AIG, Michaels, Kodak continue climbing; refiners, metals better; nothing seen in new issues

By Paul Deckelman and Paul A. Harris

New York, Aug. 28 - A mostly quiet week in Junkbondland came to an even quieter close on Friday, as volume levels fell and many participants left early - although probably nobody in their right mind was running out to slip in a late round of golf, given the rainy weather blanketing New York and other Northeastern business centers.

American International Group Inc.'s bonds were seen mostly better, in line with continued gains in the troubled New York-based insurance giant's shares - even though those gains may be predicated largely on speculative momentum trading and technical factors rather than the company's underlying fundamentals. New CEO Robert Benmosche was again in the media, vowing no quick sale on some AIG units.

There were more gains in Michaels Stores Inc.'s paper, continuing to ride the upside momentum generated earlier in the week when the company reported improved second-quarter and first-half numbers.

Eastman Kodak Co.'s bonds were likewise firmer for a third straight session, although there was no firm news that would explain the rise in the bonds and shares of the iconic Rochester, N.Y.-based photographic and imaging products company.

Bonds of some metals producers, like Freeport-McMoRan Copper & Gold Inc. and AK Steel Corp. and refiners like Holly Corp. were seen better.

And after having priced a smallish add-on deal Thursday for Vector Group Ltd., the primaryside rolled over and went right back to sleep Friday.

Market indicators turn mixed

A trader saw the CDX Series 12 High Yield index - which had edging upward Thursday by 1/16 point - in retreat on Friday, finishing down ½ point at 88¼ bid, 88¾ offered. It thus also finished down ½ point versus the 88¾ bid, 89¼ offered level seen at the end of the previous week's trading, on Friday, Aug. 21.

On the other hand, the KDP High Yield Daily Index, which had risen by 13 basis points on Thursday for a second straight session, added another 6 bps Friday to close at 66.22, while its yield came in by 2 bps to 9.36%. The index thus showed improvement on the week, from the previous Friday's closing level at 65.81, and a tightening from its week-earlier 9.46% level.

In the broader market, advancing issues - which led decliners for an eighth straight session on Thursday, by around a six-to-five margin - stayed ahead on Friday, holding a nearly five-to-four advantage.

Overall market activity, reflected in dollar-volume totals, slid by 51% from Thursday's pace.

"It was your typical summer Friday," a trader said of the session - the last Friday for the historically quiet month of August. 'We didn't see much going on."

"It's been so quiet," another ventured. "Nothing was happening."

Yet another said the whole week seemed like "a holiday swoon."

AIG activity continues

One name which seemed to buck the general trend of lassitude was AIG, with a trader noting that the company's bonds were higher on Friday, in line with continued gains in its stock on Friday.

Among other AIG credits, its American General Finance Corp. unit's 4 5/8% notes due 2010 tacked on more than 2 points on the day to finish above the 89 level, although the company's International Lease Finance Corp. 4 7/8% notes due 2010 - which had pushed up to the around the mid-90s previously - gave back about a point of those gains Friday to finish at 92.5 bid.

AIG's New York Stock Exchange-traded shares, which have been up explosively over the past week or so, gaining an estimated 53% in that time, continued to firm on Friday, when they closed up $2.39, or 5%, at $50.23, apparently helped by the latest pronouncement from new CEO Robert Benmosche, who told The Wall Street Journal that he is in no rush to break apart what was once the world's largest insurer by selling off divisions to raise capital.

The former MetLife CEO, newly installed at the top at AIG, told the Journal that he is willing to wait as long as three years to offer stakes in two multibillion-dollar foreign units, rather than go to market with them now and end up selling them too cheaply.

While that may have reassured equity investors, the trader noted that the equity analyst at his firm told him that there was "a pretty big short squeeze" going on in AIG stock, perhaps pushing it up to unrealistic levels based on the company's fundamentals - and dragging the bonds along for the rise.

Also in the financial sector, a market source was seeing CIT Group Inc.'s 5.20% notes due 2010 having risen as much as 9 points on the session to go home at around the mid-65 level, in fairly brisk trading - one more example of the sometimes volatile trading in the New York-based commercial lender's paper.

Another source meantime saw the company's 4¼% notes due 2010 up a more conservative 2-plus points, going out just under 63 bid.

Michaels has momentum, moves again

Irving, Tex.-based art-supply retailer Michaels Stores' bonds continued to gain, a market source indicated. Its 11 3/8% senior subordinated notes due 2016 were being quoted going home around the 86 ¼ level, pretty much unchanged on the day, but considerably improved on the week.

Those bonds had started the week around 81 bid and then jumped 3 to 4 points on Tuesday, in busy dealings, to around the 84-85 level, after the company reported improved fiscal second-quarter and first-half results versus a year ago.

They continued to firm after that, pushing up to above the 86 level by Thursday's close and holding on to those gains on Friday, though on relatively light volume of $3 million, a market source said.

Michaels' 10¼% senior notes due 2014, which had started the week around 91-92 and then immediately moved up a point or so to the 93-94 level on the favorable numbers, also continued to rise, hovering around 96 by Friday afternoon, though there were only one or two large trades seen, a market source said.

Kodak climb continues

Another gainer was Eastman Kodak, whose 7¼% notes due 2013 were being quoted as high as 78-79 at mid-week, well up from the 73ish levels that paper held at the start of the week. The giant photography and imaging products provider's bonds were continuing to firm as the week closed out, to above the 81 level by Friday.

One participant quoted the bonds almost at the 82 level, pegging them up nearly 5 points on the day in active dealings.

There was no firm news seen out on the company, whose shares also rose strongly on the week, but there was all kinds of speculation that the firming trend could just be technical, or could be the result of institutional buying at historically cheap prices, or might even reflect market takeover scuttlebutt about the one-time blue-chip manufacturer. Kodak has been struggling for the past few years to carve out a profitable niche in the new world of digital photography, which has overtaken and rendered obsolete most of the traditional film-based photographic technology in which Kodak historically was the industry's dominant player.

Metals move up

A trader said that metals producers was an area that "continues strong," seeing West Chester, Ohio-based specialty steel alloys producer AK Steel's 7¾% notes due 2012 trading at 101 bid, "which is up ½ [point]," although there was no fresh news out about the company - which, like many of its peers, has recently seen steel prices and production rise on a sequential basis, albeit from very low levels versus a year ago.

He also saw Phoenix-based copper and precious metals producer Freeport-McMoRan's bonds, like its 8¼% notes due 2015 trading around "104ish and change, which is up another ½ point."

Another market source saw those bonds push up to 105¼ bid, up from up from 104¾ on Thursday.

Freeport is almost inevitably one of the day's most actively traded issues, and Friday was no exception, with almost $20 million traded by mid-afternoon.

The company's other widely traded issue, the 8 3/8% notes due 2017, were doing even better on Friday, quoted going out just a little below 107 bid.

Both issues are among the most widely traded by junk accounts, even though the credit is split-rated (Ba2/BBB-/BBB-) and draws some interest from high-grade investors.

Refiners, other energy credits, rallying

A trader said that some "names we haven't seen in a while" from out of the energy sector, like Berry Petroleum Corp., were starting to reappear.

A market source at another desk saw the Denver-based independent oil and gas exploration and production company's 10¼% notes due 2014 in a 104¾ context - the same level at which the company had priced $125 million of those bonds, as an add-on to its existing issue, back on Aug. 11.

Berry's 8¼% senior subordinated notes due 2016 were meantime seen around the 93 bid neighborhood. "That's starting to tick up," he observed.

The trader saw Western Refining Inc.'s bonds starting to recover from recent lows, noting that the El Paso, Tex.-based petroleum refining and marketing company's paper - which priced on June 8 in a $600 million two-part offering of five-year floating-rate notes and eight-year fixed-rate notes - "fell out of bed when they came," with both tranches pricing in the lower 90s and then proceeding to tread water, at best, or even lose some ground, for whatever reason. On Friday, he said that the bonds were quoted at 90-91, "which is up a good point on the bid side, on a lackluster day."

He said that he was "starting to see some activity" in the Western Refining issue, as well as Berry Petroleum.

Another name in that sector which he noted was that of Dallas-based refiner Holly Corp. He said that its 9 7/8% notes due 2017 "are up a good ½ point today" at 100½ bid, 101 adding that "that bid hasn't been seen for quite a while."

He did not know whether there was fresh news out about the company, which priced $200 million of the bonds on June 5 at 94.105 to yield 11%. The bonds subsequently rose to above par levels.

Midland, Tex,.-based oilfield service company Basic Energy Services Inc.'s 11 5/8% senior secured notes due 2014 "ran up like a bat out of hell" after the $225 million deal priced at 94.621 on July 23 to yield 13 1/8%, reaching a recent peak of 103-104, but after that, he said, the bonds came back down to around 1011/2, where they stayed for "quite a while." However, on Friday, those bonds had firmed, and were seen going home in a 102-103 context.

Overall, he said, "that whole sector was better."

'Barometers' better

A trader said Community Health Systems Inc.'s 8 7/8% notes due 2015 has solidified its reputation in some quarters as a barometer for the junk bond market, and "was pretty strong again today,"

He saw the Franklin, Tenn.-based hospital operator's issue - thought of by some as a barometer because of its great size and liquidity, weighing in at more than $3 billion, its widespread distribution and the ease in which investors can get in and out of it - having moved up ½ point on the day to 101.

"That seems to be one of the leading indicators for the market."

Community Health remains a very popular bond with investors, since it is relatively easy to get into it, if an investor wants to park capital somewhere, or to get out of, if the investor needs to raise capital by selling a big-block piece of the issue.

Another issue sometimes also considered a barometer for pretty much the same reasons, Philadelphia-based food-service operator and uniforms provider Aramark Corp.'s 8½% notes due 2015, were quoted by a trader up nearly a point at just under 98 bid.

Primary waits for Labor Day

Friday's high-yield market played to a half-full house, at best, sources said.

As expected, the primary market produced no news.

Nor is it expected to produce much, if any, in the pre-Labor Day week ahead.

However on Friday sources continued to assert that the new issue market could put up big numbers when it reopens on Sept. 8, following the three-day Labor Day weekend in the United States.

"There is money everywhere that needs to be put to work," a market source said just before Friday's close.

"That could help high-yield.

"But if we continue to have a large calendar it could push us down," the source added.

Quiet week

Only one deal cleared the primary market during the final full week of August. And it was a comparatively small one.

Vector Group Ltd. priced an upsized $85 million add-on to its 11% senior secured notes due Aug. 15, 2015 at 94.00 to yield 12.453% on Thursday.

The non-rated notes priced on top of the 94 area price talk in a quick-to-market transaction.

Jefferies & Co. ran the books for the general corporate purposes deal, which was upsized from $60 million.

Massive month

The anticipated quiet of August's Dog Days notwithstanding, with just one session remaining, August 2009 has seen a massive amount of high-yield issuance.

To the Aug. 28 close, $10.6 billion of dollar-denominated junk-rated new issuance cleared the market during the month, according to Prospect News data.

That's the greatest amount of August issuance since 2006, which saw nearly $11 billion.

August 2009's deal volume, with just one session remaining, is 31 tranches - a deal for each day of the month - rendering it the biggest August since August 2005, which saw 35 tranches.

Coincidentally, during the past decade three Augusts produced "deal-a-day" averages. That is, as with August 2009, 31 tranches priced during August 2005 as well as during August 2003, according to Prospect News data.

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