Better market tone seen, but GM, Ford fall on poor sales; new MGMs creeping up, though still below issue

By Paul Deckelman and Paul A. Harris

New York, Nov. 3 - The month of November began for junk market players on Monday with an overall better tone, traders said, although activity levels seem restrained, perhaps in deference to Tuesday's U.S. elections.

Here and there were movers, however, including General Motors Corp. and Ford Motor Co., which reported atrocious sales numbers for October, causing their bonds to fall.

Elsewhere, Community Health Systems Inc.'s bonds were seen continuing to move up, rebounding on the strength of positive financial results released last week. Sector peer Tenet Healthcare Corp.'s bonds rose ahead of Tuesday's scheduled release of third-quarter numbers.

MGM Mirage's new bonds were seen by traders continuing the firming trend seen since the Nevada gaming company priced those bonds last Thursday, although they were still below their issue price.

Market indicators better

The widely followed CDX High Yield 11 index of junk bond performance, which had risen by ¼ point on Friday, gained another ¼ point on Monday, a trader said, quoting it at 81 1/8 bid, 81 5/8 offered. The KDP High Yield Daily Index meantime rose by 23 basis points to 54.06, as its yield tightened by 10 bps to 15.85%.

In the broader market, advancing issues led decliners by about a nine-to-seven margin. Overall market activity, reflected in dollar volumes, fell 29% from Friday's pace.

A trader characterized Monday's dealings as "really a non-event."

A second trader said that "there was definitely a better tone out there." However, he added that "there are some issue that are down, that are news-related, of course."

He said that he "really didn't see the overall market up that much - but there's definitely more of a bullish tone, and I think accounts are starting to nibble and are spending some of the cash that they have been hoarding over the last couple of months.

"There's definitely a little bit of buying going on - people are poking around and asking on some names that you haven't seen trade for a while. It seems like the accounts have done their homework and have their lists prioritized - what they want to jump into first, and they are sort of nibbling."

That having been said, however, he cautioned that "there's been no outflow of 'find me offerings and buy 'em up' - we don't have any type of euphoria yet."

Even so, he concluded "it's certainly better than it was about four weeks ago."

A trader said that it seemed to him that "it was another one of those days where the higher-grade stuff seemed to take more precedence in Junkbondland than the lower-grade stuff." He saw, for instance, "a little bit of GMAC action in the short stuff," such as the 5 5/8% notes due next May - but said that "after trading in the 90s all last week, 89-91, or 90-91, they're right back" at the 85 level.

The trader said that overall, "there really wasn't" a lot going on. "It was a very strange day. There just didn't seem to be a whole lot of conviction, certainly - even the stuff that had been active of late, the sub[ordinated] and holdco things like WaMu [Washington Mutual Inc.] and Lehman [Brothers Holdings Inc.], none of it really traded. There just wasn't much impetus for anything. I think [Tuesday] will be more of the same."

But high-yield syndicate sources noted that cash bonds traded substantially higher in certain names.

Some were as much as 2 points higher, said one official, who added that the asset class was generally doing better on Monday - strong in the morning, then off a little, but still better on the day.

"High-yield really didn't participate in last week's run-up in equities," the official said.

New MGM Mirage 'better than it was'

A trader saw "a little bit" of dealings in the new MGM Mirage 13% notes due 2013, which had priced last week just above 93 but which fell as low as 89 in initial secondary dealings, before ending the week above the 91 level.

"The new issue finally managed to work its way back a little bit," he said, seeing them "basically surrounding 92 - 91.875 bid, 92.125 offered covers it." The issue "has still got a ways to go" to get back up to the 93.1132 level at which the Las Vegas-based gaming giant priced $750 million of the new notes on Thursday, "but it's better than it was, that's for sure."

Another trader saw the MGM paper at 91.875 bid, 92.375 offered.

Community Health continues rebound

A trader saw "not a lot of volume" in the Community Health Systems 8 7/8% notes due 2015, "but they are up." He saw a final round-lot trade of 86, well up from 84 on Friday, on volume of $14 million - relatively restrained for the Franklin, Tenn.-based hospital operator's issue, which is regarded by some in the market as a fairly reliable barometer of overall market trends because of its benchmark size of $3 billion and widespread holding, but in line with a day of generally lessened activity.

Those bonds - which had been beaten down to around 80 from prior levels near par as the junk market careened downward in September and most of October - had languished at levels as low as the upper 70s even when the junk market went up over two sessions early last week on better market sentiment. However, once the company came out with positive third quarter earnings around mid-week, it began moving back upward steadily.

Tenet posts healthy gains ahead of results

Bonds of another hospital operator - Dallas-based Tenet Healthcare Corp. - were seen solidly better ahead of Tuesday's release of third-quarter results.

A trader saw its 9 7/8% notes due 2014 with a final round-lot trade of 85.25 bid, up from 82.75 on Friday.

And he saw its 9¼% notes due 2015 up 3 points at 85 bid.

At another desk a market source saw Tenet's 6 3/8% notes due 2011 as much as 5 points better at 87 bid.

In the second quarter, Tenet had posted a loss of $15 million, or 3 cents per share - half the size of the year-earlier loss. Its one-cent-per-share loss for adjusted earnings matched Wall Street expectations.

Poor sales figures pound carmaker paper

The major automobile makers were out with their October sales data on Monday - and, as expected, the news was anything but good, and bond and bank debt investors reacted accordingly.

A trader saw GM's benchmark 8 3/8% bonds due 2033 fall to 26 bid from on Friday, although he called GMAC's 8% bonds due 2031 unchanged at 45 bid, 47 offered.

However, another trader, while quoting the GMAC '31 bonds at that same 45 bid, level, called that a 2½ point loss on the day versus Friday, while the lending arm's 6¾% notes due 2014 had dipped to 48 bid from 50.75 on Friday.

He further said that the GM benchmark bonds dropped all the way to 27 bid, in round-lot trading, from levels as high as 36.5 bid on Friday. Over $10 million of the bonds changed hands - a fairly sizable amount for a relatively light trading day.

"There was downward movement on the simply horrendous auto [sales] numbers," he declared, also seeing GM's 7.20% notes due 2011 nearly 2 points lower at 40.25.

The trader additionally saw Ford's signature issue, the 7.45% bonds due 2031, drop to 30.5 bid, down nearly 2 points on the day.

A market source at another desk saw the GM 8 3/8s off by over 5 points at 31, and the 6¾% notes due 2014 down nearly 3 points in busy trading to 48, but saw GMAC's 8s actually up more than ½ point at 45.

The domestic carmakers' results were hurt by a drop in retail demand, observers said; Detroit-based GM - still barely hanging on to its coveted status as the biggest-selling U.S. carmaker in the face of its prolonged sales slide and the challenge from Japanese giant Toyota - delivered 170,585 vehicles last month, down 45% from a year ago. Truck sales were 97,119, down 51%, and car sales were 73,466, down 34%.

Dearborn, Mich.-based Ford delivered 132,838 vehicles in October - down 30.2% versus 190,195 last year. Truck sales were 88,267, down 30.3% from 126,622, and its Ford, Lincoln and Mercury car sales were 40,854, down 26.8% from 55,812.

Auburn Hills, Mich., based Chrysler saw its October sales of its Chrysler, Dodge and Jeep vehicles fall to 94,530 units, down 35% from 145,316 vehicles last year.

Huntsman, Hexion hurt as banks can walk

A trader said that he "didn't see a thing" in Huntsman International LLC's bonds in the wake of Friday's court decision that effectively allows the banks that committed to funding the $6.5 billion deal by rival chemical manufacturer Hexion Specialty Chemicals Inc. to acquire Salt Lake City-based Huntsman to just walk away. The lenders had signed a letter committing to the funding when the deal was announced in the summer of 2007, before the credit crunch began - but that letter had an expiration date of last Saturday.

The trader said that they were "quoted down - I didn't see any trades - there might have been some that I did not see, but I didn't notice any."

At another desk, the company's 7 3/8% notes due 2015 were being quoted having fallen as much as 19 points, down to the 70 level - but again, nobody had any hard evidence of trades.

"That's the nature of the beast lately," the first trader said. "Some stuff you get tons of trading and not a lot of news. Some, you just get prices changed [on the sheets] but nothing actually trades to prove it one way or another."

Yet another trader saw no movement at all in the 7 3/8s, although he did see its 7 7/8% notes due 2014 trading at 79, which he called down some 11 points from the bonds' previous trading levels at 90, earlier last week.

He also saw Hexion's 9¾% notes due 2014 at 54, down 10 points on the day.

No news in the primary

The junk bond primary remained quiet on Monday.

Presently there are no high-yield deals on the road, sources say.

The MGM Mirage deal, which priced last Thursday, continued to generate discussion.

To recap, the Las Vegas gaming and resort properties developer and operator priced a restructured $750 million issue of 13% five-year senior secured notes (Ba1/BB) at 93.132 to yield 15%.

On Friday the notes were seen as low as 89 bid.

By Monday they had rebounded substantially from that level but continued to trade below the issue price, sources said.

Sell-side sources not in the deal said that appearances indicate that some of the investors who got into the new MGM Mirage deal were holders of the company's shorter-maturity existing paper, and were looking to swap out of the existings and - in the hope of unsatisfied demand - get clear of the name.

That situation rendered a lot of the new paper immediately for sale, the sources added.

"The MGM deal tells me that market conditions still suck," one sell-sider said on Monday.

"To see that bond trade down 5 points in a day is not a good signal."

The right issuer can still come to market and get a deal done, the source said.

But it's going to be very painful.

Sara Rosenberg contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.