Spectrum brings add-on, recent deals firm; junk rebound lifts ailing MF; Dynegy goes flat

By Paul Deckelman and Paul A. Harris

New York, Nov. 2 - The high-yield primary market continued its recent pattern on Wednesday, bringing yet another opportunistically timed, quickly-shopped offering, as consumer products company Spectrum Brands Inc. did an upsized $200 million add-on of seven-year notes.

The transaction was the latest in a week's worth of drive-by offerings. Suddenly appearing deals during that stretch have included Tuesday's CNH Capital LLC, Monday's CSC Holdings, LLC and American Axle & Manufacturing Holdings, Inc., Friday's Ford Motor Credit Co. and last Thursday's Oasis Petroleum Inc. issues

Traders did not see the smallish Spectrum deal trading around, surmising that it had been already put away. However, they did see some of the earlier deals on a firmer note in the aftermarket, including CNH Capital, CSC Holdings and American Axle.

Away from the new-deal arena, junk paper had a firmer tone to it, although traders said that activity levels seemed to have quieted a little from the heavy volume of recent days.

One of the busiest of issues late last week and earlier this week, troubled MF Global Holdings Inc., calmed down a little Wednesday, both in terms of volume and the wild gyrations the New York-based financial firm's bonds had seen previously.

And traders saw little trading in Dynegy Holdings LLC's paper, even in the wake of the power generating company missing a Tuesday's coupon on one of its series of notes and as a result, trading flat.

Spectrum upsizes tap

The Wednesday primary market featured a single deal.

Spectrum Brands priced an upsized $200 million add-on to its 9½% first-lien senior secured notes due June 15, 2018 (current ratings B1/B) at 108.50 to yield is 7.29%.

The reoffer price came at the rich end of the 108 to 108.5 price talk. The amount was increased from $150 million.

Credit Suisse ran the books for the quick-to-market issue.

The Madison, Wis.-based consumer products company plans to use the proceeds for general corporate purposes.

The original $750 million issue priced at 98.634 to yield 9¾% in June 2010, so the company realized a 246 basis points rate reduction on the new notes versus the original issue.

The add-on went very well, according to an informed source.

Demand was strong because investors came with a good sense of where it should trade.

Also, with the presently strong high-yield secondary market, the demand far outstripped the supply. Hence the upsizing and tightened pricing, the source added.

Volatility weighs on volume

The volatility that has been hammering the capital markets since late summer has served to damp down volume in the high-yield secondary market, according to a mutual fund manager who spoke by telephone on Wednesday.

"You're seeing low volume on the downside and the upside," the investor said.

"Dealers are constrained from making markets.

"A lot of bonds are trading on macroeconomic news: its either risk-on or risk-off.

"It's hard to sell bonds, but it's also hard to buy them.

"And if you see a bid you like for something you own, what can you buy to replace it?"

A heavy calendar is the cure that the high-yield buy-side is hoping for, the manager said.

However syndicate sources suggest that the calendar for the remainder of 2011 will see volume far below the weekly run-rates seen in the first half of the year.

Weekly volumes might climb back toward $6 billion to $8 billion, but are unlikely to climb back to $12 billion, syndicate bankers say

Still open for quality

Despite the volatility, much of it triggered by European sovereign debt "good news-bad news" gyrations, issuers with good credit ratings are seeing good executions, the investor asserted.

CNH Capital LLC walked away with a yield that was "more than fair," on Tuesday, when it priced a $500 million issue of five-year senior bullet notes (Ba2/BB/) at par to yield 6¼%.

The yield printed at the tight end of the 6¼% 6 3/8% yield talk.

Credit Suisse, Bank of America Merrill Lynch and BNP Paribas were the joint bookrunners for the quick-to-market par-pricing issue, which was trading at 101 7/8 bid, 102 3/8 offered on Wednesday afternoon.

The $500 million deal played to an $800 million order book, the investor said.

Also Amerigroup Corp. should benefit from its four-B ratings as it attempts to sell $450 million of eight-year senior notes (expected ratings Ba3/BB+) via bookrunner Goldman Sachs, according to the buy-sider.

That deal, which is expected to price in the week ahead, ought to come in the high 6%-range because it's a new name and should be priced to give the investor an incentive, the manager said.

Spectrum a secondary no-show

Traders did not see aftermarket dealings in Spectrum Brands' add-on issue of 2018 senior secured bonds.

"It looks like everyone got the allocations they wanted" of the $200 million drive-by offering, "and there was no flipping" in and out of the Madison, Wis.-based consumer products company's new deal.

He said that there was no real trading either in the original $750 million of those bonds, which had priced in June 2010.

A second trader, who acknowledged that the add-on's relatively small size probably meant it had been put away - said that even with the existing notes, "there was not much cooking" - an ironic nod to one of the company's signature products, the popular George Foreman brand electric hamburger grills.

He said that the bonds had recently been as high as around the 112 area, although odd lots in the established bonds were being offered Wednesday around 1103/4.

CNH seen better

Also among the recently priced deals, a trader said that CNH Capital's 6¼% notes due 2016 had traded earlier in the session at 101¾ bid, and then moved up to around 102 bid.

"There tend to be some guys looking for more paper," he said.

A second trader saw the bonds at 102 bid, 102¼ offered, while yet another market participant pegged them at 102 bid, 102½ offered.

CNH Capital - the Burr Ridge, Ill.-based financial arm of Dutch construction and agricultural equipment manufacturer CNH Global NV - priced $500 million of the notes on Tuesday at par in a quick-to-market transaction.

The new notes had moved up solidly when they hit the aftermarket, reaching levels of 101 bid, 101½ offered in Tuesday's aftermarket, and extending that strength into Wednesday's dealings.

The parent company's Case New Holland Inc. 7 7/8% notes due 2017 were meantime one of the busiest issues Wednesday in Junkbondland, with nearly $20 million having changed hands heading towards the close.

A market source quoted those bonds up 3/8 point at 112 3/8.

Cablevision climbs

Cablevision Systems Corp.'s new 6¾% notes due 2021 were seen by a trader on Wednesday having moved up to 101 bid, 101¼ offered.

Another trader saw the bonds get as good as 101¼ bid, 101¾ offered.

That was well up from the levels at which the bonds had traded on Tuesday, ranging from 99 7/8 bid, 100 3/8 offered to 100¼ bid, 100 5/8 offered.

The Bethpage, N.Y.-based cable system operator and professional sports team owner's $1 billion drive-by deal - radically upsized from the originally announced $500 million - priced late Monday at par via the company's CSC Holdings LLC unit.

Cablevision's outstanding 8% notes due 2020 were seen up 1¼ point at 105½ bid.

Its 8 5/8% notes due 2017 were likewise firmer at 107½ bid, on busy volume of almost $12 million, while its CSC Holdings 8 5/8% notes due 2019 advanced to 113½ bid.

Axle improves

American Axle & Manufacturing Holdings' 7¾% notes due 2019 were trading up at 99½ bid "first thing this morning," said a trader, up from the levels seen on Tuesday, when the junk market was generally lower.

A second trader said that the Detroit-based automotive drive-train components manufacturer's bonds "have been pretty active". After coming to market on Monday at par, the quickly appearing issue had gotten as good as a 101 bid level in initial trading before going out on Monday at 101¼ bid, 101½ offered.

"Then they looked like they lost some steam," the trader said, pegging them as having finished on Tuesday as low as 98¾ bid, 99¼ offered.

"They got clocked," he said, but by late Wednesday, "they moved up nicely" to go home at 100½ bid.

Indicators point higher

Away from the new-deal arena, statistical secondary market performance indicators, which had been on the downside on Monday and Tuesday, were in a recovery mode on Wednesday.

A trader said the CDX North American series 17 High Yield index gained ½ point on Wednesday to end at 92½ bid, 92¾ offered, after having plunged by 1¾ points on Tuesday, on top of Monday's 11/4-point slide.

The KDP High Yield Daily index shot up by 35 basis points Wednesday to finish at 72.86, although it still has a ways to go to make up for the nosedive of 70 bps seen Tuesday, and Monday's 32 bps setback.

Its yield tightened by 32 bps on Wednesday, going out at 7.32%, after having ballooned out by 19 bps on Tuesday.

And the Merrill Lynch U.S. High Yield Master II index rose by 0.254% on Wednesday, its first gain after 2 days on the downside, including the 0.816% drop on Tuesday, one of the largest daily losses seen this year.

The gain lifted the index's year-to-date return to 3.574% from 3.312% on Tuesday

The cumulative return remains below its high-water market for the year of 6.362%, which was set on July 26 but it well up from its 2011 low-point, a 3.998% deficit recorded Oct. 4.

Junk firmed in tandem with stocks, which broke a two-session losing streak, helped by several positive earnings reports, better economic data, and a chance that the Greek referendum on the European bailout plan may not happen, with several members of the Greek government dissenting from the idea.

The bellwether Dow Jones industrial average, which had swooned by 276 points on Monday and another 297 points on Tuesday on renewed Europe debt jitters and MF Global's bankruptcy filing, ended Wednesday up by 178.08 points, or 1.53%, at 11,836.04.

The Standard & Poor's 500 index rose by 1.61% on the day, while the Nasdaq Composite index gained 1.27%

A trader saw the various junk indexes up about a half-point in the morning, but said that while "stuff is trading, and you see a lot of volume on trace, it feels like there's not a huge amount of activity going on with accounts.

"When everything came in by 2 or 3 points, everyone wanted to buy it - but now that it's back up, everything got away from them and nobody wants to pay up.

"It's kind of like trying to catch a bouncing knife - unlike a falling knife, it goes down, but if you don't grab it quick enough, it bounces back up."

MF Global rallies with market

Among specific issues, MF Global Holdings' 6¼% notes due 2016 remained the "name du jour," according to a trader, who saw the issue rallying 3 to 4 points, ending at 49 bid, 50 offered.

Another trader said the issue rose 3 points to around 49.

A trader noted that volume in the New York-based financial firm's 6¼% paper, which had been around $200 million on both Friday and Monday, moderated to around $60 million on Tuesday, and then lessened further to around $37 million on Wednesday.

He saw similar volumes in the company's 9% bonds due 2038, which were also ending in the 49 area. He saw the company's 1 7/8% convertibles due 2016 up 3 points to end at 47 bid.

The bounce in the bonds came despite continuing bad news from the firm - run by former Goldman Sachs chairman and New Jersey governor Jon Corzine - which declared bankruptcy on Monday. Early Wednesday, the company was told to stop liquidating client positions, though it had been given approval to do so previously. That also meant that clients could not transfer their accounts.

Speculation suggested that the halt was imposed in order to allow for a bulk transfer, which could save the firm money.

It has been reported that millions of dollars of client funds are missing - some estimates putting the missing cash stash as high as $700 million, amid reports that the company may have illegally mingled customer account cash with its own to cover its big losing bets on sovereign European debt.

MF Global's troubles began last week when Moody's downgraded the company. Poor earnings and several rounds of downgrades, all leading up to Monday's Chapter 11 filing, followed.

But news reports out Wednesday said that regulators had been looking into the company's European debt exposure as early as June and that MF executives had been warned they did not have enough capital to protect themselves and their clients. The company had apparently resolved the issue in September by securing repo loans.

According to one trader, the company said that its "sovereign debt was off the balance sheet." Upon the bankruptcy filing, the firm had $47 billion in assets versus $44.7 billion of liabilities.

"If either of those numbers [move] by 5%... the bonds could be worth par, they could be worth zero."

Dynegy debt up, but a dud

Dynegy Holdings skipped a nearly $44 million interest payment on its 8 3/8% notes due 2016, and now has 30 days to resolve the issue.

Traders saw the company's bonds trading flat, or without their accrued interest, causing the nominal price of most of its issues to rise.

One trader saw the 8¾% notes due 2012 at 65 bid, with due bills to seller - meaning any interest paid would go back to the original holder. He also saw the 7 1/8% notes due 2018 at 66 bid and the 8 3/8% notes at 71.

Another market source called the 7¾% notes due 2019 up 3 points at 68 bid.

While the generally firm tone of the market helped improve prices, the news of the missed coupon did not boost trading volume in the name.

A market source noted that Dynegy was not among the top traders on Trace either on Tuesday, when the coupon was actually missed, or on Wednesday.

Another trader said that he "did not see activity in that name" - or at least in its bonds. On the other hand, he said that trading in credit default swaps contracts written to protect bondholders from a possible event of default "was huge."

He estimated that "hundreds of millions" in CDS contracts where changing hands.

The missed coupon is the latest in a nearly year-long struggle for the Houston-based power generating company. Bondholders have filed a lawsuit against parent Dynegy Inc., alleging a fraudulent transfer of assets regarding a recently completed restructuring.

The parent company, however, has asked that the case be dismissed, alleging that the suit was filed in the wrong jurisdiction, and also arguing that the lead plaintiff in the case - Avenue Investments LP - did not have standing to sue.

In calling for the suit to be quashed, Dynegy said in a court filing that the lawsuit was "plainly designed to interfere with Dynegy's exchange offer by communicating to participants that plaintiffs would challenge the exchange after the fact" - referring to the so-far spectacularly unsuccessful effort by the company to convince its bondholders to exchange much of their existing debt for a combination of cash and new debt - an exchange offer scheduled to expire on Thursday night (see related story elsewhere in this issue).

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.