Ducommun deal hits the road; secondary seen spotty, even new issues quiet; NewPage quiets down

By Paul Deckelman and Paul A. Harris

New York, June 20 -Monday was officially the last day of spring, but Junkbondland unofficially entered the summer doldrums even before Tuesday's celebration of the solstice, the longest day of the year.

The primary arena, which already saw a very restrained activity level last week, saw only one piece of news surfacing on Monday, as Ducommun Inc., a provider of engineering and manufacturing services to the aerospace and defense industry, was heard to have begun marketing a $200 million offering of seven-year notes.

There was little trading seen in recent new deal names, such as Goodman Networks, Inc., Downstream Development Authority, Kinove Bondco German GmbH and TFS Corp.

Traders did not really see a lot of activity even away from the new deals and back among the established names.

There were some dealings going on in Caesars Entertainment Corp. paper - the Las Vegas-based casino giant formerly known as Harrah's Entertainment - which continued to push lower on no news, but on generalized investor concern about the gaming sector.

Elsewhere, they saw slightly higher levels for NewPage Corp.'s battered bonds, but at greatly reduced activity levels versus last week.

But, in general, the traders agreed that there really was not much of a focus in the market.

Deals depend on conditions

No new issues priced during the Monday primary market session.

In the only news impacting the active forward calendar, Ducommun began a roadshow on for its $200 million offering of senior notes (B3/B-).

An investor call is set for Tuesday.

Credit Suisse Securities (USA) LLC and UBS Securities LLC are the joint bookrunners for the acquisition deal.

In addition to Ducommun and five deals presently on the road, the dealers are expected to roll out at least three additional offerings during the present week, syndicate bankers said on Monday.

However, continued capital markets volatility could stay issuers' hands, the bankers added.

"People need to see a down-the-middle-of-the-fairway deal get done," one syndicate source suggested, adding that such a deal would be a sizable one and would come from an on-the-run double B or high single B rated issuer.

"Once people see an execution like that and see that the new issue premium is not exorbitant, others issuers might give it a try," the sellsider reasoned.

That present new issue premium is probably 25 basis points, the banker added, but conceded that it could be as much as 50 basis points.

Presently, no such "middle-of-the-fairway" deals are on the forward calendar, the source asserted.

The nearest to matching such a description is AMC Networks Inc.'s $700 million offering of 10-year senior notes (B2/B+), which began roadshowing last Friday, the banker said.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Barclays Capital Markets, Citigroup Global Securities, Credit Agricole CIB, Credit Suisse Securities (USA) LLC, Goldman Sachs & Co., Morgan Stanley & Co., RBS Securities Inc., SunTrust Robinson Humphrey, UBS Investment Bank and US Bancorp are the joint bookrunners.

Proceeds from the deal will be used to help fund the spinoff of AMC Networks' subsidiary, Rainbow Media Holdings, from Cablevision Systems Corp.

Price talk is expected to surface on the AMC deal on Wednesday, and pricing is expected on Thursday, the banker said.

Looking for a catalyst

"Things are quiet right now, and the market is looking for a catalyst," said the banker, adding that such a catalyst might materialize in the form of the next round of earnings reports set to commence during the week beginning on July 5 following the three-day Independence Day weekend.

Presently, high-yield investors seem reluctant to put cash to work, the banker said, adding that the $1.6 billion outflow from the high-yield mutual funds for the week to last Wednesday has understandably garnered a lot of attention.

For the right deal, however, the buyside still seems to have cash to put to work, the banker added.

Little activity in new deals

A trader said that Downstream Development Authority's new 10½% senior secured notes due 2019 were "kind of at issue bid" with an early-morning quote of 99¼ bid, 99¾ offered versus the 99.337 at which the Oklahoma-based Native American gaming concern had priced its $295 million deal on Friday to yield 10 5/8%.

"On Friday, they went out offered late in the day at 991/2, without a bid, so it looks like they're a little better this morning."

However, he did not see much activity in the new credit on Monday.

A second trader agreed that while Downstream opened at 99¼ bid, 99¾ offered, "after that, nobody touched them."

There was likewise a paucity of activity in other recently-priced deals.

For instance, one of the traders said that while he had heard Kinove Bondco German GmbH's dollar-denominated 9 5/8% senior secured notes due 2018 quoted around 102 bid, 102½ offered, he had not been posted on any actual trades in the German specialty chemical company's new deal.

Kinove - a unit of Evonik Carbon Black Ltd. - priced $350 million of those dollar bonds at par on Friday as part of a two-part offering that also included a euro-denominated tranche of seven-year secured bonds that priced at par to yield 10%.

While the new bonds were quoted at 101½ bid, 102 offered in Friday's aftermarket, little trading was actually seen.

There also was not much aftermarket action in Australian timber plantations operator TFS Corp., which priced $150 million of 11% senior secured notes due 2018 at par on Friday, after the issue had been downsized from the original $175 million.

And Thursday's deal from Plano, Texas-based telecommunications services company Goodman Networks was also little seen on Monday.

The $225 million offering of 12 1/8% senior secured notes due 2018 priced at 98.273 to yield 12½%, and while the new bonds traded up when they were freed, getting as good as 99¼ bid, 99¾ offered, traders saw no activity in them on Monday.

Market signs slide again

On a statistical basis, indicators mostly remained under pressure as the new week began.

A trader did see the CDX North American Series 16 HY Index essentially unchanged on Monday at 99 11/16 bid, 99 13 1/6 offered, after the index had gained¼ point on Friday.

However, the KDP High Yield Daily Index plunged by 26 basis points on Monday to close at 74.61, after having lost 7 bps on Friday. Its yield rose by 10 bps, to 7.03%, on top of Friday's rise of 5 bps.

And the Merrill Lynch High Yield Master II Index was lower for an unlucky 13th consecutive session on Monday, falling by 0.191% after retreating by 0.086% on Friday.

That dropped the index's cumulative return to 4.282% from Friday's 4.481% reading and left the index that much further away from its year-to-date peak level of 6.071% reached exactly a month ago on May 20.

Traders see softer market

A trader said that "the market was lower again today. It was kind of spread out and feels like you still have dealers liquidating positions and accounts spending money pretty carefully."

He characterized market activity levels as "light. If you go below the 'five-Bs' [i.e., the split-rated issues mostly favored by crossover high-grade players reaching for yield, such as the June 10 split-rated three-part offering from Monroe, LA.-based telecommunications service provider CenturyLink, Inc.], the amount of trades were just very few, and the sizes of the trades were not very large either."

The junk market, he opined, " is weaker; you have accounts that are willing to add to names where they have holes in them, or where they were underweighted, taking on a bid hit, and then you've got dealers that will sell stuff, so they can get rid of a line item, down a little bit.

"Where there are shorts in the market, it's not as gone down as much as where guys are long and looking to move stuff out. It's very situational - that could change if the calendar heats up again."

He admitted that he was not sure about where the market was because there were so many unanswered questions: "Is it oversold? Will cash come back in this week? Or are we still in the process of re-pricing?"

A second trader said that there "wasn't a ton of stuff going on. I think a lot of it was just still trading off a little bit today. It seemed like it kind of recovered in the afternoon." But he characterized things as "pretty sluggish."

He said, "It seemed like there was a little bit of bid-wanted activity in some names that you can't find. I didn't think that as many people were willing to put out bids on stuff as they normally do, so I don't know, maybe it's turning a little bit, but that outflow last week..."

He referred to the $1.6 billion outflow from junk bond mutual funds reported by Lipper/AMG for the week ended last Wednesday. It was the biggest hemorrhage of cash from mutual funds since May 2010.

The flow of money into and out of the mutual funds is seen as a reliable barometer of overall junk market liquidity trends.

Caesars seen lower

A trader saw Caesar's 10% notes due 2018 continuing under pressure on Monday, trading between 86½ bid, 87½ offered.

On Friday, the bonds of the Las Vegas-based gaming giant more familiarly known as Harrah's Entertainment, got as high as 88, he said, with most trades taking place in an 871/4-88 context.

Another trader saw the Caesars bonds "down a bit, with the 10s trading down to 86¾ bid from Friday levels around an 87½ bid 88 range, which itself was down from recent levels above 90 bid, "so they've had a hell of a retracement" on "a fair amount of activity, so they're down at least a point today."

Traders said that Harrah's/Caesars have lost ground as recent economic indicators showed no improvement in the employment picture and other signs of a slowing economy, which work against discretionary consumer spending, the main driver for the gaming industry.

Higher gasoline prices in effect until recently have also worked to reduce auto traffic going to gaming destinations like Las Vegas, Atlantic City and Tunica and the Gulf Coast in Mississippi.

Not much in NewPage

A trader said: "I don't think I saw a print go by today" in either NewPage Corp.'s beleaguered 10% second-lien senior secured notes, which have recently been trading at around 30 bid, or its 11 3/8% first-lien senior secured notes due 2014, which have traded recently in a 90-92 bid context.

"They got funky," he said of the Miamisburg, Ohio-based coated-paper manufacturer's bonds. "They go all over and then disappear for a few days."

The bonds fell in heavy trading over several sessions at the beginning of last week on investor concerns that the company might have trouble paying the roughly $100 million coupon on the 11 3/8s on that's due on June 30. The trader saw them get as low as "down into the 20s, around 28, then they caught a little bid."

He said there had been fewer trades in the name on Friday, around 30 bid, 31 offered, and then just one trade on Monday at 301/2.

"They had 30 [round-lot] trades, 50 trades, 60 trades at mid-week through Thursday, then they fell off the table [activity-wise] and then there was one traded today, but it looks like they fought their way off the lows."

He saw one trade in the first-lien bonds at 92 bid, 92½ offered, which was "kind of in line" with where they had been. He saw the bonds go as low as 90½ bid, but then come up off their lows in Monday's dealings.

He said he saw no fresh news or speculation about the company, "so maybe that buzz [about the coupon payment] died down a little bit."

He noted that NewPage bonds "had really dropped pretty good in a short time, but this bond does that. This bond gets crushed five points and then another three the next day, and then it will kind of fight its way back."

Big names little moved

Another trader said that there was "not a whole lot" going on with the market "a little softer."

For instance, he saw Community Health Systems Inc.'s benchmark 8 7/8% senior secured notes due 2015 off by about one-quarter point to one-half point, finishing at 102 bid, 102¼ offered, with no fresh news seen out on the Franklin, Tenn.-based hospital operator.

He saw Ford Motor Credit Co, LLC's 5¾% notes due 2021 about unchanged on the day, quoting them in a 983/4-to- 99¼ range versus Friday's levels between 99 1/8 and 99 7/8, "about on the same level, maybe a little wider range" on Friday.

The Dearborn, Mich.-based auto-loan unit of No. 2 domestic carmaker Ford Motor Co. priced $1.25 billion of the bonds in a quickly shopped Feb. 2 offering. Those bonds had edged up to around the 104 level by mid-May, but have gradually come down to current levels since then.

The trader characterized Monday's market as "kind of mushy. The big news [last week] was the big outflow from the mutual funds - maybe we're still feeling a little bit of that."

He noted the paradox that equities were up by 76 points on the bellwether Dow Jones Industrial Average, "but we were down."

'Go-gos' go down

A trader said that "some of the go-gos, like Bon-Ton and CIT, were in a little bit."

He saw Bon-Ton Stores Inc.'s 10¼% notes due 2014, which had traded last week as high as 101½ bid, "all the way down to straddling 99" and late in the day at 98¾ bid, 99 offered after "they slid a bit on Friday."

He saw no fresh news about the York, Pa.-based department store retailer, even though its New York Stock Exchange-traded shares gained 51 cents, or 6.14%, on Monday to end at $8.82 per share, though volume was about half the norm.

Petrohawk flies lower

A trader said he saw some dealings in Petrohawk Energy Corp.'s 7¼% notes due 2018 trading around 101½ bid.

He noted that the Houston-based oil and gas exploration and production company had come to market last month with a $600 million offering of 6¼% notes due 2019, which priced at par on May 17.

He said that the existing bonds had been trading around the 106- 107 bid level before that deal, "but I guess they've been drifting with everything else" down to current levels in that time. He had recently seen the bonds trading around 103, then down to around 102½ on Friday and "all the way down" to 101½ on Monday, though there was no fresh news circulating about the company.

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