Junk quietly closes week, though pricings seen; Chrysler busy again, Hertz trades on Icahn news

By Paul Deckelman and Paul A. Harris

New York, Jan 3 - The high-yield market closed out the week on Friday the same way that it had begun the new year just the day before - on a quiet note, with reduced staffing at many places and early exits, due to a combination of factors - people still being on holiday-time vacations, the usual Friday afternoon lassitude, and winter storm "Hercules," which dropped anywhere from 6 to 10 inches of snow on New York City and even heavier accumulations in some other Northeast business centers, all accompanied by bone-chillingly cold temperatures.

Against that backdrop, traders said, volumes were way down - perhaps only about one-third of the usual activity level.

For about what seemed to be the umpteenth day in a row, the primary arena was still - there were no new deals even announced, let alone priced. But that having been said, people in the new-deal sphere were firmly convinced that the lull seen over the past two weeks will be coming to an end this upcoming week, anticipating new-deal announcements and perhaps even opportunistic pricings starting up again in the next few days.

Back in the secondary realm, Friday saw relatively brisk activity for a second consecutive session in Chrysler Group LLC paper, in the wake of Thursday's announcement that majority owner Fiat SpA will buy out all of the Number-Three U.S. carmaker that it doesn't already own.

In another automotive-themed development, Carl Icahn was reported to have taken a stake in Hertz Global Holdings, Inc., causing a rise in its equity and increased trading as well in the car-rental giant's junk bonds.

Statistical indicators of secondary market performance meanwhile finished the day higher, after having been mixed on Thursday. And for a second consecutive week, they were higher across the board versus their closing levels the week before, ended Dec. 27.

Primary waiting for news

The high-yield primary market remained dormant again on Friday, as participants continued to trickle back to work from an end-of-year hiatus which, at least for some, got underway before Christmas.

The first new dollar-denominated deals of the year could come on Tuesday, a syndicate source said, heading into Friday's close.

Look for announcements of dollar-denominated junk bond offers from issuers in Europe and the United States on that day, sources say.

"It's possible that we'll hear something on Monday, but not likely" one syndicate banker said.

"Tuesday is more likely because it's prudent to allow the investors who are returning from the holidays time to get into their offices, and get settled."

Once the market begins to regain its legs, in the mid-to-late part of next week, January issuance is expected to pick up meaningfully.

"We're not going to be gangbusters, but look for $6 billion to $10 billion per week," the syndicate source said.

Notwithstanding the $643 million of outflows from dedicated high yield funds for the week ending Jan. 1 that was reported Thursday, there is still a lot of cash waiting to be put to work.

Another quiet day

In the secondary market, Friday was another slow session, characterized by thin trading with not much focus seen, outside of a few names.

"Most people started to leave around 1 or 2 o'clock [ET] this afternoon, a trader declared.

He said that market volume, as reflected in the Trace bond-tracking system, "was very light," coming in around an estimated $465 million late in the afternoon - about one-third of the usual activity level of about $1.5 billion.

Those figures, he said, "have been trending down over the last couple of months, as the Street [firms] stopped trading bonds between themselves in proprietary trading."

On Thursday - the first day back after the New Year's Day holiday break - volume topped the $500 million level, he said, "but we're not even going to get to that mark today."

And he noted that many of the names populating the most-actives list really aren't considered high yield issues, despite having nominal junk ratings because they are mostly traded by investment-grade accounts reaching down into Junkbondland to pick up some yield and are at the same time usually ignored by traditional mainstream high-yield investors.

For instance, he opined, Royal Bank of Scotland Group plc's 6% notes due 2023, which topped the actives list with over $15 million having traded "is not a high-yield bond," despite its nominal Ba2/BB+ rating.

The same could be said for the Barclays Bank plc 7 5/8% notes due 2022 - not rated by Moody's Investors Service and carrying a BBB- rating from Fitch. It had over $10 million of turnover on Friday.

He said that other familiar names like DISH DBS Corp., Ally Financial Inc., Leucadia National Corp. and Delphi Corp. "are mostly crossover pieces of paper.

"It's really the IG accounts that are involved in junk that were the most active."

Away from that, he said, "I didn't hear too much of anything going on."

Chrysler cruise continues

For a second consecutive session, Chrysler Group's bonds were seen parked among the Most Actives, presumably aided by the news that that its majority owner, Italian carmaker Fiat, will buy out all of Auburn Hills, Mich.-based Chrysler that it doesn't already own.

Chrysler's 8¼% notes due 2021, which had racked up over $12 million in round-lot trading on Thursday, added another $8 million to that on Friday, a market source said. The notes were seen down by 1/8 point, ending at 113 7/8 bid.

The Number-Three U.S. carmaker's 8% notes due 2019 were also off by 1/8 point at 110¾ bid. Volume was just over $2 million, on top of Thursday's more than $5 million.

Chrysler is currently owned 58.54% by Fiat, which bought its controlling stake in the then-troubled Chrysler in 2009 as it languished in bankruptcy.

The European car manufacturer will acquire the remaining 41.46% stake it does not currently own from the United Auto Workers union VEBA retirement trust for a total of $4.35 billion in cash, after which the two carmakers will be fully merged.

Hertz active on Icahn news

Hertz Corp.'s bonds "were one of the more active names" on Friday, a trader said, citing the news that billionaire investor Carl C. Icahn had taken a stake of between 30 and 40 million shares in its Parsippany, N.J.-based corporate parent, Hertz Global Holdings, the world's largest vehicle rental company.

Over $5 million of the Hertz 6¼% notes due 2022 traded, easing by 7/8 point from their most recent previous round-lot level to end at 102¾ bid.

Its 6¾% notes due 2019 were seen down 3/8 point at 107½ bid, on volume of more than $6 million.

Market indicators improve

Overall, statistical junk-market performance indicators were higher across the board on Friday, after having turned mixed on Thursday. Before that, they had been higher on Tuesday, the final session of 2013. There was no domestic trading on Wednesday, New Year's Day.

And the indicators were also higher all around versus where they had closed out the previous week on Friday, Dec. 27, their second consecutive week on the upside after having been mixed week-over-week for the three weeks prior to that.

The Markit Series 21 CDX North American High Yield Index rose by 1/16 on Friday to end at 108¼ bid, 108 /16 offered, bouncing back after having lost 9 &frac32; point on Thursday.

The index was marginally improved from the previous Friday's level of 108 3/16 bid, 108¼ offered.

The KDP High Yield Daily Index gained 8 basis points Friday to end at 74.52, its second consecutive gain. On Thursday, it had improved by 2 bps.

Its yield meantime came in by 2 bps to 5.59%, its second consecutive decline, after having dipped by 1 bp on Thursday.

Those levels compare favorably to the previous Friday's 74.39 index reading and 5.61% yield.

The widely followed Merrill Lynch High Yield Master II Index rose by 0.054% on Friday, its 10th consecutive gain. On Thursday, it was up by 0.117%.

Its year-to-date return rose to 0.171% from its year-starting 0.117% on Thursday. On Tuesday, the index had closed out 2013 with a final cumulative return of 7.419% - less than half of the swaggering 15.583% return at which the index had finished 2012.

For the week, the index was up by 0.299%, its eighth consecutive weekly rise.

The week before it had gained 0.122%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.