Gala Coral plans euro deal; secondary quiet, mostly firm; A&P retreat continues, Freescale up

By Paul Deckelman and Paul A. Harris

New York, Dec. 22 - The high-yield market's year-end winding-down process continued apace on Wednesday, the last full trading day of this next-to-last week of 2010 (Thursday's pre-holiday session will be abbreviated, followed by a full market close Friday).

The primaryside, already reduced to just watching January-business deals join the forward calendar, did not even see that during the session, at least not from the dollar-denominated domestic sector. High-yield syndicate sources did hear of a sterling-denominated upcoming offering from U.K.-based gaming company Gala Coral Group, Ltd.

In the secondary market, there was further erosion in the senior secured bonds of Great Atlantic & Pacific Tea Co., which had shot as high as the mid-90s over several sessions last week after the troubled operator of the iconic A&P supermarket chain filed for Chapter 11 protection. But after losses on Tuesday and again Wednesday, those bonds had come back down to around or even below 90. The company's other paper, way down in the lower 30s, held on to those levels.

There was some upside activity in Freescale Semiconductor, with the computer chip maker's bonds helped perhaps by the news of its latest contract win in the rapidly growing market for eReader devices.

Overall, traders saw the market firm, with most issues at least quoted higher, while statistical indexes also showed modest gains.

Biggest December ever

The awnings were coming down on the 2010 primary market on Wednesday, sources said.

No new issue business is expected before the new year, they added.

Yet even with more than a week remaining in 2010, the month of December has already seen more issuance than any other December in market history.

Month to date, issuers have raised $24.45 billion in 557 junk-rated dollar-denominated tranches, according to Prospect News data.

That's $6.78 billion and an even dozen tranches more than the previous record, 2009's $17.67 billion in 39 tranches.

The lowest volume December in the past decade was December 2008, with the market still in the shadow of the mid-September Lehman Brothers bankruptcy. December 2008 saw just $613 million in two tranches.

January 2011 should at least equal and will likely top December 2010, a syndicate banker said on Wednesday.

"Twenty-five billion is certainly do-able," the banker said, adding that with only one three-day holiday weekend in January, Dr. Martin Luther King Jr. Day, which takes place Jan. 17, January figures to be a comparatively full month in the high-yield market in 2011.

Indicators hold ground

Away from new-deal territory, a trader saw the CDX North American Series 15 HY index up by 1/8 point on Wednesday to close at 102 5/8 bid, 102 7/8 offered, after having risen by ¼ point on Tuesday.

The KDP High Yield Daily index meantime tacked on 5 basis points Wednesday to end at an even 74.00, on top of the 10 bps gain seen Tuesday. Its yield rose by 1 bp to 7.45% after having come in by 4 bps on Tuesday.

The Merrill Lynch High Yield Master II index gained 0.086% on Wednesday, on top of the 0.126% rise on Tuesday. That lifted its year-to-date return to 14.523%, up from 14.425% on Tuesday, although the index remains down considerably from the 2010 peak level of 15.602% recorded on Nov. 9.

Advancing names made it sessions in a row over decliners on Wednesday, although their advantage narrowed a little to six to five, versus the previous day's seven-to-five edge.

Overall activity, represented by dollar-volume levels, slid by 36% on Wednesday, after having risen 13% on Tuesday from the previous session's levels.

"It was a little quiet today," a trader noted with no little amount of understatement.

Another trader said that at his shop "we were going 20 to 30 minutes at a time without anything coming across the screen" in the way of message traffic looking for bids or offerings on different bond issues.

"There was nothing at all," a third trader declared, adding that "I think we're pretty much closed down for this week," and will only be even more subdued on Thursday, with the Securities Industry and Financial Markets Association having recommended a 2 p.m. ET pre-holiday close for the U.S. fixed-income markets, followed by a full-day shutdown on Friday.

Traders said that if past years are any indicator, whatever market activity there is Thursday will have taken place in the morning and be wrapped by around mid-day, with people heading for the exits after that. One trader noted that "a lot of people will be taking [Thursday] off."

A trader said that with "few things done today," the secondary market was "very firm." He saw the CDX index get as good as a 103 bid level at one point, before backing down from that peak to where the index eventually closed.

"Generally speaking, the market is very firm - and there's not a lot of sellers of anything. It was pretty quiet all around."

Freescale up, touts contracts

Market sources saw some activity in Freescale Semiconductor's bonds, with one seeing its 10 1/8% notes due 2016 having risen 2¼ points on the day to end just under the 106 mark, while its 8 7/8% notes due 2014 were sighted a point better at just under 105 bid.

At another desk, a market source said that the 10 1/8s were up by 3½ points from Tuesday's close, ending at 105¾ bid, although figuring just round-lot trades, the gain was 2¼ points, with over $5 million changing hands.

The source meantime saw the 8 7/8s up 1¼ points on the day, or 7/8 point counting only round lots, at 104 5/8 bid, with about $2 million of the notes having traded.

The company's 10¾% notes due 2020 were heard to have gotten as good as 108½ bid, though on only a couple of odd-lot trades; the bonds had last traded a week ago at 105¾ bid.

The bonds may have been switched on after the Austin, Tex.-based computer chip maker announced on Monday that it had signed an agreement to work with global eReading service Kobo Inc., which uses Freescale's i.MX35 processor in its Kobo-branded eReaders.

Freescale said in its news release announcing the collaboration that its deal with the Canadian company "underscores Freescale's continuing momentum in the eReader market. According to analyst firm In-Stat, Freescale is the worldwide leader in providing applications processors for eReader products. Published teardowns demonstrate that Freescale powers two of the top three eReaders on the market."

Freescale also announced that it had recently collaborated with E Ink - the market leader for eReader electronic paper displays - to support color on a monolithic solution; Freescale said that such a use lowers costs for the popular hand-held electronic devices by eliminating the need for an external controller.

It said that its i.MX508 applications processor "allows manufacturers to use a single platform for entire eReader families, including both grayscale and color E Ink displays. This allows software sharing across platforms to speed time to market, and a more cost-competitive solution for end users."

Freescale, the company proclaimed, now "powers into 2011 as the market share leader in eReaders."

A&P secured retreat continues

A trader said that Great Atlantic & Pacific Tea Co.'s bonds - which on Tuesday had fallen back from the higher levels to which they had moved in the days following the company's filing for Chapter 11 on Dec. 12 - continued to give back some of those gains.

"The bloom is off that rose," he said of the troubled Montvale, N.J.-based supermarket operator, whose 11 3/8% senior secured notes due 2015 had gotten as good as the mid-90s during their post-bankruptcy filing surge, but which fell a couple of points on Tuesday to around 92 bid, and which were down further Wednesday to bid levels between 89 and 91, "so that's down a few points." He said that there was "not a whole lot of activity, it seems."

Another trader quoted the 11 3/8s at 91 bid.

However, the company's two issues of convertible bonds, the 5 1/8% notes due 2011 and the 6¾% notes due 2012 remained in a wide 32 bid, 35 offered context, unchanged on the day a trader said.

A second pegged the 5 1/8s at 32¾ bid. The two issues of convert bonds now trade like regular straight junk bonds since the underlying stock is virtually worthless.

All of the A&P paper is trading flat, or without its accrued interest, in the wake of the filing with the U.S. Bankruptcy Court for the Southern District of New York, in White Plains.

On the Friday before the bankruptcy filing, the 5 1/8s had swooned by 45 points down to the upper 20s from the lower 70s, while the 63/4s also dropped to the upper 20s from the mid 50s, a loss of more than 25 points. The 11 3/8s dipped by several points to the mid-to-upper 80s from prior levels around 81-82, but bounced back to end that session unchanged. After the weekend filing, the bonds initially dropped some more, but the 11 3/8s eventually clawed their way up to around 95 bid, 96 offered, while the converts got into the lower 30s from their prior levels around 27-28.

Hovnanian seen higher

Elsewhere, a trader said that Hovnanian Enterprises Inc.'s bonds "moved up a little bit at the end of the day," or at least were quoted higher, citing the Red Bank, N.J.-based homebuilder's fiscal fourth-quarter earnings, which had been released late Tuesday, followed by Wednesday's conference call with analysts.

He saw the company's 6¼% notes due 2016 quoted in a 69-71 context, which he said was a point higher than they had been, but reiterated that he had seen "no activity at all" in it.

"It is what it is," he said, "but it was quoted higher. It means something, whatever that is."

For the 2010 fiscal fourth-quarter ended Oct. 31, Hovnanian reported an after-tax net loss of $132.1 million, having narrowed from a year-earlier net loss of $250.8 million, while for the full fiscal year, the company said that after-tax net income totaled $2.6 million, compared with $716.7 million of red ink in fiscal 2009. It noted that the current-year after-tax net income included a $291.3 million federal income tax benefit resulting from tax legislation changes.

Hovnanian executives also said on their conference call that the company would be open to a capital markets transaction if it saw the right window of opportunity. They announced a joint-venture agreement to acquire a portfolio of homebuilding projects and said that they may enter into more joint-venture deals (see related story elsewhere in this issue).

Hovnanian separately filed a shelf registration statement with the Securities and Exchange Commission on Wednesday, for $500 million of stock, debt or preferred securities.

OPTI Canada mixed

A trader said that he "didn't see too much" of OPTI Canada Inc.'s bonds, which had moved up by several points on Tuesday from their recent lows on what has been described as end-of-the-year position adjustments.

He quoted the Calgary, Alta.-based oil sands energy operator's 7 7/8% second-lien senior secured notes due 2014 at 68 bid, 69 offered, calling that ½ to 1 point better on the day.

However, another trader asserted that OPTI's bonds "did give back the point and change from [Tuesday]."

He added that the credit was the "most active of everything" and placed both issues - the 7 7/8s and the company's 8¼% notes due 2014 - at 68 bid, 69 offered.

He noted that the 7 7/8s were trending toward the lower end and the 8¼% notes toward the higher point.

Another trader said the debt "started down a bit from [Tuesday], but kind of came back some," ending around 69. Still, that was "a touch lower" than the previous session's highs, he said.

New First Data notes trade

First Data Corp.'s new 8¼% senior second-lien notes due 2021 were seen by a trader at 94¾ bid, 95 offered.

However, several other traders said that they had not seen anything happening in the company's three series of new exchange notes, which had been issued to holders of two series of its older bonds who had participated in an exchange offer that wrapped up last week. They noted that the new First Data paper was issued under Rule 144A and thus has no visibility on Trace.

One of the other new bonds, the 12 5/8% notes due 2021, had been seen trading fairly actively on Tuesday wrapped around the 92 bid level.

On Friday, First Data, an Atlanta-based credit-card transaction processing company, issued $3 billion of the 12 5/8% notes, $2 billion of the 81/4s and $1 billion of new 8¾%/10% payable-in-kind toggle senior second-lien notes due 2022.

It distributed that new paper to the holders of $2.97 billion, or 79.2%, of its previously outstanding $3.75 billion of 9 7/8% senior cash-pay notes due 2015, and $3.04 billion, or 81.9%, of its previously outstanding $3.71 billion of 10.55% senior PIK notes due 2015, which were accepted for purchase by the company under the exchange offer, which expired on Dec. 15. Both halves of the exchange offer for approximately $6 billion of the old bonds were oversubscribed, causing the company to accept bonds for purchase on a pro rata basis.

A market source meantime saw the remnant of the 9 7/8% notes - which had firmed by around ½ point on Tuesday - go up another 1¼ points on Wednesday, to 94½ bid. A second source saw those bonds gain another ½ point to end at 94.

"You had $2 million of one issue [of the old bonds] trade and $4 million of the other, and that was it."

He quoted the $4 million 9 7/8s up 1 point at 941/2.

Clear Channel hangs in

A trader saw Clear Channel Communications Inc.'s 10¾% notes due 2016 at 85 bid, 85½ offered, which he said was unchanged from Tuesday for the San Antonio, Tex.-based media company's bonds, but "holding at the higher levels."

However, at another desk, the company's 11% notes due 2016 were seen having lost ½ point to end at 83½ bid.

'Old' GM bonds gain

A trader said that the benchmark 8 3/8% bonds due 2033 of Motors Liquidation Co. - the new name for what used to be General Motors Corp. before its reorganization - were up about ½ point on the day at 32½ bid, 33½ offered, on "decent volume."

After the giant carmaker restructured last year, its profitable auto production operations - Chevrolet, Buick, Cadillac and GMC - were rolled into a new General Motors Co., while the bonds, other liabilities and unprofitable assets and unwanted properties were grouped under the renamed Motors Liquidation entity.

-Jennifer Lanning Drey and Stephanie N. Rotondo contributed to this report

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