Junk quietly heads into holiday, energy names firm, Blockbuster off; Nordenia sole pricing

By Paul Deckelman and Paul A. Harris

New York, July 2 - Junk marketeers expected a quiet and uneventful session Friday heading into the three-day July 4 holiday weekend and they were not disappointed. Those who were actually in the office said trading was indeed dull and mostly featureless, with so many people out.

Nothing was going on in the domestic primary market; the only new issuance activity came from German packaging company Nordenia International AG, which priced a €280 million issue of 9¾% seven-year secured notes.

Among recently priced dollar bonds, Insight Communications Co.'s deal was heard continuing to firm from the par level at which the New York-based regional cable systems operator's offering of eight-year notes came to market on Wednesday.

Among the more established names, traders saw continued gains in the three energy names linked to the Deepwater Horizon oil-pollution disaster going on in the Gulf of Mexico - ruptured well majority owner BP plc, junior partner Anadarko Petroleum Corp. and the owner of the now-sunken oil drilling rig whose explosive demise started the whole disaster, Transocean Inc. All are still nominally investment grade but trade around in the junk precincts, quoted in dollar values, elevated yields attracting investors.

A disaster of another sort continues to play out on dry land as embattled movie-rental operator Blockbuster Inc. skipped Thursday's deadline for a $42 million payment on its senior secured bonds, plunging its ratings down to defaulted status and pushing its paper lower.

Market indicators seen mixed

Among established issues having no new-deal connections, a trader saw the CDX North American HY Series 14 Index up 3/8 point on Friday, to end at 94 3/8 bid, 94 7/8 offered, after having eased by ¼ point on Thursday.

But the index still ends the week down from the 95¾ bid, 96¼ offered level seen at the close of trading the previous Friday, June 25.

The KDP High Yield Daily Index meantime eased by 2 basis points on Friday to 70.20, after having fallen by 15 bps on Thursday. Its yield moved upward by 1 bp to 8.77, on top of the 4 bp rise seen on Thursday.

The index thus ended the week down from the previous Friday's 70.75 reading while its yield gapped out from 8.60% the previous week.

Advancing issues regained their lead against decliners on Friday, topping them by around a nine-to-seven ratio, after having fallen behind them on Thursday by about a six-to-five margin. Advancers and decliners have battled back and forth for dominance over the last few sessions.

Overall activity, represented by dollar-volume levels, shrank by 63% on Friday as activity wound down ahead of the July 4 weekend, which would include a full market closure on Monday. Volume had risen by 12% on Thursday, bucking the trend of steadily declining volume over the previous few days.

A trader, with no small amount of understatement, said that overall, the market was "pretty quiet" on Friday.

Another, contacted around midday, said he saw "absolutely nothing new," adding that "most people are already gone."

A third declared that "everything seems to be dead - and getting deader by the minute."

At another shop, a trader estimated that "maybe 25% of the customer base is in,' adding that "Trace is pretty light."

Gulf energy names add to gains

A trader said that he saw "a little firmer tone" in the bonds of BP Capital Markets plc, calling the beleaguered British oil giant's bonds up ½ to ¾ point. He quoted the company's 5¼% notes due 2013 at 94 ¼ bid, up ½ point on the day, while the longer issues, like the 4¾% notes due 2019, were up a point, calling them at 861/2. "So there was a better tone to BP."

He also saw Anadarko Petroleum Corp. - BP's junior partner in its ruptured Macondo Prospect deepwater well in the Gulf of Mexico - as having improved. He saw its 5.95% notes due 2016 at 87 bid, 88 offered, calling that a point better.

However, he said that there was "very small, little activity" in the name, which has recently been one of the most busily traded names in both the high grade and the junk markets.

Another trader saw the Woodlands, Tex.-based independent oil and gas exploration and production company's bonds "active again and a little better, quoting the 5.95s having traded up to the 871/2-87¾ area from Thursday's levels around 86-861/2.

A trader also saw Deepwater Horizon owner Transocean Inc.'s 6% notes due 2018 around 91 bid, and its longer paper like the 6.80% bonds due 2038 around 89 bid, calling both up a point.

At another desk, though a trader saw the Swiss oceangoing oil rig company's bonds "a little improved, but not a whole lot; it still seems to be lagging the other two."

The bonds of those nominally still investment-grade energy credits have attracted the interest of some junk market accounts in recent days, given the way that paper had been pushed down to price levels producing junk bond-like yields in the wake of the ongoing oil spill disaster at the seabed well 65% owned by BP and 25% owned by Anadarko.

ATP anchored to level.

But that rise has not really helped the bonds of another Gulf energy name, Houston-based E&P operator ATP Oil & Gas Corp. A trader saw its 11 7/8% second-lien senior secured notes due 2015 remaining right around the same 71-72 area the company's bonds have recently been holding. With transactions finishing around the 72 level, he called the bonds unchanged "to maybe weaker, but only by a point."

'The company's bonds had priced at near-par levels on April 19 - ironically, the day before the Deepwater Horizon exploded, burned and sank about 40 miles from the Louisiana coast, causing the BP well to rupture a mile down and begin spilling thousands of barrels of oil per day into the waters of the Gulf.

While ATP had nothing to do with the deadly mishap, its bonds were battered down to levels as low as the lower 60s recently and now languish in the 70s on investor concerns that the toughened federal deepwater drilling regulations imposed after the disaster, including a moratorium on new drilling, may badly hurt ATP, which has most of its reserves far out in the Gulf.

Blockbuster beaten up after missed payment

A trader noted that Blockbuster Inc.'s debt ratings had been lowered to default levels by several major ratings agencies after the troubled Dallas-based movie-rental company chose to skip a scheduled July 1 deadline for making a $42.5 million payment on its 11¾% notes due 2014.

"Who cares? D, CC, that doesn't matter," he said, feeling the company is in very dire straits and is headed for eventual restructuring, whether through the bankruptcy courts or not.

He said around midday that he seen "very little activity" in the credit - "people are already leaving."

He quoted its 9% notes due 2012 right around 9 bid, about where they've been. He saw the 113/4s still around 62-63, calling that unchanged as well, on the assumption that people have already long since priced a default into the bonds' trading levels.

"I think [investors] must have been expecting this," another market source said, since the 2014 bonds had moved well down to around a 62-62½ level after having traded as high as 65 on Tuesday and 64½ on Wednesday. While seeing the paper down at least "2 points on the news," he said that there was not much volume in the credit, "it was very subdued."

Blockbuster was supposed to have made a $23.9 million amortization payment on Thursday, inclusive of a 6.0% redemption premium and an $18.5 million interest payment on the $675 million of notes. By taking this step, Blockbuster said it will preserve $42.4 million in incremental liquidity.

Even though Blockbuster did reach a forbearance agreement valid through Aug. 13 with the holders of 70% of the 113/4s, giving it more time to explore possible recapitalization moves, the default and lowering of its ratings to D means the bonds are trading flat, or without their accrued interest.

Rite Aid retreat continues

A trader said of Rite Aid Corp.'s bonds that he "would quote them lower, I would think they are lower," after the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator on Thursday reported a decline in June same-store numbers, considered a key performance metric in the retailing industry.

He saw the company's 8 5/8% notes due 2015 trading in a 79-80 context before ending around 80 bid, calling that a point lower on the day.

"But you didn't have a lot of trading to prove anything," he added.

At another desk, a market source quoted those 8 5/8s at just under 81 bid, pegging the notes down by a point.

Rite Aid's bonds had already been trading a lower levels following its announcement on Thursday that in the four-week period ended June 26, same-store sales - sales at outlets which have been open for at least a year, thus excluding anyplace recently opened or closed - slipped by 2.5% from year-earlier levels.

Total sales from all stores whether open a year or not, fell 3.3% year-over-year to $1.91 billion from $1.97 billion in 2009.

On a year-to-date basis, same-store sales fell 1.4% in June versus their year-earlier comparables, while total sales meantime dropped 2.4% to $8.28 billion from $8.48 billion the year before.

Smurfit Stone bonds just a memory

A trader saw Smurfit Stone Container Corp.'s newly issued equity down a point at $21, after having come in by "a couple of points" on Thursday, the shares' first official day of trading, to end around $22.

Meanwhile, he said that the Chicago-based packaging company's bonds "are gone," exchanged by the bondholders for the equity when the company emerged from a 11/2-year bankruptcy case on Wednesday. Bondholders converted about $3 billion of fixed-income debt into the company's new stock.

Insight bonds continue gains

Among recently priced new-deal names, a trader saw Insight Communications' $400 million offering of 9 3/8% notes due 2018 "a touch better than [Thursday]."

He quoted the New York-based Midwestern U.S. cable systems operator's new bonds at 101½ bid, up a little from 101¼ bid, 101½ offered on Thursday and up further still from the par issue price at which the bonds came to market on Wednesday.

Nordenia prices €280 million

The only news generated by the primary market on Friday came out of Europe.

Nordenia Holdings GmbH priced a €280 million issue of 9¾% seven-year second priority notes (B2/B) at 98.76 to yield 10%.

The yield printed on top of the price talk.

Barclays Capital and Deutsche Bank Securities were the joint bookrunners.

Proceeds will be used to repay existing debt and to fund a dividend to Nordenia's owner, Oaktree Capital Management, LP.

$2 billion week

With no dollar-denominated issues pricing on Friday, the July 28 week came to a close having seen issuers raise just under $2 billion by bringing an even half dozen of junk-rated tranches.

DynCorp International Inc. brought the week's biggest deal, which was an LBO transaction. DynCorp's $455 million issue of seven-year senior unsecured notes (B1/B/) priced at par to yield 10 3/8% - the tight end of price talk - on Tuesday via joint bookrunners Citigroup, Bank of America Merrill Lynch, Barclays Capital and Deutsche Bank Securities.

In the context of the muted new deal volumes seen in the May through June time-frame, the June 28 week topped the $1.74 billion average weekly issuance during that period by about $25 million, according to Prospect News data.

As the market in the United States headed into the three-day Independence Day weekend, year-to-date issuance stood at $119 billion in 284 junk-rated, dollar-denominated tranches.

The week ahead

When market activity resumes in the United States on Tuesday, it will do so with a trio of deals on the active forward calendar.

CKE Restaurants, Inc., which was initially expected to price its deal during the run-up to the holiday weekend, is now expected to price early in the week ahead, possibly Tuesday, sources say.

The Carpinteria, Calif.-based owner of quick-service restaurant chains is in the market with a $600 million offering of eight-year senior secured second-lien notes (B2/B) via Morgan Stanley, Citigroup and RBC Capital Markets Corp.

Proceeds will be used to help fund the buyout of the company by Apollo Global Management and to repay all balances under the company's existing credit facility.

The deal has been discussed in a yield context of 11¼% to 11½%, sources say. However no official price talk has been circulated.

Elsewhere, Postmedia Network Inc. is expected to price its $275 million offering of eight-year second-lien notes (B3/B-) on Wednesday via joint bookrunners JP Morgan and Morgan Stanley.

Proceeds will be used to acquire the assets of Canwest LP.

Meanwhile Germany's Oxea GmbH ran a roadshow for its €500 million equivalent offering of seven-year senior secured notes (B2/B+) in Europe during the June 28 week, and will kick off a U.S. roadshow in the week ahead.

The deal is expected to be issued in dollar- and euro-denominated notes.

Deutsche Bank Securities, Morgan Stanley and JP Morgan are leading the offering.

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