Junk rally starts to look tired; Claire's dips despite upgrade; Sprint down; Burger King hit

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Sept. 26 - The massive post-Labor Day rally in the high yield market may be getting a bit long in the tooth, sources said on Wednesday.

The rally took the composite yield-to-worst of the J.P. Morgan high yield index trade to an astounding tight of 6.17% in mid-September compared to 6.9% in mid-August. But since touching that peak the index has come off by 22 basis points to 6.39% at Tuesday's close, according to a high-yield mutual fund manager The manager expects that yield could move as high as 6.5% when the dust settles on the Wednesday session.

"The last 25 to 50 basis points of this rally has been all momentum," the investor asserted.

And the widening appears to be taking place against a backdrop of negative fund flows, the investor said.

The buysider looks for a slightly negative number when Lipper-AMG reports its weekly fund flow number on Thursday.

A trader noted that the Yom Kippur holiday contributed to the softness in prices.

"Most people were out for the holiday, which makes a slow day even more painful," he said. "Things did seem softer with people out."

The trader also noted the protests in Spain were not helping.

However, another trader said that a few things "got lifted towards the end of the day."

But even positive news was not really boosting credits. Claire's Stores Inc., for instance, was weaker despite an upgrade from Moody's Investors Service. Sprint Nextel Corp. paper was also on the down side, despite reports that the company was in a prime position to start taking over its smaller rivals.

Hertz Global Holdings Inc.'s bonds meantime gave up ground, though the company had announced the completion of an acquisition on Tuesday.

Elsewhere, Burger King Corp. priced a new $705 million term loan Wednesday, though at a discount. Despite the added liquidity, the fast food chain's debt was leaking.

Commodities, particularly coal and steel, also remained under pressure.

In the primary market, news volume remained muted on Wednesday, with sources chalking attributing that fact to the Yom Kippur holiday, which thinned the ranks of players.

Crimson deal via Global Hunter

Crimson Energy Partners LLC plans to make its debut in the high-yield bond market with a $185 million offering of five-year senior secured notes via Global Hunter Securities.

A roadshow is expected to get under way during the Oct. 1 week.

The Houston-based energy exploration and production company plans to use the proceeds to repay debt, fund a management buyout and provide development capital.

Shelf Drilling via Jefferies

Shelf Drilling International Holdings, Ltd. has planned an early October roadshow for a $475 million offering of senior secured notes and a $75 million term loan.

Jefferies & Co. is the bookrunner for the bonds, and the bookrunner and arranger for term loan.

Proceeds, along with $645 million of equity, will be used to finance the acquisition of 38 drilling rigs from Transocean Inc. for approximately $1.05 billion.

Shelf Drilling is a newly formed international shallow water offshore drilling contractor sponsored by Castle Harlan, CHAMP Private Equity, and Lime Rock Partners.

Indexes turn downward

A trader said that "the market was weak" Wednesday, which was borne out market indexes.

The CDX North American High Yield index fell below par to 99 25/32 bid, 99 29/32 offered. The KDP High Yield Index meantime came in to 74.23, yielding 6.04%. That compared to Tuesday's reading of 74.61, with a 5.92% yield.

"There was definitely some weakness in the market," another trader said, adding that overall volume was subdued, given the Jewish holiday.

Claire's weak despite upgrade

Despite getting upgraded by Moody's Investors Service on Wednesday, Claire's Stores' debt followed the overall trend of the market.

A trader called the 10½% notes due 2017 down almost a point to 843/4, while the 9% notes due 2019 were "unchanged, maybe down a ¼ to 103¼ bid, 104¼ offered.

Moody's lifted its corporate ratings on the Pembroke Pines, Fla.-based retailer to Caa1 from Caa2. The agency pointed to a recent refinancing of its 2014 term loan as the reason for the alteration.

Long Sprints falter

Sprint Nextel's stock has been on the rise of late, leaving some market players to opine that it is in a prime position to look at taking over some of its rivals.

Though that belief is better than past fears that a bankruptcy was imminent, the bonds did not respond positively.

A trader said the 6 7/8% notes due 2028 were down a couple of points to 91, while the 9 1/8% notes due 2017 fell 1½ points to 1121/2.

The 8¾% notes due 2032 meantime traded around 103, the trader said.

"The long ones were lower, the short ones weren't down too much," he said.

Since the beginning of 2012, Overland Park, Kan.-based Sprint has seen its equity more than double.

On Wednesday, the stock dropped 7 cents, or 1.27%, to $5.46. In the last year, the stock has ranged from a low of $2.10 to a high of $5.76.

In addition to its stock reaching recent highs, the company has also accumulated a fair bit of cash and equivalents. According to Bloomberg, that amount stands at $6.8 billion.

Still, Sprint does have more debt than its current market value.

Hertz slips

Hertz Global Holdings announced Tuesday that its equipment rental arm, Hertz Equipment Rental Co., had completed a purchase of Oklahoma-based Pioneer Equipment Rental and Sales.

The acquisition is part of the company's effort to diversify itself.

"Pioneer Rental is another significant step in our commitment to diversify HERC geographically as well as to expand its product and service portfolio," commented Mark P. Frissora, chairman and chief executive officer, in a press release. "Pioneer Rental gives HERC an even larger footprint in the Oklahoma equipment rental market and access to a broader range of contractor and industrial business."

The deal is expected to increase revenues by $25 million per year.

While the news was deemed positive for Hertz's bottom line, a soft market pushed the Park Ridge, N.J.-based company's debt downward.

A trader pegged the 6¾% notes due 2019 at 105, down 1¾ points.

Burger King off as loan prices

Burger King priced a new term loan at a discount on Wednesday. The proceeds will be used to refinance bank other debt, but that did little to give the bonds a boost.

A trader saw the 9 7/8% notes due 2018 slipping nearly a point to 115, while another market source called the issue down 1½ points at 114¾ bid.

The new term loan B - priced at Libor plus 275 basis points - came at 993/4. On Tuesday, the Miami-based company revised pricing from Libor plus 300 bps.

Proceeds will be used to refinance about $1.73 billion of its existing term loan B debt.

Commodities drift

Declines in the broader markets continued to put pressure on commodity and related names during midweek trading.

One trader deemed AK Steel Corp.'s 8 3/8% notes due 2022 down almost 3 points to 841/2. Another source pegged the 7 5/8% notes due 2020 at 87½ bid, down 1¾ points.

In coal names, Alpha Natural Resources Inc.'s 6% notes due 2019 were off 1½ points to 851/2, according to a trader. A second source placed the 6¼% notes due 2021 at 85 bid, down 1½ points on the day.

Momentive declines continue

The descent of Momentive Performance Materials Inc. continued Wednesday, according to traders.

A trader said the 9% notes due 2021 fell 1½ points to 72. Another trader echoed that level.

The chemical maker has been struggling of late, due to oversupply of product and a weak global economy. Earlier this month, the company nixed an initial public offering that was expected to bring in as much as $862.5 million.

Clear Channel surges late

Clear Channel Communications Inc.'s debt benefitted from a late-day surge, a trader reported.

A trader said the 10¾% notes due 2016 hit a low of 69½ before coming back to end around 701/2. The 9% notes due 2021 dropped as low as 88½ before settling back in an 89 to 89½ context.

Another trader said the 11% notes due 2016 rose nearly 3 points to 723/4.

With no fresh news out on the San Antonio-based multimedia company, the trader speculated that "maybe [the bonds] are just bouncing off the lows."

RadioShack quiet as CEO exits

RadioShack Corp. announced that its chief executive officer, James Gooch, had resigned his post after only 16 months.

Traders saw lower markets for the Fort Worth-based electronics retailer's debt though there was little actual trading following the news.

One trader called the 6¾% notes due 2019 a couple of points lower at 63 bid, 64 offered.

Another trader also deemed it down a couple of points in that same 63-64 range.

"There was more smoke than fire on this particular name," he said, adding that there is typically more activity in the name than there was on Wednesday.

RadioShack did not give a reason for Gooch's departure. On an interim basis, Dorvin Lively, the chief finance officer, will take over the reins.

"Gooch simply was not effective, and a change clearly needed to be made," Anthony Chukumba, an analyst at BB&T Capital Markets, said in a research note. "We find the timing a bit curious given the fact Gooch was CEO for just over a year and the start of the crucial holiday selling season is less than two months away."

This year alone, RadioShack has seen its equity lose nearly three-quarters of its value. On the news Wednesday, the stock (NYSE: RSH) moved up 4 cents, or 1.56%, to $2.60.

"The problem with this company is they still have like half a billion in cash, so they can exist for awhile," a trader said.

Broad market weakens

In the rest of the markets, a trader said Verso Paper Corp.'s 8¾% notes due 2019 dropped 2½ points to 481/2.

The trader also saw Residential Capital LLC's 6½% notes due 2013 at 27, down a deuce.

At another desk, a trader said Wynn Las Vegas' 7¾% notes due 2020 moved up almost 3 points to 1141/4, on over $25 million traded.

NII Capital Corp.'s 7 5/8% notes due 2021, however, fell almost 4 points to 791/2.

A third trader called Caesars Entertainment Corp.'s 10% notes due 2018 down 1 to 2 points to a 64-65 range.

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