No junk pricings as shortened $2 billion week ends quietly; Covanta, Modular Space strong

By Paul Deckelman and Paul A. Harris

New York, Feb. 21 - The high-yield primary arena was quiet on Friday, with no pricings seen and no dollar-denominated new deals announced. The sole news of the day came out of Europe, with French cement manufacturer Kerneos Tech Group SAS announcing plans for a two-part euro-denominated offering.

Friday's new-issue goose-egg pulled the curtain down on one of the quietest weeks seen so far this year, shortened by this past Monday's Presidents Day holiday observance. According to data compiled by Prospect News, new issuance of U.S. dollar-denominated, fully-junk-rated paper by domestic or industrialized-country borrowers fell to $2.03 billion in five tranches from the previous week's not exactly world-beating tally of $3.44 billion in 10 tranches.

It was the slowest week seen so far this year, other than the half-week of Jan. 1 through Jan. 3 which kicked off the year, when no deals priced. It eclipsed the previous slowest week which actually saw some pricings, ended Jan. 10, when $2.75 billion of new junk paper priced in six tranches, according to the data.

The week's small deal volume nudged year-to-date issuance up to $35.16 billion in 70 tranches - running some 25.7% behind the red-hot new deal pace seen last year, when $47.37 billion in 107 tranches had come to market by this point on the calendar, according to the data.

Traders said that two of the week's new deals continued to trade strongly in the secondary market - Wednesday's offering from Berwyn, Pa.-based Modular Space Corp., a seller of modular structures and storage containers, and Thursday's deal from Covanta Holding Corp., a Fairfield, N.J.-based waste-disposal, waste-to-energy generation and metals recycling company.

By the same token, they saw Wednesday's issue from Fort Worth, Texas-based homebuilder D.R. Horton, Inc., and Thursday's new paper from Advanced Micro Devices, Inc., a Silicon Valley high-tech company, little moved from their respective issue prices.

Away from the new-deal realm, there was active trading in Caesars Entertainment Corp. bonds, on no real news, in paper of Energy Future Holdings Corp., after The Wall Street Journal reported that the troubled Texas power generation company and utility operator will likely file for Chapter 11 next month, and in the existing AMD bonds following the company's new issue.

The overall market was seen as firm but quiet. Statistical market-performance indicators turned mixed after having been higher across the board on Thursday, and were mixed as well on a week-over-week basis after having been higher last week.

Kerneos to roadshow €335 million

Friday's news flow in the primary market was extremely thin.

No deals were priced.

One offering, a euro-denominated deal, was announced.

French calcium aluminate cements manufacturer Kerneos Tech Group took its place as the only deal (in any currency) on the active forward calendar as it disclosed plans to begin a roadshow on Monday for a €335 million offering of seven-year senior secured notes in two tranches.

The roadshow wraps up on Thursday.

The deal includes a €200 million minimum tranche of fixed-rate notes, callable after three years at par plus 50% of the coupon, and a to-be-determined amount of floating-rate notes, callable after one year at 101.

Goldman Sachs International is the bookrunner for the Rule 144A and Regulation S deal. Mizuho Securities is the co-manager.

Proceeds will be used to help finance the acquisition of Kerneos by Astorg Partners.

Thursday deals seen mixed

In the secondary market, a trader described Friday's session as "very quiet, adding that "the deals that priced yesterday [Thursday] were mixed."

For instance, he said, "Advanced Micro Devices really didn't do much of anything at all." He said that the Sunnyvale, Calif.-based semiconductor manufacturer's 6¾% notes due 2019 "initially opened up around 100½ to 101, but then bids got hit - first the 100½ bid got hit, then a 100 3/8 bid got hit and a 100¼ bid got hit," leaving the bonds trading in a par to 100¼ context by the end of the day. The company had priced $600 million of the notes at par late Thursday after having upsized its quick-to-market deal from an originally announced $500 million. There was no aftermarket trading seen in the issue on Thursday.

"So that one really didn't do much, beyond the new-issue pricing," he concluded.

On the other hand, he said, the 5 7/8% notes due 2024 from Covanta Holding Corp. "met with more success," he said, pegging those bonds around a 101½ to 101¾ bid range.

The company had priced its $400 million drive-by issue at par, and those bonds had moved up to around the 101½ area in heavy initial aftermarket trading on Thursday, when over $55 million of those notes had changed hands.

On Friday, a market source at another desk said, the bonds got even better, moving up to 102 3/8 bid at one point - although he said that was only on a smallish odd-lot trade. Most of the day's dealings were around 101¾ bid, although volume of $7 million was well below Thursday's busy pace.

"It was quiet, with light volume, and some re-trading of things," yet another trader observed, quoting the Covanta bonds at 101 5/8 bid, 101 7/8 offered, while seeing the new AMDs locked at par.

AMD's existing 7½% notes due 2022, meantime, were unchanged at 98½ bid, on brisk volume of over $9 million.

Modular Space stays strong

"The one that's really done well from the last couple of days," a trader said, was Modular Space's 10¼% senior secured notes due 2019, which "really popped," he said, quoting the bonds at 103½ bid, 103¾ offered.

The company priced $375 million of the bonds at par on Wednesday off the forward calendar, after upsizing the issue a little from the original $365 million. It came too late in the day Wednesday to trade, but jumped to the 103 bid level when it was freed for aftermarket activity on Thursday, and stayed there on Friday as well.

The trader agreed with the general consensus that the hefty coupon was the key driver in the bonds' aftermarket performance, noting that "even with the lower-rated stuff, people are still looking for the yield. So anything with that kind of coupon is going to do well."

As for Wednesday's other deal - the D.R. Horton 3¾% notes due 2019 - "they were just hanging around the issue price all week long. It did nothing, right from the start," the trader said.

The homebuilder priced a $500 million drive-by issue at par, after upsizing it from $400 million initially, and while the bonds saw substantial aftermarket dealings of over $21 million on Wednesday and another $9 million on Thursday, most of that was attributed to high-grade accounts reaching down the credit curve into the junk space to pick up some yield, rather than real junk bond investors.

The trader saw the bonds at one point at 100¼ bid, "but they didn't do much of anything."

Light trading seen

Away from the new deals, "flows were really light," a trader said, while a second called Friday "a virtual non-event.

"Everything's gotten so rich," the first trader said, "that people are having a tough time finding things they want to buy. And when you get big inflows driven by the ETFs," as was the case both last week and this week when a total of some $2.2 billion was seen having come into junk mutual funds and exchange-traded funds, "stuff continues to grind higher just because there's no supply coming from new issues - and they've got to buy something."

A market source at another shop called the overall market "pretty firm, even though it's still relatively quiet, with a lot of people taking off.

"We're following the stock market to a certain extent and the ETFs are doing a lot.

"But it definitely is pretty firm."

He said that at his shop, "we get a lot of bid-wanteds or offering-wanteds from the ETFs. With the exception of Wednesday, eight out of every 10 was an "offering wanted," -- which means that there are more buyers than sellers," He called that "almost a leading indicator, especially on good size."

He concluded that "even though the volume won't prove anything great, there definitely are more buyers than sellers."

Caesars, TXU busy

Among specific non-new-deal credits, a trader said that Caesar's Entertainment's issue of 10% notes due 2018 "was the bond of the day," with over $20 million traded, putting it high up on the most-actives list. He saw the bonds off 1 point at 48 bid. There was no fresh news out about the Las Vegas-based gaming giant to explain the high volume.

Energy Future Holding's various bonds traded fairly busily, at slightly lower levels, after The Wall Street Journal reported that the Dallas-based merchant power generation and utility operating company is lining up debtor-in-possession financing in preparation for a bankruptcy filing that could come as early as next month.

Its Energy Future Holding Intermediate Corp. LLC 10% notes due 2020 were seen down 1/8 point at 105 bid, on volume of over $5 million, while its Texas Competitive Electric Holdings Co. 10¼% notes due 2015 lost ¼ point to end at 4¾ bid, on volume of over $3 million.

Market indicators mixed

Statistical junk-market performance indicators were mixed on Friday, after having been higher across the board on Thursday. They were also mixed versus where they had finished last week, ended Feb. 14.

The Markit Series 21 CDX North American High Yield Index lost 3/32 point to end at 107 9/16 bid, 107 5/8 offered, after rising by 5/16 point on Thursday.

It finished down from the previous Friday's 107 7/8 bid, 107 15/16 offered level.

The KDP High Yield Daily Index recorded its 11th consecutive gain, rising by 8 basis points to close at 75.07, after pushing up by 6 bps on Thursday.

Its yield meanwhile came in for an 11th consecutive session on Friday, declining by 3 bps to 51%. On Thursday, it had fallen by 4 bps for a second straight session.

Those levels compared favorably with the previous Friday's 74.76 index reading and its 5.44% yield.

And the widely followed Merrill Lynch High Yield Master II Index ignored any superstitious qualms and made it 13 straight gains on Friday, rising by 0.116%, on top of Thursday's 0.056% improvement.

The latest upturn raised its year-to-date return to 2.07% - its ninth straight new high for the year and first time above the 2% mark. It had ended at 1.952%% on Thursday.

On the week, the index rose by 0.52%, its third straight weekly gain. It had risen by 0.547% the week before to finish with a year-to-date return of 1.542%

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