Regal reigns in secondary, other expected deals unseen; CIT active again; Seitel slides more

By Paul Deckelman and Paul A. Harris

New York, July 10 - Regal Cinemas Inc.'s new bonds got a round of applause on Friday from an appreciative audience - junk bond secondary market participants - who were heard by traders to have taken the new notes higher right out of the gate.

But after having priced the Regal deal late Thursday, the primary market went back into its summer slumber, as anticipated new deals from Basic Energy Services Inc. and One Communications Corp. turned out to be no-shows - the latter for a second consecutive week.

While there were no new deals, primary participants heard price talk and timing from Yonkers Racing Corp., whose issue of seven-year senior secured notes could come to market after the deal books close on Monday.

In the secondary realm, CIT Group Inc. absolutely dominated everyone's most-actives list for a second straight session on Friday, with the bonds gyrating around at mostly lower levels, amid increasing investor worries that the New York-based commercial lender will not be allowed to bolster its balance sheet by issuing low-interest, federally backed bonds under the government's Temporary Liquidity Guarantee Program. Such a rejection, should it occur, would force CIT to seek other, more onerous ways to deal with its upcoming maturities - and it has at least several dozen such near-term obligations.

The ground continued to quake and shake under the feet of Seitel Inc.'s bondholders, whose paper has been sliding precipitously for several sessions after the Houston-based provider of seismic forecasting services to the energy industry forecast sharply reduced revenues in the upcoming quarter.

And junk players mostly yawned at the major story dominating the day's financial pages - General Motors Corp.'s emergence from Chapter 11 as a slimmed-down, considerably less-debt-laden "New GM," with the potentially lengthy and complex task of deconstructing and restructuring what was once the world's largest industrial concern accomplished in practically record time of less than six weeks. Its bonds, however, stayed pretty much around the same level that they had held, a trader said, "for the last couple of weeks."

Overall the junk market passed a very quiet Friday, market sources said.

Cash bonds were flat to perhaps slightly lower, according to an asset manager who works for a high-yield mutual fund.

"Stocks have been lower," remarked the investor who agreed to speak on background.

"The high-yield is up almost 30% on the year," the buy-sider added, citing the total year-to-date return posted by the Merrill Lynch High-Yield Master II index.

"There's no way it's going up another 30%. So your upside from here is limited.

"During the back half of the year you'll be lucky to get a couple of points plus the coupon."

However, that couple of points plus coupon might represent a greater return than equities will deliver during the second half of 2009, the investor allowed.

That could be enough to sustain a technical bid for junk.

New Regal bonds rally

Several traders said that Regal Cinemas' new 8 5/8% notes due 2019 were trading at 99½ bid, 99¾ offered on Friday.

The bonds had firmed smartly from the 97.561 level at which the Knoxville, Tenn.-based movie theater operator had priced its quickly shopped $400 million drive-by issue - upsized from the originally planned $300 million - on Thursday to yield 9%.

The Regal deal "did well," a trader said, quoting it in the 991/4-99¾ range. He said "sometimes, there were even locked markets at 1/2, 5/8, without a lot of trading."

A 'one deal' week

Summer appears to have already taken hold in the junk market, sources remarked throughout the post-Independence Day week.

"A lot of people are out," said the asset manager quoted above, adding that three-fourths of his high-yield group was away from the office on Friday.

Since the holiday only one issue was priced.

Regal Cinemas Corp. priced an upsized $400 million issue of 8 5/8% 10-year senior notes (B1/B-/) at 97.561 to yield 9% on Thursday, in a deal that was multiple-times oversubscribed.

Potential issuers, watching the new issue premium go higher, lately started backing away, a syndicate official said on Friday.

That premium is presently in the context of 150 basis points to 200 bps, up from 50 bps to 75 bps, the source said.

The asset manager from the mutual fund, hearing that issuers are choosing to wait because they have become more price-sensitive, commented that such a move is "risky business," on the part of those issuers.

"They're taking a view that the market will improve again, but it might not," the investor said.

"If you need to refinance debt you should probably come while you can.

"The market might improve, but it could also close again, in which case you'd be in a tough spot."

The week ahead

Yonkers Racing Corp. set price talk for its $225 million offering of seven-year senior secured notes (B1/B+) at the 11¾% area on Friday.

Books close on Monday, with the notes expected to price after that.

Credit Suisse and J.P. Morgan are joint bookrunners.

Also expected to price during the week ahead is the deal from Freedom Group, Inc., the parent of Remington Arms Co. - a $200 million offering of six-year senior secured notes (expected ratings B1/B+) via Banc of America Securities, Deutsche Bank Securities Inc. and Wells Fargo Securities.

Expected to come

In addition to Yonkers Racing and the Remington deal, two companies are expected to launch deals during the week ahead.

Duane Reade Holdings, Inc. plans to issue new senior secured notes and new senior subordinated notes to help fund its tender for $210 million of Libor plus 450 bps senior secured floating-rate notes due 2010 and $195 million of its 9¾% senior subordinated notes due 2011.

The bond deal will be led by Goldman Sachs, according to an informed source. Banc of America Securities will also be involved.

The size of the deal depends upon the amount of bonds tendered, sources say, adding that the new notes offer could come in the week ahead.

Also Reliance Intermediate Holdings LP is expected to roll out a $250 million offering of 10-year senior notes (Ba2///DBRS BB) during the week ahead.

Credit Suisse will lead the Rule 144A for life deal.

Carried over

There are also a pair of deals that remain on the forward calendar, their roadshows having been run.

One Communications Corp. launched its $275 million offering of first-priority six-year senior secured notes (expected B-) on June 25, with the expectation that it would price before the July 4 holiday.

It has been "radio silence" from One Communications, market sources say, adding that the deal is clearly struggling.

Also said to be struggling is the Basic Energy Services Inc. $225 million offering of eight-year senior notes, which was announced on the Monday following the July 4 holiday.

Although it was supposed to price by the end of the July 6 week, sources say it has been pushed into the week ahead.

Falling natural gas prices bode ill for the Midland, Tex.-based oilfield services company's deal, sources say.

"If the strip price of gas is going down, the E&Ps [exploration and production companies] are going to need relief on their costs, which will impact the services sector," a high-yield investor explained.

"The E&Ps will lay down rigs until the gas price rebounds, or until they can renegotiate terms with the services providers.

"It's a very tough part of the cycle for the services companies."

Meanwhile an investment banker not in the deal said that Basic Energy's existing 7 1/8% notes due 2016 have fallen dramatically since the new deal was announced.

Shortly after the Friday close those bonds were at 73¾ bid, 75¼ offered, the banker said, adding that at the beginning of the week they were at 80 bid, 82 offered.

Market indicators mostly easier

Back among the established issues, the CDX Series 12 High Yield index - which had gained 5/8 point on Thursday, a trader said, moved up to 83 ¼ bid, 83 ¾ offered.

The KDP High Yield Daily Index, which had lost 4 basis points on Thursday, eased by another 11 bps on Friday to end at 62.54, while its yield rose by 2 bps to 10.61%.

In the broader market, advancing issues - which had lagged decliners for a fourth consecutive session on Thursday - made it five in a row Friday, trailing by a five-to-four margin.

Overall market activity, measured by dollar-volume totals, fell 24% from Thursday's level.

CIT stays most active

Among those established bonds, CIT Group pretty much monopolized the most-actives lists for a second consecutive session, moving mostly lower in volatile trading amid investor worries about the company's liquidity picture.

A trader said there was "lots and lots and lots of trading" in CIT. He said that "as the day wore on," the company's New York Stock Exchange-traded shares came off their early lows of as much as a 39% loss to "only" end down about 17%, on very heavy volume of 110 million, or six times the norm, but while the stock was trying to move back up, "from what we could tell, the bonds were all down."

A market source noted that nine out of the top 10 volume leaders were CIT issues - the sole exception was from Lazard Group LLC - and 12 out of the top 20.

The most actively traded CIT credit, the source said, was the 4¾% notes due 2010 issued by its CIT Group Holdings affiliate. Those bonds were quoted down 4½ points on the day at just over 69 bid, on volume of nearly $35 million - a "hell of a lot" of bonds to be trading on a Friday in the summer, the source said.

The source saw parent CIT Group's 7 5/8% notes due 2012 trade down 4 points at 61½ bid, with over $32 million traded.

Also topping the magic $30 million mark was the parent's 4¼% notes due 2010, off 3¼ points.

A trader said that the 4¾% notes had traded down to 69 bid, 71 offered by the day's end - down from 73 bid, 75 offered on Friday morning, and down further still from 75 bid, 77 offered at midday on Thursday.

He also saw its 5% notes due 2015 at 56 bid, 58 offered, unchanged from the morning level and actually slightly firmer, by ½ point, than Thursday at midday.

"So the short paper is down by 5 points," he said, "while the intermediate stuff bounced a little."

Yet another trader saw "a lot of trading across the whole capital structure," although he saw issues like the 7 5/8s "on a wild ride, like Thursday," falling points in the morning and coming back to end little changed in the afternoon. He said those bonds had started the day down at 61-62, but had come back to end around 65 bid, which he said was around where they ended Thursday.

At another desk, 5s were seen down more than 2 points at 34, while the 43/4s were down nearly 6 points at the 69 level, and the company's 5.6% notes due 2011 were 4 point losers at 66. Its 5.40% notes due 2013 lost more than 5 points on the day to end just under 55.

One of the traders - looking at the wildly divergent assessments about where the volatile bonds had traded and were ending up, cautioned that different sources might have different levels because some were looking at only round-lot trading, while others were counting in the numerous smaller odd-lot transactions as well.

Not 'too big to fail'?

CIT's bonds have been falling - in volatile trading and one heavy volume - since mid-week on investor angst that the Federal Deposit Insurance Corp. might choose to turn down the company's application to issue new, government-guaranteed debt at relatively low cost under the TLGP facility that the FDIC administers, under which a number of other money-losing financial institutions have issued billions of dollars of low-interest debt to replenish their barren coffers. Since the program's inception, and as of June 8, about $335.4 billion in debt has been guaranteed by the FDIC.

However, unlike the likes of a Citibank or a Bank of America, CIT, which mostly lends to mid-sized businesses, is, in the words of a trader watching its bonds drop, "not considered too big to fail," and Washington - stung by criticism of its massive bank bailouts - could decide to draw the line at CIT, whose survival is not thought to be crucial to the financial system the way, say, AIG's was.

"We don't view CIT as meeting the 'too big to fail' test, especially since there is a long list of other troubled banks awaiting regulatory attention, some with more insured deposits at risk than at CIT," wrote Kathleen Shanley, an analyst with Gimme Credit LLC, in a morning report to the research agency's clients.

Also working against CIT is the fact that typically the FDIC's backing is given to those companies with higher credit ratings, while CIT's rating has undergone some cuts as the liquidity concerns escalate, most recently on Wednesday when it was downgraded by Fitch.

A market source described CIT as "one of the good guys" who did not engage in the kinds of high-risk investment and lending activities that have famously brought many other, larger financial names low, thus separating the company from what he calls the "complete swindlers" that have in some cases been backed by the FDIC just because they were considered "too big to fail."

"So it's kind of an injustice," he declared

CIT's need for a ready source of new cash is evident - it has around $10 billion in debt maturing in 2010.

David Chiaverini, an analyst at BMO Capital Markets, said if the FDIC turns down CIT's request to participate in the TLGP the company will have to go to Plan B and seek other funding sources to meet its debt obligations over the next two years. He warned that such alternative funding sources "will include sharply curtailing their new business originations, and asset sales."

GM emergence a yawner

A trader said General Motors's bonds were "pretty much unchanged" at 11 bid, 13 offered, "across the board, pretty much where they were the last couple of weeks," even as slimmed down "New GM" emerged from bankruptcy on Friday, just 40 days after it had gone in - surely a record for settling such a complex bankruptcy case.

A source said that GM bonds were initially lower - its 8 3/8% benchmark bonds traded as low as 10 bid during the morning, before coming off those levels, but almost all of those lower trades were in small-sized odd-lot transactions not representative of the credit's true worth.

Another trader quoted those benchmarks unchanged at 11¾ bid, 12¾ offered.

Traders said that volume in the once actively traded credit was very light.

Stephanie N. Rotondo contributed to this report.

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