Recently volatile mortgage names stabilize in range-bound market; GMAC up; primary remains quiet

By Paul Deckelman and Paul A. Harris

New York, Aug. 24 - Maybe the high yield market was worn out from the recent gyrations and big moves, down and up, by bonds of such mortgage-industry names as Countrywide Financial Corp., Residential Capital Corp. and Thornburg Mortgage Inc. - or maybe it was just a typical late summer Friday with lots of participants cutting out early to get a head start on their fun in the sun on the unofficial next-to-last weekend of the summer season - but those names, while mostly well traded, were generally seen to have not moved very much price-wise, in contrast to their volatility over the previous week. The exception to the rule was GMAC LLC, ResCap's corporate parent, whose widely traded 8% notes were seen having gained nearly 4 points on the session.

Otherwise, most names were seen pretty much range bound, up or down perhaps a point, at most, although Revlon Consumer Products Corp.'s bonds were up around 2 points.

The "gone fishin'" sign continued to hang on the doorway to the primary market.

'Not much going on'

The refrain of a number of traders was that "not much is going on," with a lot of participants at many desks making an early exit.

"There was not a ton of stuff going on," one put it, while another agreed that "not much is happening." He saw the market marked higher by about ¼ point, but precious little taking place in terms of actual transactions.

"It was quote, quote, quote, quote," he said, "but not a lot of trading."

Among the big automotive benchmark names, he saw General Motors Corp.'s 8 3/8% notes due 2033 up perhaps ¼ point at 82 bid, 82.5 offered, while arch-rival Ford Motor Co.'s 7.45% notes due 2031 were unchanged at 76 bid, 76.5 offered.

Indexes quietly firmer

The trader saw the widely followed CDX index of junk bond performance up 3/16 on the day at 95 7/8-961/4. The Banc of America Securities High Yield Broad Market Index finished unchanged on the session - though it was up 0.68% on the week - and 0.59% year-to-date. The KDP High Yield Daily Index gained 0.06 on the day, for a reading of 78.32, and an aggregate yield of 8.32%, 2 bps tighter than a day earlier.

Mortgage names fairly steady

The key feature absent that had been seen earlier in the week was big moves in the bonds of ResCap, Thornburg and Countrywide, investors probably surmising that the credit crunch arising from the meltdown in subprime mortgage lending industry is on the wane - at least temporarily, following the Federal Reserve's recent actions to boost system liquidity, including an interest rate cut, and the news that Bank of America will make a $2 billion equity investment into Countrywide, forestalling the likelihood of a bankruptcy by the big mortgage lender.

The ups and downs of the crunch had reflected itself in volatile swings in those companies' bonds.

A trader said Countrywide's 5.20% notes slated to come due later this year were stuck at 98.25 bid, 98.75 offered, with "not much going on there."

He also saw Thornburg's 8% notes due 2013 up 1 point at 83 bid, 85 offered

Another trader also saw those bonds in an 83 bid, 84 offered context. And he saw ResCap's issues little moved.

A source said that ResCap's bonds were still among the most heavily traded of the session, even though their movement was limited. Its 6 3/8% notes due 2010 were seen up ½ point at 81, while its 6 7/8% notes due 2015 were likewise up ½ point at 77.

Also actively traded were GMAC's bonds. Its 8% notes due 2031 were seen up 3¾ points to around the 95 level, though its 7¾% notes due 2010 lost ¾ point to end around that same 95.

Revlon up, Owens busily traded

Outside of the mortgage area, a trader saw Revlon's 9½% notes 2 points better at 90 bid, 92 offered, although he said he had seen no fresh positive news about the New York-based cosmetics maker.

One of the most actively traded bonds was Owens-Brockway Glass Container Corp.'s 8 7/8% notes due 2009. But at the end of the day, the Toledo, Ohio-based packaging manufacturer's bonds were unchanged around the 101.625 level.

Distressed names show movement

Among the few names showing movement were several distressed issues. A trader saw Dana Corp. "up 2 points across the board" in apparent reaction to news that the bankrupt Toledo-based automotive component maker has asked major shareholder Appaloosa Management to submit an investment plan for the company by Sept. 21. Appaloosa has been a vocal critic of the company's planned transaction with Centerbridge Capital Partners, which has committed to invest $750 million into the company.

Dana's 6½% notes due 2008 moved up to 81 bid, 83 offered.

Movie Gallery Inc.'s 11% notes due 2012 were quoted by a trader at 27 bid, 28 offered, well up from 23 bid, 25 offered on Thursday. He saw its second-lien bank debt at 58 bid, 62 offered, up from 55 bid, 58 offered. There was no fresh news seen out about the troubled Dothan, Ala.-based Number-Two U.S. video rental store chain operator.

Another trader saw the bonds at 25 bid, 26 offered, which he said was up 3 points.

Better mood in primary

Friday closed out a good week in the junk market on a positive note, according to sources.

Observers on both the buy-side and the sell-side, who spoke to Prospect News as the week wound down, expect the now-dormant new issue market to reopen post-Labor Day.

Mid-day Friday one high yield syndicate official said that the broad high yield market was flat to slightly lower, with the junk-tracking CDX index at 95 3/8 bid just before noon ET, after having opened the session at 95 5/8 bid.

The source added that the Thursday CDX close was 95 7/8 bid.

Shortly after the Friday close, another official from a different syndicate desk said that the broad market was up 1/8 point on the day, and up 1 to 1¼ points on the week.

This source added that the secondary market had been quiet on Friday, as can be expected one week ahead of the Labor Day break.

However, this source specified, there was some decent two-way trading.

$1.5 billion week

The primary market saw no activity on Friday.

With no deals pricing during the session, the Aug. 20 to Aug. 24 week came to a close having seen $1.5 billion of issuance, with Sabic Innovative Plastics Holding BV pricing its downsized, restructured single tranche of eight-year senior unsecured notes (B1/B+) at par to yield 9½% on Monday.

The yield was printed on top of price talk that had been lowered from earlier guidance which had the notes pricing at a discount to yield 10¼%.

The preponderance of the issue was placed with institutional investors in the Middle East.

Citigroup, ABN Amro, GE Capital, HSBC and JP Morgan led the deal.

Market observers saw the Sabic transaction as a hopeful sign but stopped short of claiming that its completion signifies a reopened primary market.

An informed source told Prospect News that institutional investors in the Middle East saw the single-B bonds as a cheap way to get into the A+ rated risk of Sabic Group, even though the deal came with no guarantees from the parent.

With last Monday's Sabic deal in the mix, the Aug. 20 to Aug. 24 week came to a close with 2007 having seen $113.3 billion of issuance in 291 dollar-denominated tranches, still well ahead of the $84.8 billion which had priced in 246 tranches by the Aug. 24 close in the record-setting year of 2006.

The rest of the year

With the new issue market drifting through late summer doldrums, this year much exacerbated by the subprime-related sell off in the credit markets, Prospect News asked one high yield syndicate official on Friday what possible issuance the market might see through the remainder of 2007.

Of course this question was submitted against a backdrop of great uncertainty.

Factoring into that uncertainty, the source recounted, are the bond and bank loan deals pulled earlier in the summer, some of which now sit on the balance sheets of the underwriters as "risk overhang," as well as a bank loan market which high yield sources see as being in considerably worse shape than the junk market due to the uncertainty of the CLO market which represented a huge amount of the demand for bank loan paper, especially during the past six months.

The official also conceded that the high yield's present impasse is "more than just a holiday slowdown.

"It's a correction," the source said, but added that through the remainder of 2007 the new issue market could see another $30 billion to $35 billion of business.

Conceding that it's a "rosy" outlook, the official said "We've had four good days in a row.

"If the underwriters are careful about what they bring and how they bring it, and the calendar doesn't get jammed up with these big LBO deals, there is a good chance for the better quality stuff to get done."

This official said that there is still cash in the high yield market, notwithstanding the fact that the mutual funds "continue to leak money" and a lot of the hedge fund demand is gone.

Some of the pension funds and big insurance funds still have money, and are apt to selectively put it to work," the source said.

Prospect News followed by asking whether that amount of issuance could be transacted in the high yield market absent a meaningful regeneration of the leveraged loan market.

"It may not be a meaningful regeneration, but something has to happen there," the source said, adding that the LBO deals are generally tied to bank loans.

The official also said that the "shadow calendar" contains around $110 billion for the coming six-to-nine months.

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