Junk primary falls silent; secondary dealings dwindle in shortened pre-holiday session

By Paul Deckelman and Paul A. Harris

New York, Dec. 23 - High yield headed home for the holidays on Thursday with primary market activity absolutely at a standstill and secondary dealings not much better.

Absolutely nothing was heard to have happened in the new-deal arena. Unlike the previous days of this week, there was not even any market scuttlebutt circulating about any deals expected to be shopped around once 2010 turns into 2011 and primaryside activity resumes.

There have been widespread forecasts that the nearly $25 billion borrowing binge seen in the first three weeks of this month - a new December record - will continue on unabated in January, fueled by a handful of big deals that will fund leveraged buyouts of the issuing companies.

In the secondary realm, meantime, traders were using stark terms, including "dull," "dead" and "brutal" to describe the day's lack of activity. With an early close slated ahead of Friday's full shutdown of financial markets in the United States in observance of the Christmas holiday, what little activity that took place did so in the morning, with players heading for the exits after that and many gone by midday.

Market watchers saw little real movement in the names, which have recently been in the news, such as Great Atlantic & Pacific Tea Co., the bankrupt operator of the iconic A&P supermarket chain. Its secured bonds had firmed smartly in the wake of the company's Dec. 12 Chapter 11 filing, but had refunded some of those gains over the last few sessions and were holding steady at those below-peak levels on Thursday.

Secondary indicators firm

Away from the new-deal sphere, a trader saw the CDX North American Series 15 HY index off by 1/16 of a point on Thursday, finishing at 102 9/16 bid, 102 13/16 offered, after having gained 1/8 of a point on Wednesday. The index, however, rose on the week from the 102 1/8 bid, 102 5/8 offered level seen at the close of trading the previous week.

The KDP High Yield Daily index meantime gained 6 basis points on Thursday to close at 74.06, on top of the 5 bps gain seen on Wednesday. Its yield declined by 3 bps to 7.42%, after having risen by 1 bp on Wednesday. The index thus showed improvement from its 73.81 reading the previous Friday and from its week-earlier 7.5% yield.

The Merrill Lynch High Yield Master II index gained 0.049% on Thursday on top of Wednesday's 0.086% rise. That lifted its year-to-date return to 14.579%, up from 14.523% on Wednesday, although the index remains down from the 2010 peak level of 15.602% recorded on Nov. 9. The index gained 0.396% on the week to lift it from last Friday's 14.185% close.

Advancing names made it five sessions in a row over decliners on Thursday, although their winning margin shrank to just a couple of dozen deals out of the nearly 900 that traded versus the six-to-five advantage they'd held on Wednesday.

Overall activity, represented by dollar-volume levels, nosedived by 66% on Thursday from the already subdued totals seen Wednesday, when activity slid by 36% from the previous session.

A trader said, "It was really a brutal day in bonds [...] a whole lot of nothin'. Treasuries closed at 2 p.m. ET, so a lot of bond guys disappeared. What little that was going on really stopped at 2."

Some market participants saw activity end even before the official pre-holiday closing time, noting that a lot of their counterparts at other shops had already long since flown the coop by that point, getting an early jump on Friday's market holiday.

Another trader said that "maybe volume today was not as bad as on a Saturday," but he still saw the activity level at perhaps a quarter to a third of a usual day's dealings.

"There's nothing to report," yet another trader said. "The only things really trading are random [small] pieces that people have been trying to get off their books for the last couple of days."

Caesars seen around

Among specific names, a trader said that while things were quiet overall, here and there "there was some Trace trading," and one name he saw was Harrah's Entertainment Inc., the Las Vegas-based gaming giant that is now officially known as Caesars Entertainment Corp. following a corporate rebranding that took effect last month.

Whatever the name, he said that "for some reason" there was trading in its 10% notes due 2018, although he was "not aware of anything special going on there." He quoted the bonds trading between 89½ and 90, terming that up about ½ of a point, "but nothing dramatic."

He suggested, "It's just a liquid name that people play around in [...] probably everybody has a position in it," so when there's some portfolio-shuffling to be done, for whatever reason, Harrah's or Caesars is a likey trading candidate.

He noted that the 10s had been among the volume leaders over the last few days, with over $12 million changing hands Thursday just in round-lot dealings - a pretty impressive trading volume on an otherwise dreadfully dull day.

A market source at another desk saw the 10s up ½ a point, pegging them at 90 1/8 bid, while also seeing the company's 10¾% notes due 2016 up by 3/16 point at just under 94½ bid.

While there no really big piece of fresh positive news out on Thursday about the company, there was a grab-bag of developments, which, collectively, would seem to auger well for Caesars. It said on Thursday that it has expanded its online gambling presence in Europe via a deal with an Italian company, Microgame, which operates the largest internet poker network in the newly regulated Italian market. Microgame will now carry Caesar's celebrated "World Series Of Poker" brand.

Caesars has agreed to invest in and manage two Ohio casinos being developed by Dan Gilbert, the founder and chairman of Quicken Loans Inc. and owner of the NBA's Cleveland Cavaliers team. The Caesars-Gilbert joint venture, Rock Ohio Caesars LLC, will be majority owned by Gilbert's Rock Gaming LLC and will spend $600 million on a Cleveland casino and $400 million on a Cincinnati property. The extent of Caesars' investment was not disclosed.

And gaming industry watchers were tabbing Caesars as one of the beneficiaries of last week's decision by Pennsylvania gaming regulators to cancel the Foxwoods gaming organization's license to build a new casino in Philadelphia due to numerous delays and missed deadlines.

While Caesars might have benefitted more if Foxwoods' last-ditch effort to save its project by partnering up with Caesars had been approved by the officials, analysts were still saying that the demise of that project - at least for now - is a net positive for the company, which has its own rival Philadelphia-area casino in Chester, Pa. as well as four casino resorts in nearby Atlantic City.

A&P steadies after retreat

Elsewhere, a trader said that he "didn't see a whole of anything" in Great Atlantic & Pacific Tea Co.'s 11 3/8% senior secured notes due 2015, calling them virtually unchanged at around 89 bid, 91 offered. That was well down from the levels in the mid-90s at which those bonds had begun the week after notching hefty gains the prior week in the aftermath of the Montrose, N.J.-based supermarket operator's Dec. 12 Chapter 11 filing.

He also saw the company's 5 1/8% convertible notes due 2011 and 6¾% converts due 2012 quoted about a point higher at 33 bid. But he cautioned, "That's just quotes -- there was really no activity to speak of, just some small trades."

A second trader saw the 5 1/8s at 34 on Thursday, while not seeing the previously busy 11 3/8s at all.

The 11 3/8s had traded around 80 before the bankruptcy filing, the 5 1/8s around 72-73 and the 63/4s around the lower 50s. On Dec. 10, the last trading session before the filing, the 5 1/8s had swooned 45 points and the 63/4s around 25, down to the upper 20s on investor expectations that the company would slide into bankruptcy, while the 11 3/8s temporarily dipped into the upper 70s but came back to finish the day little changed.

After the filing that weekend with the U.S. Bankruptcy Court in White Plains, N.Y., the 11 3/8s moved up over several sessions to as high as the mid-90s on investor assumptions that those bonds would be made whole or close to it in the coming restructuring. The converts meantime also moved up from their lows, getting to the lower 30s. All of the A&P paper is now trading flat, or without the accrued interest, in the wake of the bankruptcy filing.

Traders say the converts trade substantially below the 11 3/8s because the equity component has been erased. The underlying stock into which those notes could be converted has become virtually worthless - the de-listed shares now trade at 15 cents versus their 52-week high of $13, set back in early January 2010 - rendering the paper no better than unsecured junk bonds.

Hovnanian higher again

Hovnanian Enterprises Inc.'s bonds were seen better for a second consecutive session, although in very light trading in the wake of the Red Bank, N.J.-based homebuilder's fiscal fourth-quarter earnings, which showed a smaller net loss than a year earlier.

A market source said that the company's 10 5/8% notes due 2016 gained 7/8 point on the day to end at 103½ bid. That follows a one-point rise on Wednesday in its 6¼% notes due 2016, which had finished at 69 bid, 71 offered, but were unseen on Thursday.

A market source at another desk, however, warned that the rise in the 10 5/8s was illusory, since there was only one good-sized trade in those bonds - a round-lot transaction that left them at 1031/2, up more than a point from Wednesday's final level.

Hovnanian seemed to get a boost from its results for the 2010 fiscal fourth quarter ended Oct. 31, when the company reported an after-tax net loss of $132.1 million, an improvement over its year-earlier red ink of $250.8 million. For the full fiscal year, the company said that after-tax net income totaled $2.6 million, compared with $716.7 million of losses in fiscal 2009.

The bonds did better than Hovnanian stock on Thursday, which slid, along with those of other homebuilders such as KB Home, Lennar Corp. and Standard Pacific Corp., after the government said that new home sales last month were less than half the level that economists consider healthy. The Commerce Department reported an anemic seasonally adjusted annual rate of 290,000 units in November, up just 5.5% from October, but not enough to signal an upswing for the battered housing industry.

Hovnanian's New York Stock Exchange-traded equity lost 22 cents, or 5.18%, to end at $4.03, on volume of 3.3 million, twice the usual turnover.

Freescale comes in a little

A trader said that Freescale Semiconductor's 10 1/8% notes due 2016 were unchanged on Thursday at 105 5/8 bid, 105¾ offered, which he said was inside of Wednesday's 105½ bid, 106 offered spread.

"They were in a lot of quotes, but no more than [Wednesday]. That's for sure." He saw only one actual, sizable trade.

The Austin, Texas-based computer chip manufacturer's 8 7/8% notes due 2014 were seen down between 3/8 and ½ of a point at 104¼ bid.

On Wednesday, the company's bonds had moved up solidly - the 10 1/8s quoted up as much as 3½ points to around the 106 mark and the 8 7/8s at least a point better around the 105 area.

The bonds were seen having been helped by a company announcement detailing new contract wins in the burgeoning field of eReaders, with eReader producer Kobo Inc. and component manufacturer E Ink agreeing to use Freescale processors in building their products. Freescale cited data showing that its chips now power "two of the top three eReaders on the market."

Auto names stay parked

A trader said that he saw "no trading activity " in the 8 3/8% benchmark bonds due 2033 of Motors Liquidation Co. (i.e. the "old GM"), adding, "That pretty much sets the tone for what's going on today."

A second trader quoted the benchmarks up ¼ of a point at 32¾ bid, 33¾ offered, while also seeing the 7.45% bonds due 2031 of GM domestic archrival Ford Motor Co. at 107½ bid, 108½ offered, unchanged on the day.

Sbarro slips

From deep in distressed-debt territory, a trader saw Sbarro Inc.'s 10 3/8% notes due 2015 at 45 bid, but noted that it was "only one trade."

He suggested that "it might be slightly higher than where it's been," although another market source, who pegged the bonds at 45, called them down a deuce on the day.

"There has not been much activity in this name," the first trader said.

There was no fresh news out about the Melville, N.Y.-based operator and franchisor of cafeteria-style restaurants serving pizza and other Italian specialties.

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