Junk primary quiets after huge Tuesday; Rite Aid surprise gainer; no bad housing data impact

By Paul Deckelman and Paul Harris

New York, June 23 - The high-yield primary market took a step back on Wednesday after having priced nearly $2 billion of new paper on Tuesday, the most in weeks. Traders meantime saw the new bonds from Case New Holland Inc., Michael Foods Group Inc. and Monday's deal from Capella Healthcare, Inc. pretty much holding on to their respective aftermarket gains.

Away from the new-deal arena, the secondary market was seen largely unchanged to perhaps a little lower, as equities struggled in the wake of shockingly bad May new-home sales numbers out of Washington. However, in Junkbondland, traders said that those numbers seemed to have had little impact on the bonds of such builders as Hovnanian Enterprises Inc. and KB Home.

Rite Aid Corp.'s bonds were seen having done pretty well on the day, making up for all of the ground they lost on Tuesday, when investors moved out of the Camp Hill, Pa.-based drugstore chain operator's bonds ahead of its Wednesday release of first-quarter numbers, apparently fearing the worst. But the company surprised pessimistic Wall Streeters by reporting a smaller than expected loss.

Anadarko Petroleum Corp.'s bonds continued to get smacked around in the wake of its recent downgrade to junk by Moody's Investors Service and investor fears that that Texas oil company - the minority partner in the blown-out BP well causing a massive Gulf of Mexico oil slick - might end up being liable for some of the damages from that ecological disaster, even though its management has tried to distance itself from the mishap and blame it all on BP.

Traders saw yet another fall off in market activity coinciding with televised World Cup soccer coverage, particularly the U.S. national team's dramatic last-minute victory to advance to the next round.

Market indicators remain mixed

A trader saw the CDX North American HY Series 14 Index unchanged on the session Wednesday at 95 5/8 bid, 95 7/8 offered, this after having tumbled on Tuesday by 1¼ points.

The KDP High Yield Daily Index, meantime, fell by 14 basis points on Wednesday to end at 70.93, on top of a 15 bps slide on Tuesday. Its yield rose by 5 bps for a second consecutive session, ending at 8.55%.

Advancing issues - after having beaten decliners for eight straight sessions - finally fell behind them on Wednesday, although the difference between the two groups was less than 100 issues out of the nearly 1,500 traded.

Overall market activity, represented by dollar-volume levels, dropped by 25% on Wednesday, after having zoomed by 54% on Tuesday over the previous session's pace.

"The market's been kind of dicey the last couple of days," a trader said, "as the equity markets have felt kind of squishy."

On Wednesday, he continued, "we opened up this morning a little bit on the softer side - equity futures were up, but then the housing news came out and the market just went straight down. It struggled all day to come back, and then after the Fed minutes came out, [indicating that] a low inflation, low interest rate environment, a sort of steady state, will be continuing in the future, that goosed the market a little bit. That kind of low-inflation sense is giving some people confidence."

He also noted that the high-yield market has been the subject of some positive press lately, including a Tuesday article from Bloomberg News which proclaimed that investors "are returning to junk bonds following the worst month since 2008 on speculation the economy is growing fast enough to avert corporate defaults without sparking inflation."

He said that kind of article talks about high yield as "the only place to be, that people are frustrated by the lack of return in the Treasuries market and other fixed-income products, and that high yield offers relative value versus the market.

"So generally speaking, the market is in pretty decent shape."

Another trader said that "no deals came, there were no big announcements, so it was a pretty quiet day."

Soccer distracts market.

A trader noted the very notable distraction factor created by the U.S.-Algeria World Cup soccer match, which saw the American squad pull out a 1-0 victory over Algeria with a goal in the last minute of play, sending it onto the next round of the tournament.

"It started at 9:30 [ET] this morning, and really, it takes a lot of the focus" away from the market. "We were calling around to the various offices here, and people were focused on the game - you call the brokers and other people and everybody's watching TV and not really focusing on the market. So there was a kind of a lull until 11 [a.m. ET], and then things picked up after that, in the afternoon."

Rite Aid mixed on numbers

Rite Aid debt was "way up there, activity-wise," a trader said, following the release of the company's first-quarter earnings.

But the trader said that, in terms of price movement, the bonds were "weird, some are up, some are down." He saw the 9½% notes due 2017 gaining nearly a point to close around 803/4, while the 7.70% notes due 2027 lost about a point to end around 58.

Another market source pegged the 8 5/8% notes due 2015 at 82¾ bid, about a point better on the day.

Rite Aid, another trader said "recouped all of its losses" from Tuesday; her saw the 9½% bonds up 2 points at 81-81½ bid, on "pretty heavy volume." Those bonds had fallen on Tuesday ahead of the company's Wednesday release of quarterly results.

For the quarter ending May 29, the drugstore chain operator reported a net loss of $73.7 million, or 9 cents per share, on revenues of $6.4 billion. Those figures compared to a net loss of $98.4 million, or 11 cents per share, on revenues of $6.5 billion the year before.

Analysts polled by Thomson Reuters were expecting the loss to come in at 14 cents per share on revenues of $6.4 billion.

Rite Aid said the 2.1% decrease in revenue was due to store closures, as well as a decline in same-store sales. Same-store sales dipped 1% total compared to year-ago levels.

Additionally, the company confirmed its fiscal 2011 guidance. Rite Aid expects to see between $25.2 billion and $25.6 billion in sales and is aiming for a net loss between $355 million and $570 million.

"Rite Aid's first fiscal quarter results were a bit better than we expected - at least on the EBITDA line," wrote Gimme Credit LLC analyst Kim Noland in an afternoon research note. Rite Aid reported adjusted EBITDA of $249.8 million, or 3.9% of revenues. "We view it as good news that [the company] affirmed full yea guidance of $875-$975 million EBITDA although this likely assumes improved operating results in the second half.

And, Noland said, that with "reasonable liquidity" - about $1.25 billion - junior bondholders might be appeased given the "overleveraged capital structure."

Housing numbers a non-story

A trader said that it seemed to him that the poor May new-home sales data released by the government during the morning "was pretty much a non-event" for high yield homebuilders.

He saw Hovnanian Enterprises' 10 5/8% notes due 2016 as the only one of the Red Bank, N.J,.-based builder's bonds to do any real trading, calling them up a point at 101 bid, but "on no real volume."

He saw Toll Brothers' 6¾% notes due 2019 unchanged at 97 5/8 bid, while KB Home's 7¼% notes due 2018 were up ¼ point at 90½ bid, on "a couple of million traded."

In the morning, the Commerce Department reported that new-home sales swooned by 33% in May from April's levels, - the biggest drop on record - to a 300,000-unit annual pace, also the slowest pace ever recorded since the Department began keeping records in the 1960s. Analysts pointed to the April 30 end of a special federal tax credit for first-time home buyers.

Anadarko active among energy names

A trader said that his firm was involved in such energy credits as Anadarko Petroleum Corp., BP Capital Markets plc, and ATP Oil & Gas Corp. The latter issuer's 11 7/8% second-lien senior secured notes due 2015 were "very active."

At another desk, a market source saw Anadarko 's 7 5/8% notes due 2014 fall nearly 2 points on the day, to 95¾ bid.

Yet another participant saw Anadarko's 6.45% bonds due 2036 ease by ¼ point to just above 86 bid.

The Woodlands, Tex.-based oil company's bonds have been getting clobbered over the past few days, after Moody's Investors Service dropped its ratings to junk in the wake of speculation that Anadarko - the 25% owner of the ruptured Gulf of Mexico undersea well causing the massive pollution problems - may incur some liability as a result of the accident.

Well majority owner BP's bonds were meantime seen unchanged to easier on the day; a trader saw its 1.55% notes coming due later this year unchanged at 94¾ bid, on "decent volume."

The trader further saw ATP's bonds at 731/2- bid, 74½ offered, which he called about in line with the 72-75 range the Houston-based independent oil and gas operator's bonds have held over the past few sessions.

Case New Holland heads higher

A trader said that the new Case New Holland 7 7/8% notes due 2017 traded as high as 101 5/8 bid after the $1.5 billion issue from the Lake Forest, Ill.-based construction and agricultural heavy equipment - upsized from the $1 billion issue originally shopped around - had priced on Tuesday at 99.32 to yield 8%, and then traded in the aftermarket at 100½ bid, 100¾ offered.

He also noted the company's established 7¼ % notes due 2016 trading on Tuesday at 99¾ bid, par offered. "They looked cheap relative to the new deal when we traded them - then the new deal caught a little bid and traded up."

Overnight, he said that someone had posted a trade of the 7¼% notes at 101¼ bid, "so that goosed the whole thing and guys were lifting the new 7 7/8s." He said the new bonds traded as high as 101½ bid, 101¾ offered, finally closing out at 101½ bid, 102 offered.

"So that was a pretty healthy run in that issue from Tuesday."

Case New Holland's 7 1/8% notes due 2014 gained about ¼ point to 103-plus.

Michael Foods on the menu

A trader saw Michael Foods Group's new 9¾% notes due 2018 trading at 102½ bid, 102¾ offered, not far from the levels at which the Minnetonka, Minn.-based food products and services company's $430 million issue traded on Tuesday.

Earlier that session, those bonds had priced at par to yield 9¾%.

Capella Health deal stays up

A trader said that Capella Health's 9¾% notes due 2017 traded at 100¾ bid, 101¼ offered, up around ¼ point on the day.

The Nashville-based healthcare services provider priced its $500 million of new notes on Monday at 98.74 to yield 9½%. The bonds were then seen on Tuesday trading above the par bid level, at around 100½ bid, 101 offered.

Citgo deal seen a little easier

A trader said that the recently priced Citgo Petroleum Corp. deal "is off a little bit." At his shop, they traded bonds as high as 100¾ bid, 101¼ offered, but by the close, the bonds had eased a little to 100½ bid, 101 offered.

That was still well up from the 98.822 level at which the Houston-based petroleum refiner - a wholly owned subsidiary of Venezuela's state-run oil company, PDVSA - priced its downsized $300 million offering of 11½% senior secured notes due 2017 on last Friday to yield 11¾%.

No deals, no announcements

The primary market, meanwhile, was zero-ed, with no issues pricing and no new deal announcements made.

Market watchers await news out of Europe on a pair of euro-denominated deals from car rental companies.

Both are running brief roadshows, and could price before Friday's close.

France's Europcar is marketing a €250 million offering of seven-year senior secured notes (expected ratings B2/B+) via physical bookrunners JPMorgan and Deutsche Bank Securities and joint bookrunners Credit Agricole CIB and SG CIB.

The roadshow for the debt refinancing deal wraps up on Thursday.

Also Hertz Holdings Netherlands BV is roadshowing a €275 million offering of five-year senior unsecured notes (B1/B) via physical bookrunners Barclays Capital and JPMorgan and joint bookrunners BNP Paribas, Credit Agricole CIB and Natixis Bleichroeder.

Proceeds will be used to refinance international fleet debt facilities and the company's Belgian fleet financing facility and for general corporate purposes.

That roadshow wraps up on Friday.

In any case, no information surfaced on either of those deals during the Wednesday session.

The European market began the week with a conspicuous flurry of activity which included, in addition to the announcements of the above-mentioned car rental company deals, a pair of Tuesday drive-bys.

HeidelbergCement AG priced an upsized €650 million issue of 6¾% 5.5-year fixed-rate notes (B1/BB-BB-) at 99.44 to yield 6 7/8%. And French chemical manufacturer SPCM SA priced a €190 million issue of seven-year notes (expected ratings B3/BB-) at par to yield 8¼%.

Summer days

Apart from the news out of Europe, three dollar-denominated deals are now being marketed via investor roadshows.

DynCorp. International Inc. will be on the road with a $455 million offering of seven-year senior unsecured notes until Monday.

Citigroup Global Markets Inc., Bank of America Merrill Lynch, Barclays Capital Inc. and Deutsche Bank Securities Inc. are the joint bookrunners for the LBO- and related debt refinancing deal.

Meanwhile, Bankrate, Inc. is presenting a $280 million offering of five-year senior secured notes (B2/B) to investors on a roadshow that wraps up on Wednesday.

Jefferies & Co. and RBC Capital Markets Corp. are the joint bookrunners for the acquisition financing.

And CKE Restaurants, Inc. also expects to price a $600 million offering of eight-year senior secured second-lien notes (B2/B) during the week ahead.

Morgan Stanley & Co. Inc., Citigroup Global Markets Inc. and RBC Capital Markets Corp. are the joint bookrunners for the LBO and related debt refinancing deal.

Deal announcements are possible between Thursday and the three-day July 4 Independence Day weekend in the United States, a syndicate banker said during a Wednesday telephone conversation.

However primary market activity is apt to remain muted in the run up to the holiday, the source added.

Factors including a holiday-thinned investor audience and risk relating to recent market volatility will likely serve to inhibit dealers from announcing roadshow offerings - which would hit the market before Independence Day but not price until the following week - during the pre-Fourth of July week, sources say.

And following the Independence Day break, sources say, the primary market will likely pass a comparatively slow summer, with issuance activity which figures to pale in comparison with that seen during the torrid first quarter of 2010, when junk issuers raised $69 billion in 157 dollar-denominated tranches, according to Prospect News data.

Stephanie N. Rotondo contributed to this report

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