Primary quiets as 'dog days' set in; Foresight slates; AMR nosedives on anti-merger suit

By Paul Deckelman and Paul A. Harris

New York, Aug. 13 - The high-yield primary market fell silent on Tuesday with no deals priced during the session, marking the first such goose-egg in Junkbondland since July 8.

That lack of activity stood in contrast with Monday's session, during which $1.75 billion of new dollar-denominated, fully-junk rated paper from four borrowers came to market.

The only news coming out of the new-deal realm concerned Foresight Energy LLC, which was heard by syndicate sources to be shopping $500 million issue of eight-year notes for likely pricing on Thursday.

Other than that, all of the action was in the secondary market.

There was some activity in new or recently priced issues trading around, such as Monday's deals from R.R. Donnelley & Sons Co. and last week's offering from Iron Mountain Inc. Both of those new credits racked up well over $20 million of volume, placing them high up on the most-actives lists.

Traders also saw some dealings in non-new-deal names with news attached to them, including AMR Corp., whose bonds nosedived after the Justice Department and several state attorneys general announced plans to sue to block the troubled airline giant from merging with sector peer US Airways due to anti-trust concerns.

There was also no small amount of activity in J.C. Penney Co. Inc.'s bonds following the news that outspoken activist investor William Ackman had resigned from the problem-plagued retailer's board of directors, defusing a looming showdown with other members of the company's board over the selection of a new chief executive officer.

But overall, traders said things were pretty quiet. Statistical measures of junk market performance were mixed for a third straight session.

Foresight Energy $500 million

The sound of crickets began to pervade the primary market on Tuesday.

"Get used to it," a trader remarked, adding that the run-up to the three-day Labor Day holiday weekend, which begins on Aug. 30, is going to be generally quiet as far as new issues go.

No deals were priced on Tuesday.

The only hard news in the primary market was a deal announcement from Foresight Energy LLC and Foresight Energy Finance Corp.

The St. Louis based coal company plans to price $500 million of eight-year senior notes (expected ratings Caa1/CCC+) on Thursday.

A mid-morning investor conference call was scheduled to take place on Tuesday.

Morgan Stanley, Citigroup, Barclays, Deutsche Bank, Goldman Sachs, J.P. Morgan and UBS are the joint bookrunners for the debt refinancing deal.

Discussions are taking place in the low-to-mid 8% yield context, an investor said on Tuesday afternoon.

The week's calendar

Apart from Foresight Energy, the active calendar features at least five deals that are expected to price during the remainder of the week, although official price talk had not surfaced by Tuesday's close.

Of those, DS Waters of America Inc.'s $350 million offering of eight-year second-priority senior secured notes (/B-/) is being discussed in the low-to-mid 9% yield context, a portfolio manager said.

Credit Suisse, Barclays, Jefferies and BMO are the joint bookrunners.

The ACI Worldwide, Inc. $300 million offering of seven-year senior notes (expected ratings B2/BB-) is whispered to yield 6½% to 6¾%, the buysider said.

Wells Fargo is the left bookrunner. BofA Merrill Lynch is the joint bookrunner.

And Shingle Springs Tribal Gaming Authority's $250 million offering of eight-year senior notes (B3/CCC+) via bookrunner BofA Merrill Lynch has initial yield guidance is 8¼% to 8½%, according to a trader, who added that investors playing the authority's concurrent bank loan are also putting in for bonds.

The order book for the bond deal is about half done, the trader said.

Over the past couple of days, the market has been flat to slightly lower, a portfolio manager remarked on Tuesday afternoon, noting that a lot of people have already checked out ahead of Labor Day.

The cash picture remains a positive one, with nothing but positive daily flows since the Fourth of July, the source added.

R.R. Donnelley on the rise

In the secondary market, traders saw considerable activity in the new R.R. Donnelley 7% notes due 2022, with one quoting the bonds as having tightened up and firmed to 101¼ bid, 101½ offered from Monday's late levels at a wide 101 bid 102 offered.

A second trader pegged the bonds as high as 101¾ bid, although at another desk, they were seen essentially unchanged on the day in a 101- to 102 context.

A market source elsewhere said that over $24 million of the notes had changed hands on a round-lot basis alone, with numerous additional smaller trades further boosting the volume. He saw the bonds going home at 101 7/8 bid, calling that up 7/8 points on the day.

The Chicago-based printing, packaging and marketing company had priced its upsized $400 million issue at par on Monday, after the quickly shopped deal had been upsized from its originally announced $350 million size.

tw near issue price

A trader saw both tranches of the new tw telecom holdings inc. bonds trading little changed from the initial levels they hit in aftermarket dealings after pricing on Monday, or perhaps down a touch.

One said that the Littleton, Colo.-based network services provider's 6 3/8% notes due 2023 were "a par lock, so that one hasn't moved," while a second saw the notes at par bid, 100 1/8 offered, which he called down 3/8 of a point from Monday's initial aftermarket dealings around the 100½ level. That quick-to-market $350 million tranche had priced at par.

The company's $450 million "mirror tranche" of 5 3/8% notes due 2023 had priced at 96.25 to yield 5.913 and traded between 96 and 97 bid when it moved into the aftermarket.

On Tuesday, one of the traders said, "they haven't moved," locating the bonds at 96½ bid, 96¾ offered. A second saw them down a quarter-point at 96¼ bid, 96¾ offered.

Windstream stays put

Windtream Corp.'s 7¾% notes due 2021 "were wrapped around" a 103 to 103½ context, a trader said.

A second said they were down 5/8 of a point on the day at 103 1/8 bid, 103¾ offered.

The Little Rock, Ark.-based telecommunications company had priced a quickly shopped $$500 million add-on to its existing 2021 bonds on Monday at 103.5 to yield 7.171%.

Active Iron Mountain

For a third straight session, Iron Mountain's new 6% notes due 2023 were among the most actively traded junk issues.

A market source saw over $21 million of the notes changing hands on Tuesday, on top of the more than $17 million that had traded on Monday. He said that the bonds were about unchanged on Tuesday at par bid.

"They were last wrapped around par," another trader agreed.

The new bonds had also been actively traded at the end of last week after the Boston-based information technology and document storage company priced its $600 million issue at par on Thursday.

AMR loses altitude

Away from the new issues, AMR's bonds went into a nosedive on Tuesday on the news that the U.S. Justice Department and the attorneys general from six states had gone to court to block the troubled airline giant's planned merger with sector peer US Airways.

A trader saw AMR's 6¼% notes due 2014 offered as low as 103¼ to 1033/4, which he said was well down from where the notes had been trading before the negative news hammered them down.

Another market source also saw those bonds going home around the 103 bid level, with over $50 million having changed hands on the session.

He said that the paper, which had been trading in a 116 to 117 context at the end of last week, plunged as low as 103 in morning dealings in immediate reaction to the news, but then had managed to move back up to about 109, appearing to stabilize for a while there. However, a few late trades around 103-104 dragged the bonds back down going out.

While other AMR bonds did trade at lower levels, the 6¼% notes were the only one of the company's issues really generating any sizable volume of big-block trades.

In its filing with the federal district court in Washington, the Justice Department warned letting the transaction go though "would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher air fares and receiving less service."

For one thing, it noted that combining the two companies would end competition on thousands of routes between US Airways and AMR's principal operating unit, American Airlines.

Besides the federal government, the attorneys general from Arizona, where US Air has its Tempe headquarters, and from Texas - Fort Worth-based AMR's home turf -- are looking to block the merger, as are the states of Florida, Pennsylvania, Tennessee and Virginia, as well as the District of Columbia.

Penney pops

Elsewhere, J.C. Penney's bonds improved as word came out that Ackman had left the company's board following a dispute over the next chief executive officer.

A trader saw the 5.65% notes due 2020 rising over a point to 70 7/8, while the 7.65% notes due 2016 gained 1½ points, closing at 871/4.

However, he said the 7.95% notes due 2017 were down nearly 2 points at 82.

Another market source pegged the 5.65% notes at 72½ bid, up 3 points on the day.

Ackman's departure comes on the heels of news out last week regarding the company's search for a new CEO. Ackman released letters he had written to the board to news outlets and a very public feud began.

For his part, Ackman was urging the board to find a new CEO sooner rather than later to replace Mike Ullman, who took over for Ron Johnson earlier this year. Johnson had taken over for Ullman in 2011 and was handpicked by Ackman himself.

But Johnson failed to makeover the Plano, Texas-based retailer's image and soon the board asked Ullman to return.

Ackman's push for a new CEO was said to be based on internal second-quarter projections that were unfavorable.

Ackman's Pershing Square Capital Management holds a large stake in J.C. Penney, and he has not said what he intends to do with it now that he is no longer on the board.

Ronald Tysoe, a retail sector veteran, joined the board in the wake of Ackman's exit. The company is said to be searching for another person to add to the team as well.

Market indicators mixed

Statistical junk market performance indicators were mixed for a third straight session on Tuesday.

The Markit Series 20 CDX North American High Yield index gained 1/8 of a point on Tuesday to end at 105 bid, 105 1/16 offered. That was the index's first advance after two straight losses, including Monday's 1/8 of a point downturn.

But the previously strong KDP High Yield Daily index saw its first loss on Tuesday after three straight gains, falling back by 5 basis points to end at 73.534. On Monday, the index had risen by that same 5 bps amount.

The index's yield rose by 4 bps on Tuesday to 6.13%, after having come in by 2 bps on Monday. Before that, the yield had been unchanged on Thursday and again on Friday.

And the widely followed Merrill Lynch High Yield Master II index also saw its first loss after three straight days on the upside, as it dropped by 0.062% versus Monday's 0.03% gain.

That loss left the index's year-to-date return at 3.131%, down from Monday's 3.196%. The return was down from its peak level for the year so far of 5.835%, recorded on May 9, though up solidly from its 2013 low point of 0.384% set on June 25.

Stephanie N. Rotondo contributed to this review

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