GM bonds slide on no news, secondary otherwise quiet, soggy as stocks fall; primary stilled

By Paul Deckelman and Paul A. Harris

New York, Aug. 24 - General Motors Corp.'s benchmark bonds were seen down 1 to 1½ points on the day Tuesday, pushing further downward into the low 30s. There was no fresh news out about the Detroit giant that might explain the slide, leaving traders to speculate that it could be investor uneasiness about recently disclosed plans for an initial public offering - or just a reaction by holders of a large, liquid credit to the general weakness in junk, linked to the decided downturn in the stock market.

There was some activity seen in the bonds of Level 3 Communications, Inc. which were seen as mixed to generally lower. Again, there was no news out about the telecommunications company.

Trico Marine Services Inc.'s bonds seemed to buck the overall market trend and finished better, despite continued investor concerns about the company's viability.

Traders saw the overall junk secondary quiet, with many participants out for vacations, and easier, in line with the slide in stocks.

The high yield primary market was completely moribund.

Recently priced junk issues like Goodyear Tire & Rubber Co., Mueller Water Products, Inc., NRG Energy Inc. and Toys 'R' Us - Delaware, Inc., were seen continuing to hold their recent aftermarket gains, with all trading above par, Goodyear by several points.

Holiday footing

The late summer lull in the high-yield primary market continued on Tuesday, with no news on the day.

The syndicate desks are thinly staffed, as befits the season, one official said.

With the syndicates on a "holiday" footing, continued softness in equities almost assures that little, if anything, will happen before Labor Day, the source added.

Low high-grades and high-quality junk

A Tuesday deal in the high-grade market attracted the attention of one debt capital markets banker who watches high yield.

Yum! Brands Inc. priced an upsized $350 million issue of 3 7/8% 10-year senior unsecured notes (Baa3/BBB-/BBB-) at 140 basis points over Treasuries, at the tight end of the 145 bps area revised price talk. The deal was original $300 million in size and talked at the 150 bps area.

The Yum! deal emanates from a conspicuously busy segment of the high-grade bond credit spectrum, the banker said.

A look at Prospect News high-grade bond data indicates that the Standard & Poor's BBB- segment has been the busiest, in terms of deal-volume (31 deals of an overall 191 high-grade tranches) since July 1.

That portion of the credit spectrum - low triple B, high double B and split-rated - has lately drawn the attention of banks and insurance funds, market sources say.

"The banks have cash to put to work, and have been participating in these bond deals, as well as in some of the B term loans," a sell-sider said on Tuesday.

The banks seem willing to dip down as low as B+, but probably not any further, the source added.

The crossover space, in particular, is perceived as a relatively safe place to go for some yield, the banker added.

Insurance companies are presently in need of yield because the rally in Treasuries has left them struggling for the kinds of returns needed to fund annuity products which can pay between 6% and 8%, annually, market sources say.

Because of the demand generated by these players who are somewhat novel to the space, deal volume there has increased, the banker said.

"The dealers are treating split-rated deals like high-grades, and getting them out the door," the source commented.

That trend is apt continue into the autumn, the banker added.

Meanwhile, given the recent intensification of the negative sentiment about the U.S. economy, which has been impacting equities, lower-rated junk deals could face more of an uphill battle in the season ahead.

Market indicators turn softer

Apart from the new-deal realm, a market source saw the CDX North American HY Series 14 index fall 7/8 point on Tuesday to 96¼ bid, 96½ offered, after having been about unchanged on Monday.

The KDP High Yield Daily index meantime lost 9 basis points on Tuesday to end at 71.80, after having eased by 4 bps on Monday. Its yield rose by 3 bps to 8.29%, after having increased by 2 bps on Monday.

The Merrill Lynch High Yield Master II index edged downward by 0.08% on Tuesday, after having risen on Monday. It ended the day with a year-to-date return of 8.579%, versus Monday's 8.665%. The index also remains below its peak level for 2010 so far, the 9.085% recorded on Aug. 9.

Advancing issues remained narrowly behind decliners for a fourth consecutive session on Tuesday. As had been the case the previous three sessions, just a couple of dozen issues out of the more than 1,400 tracked separated the two groups.

Overall activity, represented by dollar-volume levels, rose 10% on Tuesday, after having jumped 33% on Monday.

Despite that numerical increase, traders complained that the already sedate market pace which had been seen on Monday seemed slower on Tuesday.

"Nothing went on," one said. "Take [Monday] and divide it in half."

"It's like there's no theme. Maybe stuff in general is a little bit softer, but that could just be because the equity market was down slightly and nobody was around [in Junkbondland] but there was no theme here this was being bid up or that was being bid down."

He added that "there's just not a huge amount of liquidity. People just aren't doing anything."

A second trader opined that "it's just that time of year when everybody who can be out on vacation is out on vacation. Everybody else is kind of sitting around, waiting for things to pick up again, I guess."

The first trader said that the outlook for the remainder of this month, and the first few days of September, likely will be "shut the books, and come back after Labor Day," which this year falls out on Monday, Sept. 6.

He also noted that the U.S. Open tennis tournament, which like all major sporting events is being televised, is likely to be a further distraction that will keep much bond market business from being transacted, especially since its Queens venue is just a short subway ride from Manhattan for any Financial District types looking for an excuse to get out of the office altogether.

"Wait till that starts," he predicted. "Talk about being dead - it will be really dead then."

Looking further ahead though, a trader projected that he had heard that "September is supposed to be pretty busy."

GM bonds steer into a ditch

Among specific issues, traders saw General Motors Corp.'s 8 3/8% benchmark bonds due 2033 plunge, though on no news about the top domestic car maker.

One saw the bonds fall 1¾ points on the day to 31¾ bid, 32¾ offered, seeing it as the only real feature in an otherwise quiet day.

A second trader called the GM bonds "an obvious one" to talk about, with pretty much nothing else going on, quoting them down 1 point at 32½ bid. "That one was easy" to spot, he said, adding that GM "had some decent volume trading."

At another desk, a trader pegged the GM bonds at 32¼ bid, 33¼ offered, noting that they had been trading at bid-levels around 34 or 35 last week, before the announcement by GM that it planned to bring a public stock offering to market some time soon.

He said that it was difficult to tell whether "it's a reflection that people are unhappy about the IPO - or people aren't around to be happy or not happy" with the thin volume producing exaggerated price movements.

A different trader meantime theorized that the bonds were down big on Tuesday because of investor unease as "the government keeps sending mixed signals as to what their intent is" on the economy.

He also noted the housing data released earlier Tuesday by the National Association of Realtors, which showed sales of existing homes having nosedived by 27.2% in July, to an annual pace of 3.83 million units, the slowest since May 1995. Wall Street had been expecting a more moderate 12% decline to a 4.7 million unit annual rate. "If no one is buying houses, they sure aren't buying cars," he declared, adding "this is a bad omen for the IPO."

GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were considered largely unchanged at 97½ bid, 98½ offered.

Homebuilder bonds unmoved by bad numbers

A trader said that the bonds of homebuilding companies seemed to have not been much impacted by those truly bad existing-home sales numbers, which bode ill for the new-home market.

"I don't even think anything [from out of that sector] came across the screen," he said.

However, at another desk, Los Angeles-based builder KB Home's 5 7/8% notes due 2015 were quoted down 1 point to around the 92 level.

Market participants will meantime be watching the tape on Wednesday, when Toll Brothers Inc. reports results for the May-though-July fiscal third quarter. They will be scrutinizing Horsham, Pa.-based luxury home builder's numbers to gauge the impact of the end of a popular federal homebuyers' tax credit on April 30. Toll has already warned Wall Street that it expects to have fewer net signed contracts for the fiscal third quarter than it had in its fiscal second quarter.

Level 3 moves around

Away from the autosphere, a market source said that Level 3 Communications' 9¼% notes due 2014 gained around ½ point on the day to end at 89¾ bid - after having gyrated as high as 93 bid and as low as 85 earlier in the day, although those outlier levels were on small trades. Trading was seen as brisk, with round-lot trading of over $11 million changing hands, mostly around the 88 bid level

Another source meantime quoted those bonds at 88 bid, down a deuce on the day, while at yet another desk, they were seen just under 88 down about 1½ points.

Level 3's 8¾% notes due 2017 lost a point to end at 85 bid.

There was no fresh news out on the Broomfield, Colo.-based telecom infrastructure network company that might explain the activity.

Trico firms - but bankruptcy still seen possible

Trico Marine bonds beat the day's generally weaker trend, ending up by "a point or two" on the day, according to a trader.

The trader quoted the company's 11 7 /8% notes due 2014 offered at 88.

"I think it's more like 85 [bid], 87 [offered]," he said.

A second trader also said the 11 7/8% notes were at 85 bid, 86 offered.

Trico's 8 1/8% notes due 2013 were meantime quoted at 16 bid, 18 offered. Another trader said the credit was "reasonably active," seeing the 8 1/8s at 17¾ bid, 18¾ offered.

Its 3% convertible notes due 2027 were at 7 bid, 8 offered.

But while the notes were better on the day, one of the traders warned that troubles remain for the Woodlands, Texas-based provider of subsea, trenching and marine support vessels and services to the energy and telecom industries.

"They have to [file for bankruptcy] soon," he said. "They are not making any money and no one wants to do business with them because they know that."

While he admitted that he had not researched the matter fully, he opined that the "converts [are not] covered at all" in the event of a bankruptcy, though he added that the 11 7/8% notes were "reasonably well covered."

He predicted a Chapter 11 filing would be seen within a month and that it wouldn't be outside of the realm of reason for the company to choose the pre-pack route.

Earlier this month, Trico Marine warned of a potential filing should restructuring talks fall apart. The company also said that its second-quarter results could potentially result in a breach of covenants.

"The company may also be required to undertake bankruptcy proceedings as a result of its inability to meet its past, current and future commitments," Trico said in a statement.

Broad market little changed

A trader said that New Page Corp.'s 11 3/8% senior secured notes due 2014 were at 80 bid, 82 offered, which he called unchanged from Monday when the Miamisburg, Ohio-based coated-paper maker's bonds had moved up a little after having been beaten down over several sessions last week.

ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 "stayed right around 80 [bid]," a trader said, about unchanged from recent levels for the Houston-based energy exploration and production company's paper.

Elsewhere, Parsippany, N.J.-based real estate brokerage company Realogy Corp.'s 12 3/8% notes due 2015 were seen down 1½ points at 741/2, bid, 75 offered, though on no news.

Little movement in distressed names

From deep in the distressed-debt precincts came word that Blockbuster Inc.'s 11¾% senior secured notes due 2014 were hanging in at 47 bid, 48 offered, with a trader characterizing the credit has having seen "not much activity. It was just a blah day. There weren't even a lot of quotes. All day, there might have been a half-page of quotes on Blockbuster."

But he said that the beleaguered Dallas-based movie-rental company "did trade in that [46-47 bid] range, on some activity."

A trader saw Sorenson Communications Inc.'s 10½% senior secured notes due 2015 "weakened a little," off a point to 47 bid, 49 offered, but he said that the bonds of the Salt Lake City, Utah-based provider of telecommunications products and services to the hearing impaired "didn't have much [volume] activity, but it did drop," quoting the bonds down 1 point on the day.

Recently priced bonds hold most gains

Among recently priced issues, a trader quoted Goodyear's 8¼% notes due 2020 at 102¼ bid, 103¼ offered.

That was off from Monday's levels at 103 bid, 103½ offered, but was still around the aftermarket levels at which the Akron, Ohio-based tiremaking giant's bonds - both the original $900 million priced back on Aug. 10 and the $100 million add-on priced on Friday - were trading after the latter deal priced at 100.75 to yield 8.119%.

The trader meantime saw Mueller Water Products' 8¾% notes due 2020 trading at 100½ bid, 101 offered, pretty much in line with Monday's levels and still up a little from the 100¼ bid, 100¾ offered which the bonds hit in the aftermarket following their pricing last Thursday. Those levels, in turn, were well up from the 98.37 where the Atlanta-based water pipe and flow-control equipment maker's $225 million deal priced earlier that session to yield 9%.

A trader saw NRG Energy's 8¼% notes due 2020 at 100 5/8 bid, 101 3/8 offered.

That was about where the Princeton, N.J.-based power generating company's new mega-deal had been trading for most of last week, after the $1.1 billion issue, solidly upsized from the originally announced $750 million, priced on Aug. 17 at par.

Toys 'R' Us' 7 3/8% senior secured notes due 2016 traded on Tuesday at 100¾ bid, 101¾ offered. The Wayne, N. J.-based specialty retailer's $350 million issue had priced at par on Aug. 16, then moved as high as 101 bid, 101½ offered in subsequent sessions, before settling in at its current level.

-Stephanie N. Rotondo 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.