Primary falls quiet; secondary softer; AMR, Caesars, telecom paper trade around

By Paul Deckelman and Paul A. Harris

New York, Aug. 19 - The dog days of summer seemed to be settling in on Monday in Junkbondland, market participants said, noting the complete lack of primaryside activity. There were no pricings and no new deal announcements coming from either the domestic market or Europe.

In the secondary market, recent new issues such as Foresight Energy LLC, Medical Properties Trust and tw telecom inc. were all quoted lower.

Junk traders detected an overall sogginess in line with general weakness in the fixed-income markets, particularly Treasuries, as investors took a wary stance ahead of the Federal Reserve's conference later this week in Jackson Hole, Wyo., wondering whether any clues as to Fed policy and interest rates may come from that session.

Among the non-new-deal names seen moving around - though on less volume than last week - was AMR Corp., which saw its notes open the week at about the levels to which they had fallen by the end of last week. That followed the federal government filing suit to block the bankrupt airline giant's proposed merger with industry rival US Airways Group on anti-trust grounds.

Elsewhere, there was some activity in the various bonds of Caesars Entertainment Corp., although there was no fresh news out on the gaming powerhouse that might explain the activity.

There was some trading going on in bonds of such telecommunications operators as Frontier Communications, Inc., Level 3 Communications, Inc. and Sprint Nextel Corp., although there was no real news out on the sector.

Also generating some volume was Springleaf Financial Corp., whose bonds had firmed in busy trading Friday on the news the consumer lender would be doing an initial public equity offering.

Statistical market performance indicators were seen easier on the day.

Silent primary

No new issues priced during the Monday primary market session.

Syndicate sources would not rule out the possibility of activity in the new issue market during the nine sessions left to play out before the three-day Labor Day weekend in the United States, which gets under way following the Aug. 30 close.

However, in the run-up to that holiday weekend, the ranks of market participants will be thin, particularly on the buyside, sources say.

It will be difficult to holler up a crowd for a deal of any size, but that's not to say there won't be a small add-on driven into the market on reverse inquiry, a syndicate official said on Monday.

In addition to the thinned ranks of participants - and the dramatically reduced liquidity that entails - market sentiment remains negative as sellers continue to rule the day in both the stock market and in Treasuries, making the backdrop for bringing a junk bond deal all that much more difficult, sources say.

Quiet, softer market seen

In the secondary arena, a trader opined that Monday's junk bond market was "just a little sloppy and off."

He added that "there's a lot of nervousness with this Fed - a lot."

Investors across the fixed-income sphere seemed to be evidencing such qualms. For instance, in the Treasuries market, yields were seen moving higher for the fifth time in six sessions at one point even brushing the 2.90% mark before they came in a little from that peak. However, they still ended around 2.884%, which marked their highest level since July 2011.

Bond investors were said to be warily waiting for the annual Kansas City Federal Reserve Bank's economic symposium scheduled for Thursday at the resort town of Jackson Hole, Wyo., hoping the session may yield more insight on the central bank's plans for interest rates and the economy.

Another trader observed that with the traditional mid-summer junk bond market lull now apparently upon us, "it's pretty tough in the August dog days."

"There's not a whole lot to report," the trader stated.

Recent deals trade lower

Among recently priced high-yield issues, a trader said that Foresight Energy's 7 7/8% notes due 2021 were at 99¼ bid, 99¾ offered, down three-quarters of a point from the par level at which those bonds had initially traded on Friday.

The St. Louis-based thermal coal producer and its Foresight Energy Finance Corp. subsidiary came to market on Friday with its $600 million issue of the notes, pricing them at 99.276 to yield 8% after upsizing the deal from the originally planned $500 million.

The trader also saw Medical Properties Trust's 6 3/8% notes due 2022 down three-quarters of a point on the session, at 101½ bid,102¼ offered. The Birmingham, Ala.-based health care investment company priced its quickly shopped $150 million add-on to its existing notes at 102 to yield 6.07% on Thursday via its MPT Operating Partnership LP and MPT Finance Corp. subsidiaries.

A trader said that NuStar Logistics, LP's 6¾% notes due 2021 were off a quarter-point on Monday at 100¼ bid, 101 offered. Those bonds had gone home on Friday having moved up to the 100½ bid level, up from par, where the th San Antonio-based provider of petroleum terminaling and storage services priced its $300 million offering on Wednesday.

Meanwhile, tw telecom's $800 million two-part drive-by deal moved lower along with the other recent deals.

A trader saw its 5 3/8% notes due 2022 at 94¾ bid, 95¾ offered - down three-quarters of a point from the levels where they had traded last week after the Littleton, Colo.-based provider of network services priced that $450 million of paper. The deal was structured as a mirror tranche to its existing notes at 96.25 last Monday to yield 5.913%.

He also saw the company's $350 million of standalone 6 3/8% notes due 2023 at 99 bid, 99½ offered on Monday, down a quarter-point from their closing levels last week. Those bonds had priced last Monday at par.

Telecom bonds seen active

One of the traders also saw Windstream Corp.'s new 7¾% notes due 2021 down three-quarters of a point, at 101½ bid, 102¼ offered.

That was down from the levels above 102 at which those bonds had traded, and well down from the 103.5 level at which the Little Rock, Ark.-based telecom services company had priced its quick-to-market $500 million add-on to its existing notes last Monday, yielding 7.171%.

Windstream's existing 6 3/8% notes due 2023 slid by as much as 1 5/8 points on the session, a market source said, going home at 90¼ bid, on volume of about $2 million.

The company's 7 7/8% notes due 2017 lost a half-point to end at 111 bid, on about $3 million of volume.

Elsewhere in the telecom space, a market source said that Frontier Communications' 8½% notes due 2020 were trading around 109¾ bid going home, with over $4 million of the Stamford, Conn.-based telecom provider's bonds having moved. That was down from previous round-lot levels around 110¾ seen late last week.

Frontier's 8¼% notes due 2014 were trading at 104 bid on volume of more than $1 million. There had been no recent round-lot trades in the credit for comparison purposes.

A source said that Level 3 Communications Inc.'s 8 1/8% notes due 2019 slipped by 1½ points Monday to finish at 106½ bid, on volume of $3 million.

The Broomfield, Colo.-based fiber optic network backbone provider's 8 5/8% notes due 2020 were seen at 108¾ bid on volume of more than $1 million, down a quarter-point on the day.

And Sprint Nextel Corp.'s 6 7/8% bonds due 2028, issued by its Sprint Capital Corp. subsidiary, ended down½ point at 90 bid, with about $5 million of the notes having changed hands.

AMR stays active

AMR Corp.'s bonds were among the more active issues in a largely quiet market as investors continued to sort out last week's developments surrounding the bankrupt Fort Worth, Texas-based parent of American Airlines.

A trader quoted the company's 6¼% notes due 2014 in a 93 to 93½ bid context, "where they were trading all day, and that's where they were Friday, so I'd call them unchanged."

He said that 93 to 93½ range "covers virtually all activity" and estimated that about $15 million of those bonds had changed hands.

A second trader pegged the bonds at 93½ bid going home, which he also called unchanged, and said volume was more than $17 million.

On Friday, more than $14 million of the notes had traded at around that same 93½ bid level. But that was way down from the levels around 115 at which the issue had begun last week.

Investors began to savagely shoot the bonds down last Tuesday on the news that the U.S. Justice Department, joined by the attorneys general from six states plus the District of Columbia, had filed suit with a federal court in Washington to stop the planned merger between the bankrupt AMR and industry peer US Airways.

The bonds fell over several days on very heavy volume, bottoming below 90 bid, before coming off those lows to climb back to the lower 90s, where they have stayed for the moment.

The surprise federal move threatens the viability of AMR's attempt to come out of bankruptcy, where it has been since seeking protection from its bondholders and other creditors via a Chapter 11 filing in November of 2011 with the U.S. Bankruptcy Court for the Southern District of New York.

That court had been expected to confirm the company's plan of reorganization, which is conditioned on the $11 billion merger going through, at a hearing last week.

But the unexpected government action caused the judge in the case to delay confirmation and to instead order lawyers for AMR and US Air to file briefs arguing whether he should confirm the proposal in light of the Justice Department suit. The companies say the federal lawsuit is without merit and they intend to contest it vigorously.

Bankruptcy court proceedings are scheduled to resume this coming Friday.

Caesar's trades around

A trader said that Las Vegas-based gaming giant Caesars' bonds "went down a bit," although there was no firm news out on the company that might provide an explanation.

He saw the 10% notes due 2018 issued by the old Harrah's Operating Inc., now a Caesars subsidiary, having "dropped a couple of points over these last few days" and falling another point on Monday.

He said those notes had traded in a 55 to 57 bid context and were going out between 56½ and 57 bid.

However, he added that "there's not a whole lot of volume today, so it's tough to tell if they're really staying down."

At another desk, a market source called the bonds down 7/8 of a point on the day on volume of over $5 million.

He also saw parent Caesars' own 9% notes due 2020 closing at just under 95½ bid, up a quarter-point on the session, with about $3 million having changed hands.

Caesars' 12¾% notes due 2018 were finishing up around 65¼ bid, a gain of 1¼ points on the day, although the trader noted that there were only a couple of large-block trades and most of the activity was in smallish odd-lot transactions.

Springleaf slips

And Springleaf Financial's 6.90% notes due 2017 were seen down 3/8 of a point at 101 5/8 bid, with about $4 million traded.

On Friday, the Evansville, Ind.-based consumer finance company's bonds had gotten a boost from the new that the company had filed paperwork with the Securities and Exchange Commission to do an IPO, anticipating raising about $50 million to be used for general corporate purposes. The notes had firmed by around 1¼ points on Friday to the 102 bid level on volume of over $12 million.

Market indicators stay lower

Statistical junk market performance indicators were lower on Monday for a third consecutive session.

The Markit Series 20 CDX North American High Yield index lost 21/32 of a point on Monday - its third straight loss - to end at 103 7/32 bid. 103 13/32 offered, after having retreated by 11/32 of a point on Friday.

The KDP High Yield Daily index saw its fifth straight loss on Monday, dropping by 6 basis points to end at 73.28, after sliding by 8 bps on Friday. Its yield was higher for a third straight session, edging up by 1 bp to close at 6.23%, after having risen by 3 bps on Friday.

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