PHH deal shelved to end $1.3 billion week, new Charter holds gains; more AMR, Sprint activity

By Paul Deckelman and Paul A. Harris

New York, Dec. 2 - The high-yield market topped off the transition week between November and December on Friday with the primary sphere doing ... not very much.

Syndicate sources heard that PHH Corp. had withdrawn its planned $250 million offering of seven-year notes. There had been some talk earlier that the mortgage and vehicle fleet services provider might bring its deal to market on Friday.

That closed out a week characterized by modest issuance, of a little over $1 billion, headlined by the $750 million drive-deal from cable operator Charter Communications Inc.

Traders said that Charter deal continued to trade strongly in the aftermarket, as it has ever since its mid-week pricing.

Elsewhere in the secondary, the market continued to ride its upside momentum, as statistical indicators continued to point northward.

There was more upside in the bonds of telecommunications operators Sprint Nextel Corp. and Clearwire Corp. a day after the two companies announced a new cooperation agreement that could pay the struggling Clearwire up to $1.6 billion over the next few years.

Recently busy American Airlines parent AMR Corp., which filed for Chapter 11 protection at the beginning of the week, was also seen gaining altitude as the week ended.

But Air Canada's bonds fell 4 points over the day on sector pressure from American's bankruptcy.

Also in the Canadian high-yield world on Friday, Connacher Oil & Gas Ltd.'s bonds were better, but were down from trading at the start of the week, when the bonds gained on reports of the sale of some assets.

Paramount Resources Ltd.'s notes stayed stronger, trading up about 2 points on Friday.

PHH pulls deal

The Friday primary market was blanked, as PHH Corp. withdrew its $250 million offering of non-callable seven-year senior notes (expected ratings Ba2/BB+/BB+) due to market conditions.

The deal was in the market with price talk of 9½% to 9¾%.

Citigroup and J.P. Morgan were the joint active bookrunners for the deal which was run investment grade-style, utilizing syndicate workers from both the high-yield and investment-grade desks.

Market sources noted that the deal garnered a BB+ rating from Fitch, and added that a number of investors found a yield in the range of 9½% to 9¾% enticing from such a highly rated issuer.

A hedge fund manager, who was in the deal, expressed some disappointment at the news of the withdrawal.

That sentiment notwithstanding, the order book was not thought to be massive, buy-side sources said.

In the end the company was looking at a cost of capital that it was unwilling to shoulder, an informed source told Prospect News, late on Friday.

$1.3 billion week

The Friday session was the week's quietest, according to the hedge fund manager who added that the CDX HY 17 index was off ¼ point on the day.

With Friday's goose egg in the new issue market, the November-December crossover week came to a close having seen four issuers raise $1.3 billion by selling junk-rated, dollar-denominated bonds.

At Friday's close year-to-date issuance stood at $252.15 billion in 539 tranches.

That total significantly lags the $273.9 billion in 615 tranches which had cleared the market by the Dec. 2 close in 2010.

This year's issuance to Friday's close is more that $40 billion short of the record-setting $292.6 billion which priced in the history-making year of 2010.

Modest year-end deal flow

That 2010 record will stand for at least another year, syndicate sources say.

There is nowhere near enough of a pipeline to come close to clearing that $40 billion gap.

In fact, heading into year-end with 15 market sessions remaining until the Dec. 23 close, deal flow is almost certain to remain modest - less than a deal a day, according to a couple of estimates.

There are two deals on the forward calendar: A. M. Castle & Co.'s $225 million offering of five-year senior secured notes via Jefferies, and Expert Global Solutions, Inc.'s $300 million offering of eight-year senior notes (Caa1) via Deutsche Bank, Barclays, J.P. Morgan and RBS.

Both are being marketed on investor roadshows which are not scheduled to wrap up until Dec. 12.

The week ahead could see at least five deals, according to syndicate bankers who were surveyed on Friday.

No issuer names were provided, but unsurprisingly Bank of America Merrill Lynch and J.P. Morgan are expected to be involved in the lion's share.

Of those five, at least two would be small, according to an informed source who added that all of the business for the Dec. 5 week, and indeed most of it for the rest of 2011, is day-to-day, meaning that prospective issuers are unlikely to brave market turbulence that could cause their cost of capital to skyrocket.

The euro market

One of those five deals is expected to come in the form of a euro-denominated acquisition financing, according to a London-based debt capital markets banker who added that the euro junk market could possibly see as many as three deals before the end of the year.

While high-yield funds in the United States have undergone two consecutive weeks of cash outflows, their European counterparts have seen outflows during the past four weeks, the banker said.

Nevertheless, the buy-side in Europe is thought to be flush with cash, with some managers rat-holing unusually high amounts - as much as 20% - the sell-sider added.

Hence, unless it gets crushed by market conditions, the euro-denominated deal due to be rolled out on Monday should play to an eager audience, the source added.

"Mostly people here are eager to see this year end," the banker remarked, echoing a sentiment heard several times from market players in the United States during the post-Thanksgiving week.

The widely reported accommodative moves on the part of central banks in Europe and the United States sparked rallies in European stock indexes, the banker said.

However those central bank moves gained very little traction in the debt markets, the sell-sider added.

"Most people feel as though these moves were already priced in."

New Charter stays strong

A trader said that the new Charter Communications 7 3/8% notes due 2020 continued to trade at a strong premium on Friday versus the par level where the St. Louis-based cable operator had priced its quickly shopped deal on Wednesday.

He quoted the CCO Holdings LLC/CCO Holdings Capital Corp. bonds at 101¾ bid, 102 offered, while a second trader pegged the new Charters at 101 7/8 bid, 102 1/8 offered.

After their par pricing, the bonds had moved up in initial aftermarket dealings to about 101 5/8 bid, 102 offered, and never looked down.

Kim Noland, Director of High Yield Research at the Gimme Credit independent research service, said in a report Friday that the Charter deal was "nice sized," at $750 million, and that that the company had taken advantage of the upmarket earlier in the week, allowing the notes to be "efficiently" priced and then turn in "a strong aftermarket performance."

Noland said that Charter "once again used its ability to tap high-yield capital markets to assist in managing its maturity profile. The (low) double B rating on the new notes didn't hurt."

Noland further noted that Charter has continued to show "stable" results even amid the recession and the company's 2009 reorganization. She concluded that having extinguished $8 billion of debt in the past several years, "the company's long-term prospects have improved dramatically."

Other deals unseen

Two other junk deals which priced during the week - from Landry's Acquisition Co. and Optima Specialty Steel Inc. - were unseen in Friday's secondary market.

Houston-based restaurant and gaming operator Landry's quickly-shopped $115 million add-on to its existing 11 5/8% senior secured notes due 2015, which was upsized from the originally announced $90 million, priced at 102.5 on Wednesday to yield 10.829%.

The bonds were seen having eventually moved back up to around the 104 bid level they had held before the pricing, but did not appear on Friday.

Traders likewise saw no activity in Optima Specialty Steel's new 12 ½% senior secured notes due 2016.

The Akron, N.Y.-based steel products producer had priced its $175 million issue of those bonds on Wednesday at 96, to yield 13.622%. The deal had been downsized from the originally announced $200 million.

With no aftermarket dealings since then, traders suggested that the relatively small issue had already been snapped up by investors and put away.

Market higher, but subdued

A trader said that while "we saw volume on Trace, there was not a heck of a lot of excitement" during Friday's session.

A second trader said that "the market overall was pretty healthy," and called it "a little bit constructive."

He said that investors were apparently not fazed by the big outflows from high yield mutual funds reported on Thursday by the two main tracking agencies - the $1.01 billion new outflow seen in the week ended Wednesday by AMG Data Services, and the $1.62 billion outflow reported by EPFR Global. It was the second sizable outflow in a row reported by AMG, and the third in a row from EPFR. The two services' numbers usually point in the same direction, but sometimes diverge on the details, since their methodologies differ markedly.

Even with the flow of funds out of the junk market, the trader said, "the returns are still there," drawing new money in to take the place of anything that's left.

Indicators up again

Among the statistical measures of market performance, Junkbondland made it a hat-trick, with a third consecutive session of upside.

A trader saw the CDX North American series 17 High Yield index up by 3/8 point on Friday to end at 91 7/8 bid, 92 3/8 offered, after having gained 1/8 point on Thursday.

It also ended higher on the week, topping the 87½ bid, 88 offered level seen at the close of trading the previous Friday, Nov. 25.

The KDP High Yield Daily index gained 15 basis points to end at 71.43, on top of the 18 bps advance seen on Thursday.

Its yield eased by 3 bps, to 7.79%, on top of Thursday's fall of 7 bps.

The week's finish was also better, versus the 70.62 level and 8.03% yield.

And the widely followed Merrill Lynch High Yield Master II Index rose for a third consecutive session, gaining 0.413% on Friday, on top of the 0.331% rise on Thursday and Wednesday's 0.493% rise.

That gain lifted the index's year-to-date return to 2.617% from 2.195% on Thursday. That had been the first time the year-to-date figure had topped the psychologically potent 2% mark since Nov. 18, when it hit 2.422%.

Friday also closed out the first week in five in which a gain was posted for the weekly period; the index showed a one-week return during that time of 1.485%.

The year-to-date return remains below its recent peak level of 4.28%, recorded on Oct. 28, and is well below its high-water mark for the year of 6.362%, which was set on July 26.

However, it is still well up from its 2011 low-point, a 3.998% deficit recorded Oct. 4.

AMR remains most active

Among specific issues, AMR Corp.'s bonds were dominating the most-actives lists in Junkbondland most of the week, and remained busy on Friday.

The bonds had gyrated around at mostly lower levels after the Fort Worth, Tex.-based parent of American Airlines made an emergency landing in Chapter 11 on Tuesday, with industry leader American becoming the latest in a long series of U.S.-flag air carriers to seek protection from bondholders and other creditors and attempt to use the bankruptcy process to get out from under burdensome debt, labor contracts and other obligations.

One particularly busy issue has been the American 10½% senior secured notes due 2012, which were trading at 91½ bid on Monday, the day before the bankruptcy filing. The bonds quickly lost altitude on the Chapter 11news, plunging as low as 80 during Tuesday's session, before bouncing back and finally stabilizing in the upper 80s to around 90 bid. Some $20 million traded on Tuesday, $27 million on Wednesday, and an amazing $62 million on Thursday. Brisk activity continued on Friday as well, with over $17 million changing hands and the bond having moved up by around ½ point to end near the 89 level, a trader said.

Sprint, Clearwire climb

Other active secondary names this week were Sprint Nextel Corp., the Overland Park,, Kan.-based wireless carriers Sprint Capital Corp. subsidiary, and Sprint's 49%-owned Clearwater Corp. affiliate, a Kirkland, Wash.-based broadband network company.

The bonds were busy all week, but rose Thursday after Sprint and Clearwire announced an agreement which will pay the latter company up to $1.6 billion over the next few years, as Sprint deepens its involvement with Clearwater. The first installment of the funds allowed Clearwater to make a $237 million interest payment that came due on Thursday.

In Friday's dealings, a trader said that Sprint was up 1 to 1¼ points "across the board." Its 6 7/8% notes due 2028 were up 1¼ point to 73 bid.

Air Canada falls

In the Canadian high-yield market, Air Canada's Canadian- and U.S.-dollar denominated bonds were trading lower on Friday, a source said.

The drop was in response to AMR's Chapter 11 filing. The airline has $1 billion in 7½% senior secured notes due 2016 that have similar collateral structure as Air Canada's 10 1/8% five-year notes and investors worry whether they will be repaid, a source said.

American Airline's five-year notes have dropped to the 60 area over the week.

Air Canada's Canadian issue of 10 1/8% senior first-lined notes due Aug. 1, 2015 slipped 4 points in trading on Friday to 90 bid, 94 offered, the trader said.

The 10 1/8% notes (B2/B+/) priced in a C$300 million offering on July 27, 2010 at 99.046.

Air Canada's U.S. dollar-denominated 9¼% senior first lien notes due 2015 traded Friday at 90 bid, 92 offered, down several points on the week, the trader said.

The 9¼% five-year notes came in a $600 million offering on July 27, 2010 at 99.025.

Saint-Laurent-based Air Canada provides airline services in Canada and to destinations in 181 countries.

Connacher 'better bid'

Connacher Oil & Gas' 8¾% notes due 2018 rose to 78 bid, 80 offered on Friday, a trader said.

"It's better bid," the trader said.

Connacher Oil sold C$350 million of the notes at par on May 20.

The crude oil and natural gas company is based in Calgary, Alta.

Paramount trades up

Paramount Resources' 8¼% series 2 senior unsecured notes due Dec. 13, 2017 (Caa2/B+) stayed strong in trading over the week, trading going out Friday at 103 bid, a trader said.

"Up a couple points," the trader said.

The notes were quoted on Monday at 102 bid, 104 offered, up 2 points on reports the company will reorganize its oil sands and carbonate bitumen interests into a new subsidiary, Pixar Petroleum Corp.

The 8¼% six-year notes originally priced on Nov. 30, 2010 in a C$300 million offering at par.

Calgary, Alta.-based Paramount Resources is an oil and natural gas exploration, development and production company.

Cristal Cody contributed to this report

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