Junk market steadies but wary after Thursday slide; American Equity, Intralot deals postponed

By Paul Deckelman and Paul A. Harris

New York, June 21 - The high-yield market closed out the week and opened summer on Friday on a little bit better note than it had seen the session before.

Secondary market issues that had taken a multiple-point pounding Thursday - in line with a fall both in stocks and Treasuries driven by investor angst over the eventual end of the Federal Reserve's quantitative easing program - seemed steadier on Friday; they were either down a little, unchanged, or slightly higher on the day.

These included such familiar junk names as Ally Financial, Inc., Caesars Entertainment Corp. and Chesapeake Energy Corp.

But the high-yield primary sphere remained frozen, as would-be issuers and potential buyers of new paper tried to get their hands around the Fed's comments.

Not only were pricings and new-deal announcements missing for a second straight day, syndicate sources heard that two deals already in the market were being shelved due to unsettled market conditions - American Equity Investment Life Holding Co.'s $250 million deal and a euro-denominated offering from a unit of Greek gaming technology provider Interlot SA.

The lack of any new deals left the week's tally of new paper at $2.39 billion in seven tranches, according to data compiled by Prospect News. It was one of this year's slowest weeks, although not quite as sleepy as last week, ended June 14, which saw just $2.02 billion price in 10 tranches. Issuance has now been stuck in a $2 billion-to-$3 billion rut over four straight weeks, after having sizzled at a red-hot pace averaging about $13 billion a week in almost 30 tranches in each of the three weeks before that.

On a year-to-date basis, however, some $166.22 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers has come to market in 372 tranches, galloping along at a 25% more active pace than at this time last year.

Statistical indicators of market performance turned mixed after having slid precipitously on Thursday. However, those indicators were lower across the board from where they had finished the previous week.

Negative news in primary

Trailing Thursday's rout in the global capital markets - a rout that saw high-yield bonds drop between 2 and 4 points, one trader said on Friday morning - the final session of the turbulent June 17 week produced very little hard news.

And the paltry amount it did generate was negative.

American Equity Investment Life Holding Co. postponed its $250 million public offering of eight-year senior notes (BB+/expected BB) due to market conditions.

The general corporate purposes and debt refinancing deal had been in the market via bookrunner J.P. Morgan.

Also, Greece-based Intralot Finance Luxembourg SA postponed its €300 million offering of five-year senior notes (B1/B+/BB-) due to market conditions.

The debt refinancing deal, which had been talked to yield 9¼% to 9½%, was in the market via active bookrunners Citigroup and HSBC.

Valeant's closely watched deal

The junk bond market now finds itself in the throes of a general repricing, multiple sources said on Thursday and Friday.

Hence for deals that remain on the active forward calendar in the wake of Friday's postponement announcements, the June 24 week should prove interesting, junk watchers say.

Among them, the most closely watched transaction will be the Valeant Pharmaceuticals International, Inc. $3.23 billion two-part offering of senior notes (B1/B), sources said on Friday.

The deal includes a tranche of eight-year notes that have initial guidance in the mid-6% range and 10-year notes that have initial guidance in the high-6% to low-7% context.

Tranche sizes remain to be determined.

Amid turbulence that trailed last Wednesday's policy meeting of the Federal Reserve Bank's Federal Open Markets Committee, those guidance levels appear to remain in place, a trader said on Friday morning.

"It will be a very closely followed deal," a debt capital markets banker said.

"Given that it's over $3 billion, it will give a good indication of the kind of size this market can take down."

The Valeant deal size vastly exceeds the entire weekly issuance totals for the past two weeks, the banker pointed out. The Prospect News database indicates that the June 10 week saw $2 billion in 10 tranches, while the past week saw $2.4 billion in seven tranches.

And the megadeal follows a succession of massive weekly outflows from the high-yield funds, including the history-making $4.6 billion outflow that Lipper-AMG reported for the week to June 5, the source pointed out.

Heading into the weekend, the dealers were targeting Wednesday as the day the Valeant Pharmaceuticals deal will price.

Goldman Sachs is the left bookrunner. BofA Merrill Lynch, Barclays, JPMorgan, Morgan Stanley and RBC are the joint bookrunners.

Proceeds will be used to help finance the acquisition of Bausch + Lomb.

The week ahead

Also on tap for the week ahead is the Gibson Energy Inc. $750 million equivalent two-part offering of senior notes (Ba3/BB).

The deal is coming in the form of a dollar-denominated tranche of eight-year notes and a Canadian dollar-denominated tranche of seven-year notes.

Tranche sizes remain to be determined.

The dollar-denominated notes are being guided in the low-to-mid 6% range, while the Canadian dollar-denominated notes are being guided in the mid-6% range, according to a trader, who added that the deal appears to be on solid footing and should price on Tuesday.

RBC and JPMorgan are the global coordinators and lead bookrunners. RBC will bill and deliver.

Meanwhile the Technicolor $330 million offering of seven-year senior secured notes (expected ratings B3/B) was pushed into the week ahead. It had been expected to price on Friday, the trader said.

However, Technicolor should get done, the source added, noting that guidance is wide: 7% to 8%.

The deal is expected to price on Monday.

JPMorgan, Goldman Sachs and Morgan Stanley are the joint bookrunners.

In addition to those deals, the market anticipates a single-B profile financial credit to show up during the week ahead with a deal sized at under $200 million via Jefferies.

DISH taps no-acquisition call

Also on Friday, the market learned that a sizable recent deal had been called out, owing to the fact that the acquisition it supported has been abandoned.

DISH Network Corp. issued a redemption notice on Friday for its outstanding 5% senior notes due 2017 and its outstanding 6¼% senior notes due 2023.

The "no-acquisition" call comes on the heels of the company's decision to abandon its efforts to acquire Sprint Nextel Corp.

The $1.25 billion issue of 5% notes will be redeemed at par, and the $1.35 billion issue of 6¼% notes will be redeemed at 101.

Friday's market shell-shocked

In the secondary sphere, a trader called Friday's session "a sparse day" and characterized it as "lackluster."

He said that the market still seemed to be "shell-shocked" after Thursday's debacle, which had seen long lists of names down at least 2 points or more and, in some cases, down as many as 4 to 6 points in active volume. The statistical indicators had also plunged badly, some of them hitting new lows for the year, or, in among yield measures, new highs.

Market participants noted that some of the names that seemed to have borne the brunt of the downturn on Thursday, especially on large-volume selling by exchange-traded funds, were doing better on Friday.

For instance, Las Vegas-based casino giant Caesars' 10% notes due 2018, which on Thursday had fallen 2 points on the day to 56 bid on volume of over $20 million, making it one of the most actively traded names, had regained at least 1 of those 2 points in Friday's dealings. Volume, though, was considerably lighter, at just around $3 million traded.

Ally Financial's 8% bonds due 2031, which on Thursday had been hammered down by as much as 6 points on the day before going home down 4¾ points on the day, only eased by another ¼ point on Friday, ending at 121¼ bid, although the day's volume of about $3 million was less than half of Thursday's turnover. A second trader, while seeing similar levels, called the bonds up 1 point on the session Friday.

And Oklahoma City-based natural gas operator Chesapeake Energy's 3¼% notes due 2016 were seen by a trader up by 1 point, at 99½ bid.

Chrysler Group LLC's 8¼% notes due 2021gained ¾ point on the session to close at 108¾ bid, a market source said, reporting over $11 million of the bonds had traded. On Thursday, the Auburn Hills, Mich.-based carmaker's bonds had been probably the busiest junk issue, with over $32 million traded, losing over 2 points on the session.

Recent deals gain a little

Among recently priced issues, Friday's session saw small gains, although still considerably less than the losses that had been seen on Wednesday and, especially, on Thursday.

A trader said that Rite Aid Corp.'s 6¾% notes due 2021 had moved up to 97¼ bid, 97¾ offered.

That was up from the 96½ to 97 bid levels that had been seen on Thursday, when the bonds had dropped by over 2 points.

However, despite the modest gains, the Camp Hill, Pa.-based No. three U.S. drugstore chain operator's bonds continued to trade well below the par level at which the quickly shopped $810 million issue - upsized from the original $400 million - had priced on Tuesday.

A trader saw Brookfield Residential Properties Inc.'s 6 1/8% notes due 2022 at 97½ bid, 98½ offered, calling that up by ¼ point. The Calgary, Alta.-based land owner and homebuilder's $500 million offering had priced at par on Tuesday after having also been upsized from $400 million in a quick-to-market transaction. Although the notes had traded up a little after pricing, they had been seen down by nearly 3 points during Thursday's downturn.

Monday's drive-by $425 million issue of 5 3/8% notes due 2022 from Houston-based funeral home and cemetery giant Service Corp. International were "hanging in there" at 100 3/8 bid, 100¾ offered, a trader said, "even though they were not being actively traded."

Those notes priced at par and "were well-received," the trader said, moving as high as 101¾ bid, before being knocked back on Thursday during the general market downturn.

Market indicators mixed

Statistical junk market performance indicators ended mixed on Friday after having slid badly across the board on Thursday, one of their worst days of the year.

They remained well below where they had closed out the previous week, on Friday, June 14.

The Markit Series 20 CDX North American High Yield index actually gained 1/8 point on Friday to end at 101½ bid, 101 5/8 offered. On Thursday, it had nosedived by 1 1/8 points, its second straight large loss, since it had also plummeted by 1 5/8 points on Wednesday. Those big losses left it well down for the week from the previous Friday's close at 103¾ bid, 103 13/16 offered.

The KDP High Yield Daily Index saw its second straight loss, falling by 32 basis points on Friday to end at 73.05, after having gotten absolutely hammered down by 96 bps on Thursday, breaking a four-session winning streak in the process.

Its yield meantime rose by 13 bps to finish at 6.32%. It was the second consecutive large widening out of the yield, which had ballooned by 34 bps on Thursday. That too had broken a four-session string on yield declines.

Friday's levels compared unfavorably to the previous Friday's 74.11 index reading and its 5.97% yield.

And the widely followed Merrill Lynch High Yield Master II Index saw its third straight loss on Friday, as it declined by 0.233%. That followed its biggest downturn of the year so far on Thursday, when it had slid by 1.281%.

The latest loss dropped its year-to-date return to 1.581% - its lowest level since Feb. 22, when it had hit 1.499%. Friday's return was down from Thursday's 1.817% and remains well down from its peak level for the year, 5.835%, set back on May 9.

Its yield-to-worst hit a second consecutive new high for the year Friday, ending at 6.623%, up from the previous high of 6.469%, set on Thursday.

Its spread-to-worst also hit a second consecutive new wide point for the year, rising to 525 bps over Treasuries from Thursday's previous high of 518 bps.

For the week, the index lost 1.3% - its sixth consecutive weekly loss and the largest such weekly downturn this year.

Last week, it had lost 0.477% to finish with a year-to-date return of 2.919%.

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