No deals price as market conditions weigh on calendar; American Gaming slates; secondary slips

By Paul Deckelman and Paul A. Harris

New York, Mar. 15 - With the Japanese earthquake/tsunami/nuclear plant disaster, fighting in Libya, oil price fluctuations, federal deficit worries and inflation fears all continuing to weigh on financial markets on Tuesday, things were really no different in Junkbondland, as market participants put a finger to the wind and decided that discretion, as they say, is the better part of valor.

On the primaryside, that meant a shutdown of any pricing activity - at least for the moment.

Two prospective deals for which price talk surfaced on Monday - indicating that a Tuesday pricing was possible - were from industrial manufacturer and supply-chain management company Park-Ohio Industries, Inc. with its $250 million of 10-year subordinated notes and technology products provider CDW Corp. and its megadeal-sized offering of eight-year notes. The two stayed right where they were behind the starting gate due to uncertainty about market conditions.

Just one prospective transaction was heard by high-yield syndicate sources to have been added to the forward calendar: a $150 million tranche of five-year notes from slot machine maker American Gaming Systems, slated for pricing some time next week, market conditions permitting.

Among the transactions pricing on Monday, both Windstream Corp. and Griffon Corp.'s new bonds were seen by traders to be hanging around not too far from their respective issue prices.

Friday's new deal from Sterigenics International, Inc., which had shot up more than 3 points on the break - traders believe that was because the deal priced too cheaply to begin with - came off those peak levels.

Traders saw existing issues down at least¼ to½ of a point, or even more, pretty much across the board, although an early downside push linked to the morning stock slide fizzled out around midday. Appropriately enough for the Ides of March, one of the notable individual losers was Caesars Entertainment Operating Co.'s 10% notes due 2018, one of the more active bonds on the day.

Secondary market statistical measures were meantime down all the way around.

AGS via Imperial

No issues were priced in the primary market on Tuesday, as volatility related to the unfolding events in Japan took hold of the global capital markets, including the high-yield market, sources said.

Cash bonds were down roughly half a point, according to a high-yield mutual fund manager.

Against this backdrop, however, one deal did board the forward calendar.

American Gaming Systems will run an investor roadshow for a $150 million offering of five-year senior secured second lien notes (Caa1/B/) through the middle part of the week ahead.

Imperial Capital is the lead manager.

AGS Holdings LLC, the ultimate parent of American Gaming Systems, and special purpose vehicle AGS Financing Corp. are the issuing entities.

The Henderson, Nev.-based provider of equipment and services to the gaming industry plans to use the proceeds to pay off $134.4 million of debt at AGS LLC, a wholly owned direct subsidiary, and to fund AGS Holdings' future working capital needs.

The sidelines

The American Gaming Systems deal comprised the day's only hard news.

Information - and perhaps some misinformation - circulated the market regarding the $3 billion forward calendar.

CDW had been expected to price a megadeal, $1.065 billion of eight-year senior notes (expected ratings Caa1/CCC+), on Tuesday.

It didn't happen.

Rumors circulated that the debt refinancing deal had been pulled.

However, a high-yield mutual fund manager relayed the gist of a telephone conversation with a salesman at left bookrunner J.P. Morgan. According to that salesman, should the volatility die down, the CDW deal could come in the next couple of days, the buysider said.

Price talk in the 8½% area was heard Monday on CDW.

Also on deck to price Tuesday was Park-Ohio's $250 million offering of 10-year senior subordinated notes (B3/CCC+/) via Barclays Capital and J.P. Morgan.

No terms surfaced on Tuesday.

That deal, which was talked on Monday at 8% area, remains on the calendar pending market conditions, sources say.

Staying in touch

Amid Tuesday's volatility, the dealers kept in touch with accounts, making conversation about anticipated rates on deals known to be in the market, sources said.

EV Energy Partners, LP, which is in the market with a $250 million offering of eight-year senior notes via left bookrunner RBC Capital Markets and joint bookrunners J.P. Morgan, Wells Fargo and BNP Paribas, has been discussed in the context of a yield in the 8% area, according to a buyside source.

Meanwhile, Pretium Packaging LLC's $150 million offering of five-year senior secured notes (expected ratings B3/B) via Jefferies has been discussed in the context of a yield in the 11% range, the buysider added.

Pending events

The mutual fund manager, who spoke on the telephone after the Tuesday close, had yet to be hit with redemptions, but is braced to be hit with outflows on Wednesday.

The HYG exchange traded fund fell to 90 from 92 on Tuesday, the mutual fund manager said, noting that the downward move is a good indicator that cash flows are decidedly negative.

"All eyes are on Japan," the high-yield investor asserted.

Should Japan, which has been beset with catastrophe on top of catastrophe, somehow manage to begin to right the ship, there is no reason that the high-yield market should undergo a major disruption, the buysider insisted.

While no one seemed inclined to take issue with that assertion, a debt capital markets banker said: "It's a bad time to be out there with a deal.

"Equities are negative, and people seem to be getting out of risky assets. Right now, why would you want to buy?" the banked added.

Monday deals around issue

When Griffon's new 7 1/8% notes due 2018 were freed for secondary dealings, they were seen having settled in around 100 1/8 bid, 100 3/8 offered versus the par level at which the $550 million issue, upsized from the originally announced $500 million, had priced on Monday, too late for any aftermarket dealings at that time.

A second trader said that in line with the overall junk retreat early in the session, the New York-based diversified industrial products manufacturer's bonds had dipped as low as 99¾ bid, but came off that nadir to finish at 100 1/8 bid, 100½ offered.

"Wasn't that some rally at the end of the day?" he asked.

Meanwhile, Monday's other new issue - Little Rock, Ark.-based telecommunication operator Windstream's $450 million of 7¾% notes due 2021 - was trading at 99 bid, 99¼ offered. That was not too far off the 99.116 level at which the company had priced the bonds, which were downsized from an originally announced $500 million, to yield 7 7/8%.

A second trader said that the drive-by deal had dropped to 98¼ bid, 98¾ offered at the opening, then "the bids came back in" and the deal climbed back up to 98½ bid, 99 offered later on.

Sterigenics backs off

Also on the new deal front, a trader saw Sterigenics' new 8% notes due 2018 at 102½ bid, 103 offered. That was down from the levels above 103 bid to which the Oak Brook, Ill.-based contract sterilization and ionization services provider's $475 million deal, brought to market via its STHI Holding Corp. unit, had moved on Friday after pricing at par.

Traders had expressed the opinion on Friday and Monday that the new bonds had jumped as soon as they were freed for aftermarket dealings because the deal had been priced way too cheaply, leaving as much as $16.5 million on the table in order to get the first-time junk-bonder's deal done.

As for the new deals that had been expected to possible price in Tuesday's market - CDW and Park-Ohio - a trader said the market "will wait and see how [all of the negative news that coming out of Japan and the Middle East] pans out."

Secondary flees southward

Away from the new deal world, a market source saw the CDX North American Series 15 HY index drop by 9/16 point on Tuesday to end at 102¼ bid, 102¾ offered, after having been off by ¼ of a point on Monday.

The KDP High Yield Daily index meantime swooned by 32 basis points on Tuesday to close at 75.36 on top of Monday's 17-bps plunge. Its yield gapped upward by 13 bps to 6.85%, after having risen by 6 bps on Monday.

The Merrill Lynch High Yield Master II index slid by 0.438% on Tuesday in sharp contrast to its 0.024% gain on Monday. That dropped its year-to-date return down to 3.053% on Tuesday - its lowest level in nearly a month - versus 3.507% on Monday, as well as the 2011 peak level of 3.73% set last Wednesday.

Advancing issues trailed decliners Tuesday for a fourth straight session, with the margin of difference widening to nearly two to one from about seven to five on Monday.

Overall market activity, as measured by dollar-volume levels, rose by 45% on Tuesday, after having fallen by 23% on Monday from the previous session's activity level.

When the junk market seemed to be taking its cues from the early stock slide, which saw the bellwether Dow Jones Industrial Average plummet almost 300 points at the opening bell, a trader said, "If there was any kind of a half-way decent bid on something, it got hit."

However, he said that "it wasn't like $5 million or $10 million of something was trading; $1 million would trade, someone would smack the bid, then they were quoted lower, but than that was it - it just kind of stalled because nobody wanted to buy anything and nobody wanted to sell at lower levels."

"Volume was spotty," another trader said, "but there was stuff going on."

He said that "across the board, net-net in high yield, you still have cash chasing yield. Even though the market wanted to move lower - and it did open up on the lower side, down 3/8 to ½ of a point, then bids started filling in and people realized that if they were going to put their cash to work, they would have to take advantage of a little weakness. Not too much, so there were some buying opportunities that came in later in the day."

He said that "the more liquid names" - the issues of $750 million and up - were down anywhere from ½ to ¾ of a point, just because it was "easy to get out of those bonds."

The market, the first trader suggested, "had a quiet, awkward feel to it today," no doubt depressed by the latest news coming out of earthquake-racked Japan.

"When you listen to commentary about a possible nuclear meltdown" at the site of the damaged reactor, such things usually aren't conducive to investors wanting to buy anything. Not a good buying signal at all."

The quake and the hundreds of billions of dollars of damage that may be totaled up when all is said and done represent a disaster of the first rank for the insurance industry, members of which are among the large institutional buyers of bonds in general and junk bonds in particular.

The trader noted, "We keep hearing that insurance companies may have to sell some [holdings] to raise needed capital, but we haven' seen huge amounts of insurance-company selling."

One of the traders characterized the day's dealings as "pretty situational," but added that "there are really no names that stick out in my mind that we traded a lot of here." Instead, he said, "everything was off ¼ to 1/2."

With stocks getting clobbered the way they did - the Dow, even as it came back from its early losses, still finished down 137.74 points, or 1.1%, at 11,855.42 - there would normally be a lot more weakness in junk, the trader said. "But there's a lot of cash out there that has to be put to work, and that's what's holding up the market."

Energy sector gets hit

Among specific names, power producers were trading actively in the wake of Japan's recent earthquake and ensuing nuclear disasters, according to traders.

Across the space, bonds were ending lower, but up from the intraday lows.

Energy Future Holdings Corp. - the former TXU Corp. - for example, saw its 10% notes due 2020 trading "very active," according to one trader. He said "$50-odd million" of the notes changed hands, hitting a low of 102 and a high of 1031/4.

Like the rest of the market, the bonds were finishing up the day near the highs.

Another trader, however, called the Texas-based utility operator's 10% notes unchanged around 1031/4. The trader also saw the 11¼% notes due 2017 slipping half a point to 75½ and the 10¼% notes ending around 49.

The second trader also saw California-based Edison International's 7½% notes due 2013 falling half a point to 97 and the 7% notes due 2017 dipping a point to 74.

And, he said Dynegy Inc.'s 8 3/8% notes due 2016 dropped a point to 781/4.

OPTI active again, lower

Also in the energy sphere, a trader said trading in OPTI Canada Inc.'s subordinated notes "really kicked back in," with $25 million to $30 million of the 7 7/8% notes due 2014 turning over.

He said the notes hit a low of 49½ and a high of 521/4, closing near the highs.

Another trader pegged the paper at 501/4, down 2½ points on the day.

There was no news out on the Calgary, Alta.-based oil-sands producer. The price of oil, however, did fall during Tuesday trading to $97.39 a barrel.

Caesars still weak

Caesars Entertainment - or Harrah's, as most market players still refer to it - continued to lose ground in trading, sources said.

The Las Vegas-based casino operator's bonds were also weaker on Monday, and the declines have been linked to the general negative tone of the market.

A trader said the 10% notes due 2018 were "by far the most active issue" of all distressed bonds, with "$80 million to $100-odd million" of the debt trading. He saw the notes moving in a "pretty good trading range" of 87¼ to 89.

Another trader called the paper a point weaker at 88.

Stephanie N. Rotondo contributed to this report

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