Primary paralyzed; secondary sedated; absence of Goodyear, Innophos action on call news

By Paul Deckelman and Paul A. Harris

New York, Aug. 30 - Both sides of the high-yield market sleepwalked on Monday through the start of what is widely considered to be the last week of summer - strictly unofficially, of course, as the calendar claims that the season doesn't end until the fourth week in September this year.

Several secondary market traders said that Monday's session was probably as quiet as Friday's had been, and they were calling Friday one of the quietest days of the year so far in Junkbondland.

As was the case on Friday, there seemed to be little or no movement in last week's relatively busy names like General Motors Corp. or Blockbuster, Inc., even as bankruptcy talk continued to swirl around the latter name, alarming a shareholders' group that now demands it not be kept out of the loop.

The announcement by Goodyear Tire & Rubber Co. that it is calling its three series of outstanding 2011 and 2015 bonds for redemption at the end of September had little impact on those bonds, as it came too late in the session to make any difference.

There likewise was no response at all to Innophos Inc.'s paper to after the chemical manufacturer's announcement of its plan to redeem all of its 2014 subordinated bonds, also in late September.

Primary remains dormant

Over in the new-deal arena, primary market remained dormant, as the pre-Labor Day week got underway.

No issues priced, and no new deals were announced.

Trading volume in the high-yield market was extremely thin, according to a Boston-based trader from a high-yield mutual fund, who spoke shortly after the Monday close.

Junk prices, which steadily outperformed a weak stock market, into the middle part of last week, lately seem to be coming under some selling pressure, said the source, who marked cash bonds 1/8 point to ¼ point lower on the day.

At this point there are no deals on the active forward calendar for the post-Labor Day week, the trader said.

New bonds little traded

Among recently priced issues, a trader quoted Mueller Water Products Inc.'s 8¾% notes due 2020 trading at 100½ bid, 101 offered -- a little off last week's highs around 101 bid, 101½ offered, but otherwise pretty much in line with the aftermarket levels the Atlanta-based water pipe and flow-control equipment maker's $225 million deal moved up to after it priced at 98.37 to yield 9% on Aug. 19.

He meantime saw NRG Energy Inc.'s 8¼% notes due 2020 offered at 101, in line with last week's levels around 100¾ bid, 101 offered. The Princeton, N.J.-based power generating company's $1.1 billion issue, solidly upsized from the originally announced $750 million, priced on Aug. 17 at par.

But the trader meantime said that he saw "nothing since last week" doing in Toys' R' Us Inc.'s 7 3/8% senior secured notes due 2016. The Wayne, N. J.-based specialty retailer's $350 million issue had priced at par on Aug. 16, and then moved up to a peak aftermarket level last week around 101 bid, 101½ offered.

He likewise saw nothing at all happening in Goodyear's new 8¼% notes due 2020, which last week had been trading as high as 103 bid, 103½ offered, before moderating a little to 102 bid, 103 offered, which was still well up from the 100.75 at which Akron, Ohio-based tiremaking giant's $100 million issue priced on Aug. 13, to yield 8.119%. The deal was an add-on to the $900 million of those same bonds which originally priced back on Aug. 10.

Market indicators stay mixed

Away from the new-deal world, a market source saw the CDX North American HY Series 14 index lose ¼ point on Monday to 96 bid, 96¼ offered, after having risen by that same amount on Friday.

The KDP High Yield Daily index meantime gained 3 basis points on Monday to end at 71.58, after having eased by that same amount on Friday. Its yield declined by 2 bps, to 8.36%, after having risen by 3 bps on Friday.

The Merrill Lynch High Yield Master II index rose by 0.144% on Monday, after having lost 0.019% on Friday. It ended the day with a year-to-date return of 8.619%, up from Friday's 8.463%. The index remains below its peak level for 2010 so far, the 9.085% recorded on Aug. 9.

Advancing issues fell behind decliners on Monday, after having led them during the previous two sessions. The difference between the two groups was perhaps a couple of dozen issues out of more than 1,400 tracked, versus the advancers' nearly six-to-five edge on Friday.

Overall activity, represented by dollar-volume levels rose by almost 10% on Monday from Friday's very anemic levels reached as volume plunged by nearly 38% that session.

"There was not a whole lot happening" during Monday's session, a trader said, noting that he was seeing "an awful lot of 'unchangeds'." It was "very quiet here, on not much volume."

"It seems like today was even slower than Friday," another trader said, "and Friday was pretty bad."

He noted that "everyone you're dealing with is missing maybe a third of their staff, just because everyone's trying to squeeze out that bit of summer on vacation.

He added "throw in the U.S. Open" tennis tournament as a distraction factor. Play started getting underway Monday in Queens, just a short subway ride from Manhattan for anyone inclined to play hooky from the office altogether, and was being televised for the benefit of those not feeling like leaving the office.

"So if you have any beach fans, tennis fans, or you're taking someone back to college, that pretty much covers it." He said that there were "bits and pieces here and there - but there's no real general theme."

He also said that the market was not seeing the usual end-of-month shuffling around of bonds to make managers' paper results look better, mainly because "there's no one around to shuffle them with."

Goodyear goes nowhere on call...

Goodyear Tire's announcement Monday that it was calling for redemption $973 million of outstanding bonds due from 2011 and 2013 had little impact on those bonds, since it came well after 5 p.m. ET and the bonds were already trading around the anticipated takeout levels. The tiremaker plans to redeem the bonds on Sept. 29.

Goodyear said that it was calling for redemption the remaining outstanding $388 million of 7.857% notes due 2011, out of the $650 million that had originally priced in 2011l, as well as the $325 million of 8 5/8% notes due 2011 and the $260 million of 9% notes due 2015.

A market source saw some odd-lot trading in the 7.857% notes above the 105 bid level, while noting that the bonds had already been trading around there even before news of the actual call, reflecting prescient investor belief that the bonds would be called and taken out around that level. Goodyear said that the call price on those bonds would be determined.

The source also saw some pre-news trading in the 8 5/8% notes due 2011 around the 104¼ bid level, right in the vicinity of the 104.313 redemption price announced by the company. And there was no trading seen on Monday in Goodyear's 9% notes due 2015; the most recent round-lot dealings had been conducted around the 104¾ bid, well before the news, with the bonds scheduled to be taken out at 104.5.

...as does Innophos

Also announcing a bond call - this one on Friday - was Cranbury, N.J.-based chemical manufacturer Innophos, Inc., whose 8 7/8% senior subordinated notes due 2014 are to be redeemed in cash on Sept. 27, the company said.

No takeout price was announced.

There was not trading Monday in those bonds, which last traded near the beginning of August at 103 bid, a market source said.

Shareholders look to block Blockbuster move

A trader said that Blockbuster's 11¾% senior secured notes due 2014 "might be a point better" at 51 bid, but on "not much activity." However, he noted that "at least the quotes are higher."

Another trader saw those bonds at 51 bid, 52 offered - but said the bonds were "maybe down" between ½ and 1 point on the day.

He also saw the troubled Dallas-based movie-rental company's 9% subordinated notes due 2012 trading around the 4-ish level, with "the bulk of trading today" around 3¼ to 4.

"But we're not talking any huge volume - a couple of hundred bonds here or there."

Investors were meantime trying to digest the latest news media reports indicating that Blockbuster could soon file for Chapter 11.

The Los Angeles Times reported on Thursday that Blockbuster is in process of creating a "pre-planned" bankruptcy filing and, in doing so, has met with a number of film studios to ensure that they will continue to supply the company with new movies, even as it restructures.

The report cited anonymous sources who said the filing could come by mid-September.

All of this bankruptcy buzz is upsetting some Blockbuster shareholders, who would likely stand to take a huge haircut in the event of a filing. A group claiming to represent more than 26% of the voting shares said Monday that it is seeking legal recourse should the company file for bankruptcy.

The group of 480 Blockbuster shareholders headed by Niko Celentano said that it had written over the weekend to Blockbuster's chief executive officer, Jim Keyes, complaining that the shareholders feel they have been "left in the dark" during protracted recapitalization talks with creditors.

Celentano, writing on the group's behalf, warned Keyes that Blockbuster's board of directors has a fiduciary duty to negotiate in the best interest of shareholders, and said that an out-of-court settlement, rather than the "Pre-packaged" bankruptcy being bandied about in media reports "would be in the best interest of all involved."

If Blockbuster files, it would be in a position to try to restructure its $1 billion of debt and to seek court approval for canceling the leases on between 500 and 800 unproductive stores, out of the company's current nationwide roster of about 3,400 outlets.

GM bonds spin wheels

A trader saw GM's benchmark 8 3/8% bonds due 2033 unchanged at 32½ bid.

At another desk, a trader said there was "not a whole heck of a lot of volume" in the bonds, with all of three sizable trades racked up. He saw "a couple million" trading at 32 bid, and another $1 million at 321/2, "and that's all she wrote," he said, comparing the low volume in the credit with action in GM last week, where on at least one day, more than $100 million bonds changed hands across the GM capital structure.

GM's benchmarks, a third trader suggested, were down 1/8 point at 31 7/8 bid, 32 3/8 offered.

Those bonds had recently been trading as high as a 34 to 36 range, maybe around two weeks ago, but they started last week on the downside, dropping down to about 33 bid, and at one point dipped below 31 before settling in at their current levels around 32.

The slide in the bonds had followed the Detroit giant's late-session announcement on Aug. 18 outlining its plans for an initial public offering of stock shares sometime this fall, with the proceeds to be used to pay back some of the more than $50 billion that GM owes to the federal government from its bailout over the past few years.

GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were seen unchanged at 97½ bid, 98½ offered.

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