Primary stays quiet as Glentel slates; extra busy Momentive rebounds as judge OKs plan

By Paul Deckelman and Paul A. Harris

New York, Aug. 27 – It was yet another quiet day in the primary sphere on Wednesday – its eighth consecutive session in which no new deals had priced, continuing the traditional late-August lull.

Syndicate sources heard of only one actual new-deal announcement. Specifically, Glentel Inc., a Burnaby, B.C.-based provider of wireless systems and hardware, rental equipment and system implementation services, plans to bring a C$200 million issue of five-year notes to market early next month.

Other than that, primaryside participants continued to speculate on whether September would merely be a very busy month for new issuance, topping the $30 billion mark, or whether it would join the select circle as one of only four months that will have priced over $40 billion of new paper.

In the secondary arena, traders saw a fall-off in activity in Burger King Worldwide Inc.’s bonds, which had been among the busiest junk credits on Tuesday in the aftermath of the giant fast-food company’s Monday announcement of its plans to acquire Canadian coffee-and-donut store chain Tim Hortons Inc., funding the purchase with a huge new bond issue and an even bigger bank debt deal.

But there was no falling off in trading in Momentive Performance Materials, Inc.’s bonds, which were the busiest credits in Junkbondland for a fourth consecutive day. If anything, action in the name intensified after a federal bankruptcy judge gave conditional approval to the silicon and specialty chemicals manufacturer’s reorganization plan. Those bonds – down sharply Tuesday after the jurist quashed an effort by holders to win a special make-whole interest payment from the company – regained some of their lost ground on Wednesday.

Overall activity in the secondary market remained mostly quiet, apart from “story” bonds like Momentive.

Statistical market performance indicators remained mixed on Wednesday for a second straight session and their fifth session in the last six.

Glentel C$200 million roadshow

Although no deals priced on a late August Wednesday, the North American primary market did hear one deal announcement.

Glentel plans to present its C$200 million offering of five-year senior notes to investors on a roadshow set to take place during the Sept. 1 week, according to an informed source.

The debt refinancing and general corporate purposes deal, which is being transacted on the Canadian high-yield desk, is expected to price late in the Sept. 1 week or early in the following week.

BMO and CIBC are the joint bookrunners.

$30-$40 billion September

Pending timing on some of the larger expected September deals, including acquisition financings from Burger King World ($2.25 billion) and Dynegy Inc. ($4.9 billion to $5.1 billion), September could be the first month of 2014 to top the $40 billion mark, although April came close, a syndicate official said on Wednesday.

April 2014, which saw $39.7 billion of issuance in 63 junk-rated, dollar-denominated tranches, stands as the fourth biggest month in the history of the market in terms of dollar amount of issuance, according to Prospect News data.

Monthly issuance has cleared the $40 billion mark just three times to date, and two of the three were Septembers.

The biggest-ever month in the history of the market came last September, which saw $46.9 billion in 67 tranches.

September 2012 presently stands as the market's third-biggest month, with $44.4 billion in 86 tranches.

The second-biggest month was not a September.

May 2013 turned out $46.2 billion. But in terms of deal volume, May 2013 holds the record, going away, with 102 tranches having cleared the market during the course of that month.

Elsewhere, forecasts for September 2014 are beginning to firm at $30 billion to $40 billion, pending market conditions, market sources said on Wednesday.

Momentive on the rebound

In the secondary realm, Momentive Performance Materials’ senior secured bonds once again dominated the Most Actives list, their fourth consecutive day of high-volume trading.

“There was heavy trading again,” one trader said, although he said that his shop, which doesn’t really do anything in distressed debt, didn’t do any trading in it Wednesday.

Still, he said, “a lot of bonds traded.”

Unlike the previous three days when the bonds were sliding – first on investor fears that the federal judge overseeing the Waterford, N.Y.-based silicon and specialty chemicals manufacturer’s Chapter 11 proceedings would reject noteholders’ demands for a special interest payment and then, on Tuesday, on that actual news – the bonds came back part of the way on Wednesday, in heavier trading than ever.

A market source said that its 8 7/8% first-lien senior secured notes due 2020 issued by MPM Escrow LLC initially continued to retreat, dropping 1 point to 89½ bid in the early going, but eventually bounced off that bottom to finish at 93¾ bid, up 3¼ points on the day, with over $163 million having traded.

On Tuesday, those bonds had plunged some 7¾ points on the day to 90½ bid, with over $90 million having changed hands.

But despite the comeback, the bonds remained well down from the 101 bid level at which they had been trading a week ago.

Momentive Performance’s 10% 1.5-lien senior secured notes due 2020 initially plunged 4½ points in early dealings Wednesday, bottoming around 86½ bid before turning things around, ultimately ending up at 11/16 bid at 91¾ on volume of over $103 million.

On Tuesday, those bonds had gotten hammered down by over 6 points on the session, going out just above 91 bid on volume of over $24 million.

Despite the Wednesday comeback, those bonds too remained well down from their week-ago levels around 101½ bid.

The heavy activity came as U.S. Bankruptcy Court Judge Robert Drain approved the company’s reorganization plan, though with a few conditions.

The ruling had actually been handed down at the White Plains, N.Y., courthouse very late in the day on Tuesday – meaning there was a flood of trades on Wednesday morning, which only moderated a little as the day wore on.

Drain approved of the company plan of reorganization on the condition that Momentive increases the interest rate for new debt being given to the first- and 1.5-lien noteholders.

It was something of a consolation prize for the holders of those bonds; early Tuesday, Drain had ruled that those senior lenders did not have the right to a make-whole claim on their holdings, which are being redeemed earlier than scheduled under the proposed plan of reorganization.

The lenders had previously opposed the plan, though they were getting cash for the debt they held. Drain even chastised the lenders for not taking the money during the hearing on Tuesday.

On Monday, the lenders had indicated that they might be willing to give their support to the reorganization plan. Momentive asked for an official ruling anyway on Tuesday, even as lenders agreed to back the plan, and the negative ruling on the make-whole payment demand sent the bonds tumbling.

Under the terms of the plan approved on Wednesday, most of the stock in the reorganized company will go to those holding the 9% second-lien notes. That group is funding a planned $600 million rights offering.

Holders of the company’s 11½% senior subordinated notes due 2016 were disappointed, however, when Drain said they were not being unfairly subordinated to other debt classes.

Those bonds, trading around 7 cents on the dollar a week ago, had tumbled down to around 2 cents in Tuesday’s dealings. On Wednesday, they firmed to around 2 5/8 bid on volume of over $6 million.

Burger King activity slackens

Elsewhere, traders saw a lessened volume of activity in Burger King Worldwide’s bonds, particularly its 9 7/8% notes due 2018, which on Tuesday had been among the most active junk issues not named Momentive, with over $20 million having traded at that time, ending at 106½ bid, not much changed from their recent context.

On Wednesday, a trader said, “it continues to trade up a little bit. We’ve been trying to buy it ourselves.”

He said that “people are not expecting this thing [Burger King’s planned acquisition of Tim Hortons Inc. to be partially financed by the bond deal] to close until the end of the year, so these things are trading way negative to the call – but there’s still a lot of demand for ‘em.”

A market source said that the bonds had gotten as good as 107½ bid during the session, up from their Tuesday close at 106½, but they eventually gave back that gain, closing up around ¼ point on the day at 106¾ bid.

But the source said that while there had been trading, it had all been done in smaller odd-lot tranches, with not a single full-sized transaction seen.

There was no activity in Burger King’s zero-coupon senior discount notes due 2019; on Tuesday, they had finished anchored around the 93 bid level, little changed on the day, on round-lot volume of about $4 million.

Quiet – but firmer

A trader said he “did see some buying interest going on today,” but added that Wednesday’s session was “just a very quiet day.”

He saw the market largely unchanged.

“It’s the middle of the last week of August. There was some stuff trading – but it seemed a little quiet today.”

At another desk, a trader opined that “secondary paper traded OK. Our market had a pretty good tone to it. I think the rally in Treasuries certainly helped – but there were just very, very light flows.”

He explained that “you’ve got a lot of people out; there were not a lot of people around.”

Noting the upcoming Labor Day holiday in the United States, which will take place on Monday, Sept. 1, and with this Friday’s session expected to be very short, uneventful and little-attended ,he theorized that “I don’t think anybody wants to position too much ahead of the long weekend.”

The trader said that “volumes were so low that it’s hard to get a good handle on anything.”

Apart from the activity in Momentive, “I can’t think of anything off the top of my head, any one issue that moved a lot, one way or the other.”

“But overall, the market continues to trade with a real good tone.”

Statistical indicators stay mixed

Statistical indicators of junk market performance remained mixed on Wednesday for a second consecutive session and a fifth mixed session in the last six trading days, a streak broken only by Monday’s higher-across-the-board session.

The KDP High Yield Daily index rose by 3 basis points on Wednesday to end at 74.03 after having fallen by 10 bps on Tuesday, its third downturn in four sessions.

But its yield , which normally moves inversely to the index reading, falling as the index rises and vice versa, did the opposite for a second straight session. Despite the higher index reading, it too moved up, by 1 bp, closing at 5.01%. On Tuesday, it had come in by 3 bps – the yield’s second straight downturn – despite the similarly falling index.

The Markit CDX Series 22 index eased marginally for a second straight session to end at 108 3/16 bid, 108¼ offered, versus a rise on Monday, part of a recent pattern of choppy activity.

The widely followed Merrill Lynch High Yield Master II index defied the forces of bad luck and posted its 13th consecutive gain on Wednesday, improving by 0.23% on top of Tuesday’s 0.042% advance.

The latest upturn boosted the index’s year-to-date return to 5.778%, its second consecutive new peak level for 2014, up from Tuesday’s 5.754%, the previous high point – and well up from its recent low point of 3.683%, reached on Aug. 1 during the junk market’s big late-July, early-August correction.

Stephanie N. Rotondo contributed to this review.

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