Primary quiet, though Par Pharmaceuticals seen planning deal; VWR firm again, ATP still busy

By Paul Deckelman and Paul A. Harris

New York, Aug. 22 - The junk bond primary sphere continued its summertime siesta on Wednesday, with no deals pricing for a second consecutive session and none really expected to come to market anytime soon.

However, there was a little bit of news coming from the new-deal arena, as syndicate sources heard that specialty drug maker Par Pharmaceuticals Cos. Inc. is expected to do a nearly half-billion offering of notes, likely by mid-September, as part of the financing for the company's leveraged buyout.

Things were otherwise quiet in that part of the market, while in the secondary , there was a little bit of trading seen at mostly higher levels for Monday's offering of five-year notes from laboratory supply company VWR Funding Inc., building on the gains seen on Tuesday.

There was also some relatively brisk trading in several other recently priced deals, including those of healthcare provider DaVita Inc. and hospital operator Community Health Systems Inc. Both were seen marginally better on the day.

But for a third straight day, activity in the new or recent bonds took a back seat to trading in the bonds of the recently bankrupt ATP Oil & Gas Corp., once again the busiest junk issue. However, unlike the activity on Monday and Tuesday, the troubled energy company's bonds lost about 4 points on Wednesday.

Primary drifts

The primary market continued to wend its way through the August doldrums on Wednesday, with no deals pricing, no announcements, and little if any news expected prior to the three-day Labor Day weekend in the United States, which gets underway after the Aug. 31 close.

As to the immediate aftermath of the holiday weekend, it is still a little too early to tell, syndicate sources said on Wednesday.

So far there are no firm deal announcements.

However one syndicate official professed visibility on a couple of deals from the energy sector which should be unwrapped during the post-Labor Day week.

Firm ahead of a big calendar

Meanwhile the market seems in good shape ahead of what is expected to be a big September deal calendar, sources said.

"You would expect that," said an investor whose portfolio includes both high-yield bonds and bank loans.

Dealers could be in there with a bid, setting the stage for that calendar, the buysider allowed.

"But dealer inventories are believed to be low," the manager said, and added that right now there seems to be a sizable bid from high-yield exchange traded funds.

The investor also noted a big move in Treasuries following Wednesday statements by the Federal Reserve Bank's Federal Open Market Committee.

Investors interpreted the statements to indicate that the Fed stands ready to enter into another round of buying Treasuries unless it sees substantial and sustainable economic recovery.

The rally in Treasuries sent the yield on 10-year Treasury bonds swooping to 1.69% by Wednesday's close, from an intraday high of 1.8%.

Although it was a big move, the investor does not look for it to directly impact high-yield bonds.

And as to macroeconomic implications of that move, and of the accommodative Fed statements which sparked it, it's a wash, the investor said.

On the one hand it is a negative because Fed language calls into question just how much momentum the economic recovery has, the investor reasoned.

On the other hand it could be good news because another round of bond buying on the part of the Fed will re-ignite the so-called interest rate carry trade, and send people scurrying after yield in the high-yield asset class.

In any case people most certainly are scurrying for yield, the investor said, noting that, the August lull notwithstanding, cash flows to high-yield funds remain strongly positive.

VWR gains continue

In the secondary arena, a trader said that "the market is sort of grinding a bit tighter, a bit higher, without the calendar. There's still cash coming in, so it's sort of creeping better every day."

Among the most recently priced new deals, he saw VWR Funding's new 7¼% notes due 2017 having gotten up to around the 101 bid area, although he said he "hadn't seen much in it."

He said that a range of 100 7/8 to 101 1/8 "should cover that."

A second trader was quoting the Radnor, Pa.-based laboratory supply and distribution company's bonds at 101 bid, 101 3/8 offered, up ¼ point from where he had seen them on Tuesday.

That quick-to-market $750 million deal had priced at par on late Monday - too late for any trading at that time.

Traders saw the bonds on Tuesday trading in a 100½ to 101 context, on what one described as "a decent amount" of activity.

Gilsonite quoted higher

The first trader also said that American Gilsonite Co.'s new deal "has been pretty quiet. I think the lead [underwriter] is making them 1011/2-1021/2, last I heard."

The Bonanza, Utah-based mining concern priced a quickly-shopped $260 million offering of 11½% senior secured notes due 2017 at par on Friday.

He added that "it's a pretty small deal - it's not trading."

Those bonds had not been seen previously in the aftermarket either on Friday or at the beginning of this week.

DaVita, Community Health busy

Among the deals which priced last week or earlier, traders saw continued activity in two healthcare names which had priced in recent days - Community Heath Systems and DaVita.

A trader said that Community Health's new 5 1/8% senior secured notes due 2018 "traded up a little bit today," seeing the Franklin, Tenn.-based hospital operator's $1.6 billion offering at 102¾ bid, 103¼ offered, which he called a ½ point gain.

A second trader saw those bonds get as good as the 103-103 1/8 range, which he called a ½ point gain.

A market source said that more than $10 million of those bonds traded on Wednesday, making it one of the more active Junkbondland credits.

The drive-by mega-deal had come to market back on Aug. 8, pricing at par after having been upsized from an originally announced $1.25 billion.

Those bonds immediately jumped to above the 102 bid range and stayed there, continuing to firm slightly day by day until it reached its present levels.

A trader said that the company's existing 7 1/8% notes due 2020 "looked like they were active," seeing them ¼ point higher at 105 bid.

A second trader also pegged those bonds up by ¼ point, seeing them at 105 bid, on between $10 million and $12 million of activity.

Denver-based kidney health company DaVita's 5¾% notes due 2022 were seen by a trader having gained ¼ point Wednesday to finish at 103. A second trader also saw them at 103, and also said it was a ¼ point rise. More than $14 million of those bonds traded on Wednesday.

DaVita's $1.25 billion of those bonds priced last Tuesday at par in a same-day transaction - although the company had been rumored for several months to be coming to market with a big bond deal, as part of the funding for its acquisition of Health Care Partners Inc. The deal was upsized from the originally announced $1 billion.

When they hit the aftermarket, they quickly climbed to 101 bid and beyond, and have not looked back since then.

Recent deals seen quiet

A trader looked at several other recently priced transactions, but did not see a great deal of activity.

For instance, he said that ServiceMaster Co.'s 7% notes due 2020 were trading at bid levels between 102 and 1021/2, before settling in around 102.

The Memphis-based residential cleaning, lawn care and extermination services provider had priced its $750 million of those bonds in a quick-to-market deal last Thursday - after having first terminated its offering of $1 billion 6 1/8% notes due 2020, which had priced at par on Aug. 8 but then struggled in the aftermarket. The new deal, in contrast, had been seen up 1 point in immediate aftermarket dealings and added another point on Friday. It briefly dipped back to the mid-101 area, but came back up to current levels.

Its established 8% notes due 2020 meantime traded Wednesday around the 106½ area, with about $5 million of the bonds having changed hands.

The trader saw Unisys Corp.'s 6 ¼% notes due 2017 "a little bit better," locating the bonds at 102¾ bid, 103¼ offered.

The Blue Bell, Pa.-based information technology company's quick-to-market $210 million deal priced last Thursday at par, and the bonds firmed smartly as soon as they were freed to trade later that same session, shooting up to 102 bid mark and continuing to augment those gains after that.

The trader said that he "hasn't really seen Caesars," referring to Las Vegas-based casino giant Caesars Entertainment Corp.'s $750 million offering of 8% senior secured notes due 2020. The company priced its quickly-shopped deal at par last Wednesday, after first restructuring it into a stand-alone offering rather than the initially announced add-on to an issue of the company's existing bonds.

The new deal stayed right around the issue price in subsequent days, and on Wednesday, the trader characterized the bonds as "still bracketing par" in a 99¾ to 100¼ context.

He also saw Univision Communications Inc.'s 6¾% senior secured notes due 2022 "not too far away from par also," pegging them at 100¼ bid to 100 5/8 offered.

The New York-based Spanish- language broadcaster did its $625 million of bonds in a quick-to-market deal last Thursday, pricing them at par after the issue was upsized from $500 million.

Indicators stay mixed

Away from the recent new deals and specific non-new-deal names like ATP Oil & Gas, a trader said that "pretty much nothing" was happening on Wednesday. "Nothing was screaming."

A second agreed that there was "not a lot to speak of."

Statistical indicators of junk market performance were mixed for a second straight session, after having been better on Monday.

The Markit Group CDX North American Series 18 High Yield Index saw its second consecutive loss, falling by 1/8 point to end at 98 5/16 bid, 98½ offered. It had also dropped back by 3/16 point on Tuesday.

The KDP High Yield Daily Index, meanwhile, was also listing to the downside after two straight days of gains before that. The index eased by 2 basis points to end at 73.88, after having shot up by 12 bps on Tuesday, while its yield moved up by 2 bps to 6.22%, after having come in by 5 bps on Tuesday.

But the widely followed Merrill Lynch U.S. High Yield Master II Index bucked the negative trend and posted its fourth straight gain on Wednesday, moving up by 0.092%, on top of Tuesday's 0.146% rise.

That lifted its year-to-date return to 10.055% from Tuesday's 9.954% reading - the first time this year the index has been above the psychologically potent 10% mar. Wednesday's close marked a new high for the year, eclipsing the old peak level, which had just been set on Tuesday. The index is now at its highest level since the last session of 2010, when it closed that year with a 15.19% return.

Its yield to worst meanwhile came in to 6.758%, a new low for 2012, narrowing from the previous low point of 6.77% set on Tuesday.

ATP debt busy but battered

Among specific names, ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 fell to the "lowest level since 2010," according to a trader.

He placed the issue at 28 3/8, down over 4 points on the day.

"Bankruptcies will do that to you," he quipped.

A second trader also saw the paper weakening to end with a 28 handle.

Yet another trader said that the bonds were down about 4 points on the day, last trading at 28 3/8 bid, on some $29 million of volume.

"They're relatively actively going to zero," he said, only half-jokingly.

At another shop, a market source said that "once the initial moving around happens, then that's it," in terms of volume in the newly-bankrupt Houston-based energy exploration and production company's bonds falling from the more than $70 million seen to have traded in round lots on Monday, the first session after its Chapter 11 filing.

However, he noted that the credit was still about the most active in junk for a third straight session.

"It's still a lot, almost $30 million."

He too saw the bonds fall more than 4 points on the day to a 28-29 context. He also noted that the bonds are trading flat, or without their accrued interest, leading to some unusual price moves.

-Stephanie N. Rotondo contributed to this report

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