Junk opens year strongly but Avis quiet despite deal; DuPont, McGraw Hill units plan sales

By Paul Deckelman and Paul A. Harris

New York, Jan. 2 - The high-yield market started the new year off with a bang on Wednesday, strengthening pretty much across the board in tandem with Wall Street's surge that followed the resolution - for now - of the "fiscal cliff" problem.

Traders saw most junk issues up anywhere from ¼ to ½ point, with some credits doing even better than that.

However, they said trading was generally quiet and featureless, with no names really standing out.

Even a name which had major news attached to it, such as car-rental giant Avis Budget Group Inc. - which is buying car-sharing service Zipcar, Inc. for nearly $500 million in a largely debt-funded deal - saw little movement in its bonds.

MGIC Investment Corp.'s shares were one of the biggest percentage gainers on the day - but the mortgage insurer's junk bonds and convertible notes were seen to be not much changed.

However, there was some light trading boosting Molycorp Inc.'s bonds, as well as its shares, on published reports touting the rare-earth metals mining concern as a possible takeover target.

The recently dormant high-yield primary sphere meanwhile shook off its end-of-year cobwebs, with syndicate sources hearing of sizable upcoming bond deals from DuPont Performance Coatings and McGraw-Hill Education as part of the funding for the respective leveraged buyouts of each of those companies.

Back in the secondary arena, statistical indicators of junk market performance were up smartly, reflecting the market's better tone.

No deals price

The high-yield primary market put up a goose egg for the first session of 2013, with no deals pricing and no announcements.

The lack of news did not take syndicate sources by surprise.

"It would have been surprising if anything did price," a debt capital markets banker said.

"You have people still returning from vacation.

"You also had all the noise surrounding the fiscal cliff," the source added, referring to legislation which averts across-the-board tax increases and widespread spending cuts, passed by both houses of congress, and awaiting the signature of president Barak Obama.

Early rush of deals expected

The primary market, which continues to await the return of players from year-end vacations, might take until Monday to get running, according to a syndicate official.

There will almost certainly be business on Monday, in the form of drive-by deals and roadshow announcements, the source added.

However another official, speaking from the syndicate desk of another bank, would not rule out the possibility of primary market activity before the end of the present week.

"It was quiet over the holidays," said the official.

"There was not a lot of dialogue.

"However the markets are firm and it may not take long for business to ramp up."

In the loan market, timing is emerging on deals which will be launched at bank meetings set for the week ahead, and a number of those deals also include bonds, the official said.

Names bandied about on Wednesday included DuPont Performance Coatings, which is expected to kick off a $1.4 billion bond offering late in the week ahead or early in the week of Jan. 14.

Barclays, Credit Suisse, Citigroup, Deutsche Bank, Morgan Stanley, UBS and Jefferies are expected to be the joint bookrunners.

Also McGraw-Hill Education is expected to sell $550 million of notes early in the year, via Credit Suisse, Morgan Stanley, Jefferies, UBS, Nomura and BMO.

The pace of the primary market is expected to intensify rather quickly, the syndicate official remarked, and added that the front end of 2013's first quarter figures to be much busier than the back end.

Cliff deal sparks climb

In the secondary market, the last-minute tax and budget deal that averted the threat that the U.S. economy would start out the new year by diving headlong off the "fiscal cliff" - the toxic combination of scheduled tax increases and massive spending cuts - was the catalyst behind a massive stock market rally, which in turn helped the junk market start 2013 off in style.

A trader said that the latter market, while quiet, was "pretty firm, obviously on the resolution - at least the short-term resolution - of the "fiscal cliff" concerns.

"The bellwether names, some of them, were up over a point. The less-liquid names were unched [unchanged] or up a quarter or a half point, generically speaking.

"But nothing stood out."

A second trader called Wednesday's market "definitely better - you probably have a quarter to a half [point advance] across the board - but nothing really stands out."

Recent deals move up

The stronger tone was evident in levels for some of the deals which have recently priced in the Junkbondland. While activity levels were light, a trader quoted those deals higher by anywhere from 5/8 point to 1½ points.

For instance, he saw DISH DBS Corp.'s 5% notes due 2023 at 100½ bid, 101 offered, up by 5/8 point over where they had finished last week.

The Englewood, Colo.-based unit of satellite television broadcaster DISH Network Corp. had priced $1.5 billion of the notes at par in a quick-to-market deal on Dec. 19, after upsizing the offering from the originally announced $1 billion.

Other recent deals did even better. He saw Petro-Geo Services ASA's 7 3/8% notes due 2018 at 109 bid, 110 offered, up a point from where he saw them on Friday.

The Norwegian provider of seismic data and other geophysical services to the energy industry priced $150 million of those notes at 107.5 on Dec. 19 as a quickly-shopped add-on to its existing $300 million of bonds.

And Oil States International Inc.'s 5 1/8% notes due 2023 were seen up as much as 1½ points on the session at 101¾ bid, 102¾ offered. The Houston-based oilfield services company had priced $400 million of the notes at par in a same-day drive-by placement on Dec. 18. The bonds came to market after the deal was upsized from the originally announced $300 million.

Avis deal a non-event

The junk bond name that had actual real news out was Avis Budget Group. The Parsippany, N.J.-based vehicle-rental company announced plans to acquire Zipcar, a popular car-sharing service, for $491 million, or $12.25 per share, in cash.

A trader called Avis Budget's bonds "basically unchanged on the day - probably an underperformer because they're talking on a little bit of additional leverage. They're unchanged, with the market up."

A second trader said he "didn't see anything in the street" on Avis, which will pay for the acquisition mostly via incremental corporate debt, as well as a small portion of the price to be funded via cash on hand.

A market source said that Avis' 8¼% notes due 2019 moved up to 112 bid, improved by 3/8 point from where the bonds had gone home on Monday and ¼ point better than its most recent prior round-lot level. Only about $1 million of the bonds changed hands.

Avis' 9 5/8% notes due 2018, on the other hand, eased to 111½ bid, down a point from its most recent prior trading level, though only on smallish and unrepresentative odd-lot trades.

MGIC quiet despite stock rise

MGIC's New York Stock Exchange-traded shares zoomed by some 12.03%, or 32 cents, to end Wednesday at $2.98, on volume of 11.2 million shares, or nearly triple the norm; the Milwaukee-based mortgage insurance company was extending the gains it notched last week on positive data from the S&P/Case-Shiller index of property values, which rose 4.3% last year.

But the trader said that while MGIC was up on the equity side, as was sector peer Radian Group Inc., "there's really nothing to talk about on the bond side with this thing."

He saw MGIC's 5 3/8% notes due 2015 quoted in an 83 to 85 bid context, "but I don't know how much traded. It's a tiny issue [$171 million], with not a whole lot left in it.

"It's just quoted - I'm not seeing any transactions."

He said that the company's 5% convertible notes due 2017 were trading around 78 bid, "but on small volume, just one trade, because the stock's up."

He said that the converts were up "3 to 5 points from last week - but over the last two or three weeks, it's traded four times.

"You can write a story about their equity - but not their bonds."

Molycorp moves up

One junk name which did see a little real movement in its bonds was Molycorp, the Greenwood Village, Colo.-based miner of rare-earth metals used in a variety of industrial applications.

The company's 6% notes due 2017, which had ended Monday trading just below par, jumped as high as 106 at the opening on Wednesday after a Bloomberg News report said that it could be a possible takeover target. The bonds dropped back from that peak to round-lot levels around 1031/2, a market source said, though only about $4 million traded on that basis.

Another trader said the bonds traded in a 104½ to 106½ bid context after the news hit the screens and its NYSE-traded shares jumped, "but I didn't really see it though."

The shares ended up 10.06%, or 95 cents on the day, at $10.39; volume of 20.5 million shares was almost three times the usual turnover.

The Bloomberg report said that such industrial customers as Japanese carmaker Nissan or German electronics firm Siemens might be interested in acquiring Molycorp in order to have guaranteed access to the rare-earth metals and alloys it produces. The report also said that private equity firms might be interested.

Market quietly firmer

Overall, a trader said, "the market tone was better, but there's nothing here that jumps out, in terms of specifics."

Statistical junk market performance indicators were solidly higher Wednesday after having been up on Monday as well.

The Markit Series 19 CDX North American High Yield index soared by 2 3/32 points on Wednesday to end at 102½ bid, 102 11/16 offered. On Monday, it had risen by 3/8 point to end 2012 at 100¼ bid, 100½ offered.

The KDP High Yield Daily Index meantime jumped by 21 basis points Wednesday to finish at 75.58; on Monday, it had risen by 3 bps to end 2012 at 75.37. Its yield tightened by 8 bps on Wednesday to 5.62%. On Monday, the yield was unchanged on the day to end the old year at 5.70%.

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