Junk primary ends week in a daze; recently busy GM, Blockbuster still; crossovers seen active

By Paul Deckelman and Paul A. Harris

New York, Aug. 27 - With one pricing - and only one - under its belt for the week, and that a Norwegian kroner-denominated transaction out of Europe on Thursday for Interoil Exploration & Production ASA, the high-yield new-deal arena rolled over and resumed its late-summer slumber on Friday.

Another overseas-originated deal popped up on investor radar screens, as Chinese shopping center developer Renhe Commercial Holdings Ltd. was seen beginning a roadshow on Monday for a proposed issue of senior notes, which will be sold to investors in the United States as well as buyers in Asia and Europe.

But on the domestic scene, things remained in limbo, with the prospective deals for the likes of NBTY Inc. and RAAM Global Energy Co. categorized as September business, along with offerings by European issuers Tomkins plc and D(rr AG.

In the secondary realm, things were about as quiet as they could be on a "normal" day not preceding any holiday. Even the credits which had been seen moving around earlier in the week, such as General Motors Corp. and Blockbuster Inc., were little moved on Friday. The latter company's most widely traded issue, its senior secured notes, held steady even amid news reports indicating the troubled company was laying the groundwork for a pre-packaged bankruptcy filing, perhaps within a matter of weeks.

Traders noted that, in line with a recent trend, among the most active issues they were seeing were such purely low investment-grade issues like Motorola Inc. and split-rated offerings from Anadarko Petroleum Corp., Capital One Financial Corp., Meadewestvaco Corp. and Masco Corp., with those crossover credits appealing to both junk players and more traditional high grade investors.

Empty week

Friday brought the curtain down the curtain down on a empty week in the primary market, with no dollar-denominated issues pricing, and no new deals announced.

And the week ahead, leading into the three-day Labor Day holiday weekend, is expected to play out in the same fashion, market sources say.

This lack of activity notwithstanding, the $23.5 billion of deals already seen this month is far and away the greatest amount of August issuance the market has ever seen - more than doubling the previous record of $11 billion, set in August 2006.

In fact, 2010 has been a year for record-issuance months.

August is the sixth month of 2010 to have put up a new record. The only months of this year so far that have not posted record volumes have been May and June.

September record unlikely

The month ahead, however, will likely not be a month for the record book, syndicate bankers forecast on Friday.

The current September record - 2009's $20.4 billion, according to Prospect News data - should still be standing when October arrives, these sources say.

"September is probably going to be a highly active month, but I don't see it being a replay of March and April [$36.6 billion and $34.7 billion, respectively]," a debt capital markets banker said.

Average September issuance over the past decade is a comparatively modest $9 billion.

Looking toward the autumn starting line in the primary market, the post-Labor Day week, already foreshortened by the Monday holiday, is also the week of the Jewish holiday season of Rosh Hashanah, which will significantly thin the ranks of market participants on Thursday and Friday of that week, sources say.

Hence, ultra-high deal volume is not expected during the post-Labor Day week.

A substantial calendar of deals for pricing during the final three weeks of September is expected to develop, syndicate sources say.

However that calendar will likely not be "massive," two dealers said on Friday.

So far just one U.S. issuer is on the market's radar screens with a dollar-denominated deal that is likely to price in September, sources say.

NBTY Inc. is expected to bring $900 million of senior unsecured notes to help fund the buyout of the company by the Carlyle Group.

Bank of America Merrill Lynch, Barclays Capital and Credit Suisse are leading the deal.

General syndication of NBTY's $1.7 billion senior secured credit facility gets underway on Sept. 7.

The bonds will come to market following the bank deal, probably in late September or even in early October, a syndicate source said.

Market indicators turn mixed

Away from the new-deal world, a market source saw the CDX North American HY Series 14 index rise by ¼ point on Friday to 96¼ bid, 96½ offered, after having eased by 1/8 point on Thursday for a second consecutive session. But the index still ended the week off ½ point from the 96¾ bid, 97 offered reading seen the previous Friday, Aug. 20.

The KDP High Yield Daily index meantime lost 3 basis points on Friday to end at 71.55, after having edged downward by 1 bp Thursday and having swooned by 18 bps on Wednesday. Its yield rose by 3 bps to 8.38%, after having risen by 2 bps on Thursday. The index thus ended the week having deteriorated from the 71.93 reading and 8.24% yield seen the previous Friday.

The Merrill Lynch High Yield Master II index lost 0.019% on Friday, after gained on Thursday. It ended the day with a year-to-date return of 8.463%, down from Thursday's 8.483%, and finished down 0.108% on the week, from the previous Friday's 8.58%. The index also remains below its peak level for 2010 so far, the 9.085% recorded on Aug. 9.

Advancing issues led decliners for a second consecutive session on Friday, after having been down the previous five sessions. Their winning margin was not quite six to five, slightly narrower than the edge they held on Thursday.

Overall activity, represented by dollar-volume levels, plunged by nearly 38% on Friday, after having fallen by 20% on Thursday.

Besides the usual "summer Friday" blues that generally take the credit, or get blamed, for depressed end-of-the-week activity at this time of the year, several traders noted that a lot of industry people were probably out at the Ridgewood Country Club in New Jersey watching the Barclays PGA golf tournament, getting what one trader called "their Tiger Woods fix." He had predicted beforehand that "the Street is going to empty out" by around 10:30 a.m. ET or so, and as it turned out, he was pretty much on the mark, with very few real trades seen after the small initial flurries. "The grass is going to be growing," he said.

A trader who looked at the tally of trades on Friday exclaimed: "Wow! Nothing."

He said that he had spent pretty much the whole week working on other things because "secondary was so quiet" - and he predicted that "we'll see more of the same" in the upcoming week, which will culminate with the Labor Day weekend, considered the traditional, if unofficial, end of those lazy, hazy, crazy days of summer.

He cautioned against expecting any kind of early revival of the primary market in the coming week. "Only an idiot would price a deal heading into the Labor Day weekend," the trader declared.

And he added that even though everyone has expectations for a quick revival of both new deal and secondary market activity following the Labor Day break, which will shutter all U.S. financial markets on Monday, Sept. 6, given all the talk of pent-up demand, "the day after Labor Day won't be anywhere nearly as busy as everyone thinks."

Besides the usual problem with people coming back from vacation and straggling back into the office after a long holiday weekend - perhaps in various states of sobriety - "the first couple of days back, people always have a lot of meetings" to see what is going on and readjust their bearings.

Crossover credits rule actives list

A trader noted the preponderance of names of either purely high-grade issues, albeit at the very low end of that spectrum, just a notch above junk, or split-rated notes, near the top of Junkbondland's "most actives" lists most days.

For instance, he cited Capital One Financial, Anadarko, and Motorola, all with "a triple B on one side," or in the case of Motorola (Baaa3/BBB/BBB-) on all sides.

He noted that such names attract buyers from both the junk and high-grade worlds, the latter reaching for yield and the former willing to sacrifice a little yield in order to go a step or two up the quality ladder.

For example, Motorola's 5 3/8% senior notes due 2012 closed the session at 105 bid, actually down nearly a point from the previous day's finish, although a market source said the final trades were small and not terribly representative. Throwing those small pieces out and looking only at round-lot dealings tells quite a different story, with the bonds ending above 106 bid, up more than 2 points from the last previous big-block trades, on volume of more than $32 million, putting it at the top of the day's list of busiest bonds.

It was the second straight session of notable activity in the Schaumburg, Ill.-based cellular phone and electronics manufacturer, whose securities have apparently gotten a boost from the news that billionaire investor Carl C. Icahn has increased his ownership stake to 10.4%, according to regulatory filings.

Other notable movers in the crossover space include Masco Corp. (Ba2/BBB/BB+), whose 7 1/8% notes due 2020 rose more than 1½ points to around the 102 5/8 level. MeadWestvaco Corp.'s (Ba1/BBB) 6.85% notes due 2012 gained ¼ point on the day to end just above 107.

GM gyrations subside

Arguably the busiest purely junk issue this week, at least in terms of price movement, may have been General Motors' benchmark 8 3/8% bonds due 2033

Those bonds, which had recently been trading as high as a 34 to 36 range about 10 days ago, started out the week on the slide, down to around 33, and continued to lose ground as the week wore on, racking up what one trader called "decent volume," as they headed down to levels around 31 or 32 bid, on no apparent fresh news.

The slide in the bonds had followed the Detroit giant's late-session announcement on Aug. 18, outlining its plans for an initial public offering of stock shares sometime this fall, with the proceeds to be used to pay back some of the more than $50 billion that GM owes to the federal government from its bailout over the past few years. Uncle Sam currently owns 61% of the once-iconic blue-chip symbol of American capitalism, with other large stakes held by the Canadian government, which also provided bailout money in order to save GM's extensive operations in Ontario, and a United Auto Workers union-run healthcare trust that administers benefit plans for current and former GM employees.

But after having spent the week stuttering along in the breakdown lane, GM's bonds spent Friday quietly.

A trader who had seen those bonds at 32 bid, 32½ offered, pronounced them unchanged on Friday, while a second trader saw them "trading all day" around 32 bid, 32 3/8 offered.

He said that he "never saw any news" that might explain why the GM paper had taken such a pasting over the previous several sessions, although he suggested that perhaps investors feared that in addition to selling stock - the $20 billion figure which has been bandied about in the press as the likely IPO proceeds is but a fraction of the more than $70 billion GM owes to its government and union stakeholders - GM might "try levering up [via a debt sale] to pay off the equity. That would do it" as far as spooking the current bondholders.

Another possibility is simply the market recognition of the GM benchmark as a big, widely held, liquid issue that an account could sell out of if it wanted to quickly liquidate a holding to raise capital for something else, "or one that you could short" to play on current investor angst about what a weak economy might mean for the junk market..

Bankruptcy buzz bypasses Blockbuster bonds

From down in the deeply distressed precincts came word that even the news that troubled Dallas-based movie-rental operator Blockbuster Inc. is apparently preparing for a bankruptcy filing did little to move its debt on Friday.

The company's badly-battered subordinated paper did head up - traders said its 9% notes due 2012 gained some ground, ending around the 4 bid, 5 offered level - but its 11¾% senior secured notes due 2014 saw little action. Sources opined that the bonds, which on Thursday had pushed up by as much as 3 points to about the 50 bid, 52 offered level, were holding onto those gains but going no further.

The Los Angeles Times reported on Thursday that Blockbuster is in process of creating a "pre-planned" bankruptcy filing and, in doing so, has met with a number of film studios to ensure that they will continue to supply the company with new movies, even as it restructures.

The paper said that Blockbuster's chief executive officer, Jim Keyes, came to Los Angeles with his restructuring consultants and representatives of the company's senior debt holders, to hold individual meetings with executives at major studios including 20th Century Fox, Paramount Pictures, Sony Pictures, Universal Pictures, Walt Disney Studios and Warner Bros.

The report cited anonymous sources who said the filing could come by mid-September. If Blockbuster files, it would be in a position to seek court approval for canceling the leases on between 500 and 800 unproductive stores, out of the company's current nationwide roster of about 3,400 outlets. Blockbuster has already closed down hundreds of locations in various markets, notably including the New York metropolitan area.

A bankruptcy filing would not come as a big shock, as Blockbuster has been losing money - and market share - for some time. The company is currently operating under a forbearance agreement from more than 70% of its senior secured bondholders, which it reached after missing a July 1 coupon payment. The holders agreed not to accelerate Blockbuster's loan, giving the company, which has about $1 billion of debt outstanding, time to try to get its financial house in some kind of order.

The agreement - which was extended earlier this month and is not slated to run through Sept, 30 - prohibits the company from making another coupon payment on Sept. 1.

Nortel not moved by asset sale

Elsewhere among the distressed credits, Nortel Networks Corp.'s bonds were also unchanged on the day, showing little reaction to news that the company was looking to sell its multi-service switch unit.

A market source deemed the 10 1/8% notes due 2013 unchanged at 78 bid, 78½ offered.

The Toronto-based telecommunications equipment company, currently in the process of restructuring its debt, said it had entered into a "stalking horse" asset sale agreement with PSP holding LLC, a special purpose entity funded by Marlin Equity Partners and Samnite Technologies Inc.

The purchase price is set at $39 million in cash.

This is not the first asset sale Nortel has done since entering bankruptcy in January 2009. The company has sold off various units in an attempt to scale back and focus on its core businesses.

-Stephanie N. Rotondo contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.