ATP slides anew on BP 'top kill' failure, June otherwise begins quietly; Spectrum launches

By Paul Deckelman and Paul A. Harris

New York, June 1 - The month of June got under way on Tuesday in Junkbondland with statistical indexes heading lower and activity not much improved from the quiet pre-holiday levels seen towards the end of last week, whether because of renewed investor angst over the general state of things or, more simply, people not wanting to let the holiday hiatus come to an end just yet. A trader opined that "maybe we're going from a gray May to June gloom."

About the only issue really seen doing anything was ATP Oil & Gas Corp., whose bonds - already badly battered in the aftermath of the disastrous Gulf of Mexico oil rig accident - fell further as the news sank in that well operator BP plc's much-touted "top kill" effort to plug the leaking oil well had failed. The company's shares likewise got crushed.

Away from the ongoing ATP disaster, traders said that not very much was happening, seeing Toys 'R' Us

Inc.'s bonds - which had traded several points higher in Friday's abbreviated pre-holiday session on news that the retailer plans an initial public offering to raise funds for debt paydown - having eased a little from those highs in quiet dealings.

In the primary arena, Spectrum Brands Inc. formally announced what people in the market had known for quite some time - the Atlanta-based consumer products company will sell $500 million of new secured bonds, as part of its $1.8 billion of financing for the acquisition of sector peer Russell Hobbs Inc., maker of the popular George Foreman line of grills.

Spectrum Brands plans $500 million

Amid ongoing volatility in the global capital markets, the high-yield primary maintained a pulse as the post-Memorial Day session got underway on Tuesday, sources said.

Spectrum Brands rolled out a $500 million offering of eight-year first priority senior secured notes (B2/B/).

A brief roadshow starts Wednesday and wraps up on Thursday.

The deal is set to price late this week.

Credit Suisse, Bank of America Merrill Lynch and Deutsche Bank Securities are joint bookrunners.

Proceeds will be used to help fund the acquisition of Russell Hobbs, Inc., as well as to refinance existing debt of both companies, and for general corporate purposes.

Aside from Spectrum Brands, Triumph Group, Inc. will begin a roadshow on Wednesday for a $350 million offering of eight-year senior unsecured notes (Ba3/B+), an acquisition financing via left bookrunner RBC Capital Markets Corp. and joint bookrunner UBS Investment Bank.

That deal is expected to price during the June 7 week.

Day-to-day deals

Apart from Spectrum Brands and Triumph Group, there is a small calendar of deals which have concluded their respective roadshows and are being characterized as day-to-day, syndicate sources say.

They include Cedar Fair, LP's $500 million offering of 10-year senior unsecured notes (expected ratings B2/B-), Willbros Group, Inc.'s $250 million offering of six-year senior secured second-lien notes (B3/B+) and Citgo Petroleum Corp.'s $1.5 billion two-part offering of first-lien senior secured notes (Ba2/BB+/BB+), market sources say.

Meanwhile, what had been expected - as recently as mid-April - to be a busy summer in the primary market is apt be somewhat quieter because of the ongoing volatility, market watchers said on Tuesday.

"Things can change quickly, of course," a syndicate official said, but added that the "quiet summer" outlook seems to be getting traction presently.

"People are getting things ready and will launch deals as volatility subsides," the official said, but added that the window for some anticipated opportunistic refinancings may be closed, at least for a while.

"Some people need to get deals done, and will simply have to pay," the source asserted.

"But the right issuer, especially one that is familiar to the market, could still get a deal done."

Existing Spectrum bonds little moved

The news that Spectrum Brands had formally launched its $500 million offering had little impact on the company's outstanding 12% guaranteed senior subordinated toggle notes due 2019, since the company announcement said that "no change is contemplated" in that $218 million bond issue, even as it plans to refinance other debt.

Those bonds had been trading around 103½ in the early part of last month, but jumped as high as 107 bid on May 21, when news of the upcoming bond deal and upcoming bank-loan transactions circulated in the marketplace.

Since them however, the bonds have dropped back to around, or even slightly under, the par level. The bonds had ended last week just under par, and did move slightly upward to close at par on Tuesday, although there were only a few smallish odd-lot trades in the credit Tuesday.

Market indicators easier

A trader saw the CDX North American HY Series 14 Index closing Tuesday down 1¼ points on the session at 93¾ bid, 94¼ offered, after having gained 1/8 point on Friday.

Meanwhile, the KDP High Yield Daily Index lost 14 basis points on Tuesday to end at 69.87, after having risen by 24 basis points on Friday. Its yield widened by 4 bps to 8.93%, after having tightened by 7 bps on Friday.

A trader characterized Tuesday as "a very quiet day - it seems that a lot of [shops] are still thinly staffed. I don't know if it's the long weekend or people are just easing back into stuff."

After a tough May, which saw bond indexes retreat by as much as three percentage points on the month, "people are licking their wounds," adding that in that kind of environment, there was "nothing too exciting jumping out."

He said that Friday's abbreviated session had been "very quiet, with people just cleaning out little odd positions here and there."

He noted that "on an active day," the Trace bond tracking system would show "the top 20 or 30 volume issues all having huge volume, but today, the top volume issue had $20 million and the Number-10 credit had just $10 million. Usually, you'll have 20 or 30 [bonds] that are in the $20 million to $30 million range.

"So there was just not huge activity today."

A second trader said that he had seen the activity in ATP Oil, "but besides that volumes are very thin, with not a lot of activity, not a lot of trading and not a lot to talk about."

He said of the areas he specifically watches - energy and cyclical sectors like paper and packaging, steel and utilities - "that stuff is all very quiet."

In the primaryside, meanwhile, aside from the formal announcement of the Spectrum deal, there was "absolutely nothing, I'll tell you right now."

Meanwhile, "we're waiting on all these guys [like Willbros Group, CITGO Petroleum and Cedar Fair], and it's going to be very tough to get done."

New month provides no pickup

The change of the calendar to a new month produced no great impetus for anyone to get back into the market, now that the usual end-of-month dealings for May were now history. A trader said that "everyone that had to do something did it last week, and now, it's kind of 'what do we do until the end of the quarter?'

"Now, instead of everyone planning their Memorial Day weekend, we're working on the July 4th weekend," which will see a supposedly full, though probably very quiet session on Friday, July 2, followed by a full market closure the following Monday, July 5, since the Fourth actually falls out on a Sunday this year.

ATP Oil off again

A trader said that he had heard of some "active trading" in ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 in the high 60s, versus the levels in the mid-70s at which the Houston-based independent oil and gas exploration and production company's bonds had traded at the tail end of last week - before it became known that BP plc's latest effort to stop the flow of oil into the Gulf of Mexico had failed.

A second trader quoted the bonds down around 67 bid, 69 offered.

At another shop, a trader said that the ATP bonds were "all that I'm seeing," with not a lot of activity otherwise.

Yet another market source quoted the bonds in a wide 681/2-72 context.

The bonds have lost nearly one-third of their value since the $1.5 billion issue priced on April 19 at 99.531 to yield 12%, pushed steadily downward in the aftermath of the disastrous April 20 accident in the Gulf of Mexico, which saw the Deepwater Horizon, a Transocean Inc. rig working on a well for BP, explode and capsize, killing 11 platform workers, injuring 17 more and releasing what eventually became recognized as possibly the worst U.S. oil spill of all time.

Besides ATP, other companies in the sector have also been feeling the burn, as BP failed yet again over the weekend to stop the leak.

A trader said Plains Exploration & Production Co.'s 10% notes due 2016 traded in a range of 102¾ to 103, with about $10 million to $15 million changing hands.

"I think [Transocean's] paper was down a bunch," another trader said, referring to the company's convertible debt. "I heard [credit default swaps] was over 100 wider."

Yet a third trader noted a steep drop in the company's Nasdaq-traded shares as well - the equity plunged to $8.72 from Friday's close at $10.64, a fall of $1.92, or 18.05%, on volume of 10.8 million shares, more than three times the norm.

On Tuesday, BP said it had yet another plan to try to contain - not stop - the oil leak. It estimated that, if the plan was successful, it would not be able to make another attempt at plugging the well until August.

The environmental disaster could result in criminal charges to the company, as an investigatory panel has been set up to look into the April explosion that caused the well to burst and leak into the Gulf waters. The Obama Administration has also placed a moratorium on offshore drilling, though that will not apply to wells that are already producing.

Toys trades slightly lower

A trader said that Toys 'R' Us' 7 7/8% notes due 2013 traded down slightly at 1011/2, though there was "nothing on huge volume" - only around $1 million or $2 million of the bonds traded.

The Wayne, N.J.-based specialty retailer's bonds had jumped about 2 or 3 points on Friday to around the 102 range on the news that the company - which used to be public, until it was bought by Kohlberg Kravis Roberts & Co, Bain Capital and Vornado Realty Trust in 2005 for $6.6 billion - had filed with the Securities and Exchange Commission for an initial public offering of up to $800 million, saying it intended to use the proceeds from that IPO to reduce its debt.

First Data loses ground

A trader saw First Data Corp.'s 9 7/8% notes due 2015 down about 1½ points to the 80 level, on about $15 million traded. The bonds had risen on Thursday into the lower 80s, around an 82ish context, as they bounced back from the beating they took earlier last week on the unexpected news that the Atlanta-based electronic transaction processing company's chief financial officer and two other senior executives had resigned. The bonds had held onto most of those gains in Friday's relatively quiet trading.

The trader also saw about $10 million of the company's 10.55% notes due 2015 trading around 76½ bid, calling them off about ½ point to a full point.

Automotive issues seen quiet

A trader said that General Motors Corp.'s benchmark 8 3/8% bonds due 2033 were going out trading around 32¾ bid, up ¼ point on the day, though there was "not huge volume on that name," with only about $10 million of the bonds changing hands.

He also saw GM domestic arch-rival Ford Motor Co.'s 8 1/8% notes due 2020 down ¾ point to 99 5/8 bid, on "a couple of million" of the bonds. "There was just not a huge trade" in the credit, he said.

He also said that there had only been one odd-lot trade, for about $288,000 of Ford's normally fairly busy 7.45% bonds due 2031. They were down 1½ points, but he cautioned that being there was just that one trade, "you really can't judge if it was up or down based on that."

At another desk, a trader quoted the Ford long bonds down 1½ points on the day at 87½ bid, 88½ offered, while seeing the GM benchmark issue off by ½ point at 32 bid, 32½ offered.

Realogy in retreat

Realogy Corp.'s 12 3/8% notes due 2015 lost nearly 3 points to end at 75 bid.

There was no fresh news seen out on the Parsippany, N.J.-based real estate brokerage company.

-Stephanie N. Rotondo contributed to this report

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