Junk market roars back to life as 'January Effect' kicks in; CommScope plans secured deal

By Paul Deckelman and Paul A. Harris

New York, Jan. 3 - It was back to work on Monday in Junkbondland with the year-end break now behind us and the calendar page turned to 2011, and nobody seemed to be hungover or still drifting around in a dreamy, holiday-induced winter wonderland.

Volume accelerated sharply from the previous week's positively anemic levels, and some familiar junk names were seen to have pushed upward by as much as a point or two, or even more. Traders cited pent-up demand and the celebrated "January Effect" now that end-of-year window-dressing activities are over with.

While actual or upcoming news developments were seen to have spurred on such names as ATP Oil & Gas Corp., Dynegy Holdings, Inc., CIT Group Inc., Ford Motor Co. and Motors Liquidation Co., other names were also seen stronger by points with no fresh news seen out, including Clear Channel Communications Inc.

In the overall market, statistical measures all seemed to point northward on the first trading day of the new year.

And the primary sphere - in virtual hibernation over the previous two weeks - also showed signs of life, as syndicate sources heard that CommScope, Inc., a provider of infrastructure services to the communications industry, plans a megadeal-sized offering of secured bonds to help finance its leveraged buyout transaction, which was approved by company shareholders last week.

$25 to $30 billion January?

The first session of 2011 passed quietly in the primary market.

No deals priced, nor were any offerings announced.

That will soon change, market sources say.

The big dealers are expected to roll out two or three transactions this week, all of which are expected to price during the week ahead, according to a syndicate official.

The early January calendar will probably build up to a deal-volume similar to that seen during the weeks immediately following last November's Thanksgiving holiday, the source added.

In that early January pipeline are at least a couple of billion dollar-plus deals, the official said.

Meanwhile a trader from a high-yield mutual fund expects January issuance to come to $25 billion to $30 billion.

"We're a little slow in starting because people picked the end of 2010 and the first part of this year to get in their two-week vacations," said the trader, who marked cash bonds ½ point higher on Monday afternoon, in line with rallying equities.

CommScope plans $1.25 billion

Although no deals were formally announced on Monday, CommScope is expected to sell $1.25 billion of senior secured notes as part of the financing for the $3.9 billion leveraged buyout of the company, a market source said.

The debt financing also includes a $1.4 billion credit facility to be led by J.P. Morgan Securities LLC; a $1 billion seven-year term loan, which is part of the bank debt, is scheduled to launch at a bank meeting on Wednesday.

Initially, it was thought that the company would get $2.25 billion of senior secured notes.

As a backup for the debt, the company has received a commitment for a $2.25 billion senior secured bridge loan.

The LBO financing will also include $1.75 billion of sponsor equity.

Carlyle Group is acquiring CommScope for $31.50 per share in cash.

Closing is expected in the first quarter.

Indicators strengthen

Away from the new-deal sphere, a market source saw the CDX North American Series 15 HY index up by ½ point on Monday to finish at 103.25 bid, 103.75 offered, after having been virtually unchanged during Friday's thinly-attended, abbreviated pre-New Year's session, which saw the index finish off the year just below 103.

The KDP High Yield Daily index meantime gained 18 basis points on Monday to close at 74.58, on top of the 6 bps gain seen on Friday, when the index closed out 2010 with a reading of 74.40. Its yield came in by 4 bps on Monday to 7.28%, after having tightened by 2 bps Friday to a year-ending 7.32%.

The Merrill Lynch High Yield Master II index started the new year off on the right foot by gaining 0.316% on Monday, which is also its year-to-date return for the moment. On Friday the index had gained 0.104% to close out the old year with a return of 15.19%, having edged back above the 15% mark on the final two trading sessions of the year. However, the index - while rebounding smartly from a rough patch over several weeks in late November and early December - was unable to come all the way back up to match its 2010 peak of 15.602% recorded on Nov. 9.

Advancing names made it five sessions in a row over decliners on Monday, widening their lead to around eight to five; on Friday; the gainers had led the losers by just a few dozen issues out of the less than 700 that traded.

Overall activity, represented by dollar-volume levels, zoomed by more than 17 times from the extremely low level seen on Friday, when volume had nosedived by nearly 70% from the already quiet levels seen the previous day, the last full trading session of 2010.

A trader chalked the sharply increased volume level, as well as the strongly positive tone of Monday's market to "the famous January Effect," referencing the popular theory that once year-end selling and other portfolio adjustments are out of the way, investors will buy equities - or, according to academic studies, lower-rated corporate bonds like those found in the junk universe - in anticipation of a rise in prices.

"I don't know that stuff was up a lot," he said, "but everything was firm and well bid-for."

"The bond world seemed pretty happy today," said a second trader, who proclaimed that "just about everything went up."

Oil and gas issues energized

A trader saw ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 at 96 bid, 97 offered, which he called up 1½ points and "almost out of my bailiwick," of troubled and more lower-priced issues.

Another trader noted Monday's announcement by the Interior Department that Houston-based ATP and a dozen other energy exploration and production companies could resume their deep-water drilling projects - suspended in the wake of last year's Deepwater Horizon oil-spill disaster in the Gulf of Mexico - without undergoing additional environmental reviews.

The announcement represented something of a reversal in the government's stance; some months ago, Washington had said that it would require strict reviews for new drilling in the wake of the explosion and fire aboard a drilling rig at BP plc's Macondo well 40 miles off the Louisiana coast. That April 20 accident took 11 lives and resulted in a massive oil spill that fouled beaches all along the Gulf Coast, although the adverse environmental effects seemed to dissipate faster than had been expected.

One of the traders meantime saw the new drilling regulations as good news for other companies in the sector, including the split-rated (Ba1/BBB-/BBB-) bonds of Anadarko Petroleum Corp., even though the Woodlands, Tex.-based oil and natural gas exploration and production company - actually a 25% owner of the ill-fated BP project - was not among the lucky 13 named specifically in the Interior Department announcement Monday.

Anadarko "keeps trading - they traded up pretty good," he said, quoting the company's 6.45% bonds due 2036 trading between par and 101 bid, well up from the 98-99 handle seen last week.

Anadarko has recently been the focus of some takeover talk, with Anglo-Australian mining and resources giant BHP Billiton - which itself has oil and gas drilling interests in the Gulf of Mexico - said to be possibly considering a bid of around $40 billion, or $90 per share of Anadarko, whose NYSE-traded shares have moved up to $77-$78 range from pre-takeover chatter levels about $10 below that

Anadarko, like ATP, got whacked around last year following the Deepwater Horizon accident, even though they "weren't affiliated with the spill directly [ATP] or they were a little bit [Anadarko; despite its 25% ownership of the blown-out well, the bulk of the blame for the accident fell upon 75% operator BP]," said Mathew Van Alstyne, the head of research at New York-based boutique investment banking and asset management firm Odeon Capital LLC.

In a year-end review of 2010's junk market performance, he told Prospect News that those companies, "just got crushed because people thought the Gulf of Mexico was going to be shut forever, or what's the business model of these entities if you can't drill in deep water?"

He said that in the several months that followed the accident, his company was touting ATP and Anadarko, as well as another offshore drilling concern, Energy XXI, which like ATP, did not have any role, either direct or even indirect, as Anadarko did, in the Deepwater Horizon debacle.

"We thought the market overreacted, so we were encouraging everybody to buy Gulf of Mexico assets during the time that was probably the worst of the crisis - and that worked out pretty well for people who did it."

He said that ATP, for instance, "was a great buy if you got in late April and got out in mid-June - you could still own them [after that] and they would be fine, but we stopped touting them once they got up to the mid-80s, because at that point, they were priced close to where the other oil names were."

The ATP bonds - $1.5 billion of which, ironically, had priced on April 19, the day before the oil rig accident, at just under par - got hammered down as low as the mid-60s in the weeks after the extent of the disaster became known and the government moved to stop all deepwater drilling in the gulf - but they eventually began firming off those lows, ultimately reaching their current levels not too far off from where they had priced in the first place.

"ATP was a great name to have made a trade on" when it was still undervalued, Van Alstyne concluded.

ATP's New York Stock Exchange-traded shares rose 18 cents, or 1.08%, in Monday's dealings, to end at $16.92, on volume of 3.2 million shares, about 1½ times the norm.

Elsewhere in the oil patch, Canadian oil and gas operator OPTI Canada Inc.'s 7 7/8% senior secured notes due 2014 meantime were quoted around 72-72½ bid, with a trader calling the Calgary, Alta.-based oil-sands energy company's issue up around 1 to 1½ points.

Dynegy gains, takeover looms

Also among energy-related credits, Dynegy Holdings' debt gained ground in the first day of 2011 trading, according to traders.

One trader said "$20-odd million" of the 7¾% notes due 2019 changed hands at 683/4.

At another desk, a market source who saw the bonds finish at that level called it a 1¾ point gain on the day.

Those movements follow recent developments in the months-long saga over the company's future.

On Thursday, the Houston-based power producer's board of directors unanimously voted to recommend approving a $5.50-per-share takeover bid by Carl Icahn's Icahn Enterprises LP.

Seneca Capital, however, is fighting the deal, claiming that the company is worth $6 to $7 a share.

Seneca and Icahn had joined forces previously to fight a previous takeover bid by Blackstone Group LP.

While the board is recommending approval of the deal, the company still has until Jan. 24 to find superior offers.

Auto bonds revved up

In the autosphere, bonds of the former General Motors Corp. and its domestic arch-rival, Ford Motor Co. were stronger, as analysts opined that annual auto sales numbers due out Tuesday will show a rise for the first time since 2005, to an industrywide figure of around 12.3 million vehicles.

Against that bullish backdrop, a trader saw the Motors Liquidation Co. benchmark 8 3/8% bonds due 2033 end close to 37, calling it a 2 point rise on the day.

A second trader noted that the new shares of the reconstituted General Motors were "up a lot" - they got as good as $38 in Monday's NYSE dealings, well up from last week's lows near $35. He also noted that the GM bonds are "just a proxy for the stock," since Motors Liquidation - the new name for the "old" pre-bankruptcy GM which issued the bonds and which now has all of the company's debt, other obligations and unwanted assets that were left over when the profitable automaking operations were separated out into a "new" GM - stands to get 10% of the latter entity's newly issued stock, for division among the "old" GM's bondholders in exchange for their paper.

He saw the GM benchmarks as high as 37¼ bid on Monday, and last saw them trading between 36½ and 36 7/8. He contrasted that with Friday's thinly-traded session, when the GM bonds were at 36 1/8, and with their levels around 35 bid earlier in the week. "They were up pretty good pretty good with the stock," he said.

A market source at another desk saw substantial activity in the GM long bonds, estimating that over $31 million traded on a round-lot basis alone, making the benchmarks easily one of the more actively traded junk credits on the day. He saw the bonds finishing around 36¾ - up more than 2½ points from the very thin closing levels seen at the end of last week, although only up around ¾ point from the last previously seen round-lot level.

The old GM 7 1/8% notes due 2013 were seen having gained nearly 3 points on the session to close out at 35 bid.

A trader meantime saw Ford's 7.45% bonds due 2031 trading at 108½ bid, 109½ offered. There was "a lot of trading in that name," with the Number-Two domestic carmaker's long bonds having risen from levels around 107 during the pre-Christmas week, the last time he said there was any sizable trading.

Ford's 9.30% bonds due 2030 gained over 1¾ points on Monday to end just below the 119 mark.

CIT tightens on call news

A trader saw CIT Group's bonds firmer across the board, citing the positive news that the New York-based commercial lender plans to redeem $500 million of its $2.1 billion of outstanding 7% notes due 2013 at a price of 102. Last Thursday's announcement said the redemption will take place on Jan. 31, and will leave $1.6 billion of the bonds outstanding. The bonds will be redeemed on a pro-rata basis.

The trader said that the 13% notes firmed by around 1 point to between 101 and 102 bid, while its longest issue, the 7% notes due 2017, were a point better, at par bid. He said that par to 101 covers all of the issues, other than the '13s (the company also issued 7% notes due 2014, 2015, 2016 as part of its exit funding when it emerged from Chapter 11 in December 2009).

A second trader, after initially quoting the '16s as high as 101 7/8, backtracked and said "that can't be right" and said that it was much more likely the bonds traded at 100 7/8, given where the 13s are trading.

He said the CIT bonds, which were already trading on either side of the par level, went up by "not a lot, just a little bit."

However, a market source said that the 2017 bonds, after initially rising in very light pre-holiday trading on Friday, the first session after the redemption announcement, backtracked a little on Monday, losing ¼ point to finish at par.

A&P up, though on no news

While news developments were driving the activity in some names, others were just being carried higher by the generally positive market, despite a lack of any real news.

A trader saw Great Atlantic & Pacific Tea Co.'s 11 3/8% senior secured notes due 2015 moving up, quoting the bankrupt, Montrose, N.J.-based supermarket operator's bonds having pushed up to 93 bid, 93½ offered, "on activity, with a lot of quotes in that name," calling the paper "up a couple of points," estimating around a 2½ point gain.

He said that the company's two convertible issues - the 5 1/8% notes slated to come due on June 15 and the 6¾% notes due 2012 - "didn't move," and stayed around the same 33-34 context where they have recently traded. The two converts are trading like plain old unsecured junk bonds because the underlying stock into which they could be converted now trades well below $1 per share.

A second trader, while seeing the A&P secured bonds around 93 3/8 bid, noted that they had been trading in mid-December as high as the 95½ bid, 96¼ offered level seen on Dec. 17. After that, however, "it was just offer, offer, offer," and the bonds fell back, quoted as low as the upper 80s to around 90 area. He said he had not seen them trading last week, the traditional thinly-traded inter-holiday period.

"This morning," he said, it was "90 bid, 91 bid, 92 and then 93."

Clear Channel climbs

A market source was quoting Clear Channel Communications' 5.5% notes due 2014 up by as much as 4 points on the session Monday, to finish at 87 bid - this despite the lack of fresh positive news about the San Antonio, Tex.-based media company.

A second trader also saw the company's bonds "on the stronger side."

He placed the 11% notes due 2016 at 89 bid, 89½ offered and the 10¾% notes due 2016 around "91-ish."

"It has moved up," he said of the credit.

Paper names pop

A trader said that NewPage Corp.'s paper was up, as was sector peer Catalyst Paper Corp.

He saw Miamisburg, Ohio-based coated paper manufacturer NewPage's 11 3/8% senior secured notes due 2014, which he called up ½ point to a full point on the day.

He saw Richmond, B.C.-based papermaker Catalyst's 11% senior secured notes due 2016 at 96 bid, and said that was 1½ points better.

Stephanie N. Rotondo contributed to this report

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