Junk rally bid fades; market slips again; mortgage names pushed lower; Emdeon plans bond deal

By Paul Deckelman and Paul A. Harris

New York, Aug. 22 - The high-yield market continued to have trouble trying to right itself after Thursday's big slide, which carried over to Friday. Traders on Monday said that a promising start was wasted as the secondary weakened later in the day, in line with a similar trajectory in the equity markets.

Activity levels were described as quiet, as Junkbondland slogs through the usual late-August doldrums.

Among specific issues, Rite Aid Corp.'s bonds were seen lower in relatively busy dealings, although there was no fresh news seen out on the drugstore-chain operator.

Another decliner was gaming giant Caesars Entertainment Corp., as always one of the more active issues.

Financial credits - particularly those of such mortgage insurance companies as MGIC Investment Corp. and MBIA Inc. - got hit in the wake of Friday's decision by Arizona regulators to put two units of sector peer PMI Group, Inc. under state supervision and order them to forgo any new business due to their failure to meet capital requirements. The troubled company's own bonds continued to trade at deeply distressed levels.

Statistical indicators of market performance were lower across the board.

Not much was going on in the primary sphere, typical for the last full week in August, but especially so this year in view of uncertain market conditions.

However, syndicate sources said that Emdeon Inc., which provides financial and administrative services to the health care industry, plans to shop a secured bond deal as part of the financing for the company's pending acquisition by a unit of Blackstone Group.

Canadian metals-mining concern Selwyn Resources Ltd. announced plans for a smallish secured notes deal to generate capital for restarting a closed mine.

Selwyn to sell $30 million

The high-yield primary market in the United States remained quiet on Monday, as it is expected to do for the remainder of the two weeks heading into the Labor Day weekend.

Vacationing buyside and sellside workers, in addition to capital markets turbulence, which has diminished investors' appetites for risk, have coupled to leave the new issue market "adrift in the Horse Latitudes," a syndicate banker said.

Vancouver, B.C.-based Selwyn Resources announced that it plans to sell $30 million of senior secured bonds, expected to be issued with attached warrants to purchase common shares.

First Securities AS, of Oslo, Norway, is managing the sale.

Proceeds will be used for the purposes of restarting the ScoZinc Mine, a past producing zinc-lead mine located in Nova Scotia, which Selwyn recently acquired.

Closing of the offering will be subject to certain conditions precedent, including receipt of an amended industrial authorization for the expansion of the mine pit and relevant corporate resolutions.

Selwyn is a zinc and lead exploration and development company.

Secondary slow and sloppy

In the secondary arena, a trader acknowledged that "not much" was going on, adding that "it may be that way until we reach the merry month of September," when activity is expected to pick up after the Labor Day holiday.

"It's just boring," he continued. "We've run out of things to read."

At another desk, a trader said of Monday's session that "it was weak - we went out on the lows, there's no question about that."

He said: "The market opened up okay, like equities when they opened, but high yield got weaker as the day went on and definitely went out on its lows. It was a soft day, no question."

That was the same pattern seen in stocks, where the bellwether Dow Jones Industrial Average, after having plunged by 419 points on Thursday and another 172 points on Friday, zoomed some 200 points in early Monday dealings, only to give most of that back and end up just 37 points, or 0.34%, at 10,854.65. Broader indexes also gave up early gains to close only marginally higher.

Back in the junk precincts, the trader said, "The EPFR data continues to show outflows [from high-yield mutual funds] pretty consistently in their daily data, which is also a problem for this market over time" since flows of money into and out of the high-yield funds, as measured by Cambridge, Mass.-based EPFR and rival AMG/Lipper, are considered a reliable barometer of overall market liquidity trends, even though they represent only a relatively small portion of the total amount of funds sloshing around in the junk market.

With both services having recently shown a string of big weekly outflows - a sign that some nervous investors are pulling funds out of junk to perhaps put it somewhere where there is less perceived risk - "right now, it's just difficult for this market to find footing, there's no question."

Market signs continue slide

Junk market statistical indicators, which had dropped sharply on Thursday and then continued to ease on Friday, again remained under pressure across the board on Monday.

A trader saw the CDX North American Series 16 HY Index down 9/16 of a point on Monday to close at 91 11/16 bid, 91 15/16 offered - its low point for the year.

The KDP High Yield Daily Index fell by 15 basis points on Monday, on top of the 29-bps drop on Friday and Thursday's 37-bps swoon.

Its yield rose by 4 bps, to 7.93%, after gaining 8 bps on Friday and ballooning out by 13 bps on Thursday.

And the Merrill Lynch U.S. High Yield Master II Index declined for a third consecutive session, losing 0.11% on top of declines of 0.259% on Friday and 0.457% on Thursday.

Monday's loss lowered the year-to-date return to 1.639% from 1.751% on Friday and left it well below the peak level for the year of 6.362% set on July 26.

Familiar names fade

Among specific names, a trader said that "volume-wise" Rite Aid Corp.'s 8 5/8% notes due 2015 came in as "the big trader on the day," with over $20 million of that paper changing hands. He saw them down three-quarters of a point to 87¾ bid, although there was no fresh negative news out on the Camp Hill, Pa.-based No. Three U.S. drugstore chain operator.

A second trader said the bonds ended at 87½ bid, 88 offered, down a point from the most recent high tick, although he added that "they've been in that 88-90 range for three or four days."

He also saw the company's 9½% notes due 2017 at 85 bid, 86 offered, unchanged on the day, while its 10 3/8% senior secured second-lien notes due 2016 at 102-1021/2, calling that unchanged as well.

At another desk, the 8 5/8% bonds were seen off just over a point, to end at 87 7/8 bid.

A trader saw Nashville, Tenn.-based hospital giant HCA Inc.'s big two-tranche deal "softer by about one-quarter to one-half [point]."

He quoted the $2 billion issue of 7½% notes due 2022 around 95½ bid, 96½ offered versus Friday levels around 96¼ bid.

He also saw its $3 billion of 6½% senior secured notes due 2020 at 97 bid, 98 offered, off from Friday's 97¼ bid level.

Both bonds - each priced at par on July 26 and firmed to 101½ in the immediate aftermarket - had come well down from those peak levels in the intervening weeks. They fell between 1 point and 1½ points on Thursday and eased an additional 1 point on Friday.

Last week's 11 1/8% notes due 2019 from Immucor Inc. were seen by a trader having "gone down a little" to 100¾ bid, 101¾ offered versus prior levels around 101 bid, 101½ offered.

Another trader saw those bonds on Monday at 100½ bid, 101½ offered, which he called about unchanged on the day.

The Norcross, Ga.-based maker of chemical reagents and testing equipment used in hospital blood banks priced $400 million of those notes last Tuesday at 98.714 to yield 11 3/8%, in line with pre-deal market price talk.

When the new bonds were freed for dealings on Wednesday, they shot up to 101 5/8 bid, 102 3/8 offered, but then declined gradually from those peak to around current levels.

Away from those health care-oriented issues, a trader said that McClatchy Co.'s 11½% notes due 2017 were down 1½ points, with about $18 million trading.

The bonds went home at 95¾ bid.

The trader said that those bonds were lower on top of the pounding they took last week, notably on Thursday, when they lost more than 3 points, although that was amid a general market downturn.

There was no fresh news out on the Sacramento, Calif.-based publisher of such notable newspapers as the Miami Herald, Kansas City Star, Fort Worth Star-Telegram and Charlotte Observer.

Among the paper producers, a trader said that NewPage Corp.'s 11 3/8% first-lien notes due 2014 were ending up in around 81 bid, 81½ offered, having traded in that area all day. He said it was a point higher than Friday's levels, with "a decent amount" traded.

He said the Miamisburg, Ohio-based coated-paper manufacturer's 10% second-lien notes due 2012 "don't really trade - they're quoted around 12-14, but really no activity in them."

He also said that Catalyst Paper Corp.'s 7 3/8% notes due 2014 were quoted lower in a 29-31 context, but on "very little activity, just one or two trades." He saw the Richmond, B.C.-based paper manufacturer's 11% senior secured notes due 2016 right around the mid-60s, pegging them in a 64-656 area. He said Catalyst was "really pretty quiet. I'd say it was pretty much unchanged from last week."

A trader said that Caesars Entertainment Corp.'s 11¼% senior secured notes due 2017 were down a half-point to 1041/2, with over $10 million traded.

However, the Las Vegas-based casino powerhouse's more widely traded 10% notes due 2018 were more volatile, with a market a market source estimating them at 74 bid, down 3¼ points on the day, and down some 8 points from levels around 82 which they had held before last Thursday's market slide.

Mohegan off on refi concerns

In that same gaming segment, a trader said that Mohegan Tribal Gaming Authority's 6 1/8% notes due 2013 were down 1½ points at 76 bid.

Market sources noted that the bonds of the Uncasville, Conn.-based Native American gaming operator of the Mohegan Sun resort had traded as high as 79 bid last week and attributed the easing to investor worries about whether it will be able to refinance its near-maturity debt.

A trader said that when Mohegan reported its fiscal third-quarter results last week, "the company did okay, but they have to refinance their 2011s and 2012s, and they don't have enough cash right now. So can they refinance? I don't know."

However, another market source, while seeing the 6 1/8% notes around that same 76 level, called that up nearly a point from the lows at which Mohegan had opened.

On their conference call last Monday following the release of the numbers, company executives said Mohegan is still working on refinancing its borrowings debt and hopes have new debt in place "soon."

Mortgage names mowed down

Friday's news that the Arizona Department of Insurance had placed two units of mortgage insurer PMI Group Inc. under regulatory supervision played havoc with mortgage insurer sector bonds on Monday.

One of the hardest hit was PMI competitor MGIC Investment Corp., whose 5 3/8% notes due 2015 swooned by 7 3/8 points on the session to close at 63 bid.

A trader said that sector peer MBIA Inc.'s 14% surplus notes due 2033 were quoted down a point or two at 46-50. He said the Armonk, N.Y.-based mortgage insurance company's paper fell in line with a generalized easing in that sector that also included MGIC, Radian Inc., and PMI.

But he said it was "mainly CDS" trading in those names.

"These are small bond deals, but there was a lot of volume in the mortgage insurers' CDS contracts, and I'd say their bonds are quoted down a couple of points."

He reiterated that "we're not seeing the bonds - but it was very active in CDS."

PMI's own bonds were not traded that much; a trader said there was "no real volume" in the bonds after the news, though they were being quoted lower.

There was a 20 bid for the 6% notes due 2016, he said. The 65/8% notes due 2036, meantime, were offered at 34 and then at 30. That compared to 32 bid, 33 offered last week.

Another trader said there were a "few trades" in the 4½% convertible notes due 2020 at 22 bid, 23 offered. He called that "down a few."

Citing a failure to meet capital requirements, the Arizona regulators placed PMI Mortgage Insurance Co. and PMI Insurance Co under regulatory supervision.

PMI also said that it had been told that its PMI Mortgage Assurance Co, a subsidiary of PMI Mortgage Insurance Co., was no longer eligible to write new insurance - leaving the company with no way to write new business.

Stephanie N. Rotondo contributed to this report

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