Market awaits Crown Media, Lawson deals as Essar bows out; secondary subdued as holiday looms

By Paul Deckelman and Paul A. Harris

New York, June 28 - For a second straight session, the high-yield primary market put up a big fat goose egg on Tuesday. No new issues were heard to have priced during the session amid a heightened feeling of market caution - or perhaps just end-of-the-month apathy, exacerbated by the run-up to this weekend's Independence Day holiday break.

The new wariness - recently, a number of prospective primary deals have been postponed or perhaps just scrubbed altogether - was again on display with the news that Indian outsourcing services provider Essar Services Mauritius/Aegis Ltd. put off its planned five-year deal, spooked by the familiar bugaboo of market conditions. That followed by a day a similar attack of cold feet suffered by Michigan utility operator CMS Energy Corp.

High-yield syndicate sources, however, did hear price talk emerge on a pair of deals slated for pricing during Wednesday's session: the $300 million eight-year offering from cable network operator Crown Media Holdings, Inc. and the $560 million of eight-year paper being shopped around by SoftBrands, Inc. and Lawson Software, Inc. in support of the pending acquisition of Lawson by SoftBrands' parent company.

Traders said the secondary was decidedly quieter and saw hardly any dealings in such recently priced bond issues as AMC Networks, Inc. and Rural/Metro Corp.

Things were just as deadly dull in established issues, including the recently quite-busy NewPage Corp., which has still not revealed what it plans to do on Thursday, when a $100 million coupon payment on one of its bond issues is due.

Talking the deals

No new issues priced on Tuesday, but the stage was set for a couple of Wednesday deals.

SoftBrands and Lawson Software talked a $560 million offering of eight-year senior notes (Caa1/B-) with an 11¼% to 11½% yield .

Bank of America Merrill Lynch, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Morgan Stanley & Co. Inc. and RBC Capital Markets Corp. are the joint bookrunners.

Crown Media talked its $300 million offering of eight-year senior notes (B3/B-) with a yield in the 10½% area.

J.P. Morgan Securities LLC has the books.

Both deals underwent covenant changes.

Price talk is expected Wednesday on the inVentiv Health, Inc. $390 million offering of eight-year senior notes (Caa2/CCC+) via joint bookrunners Bank of America Merrill Lynch, Citigroup Global Markets Inc., Jefferies & Co., Credit Suisse, Deutsche Bank and Wells Fargo Securities LLC, an informed source said.

Investor says mutual fund flows beginning to stabilize

Since the record-setting $3.43 billion outflow from the high-yield mutual funds during the week that ended June 22, flows seem to be stabilizing, according to a high-yield mutual fund manager.

This source expects another substantial outflow when Lipper-AMG makes its weekly report on Thursday.

It won't be as drastic as last week's record-setter, the source assured, but an outflow in the context of $500 million would not be surprising.

Year-to-date returns have declined by more than 200 basis points, the manager said, spotting the JPMorgan high-yield index returning 3.52% for the year to Tuesday morning, down from 5.6% on May 16.

On a yield basis, the index yielded 7½% on Tuesday morning, up from 6.73% on May 13.

'Moving my way'

The market is moving the buyside's way, the mutual fund manager noted.

Not only are issuers jacking up yields and making covenant concessions, but prices are drifting lower in the secondary market, the source said, adding that bonds priced in recent weeks at par might be trading as low as 97 bid now.

"You bid 96 and they tell you it's offered at 961/2. Then tomorrow they call and tell you that you can have it for 96 after all. Of course when that happens you have to point out that the market has moved, and you lower your bid accordingly," the mutual fund manager said.

"Right now, the market is moving my way, so I don't need to be in a hurry to get into anything."

A wary eye on the calendar

Despite the fact that it's an extremely illiquid market as the week winds down to the upcoming holiday weekend, and despite the ominous specter of redemptions, this investor continues to make the roadshow rounds.

In recent days, the manager has seen the above-mentioned Lawson Software $560 million offering of eight-year senior notes, and El Pollo Loco Inc.'s $105 million offering of 6.5-year senior secured notes, talked last week with a 12½% cash plus 4½% PIK coupon at 97 to yield in the 17.8% area.

However, the manager declined to get involved in either of those deals.

The investor is taking a closer look at National Cinemedia, LLC's $200 million offering of 10-year senior notes (B2/B).

The deal, via JPMorgan, Barclays Capital Inc., Credit Suisse, Macquarie and Morgan Stanley, appears to be going well, the investor said, adding that although no official price talk has circulated, the offering is taking shape in the 7¾% area.

Focusing on sectors

"Right now people aren't so much focused on credit as they are on sectors," the fund manager said.

For example, last week's $200 million issue of senior notes due 2019 (Caa1/CCC+) from Scottsdale, Ariz.-based Rural/Metro, which priced at par to yield 10 1/8%, was an easy deal to like for several reasons.

"We played the bridge, and when we first started looking at the deal we were expecting something around 9 3/8%, so we ended up getting lots more yield.

"And right now it's draped around 101 bid."

Also the Rural/Metro private emergency services business is easy to like, the buysider said.

"They're going to be beneficiaries of the new health-care legislation because it will mean that more of the bills they send out for ambulance services will actually be paid.

"And municipalities, which are attempting to reduce the costs of employee health care and retirement benefits, are going to increasingly have to consider outsourcing the kinds of emergency services that Rural/Metro provides."

The slings and arrows of price depreciation and redemptions notwithstanding, this fund manager will continue to look for bargains in the secondary and will stay tuned to what's going on in the primary.

"The good thing about the calendar right now is that not everybody's playing it," the buysider remarked.

Recent deals little seen

A trader - who emphasized how quiet the secondary arena was by invoking the familiar comparison to watching paint dry - said that he had seen little activity among the quartet of recently priced junk deals that have been in the market for the last few days.

The only one he did see was Bethpage, N.Y.-based AMC Networks' new 7¾% notes due 2021, with a morning bid level at 102¼ and nothing after that.

That's not far from where the $700 million offering - which was sold as part of the company's spin-off from parent Cablevision Systems Corp. - had settled in after pricing June 22 at par.

And the trader said he had seen nothing at all in any of the other deals that priced toward the end of last week, such as the $200 million of 10 1/8% notes due 2019 that Rural/Metro priced at par on Friday via WP Rocket Merger Sub, Inc. to help fund its pending $438 million leveraged buyout.

He also saw no signs of Ducommun Inc.'s 9¾% notes due 2018 - the Carson, Calif.-based aerospace and defense contractor's $200 million offering priced at par on Thursday - or New York-based holding company Harbinger Group Inc.'s 10 5/8% first-priority senior secured notes due 2015, which priced at 101 to yield 10.259% on Thursday.

Market gauges stay mixed

Away from the new-deal arena, statistical measures of market performance, which were mixed on Monday, continued in that same vein during Tuesday's dealings.

A trader saw the CDX North American Series 16 High Yield index gain ¼ point on Tuesday to finish at par bid, 100¼ offered after having gained 1/16 point on Monday.

But the KDP High Yield Daily index edged downward by 1 bp on Tuesday to end at 74.63 after having fallen 8 bps on Monday. Its yield moved higher by 1 bp, to 7.03%, after having gained 3 bps on Monday.

And the Merrill Lynch High Yield Master II index showed its fourth consecutive loss on Tuesday, off by 0.007%, after retreating by 0.093% on Monday. That left its year-date return at 4.22%, off by what one trader likes to call "a smidge" from Friday's 4.228% and down still farther from its year-to-date peak level of 6.071%, which was reached on May 20.

'Caution flag' is up

A trader, reflecting upon the dull secondary and the almost complete lack of aftermarket action in the new issues, suggested that "you don't see a lot of real markets, or [participants] painting pictures. You see one side, the bid, or you see the offer, but the offer is high or the bid's low, and it just seems like a non-event week."

He said that we might not see the traditional busy run-up to July 4th, which in years past has seen issuers rushing to do their deals before the holiday so they can then knock off for the summer.

For one thing, with July 4th falling on a Monday this year, leaving the 2nd and 3rd on a weekend, there's just one trading day in July before the break - Friday's abbreviated session on July 1.

"Maybe stuff just slowed down a little early because the extended weekend is falling so close to the end of June," which sees the traditional lack of activity its last few days as accounts close their cleaned-up books in order to look good as the second quarter and the first half end.

"If someone's here until Thursday, and the next day is July, and chances are you're out, if you're working on a new deal and it doesn't price Thursday, do people really want to stick around an extra day? Maybe that put a lot of stuff on hold until after the holiday."

A second trader - who saw people "already in a holiday mode" on Tuesday, opined that "the problem is that the caution flag is still up. Has the retreat in junk gone [so far that] maybe it's value time? I'm not sure."

For instance, he said, Vancouver, B.C.-based oil tanker operator Teekay Corp.'s 8½% notes due 2020 were trading three weeks to a month ago at 110½ bid. "Now, because there may be a slowdown [in international petroleum demand due to softer economic conditions], those bonds went down from 1091/2-110½ to 103-104."

In fact, the closing trade Thursday was even worse at 102, "and then they bounced back."

He said, "For the first time [in recent memory], you have to really look name by name, industry by industry, which has been remiss here for a while."

The trader predicted that "if the bonds keep drifting lower, and they have cash, they're going to buy their bonds back for sinking fund purposes, which has been totally remiss for a while.

"But there's certainly not a heart-felt rally going on in junk, that's for sure."

New Page up as angst remains

Among specific issues, a trader said he had seen no news, one way or another, on Tuesday on whether NewPage will make the scheduled $100 million interest payment due on Thursday on its $1.7 billion of 11 3/8% first-lien senior secured notes due 2017 and if so, how - or whether the struggling Miamisburg, Ohio-based coated-paper manufacturer will instead not make the payment and invoke the standard 30-day grace period while it negotiates a restructuring with its bondholders and lenders.

He saw "a little bit of activity" in the 11 3/8s, quoting them up a point at 91¾ bid, while the company's 10% second-lien senior secured notes due 2012 were up one-quarter point at 26¾ bid, "so they're both up slightly."

A second trader called the bonds "quiet today," compared with the busy activity levels seen over the past two weeks and even on Monday, when its bonds, particularly the 11 3/8s, were among the busiest junk issues. He saw those bonds at 91½ bid , 92½ offered and its 10s at 26 bid, 27 offered, with "no real change. It's where they opened this morning."

A trader saw NewPage sector peer Catalyst Paper Corp.'s bonds pretty much ending the day where they started, seeing the Richmond, B.C.-based paper manufacturer's 11% senior secured notes due 2016 at 85 bid, 86 offered, while its 7 3/8s were at 61 bid, 63 offered.

"It was just quoted, no activity."

NewPage, another trader said, "was just drifting around in no-man's land. There's no discrete direction."

General Maritime's rough patch

Elsewhere, a trader said that General Maritime Corp. "is one that's been on a ride" of late.

He saw the New York-based international petroleum tanker firm's 12% notes due 2017 trading in a context of 791/2-80 on a "good amount of volume." He said that was unchanged on the day and "pretty stable the last two days" but down about 3 or 4 points from where they had been last week.

Nebraska Book rebounds

From out of the distressed-debt precincts came word that Nebraska Book Co., Inc.'s bonds were moving around in the wake of the company's Chapter 11 filing on Monday with the federal bankruptcy court in Wilmington, Del.

"It looks like they're going to pay off their 10% bonds [which would mature on Dec. 1], which are senior secured, in cash," a trader said.

He said that the bonds were trading Tuesday around par because the holders are virtually assured of making a full recovery given their ranking high up in the company's capital structure.

But he saw the 8 5/8% notes due 2012 - which had fallen from levels around 84 bid last week to lows of about 67 - rebounding to 75½ bid, 77½ offered, though trading flat, or without their accrued interest. "It looks like there's a quick restructuring going on, so they're up about 3 or 4 points today."

He said that he "didn't know whether a lot of guys were short" on the issue and were buying to cover the shorts, "but they were up sharply."

Another trader, though, said he "didn't see much change at all" in the Lincoln, Neb.-based textbook distributor's 8 5/8s, quoting them at 73 bid, 75 offered, "maybe up a point on the day on some trading."

Sino-Forest slows down

A trader saw not much activity in the various embattled bonds of Sino-Forest Corp. He pegged the Canadian-Chinese timber company's 4¼% busted convertible notes due 2016 at 43 bid, 45 offered, while its 5% busted convertibles due 2013 were at 47 bid, 49 offered.

Among the company's straight bonds, its 9 1/8% notes scheduled to come due on Aug. 17 were seen unchanged around 85 bid, its 10¼% notes due 2014 at 52 bid and the 6¼% notes due 2017 at 47 bid, 48 offered, also unchanged.

He said he "didn't see a whole lot of [activity] - I saw some markets in them, but not a whole lot. So I don't know how active they were today."

The bonds have been hammered savagely down to present levels over most of the past month, along with the company's Toronto Stock Exchange-traded shares, since the release on June 2 of a scathingly negative research report from Muddy Waters LLC, a Hong Kong-based investment company run by short-seller Carson Block, which accused Sino-Forest of fraudulent dealings and likened its capital raising to "a ponzi scheme." The Mississauga, Ont.-based company, which buys and sells timber in China, has denied the charges.

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