Interoil sets deal size; Sun eyes sale; GM gyrations continue; builders still despite data

By Paul Deckelman and Paul A. Harris

New York, Aug. 25 - It was another deadly dull day in the junk market on Wednesday, with primaryside activity still greatly restrained and the secondary arena not much better.

Unlike earlier in the week, new-deal players actually did have a little bit of news to mull over, however, although nothing priced. Syndicate sources heard that Norwegian energy company Interoil Exploration & Production ASA had set the size of its planned offering of senior secured notes, a deal which is expected to price in September.

A little closer to home, Sun Healthcare Group, Inc., an Irvine Calif.-based nursing home operator currently in the process of splitting its business in two publicly traded companies to enhance shareholder value, was heard to be considering bonds as part of the nearly $200 million of debt funding it is raising to facilitate the spinoff of the new real estate investment trust that will hold its roughly 200 properties.

In the secondary market, General Motors Corp.'s bonds continued to be fairly heavily traded in an otherwise thin market, still gyrating around at levels lower than those bonds had traded just a week ago, when GM announced plans for a big initial public stock offering.

Elsewhere, traders did not see a lot of dealings in bonds from the homebuilding sector, despite a second straight session of poor data relating to home sales, this time tracking new-home transactions. D.R. Horton Inc.'s bonds were seen a little lower, but the sector was otherwise quiet, with virtually nothing going on even in the bonds of Toll Brothers Inc., which reported better-than-anticipated fiscal third-quarter earnings.

Primary remains inactive

In keeping with the first two sessions of the week, there were no high-yield issue pricings or new deal announcements on Wednesday.

Sun Healthcare announced in a press release that $197.5 million of debt financing backing its spinoff of Sabra Health Care REIT Inc. could come in the form of secured or unsecured bonds to be issued by Sabra.

However, the financing could also come in the form of secured bank debt or a revolver, in addition to long-term mortgage financing.

Sun is separating into two publicly traded companies, with the new Sun entity providing nursing, rehabilitative and related specialty health care services as well as managing the rehabilitation therapy, medical staffing services and hospice businesses. The other entity, Sabra, will own substantially all of Sun's currently owned real property portfolio and intends to operate as a real estate investment trust.

The separation is expected to be completed in the fourth quarter.

Also, Norway's Interoil set a NOK 310 million issue size for its proposed September sale of senior secured bonds.

That's the high end of the previously announced range of NOK 275 million to NOK 310 million.

Pareto Securities AS and SEB Merchant Banking AB are the advisers for the offering.

Easing into September

Little activity, if any, is expected in the primary market before trading resumes at the conclusion of the three-day Labor Day weekend, market sources say.

In addition to the Labor Day holiday, the first week of September will be further shortened by Rosh Hashanah, which commences on Sept. 8, a debt capital markets banker observed during a Wednesday conversation.

Hence, the first post-Labor Day week will be an especially short one for Jewish market participants, the banker said.

"I don't think that we are going to come roaring out of the gates," the source remarked, but added, as had been the case in early- and mid-August, that drive-by deals will not be a surprise.

"Everybody cleared the cupboards during the first two weeks in August," the banker remarked, referring to deals run on the big high-yield syndicate desks.

Heading toward the August-September crossover week, the September calendar has yet to take shape in any meaningful way, the source added.

Right now, NBTY Inc.'s $900 million of senior unsecured notes, via Bank of America Merrill Lynch, Barclays Capital and Credit Suisse, is the only deal that's on this banker's radar screen as highly likely September business.

NBTY is being acquired by the Carlyle Group in a transaction valued at $3.8 billion.

Recent Anadarko busy, but little changed

A trader said that Anadarko Petroleum Corp.'s bonds were "pretty active - but they don't look like they've really changed" from the levels seen Tuesday, when the Woodlands, Tex.-based energy exploration and production company's 6 3/8% notes due 2017 were at 99 bid.

He saw those bonds - $2 billion of which priced on Aug. 9 off the investment grade desks at par, or a spread versus comparable Treasuries of 415.6 bps - as the most actively traded of the company's credits.

Since then, the split-rated bonds (Ba1/BBB-/BBB-) have been seen attracting interest from junk bond accounts as well as from more traditional high grade players.

Market indicators stay softer

Apart from the new-deal realm, a market source saw the CDX North American HY Series 14 index ease by 1/8 of a point on Wednesday to 96 1/8 bid, 96 3/8 offered, after having fallen 7/8 of a point on Tuesday.

The KDP High Yield Daily index meantime dropped by 18 bps on Wednesday to end at 71.62, after having lost 9 bps on Tuesday. Its yield rose by 4 bps to 8.33%, after having increased by 3 bps on Tuesday.

The Merrill Lynch High Yield Master II index lost 0.144% on Wednesday, after having also eased on Tuesday. It ended the day with a year-to-date return of 8.422% versus Tuesday's 8.579%. The index also remains below its peak level for 2010 so far: the 9.085% recorded on Aug. 9.

Advancing issues trailed decliners for a fifth consecutive session on Wednesday, although the latter's winning margin widened out to around seven to five, after having been just a couple of dozen issues out of the more than 1,400 tracked through the previous four sessions.

Overall activity, represented by dollar-volume levels, rose by 20% on Wednesday, after having gained 10% on Tuesday and a robust 33% on Monday.

Despite the ostensible numerical rise in the activity level, Wednesday was "just as exciting as [Tuesday]," which is to say, not much was happening.

"There was no new-issuer stuff popping up," he said, "and even in the secondary, it's been kind of bland.

"There really was no theme," he added.

Another trader said that he "did not see a lot of things, a lot of swings or big changes in any of the most active bonds."

Commenting on the recent softening in the junk market - for instance, market indicators were considerably better earlier in the month, such as the Merrill Lynch index year-to-date reading - he opined, "We're definitely on shaky ground. A couple more bad numbers, and we're going to be heading south, that's for sure."

He estimated that there was about a 50-50 chance of a double-dip recession, which has been held out by analysts as having the potential to throw ice water all over the junk market's potentially record-setting primary borrowing binge and the more-than-respectable gains the secondary has racked up this year versus all of the other major asset classes.

GM gyrations continue

A trader said that General Motors "was a mover today - and there were not a whole lot of other movers."

He said that there had been "a lot of trading - it did tick lower, and then it bounced back up." He saw the benchmark 8 3/8% bonds due 2033 get as low as 31 bid, 31½ offered, which he said was down 1 point. Then the issue moved back up to around 31¾ bid, 32¼ offered, and he estimated that the benchmarks ended down ½ a point on the session.

GM, a second trader said, "was the only thing really bouncing around," seeing the benchmark issue trading around 31¾ bid, 32 offered and then go to 31¼ bid, 31½ offered near the end of the day.

"They just keep drifting lower," especially when compared with the levels around 34 or 35 bid, which the bonds had seen as recently as last week.

Another trader said that GM was "very active. In fact, it was the largest trading name" on the day in Junkbondland.

He said that over $100 million of various GM bonds had changed hands during the session, with the busiest of those being the 8 3/8s, which he saw ending down 1 point at 32 bid.

However, another trader said that after the bounce off the lows, the GM benchmarks ended at 32 1/8 bid, 32 5/8 offered, which he characterized as up 3/8 of a point on the day.

Among other GM bonds, a trader at another desk saw GM's 8¼% notes due 2023 off 1½ points to end at 30¼ bid.

A trader said there was "definitely pressure" on the Detroit-based top U.S. carmaker's paper, although he did not know whether it was due to investor unease with the company's recently announced plans for an initial public offering of its shares, or was more a function of generally heavier junk bond and stock markets, coupled with angst over the continued struggles of the economy, which would seem to bode ill for a maker of big-ticket consumer products like GM.

A trader said he "did not see much" activity in the Ford Motor Co.'s bonds, with its 7.45% bonds due 2031 at 97½ bid, unchanged on the day. Another also called the Ford long bonds unchanged at 97½ bid, 98½ offered.

Apart from the long bonds, though, a trader said that Ford "seemed active," seeing "a bunch" of its 7 3/8% notes due 2011 trading around 102 bid, which he said was "only down ¼ [of a point]." He saw the Dearborn, Mich.-based No. 2 carmaker's 6 5/8% notes due 2017 "pretty active, too," pegging those bonds at 101¾ bid, pretty much unchanged.

Homebuilders little moved despite bad numbers

Traders saw little or no activity in the bonds of such homebuilder credits as Toll Brothers, Hovnanian Enterprises Inc. or Beazer Homes USA Inc. despite two straight days of terrible statistics about home sales.

"You see a lot of quotes in CDS, but I don't see it in the bonds," he declared. "There's just not much activity in these things. They don't trade much."

A trader said that he had not seen "one Trace trade" in Toll Brothers Finance Corp.'s paper, even though the Horsham, Pa.-based luxury homebuilder's New York Stock Exchange-traded equity rose 94 cents, or 5.81%, to $17.13 per share on volume of nearly 9 million shares, almost three times the norm, after it reported better-than-expected numbers for its fiscal third quarter.

"It's hard to believe," the trader said, commenting on the lack of activity in Toll's bonds.

A market source at another desk did see Toll's 6 7/8% notes due 2012 trading around the 103-104 level, well down from prior levels north of 106 bid, although there were just a couple of odd-lot trades on the day.

He also saw Toll's 4.95% notes due 2014 perhaps a half-point higher versus previous levels around 1003/4, but again, it was just a few odd-lots and nothing of size.

Toll earned $27.3 million, or 16 cents per share, for the fiscal quarter ended July 31, although most of the gains were attributable to tax credits and fewer write-downs. Excluding one-time charges, Toll's pretax adjusted income was $13.3 million, more than triple a year ago. For that 2009 quarter, Toll reported a net loss of $472.3 million, or $2.93 a share.

The relatively strong showing surprised Wall Streeters, who were expecting a loss of 14 cents per share ex-items. However, revenue fell to $454.2 million from $461.4 million the year before, although the latest figures topped analysts' expectations of around $396 million.

Among other builders, a trader said that Fort Worth, Tex.-based D.R. Horton's 6 7/8% notes due 2013 had a few trades on the day at 104¼ bid, which he called about unchanged.

At another desk, the 6 7/8s were also quoted around 104 - but that was considered down 1¼ points on the day. The company's 6½% notes due 2016 were quoted down ¾ of a point at 101 bid.

A trader saw Red Bank, N.J.-based Hovnanian's 10 5/8% notes due 2016 at 981/4, which was the only trade of the day in the $785 million deal, and this was after checking three or four other bonds, he said, so "activity is very slim."

And he checked several issues of Atlanta-based Beazer and "didn't even see a trade, nothing of any kind of size, so there was virtually no activity" in Hovnanian or Beazer bonds.

On Wednesday, the Commerce Department reported that new-home sales slumped 12.4% in July from a year ago to a 276,000-unit annual pace - the slowest pace since the department began keeping records in 1963. June's pace was meantime revised downward to 315,000 units annually. Wall Street was looking for 330,000-unit rate for July.

Those poor numbers followed Tuesday's existing-home sales data from 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.

A trader said that, for the most part, the sector's bonds "have been hanging in there, even with all of the bad numbers." But he added, "We haven't seen much action off that news, believe it or not."

MGM slips on Dubai World report

Trading in MGM Resorts International Inc.'s debt was "definitely a mixed bag," according to one trader.

"I saw a lot of MGM trade," he said. "Every single issue traded."

Some of the Las Vegas-based casino operator's debt traded down, he said, while others were about unchanged.

The 11 1/8% notes due 2017 were seen slipping half a point to 1111/2, while the 6¾% notes due 2012 dipped about a point to 91. The 13% notes due 2013, however, were "kind of right where they were" at 1153/4.

Those levels were echoed at several other desks as well.

Another market source said the 6 5/8% notes due 2015 had dropped over 2 points on the day, ending around 78¾ bid.

The slip in the paper came after Reuters issued a report about Dubai World's restructuring.

Dubai World is MGM's partner in the gaming company's gigantic CityCenter development project on the Las Vegas Strip. The state-owned conglomerate's plan is to sell off about $20 billion in assets, including its stake in MGM Resorts.

Elsewhere in the casino arena, MGM's cross-town rival, Harrah's Entertainment Inc.'s 10% notes due 2018 were "not super active," a trader said, though they "traded down a little bit."

The trader quoted the paper at 78½ bid, 79 offered.

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.