Market quiets as traders blow town ahead of hurricane winds, primary concludes slowest week

By Paul Deckelman and Paul A. Harris

New York, Aug. 26 - The high yield market ended on an easier, quieter note on Friday - concluding a truly weird week which included an earthquake on Tuesday and the beginnings of a hurricane as the week wound down.

After a slightly firmer opening to the session, traders saw the market begin to lose momentum as activity dwindled, with many people leaving early, presumably to head for home to prepare for the arrival of a most unwanted "guest" named Irene.

Unlike the sessions earlier in the week, when there was great volatility and some issues either went up or went down by multiple points, Friday saw only restrained movements in names such as Community Health Systems Inc.

Statistical performance indicators were lower for both the session and versus a week earlier.

Traders said the junk market's reaction to Fed chairman Ben Bernanke's much-anticipated speech at the annual Jackson Hole conference was a great big yawn.

The primaryside meantime remained fast asleep, concluding its slowest week of 2011, when pricings in the domestic dollar-denominated sphere totaled exactly zero for the first time all year.

Quiet Friday ends quiet week

The primary market remained quiet on Friday, as it had throughout the final full week of August, which became the first week of 2011 to pass without a deal pricing.

With no issues pricing during the week, year-to-date issuance was unchanged from last Friday's $211.2 billion in 471 junk-rated, dollar-denominated tranches.

The August-September crossover week, heading into the three-day Labor Day holiday weekend in the United States, is also likely to pass without activity, as syndicate desks, trading desks and sales forces are thinly staffed due to the absence of vacationing workers, sources say.

Also the volatility in the global capital markets has created an unfriendly atmosphere for placing speculative-grade bonds, a sell-side source said on Friday.

September remains uncertain

Looking beyond the Labor Day weekend, September in the new issue market is something of an imponderable, mostly because of the volatility.

Unless market conditions worsen significantly, committed financings - with their respective bridge loans syndicated to many of the same accounts which are expected to buy the bonds - will probably hit the market.

Most players agree that this set of deals is a small one.

Kinetic Concepts Inc. is expected to undertake the placement of $2.15 billion of high-yield notes in September.

The deal is expected to feature $1.25 billion of senior second-lien notes and $900 of million senior unsecured notes.

Bank of America Merrill Lynch, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Inc. are the joint bookrunners.

And Sealed Air Corp.'s $1.5 billion equivalent offering of senior notes is expected to launch in September.

The notes offering is expected to include a $1 billion tranche and a €500 million tranche. However it remains to be seen whether there is sufficient demand to go forward with the euro-denominated tranche, sources say.

Citigroup Global Markets Inc. is expected to lead a syndicate of banks on the Sealed Air deal.

Activity in the morning

Traders said that what secondary activity there was was centered on the morning.

"The market was a little softer early on, and then it came back," a trader said

A second trader said that he saw most activity in the morning, and said that the market seemed firm to him at that time.

But then, he said, a lot of people left early in the face of the approaching hurricane and actions by local government officials in New York and New Jersey, notably New York City mayor Michael Bloomberg, urging residents to take disaster precautions and, for people living in some areas, even be ready to evacuate.

"People went home to go board up their houses," another trader said, noting the volume drop-off in the afternoon.

But of course, he added, "these last two weeks of August are traditionally very quiet anyway - and this was a typical summer Friday."

Bernanke speech a dud

Traders said there was not much reaction in the junk market to remarks in the morning by the chairman of the Federal Reserve Board, Ben S. Bernanke, who addressed an economic conference in Jackson Hole, Wyo. While he expressed optimism about the long-term prospects for the American economy, the Fed chief did not announce any new initiatives.

"The equity markets traded right off," a trader said, "when they realized that he was not announcing any new steps" to aid the economy.

In fact, the benchmark Dow Jones Industrial Average fell nearly 80 points after the text of Bernanke's address was released but before the speech began, and at one point was down by as many as 220 points.

However, when the markets realized that Bernanke's speech was no real negative, stocks began to come back, with the Dow ending up 134.72 points, or 1.21%, at 11, 284.54 bid.

A junk trader said that "our side softened along with equities" in initial reaction to the Bernanke address.

Then, when stocks snapped back smartly later in the day after participants got a chance to read the speech and analyze what it did or did not say, "we didn't really bounce back - but we didn't get killed either."

He said that the junk market's feeling of forgiveness also carried forward to its muted response to the latest gross domestic product figures from the feds.

They announced that the U.S economy grew at an annual rate of only 1% in the April-June quarter, weaker than the government's first estimate of 1.3%, sparking renewed concern that the United States might be headed for another recession.

That having been said, "the GDP was not as bad as it might have been," the junk dealer opined.

Community Health hangs in

A trader said that one of the more notable issues to trade on a very quiet day was Community Health Systems' benchmark 8 7/8% senior secured notes due 2015.

He saw the Franklin, Tenn.-based hospital operator's bonds go from 99½ bid on Thursday to as low as 99 bid on Friday, before finally "coming back a little" to end at 99¼ bid, down ¼ point.

A trader also saw Community Health sector peer HCA Inc.'s recently priced 6½% senior secured first-lien notes due 2020 trading at 97¾ bid, down by ¼ to 3/8 point .

The Nashville-based hospital operator had priced those $3 billion of bonds at par on July 26, as part of a radically upsized $5 billion two-part offering that also included $2 billion of senior bonds due 2022

Sino Forest seen sliding

Another trader said that with not much else going on in the market, "one thing everyone was focused on as they watched the story unfold was Sino-Forest Corp., after Canadian authorities first suspended all equity trading in the Canadian-Chinese timber company and ordering its officers to resign, although it rescinded the ouster of the officers just a few hours later

He said that caused the company's shares to swoon by as much as 65%; however, he saw no trading in the company's bonds, most recently quoted in the mid-50s.

At another desk, however, a trader said those events resulted in the bonds being quoted much lower.

However, traders said trading in the name was light.

"They went down pretty big," said one trader. "Sino was down a lot to the mid-20s."

"They were quoted down 25 points across the board," said another trader. "Not sure how much of it traded."

Another source saw the 10¼% notes due 2014 trading with a 35 handle. That was down about 50% from the last round-lot trade of 70 early last week.

The 6¼% notes due 2017 were meantime trading around 34, down from 55½ last week.

Stephanie N. Rotondo contributed to this report

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