysis. Outflows have been seen in 32 weeks out of the 50 since the beginning of the year against just 18 inflows. The figures exclude distributions and count only those funds that report on a weekly, rather than on a monthly, basis.

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 hedge funds.

Tropicana upsizes

The issuance total climbed meaningfully again on Thursday, thanks only to a single issuer that priced a single upsized tranche.

Tropicana Entertainment LLC and Tropicana Finance priced $960 million of eight-year senior subordinated notes (B3/CCC+) at par to yield 9 5/8%, well wide of the 9% to 9¼% price talk.

Credit Suisse ran the books for the acquisition and debt refinancing deal.

On tap for Friday

At least three issuers are expected to price junk bonds on Friday.

UCI Holdco Inc., the ultimate parent of Evansville, Ind., vehicle replacement parts supplier United Components Inc., revised the price talk on its $235 million offering of seven-year senior floating-rate PIK notes (Caa2/CCC+) to Libor plus 700 basis points at an issue price of 96.50.

Previously the company had talked the notes with a coupon of Libor plus 700 basis points at an issue price of 99.00.

Lehman Brothers and Goldman Sachs & Co. are leading the deal.

Elsewhere Dollarama Group Holdings LP and Dollarama Group Holdings Corp. talked their $200 million offering of six-year senior floating-rate notes (B-) to come with a Libor plus 575 basis points coupon at an issue price of 99.00.

The bookrunners are Citigroup, JP Morgan and RBC Capital Markets, with Citigroup on the left.

Hellas talks €1.4 billion

Also possible for Friday is TIM Hellas Communications.

The Greek telecommunications company gave price talk on a restructured €1.4 billion equivalent offering of high-yield notes on Thursday.

The company plans to price €1.1 billion of eight-year senior subordinated floating-rate notes. A euro-denominated tranche is talked at Euribor plus 600 to 625 basis points. An added dollar-denominated tranche is talked at Libor plus 575 to 600 basis points.

Hellas also plans to price a €200 million tranche of PIK notes due July 2015, which it has talked at Euribor plus 800 to 825 basis points.

Also the company plans to price a €100 million add-on to its three-month Euribor plus 350 basis points senior secured floating-rate notes due Oct. 15, 2012, which it has talked at Euribor plus 350 basis points. There are €1.125 billion of the notes presently outstanding.

A proposed senior notes tranche has been abandoned.

Deutsche Bank Securities, JP Morgan, Lehman Brothers and Morgan Stanley are joint bookrunners.

Finally, Global Crossing (UK) Finance plc disclosed that it expected to launch an up to £52 million add-on to its 11¾% senior secured notes due 2014 on Thursday.

ABN Amro will have the books for the acquisition deal, according to market sources.

The original £105 million issue priced at 98.575 to yield 12% on Dec. 23, 2004 in a transaction that also saw the company price $200 million 10¾% notes due 2014.

Tropicana bonds little changed after pricing

When the new Tropicana Entertainment 9 5/8% senior subordinated notes due 2014 were freed for secondary dealings, "they traded like crap," a trader said, "nothing - flat to new issue," going home quoted at par bid, 100.5 offered.

He also saw the other lodging and gaming related name that priced this week - MGM Mirage's 7 5/8% notes due 2016 - at 100 bid, 100.25 offered, "wrapped right around where they were priced" on Wednesday.

In each case, he said, "the issuer is happy, because he got exactly what he was supposed to - but the flippers [who bought the bonds, hoping to ride their initial upside and then get out quickly with a nice profit] were pissed."

Even issues which had traded well in secondary dealings after having priced on Wednesday, including the new bonds of Tristan Oil Ltd., Aleris International Inc. and Quebecor World Inc., were all seen little changed on Thursday's session, having already made their move. Quebecor's 9¾% notes due 2015, for instance, were seen steady at 100.5 bid, 101 offered.

Delta, Northwest lower

Back among the established issues, Delta's bonds, and those of rival carrier Northwest, were buffeted by turbulence, giving up whatever gains they had notched on Wednesday when the bonds of the two bankrupt airlines had risen on renewed merger and acquisition speculation within their industry.

Thursday was a whole different story, with both names seen in retreat as their stocks nosedived on a spike in oil futures.

Delta and Northwest Airlines bonds were described by traders as having fallen 1 point across the board, pushing Northwest's issues back to the 93.5 bid, 94.5 area. Delta's 8.30% paper last seen 66.75 offered with no bid - which one trader said suggests further downward pressure - and the 7.90% issue went out at 67 bid, 68 offered.

Stocks in both the bankrupt airlines took a hard nosedive, however, with Delta losing over 13% and Northwest falling more than 18%. Market watchers blamed a rise in oil prices, which are seen by some as a harbinger of future price trends for distillates such as jet fuel, a major portion of airlines' operating budgets. The sharp rise in jet fuel prices helped to push both Atlanta-based Number-Three domestic carrier Delta and Eagan, Minn.-based Number-Four operator Northwest into emergency landings in Chapter 11, literally within hours of one another on the same day in the fall of 2005.

In Thursday's energy market dealings, the Organization of Petroleum Exporting Countries decided to pare half a million barrels from its output - but not until February - as it juggled concerns about oversupply and fears that deeper and earlier cuts would send prices skyrocketing. The January contract for light sweet crude climbed $1.14 on Thursday to $62.51 a barrel on the New York Mercantile Exchange, and gasoline futures climbed 4.76 cents to $1.665 a gallon.

'Weak,' sloppy market seen

Apart from the airlines' up-and-down saga, a trader said, "there was a little weakness" in the overall junk market.

Another trader observed that after a little flurry of activity in the morning, "things really fell of in the afternoon," activity-wise, as junk marketeers began to get themselves into their typical year-end groove.

"You had the equity market up" the first trader said, "but the bond market continues to languish - names that I saw, from retail to gaming to airlines to Calpine [Corp.], a lot of the go-go-stuff that you normally talk about, a lot of stuff was off."

He saw retailer names "pretty much off," and gaming "sloppy."

Among the retailers, Toys "R" Us Inc.'s bonds were "just giving back" after the Wayne, N.J.-based toy retailing chain operator reported numbers earlier in the week.

"I now some of the big guys were trying to move it and push it and love it, and a lot of the good stuff," he said, but the bonds were "pretty much back to where they had been."

He said that the company's 2018 bonds, which had recently been as high as 81 bid, 82 offered, fell back to prior levels around 80 bid, 81 offered. The company's 2013 notes were at 88 bid, 89 offered, "still up about ½ [point]. So the middle-range stuff is up, but the long-dated stuff is off."

He did see Toys' 7 5/8% notes due 2011, though, continuing to "hang in there" at 91.5 bid, 92.5 offered, up from the low-to-mid 80s "not too long ago."

In that same sector, he saw the normally little traded bonds of athletic apparel maker Quiksilver Inc. up ½ point to a point, on "decent" quarterly numbers, its 6 7/8% notes due 2015 at 97.5 bid, 98.5 offered. The move was "not a major one - it's not a real super-liquid issue."

Elsewhere, he saw the bonds of bankrupt San Jose, Calif.-based power generator Calpine better on favorable monthly operating numbers. Its 8 ½% notes due 2011 were up a point at 80.5 bid, 81.5 offered.

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