CMS deal appears, then disappears in quiet session; NewPage up even as coupon question remains

By Paul Deckelman and Paul A. Harris

New York, June 27 - CMS Energy Corp. was heard by high-yield syndicate sources to be shopping a 10-year bond issue around the market on Monday, but almost as quickly as that would-be deal appeared, it disappeared as market participants heard late in the session that the offering had been postponed. It was the latest of several deals were heard to have been spiked over the last several weeks, a sign of the renewed sense of caution, which has crept into the formerly high-flying and freewheeling Junkbondland.

The Jackson, Mich.-based utility operator's now-you-see-it, now-you-don't bond deal was the only significant news to come out of the domestic primary sphere during the session.

From overseas came word that British manufacturer Kerling plc had priced a smallish offering of loan notes.

Traders saw Friday's deal from Rural/Metro Corp. having moved up in aftermarket trading from the par level at which the ambulance services provider had priced its offering.

They said that other recent deals, like Thursday's offering from Ducommun Inc. and Wednesday's from AMC Networks Inc., holding around the higher levels those new bonds reached after pricing.

Away from the new deals, traders saw a mostly listless and, in the words of one, "boring" session. Statistical performance indicators were mixed.

As has recently been the case, NewPage Corp.'s bonds have been actively traded, and on Monday, they were being quoted higher, even though investors remain worried over whether the papermaker will make a big coupon payment due this week on one of its tranches of bonds in the absence of definitive word from the company.

CMS postpones drive-by

No issues were priced during the Monday primary market session.

CMS Energy came and went.

The Miss.-based energy company postponed a $180 million offering of non-callable 10-year senior notes (Ba1/BB+) due to adverse market conditions, after launching the deal in the morning and intending to execute it as a drive-by.

BNP Paribas, Mitsubishi UFJ Securities, RBS Securities Inc., SunTrust Robinson Humphrey and UBS Investment Bank were the bookrunners for the debt refinancing deal, which was being run on the investment-grade syndicate desk.

A mere seven weeks ago, CMS Energy got an astonishing 2¾% coupon on its senior notes due May 15, 2014, with a $250 million deal (Ba1/BB+/BB+) that priced at a 185 basis points spread to Treasuries.

Those notes were discounted to 99.942 and yielded 2.77%.

Buyside driving the bus

Although no official price talk surfaced on the CMS Energy deal prior to its postponement, neither CMS Energy nor any other issuer will receive the red carpet primary market treatment that issuers saw in April and May, sources say.

Redemptions are making the buyside extremely reluctant to step into a deal right now, a debt capital markets banker said, pointing to the record-setting $3.43 billion outflow from the high-yield mutual funds during the most recent week, as reported by Lipper-AMG.

"People were expecting a big outflow," the banker said, "but I don't think they were expecting one that big. Those willing to put cash to work in new deals know that they can exact a significant premium right now."

Opportunistic issuers have pulled up stakes altogether, the banker said.

Quiet run-up to the Fourth

Heading into the Independence Day holiday weekend in the United States, the primary market will likely remain extremely quiet, sources say.

As to the deals on the forward calendar, no news circulated on Monday.

Only one deal on the calendar has official price talk.

El Pollo Loco's slightly downsized $105 million of 61/2-year second-lien senior secured private notes offering was talked late last week with a coupon that will pay 12½% cash plus 4½% PIK. The deal is offered at a price of 97 and is expected to yield in the 17.8% area.

Commitments on El Pollo Loco's upsized $182.5 million senior secured credit facility were due at Monday's close.

No official timing for the bonds has been heard.

"I believe that some of the stuff on the calendar will get done, but I would not be surprised to see some or most of it pushed into next week," a sellside source said on Monday.

Rural/Metro moves up

A trader said that the new 10 1/8% notes due 2019 priced on Friday by Rural/Metro Corp. were trading at 100¾ bid, 101¼ offered.

That was up from the par level at which the Scottsdale, Ariz.-based provider of ambulance and private fire-protection services, issuing the notes through WP Rocket Merger Sub, Inc. to help fund its pending $438 million leveraged buyout by private equity firm Warburg Pincus, had priced the $200 million offering. The bonds had been quoted at par bid, 101 offered in Friday's aftermarket dealings.

At another desk, a trader said he saw "no markets out there" on Rural/Metro.

AMC, Ducommun, hold gains

Among issues priced earlier last week, a trader said that Bethpage, N.Y.-based AMC Networks' new 7¾% notes due 2021 continued to hang onto most of the gains they notched after the $700 million offering priced at par on Wednesday.

Those bonds had been initially quoted in the aftermarket having done as good as 101 7/8 bid, 102 1/8 offered. As of Friday afternoon, they were still at 101¾ bid, 102¼ offered.

A trader on Monday said that the notes - the proceeds of which are going to go for the company's spinoff from Cablevision Systems Corp. - had been quoted at 102 bid during the afternoon, before going home at 101¾ bid, 102¾ offered.

Ducommun's 9¾% notes due 2018, which priced on Thursday at par and then firmed solidly, continued to trade around the lofty levels, which the $200 million deal had occupied since its move into the aftermarket.

A trader on Monday saw the bonds at 102¼ bid, 103¼ offered.

That's about where the Carson, Calif.-based aerospace and defense contractor's deal had ended up in Friday trading.

And a trader said that Harbinger Group Inc.'s 10 5/8% first-priority senior secured notes due 2015 were quoted Monday at 102½ bid, 103½ offered.

Harbinger, a New York-based holding company with interests in consumer products and life insurance, had priced a quickly shopped $150 million add-on to its existing $350 million of those bonds, which had come to market last November at 98.587 to yield 11%. The add-on priced on Thursday at 101 to yield 10.259% and had moved up when freed for trading to around the 102½ bid, 103½ offered area.

However, another market source said that the existing bonds had traded as high as above the 104 level after the new deal and pegged them down around a half-point Monday at 103¾ bid.

Market gauges turn mixed

Away from the new deal arena, statistical measures of market performance, off on Friday, were seen mixed on Monday, though just barely.

A trader saw the CDX North American Series 16 HY Index gain 1/16 of a point on Monday to finish at 99½ bid, 99 5/8 offered, after having fallen by 9/16 of a point on Friday.

But the KDP High Yield Daily Index lost 8 bps on Monday to end at 74.64, after having dropped 4 bps in each of the previous two sessions. Its yield moved higher by 3 bps, to 7.02%, after having edged up by 1 bp in each of the previous two sessions.

And the Merrill Lynch High Yield Master II Index showed its third consecutive loss on Monday, retreating by 0.093%, after having inched down by 0.009% on Friday. That left its year-date return at 4.228%, down from Friday's 4.324% and well down from its year-to-date peak level of 6.071%, which was reached on May 20.

A trader said of Monday's session, "It was very, very quiet. The calendar seems pretty light - I know they're trying to get some deals off the ground. Usually this week before the Fourth of July is pretty busy, before the holiday, but it seems like with just a few names on the calendar; it's been quiet. Today is just one of those typical Mondays in the summer."

A second trader summed the session up in one word: boring.

Another called the session "pretty dead."

The first trader suggested that the CMS deal had been scrubbed barely a couple of hours after speculation about the offering first hit the tape "maybe because of a lack of interest, I don't know."

The overall junk market "started to feel a little bit weaker today. But then the equity market took off," after French banks said they would accept a slower repayment schedule for Greece's $21.3 billion of debt, raising the possibility that the crisis roiling international debt markets could be defused.

Technical traders also stepped in to boost the bellwether Dow Jones Industrial Average by 108.98 points, or 0.9%, to close at 12,043.56, with other broader equity measures up as well, " so it's hard to say" what the trend in junk is, the trader said.

"I think people are just disinterested."

NewPage firms despite coupon

Among specific secondary issues, a trader said that NewPage was "one of the actively quoted names," seeing the Miamisburg, Ohio-based coated-paper manufacturer's 10% second-lien notes due 2012 in a 25-26 context and ending the day around 26 bid, so he called the paper unchanged on the day.

"They were quoted lower this morning," he said, before recovering later on. He said that there had been "decent volume" in the credit.

He also saw the 11 3/8% first-lien notes due 2014 as having "decent volume," ending around 901/2-91 bid versus an 89-90 context earlier, "so they're up a point on the day, with decent volume on that."

At another desk, a market source saw the 10% notes up a half-point at 26½ bid on busy volume of over $17 million, making it one of the most active issues of the day in Junkbondland.

He also saw the 11 3/8% notes gain a point to end at 90¾ bid, with over $10 million changing hands.

Another market source quoted the first-liens up by 1¼ point, at 91 bid.

There was still no official word from the company on Monday on whether it will make the $100 million interest payment due on Thursday on the $1.7 billion of 11 3/8% notes, and if so, where it would get the money to do so, or alternatively, whether it will instead invoke the standard 30-day grace period while it works on a restructuring with its bondholders and lenders.

NewPage did not return calls or e-mails Monday from Prospect News seeking a clarification. Investor angst over a possible missed payment has hammered even the heretofore strong first-lien bonds down some 10 points from recent levels near par. The second-liens traded dozens of points lower on investor realization that the company does not have enough assets to cover both sets of bonds in the event of a restructuring.

Catalyst loses ground

A trader quoted NewPage sector peer Catalyst Paper Corp.'s 7 3/8% notes due 2014 at 61 bid, 63 offered, while its 11% senior secured notes due 2016 were at 85 bid, 87 offered.

He said there was "no real trading" in the 11s, adding that "they didn't seem to be active today."

He added that they were "quoted a little lower on Monday," by perhaps a half-point to 1 point, after having dropped on Friday to 86 bid, 88 offered.

However, he said he "did not see much activity. I didn't see volume. You can't really tell how much of those are trading."

He said, "It seemed it was more NewPage [than Catalyst]. NewPage wasn't as active as last week, and Catalyst definitely wasn't."

But while he said that "last week, it seemed a lot more active" in both of the paper companies' respective bonds, as Catalyst announced the hiring of UBS Securities to help the Richmond, B.C.-based paper manufacturer explore strategic alternatives while NewPage gyrated on investor worries about the coupon payment, on Monday "there was still some decent volume - 10-or 12 trades in each of them. You can't really tell the size of them, but there 10 or 12 trades in each issue."

Sino-Forest mostly silent

A trader said that Sino-Forest Corp.'s bonds were "pretty quiet" - quite a difference from the end of last week, when the Canadian-Chinese timber company's bonds were seen up smartly, some by as much as 5 points, after the Paulson & Co. hedge fund, which formerly owned more than 30 million of its shares, or about 12.5% of the outstanding total, defended the due diligence it had done before taking such a large stake in the company, which has recently been rocked by allegations of possibly fraudulent dealings.

Paulson liquidated its position after it lost about 90% of its formerly C$630 million total value in the wake of the allegations by short-seller Carson Block.

The trader saw the 9 1/8% notes scheduled to come due on Aug. 17 around an 85-ish bid, which he called "up a couple of points" from prior trading in an 81-85 context, although he said he didn't see a lot of activity.

He quoted its 10¼% notes due 2014 unchanged at 51 bid, 53 offered, while the 6¼% notes due 2017 stayed around 47 bid, 49 offered.

He said that he "did not see a lot a lot quoted" in its busted 5% convertible notes due 2013, which he estimated to be at 47 bid, 49 offered, while its 4¼% converts due 2016 were at 43 bid, 45 offered.

Another market source said that the 101/4s gained 3½ points to end at 52 bid, though only on large-bloc volume of $1 million. Its 6¼% notes were up perhaps 1¼ point, though on only one large trade.

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