Junk broadly lower, some down multiple points; primary stilled, but new bonds hold most gains

By Paul Deckelman and Paul A. Harris

New York, Sept. 12 - High-yield bonds were off for a second consecutive session on Monday, as whatever positive momentum had accumulated last week, helped by the post-Labor Day return to normal trading and the appearance of the first two new deals to price in Junkbondland in several weeks, seemed to have leaked away.

Traders did not see a selling frenzy by any means, but rather a market that was broadly lower, with many of the usually active names, easier by a half-point to a full point, including Caesars Entertainment Operating Co. and Community Health Systems Inc.

Other names seen lower, on sizable volume, included SLM Corp., Goodyear Tire & Rubber Co., iStar Financial and U.S. Steel Corp.

Secondary market performance indicators were lower across the board.

The high-yield primary, after having pushed out $578 million of new paper last week in two deals for Fresenius Medical Group AG and for Calumet Specialty Products Partners, LP, was silent for a second straight session on Monday, with no new deals formally announced or even heard on the grapevine to be circulating.

The new Fresenius and Calumet paper continued to trade above those deals' respective issue prices, particularly in the case of Fresenius.

The primary market remained quiet again on Monday as volatility continued to rock the capital markets.

"It doesn't feel all that great out there," conceded a trader from a high-yield mutual fund on the East Coast of the United States.

"No one is going to bring a deal into this market if they don't have to," the trader added.

The new bonds from Fresenius were holding in above issue price on Monday afternoon, said the trader.

Both the euro-denominated FMC Finance VIII 6½% senior notes due Sept. 15, 2018 and the identically structured dollar-denominated notes Fresenius Medical US Finance were right around par bid on Monday afternoon.

Tranches of €400 million and $400 million were priced last Thursday at 98.623 to yield 6¾%, a yield that was 75 basis points cheap to existing Fresenius bonds - a concession to the turbulent market conditions, sources say.

Although Monday's levels of par bid on both the dollar-denominated and euro-denominated 6½% notes represent premiums to the new issue price of 98.623, both of those bonds were off their highs, sources said on Monday.

Early Friday, they were par 3/8 bid, par 7/8 offered, before easing to par ¼ bid, par¾ offered late in the day.

New deal activity

The primary market is likely to generate news during the present week, syndicate sources say.

However, Monday's market volatility was intense, and should volatility remain, high-yield deals will almost certainly be put off, said a debt capital markets banker.

The Monday session produced news on the bank loan financings for two acquisition deals presently in the market.

Sealed Air Corp. has set a Tuesday bank meeting for its $1.2 billion term loan B.

The funding for Sealed Air's acquisition of Diversey Holdings Inc. from the Johnson family and Clayton, Dubilier & Rice LLC is also expected to include $1.5 billion of bonds via Citigroup, Bank of America Merrill Lynch, BNP Paribas and RBS.

The bridge backing the bonds is fully syndicated, according to market sources, so the bonds, which are expected September business and may even launch during the present week, are expected to play to a bridge-participating audience that is up to speed on the credit and already eager to play the bonds.

Also, Avis Budget Group will host an investor call on Tuesday to discuss the deal structure, pricing and timing of credit facility backing its acquisition of Avis Europe plc.

Morgan Stanley & Co., Citigroup Global Markets, Credit Agricole, Scotia Capital and Royal Bank of Scotland are leading the call.

The Avis Budget deal is expected to generate bonds, sources say. However, the overall shape of the debt financing remains to be determined.

Low rates, low defaults

Low interest rates and low default rates continue to auger in favor of the high-yield market, an investment banker argued late Monday morning.

"Against that, you have all the news out of Europe, as well as mixed messages on the economy from the Fed," the banker added.

"When people start seeing some clarity on these issues, the market is set for a good run for a couple of months at least.

"We are advising our clients that now may not be the best time to come, but it's a very good time to prepare," the source stated.

Fresenius stays firm

A trader said that the new 6½% dollar-denominated notes due 2018 from Fresenius Medical Group, issued via its Fresenius Medical U.S Finance unit, were trading at 100½ bid, 101 offered on Monday, which he called "kind of unchanged on the day."

A second trader also saw those bonds at that level.

Fresenius, a Bad Homburg, Germany-based global provider of kidney dialysis products and services, priced its $400 million issue - upsized from the originally announced $300 million - on Thursday at 98.623 to yield 6¾%, at the tight end of pre-deal price talk envisioning a yield of between 6¾% and 7%.

The bonds priced as part of a two-part deal that also included €400 million of euro-denominated bonds having the same coupon and maturity, which priced at the same discount to par and yield level. The euro portion of the deal was upsized to €400 million from the originally announced €300 million, after a third tranche that was part of the original deal for €100 million of three-year floating-rate notes was abandoned.

The bonds priced just a day after the company's Wednesday announcement that it was doing the deal and was the first pricing seen in the junk market since another health care name, Immucor, Inc., a Norcross, Ga.-based provider of chemical reagent solutions and automated systems used in testing blood, brought a $400 million offering of 11 1/8% notes due 2019 to market back on Aug. 16.

The Fresenius dollar bonds were seen having moved up to around a 99 7/8 bid, 100 1/8 offered level when they were freed to trade late in the day on Thursday and had moved up to 100½ bid, 100¾ offered in Friday's dealings.

The euro paper, which was issued by Fresenius Finance VIII SA, initially traded at 99 3/8 bid, 99 5/8 offered, and then moved up to 100 5/8 bid, 101 offered on Friday. There were no levels on it available on Monday.

Calumet eases slightly

A trader, meantime, saw Calumet Specialty Products Partners' new 9 3/8% notes due 2019trading at 93¼ bid, 93¾ offered.

That was down slightly from the 93½ bid, 94 offered level at which those $200 million of bonds had traded on Friday, but was still up from their issue price at 93, which was in line with their price talk.

Calumet, an Indianapolis-based chemical manufacturer, and its Calumet Finance Corp. unit came to market with those bonds on Thursday afternoon, a day after their announcement that they would do such a deal. The bonds were priced to yield 10.739%, but came too late in the session Thursday for any real aftermarket at that time.

The bonds were structured as a mirror tranche, having identical terms to the $400 million of notes, which the company sold back in April, although they are not fungible.

Market indicators off on day

Away from the new deal arena, statistical measures of market performance, which on Friday had tuned negative, stayed that way on Monday.

A market source saw the CDX North American Series 16 HY Index fall 5/16 of a point, to 90 7/8 bid, 91 1/8 offered, after having fallen by 1 5/8 points on Friday.

The KDP High Yield Daily Index dropped by 31 basis points on Monday to finish at 71.93 on top of the 26-bps loss on Friday. Its yield widened by 10 bps to 7.88%, after having risen by 8 bps on Friday.

The Merrill Lynch U.S. High Yield Master II Index retreated by 0.592% on Monday, its second loss in a row. On Friday, the index was down 0.124%.

The latest slippage left its year-to-date return at 1.35%, down from 1.954% on Friday, and well below the peak level for the year of 6.362% set on July 26.

A trader said: "Nothing is jumping out overwhelmingly," adding that "you just look and everything is down half a point to a point kind of across the board and more in the decent-volume names. All down a half to at least a point, the ones that have traded a couple of times."

Among the names that he saw down were such junk market regulars as Caesars Entertainment - the Las Vegas-based casino giant formerly known as Harrah's - whose 10% notes due 2018 were down by three-quarters of a point at 70½ bid.

He saw $17 million traded, making it one of the most actively traded junk issues of the day.

Salle Mae gets socked

However, the busiest credit of the day seemed to be SLM Corp.'s 8% notes due 2020. The Newark, Del.-based student loan company's paper was seen down 1½ point on the session, at par bid, with over $39 million trading, although it should be noted that there is usually substantial crossover interest from high-grade accounts as well as junk players in the split-rated (Ba1/BBB-/BBB-) company popularly known as Sallie Mae.

There was no fresh news seen out that might explain the downturn or the heightened activity level.

Busiest bonds trade lower

A trader saw some $20 million of Goodyear Tire & Rubber Co.'s 10½% notes due 2016 trading, an unusually heavy turnover for the Akron, Ohio-based tire manufacturer's bonds.

He quoted them at 109½ bid, down by a quarter-point. There was no fresh news out on the company to explain the activity level.

There was also no fresh news out on Pittsburgh-based U.S. Steel Corp., whose 7% notes due 2018 dropped to 96½ bid, a point below Friday's levels, with over $10 million having changed hands.

Benchmarks on the slide

Among the well-known market benchmark issues, Community Health Systems Inc.'s 8 7/8% notes due 2015 were trading down three-eighths of a point on Monday, with a trader seeing the Franklin, Tenn.-based hospital operator's $3 billion issue slipping to 99 7/8 bid, par offered.

He also saw No. 2 domestic carmaker Ford Motor Co.'s 7.45% bonds due 2031 off by 1 point, at 107¾ bid, 108¾ offered.

Financials falter

A trader opined that "things started out pretty heavy. It seems like financials moved down a good amount."

One such name was New York-based commercial real estate lender iStar Financial Inc., whose 8 5/8% notes due 2013 initially fell as low as 92½ bid, before going out at 94 bid, down nearly 5¾ points from their most recent trading levels last week. This was only down about 3 points from the last previous round-lot transaction notched several weeks ago. Over $10 million of the bonds changed hands in round-lot trades on Monday.

There was no fresh news out about the company.

Other financials seen on the downside on Monday included New York-based insurance giant American International Group, Inc.'s 6¼% bonds due 2036, which were quoted down nearly 4 points, to the 98 level.

A trader saw Ally Financial Inc.'s 8% bonds due 2031 down 1 point at 91 bid, 91½ offered. However, another market source was quoting the Detroit-based automotive and residential lender and online banking company's 4½% notes due 2014 up about half a point, at 95¼ bid.

In the distressed-debt market, a trader said that MBIA Inc.'s 14% surplus notes due 2033 "seemed to have a lot of quotes" around 45-47, noting that the Armonk, N.Y.-based mortgage insurer's bonds had been in the 50s last week.

Also in the distressed precincts, a trader said that Dynegy Inc.'s 7½% notes due 2015 were around 64-66 on "small trades," while its 7.67% notes due 2016 were at 52-54, ending at the high end of that range. But he said there was "virtually nothing" in real trades.

He saw the 7¾% notes due 2019 "down 3 points at 58 bid, after having been in a 58-60 context all day," but on "just a couple of trades."

He said that Houston-based power generator Dynegy "definitely had a lot more CDS [activity] all day long" than the bonds.

Stocks push bonds down

Although there was no real news out, traders said that one of the factors contributing to the continuing junk market malaise has been the weakness of the equity market, since both junk and stocks are considered risky asset classes.

On Monday, stocks were down virtually the whole session, although they did make a late comeback to close higher.

The bellwether Dow Jones Industrial Average staged a rally in the last 15 minutes before the closing bell to end the day up 68.99 points, or 0.63%, at 11,061.12. The index had earlier been down by as much as 168 points - this on top of Friday's more-than 300-point loss - on renewed market fears, imported from Europe, that Greece could be edging closer to a default and might be the first in a falling line of euro zone dominoes. However, reports that China was buying Italian bonds - Italy is seen as another troubled European economy - as well as technical factors lifted U.S. stocks late in the day.

Broader indexes like the Standard & Poor's 500 and the Nasdaq Composite, which like the Dow had also fallen on Thursday and Friday, finished Monday up by 0.70% and 1.10%, respectively.

© 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.