Junk sees better prices, higher volumes on the back of stocks; CDX gains 11/2; MGM spurns 'bottom rung' status

By Paul A. Harris

St. Louis, March 10 - High-yield prices rallied and trading volumes picked up on Tuesday on the tail of massive rallies on the major stock indexes, gains that pushed the Dow Jones Industrial Average ahead by 5.8% and the Nasdaq more than 7%.

"Everything was up," said a hedge fund manager, who marked the close of the CDX High-Yield 11 index at 68 bid, 68½ offered, up 1½ points on the day.

The emergence of a list of 283 U.S. companies likeliest to default - the so-called "Bottom Rung" list - released Tuesday by Moody's Investors Service, failed to weigh down the market, said sources, who singled out the bonds of MGM Mirage, which traded higher despite the company's inclusion on that list.

Meanwhile the primary market remained quiet, and is apt to remain generally quiet for the rest of the week, according to a high-yield syndicate official who added that price talk on the Dole Food Co., Inc. deal - the only offering on the active forward calendar - might surface on Wednesday.

Better tone, firmer prices, higher volume

The junk market had a better tone on the back of the run in equities, said a trader shortly after the New York close.

"Not only did we see an uptick in price, but in volume as well, after having been really quiet during the past few trading sessions," the source added.

"I think some of the accounts that were on the sidelines decided to dip their toes in, which created a far more active day."

The session's most active bond, CHS/Community Health Systems, Inc.'s 8 7/8% senior notes due 2015, closed at 90½ bid, up from Monday's close of 88 1/8 bid, said the trader, who added that $51 million of the bonds moved Tuesday according to Trace.

"That's a significant positive move," the source added.

Another source also spotted the Community Health bonds higher at 90 bid, 91 offered.

"The market opened somewhat weak, but the bid filled in, and we were lifted at the end of the day," the source said.

The second most active was Aramark Services Corp.'s 8½% senior notes due 2015, according to the trader.

Tuesday's last round lot trade was at 85½ bid, versus 84 bid on Monday, said the source who characterized it as a nice upward move in volume of 38 million.

Earlier in the day the same Aramark paper was spotted at 85 5/8 bid.

The third-largest mover, in terms of volume, was the Motorola Inc. 6 5/8% senior notes due 2037, the trader said. A round lot traded at 66¼ bid, versus 65 bid on Monday, hence up 1¼ points, on volume of $20 million.

Autos unchanged to mixed

Turning to the troubled auto sector, Ford Motor Co.'s 9½% notes due 2010 traded sideways on Tuesday, 58 bid, 60 offered, unchanged on the day, according to a market source.

Those bonds are encompassed by the massive Ford exchange/restructuring deal now in the market.

Over the past four days the price of that paper has improved by 15 points, the source added.

However of the 25 most active bonds on Tuesday, Ford's 8.9% notes due 2032 was one of only two issues seen to trade lower (the other was from Freeport-McMoRan Copper & Gold Inc.) according to a trader, who spotted the long Ford paper at 17¾ bid, on volume of $10 million bonds, down from 20 bid on Monday.

"That Ford issue has extreme volatility because of the nature of its business and because of the current tender offer," the trader commented.

The General Motors Corp. 7.2% notes due 2011 were unchanged Tuesday at 16 bid, 18 offered, the source said.

The long end of the GM maturity curve also moved sideways on Tuesday, according to a hedge fund manager who spotted the 8 3/8% notes due 2033 at 12 bid, 13 offered.

The big list of troubled companies

A new list of "bottom rung" U.S. companies which are the likeliest to default, published Tuesday by Moody's, failed to register much - if any - impact on trading, sources said.

The list that surfaced Tuesday included 283 names, up from the previous year's 157.

One such bottom rung company is Las Vegas casino owner MGM Mirage. However in spite of the Moody's listing, the company's bond prices improved on Tuesday, sources said.

MGM bonds are up about 5 points in the past couple of days, a trader remarked shortly after the New York close.

Tuesday's most active MGM Mirage issue was the 6% notes due in 2009, which traded in a round lot at 53, up from 50 bid, 51 offered on Monday, a trader said.

"If anything, MGM in the short end was up 2 points," the source remarked.

Meanwhile the MGM Mirage 6 7/8% senior notes due 2016 were at 36 bid, 38 offered, up 2 points on the day, according to a market source.

Elsewhere the deeply distressed bonds of Harrah's Entertainment Inc. are off their mid-single digit lows, perhaps on expectations that holders may be able to exchange their way into the $250 million cash tender offer launched last week by sponsors Apollo Global Management LLC and TPG Capital LP.

The tender is for the new 10% second-lien paper that surfaced in Harrah's $2.1 billion exchange deal that unfolded in late 2008. However qualified institutional buyers who hold some of the other Harrah's notes, including some of the old investment-grade paper, may be able to swap into the secureds and ultimately be taken out for cash at 37 cents on the dollar, sources say.

Harrah's 6½% notes due 2016 were at 9 bid, 11 offered late Tuesday, in thin trading, according to a trader who added that the paper is nevertheless up 1½ points since the beginning of the week.

Earlier in the day Harrah's 5¾% notes due 2017 were at 10½ bid, 11½ offered, up ¼ to ½ point.

Plains weak, Tyson strong

Since before the beginning of the year sources have been referring to new high-yield deals, structured since mid-December 2008, as the "non-distressed" part of the market, notably outperforming much of the rest of the junk universe.

While that classification remains accurate, some of the bonds priced since the middle of last December have now slipped below issue prices, sources say.

Pressed for an example of one such "below water" deal, market sources most readily point to Plains Exploration & Production Co., which priced a $365 million issue of 10% senior notes due 2016 at 92.373 on March 3.

That paper traded Tuesday at 90, and had a negative tone, according to a trader who added that the Plains 10% notes have certainly not been a good performer.

However the source did concede that the Plains Exploration notes are up from recent lows of 88½ bid.

On the other hand, the Tyson Foods Inc. 10½% of senior notes due 2014, which priced at 92.756 to yield 12½% in an upsized $810 million issue in late February, are "inching up daily," the trader said.

In Tuesday over-the-counter trading, the new Tyson 10½% notes were at 96½ bid, according to the trader, who noted that the Tyson paper performed well even though until Tuesday the market has had a negative tone.

"It's a function of accounts with money to put to work being comfortable with the credit at these yields," the trader said.

The Plains Exploration deal priced last week, as did new issues from off-the-run names including Jamaican wireless operator Digicel Ltd., which sold $335 million of 12% senior unsecured notes due 2014 at 89.679 to yield 15%, and Glenview, Ill., security and communications products supplier Anixter International Inc., which brought $200 million of 10% senior notes due 2014 at 92.625 to yield 12%.

Three sources pressed for levels on Digicel were unable to turn up a trade on Tuesday.

The Anixter paper, only slightly more liquid, was seen to be straddling the issue price: 92 bid, 93 offered, according to a syndicate source.

Quiet in the primary

The primary market turned out no news whatsoever on Tuesday.

There is only one deal on the active forward calendar.

Dole Food has been roadshowing a $325 million offering of senior secured notes due 2014 - a deal led by joint bookrunners Deutsche Bank Securities and Banc of America Securities that is expected to price before the end of the week.

Official price talk could surface as early as Wednesday, according to an informed source.

Beyond Dole, however, the primary market is apt to remain generally quiet through the end of the week, the source added.

As to what happens in mid-March and beyond, much depends upon whether the strength that the equity markets demonstrated on Tuesday can be sustained in some way, shape or form, the syndicate official added.

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