Heavy trading in new issues, but at lower levels; junk market sinks before quarter's end

By Paul Deckelman and Paul A. Harris

New York, Sept. 28 - Fresh off a Tuesday which saw nearly $1.7 billion of new junk-rated paper come to market, high yield participants on Wednesday took that new paper lower, and on heavy volume, as junk in general was down across the board following the negative lead of equities.

The heaviest dealings of the day were in the new issues that had priced Tuesday, for energy operator Newfield Exploration Co., healthcare company HCA Inc., and even telecommunications provider Qwest Communications International Inc. The latter name was a long-time junker elevated to a barely investment-grade rating following its acquisition by high-grade telecom operator CenturyLink Inc. earlier this year, but which still retains a following in Junkbondland. All of the new bonds were lower on the session.

One other issue which had come to market on Tuesday was Jeld-Wen Escrow Corp., Inc. - but the building products manufacturer's newly priced deal was nowhere to be found in the aftermarket.

The easing in the new-deal names was in line with a generally weaker trend in the high-yield market, hurt by a fall in equities as well as efforts by many accounts to clean up their books and unload underperforming issues heading into Friday's end of the third quarter.

Among the names seen down by multiple points were such familiar credits as Caesars Entertainment Corp. and Eastman Kodak Co., as well as normally less traded issues such as building products maker Texas Industries Inc.

Statistical indicators of market performance turned lower.

Heidelberg Cement drives by

In an otherwise quiet Wednesday primary market Germany's Heidelberg Cement AG priced a €300 million issue of 9½% senior notes due Dec. 15, 2018 (Ba2/BB) at 99.304 to yield 9 5/8%.

The yield printed on top of revised price talk. Initial yield guidance was 9¾% to 10%.

BNP Paribas, Banca IMI, Citigroup, Deutsche Bank, ING, LBBW, Mediobanca and Royal Bank of Scotland were the joint bookrunners. BNP Paribas will bill and deliver.

At the European close the deal was quoted at par 5/8 bid, par 7/8 offered, according to a syndicate source.

HCA issue trades down

A secondary market trader declared: "The market went down. The new issues went down, and the secondary went down."

Another trader quipped: "We can make this really quick - let's talk about all of the bonds that were up today.

"Have a nice day, and I'll talk to you tomorrow."

All kidding aside, he said that HCA's new 8% notes due 2018 were "really heavy," going out at the 98½ level. The Nashville-based hospital operator's $500 million drive-by deal had priced on Tuesday at par and then eased to 99½ bid, 99¾ offered in their initial aftermarket trading.

At another desk, a trader said the bonds lost 3/8 point from their Tuesday close to end at 98 1/8 bid, 98½ offered.

A market source elsewhere estimated that over $17 million of the new HCAs changed hands, pegging them at 98½ bid.

The company's recent issues of 8.5- and 10.5-year notes were meantime lower for a second straight session on Wednesday.

A market source saw its 6½% senior secured first-lien notes due 2020 easing by ½ point to 98¼ bid, on volume of nearly $10 million.

Its 7½% notes due 2022 fell by ¾ point to end at 93 7/8 bid on volume of over $8 million.

Although both made it onto the most-actives list, their volumes were well under the better-than $30 million activity for both of those tranches on Tuesday.

HCA priced $3 billion of the 6½% notes and $2 billion of the 7½% notes in a quickly shopped transaction on July 26. That deal was radically upsized from the originally announced $1 billion. Both tranches priced at par and initially firmed by a point or more, but have recently been on the slide, along with many other junk names.

Nice numbers for new Newfield

A trader said that Newfield Exploration's new 5¾% notes due 2022 dipped to 99¼ bid, 99¾ offered. That was down from the 99 5/8 bid, 99 3/8 offered level at which the issue had traded on Tuesday, after pricing at 99.956 to yield 5¾%.

A second trader had them at 99 3/8 bid, 99 5/8 offered, down 3/8 point.

At another desk, a market source said the Houston-based energy exploration and production company's quickly-shopped $750 million issue - upsized the originally announced $500 million - was going home at 99½ bid.

Volume of over $95 million made Newfield easily the most active junk issue on the day.

The company's existing 6 7/8% notes due 2020 lost ½ point to end at 105¼ bid, on trading volume of $8 million.

Qwest bonds move lower

Another busy issue was the new 6¾% notes due 2021 priced Tuesday by telecommunications operator Qwest Corp. Nearly $50 million of the bonds changed hands, putting it second only to Newfield in that regard.

That $950 million issue had priced at 98.181 to yield 7% and then moved up to 98¼ bid in Tuesday's aftermarket dealings.

On Wednesday, though, a trader said that the bonds dipped as low as 97 bid, opining "you would have thought that they would hold up pretty well."

However, another market source was quoting the notes having finished the day at 98½ bid.

Traders said there was still some junk market interest in Qwest, which for many years had been a high yield mainstay, even though technically the Denver-based company is now a high-grade credit (Baa3/BBB-/BBB-) since its acquisition, completed in April, by rival telecommer CenturyLink, Inc. of Monroe, La.

No sign of Jeld-Wen

Several traders said that they had not seen any dealings at all in Klamath Falls, Ore.-based door and window manufacturer Jeld-Wen Inc.'s $460 million offering of 12¼% notes due 2017, which priced at 97.419 on Tuesday to yield 12 7/8%.

That issue came to market too late in the day on Tuesday for any dealings - but the traders still had not seen it in the market as of Wednesday afternoon.

"I didn't see a thing," one of the traders said, adding "I didn't expect to, either."

He said that he "was told that it was all done on reverse inquiry. They should have waited a day."

Junk indicators fall off

Junk market statistical performance indicators, which had been mixed to somewhat higher on Tuesday, moved lower on Wednesday, reverting to the pattern seen over the several sessions prior to Tuesday.

A market source said that the CDX North American Series 17 High Yield index ended the day down 1 3/16 points at 88 bid, 88¼ offered. There had been no movement in the index on Tuesday, the first trading session for Series 17 following the semiannual roll.

The KDP High Yield Daily index nosedived by 43 basis points on Wednesday to end at 70.48, after having gained 1 bp on Tuesday. Its yield was up by 11 bps on Wednesday to 8.31%, on top of the 2 bps gain on Tuesday.

The Merrill Lynch U.S. High Yield Master II index fell by 0.335% on Wednesday, its fifth downturn in the last six sessions. On Tuesday, the index rose by 0.028%, breaking a four-session losing streak.

The new loss widened the index's year-to-date deficit to 0.477% from Tuesday's 0.142%. The cumulative losses stood in stark contrast to the peak level for the year of 6.362%, set on July 26.

Market activity levels, measured by dollar volume, rose by nearly 6% on Wednesday, after having jumped by 32% on Tuesday versus the session before.

However, traders noticed a winding down of activity during the afternoon as some market participants left early ahead of the Jewish new year's holiday of Rosh Hashanna, which began on Wednesday evening and runs through Friday. They were accordingly predicting lighter market volumes for Thursday and Friday.

A trader said that "everyone was feeling okay - but then you've got the deals that priced [Tuesday], the Jewish holiday and the quarter-end [on Friday]. All of the big banks were just trying to get out of whatever they could in front of quarter-end. So it was a nasty day."

Another trader noted that "we didn't rally with equities when equities rallied the last two or three days, so today, we were softer again when equities were fine, and then we really put the throttle to the selling pressure this afternoon when equities fell."

The bellwether Dow Jones Industrial Average, which had gained almost 147 points on Tuesday, its third straight advance, gave it all back and then some on Wednesday, falling by 179.79 points, or 1.61%, to end at 11,010.90, on investor uncertainty about the euro zone debt situation. Broader indexes like the Standard & Poor's 500 and the Nasdaq Composite were down by 2.07% and 2.17%, respectively.

"It's a tough market right now, the bond trader said.

He acknowledged the role that quarter-end account-book cleanup was playing on Wednesday and likely the next two sessions, adding that - as we head into the fourth quarter - "every year, it seems like people start to position for year-end earlier and earlier, kind of like the Christmas decorations [in the stores] - they go up earlier and earlier."

Harrah's hit again

Among specific issues away from the new deals, a trader said "a lot of things were turning handles, so that you said, 'wow.' He said the 10% notes due 2018 of Caesars Entertainment - the former Harrah's Corp. - were trading below 60 bid and noted that "it's only down another 2 points - but psychologically, I think that's a big turn there."

Another trader saw the 10s down 4 points on the day, trading around 60-61 and ending at 60.

"There was a lot of trading in it," he said, "it was a big trader on the day."

A market source who pegged the Harrah's bonds down a couple of points at 60 bid said that over $26 million of the Las Vegas-based gaming giant's paper traded, making it one of the most actively traded issues on the day.

NewPage knocked lower

A trader saw Miamisburg, Ohio-based papermaker NewPage Corp.'s 11 3/8% first-lien senior secured notes due 2014 "breaking below 80," calling them down 2 or 3 points on the day.

"It seemed like pretty significant selling to me," he said.

Kodak declines again

Concerns about cash-burn continued to pressure Eastman Kodak's debt, following news out earlier in the week regarding a $160 million draw on the Rochester, N.Y-based photographic products and digital imaging technology company's revolving credit facility.

A trader said there were "no real trades" in the name, though he saw the 7¼% notes due 2013 offered at 65 and the 9¾% notes due 2018 at 70½ bid, 71½ offered.

Another trader said the bonds were "weaker again," as the 7¼% notes "dipped into the high 50s" and the 9¾% notes lost another point to end at 70 bid, 71 offered.

A third market source deemed the 7¼% notes down as much as 5 points at 58 bid.

Tough day for Texas

A trader saw Texas Industries' 9 1/8% notes due 2020 down 5 points on the day at 80.

The slide occurred ahead of the Dallas-based cement and building materials maker's release after the market close of its second-quarter numbers, which actually showed improvement from a year ago - a net loss of $7.4 million, or 27 cents per share, versus year-earlier red ink of $23.7 million, or 85 cents per share. However, the loss was a little more than the quarter per share that Wall Street was looking for.

Springleaf strength sapped

A trader said that Springleaf Financial Corp.'s bonds "have been drifting lower," seeing the Evansville, Ind.-based consumer lending company's 6.90% notes due 2017 down ½ to 1 point at 70 bid, 72 offered.

'"It's a big issue - but not much volume at all," a trader said.

He saw its 5.85% notes due 2013 "a little more active," off 1½ points at 88 bid, 88½ offered, on "more volume."

"When a company has numerous issues, people pound the shorter issues down," he said.

Another trader said that the company - the former American General Finance unit of troubled insurance giant American International Group, until its acquisition last year by Fortress Investments and its name change earlier this year - was lower in the wake of recent news involving the problems with its plans for establishing a real estate investment trust unit.

In the wake of that setback, he said the 6.90% bonds - which were trading 10 or 20 points higher "a month or two ago," had gradually come down into the 70s.

Stephanie N. Rotondo contributed to this report

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