Market quiet despite steel, housing news; primary remains on hiatus

By Paul Deckelman and Paul A. Harris

New York, Aug. 27 - Monday was, in the words of a junk bond trader, just "a boring day" characterized by "a lack of activity."

And another added that it was merely the start of what promises to be "a very rough weak" in terms of finding any compelling theme or stories for investor to latch onto.

Even big news coming out of the steel sector, with United States Steel Corp. agreeing to acquire Canadian steelmaker Stelco Inc. for $1.1 billion, had little impact on the bonds of either company, or widely traded junk bond steel name AK Steel Corp.

And the news of a downturn in existing home sales in July was not seen greasing the skids under such homebuilder names as WCI Communities Inc. or Beazer Homes USA Inc.

About the only name seen really showing any kind of large movement in fairly active trading was GMAC LLC, whose bonds have recently been gyrating around with the ups and downs of the mortgage industry, in which the former General Motors Corp. financing unit is a player via its ownership of Residential Capital Corp.

The high yield primary sphere, meantime, remained in its summer daze, a condition likely to last until after the upcoming Labor Day holiday break.

Indexes show quiet market

A trader saw the widely followed CDX index of junk bond performance down 1/8 point on the day at 953/4-96. Other indexes were similarly quiet, with the Banc of America Securities High Yield Broad Market Index up 0.09% on the day, for a 0.68% year-to-date gain. The KDP High Yield Daily Index was virtually unchanged, up 0.01 on the day to 78.33, its average yield holding steady at 8.32%.

Besides the minuscule CDX movement, the trader said, "I didn't see much else." He noted that financial markets were closed in London Monday and that the U.S. market was gearing up, or perhaps winding down might be a better way of putting it, ahead of Friday's half-session and next Monday's full-day Labor Day shutdown.

About the only issues he saw trading were the big automotive benchmarks, with GM's signature issue, the 8 3/8% notes due 2033, down ½ point at 81.5 bid, 82.5 offered, while arch-rival Ford Motor Co.'s benchmark 7.45% notes due 2031 were also down ½ point, at 75.75 bid, 76.25 offered.

However, at another desk, a source pegged GM's 6¾% notes due 2028 up 2 points on the session, at 74 bid.

GMAC bonds seen off

GM's former financing unit, General Motors Acceptance Corp. - now GMAC LLC - was seen by a source to have been actively traded at lower levels, its 8% notes due 2031 declining by as much as 5 points on the day to around the 89 level.

GMAC's 6 7/8% notes due 2011 were seen off about ¾ point on the day to 89, while its 7¾% notes due 2010 were essentially unchanged at 95.

No fresh news was seen out on the big lender, which finances both automotive lending to people buying cars or trucks from GM - still its 49% owner - and residential lending, through its ResCap unit.

Traders meantime didn't see very much of ResCap on Monday - a contrast to last week, when its bonds were bouncing by multiple points all over the place as the market reacted to developments in the mortgage lending industry.

ResCap's 6 3/8% notes due 2010 were seen up ½ point in fairly busy dealings at 81.

Also in that same mortgage lending sector, Thornburg Mortgage Inc.'s 8% notes due 2013 were seen by a trader unchanged from last week's level at 83 bid, 84 offered. Another trader called them unchanged at 82 bid, 83.5 offered.

Housing names little moved by data

The fortunes of the mortgage and housing industries are inextricably linked with one another, and housing has recently taken its lumps, along with the lenders, in the wake of the subprime lending fiasco.

But on Monday, the housing names seemed to steady, not much affected by the bad news from the leading U.S. real estate industry group, the National Association of Realtors, which reported that sales of existing homes declined 0.2% in July to an annual rate of 5.75 million units, the lowest in five years. Inventories of unsold single-family homes rose to the equivalent of 9.2 months' supply, a 16-year high.

Even so, a trader said, "there was no trading that I saw" in Beazer Homes USA and Technical Olympic USA bonds. He quoted Beazer's 8¼% notes due 2016 unchanged at 79.5 bid, 81.5 offered.

Another trader agreed that he hadn't seen Beazer quoted "for a while." He put its 6½% notes due 2013 at 76.5.

Technical Olympic, he said, was "up small," its 9% notes due 2010 at 73.5.

He saw WCI Communities Inc. higher, its 9 1/8% notes due 2013 which had been "straddling 80" now at 81.75 bid, 82.75 offered, and its 7 7/8% notes due 2013 at 78 bid, 80 offered.

However, another market source put D.R. Horton's 8% notes due 2009 down ½ point at 99.

Steel merger a non-story

Elsewhere, the news that Pittsburgh-based U.S. Steel will acquire Stelco left bonds of steel companies largely unmoved.

A trader said he "could not even find a quote" Monday on Stelco's floating-rate notes due 2016.

And U.S. Steel's paper, he said, "has not been quoted for days."

The trader also noted that Middletown, Ohio-based AK Steel - whose bonds often rise and fall with the ebb and flow of sector consolidation news within the steel industry - were also largely unchanged. He said that the company's 7 7/8% notes due 2009 have already been called and were unbudged from their call levels, while its 7¾% notes due 2012 "didn't move at all, still right around par."

U.S. Steel will pay about $1.1 billion for Stelco, which has about $760 million of outstanding debt on its books. U.S. Steel said it will pay for the acquisition and retire the majority of Stelco's existing debt through a combination of cash on hand, existing financing facilities and proceeds under two new senior credit facilities, totaling $900 million via underwriters J.P. Morgan Securities Inc. and Scotia Capital.

Quiet week seen in primary

A syndicate official who focuses on high yield bonds and leveraged loans said that the markets had been quiet on Monday, with no trading seen.

Numerous "out-of-office" notifications were received as Prospect News called upon its sell-side sources as the pre-Labor Day week got underway.

Once again there was no news in the primary market.

Nor do officials anticipate that any news will surface before Friday's early close ahead of the three-day Labor Day weekend which is the traditional summer-fall boundary marker for the junk bond market.

If that scenario does in fact unfold - i.e. that no issues priced before Friday's early close - it will be in keeping with recent history.

According to Prospect News data, during the past half-decade no new issues have been priced in the week preceding the Labor Day break.

However it must be added that according to an informed source the Downstream Development Authority of the Quapaw tribe of Oklahoma remains in the market with its $235 million offering of eight-year senior notes (B-) via Banc of America Securities.

The company intends to use the proceeds to fund costs associated with the design, development, construction, equipment and opening of the Downstream Casino Resort, and to repay debt.

Beyond that single deal, however, sources continued to tell Prospect News on Monday that the rumor mill, with respect to potential post-Labor Day roadshow timing for junk deals, remains quiet, with no visibility on who might try the primary market first.

Sources have counseled that a "regeneration" of the leveraged loan market is a necessary precursor to a resumption of activity in the high yield primary, especially where the big LBO deals are concerned.

Thus among high yield market watchers the most remarked upon event anticipated for the post-Labor Day leveraged markets has been the First Data Corp. $14 billion seven-year term loan B, via Credit Suisse, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, Lehman Brothers and Merrill Lynch.

A market source told Prospect News last week that the underwriters are targeting Sept. 5 as the date to hold a retail bank meeting for that deal.

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