GMAC gains, ResCap rolls on bailout bucks; primary placid after torrid week, lull in trading

By Paul Deckelman and Paul A. Harris

New York, May 22 - The beginning of the Memorial Day holiday weekend on Friday came not a moment too soon for a junk bond market pretty much exhausted by the unremitting barrage of new deals which priced over the previous four days - a total of 14 issues, the highest weekly tally in months, totaling over $5.7 billion. With the forward calendar cleared, at least for now, primaryside players made an early beeline for the exits - with their secondary colleagues not far behind.

Here and there, a few trades were seen in recent new deals - for instance, the new Berry Petroleum Co. bonds that had priced on Thursday and then firmed by about 2 points continued to gain a little, though only in smallish odd-lot transactions. However, most of those new issues stayed near the levels at which they had ended on Thursday.

Among the more established names, Residential Capital LLC was both the most active issue and the most prominent gainer, as the Minneapolis-based mortgage lender's bonds firmed on the strength of the several-sessions upturn in parent company GMAC LLC's paper on mid-week news reports indicating the government was readying a fresh $7.5 billion investment. Late Thursday, the Treasury did confirm that it had pumped that cash into GMAC, to facilitate its continued lending to car buyers and dealers of the bankrupt Chrysler LLC as well as to those of its former corporate parent, General Motors Corp.

Market indicators seen mixed

A trader saw the CDX Series 12 High Yield index - which had fallen by a half-point on Thursday - little changed on Friday at 79½ bid, 80 offered, although it was up from the 78 bid, 78½ level at which it had ended the previous week.

The KDP High Yield Daily Index, which had dipped by 5 basis points on Thursday, rose by 24 bps on Friday to close at 60.97, while its yield tightened by 7 bps to 11.13%. That market measure was up from where it had ended the previous Friday, at 59.80, while its yield had tightened from the prior week's 11.48%.

Advancing issues made a clean sweep of the week on Friday, leading decliners by around a three-to-two margin.

Overall market activity, measured by dollar-volume totals, plunged by nearly 69% from Thursday's levels, reflecting the shortened trading day - the market officially closed at 2 p.m. ET, although traders said that activity had wound down far before that - and the generally laid-back approach by market participants heading into the three-day holiday break, which would also see U.S. financial markets completely shuttered on Monday in observance of Memorial Day.

A trader, noting the quiet market, nonetheless cited the market's generally firm tone, albeit in the usual thin pre-holiday trading.

"Volume seems kind of light," he declared, "except for the trading in ResCap," which he called "active," and activity in some GM and GMAC paper.

The overall market, he said, was "kind of firm to slightly better, though not very active at the moment."

Another trader called the session "kind of mixed," and "kind of active. We had some customers in and we tried to do stuff that they had been working on, not a lot of new inquiries."

While equities were "up a touch" for most of the day - although the Dow Jones Industrial Average and other stock barometers weakened at the end of the day to end lower on the session - in Junkbondland, he said, "it's been a long week, with a lot of new issues, and I think the market is kind of looking for a holiday here."

He said that there had been "no real flows whatsoever - no real tone to the market."

He said that over the last several days, "it was a little bit softer, and people were a little concerned - there were a lot of new issues - but the flip side of that is that there's a lot of cash. Our market, at least for now, is holding in. Spreads are holding up and these deals are coming, and they're getting done.

"We'll see what the balance of this month brings."

Berry better, though on small trades

Looking at the recently priced deals, a trader saw Berry Petroleum's new 10¼% senior secured notes due 2014 "trading up today," quoting them as high as 96.5 bid, although he noted that the peak level came in smallish odd-lot trades. On a round-lot basis, he said, the bonds had traded at 95½ bid.

Another trader saw the Denver-based oil and gas exploration and production company's new bonds up - though adding that "it should be up," since it's a senior secured issue. He too had seen some "small trades with a 96-handle" on Friday, with some trades of 250 or 500 bonds around 96, but just one $1 million trade, down at 95½ early in the day.

Yet another trader quoted them Friday at 95¾ bid, 96 offered.

On Thursday, Berry had priced the offering - upsized to $325 million from the originally announced $300 million - at 93.546 to yield 12%. The new bonds had been seen firming smartly during their initial aftermarket dealings on Thursday, with trades seen as high as 95½ bid, 96 offered.

Gibson goes nowhere

Also in the energy sphere, a trader saw the new Gibson Energy GEP Midstream Finance Corp. 11¾% first-lien senior secured notes due 2014 offered "as low as 973/4", but had not seen any actual two-sided trades.

A second trader said the Gibson deal was "rumored to be struggling from the beginning, and it never really got anywhere." He saw the bonds trading at 96½ bid, 97½ offered. The deal, he asserted, "never really got out of it's own way."

Another market source pegged the bonds at 97½ bid, 98½ offered.

Gibson, a Calgary, Alta.-based natural gas company, priced $560 million of the bonds Thursday, upsized from the originally planned $545 million, at 97.2706 to yield 12½%.

Apria appears untraded

A trader said he had seen no markets "out there" in Thursday's largest deal, Apria Healthcare Group Inc.'s 11¼% senior secured notes due 2014.

The Lake Forest, Calif. -based home healthcare services provider priced its offering at 97.050 to yield 12%, and the new bonds were heard to have gone home Thursday little changed from that level. The $700 million issue was upsized from the originally planned $600 million with the shifting of $100 million of borrowing away from another five-year secured bond issue Apria has in the works.

Ameristar unseen

A trader said he had not seen any action in Las Vegas-based regional gaming operator Ameristar Casinos Inc.

On Thursday, the company priced a $150 million add-on tranche to its 9¼% notes due 2014 - the original bonds themselves a recent new deal, having just come to market on May 12. The add-on priced at par, but was heard to have moved up in Thursday's secondary dealings to 101 bid, 101½ offered.

UPC put away

A trader said there was "nothing really said" on Friday in the bonds of UPC Holdings, BV, which priced an upsized $605 million dual-tranche deal on Thursday. "It's a one-off [deal by a] European cable company, issued for the first time in U.S. dollars and those bonds were pretty much put away."

Why don't new deals rise more?

While some of the recent new issues have traded well once they've gotten into the secondary market - Berry Petroleum, for instance, as well as deals which priced earlier in the week from WMG Acquisition Corp. , Ashland Inc. and Cellu Tissue Holdings Inc. - others, like Apria and Gibson, have not.

A trader suggested that issuers "found the first bunch of new deals they did, some of the stuff went up 5, 6 or 7 points" - recent new issues like Teck Resources Ltd.'s gigantic three-part early-May offering and benchmark-sized deals for MGM Mirage and Goodyear Tire & Rubber Co.

After that, he said, "I think they tried to rein that in, and of course, they probably overdid it," causing the anemic aftermarket response to some - though by no means all - of the new deals. "A number of deals just did not scream up 2, 3 points right out of the box and then go further, particularly the ones with the lower coupons."

He expressed surprise that the new Apria Healthcare offering did not move much in aftermarket dealings, adding: "I thought they would have done better," since the issue is senior secured and carries a coupon already up in double-digit territory.

Generally speaking, he lamented that "we've lost momentum on the upside, even though cash has come in, and I'm wondering if we'll just wander around sideways for a while or if we'll back off a little bit."

At another desk, however, a trader said that "what happens, especially for companies like Compass Minerals [International Inc.]," which priced a $100 million offering of 8% notes due 2019 on Thursday, "is that there is such a reverse inquiry for them, that a lot of the bonds are put away. They're put into strong hands to begin with, so there's not a lot of secondary trading."

Compass, an Overland Park., Kan.-based mining concern, priced its bonds at 97.497 to yield 8 3/8%.

He said that the same scenario held true "to some extent" for the Apria Healthcare deal. "It was a deal that I think people were comfortable with, they know the name, it's been out there for a while and came with a decent discount. It got snapped up and there wasn't a lot of it [out there] and it was put away, so we didn't have anybody see anything in it, which is really unusual."

$5 billion week

The primary market caught its breath following the busy first four days of the pre-Memorial Day week.

And the coming week is likely to be busy as well, sources said.

They profess to have visibility on at least $3.5 billion of new issuance for the final week of May.

North American issuers raised slightly more than $5 billion of proceeds with 14 tranches of junk during the pre-Memorial Day week.

It was the second biggest week of the year by dollar amount, behind the week beginning May 4, which saw $7.55 billion.

Month-to-date issuance stood at $18.7 billion to Friday's close.

Given next week's anticipated issuance, May could turn into the biggest month the primary market has seen since October 2007, a syndicate official said.

According to the Prospect News database that month saw well over $24 billion.

Smaller deals

The pre-Memorial Day week saw some smaller deals than the market previously seemed willing to absorb, sources said Friday.

Characteristic was Compass Minerals International, Inc., which priced a $100 million issue of 8% senior notes due 2019 at 97.497 to yield 8 3/8%.

It tied with Rock-Tenn Co.'s recent $100 million add-on for the distinction of the smallest deal so far this year. However Rock-Tenn priced its deal at par. So in terms of proceeds raised, Compass Minerals is the smallest deal so far in 2009.

The Compass deal is notable given the liquidity premium that investors require these days, a syndicate official said.

"They've been burned by illiquid securities over the past couple of years," the sell-sider remarked.

No carry-over calendar

The final week in May will get underway with no deals on the active forward calendar, which cleared out on Thursday ahead of the three-day weekend.

However sources profess visibility on as much as $3.5 billion for the week ahead.

"The pipeline still looks strong," a banker commented.

The final week of May could also see potential issuers testing the market's capacity for accepting risk, with lower-quality credits apt to try a pass at the primary, sources say.

"With the go-go high-yield names already trading in the 8% range, investors who are trying to make up for not getting in earlier are definitely reaching for yield," a sell-sider commented, adding that that reach could conceivably have implications for the primary market.

GMAC jump continues

Back among the established issues, traders saw more upside in GMAC's bonds, with the Treasury Department having now made official the news that Uncle Sam will in fact give the Detroit-based automotive and -through Res Cap - mortgage lender another $7.5 billion of bailout aid, putting GMAC in a stronger position to provide credit to the beleaguered automotive industry by lending money to buyers of both Chrysler and General Motors cars, as well as providing inventory financing for those Chrysler and GM dealers who survive the massive dealer purge now under way.

Those bonds have been rising since Wednesday, when the Detroit News first carried the report indicating that Uncle Sam will step forward with more bailout bread for GMAC, on top of the $5 billion it received at the end of December when GMAC officially converted to a commercial bank.

On top of the big jump seen on Wednesday and the respectable follow-through rise during Thursday's session, a trader saw GMAC's widely followed 8% bonds due 2031 up 1 to 1½ points at 72 bid, 74 offered, while seeing the lender's 6 7/8% notes due 2012 ahead by 3 points at 85 bid, 87 offered.

At another desk, a market source saw GMAC's 6 7/8% notes due 2012 as much as 3 points better on the day at 89 bid, while its 7¼% notes due 2011 were also 3 point winners, finishing at 92 bid.

ResCap rises with GMAC

But the bigger gainer was GMAC's wholly-owned ResCap unit, whose bonds were seen soaring in line with its parent's improved fortunes.

A trader saw ResCap as the day's most active issue, saying its 6 3/8% notes due 2010 had been "moving up quite a bit." He said they traded as high as 81 3/8 Friday, before coming off that peak to settle in around 80, which he said was still well up from recent levels. He had seen those bonds trading as low as 73½ on Thursday and as high as 79, before settling in around 77 bid, 70 offered.

At another desk, a trader saw ResCap's 8½% notes due 2010 at 92 bid, 94 offered, up a point or so on the day.

Rescap's 8 7/8% notes due 2015 moved up as much as 6 points on the day, a market source said, to end around 70 bid.

CIT gains on dividend decision

Elsewhere, a trader said that CIT Group Inc.'s paper "went up, for some reason, after they announced the dividend, and probably followed through another point or so today. He pegged the New York-based commercial lender's 7 5/8% notes due 2012 at 76, up a point from Thursday's levels, although in "very spotty" trading.

Another market source saw CIT's 4.65% notes due 2010 up more than 2 points at 87.5 bid, while its 5% notes due 2014 firmed by several points to 61 5/8 bid.

The heavily leveraged CIT - which has seen its commercial lending business fall off as the economy has struggled - aid Thursday that its that its board of directors had declared quarterly cash dividends of 39 cents a share and $1.29 per share on its series A and series B preferred stock, respectively, payable on June 15 to holders of record as of May 29.

No further gain for Quiksilver

A trader saw no further gains in Quiksilver Inc.'s 6 7/8% notes due 2015, which had risen over Wednesday and Thursday to trade into the lower 60s, well up from the levels around 56 at which they had been seen at the close on Tuesday.

"I wonder what's going on with them," he mused, noting the absence of any firm new news about the Huntington Beach, Calif.-based swimwear and athletic apparel manufacturer.

"There was some activity [Wednesday and Thursday], which you never see in that bond."

He noted that "this bond always trades around rumors," such as the market buzz earlier in the year that Quiksilver might be acquired by athletic shoe supremo Nike Inc., which never did take place. "The last time they did an asset sale" - when the company unloaded its unprofitable ski-equipment business - "it didn't really help them as much as everyone thought it would, and the bonds went back down.

"Now they're popping up again, so there's something cooking," although he admitted that he was "not hearing the rumor."

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