Midday Commentary: Recent deals holding in well amid low volumes; primary market pausing

By Paul A. Harris

Portland, Ore., Aug. 13 - Recently minted junk bonds appear to generally be holding in well amid low late-summer market volumes, a trader said on Tuesday morning.

The new R.R. Donnelley & Sons Co. 7% senior notes due Feb. 15, 2022 (Ba3/BB) are up 1½ points, the trader said. The bonds priced at par in an upsized $400 million issue on Monday.

The new add-on 7¾% senior notes due Oct. 1, 2021 (B1/B) from Windstream Corp. are riding below yesterday's 103.5 reoffer price, the trader said, marking them at 103 1/8 bid, 103 3/8 offered. Windstream's Monday tap was sized at $500 million.

Deals that priced last week are also performing well generally, the trader remarked.

The BMC Software Finance Inc. 8 1/8% notes due 2021 are 103¼ bid, with people looking for bonds, the source said. The $1,625,000,000 deal priced at par last week.

People got solid executions last week, market conditions notwithstanding, the trader commented, adding that the DreamWorks Animation SKG, Inc. $300 million offering of 6 7/8% senior notes (Ba3/B) due 2020, which priced last Wednesday, was multiple-times oversubscribed.

"They were able to get it done at the tight end of talk even though the market didn't feel that great," the source remarked.

Primary winding down

New issue activity seemed thin on Tuesday morning, and that trend is expected to continue as the Sept. 2 Labor Day holiday - a traditional summer-fall transition time in the market - approaches, the trader said.

Only one new deal was announced.

Foresight Energy LLC and Foresight Energy Finance Corp. expect to price $500 million of eight-year senior notes (expected ratings Caa1/CCC+) on Thursday via Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., Barclays, Deutsche Bank Securities Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC and UBS Securities LLC.

However the deal is entirely spoken for by holders of the St. Louis coal company's existing bonds. The company is waiting until Thursday to price the deal so that the concurrent bank loan can be completed.

The deal is whispered in the 8% area, the trader said.

New issue volume, which has hung in the $7 billion to $8 billion range over the past couple of weeks, is expected to fall sharply, the source said.

"A couple of shops told us they're finished until after Labor Day," said the trader, adding that a considerable number of investors are now enjoying their two-week vacations, leaving the dealers somewhat reticent to launch new offers.

Nevertheless, yesterday's session saw seven new deal announcements, the source recounted, adding that four of them were drive-bys.

Among those on the calendar as business expected to clear before the end of the present week, Shingle Springs Tribal Gaming Authority's $250 million offering of eight-year senior notes (B3/CCC+) via bookrunner BofA Merrill Lynch seems to be off to a decent start.

Initial yield guidance is 8¼% to 8½%, said the trader, who added that investors playing the authority's concurrent bank loan are also putting in for bonds.

The order book for the bond deal is about half done, the trader said.

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