Primary remains on holiday hiatus; secondary mostly quiet, Jones Apparel gains on buyout plan

By Paul Deckelman and Paul A. Harris

New York, Dec. 23 - The high-yield primary sphere remained in its end-of-year virtual shutdown mode on Monday, with no news generated and none expected.

Traders said that little was going on in the secondary arena as well. They saw little real movement in recently priced issues, outside of a quote here and there - but no real trading to speak of - in the new Darling International Inc. and Roundy's Supermarkets Inc. credits.

Activity even dwindled in the recently priced MGM Resorts International 6.25-year notes, which had been busily traded for most of last week.

Away from the new deals, there was some trading going on in the Jones Apparel Group, Inc.'s 2019 bonds at higher levels, as investors evaluated the news that the New York-based apparel manufacturer and marketer has agreed to be bought out by private equity firm Sycamore Partners.

Statistical market-performance indicators rose across the board for a third consecutive session.

Many players were out of their offices, preparing for the holiday week.

January is expected to be a busy month, on pace with the busy final months of 2013, market sources noted.

Little activity seen

In the secondary realm, a trader said that characterized Monday's session as "very, very, very quiet."

He said, "The [primary] calendar is pretty much shut down at this point because of year-end, throwing a damper on the overall market."

With many market participants having elected to take an early exit, "we were sitting here, pretty much twiddling our thumbs," he said.

He said that the recently priced deal from First Data Corp. was "just hanging around there " at about the sale levels where it had traded on Friday, in a 105 3/8 to 105 5/8 bid context.

The Atlanta-based company, which processes credit card and debit transactions and other forms of electronic commerce, priced a $725 million add-on to its existing 11 ¾% senior subordinated notes due 2021 in a quick-to-market transaction on Dec. 16.

The notes priced at 103.5 to yield 10.863% after the add-on was upsized from the originally announced $500 million. They came too late in the afternoon that day for any aftermarket trading, but were seen having hit the aftermarket last Tuesday at 104½ bid, 104¾ offered, and to have firmed further from there.

A trader at another desk quoted Darling International's 5 3/8% notes due in January of 2022 at 100 ¾ bid, 101¼ offered, calling them up ¼ of a point, though on not much volume.

Darling, an Irving, Texas-based company that renders and recycles animal fats and other food-industry waste and byproducts, priced $500 million of the notes at par last Wednesday in a regularly scheduled forward-calendar offering. The notes firmed from their issue priced when they began trading in the secondary sphere on Thursday.

The trader saw Roundy's Supermarkets' 10¼% senior secured notes due 2020 at 99¾ bid, 100¼ offered.

That was well down from levels around 2 points higher at which the Milwaukee-based supermarket chain operator's new bonds had traded last week, including a 101¾ to 102½ context on Friday.

But it was still well above the 96.999 level at which that $200 million scheduled forward-calendar deal had priced on Dec, 13 to yield 10 7/8%.

And the trader quoted Sprint Corp.'s 7 1/8% notes due in June of 2024 at 101 bid, 101½ offered, calling that down ½ of a point from their recent levels.

The Overland Park, Kan.-based number three U.S. wireless carrier had priced $2.5 billion of that paper in a drive-by deal at par on Dec. 9. The notes immediately shot up to a 101 5/8 bid, 102 offered context when they began trading around the following session, but gradually came off their high levels at or above 102 bid to trade more around a 101 to 101½ range after that.

MGM slackens off

The slowing pace of market activity even affected trading in the recently priced MGM Resorts International 5¼% notes due in March of 2020.

A market source said that while the bonds traded in a 99 to 101 bid range, finally going home a little bit above 101, "it was all just odd-lots that were trading."

The Las Vegas-based gaming and lodging giant had priced $500 million of the notes at par in a quick-to-market deal last Monday.

When the bonds were freed for trading last Tuesday, over $90 million changed hands, and although activity dropped off considerably after that first surge, it remained among the most active junk issues throughout the rest of the week, including Friday, when a market source saw over $8 million having traded in round lots - a relatively busy credit on an otherwise slow day.

Market participants noted last week that while the round-lots were trading at levels below the par issue price, many of the odd lot trades went off at considerably higher levels. Traders suggested that buyers were acquiring the round--lots and then turning around and selling smaller pieces to retail accounts at considerably elevated prices.

On Friday, for instance, the high tick for an odd-lot trade was 102¼ bid and most of the trades were above at least the par level. But on a round-lot basis, the bonds actually lost½ point to close at 99¼ bid.

However, dwindling activity on Monday, including a complete dearth of round-lot trades, made that distinction essentially moot.

Jones jumps on buyout plans

Away from the new deals, not much was going on either. Much of the activity on Trace, for instance, consisted of dealings in split-rated names of more interest to high-grade investors reaching for yield, traders said, including the bonds of Continental Resources, Inc.

The Oklahoma City, based oil producer's ratings were recently raised to a Baa3 by Moody's Investors Service from Ba2 previously, causing its bonds to trade heavily last week. On Monday, its 4½% notes due 2023 were seen trading around 101 bid, with mid-afternoon volume of over $53 million, while its 5% notes due 2022 were quoted around the 103 level on volume of over $25 million.

Other such split-rated crossover names that dominated the most-actives list included Irish pharmaceuticals manufacturer Warner Chilcott Inc. and Troy, Mich.-based automotive components maker Delphi Corp.

Among the purely junk-rated names, Jones Apparel Group's 6 7/8% notes due 2019 pushed solidly higher on apparent investor response to the news announced late last week that parent company the Jones Group had agreed to be acquired by Sycamore Partners.

The company's 6 7/8% notes due 2019 firmed to 105 bid, a more than 2-point surge from its Friday close, on volume of over $10 million.

The clothing company said late Thursday that it had agreed to be acquired by Sycamore for $15 per share in cash, or $1.2 billion total. Including Jones' net debt, the whole transaction is valued at around $2.2 billion, the company said.

On Monday, Jones said in a filing with the Securities and Exchange Commission that Morgan Stanley Senior Funding Inc., Jefferies Finance LLC, MCS Capital Markets LLC, KKR Asset Management LLC, Wells Fargo Bank, Burdale Financial Ltd. and Bank of America Merrill Lynch had given funding commitments in connection with the deal, but it did not give specifics as to the type of debt involved.

The buyers will also contribute some equity funding to the deal.

However, both Moody's and Standard & Poor's indicated that they would scrutinize Jones' ratings - currently at Ba3 and BB-, respectively - for possible downgrades.

S&P, in putting Jones on CreditWatch with negative implications, warned, "While we do not know what the composition of the capital structure will be following the transaction, we believe the company's credit metrics could weaken if its financial sponsor influences financial governance toward shareholder-friendly strategies and the use of debt or debt-like instruments to maximize shareholder returns."

Moody's, in putting the ratings on review for a possible downgrade, cautioned that its action reflects the possibility that the proposed transaction could result in significantly higher financial leverage.

Market indicators improve

Overall, statistical junk-market performance indicators were higher across the board for a third consecutive session on Monday.

The Markit Series 21 CDX North American High Yield index posted its fourth straight gain on Monday, rising by 3/8 of a point to end at 108 5/16 bid, 108 7/16 offered, on top of Friday's 5/16 of a point advance.

The KDP High Yield Daily index also posted its fourth consecutive advance Monday, improving by 8 basis points to close at 74.36, after moving up by 3 bps on Friday. Its yield came in by 2 bps to 5.64%, after having edged downward by 1 bp on Friday.

The widely followed Merrill Lynch High Yield Master II index gained 0.082% on Monday, its third straight advance.

Monday's rise lifted the year-to-date return to 7.24% -- its second consecutive new peak level for 2013 - from Friday's 7.151%, which was the previous high-water mark for the year.

The index's spread to worst measure also declined to a second consecutive new low for the year at 418 bps over comparable Treasuries on Monday, beating the previous tight point for the year of 422 bps, which had been set on Friday.

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