Junk trades in narrow range, on sleepy volume; Lennar lower; Chesapeake defies oil fall

By Paul Deckelman and Paul A. Harris

New York, Aug. 22 - Junk closed out the week Friday on a sedate note - or perhaps that should be, on a sedated note. Trading volume slid, even from Thursday's already quiet level, and most bonds moved within a narrow range of less than a point from where they had ended on Thursday.

Here and there were exceptions, such as Miami-based homebuilder Lennar Corp., whose bonds were seen down several points, although there was no fresh negative news seen out on the company. Another sector downsider was KB Home, although Hovnanian Enterprises Inc.'s bonds were seen a little higher on the day.

Car retailer Asbury Automotive Group Inc. was seen in retreat, although other automotive names were little moved. General Motors Corp.'s bonds were mixed.

Chesapeake Energy Corp.'s notes were firmer, despite the continued slide in prices for crude oil, natural gas and other forms of energy on the commodities market.

Primary activity remained in a summer daze.

Market indicators mostly better

The widely followed CDX index of junk bond performance was up ½ point, a trader said, quoting it at 92 5/8 bid, 92 3/8 offered. The KDP High Yield Daily Index meantime rose by 6 basis points to end at 70.31, while its yield was steady at 10.67%.

In the broader market, advancing issues led decliners by a margin of almost four to three. Activity, represented by dollar volume, plunged 45% from the already quiet levels seen on Thursday.

"You woke me up," a trader quipped when asked what, if anything was going on in the largely featureless market. "I think there was some trading early in the day, but it was kind of sporadic. I don't think anything stood out."

He said that it "looked like some of the retailers, and consumer product names were cheaper - but nothing dramatic."

"It was more of the same - but less," another suggested. "And we look forward to an even quieter week ahead," culminating in this coming Friday's abbreviated session ahead of the Labor Day holiday weekend, which will also see the financial markets in the United States in full shutdown mode on Labor Day, Monday, Sept. 1.

"There was a lot of blah out there," a third trader said.

Lennar gets hammered

With traders quoting most junk bonds up or down a half point at the most, homebuilder Lennar's 5 1/8% notes due 2010 were one of the very few issues seen actually as having changed by several points. A market source said that the bonds were down almost 3 points to the 86 bid level, adding that the bond was also one of the relatively few that was fairly actively traded.

There was no immediate negative news seen out on the company, which like other homebuilders, has suffered severely from the credit-crunch induced downturn in home sales.

Among other builder names, KB Home's 6¼% notes due 2015 were seen off ½ point at 83.5 bid. A source also saw Hovnanian's 6 3/8% notes due 2014 up nearly a point at 62.5 bid.

However, another trader said homebuilders remained at around the same levels he had seen them on Thursday, with Hovnanian's longer paper staying at 61 bid, 63 offered and Standard Pacific Corp.'s 7% notes due 2015 at 78.5 bid, 79.5 offered. He saw Beazer Homes USA Inc.'s 6 7/8% notes due 2015 unchanged at 64 bid, 66 offered.

Asbury Auto spins its wheels

Another bond which was seen down more than 2 points by a market source was Asbury Automotive Group, whose 7 5/8% notes due 2017 fell to just under 72, also in relatively active dealings on a dull day. There was no fresh negative news seen out on the New York-based automotive retailer.

Among other auto names, a trader saw General Motors' benchmark 8 3/8% bonds due 2033 "right around 49," with trades in the 49-50 to 50-51 context, which he said was little changed on the session.

Likewise, he saw GM's 49%-owned auto finance unit GMAC LLC's 8% bonds due 2031 unchanged at 53 bid, 54 offered on a "lack of interest, lack of opportunity, lack of activity."

However, another trader saw Friday's market as "a little livelier" than Thursday's, with the GM benchmarks up 1 point to 49.5 bid, 50.5 offered. He saw Ford Motor Co.'s 7.45% bonds due 2031 firmer by 1 point at 51.5 bid, 52.5 offered.

Yet another trader said the GM bonds "continued to get hit," losing ½ point to 48 bid, 50 offered. He saw the GMAC bonds "pretty lightly traded" at 53.5 bid, 55.5 offered, down ½ point, and the Ford paper down 1 point at 50 bid, 52 offered.

Chesapeake bucks energy trend

Apart from the autosphere, Chesapeake Energy's 6¼% notes due 2018 were seen up a full point at 91.5 bid. There was no fresh news out on the Oklahoma City-based independent oil and gas exploration and production company, although a market source called it "significant" that the company's bonds trade at the level they do trade at, given the sharp slide that oil prices have taken over the last several weeks. After peaking at $147 per barrel in mid-July, crude has since come down more than $30 to around the $114 per barrel level. Natural gas prices have also taken that same downward path.

Donnelley domination continues

R.H. Donnelley Corp.'s 8 7/8% notes due 2016, which have been rising all week, continued to do so on Friday as well, pushing up another 1 5/8 points to close at about 50.5.

The Cary, N.C.-based telephone directory publisher's bonds, and its shares, have benefited strongly all this past week from a positive piece on the company which ran in the previous weekend's Barron's. The report touted the company's shares as "risky but attractive," and said it would have ample liquidity to operate for at least the next two years before maturing debt would present problems.

Donnelly rival Idearc Inc.'s 8% notes due 2016 remained at 43 bid, 44 offered and were "not active," a trader said.

Elsewhere, a trader saw Spectrum Brands Inc.'s 11% notes due 2013 at 70 bid, 71 offered and its 7 3/8% notes due 2015 at 54 bid, 55 offered, both "pretty much unchanged."

MGM gains on Dubai developments

In gaming, a trader saw MGM Mirage's 7½% notes due 2016 unchanged in round-lot trading at 79.75 bid, 80.75 offered, although he said there had been odd-lot trades "maybe 3 points higher."

Its NYSE-traded shares meantime jumped $5.52, or 19.91%, to $33.25.

The bonds and shares got a boost from the news that New Jersey's gaming regulators had given the green light for investor Dubai World to more than double its 9.4% equity stake in Las Vegas-based MGM, the world's second-biggest gaming company, which also says gaming operations in New Jersey, among others.

He also saw Harrah's Entertainment Inc.'s bonds "down again today," with its 6½% notes due 2016 at 38.5 bid, 40.5 offered, on "continued weakness" in the credit.

Primary sees summer lull

The primary market saw another quiet late August session on Friday, with no deal news surfacing whatsoever.

Friday capped a "no-news" week during which the ranks of players were thinned by vacations, as the market wound through the typical late summer lull, perhaps exacerbated this time around by continued volatility in the capital markets, in general, and strife in the credit markets in particular.

Also, the Aug. 18 week came to an end with no deals on the road, and no deals believed to be in the market.

'We're preparing'

In keeping with color heard throughout the week, on Friday an official from a high yield syndicate desk professed visibility on new deals that might surface in September, some time after the three-day Labor Day holiday in the United States.

Perhaps it is noteworthy that all of the high-yield syndicate sources who spoke to Prospect News during the Aug. 18 week professed visibility on September business, although presumably, since no names were volunteered, some could have been referring to the same deals.

Most of these syndicate sources specified, however, that the September deals are contingent upon market conditions. A small minority proffered no qualifiers, asserting that they will bring deals after Labor Day.

The source who spoke Friday fell into the former category - the deals will come if market conditions allow.

Prospect News followed by asking this official to spell out what conditions would be necessary for the syndicate to roll out a new junk bond deal.

"There has to be strong liquidity," the official said (on Thursday AMG Data Services reported the first outflow from the high-yield mutual funds in five weeks: $8.6 million).

"And pricing has to come in," the sell-sider added.

The official said that presently single-B spreads are trading in the context of 850 basis points over Treasuries.

"If it comes back to around 750 to 800 you'll see a lot more activity," the source conjectured.

Prospect News the asked this official whether it is likely that such a move - 50 basis points to 100 basis points - could indeed take place.

"We're preparing in case that happens," the source responded.

© 2015 Prospect News.
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