Junk in retreat again as market ends week quietly; primary sees second-slowest week of year

By Paul Deckelman and Paul A. Harris

New York, Aug. 19 - After having begun the week on a positive note, the high-yield market was seen closing on Friday on the downside for a second consecutive session, once again moving in tandem with a stricken stock market.

Traders said many more issues were down on the day than on the upside. Among the losers were such familiar names as Caesars Entertainment Corp. and the new HCA Inc. bond issue.

On the other hand, traders noted the continued firmness in Eastman Kodak Co. bonds, aided by the prospect of the company realizing billions of dollars from the sale of patents.

As the week ended, traders noted a winding down in volume, attributing it to the combination of the traditional summer lull and unsettled market conditions.

The primary market has been largely sidelined this week, with just one pricing - for medical products maker Immucor, Inc. - accounting for $395 million of new issuance, making this week the second slowest of 2011 so far.

$395 million week

There was no primary market news on Friday.

The Aug. 15 week closed having seen a single deal price.

Immucor, Inc. raised $395 million by pricing its 11 1/8% senior notes due 2019 on Tuesday. The $400 million face deal priced at 98.714 to yield 11 3/8%.

Immucor bumps the year to date issuance total to $211 billion in 470 junk-rated, dollar-denominated tranches.

That total puts the 2011 primary market still far ahead of the record-setting 2010 market on a year-over-year basis.

At the Aug. 19, 2010 close, year-to-date issuance stood at $161.5 billion in 372 tranches, according to Prospect News data.

Closed until September

The primary market is likely closed until September, syndicate bankers said on Friday.

Issuers are unlikely to be tempted into the present volatility.

The above-mentioned Immucor deal went well, especially given the market circumstances, sources say.

However, part of the reason it went so well is that the bridge loan was fully syndicated. So a sizable segment of the bond audience was already in the deal, by virtue of the bridge, before the bonds were launched.

And Immucor unmistakably paid a healthy concession to volatile and negative market circumstances, syndicate sources say.

When it was still on the drawing board Immucor appeared to be a deal that might get done with a yield of 9½% to 10%.

Ultimately the print was 11 3/8%.

Opportunistic issuers sidelined

Committed deals such as Immucor, where bridges must be taken out by bonds in order to stave off the high and escalating rates of the bridge loans, are the only deals which are actually visible heading into September, sources say.

Opportunistic issuers have little stomach for a market that has backed up by 100 to 150 basis points from deal levels in the issuer-friendly Spring of 2011, they add.

And the list of committed deals which appear headed to the market in September is short.

Kinetic Concepts Inc. is expected to undertake the placement of $2.15 billion of high-yield notes in September.

The deal is expected to feature $1.25 billion of senior second-lien notes and $900 of million senior unsecured notes.

Bank of America Merrill Lynch, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Inc. are the joint bookrunners.

And Sealed Air Corp.'s $1.5 billion equivalent offering of senior notes is expected to launch in September.

The notes offering is expected to include a $1 billion tranche and a €500 million tranche. However it remains to be seen whether there is sufficient demand to go forward with the euro-denominated tranche, sources say.

Citigroup Global Markets Inc. is expected to lead a syndicate of banks on the Sealed Air deal.

"Right now you don't have much visibility beyond Labor Day," a syndicate banker said on Friday.

"The acquisition financing pipeline is not huge.

"What we need is some stability over a sustained period of time. There is still a lot of debt that needs to be refinanced in the high yield, and if things stabilize that refinancing activity will resume.

"However, if the volatility continues it is possible that things could continue to be quiet after Labor Day."

Indicators off on day

Junk market statistical indicators - which had dropped sharply on Thursday, falling from their mid-week peaks, continued to ease across the board on Friday, although on a weekly basis, they were mixed - some up and some down from their levels at the end of the previous week, on Friday, Aug,. 12.

A trader saw the CDX North American Series 16 HY Index fall by 1 1/8 point on Friday to 92¼ bid, 92½ offered, on top of the 1 15/16 point plunge seen on Thursday.

The index was also well down on a weekly basis from its close last Friday at 94 bid, 94¼ offered.

The KDP High Yield Daily Index dropped by 29 basis points on Friday to 72.13, on top of Thursday's 37 bps swoon.

Its yield rose by 8 bps to 7.89%, after having ballooned out by 13 bps on Thursday.

However, the index showed a gain on the week, from the 71.96 level at which it had ended the previous Friday, when its yield was 7.97%.

The Merrill Lynch U.S. High Yield Master II Index declined for a second straight session, losing 0.259% on Friday, after having fallen by 0.457% on Thursday, which had been its first loss after four consecutive sessions on the upside.

Friday's loss lowered the year-to-date return to 1.751% from 2.015% on Thursday, and left it well below the peak level for the year of 6.362%, set on July 26.

On the week, though, the index rose by 0.421% from the previous week's 1.325% close, its first week-over-week gain after three straight weeks on the downside.

A trader characterized Friday's session as "kind of quiet. There was not a lot of stuff moving around."

He estimated the magnitude of the general loss at about 1 point.

At another shop, a trader said that Friday's market was "sloppy. People are looking to sell." On the whole, he said that Junkbondland was down by ¼ point to ½ point - but in very light trading."

'Caution flag is up'

The trader said that at this point - after the sharp slide last week and the two bearish sessions this week, on Thursday and Friday, "the caution flag is now definitely up."

He said that at relatively small shops like his own, "a lot of accounts won't deal with you, because you've got a lack of capital."

However, "all of a sudden, mysteriously - this week - when we had a bid for all the 'major accounts' like the Fidelitys, Pimco and all of these people, if you had a good bid, somehow, capital didn't matter."

Issues head lower

A trader said that with the overall market down, some of the familiar "big issues" that everyone trades in, which act as market benchmarks, were mostly easier.

He saw Nashville-based hospital giant HCA's big two-tranche deal trading about a point lower across the board, pegging its $2 billion issue of 7½% notes due 2022 down 1 point at 96¼ bid.

He also saw its $3 billion of 6½% senior secured notes due 2020 at 97¼ bid in morning deals, although he didn't see those bonds afterward.

Both bonds - which had each priced at par on July 26, and firmed to 101½ in the immediate aftermarket - had come well down from those peak levels in the intervening weeks. Both had fallen between 1 point and 1½ points on Thursday.

Another familiar name on the downside, he said, was Las Vegas-based gaming giant Caesars Entertainment - the former Harrah's Operating Co. Those bonds had juked up and down with the overall market over the past week, falling as low as 75 bid, and as high as 102.

On Friday, he saw the company's widely-traded "go-go" issue, its 10% notes due 2018, down 3¾ points at 77¼ bid, but "not on any huge amount."

Caesars' sector peer and Las Vegas Strip rival, MGM Resorts International Inc.'s 7½% notes due 2016, were seen having retreated 3½ points on the day to end at 88.

A Kodak moment

Despite the mostly bearish bias to Friday's dealings, a trader said that fundamentally "a lot of the clients are in very good shape because they do have cash on their balance sheets and I think they're going to be buying back debt at weaker levels."

With the forward calendar having dried up, he said they would be looking for bargains in the secondary.

One such possible target, he said, is Kodak, "which has been a pretty big player across the board,"

He said that "a lot of people" have been saying that the Rochester, N.Y.-based photographic products and digital imaging technology company's rich treasure trove of tech patents mean "Kodak is better dead than alive, because they estimate their patents are worth $3 billion.

"So therefore, Kodak isn't going to have much of a problem refinancing its 7¼% notes due 2013, and so on. So that's one of the bonds that's bucked the trend, quoted up 2, 3, 4 points this week in a down market.

The '13s went home on Friday at 87¼ bid, "and there's more demand than supply right now. It could be worth more money dead than alive - so some people are saying maybe they should invest some money in Kodak, with the bonds 12 points off from their recent highs."

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