Primary quiet to end $1.2 billion week; ATP falls more; SuperValu up on break-up possibility

By Paul Deckelman and Paul A. Harris

New York, Aug. 24 - The high-yield primary market was again quiet on Friday, with no new dollar-denominated deals priced, or even announced - which came as no surprise to market participants expecting the traditional end-of-August lull.

Just one deal of any type was seen - a euro-denominated eight-year transaction from Dutch defense firm ECA Program BV. That followed another European offering - Thursday's Norwegian kroner-denominated deal from Scandinavian shipping company Stolt-Nielsen Ltd.

Back in the domestic market, the day's goose-egg put a cap on one of the lightest new-issuance weeks so far this year, with just $1.203 billion of junk-rated, dollar-denominated paper having priced in three tranches, according to data compiled by Prospect News.

On a year-to-date basis, $209.93 billion of new junk bonds has priced so far this year in 439 tranches, according to that data - a statistical dead heat volume-wise with the new-issuance pace seen a year ago, when $210.48 billion in 479 tranches had priced by this point on the calendar.

The week's sole deal priced through the market, rather than via private transactions, from laboratory supply firm VWR Funding Inc., continued to firm Friday, although activity was light.

Among the more active names on the session, ATP Oil and Gas Corp. topped the Junkbondland most-actives list for a fifth consecutive session, as it continued to retreat from the highs notched earlier in the week immediately after the troubled offshore energy company's bankruptcy filing.

Another relatively active name on a mostly quiet day was SuperValu Inc.; the underachieving supermarket operator's bonds and its shares both rose on a published report indicating that potential buyers may be interested in some of its different store chains, even as its efforts to find a buyer for the whole company have so far failed to ring up any sales.

Statistical measures of junk-market performance were up on the day, though mixed versus a week ago.

Watching Asia

The primary market remained dormant on Friday, with no issues pricing and no announcements made.

However it became clear from conversations with sellside sources on the East Coast of the United States that a Regulation S-only Asian high-yield corporate deal which priced earlier in the week garnered a notable amount of attention from market watchers in North America.

Sources in the United States say that speculative-grade Asian corporate issuers appear keen to turn away from the local markets in favor of the global high-yield market for their financing needs.

And players in the United States believe they are seeing an opportunity taking shape.

Parsing the Big Will tap

As to the deal in question, on Wednesday China's Guangzhou R&F Properties Co., Ltd. issuing via Big Will Investments Ltd. priced a $238 million add on to its 10 7/8% senior notes due 2016 at 97.061.

The discount on the Guangzhou tap was too much, according to a Singapore-based trader who focuses on Asian high-yield fixed income.

Previous to the tap the issue size was only $150 million, so it was very illiquid, the trader noted, and added that pricing was therefore more a function of liquidity than anything else.

Since the tap priced on Wednesday the bond has rallied 2 points, taking it back to approximately the levels where it was trading before the tap was announced, the trader said.

Who can come: A conundrum

The lack of Asian high-yield supply has been worrying this year, the trader remarked.

Most Chinese deals have not been workable, the source added.

Given the problems with China industrials in the past couple of years, the bar is set quite high in terms of what the market will take.

Property companies, on the other hand, are in less need of raising capital - at least those that could contemplate coming to market.

"We have a situation where the companies the market would like to see issue don't want to issue, and the ones that do, the market will not accept."

Asked whether the global high-yield appetite for Asian corporate paper has been increasing, the trader replied that it is difficult to say, but added that there is consistent buying in the sector from accounts in Europe and the United States.

"When we go to visit clients in the U.S. and Europe we find a good level of literacy on the region, so there is definitely plenty of interest," the trader said.

'Dead as a doornail'

A secondary trader opined that Friday's junk market "was as dead as a doornail."

He said that "the most active name was ATPG - and then there wasn't much else. No deals were announced and no deals were imminent. A lot of guys went out to Bethpage Black [Course] to watch The Barclays" - a reference to the PGA golf tournament taking place this week on Long Island, not far from the canyons of Wall Street.

"Other than that, there was nothing going on - accounts took off early, salesmen took off early, traders took off early. It was a real yawn."

He added: "I don't even know if we got up to $800 million bonds [traded] today in total" - which would be considered a light day by usual junk bond market standards

Looking ahead, the trader continued that after talking "with some bank guys, they told me they don't expect anything to be announced next [i.e. this upcoming] week. It should be quiet and the week after as well" - which will be a short trading week because of the Labor Day holiday on Monday, Sept. 3, which will see financial markets in the United States closed.

Spur to secondary trading

But traditionally slow week or not, there should be a catalyst for some increased market activity on the secondary side of the fence, even with the approach of the holiday break.

The trader said that "cash balances [at accounts] are anywhere from 2% to 10% [of assets], depending on who you talk to. So we'll see what happens.

"There are names that guys are doing work on, where there are funds around - so I would expect to see some of that paper disappear next week."

A trader at another shop was thinking along the same lines, but gave a higher estimate.

He said that "accounts are still sitting on a pretty big figure in cash - between 5% and 15% - and they're just not making any money on it, so they'll have to figure out what they're going to do with it."

He projected that "this melee is not going to change very soon - so I think they're just going to limp along like this. They're going to have to invest in something - if you've got 5% or 10% in cash, and you're getting zero for it, it's going to affect your total return."

He said that the accounts would mostly tend to "invest in the names they know - although we did see some interest in some names that were laying around a little bit. They were kind of out-of-favor before, but now people are taking a second look."

However, he declined to be more specific, citing proprietary trading concerns, with his shop having invested in some of those kinds of credits.

Back in the primary sphere, the first trader theorized that "it looks like the forward calendar for September and so on is building - but it's nothing specific yet. Nothing seems to be cut in stone.

"I'm sure that we'll start to hear about some deals, not next week but the following week - and they probably won't go on the road until the first full five-day work week," which would be the week after Labor Day, starting Sept. 10.

VWR quietly firms

Among recently priced new deals, a trader said that VWR Funding's 7¼% senior notes due 2017 inched up by about 1/8 point on Friday to 101½ bid, 101 7/8 offered.

The Radnor, Pa.-based laboratory supply and distribution company's quick-to-market $750 million deal has been firming gradually ever since it priced at par late Monday.

The issue actually came too late in Monday's session for any aftermarket, but moved up to a 100½ to 101 context when it started trading Tuesday, on what one trader described as "a decent amount" of activity.

Volume trailed off after that, although the bonds gradually firmed, pushing up to between 101 and 101 3/8 bid by Thursday, though on not much trading, and continuing to gain on Friday.

Older deals a little busier

Going back to deals which priced last week, or even before, probably the busiest of the bunch on Friday was Iron Mountain Inc.'s 5¾% senior subordinated notes due 2012.

A market source said that about $10 million of those bonds traded on the Trace system, seeing them at 99 3/8 bid, down 1/8 point. There was no fresh news seen out on Friday about the Boston-based document storage and information technology company that might explain the increased activity in the bonds.

That upsized $1 billion issue priced on Aug. 7 at par, after the quick-to-market deal was upsized from an originally announced $950 million.

The bonds' 5¾% yield at pricing is believed to have been the tightest yield ever for a single-B rated issue.

Sprint Nextel Corp.'s 7% notes due 2020 were seen unchanged at 102½ bid, on volume of about $7 million.

The Overland Park, Kan.-based Number-Three U.S. wireless carrier priced its $1.5 billion drive-by transaction par on Aug. 7 after restructuring it; the offering was originally announced as a two-part transaction to consist of the eight-year notes as well as a tranche of 10-year bonds, but the latter portion was ultimately dropped before the pricing.

The bonds initially traded slightly under their par issue price, but gradually firmed to current levels over time.

Advanced Micro Devices, Inc.'s 7¾% notes due 2020 lost a point on the day to end at 100½ bid, on volume of $6 million.

The Sunnyvale, Calif.-based semiconductor company priced an upsized $500 million offering of the bonds on Aug 6 at par, after upsizing the deal from an originally announced $300 million.

ATP slides again

Away from the new deals, ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 were the busiest junk bonds for a fifth consecutive session on Friday.

And for a third straight day, they were seen on the slide, finishing the day down nearly a point at 26 3/8 bid.

A market source said that round-lot trading in the recently-bankrupt Houston-based offshore energy company's beleaguered bonds totaled over $41 million.

Those notes - which had slid for months amid the company's mounting and well-publicized problems - were seen to have been jumping around all week, on market-leading heavy volume, even amid relatively less busy activity elsewhere.

After the company's Chapter 11 filing late last Friday with the federal bankruptcy court in Houston, the bonds shot up by several points to around 31½ bid on Monday, the first full trading session after that filing. Over $75 million traded at that time.

On Tuesday, the bonds mostly held to those levels before edging up later in the session to end above 32 bid.

However, on Wednesday, having had their big burst of upside movement in immediate response to the bankruptcy filing, the bonds slid by around 4 points to about the 28½ level and continued retreating on Thursday, falling to a 27¼ to 27¾ context.

And by Friday, the bonds were seen dipping below 261/2.

SuperValu gains on speculation

The big winner among the junk credits on Friday was SuperValu's 8% notes due 2016. Those bonds moved up by 1 3/8 points to close at 89 bid, although volume was just a moderate $8 million.

The bonds rose in tandem with the Eden Prairie, Minn.-based supermarket operator's New York Stock Exchange-traded shares, which shot up by 23 cents, or 10.85%, to end at $2.35, on volume of 8.4 million, a little above the norm.

The bonds and shares rose on a published report by Bloomberg News indicating that while the debt-laden company was having trouble finding a buyer for the whole company - its primary strategic goal - some parties have expressed interest in buying some of its separate units.

For instance, market sources were quoted as saying Cerberus Capital Management might be interested in acquiring its Albertsons operation, which has supermarkets on the West Coast and the Rocky Mountain States, while seeing Royal Ahold - a supermarket powerhouse in the Northeastern United States with its Stop & Shop and Giant chains - could be interested in SuperValu's Shoppers Food & Pharmacy chain in Maryland, Washington D.C. and northern Virginia.

Indicators up on day

Statistical indicators of junk market performance were higher across the board, breaking a string of three straight sessions in which they had been mixed. However, they were mixed compared with their levels at the end of the previous week, on Aug. 17.

The Markit Group CDX North American Series 18 High Yield Index rose by 1/8 point on Friday to close at 98 bid, 98 1/8 offered, after having fallen the three sessions before that, including Thursday, when it was down by ½ point.

However, on the week, the index was down from levels at 98¼ bid, 98½ offered the previous Friday.

The KDP High Yield Daily Index, meanwhile, broke out of a two-session slump on Friday, rising by 6 basis points to end at 73.88, after easing by 6 bps the day before. Its yield came in by 1 bp to 6.22%, after having moved by 1 bp on Thursday.

Those levels compared favorably to a week earlier, when the index stood at 73.74, with a yield of 6.27%.

And the widely followed Merrill Lynch U.S. High Yield Master II Index rolled to a sixth consecutive gain, finishing up by 0.014% on Friday. That followed Thursday's 0.066% rise.

That lifted its year-to-date return to 10.143%, a fourth consecutive new high for the year, eclipsing the old peak level of 10.128%, which had just been set on Thursday. The index is now at its highest level since the last session of 2010, when it closed that year with a 15.19% return.

Its yield to worst meanwhile tightened to 6.737%, a new low for the year, coming in from the previous low point, the 6.74% seen on Thursday.

For the week, the index was up by 0.436%, its first weekly gain following the 0.061% loss for last week - its first such weekly loss after 10 straight weeks on the upside before that. The year-to-date return had been 9.666% the previous Friday, and the yield to worst was 6.858%.

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