Market generally firmer, but homebuilders get hit; primary stilled

By Paul Deckelman and Paul A. Harris

New York, Aug. 6 - The junk bond market was generally firmer Monday, traders said, in line with a big rally in U.S. stocks. However, key segments of the market continued to struggle, particularly the homebuilder names, with Standard Pacific Corp. and Hovnanian Enterprises Inc. leading the way downward. Another loser was Valassis Communications Inc.

Primary activity remained virtually non-existent.

"The market came roaring back today," a trader said, in line with the stock surge which saw the S&P 500 up 34.61 (2.4%) to 1467.67 and the bellwether Dow Jones Industrial Average rallying by 286.87 (2.2%) to 13,468.78.

"On Friday," he said, "we had a decent day, with active, two-way flows, but in the last hour-and-a-half, the market just got killed as equities sold off by over 280 [Dow] points. But today, we opened up kinda mixed and it steadily marched higher all-day."

He saw credits generally "up ¼ to ½ [point]," across the board.

Valassis heads lower

But the trader noted that some credits were continuing to take their lumps.

One was Valassis Communications, whose 6 5/8% notes due 2009 he saw down "5 to 6 points" in the upper 90s, as the company's stock "got crushed."

The big advertising insert producer last week reported a 50% drop in second-quarter earnings, citing higher costs and expenses related to a recent acquisition.

The company also lowered its expected revenues to a range of $2.22 billion to $2.25 billion, down from $2.25 billion to $2.35 billion previously and adjusted its EBITDA guidance to $241 million from $255 million.

Builders continue to get hammered

In the battered homebuilding sphere, traders saw Standard Pacific taking its licks Monday, hurt by market rumors that the Irvine, Calif.-based company might not be able to cover its debt. That pushed its 7% notes due 2015 down 5 points to 77 bid, 79 offered, even as its equity fell by 40% at one point during the session, although it ended down 18.7%.

In that same sphere, Hovnanian Enterprises' 8 5/8% notes due 2017 were 5 point losers at 78 bid, 80 offered. At another desk, its 6 3/8% notes due 2014 were quoted more than 6 points down at 73.5 bid.

Healthcare names healthier

Elsewhere, a trader said he saw some upside activity in HCA Inc. paper, with the Nashville-based hospital operator's 9¼% notes due 2016 opening at 100.25 bid, 101.25, and going home at 101 bid, 101.75 offered.

Out of that same healthcare sector, he said, Tenet Healthcare Corp.'s bonds "got a little boost" from the news that the Dallas-based hospital operator will sell six facilities.

"After trading off early in the day, they came back," he said, with Tenet's 9¼% notes due 2015 at 85.5 bid, up from prior levels in an 83-84 context.

Auto names skid lower

Back on the downside, a trader said that Dana Corp.'s bonds were "down big-time," although he offered no explanation for the fall in the bankrupt Toledo, Ohio-based automotive components manufacturer's debt. He saw Dana's 6½% notes due 2008 having fallen several points to 83 bid, 85 offered.

At another desk, those bonds were seen down perhaps 1½ points on the day at 83.5 bid. But the most busily traded of the company's notes, the 6½% notes due 2009 were seen having fallen all the way to around 81 bid from prior levels above 85, before gradually coming up from those lows to end at 83.5, down around 2 points. On the long end of the curve, the 7% notes due 2029, which had closed Friday above the 86 level, opened at around 83 Monday, dipped below 82, but came back a little to end at 84, still down around 2½ points.

The trader also saw Delphi Corp.'s bonds lower, its 6.55% notes that were to have come due last year easing to 108.5 bid, 110.5 offered, while Dura Automotive Systems Inc.'s 8 5/8% notes due 2012 were 2 points lower at 52 bid, 54 offered.

Trump gets dumped

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 - which had been down about ½ point in heavy trading on Friday - continued to head lower, again on pretty substantial trading volume. The notes lost 1¾ points to end at 82.25.

There was no fresh news seen out on the Atlantic City, NJ.-based gaming company.

Not up to par

The high yield primary market, meanwhile, produced no news whatsoever on Monday.

Beginning last Friday and continuing on Monday, sources explained that one force hampering the primary market at present is downward pricing pressure exerted by issues that were printed at or near par earlier in the year, and subsequently tumbled into the low 90s and 80s during the ongoing summer sell-off.

Names mentioned in this context include Claire's Stores Inc., Dollar General Corp. and Metals USA.

On Monday a sell-sider said that hedge funds have lately been pretty active, but added that they don't seem to want to buy anything at par.

Instead, the source said, bonds that have undergone dramatic price drops have attracted the notice of the hedge funds, along with the potential for an influx of paper from recently pulled deals which the underwriters still have on their books.

In some cases the investment banks came into these deals with pretty low cap rates on the commitments, the source explained, adding "They're on the hook.

"So people are asking themselves 'What's the point of buying anything at par right now?'"

Damocles du jour

In this context, the source was one of two sell-siders to mention the First Data Corp. $8 billion junk offering backing the LBO of the company by Kohlberg Kravis Roberts & Co.

The deal, via Citigroup, Credit Suisse, Deutsche Bank Securities, HSBC, Lehman Brothers, Goldman Sachs and Merrill Lynch, with others expected, is comprised of $5.5 billion of senior unsecured notes and $2.5 billion of senior subordinated notes.

One source, specifying that the $8 billion First Data deal is expected to come in September, asserted that on the sell-side it has become something of a "Sword of Damocles du jour," making reference to the Greek courtier who was enjoying himself at a banquet only to notice that a sword, suspended by a horsehair, was hanging above his head.

Indeed, in a July 31 press release announcing shareholder approval of the merger, First Data reiterated that it expects the deal to be concluded by the end of the third quarter.

Another observer said on Monday that the word on the street is that First Data bonds might come at a significant discount "because the banks don't want it on their books."

As for demand

Meanwhile a buy-sider said on Monday that the demand for paper which drove the phenomenal issuance seen during the first half of 2007 - over $108 billion, according to Prospect News data - could taper off significantly going forward.

That is because issuance activity in the CDO and CLO markets has fallen and is not expected to regain meaningful momentum anytime soon.

Junk bonds are among the components that make up some CDOs.

Should it come to pass that CDO and CLO issuance fail to recover or fall further it would take a big bite out of the technical bid, the buy-sider asserted.

© 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.