Junk market silent in short pre-holiday session, though Jones firms again, Alion, Forest busy

By Paul Deckelman and Paul A. Harris

New York, Dec. 24 - It would be a slight exaggeration to say that on the day before Christmas in Junkbondland, not a creature was stirring, not even a mouse - but 19th Century American professor-turned poet Clement C. Moore's iconic phrase was not too far from the truth.

In fact, traders said, there really wasn't very much going on Tuesday - some shops were completely closed, others were manned only by skeleton crews of junior staffers, while at still other offices, anything that had to be done got done by mid-morning [ET] at the latest, freeing people to make early exits, even hours before the 2 p.m. early pre-holiday close recommended by the Securities Industry and Financial Markets Association.

There were just a few dozen round-lot trades seen - normally, the figure would be in the several hundreds - and almost all took place by mid-morning.

There was some follow-up trading in Jones Apparel Group Inc. bonds, building on the gains seen Monday in response to the announcement late last week that the New York-based clothing company had agreed to be acquired by a private-equity firm in a transaction valued at over $2 billion, including net debt assumption.

There was also some activity in Alion Science & Technology Co.'s bonds as the embattled McLean, Va.-based research and development company announced that key noteholders have endorsed a badly needed refinancing plan for the company's debt.

Elsewhere, there were just a few names, such as Forest Oil Corp., Sprint Corp. and Avis Budget Car Rental, LLC, notching more than one or two round-lot transactions on no apparent news.

Traders saw no dealings in any of the junk market's recently priced issues, such as last week's deal from Darling International, Inc.

Even in the normally volatile distressed-debt precincts, there was not much activity and no price changes in such underperforming credits as NII Holdings, Inc. or J.C. Penney Co. Inc., with the latter's bonds little changed despite general investor pessimism about the retailing industry's performance this holiday season.

Statistical market-performance measures were mixed, after three consecutive sessions of across-the-board gains.

Momentum to return in January

In the run-up to Christmas Eve's early close there was no new deal activity, a market source said.

The high-yield primary market is expected to remain dormant through the remainder of 2013, but then regain momentum in the weeks ahead in what is expected to be a busy January 2014.

Market quiets down

A trader declared at mid-morning that "there's absolutely nothing going on. I'm really not even seeing any quotes or levels on anything."

He explained that "a lot of folks are out - probably [almost] everyone who came into the office or into town is leaving early to do last-minute Christmas shopping."

He quipped that "we just came in today to basically be out of the house."

At another desk, a trader agreed that there was "not much going on at all."

He said that there were "a lot of bids-wanted [notifications] and some odd pieces of things trading around - but volume was extraordinarily light."

And he said that Thursday and Friday would likely be just as inactive.

"A lot of people will be taking those days off and making a week of it" - although he expects things to pick up once we pass into the new year amid "a lot of pent-up demand" for junk bonds among investors.

But for the moment, "I figure it's a little lean today," a third trader affirmed.

He said around noon [ET] that "people are already closing their bond desks.

'Everybody's like skeleton crews."

Jones continues upside journey

Here and there, however, were small pockets of activity.

Among specific credits in the secondary market, Jones Apparel Group's 6 7/8% notes due 2019 were on the rise for a second straight session on Tuesday, a market source said, quoting those bonds as having gained 3/8 point to end at 105 3/8 bid on volume of over $4 million.

On Monday, those bonds had jumped to105 bid, a more than 2-point surge from their Friday close, with more than $10 million having changed hands.

The bonds' rise over the past two sessions has apparently been driven by investor response to the news announced late last week that parent company Jones Group Inc. had agreed to be acquired by Sycamore Partners, a private equity firm.

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.

Alion active on re-fi plan

Alion Science and Technology's 12% notes due 2014 saw about $4 million-plus of round-lot dealings on Tuesday as the company - which earlier in the week warned that it would need a refinancing transaction in order to repay those notes and its 2015 bonds - announced that key holders of the latter paper had agreed to support such a transaction.

The 12% notes opened at 101 15/16 and had moved up to 102¼ by the early close. The notes had not traded for a week before that, and the last sizable trades had been at the beginning of the month.

Alion, which does the bulk of its R&D work for the U.S. government, said in an SEC filing that it had entered into a refinancing support agreement with ASOF II Investments, LLC and Phoenix Investment Adviser LLC. Those two companies and their affiliates, including private funds and accounts they manage, hold a total of 65.7% of the principal amount of the company's outstanding 10¼% senior notes due 2015.

The supporting noteholders have agreed to tender all of their existing unsecured notes in a tender/exchange offer and to elect the exchange option by the early tender deadline (see related story elsewhere in this issue).

On Monday, Alion said that its lenders had agreed to waive a credit agreement covenant that was expected to be breached as a result of a going-concern explanatory note. The waiver will allow the company to access its revolving credit facility and make the quarterly interest payments for the two series of notes and comply with indenture covenants and credit agreement financial covenants for at least the next 12 months.

Forest trades around

Elsewhere, one of the busiest credits, relatively speaking, was Denver-based energy exploration and production company Forest Oil's 7¼% notes due 2019, over $7 million of which traded on Friday, enough to vault it to near the top of the junk most-actives list.

The notes were unchanged at 98.

There were just a couple of very small odd-lot trades in the company's 7½% notes due 2020, which were quoted at 100 3/8 bid.

There was no news seen out that might account for the activity in the 2019 paper on an otherwise sleepy day or for Tuesday's rise in Forest's New York Stock Exchange-traded shares. The stock gained 11 cents, or 2.93%, to end at $3.87 on volume of about 1.2 million, around one-one quarter of the usual turnover.

In fact, the gain in the stock and the activity in the bonds follows a recommendation from Stifel Nicolaus & Co. Inc. energy analyst Amir Arif, quoted in Barron's, that equity investors not gamble on the chance of a January rebound in underperforming energy E&P names like Forest or Newfield Exploration Co. that have been pushed down by year-end tax-loss selling. Arif instead counseled investors to stick to "quality names that are not reflecting their proper value," such as Anadarko Petroleum Corp., EQT Corp. and Noble Energy Inc.

Sprint off slightly

Sprint Corp.'s 6% notes due 2016 and its 6% notes due 2022 were each seen off by about 1/8 point, and each on volume of over $3 million. Both had been issued by predecessor company Sprint Nextel Corp.

The 2016s were seen going home at 109 3/8 bid, while the 2022s were quoted at 99 5/8 bid.

The Overland Park, Kan.-based Number-Three U.S. wireless operator's Sprint Capital Corp. 8¾% bonds due 2032 were about unchanged at 1071/4, , with only one round-lot trade seen.

News reports Tuesday meanwhile said that Sprint's majority owner, the Japanese wireless company Softbank Corp., is in what is described as the final stages of talks with German phone giant Deutsche Telekom AG regarding the possible purchase by Softbank of DT's majority-owned T-Mobile US, Inc., aimed at combining T-Mobile, currently the fourth-largest U.S. wireless operator, with Sprint. Deutsche Telekom owns about two-thirds of T-Mobile, while Softbank acquired an 80% stake in Sprint earlier this year.

Japan's Nikkei news service reported that such a deal could cost Softbank over $19 million, with the Japanese firm hoping to use Sprint shares for as much of the purchase price as possible, while Deutsche Telekom is said to be seeking as much cash as it can get.

U.S. regulators would have to examine such a transaction for possible anti-trust concerns. The combined Sprint/T-Mobile entity, with over 53 million post-paid regular monthly customers on a pro forma basis, would still trail larger rivals AT&T Mobility, with 72 million customers, and Verizon Wireless, with 95 million such subscribers.

Avis motors up

A market source saw Avis Budget Car Rental's 8¼% notes due 2019 having gained ¼ point to end at 109 on more than $4 million of volume.

There was no immediate fresh news out about the Parsippany, N.J.-based vehicle-rental giant that might explain the interest in the bonds.

Darling unchanged

A trader said there had been no activity on Tuesday in any of the recently priced new junk bond deals.

"In the last two hours, I've gotten something like five quotes - and nothing even close to anything that's been priced in the last year or two."

For instance, Irving, Texas-based food by-products rendering and recycling company Darling International's 5 3/8% notes due in January of 2022 were seen unchanged at 100¾ bid, 101¼ offered.

Darling had priced $500 million of those notes at par last Wednesday in a regularly scheduled deal off the forward calendar - the last sizable junk deal of the year, traders said.

The new bonds had traded around in the aftermarket in a 100½ to 101 bid range when they were freed for secondary dealings.

Distressed names quiet

In the distressed-debt precincts, a trader opined that "it's such a quiet session that I would almost leave things unchanged from yesterday" [i.e., Monday].

He saw Alpharetta, Ga.-based storage battery manufacturer Exide Technologies' 8 5/8% notes due 2018 in the 70s, "unchanged, with no volume."

He said that J.C. Penney's paper was "pretty much unchanged," with the Plano, Texas-based department store operator's 6 3/8% bonds due 2036 quoted in a 73 to 75 bid range, with a few trades around 73 or 74.

"That was "pretty much where they've been, and where they were at the beginning of the week."

He also said that NII Holdings "was quoted, but with no activity," adding that he "didn't see much" in the Reston, Va.-based re-seller of Nextel wireless service in Latin America. He pegged its 10% notes due 2016 in a 53 to 54 or 53 to 55 bid context.

"It's that time of the year," he concluded. "It is what it is."

Market indicators mixed

Overall, statistical junk-market performance indicators were mixed on Tuesday after having been higher across the board for the three previous sessions.

A trader said that the Markit Series 21 CDX North American High Yield index was up by 3/16 point on Tuesday - its fifth consecutive gain - to end at 108 13/32 bid, 108 19/32 offered. On Monday, it had risen by 3/8 point.

The KDP High Yield Daily index, on the other hand, eased by 1 basis point to finish at 74.35, after having improved by 8 bps on Monday, its fourth consecutive gain.

Its yield came in for a third straight session, declining by 1 bp to close at 5.63% after having narrowed by 2 bps on Monday.

Caroline Salls contributed to this review.

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