J. Crew deal joins calendar, but primary otherwise dead; A&P post-filing surge ends; OPTI up

By Paul Deckelman and Paul A. Harris

New York, Dec. 21 - The high-yield primary market continued to just go through the motions on Tuesday, its work for the year all but done. Once again there were no deals pricing and just one emerged for inclusion on the January business forward calendar, as New York-based apparel producer and retailer J. Crew Group Inc. was heard by syndicate sources to be readying a $600 million bond issue for early next year to help fund the company's recently announced leveraged buyout.

But apart from that - nothing.

Traders said that recently priced offerings from ConvaTec Healthcare and Atkore International, Inc. continued to hang on to the gains they had recorded late last week and again on Monday, although volume was low.

Away from the new issues, they saw the senior bonds of the Great Atlantic & Pacific Tea Co., Inc. having given back about a point or two, putting an end to the recent surge in the troubled Montrose, N.J.-based supermarket company's bonds following its Dec. 12 Chapter 11 filing.

OPTI Canada Inc.'s recently beleaguered bonds, on the other hand, were seen having moved up a little, a rise attributed to year-end positioning.

Traders said the overall market remained dull and featureless, while statistical indicators were up across the board.

Primary quiet

The primary market remained quiet, as expected, on Tuesday. No issues priced, and no new deals were announced.

Announcements are likely a week or more away, said officials on high-yield syndicate desks in Europe and the United States.

Some of those officials were keeping lonely watches on Tuesday, as many syndicate members have already departed for the holidays.

When business resumes in January, the primary market pace is likely to pick up gradually, a debt capital markets banker said.

However, once the dealers regain their legs, January is apt to be a busy first month in what is roundly expected to be a busy year ahead.

January issuance could easily come to $25 billion, the sellside source added.

A secondary market trader said that he expects the forward calendar "will be pretty frothy once you get to January, but I think for the rest of this year [the primaryside] is probably shut down."

ConvaTec holds on

Among recently priced new deals, ConvaTec Healthcare's 10½% senior notes due 2018 were quoted by a trader as hanging in around 100 5/8 bid, 100 7/8 offered, versus their late-Monday levels at 100¾ bid, 101¼ offered.

"They held the gains that they picked up on Friday, but they didn't much beyond that," the trader said.

The Skillman, N.J.-based medical technology company's $750 million deal had priced at par on Friday as part of a larger $1.48 billion equivalent three-part offering, which also included euro-denominated tranches of senior secured and unsecured notes.

When the new dollar bonds were freed to aftermarket trading late Friday, they were seen to have moved up slightly, going out quoted at 100¼ bid, 100½ offered.

Atkore stays up there

Among other transactions from last week, a trader saw Atkore International's 9 7/8% seven-year senior secured notes at 102¾ bid, 103¼ offered, in slightly from Monday's late level of 103 bid, 103½ offered.

That in turn was around the levels seen on Thursday and Friday for the $410 million issue and well up from the par level where the Princeton, N.J.-based industrial manufacturer had priced its deal last Wednesday.

Secondary indicators firmer

Away from new-deal territory, a trader saw the CDX North American Series 15 HY index up by ¼ point on Tuesday to finish at 102 5/8 bid, 102¾ offered after having gained 1/8 point on Monday.

The KDP High Yield Daily index meantime gained 10 basis points on Tuesday to close at 73.95 after rising 3 bps on Monday. Its yield came in by 4 bps to 7.44% after having gone down by 1 bp on Monday.

The Merrill Lynch High Yield Master II index gained 0.126% on Tuesday on top of the 0.084% rise on Monday. That lifted its year-to-date return to 14.425%, up from 14.281% on Monday, although the index remains down considerably from the 2010 peak level of 15.602% recorded on Nov. 9.

Advancing names led decliners for a third consecutive session Tuesday, their advantage widening to seven to five from the previous session's six-to-five edge.

Overall activity, represented by dollar-volume levels, was up by 13% on Tuesday after having declined by 7% on Monday from the previous session's levels.

While the day was busier than Monday had been, a trader admitted that he "wouldn't call it the volume leader of the year. It is a quiet day, no question about it."

He said, "You can find things that are up a point on really light volume if you want to hunt and peck for stuff - but the reality is that there's not a ton of volume out there. It's relatively quiet at this time of the year.

"I could give you things that are up a point - but they're up a point on one trade."

As to what was going on, a second journalist suggested that "the answer was nothing."

There were only "little trades here and there," with people "mostly kind of house-cleaning - people rounding down or rounding up positions. When you see offerings or bids, it's just not $1 million or $2 million. It's 823 [thousand] they're looking for or they've got 1232 offered. It seems like it's just year-end housekeeping or window dressing."

"It was very quiet today," a third trader added.

Noting the overall firm tone seen in Junkbondland despite the relatively thin market and the lack of any kind of compelling stories, the first trader said, "I believe people would rather spend money than raise cash for the remainder of this year - that is definitely the buy for this market at this point in time."

However, he cautioned that "there's not a lot of paper around, and people are clearly not going out of their way to find things to buy either."

Instead, he said, most accounts probably "have done what they needed to do" trading-wise and have for all intents and purposes closed their books.

"For a large part, particularly the guys with Dec. 31 year-ends, they are starting to work on their year-end reports and things like that."

"Everybody," said one of the other traders, "is done."

A&P buying binge subsides

Or perhaps not everybody. A trader said that Great Atlantic & Pacific Tea's bonds "gave back about a point or two of their recent gains," seeing the troubled supermarket operator's 11 3/8% senior secured notes due 2015 "with bids harder to come by at this time." He quoted the bonds as being offered at 95.

He said that the activity in A&P was so notable "just because it's been so topical for the last week as it is."

A second trader also saw the 11 3/8s offered at 95 but added that he "didn't see any trading in them."

He said that the company's 5 1/8% convertible notes due 2011 and 6¾% convertibles due 2012 meantime got as good as a 32½ bid from Monday's closing quote of 32.

The company announced that it filed a petition with the U.S. Bankruptcy Court in White Plains, N.Y. on Dec. 12, seeking Chapter 11 protection from its bondholders and other creditors. Ahead of that weekend filing, the company's bonds, particularly the 5 1/8s and 6 3/4s, had fallen the previous Friday on investor expectation of such a filing, with the 5 1/8s plunging a gruesome 45 points and the 6 3/4s shedding about 25 points. They both ended in the upper 20s.

Traders explained that those bonds were particularly hard-hit because the underlying shares into which they could be converted were essentially worthless, causing the bonds to trade like regular junk bonds. Meanwhile, the 11 3/8s had fallen into the mid-70s from the low 80s on the bankruptcy anticipation but had regained most of its losses.

Since the Chapter 11 filing, the company's bonds, now trading flat, or without their accrued interest, moved over the five days of last week and on Monday, with the 11 3/8s having improved to the mid-90s and the two convertibles having gotten as good as the lower 30s.

Traders said the bulk of the activity in A&P is in the 11 3/8s, with considerably less attention paid to the two convertible issues.

First Data notes trade around

Elsewhere, a trader said that at his shop, "we were active in the new bonds" of First Data Corp., referring to the exchange notes that the Atlanta-based credit-card transaction processing company distributed to the former holders of two series of its old notes as part of a recently completed exchange offer aimed at extending its maturities.

"Now that people finally have these exchange bonds, that name was a little better," he said, quoting its new 12 5/8% notes due 2021 trading "much more actively," wrapped around 92 bid.

On Friday, First Data issued $3 billion of those bonds, $2 billion of 8¼% senior second-lien notes due 2021 and $1 billion of 8¾%/10% payable-in-kind toggle senior second-lien notes due 2022, which it distributed to the holders of $2.97 billion, or 79.2%, of its previously outstanding $3.75 billion of 9 7/8% senior cash-pay notes due 2015 and $3.04 billion, or 81.9%, of its previously outstanding $3.71 billion of 10.55% senior PIK notes due 2015, which were accepted for purchase by the company under the exchange offer that expired on Dec. 15. Both halves of the exchange offer for approximately $6 billion of the old bonds were oversubscribed, causing the company to accept bonds for purchase on a pro-rated basis.

A market source meantime saw the remnant of the 9 7/8% notes trading up ½ point at 93½ bid and saw First Data's 11¼% notes due 2016, which were not involved in the exchange offer transaction, off by 1½ points to end at 85½ bid.

OPTI bonds 'pop'

OPTI Canada bonds meantime "popped up a few points," a trader said.

He saw the 7 7/8% notes due 2014 open around "67 and change" before trading up to 693/4. That compared to Monday's market of 66 bid, 67 offered.

The trader said the 8¼% notes due 2014 were "about the same" as the 7 7/8% notes at 693/4.

A second trader pegged the 8¼% notes around 69½ and the 7 7/8% notes around 693/4.

"They had touched 58 at one point," he said of the latter issue. "So they have really had some recovery."

At another desk, a market source, quoting the 7 7/8s at 693/4, their high point of the day, pegged the bonds up 4 points on the session going home.

Activity in the Calgary, Alta.-based oil sands energy producer's debt was seen as brisk, with the source seeing over $33 million of the 7 7/8% notes having changed hands heading into the close, calling that probably the busiest junk issue of the day, while over $10 million of the 8¼% notes had traded, earning that credit a place on the day's most-actives list.

Traders said there was no fresh positive news out about the company that might explain the rise in its bonds, and they attributed those gains to just end-of-the-year positioning.

OPTI Canada's bonds have fallen steadily since last week, when Standard & Poor's downgraded the company's debt ratings, citing the slowness of the ramp-up in OPTI's 35%-owned joint venture with Nexen Inc. The joint venture aims to extract heavy bitumen-grade crude oil from the ground using a special proprietary technology and then convert it to the more desirable and saleable light sweet crude oil. Executives of both OPTI and Nexen have recently warned that output in 2011 and 2012 is likely to be well below previous rosy projections for the facility.

Rite Aid weaker

There was a hint of softness in Rite Aid Corp. paper, though a trader noted that only about $20 million total of the company's debt changed hands.

He called both the 9 3/8% notes due 2015 and the 9½% notes due 2017 a point cheaper at 85½ and 831/2, respectively. The 8 5/8% notes due 2015 meantime dipped about a quarter-point to 873/4, while the 7½% notes due 2017 inched up slightly to 96 3/8.

Another trader said the bonds were "off a little bit," the 9 3/8% notes at 85½ to 85¾ and the 9½% notes at 831/2. However, he deemed the 8 5/8% notes unchanged at 873/4.

Last week, the Camp Hill, Pa.-based drugstore chain reported its third-quarter results. For the quarter ending Nov. 27, Rite Aid reported revenues of $6.2 billion, a net loss of $79.1 million - or 9 cents per share - and EBITDA of $212.5 million.

Third-quarter revenues were down 2.4% year over year, "primarily as a result of a decline in pharmacy same-store sales and store closings," the release said. Same-store sales for the quarter dropped 1.3% over the course of the quarter.

However, net loss was slightly better than the third quarter of 2009.

As the market prepares to enter a new year, Rite Aid said it lowered its guidance for sales and EBITDA and increased its forecast for net loss. The company is expecting to see sales between $25 billion and $25.2 billion, EBITDA between $815 million and $855 million and net loss between $655 million and $525 million.

"We find the company's sales trends disturbing, especially the decline in pharmacy comparable store sales," wrote Gimme Credit LLC analyst Kim Noland in a report Tuesday. "Unsecured bonds yield around 13% but may not provide good value if the company, which recently announced a decrease in near term spending on store improvements, is unable to reverse negative sales trends."

Auto names flat to firmer

Elsewhere, a trader saw Ford Motor Co.'s 7.45% bonds due 2031 unchanged on the day at 107½ bid, 108½ offered.

He also saw Ford rival General Motors Corp.'s old 8 3/8% bonds due 2033 - now listed under the name of Motors Liquidation Co., the entity left holding the company's debt and other liabilities and unwanted assets while the profitable carmaking operations were split away when GM restructured - up ½ point at 32¼ bid, 33¼ offered.

Stephanie N. Rotondo contributed to this report

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