Midday Commentary: Deal fatigue, earnings, government shutdown dampen primary activity

By Paul A. Harris

Portland, Ore., Oct. 2 - Fatigue in the wake of September's massive, record-setting $47.4 billion of issuance has taken hold of the high-yield primary market, a trader said on Wednesday.

Also, potential issuers are busy reporting corporate earnings, which is another factor serving to mute the new deal market, the trader said.

Add to that the negative sentiment surrounding the shutdown of the U.S. government, which is beginning to appear to be a potentially protracted situation, and you have a recipe for a quiet week in new issue-land.

"A lot of deals that were initially seen as October business were pushed into September, because the market was so hot," the trader said.

"We're now hearing that the dealers might bring $20-to-$25 billion in October.

"But it's probably going to be a quiet week because when you talk to the dealers they say, 'Maybe we'll have a deal this week.'"

The hangover

What big bond binge would be complete without a hangover?

It's unfolding in the secondary market, where some of September's big names are looking pale.

After enjoying a day or two in the sun, the General Motors Co. 6¼% notes due Oct. 2, 2043 are 98¾ bid, 99¼ offered, the trader said.

The notes, which came at par in a $1.5 billion tranche a week ago, initially traded at a premium, the source recounted.

But with GM reporting on Monday that its year-over-year sales were off 11% in September, investors are trading out of the GM 30-year paper and into the GM 4 7/8% notes due Oct. 2, 2023, which was 98 5/8 bid on Wednesday morning, up from its recent lows in the 97s, said the trader.

The $1.5 billion of GM 10-year paper also came at par a week ago in the same $4.5 billion three-part megadeal (Ba1/BB+/BB+).

Meanwhile, after being roughed up in the secondary, the $1.5 billion GM short tranche, the 3½% notes due Oct. 2, 2018, are par bid, par ¼ offered, the trader said, adding that it had traded as low as 99½ bid.

Another name that has lately had high-yield investors reaching for Speedy Alka Seltzer is Caesars Entertainment Resort Properties, LLC, according to the trader.

The 11% second-lien notes due October 2020 (Caa2/CCC+) were 97¼ bid, 97¾ offered on Wednesday morning. The deal, which came at par in a $1.15 billion tranche late last Friday, had traded as low as 96½ bid, the trader said.

Caesars' 8% first-lien notes due 2020 (B2/B) were 99½ bid on Wednesday after having traded as low as the low 98s, the source added.

The outperformer among recent deals is the ADT Corp. 6¼% senior notes due October 2021 (Ba2/BB-), which were 101¾ bid, 102 1/8 offered on Wednesday morning. The $1 billion issue priced at par one week ago.

Slim calendar

Meanwhile the active calendar is extremely thin at present, with only one deal on tap for the week, as of Wednesday's open.

TMS International Corp. is holding a roadshow for a $300 million offering of eight-year senior notes (B3/B-) via Goldman Sachs, JPMorgan, HSBC and Deutsche Bank.

The deal, backing the buyout of the company by certain members of the Pritzker family, is expected to price toward the end of the week, the trader said.

There is no official price talk yet, but initial guidance is in the low 8% context.

© 2015 Prospect News.
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