Market quiets down as terrible week comes to a close; few new deals; some names slide further

By Paul Deckelman and Paul A. Harris

New York, Aug. 5 - The junk bond market limped across the finish line as Friday came not a moment too soon, bringing the curtain down on one of the worst single weeks in the asset class' history.

Traders reported yet another day of many names being off by multiple points, including such familiar credits as ATP Oil & Gas Corp., HCA Inc., Caesars Entertainment Operating Co. and Rite Aid Corp.

Even amid all the carnage, here and there, some names were reported higher, including Clear Channel Communications, Inc.

Nevertheless the predominant bias was to the downside. However, unlike Thursday's market, which had the air of a rout about it, the market seemed to have to have stabilized at least a little on Friday.

However, statistical market performance indicators continued to rack up losses across the board.

Volume levels were considerably lower, leading some traders to believe that many participants simply were not there, having decided to cut their losses and opt for a fresh start on Monday.

The primary market ended the week with what is believed to be its lowest volume total for the year to date - in stark contrast to the week before, which was one of year's years heaviest new-deal weeks.

$200 million week

On an August Friday amid continued turbulence in the global capital markets, the high-yield primary produced no news.

The week's sole dollar-denominated deal came in the form of an unrated perpetual preferred note from an Indian issuer.

Specialty paper manufacturer Ballarpur International Paper Holdings BV priced the $200 million deal at par on Thursday to yield 9¾%.

HSBC and RBS were the joint bookrunners.

With that deal in the tally, year-to-date issuance ended the week at $210 billion in 465 tranches.

Negative flows continue

High yield funds saw a whopping $420 million single-day outflow on Thursday, according to a sell-side source who referred to a late Friday report from EPFR Global.

EPFR reports daily fund flows in addition to its weekly fund flow numbers.

On Thursday EPFR reported that global high-yield bond funds sustained $1.13 billion of outflows for the week to Wednesday.

EPFR's numbers have been gaining traction among market watchers, some of whom track both EPFR's numbers and the Lipper-AMG fund flow numbers, which have long been the benchmark of the high yield asset class.

Lipper-AMG reported $804 million of outflows from high-yield mutual funds for the week to Wednesday, market sources say.

The discrepancy between the two numbers, EPFR's and Lipper-AMG's, is unimportant, they add.

The key element is that both flow numbers are decidedly negative.

Dog Days ahead

The week ahead gets underway with a light forward calendar.

Jeld-Wen, Inc. is in the market with a $575 million offering of seven-year senior secured notes (B3/CCC+) via Bank of America Merrill Lynch, Wells Fargo, Barclays and KeyBanc.

And Rock Ohio Caesars LLC plans to sell $380 million of seven-year second lien notes (/B), via Credit Suisse and Deutsche Bank.

Also M&G Finance Corp. completed the marketing of its $500 million offering of seven-year senior notes (expected ratings B3//BB) during the past week. The J.P. Morgan-led deal is day-to-day, market sources say.

Unquestionably it's a light calendar. However, global volatility notwithstanding, a light calendar is characteristic of the Dog Days of August, sources say.

Indicators off on day, week

Away from the new-deal precincts, traders noted that market statistical indicators, which had shown a marked decline on Thursday, continued to retreat on Friday.

A trader saw the CDX North American Series 16 HY Index down 1/16 on Friday to finish at 96¾ bid, 96 7/8 offered. That followed Thursday's plunge of 2 5/16 points - its biggest loss for the year, which left the index at its lowest levels since early in 2010.

The trader noted that just as there had been extreme volatility in stocks - with the bellwether Dow Jones Industrial Average moving between an intraday low of 11,139 and an intraday high of 11,555, a spread of 416 points - so too, the junk index "swung all over the place" during the day, from a low of 95¾ to a high of 97 1/8, before settling in actually only a little changed from Thursday, "so it was kind of a rocky road."

The index thus ended the week well down from the 100 1/8 bid, 100¼ offered level at which it had closed out the previous week, on Friday, July 29.

Among the other statistical measures, the KDP High Yield Daily Index plummeted by 34 basis points on Friday to a closing level of 73.98, after having swooned by 48 bps on Thursday.

Its yield moved up by 12 bps on Friday, to 7.22%, after having ballooned out by 17 bps on Thursday. For the week, the index thus showed its deterioration from the 75.40 reading and the 6.71% yield seen a week earlier.

And the Merrill Lynch High Yield Master II Index showed its fourth consecutive daily loss, and the largest downturn of the year, in falling by 0.715% on Friday, on top of the 0.16% downturn seen on Thursday, the previous biggest loss for year. That dropped its year-to-date return to 4.279%, well down from Thursday's finish at 5.03%, and down even further from its peak level for the year so far, the 6.362% return seen on July 26.

Friday's close was the lowest since the 4.22% recorded on June 28.

For the week, the index lost 1.814%, versus the 0.003% easing seen the previous week.

A little calmer

A trader said that in contrast to the frantic pace and air of crisis that hung over Junkbondland on Thursday like a malevolent miasma - heightened by everyone watching the stock market nosedive to its lowest levels since the 2008 financial crisis, with the Dow forfeiting all of its remaining year-to-date gain - Friday's session was considerably more sedate.

"Things seemed to calm down," said a trader. "There was nothing overwhelming that jumped out at us. It just seemed kind of quiet today."

A second trader said that "it was just a very slow, lackluster day, with very light volumes."

He noted that when people at his shop tried to communicate with accounts and other market participants by messaging them via their Bloomberg terminals, "there were just so many people who were what we call 'red-lighted', meaning they were out of the office. They probably just said the heck with it," electing to not come in and just sit the weekend out and try and make a fresh start on Monday.

"We're glad this week is over," another trader said, adding that between stocks and the junk bond market, "there's a lot of money disappearing."

He said that "you'll see stuff quoted lower, not really traded lower." However, he said that "there definitely was a heaviness to the market, even today."

While some names were only quoted and did not trade on Friday - having suffered through their own blood-lettings on Friday - another trader said that "you still had some names here that were down multiple points, on pretty good volume."

For instance, he said that ATP Oil & Gas' 11 7/8% second-lien notes due 2015 fell 3½ points on "pretty good volume" of over $20 million to 89 bid.

A second trader said that "a lot of accounts want to lighten up on their positions in the oil space" in view of recently softer world crude oil prices, causing them to sell out of the Houston-based offshore energy acquisition and production company's paper.

At another desk, a trader opined that "the market was still very nervous. Some accounts were liquidating whatever they could, so you know they had some redemptions."

So the caution flag is definitely up here, even though there's some pretty good value out there.

"There's a little bit of angst in this market."

The first trader said that "we're not seeing a lot of stuff happening in the Street. Our impression is that accounts are calling the underwriters, and saying 'what's the bid on this great issue you brought X amount of months ago, and they're making a bid and getting hit."

Caesars continues retreat

Among specific names, one of the more actively traded credits, as usual, was Caesars Entertainment's 10% notes due 2018. A trader said that they were "active again," deeming the debt down "another point or so" at 80½ bid, 81 offered.

Another trader said the Las Vegas-based gaining giant's issue opened higher at 84 bid, 85 offered, but soon fell to levels around 80. By the bell, the bonds had regained some ground, closing near 81 bid, 82 offered.

"At midweek, they were coming off pretty precipitously," he said. In a downward market, "discretionary gigs get hit" and Caesars was no exception. "All casino bonds were a little heavier, but this one has had heavy volume all week."

HCA hunkers down

A trader said that Nashville-based hospital operator HCA's recently priced 6½% first lien senior secured notes due 2020 "really kind of got hit."

He saw those bonds - $3 billion of which had priced at par on July 26 as part of an upsized $5 billion deal - at 99 bid, 99½ offered.

He also saw the company's $2 billion of new 7½% senior unsecured notes due 2022 - which also priced at par on July 26 - at 97½ bid, 98 offered.

"They've really come down from around 102," he said, the level to which the tranches had risen in the days after their pricing, only to get knocked back down to par, and even below.

He cited the generalized angst among healthcare bond and stock investors in view of last Friday's announcement of lessened Medicare reimbursements for nursing home operators and general fears that the healthcare sector may bear much of the brunt of spending cut efforts mandated by the debt-ceiling deal.

Sino-Forest slips more

A trader saw Sino-Forest Corp.'s 10¼% notes due 2014 down 4 points on the day, last trading at 70 bid.

The bonds eased despite the disclosure on Friday that a large Singapore-based fund - Mandolin Fund, run by New Zealand-born billionaire Richard Chandler - had increased its already sizable equity stake in the embattled Canadian-Chinese timber company.

The fund, which has been gradually boosting its stake in the company, disclosed that it had bought another 2.7 million Sino-Forest shares on Thursday, raising its stake to 18%.

Chandler's buying, and stock buys by other funds, have helped to revive the company's shares, bringing them back up to current levels a little under C$6, from their lows at C$1.29 which they had hit in mid-June after Hong Kong-based Muddy Waters LLC, a trading and research fund run by short-seller Carson Block, had released a devastating report in which it alleged company officials had engaged in fraudulent practices, charges which the company has vehemently denied. That hammered its bonds down from around the par level, and caused the stock to nosedive from its pre-report level above C$18 per share. Sino-Forest's biggest holder, the hedge fund run by billionaire investor John Paulson, eventually sold its entire stake in the company after seeing the value of its position decimated by more than 90%. But Paulson defended his fund's rationale for making its investment in the first place, challenging and rebutting Block's charges of corporate chicanery.

Hawker hit again

A trader said that Hawker Beechcraft Acquisition Co. LLC's battered 9¾% senior subordinated notes due 2017, which got killed on Wednesday, down nearly 20 points, after the Wichita, Kan.-based general aircraft manufacturer's disappointing second-quarter numbers, and which were down another few points on Thursday, continued to lose altitude on Friday. He saw the bonds down another 2¼ points, to 45¼ bid, although he said that he had seen only $1 million of the bonds trading.

A second trader saw Hawker's 8 78/8% notes due 2017 at 54-56, saying it "still sounds pretty ugly." He said it was down "a couple of points" from Thursday, but saw "no transactions today, but they're quoted lower."

He said the latter bonds had traded at 56-56½ on Thursday, down 5 points on the session, "but today, they were 54-56, but there really was no trading. So call them down a point, quoted lower but not trading."

General Maritime ends steady

General Maritime Corp. "was a name that went on a ride," a trader said. But he added that later on, "they stabilized."

He said that the New York-based oil tanker operator's 12% notes due 2017 opened in a 51-53 trading range, but by the end of the day had risen to 53-54, "so they're up a point from this morning."

He said that at 53, it was unchanged, but said that there was "not a lot of volume."

Paper names pushed around

NewPage Corp.'s beleaguered bonds continued to fall on Friday, with a trader seeing the Miamisburg, Ohio-based paper manufacturer's 10% notes due 2012 down about a point to 15 bid, 17 offered, while its 11 7/8% first-lien senior secured notes due 2014 dropped "a couple of points" to an 85-86 context.

He meantime said that NewPage sector peer Catalyst Paper Corp. "was a little lower as well," with its 11% senior secured notes due 2016 trading between 69 and 71 in the early goings, before the company "recovered" to end around a 70-73 bid range.

He saw the Richmond, B.C.-based paper manufacturer's 7 3/8% notes due 2014, which had also been lower earlier in the day, ending around 42-44.

A few on the upside

A trader saw Clear Channel Communications' 9¼% notes due 2017 as one of the few credits bucking the general downturn. He quoted the San Antonio, Tex.-based radio and outdoor advertising company's bonds up ¼ point at 105½ bid.

At another desk, a trader said that "there seems to be some activity on the upswing in Clear Channel. People are starting to look at Clear Channel. I didn't really take a good look at their earnings, but I guess it couldn't have been too bad."

The trader also said that Edison Mission "came out with decent earnings, so that sort of quelled [the downturn in the California power generator's bonds]. The bonds retreated for a while, but the earnings look decent, so there's bound to be a nibble on Edison Mission."

-Stephanie N. Rotondo contributed to this report

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