Alltel, Sprint continue to trade actively; Smithfield retreats again; Lender Processing hits the road

By Paul Deckelman and Paul A. Harris

New York, June 6 - Wireless telecommunications bonds continued to trade actively on Friday in the wake of Thursday's announcement that Alltel Corp. is to be acquired by Verizon Wireless in a $28 billion deal. Alltel's own bonds were among the more actively traded issues, although their explosive rise over the previous two sessions appeared to have tapered off.

Also active was Sprint Nextel Corp., and such subsidiaries as Sprint Capital Corp. and Nextel Communications Inc. Those bonds pushed higher as investors anticipating further consolidation in the sector took positions.

On the downside, Smithfield Foods Corp.'s bonds were seen in retreat for a second session, continuing to react badly to the poor earnings numbers which the largest hog producer in the United States posted on Thursday.

In the primary market, Lender Processing Services was heard by syndicate sources to be ready to start shopping its $400 million issue of eight-year notes to investors, starting on Monday.

Market indicators are mixed

A trader said the widely followed CDX junk bond performance index was down by ¾ point Friday, quoting it at 96 bid, 96½ offered. The KDP High Yield Daily Index meantime rose 6 basis points to 75.51 while its yield tightened by 2 bps to 9.33%.

In the broader market, advancing issues trailed decliners by a narrow margin. Activity, represented by dollar volume levels, plunged 54% from Thursday's levels.

A trader exclaimed "what a difference a day makes," comparing Thursday's frothy upside frolic with Friday's considerably more subdued tone.

"It was just a complete pullback of the progress we were making Thursday," he declared.

The major culprit was bad economic news from Washington. The Labor Department reported that the jobless rate jumped to 5.5% in May, well up from 5% the month before and well above analyst's consensus estimates. It was the highest jobless rate since October 2004, and seemed to confirm the fears of observers who see the world's largest economy sliding towards a recession, if it isn't already there.

The department also announced that non-farm payrolls - usually the headline statistic in the monthly release - shrank by 49,000 in May. While that figure was smaller than most analysts' expectations, it still marked the fifth consecutive month that the economy shed jobs.

That caused the equity markets to go into a tailspin, led by Wall Street, where the bellwether Dow Jones Industrial Average swooned by 394.64 points, or 3.13%, to close at 12,209.81. Other, broader market indexes followed suit.

The trader also mentioned sharply escalating petroleum prices as another major negative weighing on junk. Oil shot up for the second consecutive session, as crude prices jumped $10.75 or more than 9% on the day, touching a record intraday high of $139.12 a barrel, before settling in at $138.54. It's not only the highest-ever close, but the biggest one-day dollar-price gain on record. Over Thursday and Friday's sessions, black gold rose by more than $16 from its mid-week lows.

That was all it took, he said, to pretty much undo the gains that had been notched Thursday, when there was "widespread, significant buying" in junk bonds.

"It looked like we were at the beginning of at least a short-term rally in high yield," encouraged, he said, by the combined impact of a sizable 10th straight net inflow to high yield mutual funds - a proxy for flows of capital into and out of the junk bond universe, and the excitement over the Alltel deal, which saw the Little Rock, Ark.-based wireless providers' bonds soar skyward by as much as 20 points over the two sessions. He also mentioned as a factor market relief that the recent spate of new junk bond issues seemed to be doing relatively well.

"It seemed like there were four buyers for every seller [Thursday], but now that's come to pretty much a complete halt," with the day's bad news in the form of the jobs data, as well as the oil rampage, drying up volume and sobering up sentiment.

With the ill winds suddenly blowing back in, he said high yield players would either sell or stay on the sidelines. "Things just ground to a halt."

Another trader, who noted the contrast between Thursday's buoyant market and Friday's observed "one day it's roses - the next day, it's thorns." He added that activity was "very quiet."

Alltel activity continues

Alltel - whose bonds had shot up by as much as 20 points or even more over the previous two sessions - remained popular on Friday, although the big gains were over.

"Alltel and Sprint were big movers, a market source said, "as consolidation mania takes hold." But while Sprint kept moving upward, Alltel's sharp gains appeared to have topped out.

A market source saw Alltel's 7 7/8% notes due 2032 at 104.5 bid, actually down ½ point on the session, in heavy trading.

At another desk, those bonds were also pegged at 104.5, down from 105.625. The company's widely traded 7% notes due 2012 were seen down ½ point at 102.5, also in busy trading. But its 7% notes due 2016 were seen having firmed handsomely to 101.75 bid, from prior levels at 98.

Sprint surge continues

Hopes that the decision by Verizon Wireless - the second-largest U.S. wireless carrier - to buy Number-Five Alltel will prompt further transactions in the sector have spurred interest in other junk high-yield credits, notably Sprint. The Overland Park, Kan. -based Number-Three carrier's 6% notes due 2016 were among the most actively traded credits, moving up to 87 bid from 86.5. Its 7 3/8% notes due 2015 rose 1 5/8 points to 87.5.

The 7 3/8% notes due 2015 of the old Nextel Communications - bought out by what was then Sprint Corp. in 2006 - were being quoted up 1½ points at 85.375, in heavy dealings.

Smithfield continues to struggle

On the downside, Smithfield Foods' 7¾% notes due 2017 were seen down 2 points on the day at about 95.5. The bonds had previously fallen about a point or so after the Smithfield, Va.-based meat processor reported poor fiscal fourth-quarter earnings.

The top U.S. pig producer's profits nosedived by 94% from a year earlier, hurt by rising grain costs and falling hog prices.

New deals hang in

A trader said that recently priced new deals continued to hang around their respective issue prices, with Iron Mountain Inc.'s 8% senior subordinated notes due 2020 at 99.75 bid, 100.25 offered. They priced this past Monday at par.

While he saw Cenveo Corp.'s new 10½% notes due 2016 still around the 101 bid level to which they had moved at pricing at par on Thursday, he called that "no great shakes."

But he did see more upside in the new Airgas Inc. 7 1/8% senior subordinated notes due 2018 "the only issue that I saw higher," at 101.5 bid, 102, up from Thursday's par issue price.

Calendar builds

In the primary market no issues were priced.

However the June 5 to June 9 week came to an end with over $1 billion of pending business on the new issue calendar.

Targa Resources Partners LP and Targa Resources Finance Corp. will begin a brief roadshow on Monday for their $250 million offering of eight-year senior notes (B2/B).

The roadshow will conclude on Thursday, and the notes are expected to be priced after that.

Deutsche Bank Securities, Credit Suisse and Banc of America Securities LLC are joint bookrunners for the debt refinancing deal from the Houston-based independent midstream energy company.

Also on Monday Lender Processing Services will begin a full roadshow for a $400 million offering of eight-year senior notes (Ba2/BB+).

The debt refinancing deal is expected to price on June 16 or 17, via JP Morgan, Banc of America Securities and Wachovia Securities.

Elsewhere underwriters have set price talk for approximately $711 million of Sequa Corp. senior notes due Dec. 1, 2015 (Caa2/B-) in two tranches.

A $500 million tranche of 11¾% senior cash pay notes is talked to yield 13½%.

Meanwhile an approximately $211.4 million tranche of 13½% senior PIK notes is talked to price 100 basis points behind the cash pay notes.

The order books close at noon ET on Monday, with pricing expected after.

The notes were issued on Thursday to Lehman Brothers, Citigroup and JP Morgan under their option to receive notes in exchange for bridge loans which financed the LBO of Sequa by Carlyle Group. The banks will now sell the notes into the high-yield market.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.