Strong session as high-yield market gets back to business, American Media joins calendar

By Paul A. Harris

St. Louis, Jan. 6 - High yield kicked off the first full week of business in 2003 in a celebratory mood as various sources reported firming in the aftermarket among issues in sectors that included energy, telecommunications, media, technology and retail.

When asked whether the strength of Monday's rally might portend the beginning of a January rally, however, the opinions were mixed.

And investment bankers spotted Elvis swiveling into the primary market on Monday carrying a brand new junk bond deal from Florida supermarket tabloid publisher American Media Inc.

"I would say that with everybody back from the elongated holiday we saw maybe not as much trading but a lot more interest," one trader remarked soon after Monday's session came to a close.

"The bids are very deep," this source continued. "I would say overall the market was up about half a point. It feels good.

"The new issue calendar is picking up, and so a lot of the secondary trading has picked up as well, believe it or not.

"People are selling a lot of the premier stuff, stuff that's tight on yield. We still have a lot more money coming into the marketplace."

In fact on Monday an even handful of sources noted during conversations with Prospect News that with the inflow of $120.936 million into high-yield mutual funds reported by Arcata, Calif.-based AMG Data Services for the week ending Jan. 1, 11 of the past 12 weeks saw inflows totaling just shy of $5 billion.

Although secondary market sources differed as to what those inflows portend for the existence and duration of a rally in high yield, all agreed that the funds flows betray a buy-side bearing cash that it needs to put to work.

"People need a place to put their money," said one trader. "Are you willing to put your money back into the stock market? You know as soon as the war starts, which is going to happen, the market is going to be down. It could be down 200 points again tomorrow.

"Equities are stabilizing," this source asserted. "I don't necessarily think you've seen the lows, but I don't think it's going down to 5,000. So why not go into fixed income, which is basically equity with a coupon, and at least get paid for it? You get better return."

The fixed-income securities of several telecoms were reported by various aftermarket sources to have firmed on Monday. One source cited Nextel's "benchmark" 9 3/8% notes due 2009 opening the day at 91½ bid, 93½ offered and advancing by session's close to 93½ bid, 94½ offered. Another source spotted the same Nextel notes opening at 91½ bid, 92½ offered and advancing to 93¾ bid, 94½ offered.

"Qwest was also moving up a little," one trader said, citing the Denver telecom's 6 7/8% notes due 2033 as having ended at 79 bid, up from 76 bid, 78 offered.

The rising tide lifted some of the securities of Lucent Technologies Inc., sources added.

"Lucent was a bit better," said one trader. He saw it at 60¾ bid, improved from 59 bid, 59¾ offer Friday.

Another trader cited the Lucent 7% bonds at 61 bid, 62 offered, "up about three points."

Also seen advancing were Level 3's notes due 2011. One trader sad the notes, which were 64 bid, 65 offered on Friday, were 65 bid without at Monday's close.

"Stuff is just oversold," one secondary market observer told Prospect News Monday.

"That's probably a bad word for it, but things are trading at historic lows now. And I'm not just comparing them to two or three years ago when everything went up in a vacuum. You have certain credits trading down for the wrong reasons because you had such dislocation in the marketplace. Some of the investment grade paper - stuff that's five-Bs - is trading at single-B spreads and dollars, and they really shouldn't be there.

"Treasuries for the most part are still very low. People are taking another look at the better quality names. They're reassessing now that it's a new year. Everyone's taken their lumps and they're taking another look at creditworthiness, and finding that stuff is oversold."

Another secondary market source, however, held that the strength seen in Monday's aftermarket trading was almost purely a function of the cash that high yield investors need to put to work.

"I don't think the market itself is fundamentally changed or that the perception is any better," this trader said. "But if you look at the equity market the past four days they've been up. And there has been cash coming in which needs to be put to work. That will happen over the next three to four weeks and either it will sustain or things will trade off again.

"This is not real retail buying," the source added. "It's more the institutional guys buying specific names, which kind of draughts everything up. When that slows down it brings everything back down.

"I don't think this is a rally in the making."

Having said so, this trader also noted names in the retail sector that rallied Monday.

Levi Strauss & Co., the source noted, was "a little stronger," with the 7% bonds due 2006, which had been 87 bid, 89 offered, advanced to 88 bid, 90 offered late in Monday's session, while the trouser-maker's 11 5/8% notes, which had been trading in the 97 bid, 98 offered range, were 98 bid, 99 offered as Monday's business was ironed out.

Young Brands' 7.45s of 2005, meanwhile, which had been 105 bid, 106 offered, got to be 106 bid, 107 offered, Monday.

However the paper of Kmart was "not doing too much" on Monday and that of The Gap was "flat across the board."

There was some speculation among secondary market source Monday that the Bush administration's proposed stimulus package, which reportedly would halve or even eliminate the dividend tax altogether - a package now reported to cost $600 billion over the coming decade - was a factor in the activities in the capital markets Monday.

"Whether it's going to happen or not, whenever there is talk the markets respond positively," one secondary market source said.

"I don't know if it was the tax cut or the new year or the January effect, but a lot of stuff felt better, across most sectors."

Indeed in its High Yield Market Recap Banc of America Securities noted that "The high yield broad market advanced 0.38%, as all but 3 of 27 sectors posted positive total returns," on Monday.

The new issuance market generated only one nugget of news on Monday as Boca Raton, Fla.-based publishing firm American Media will start its roadshow Thursday on $150 million of eight-year senior subordinated notes (B2 confirmed/B- existing) via JP Morgan. The company, which publishes National Enquirer, Star, Weekly World News and other newspapers and magazines, will use the money to fund the acquisition of Weider Publications. Pricing is expected on Jan. 16.

Last February subsidiary American Media Operations, Inc. priced a $150 million add-on to its 10¼% senior subordinated notes due May 1, 2009 (B2/B-) at 100.50 for a yield to maturity of 10.157%, via JP Morgan and co-manager Bear Stearns & Co., which is also a co on the Florida firm's new deal.

During the dormant days of the post-New Year's break, last week, sources in the primary market said that the investment banks have their tables set for a rather formidable January 2003. Last Friday one source said that there is $5-$6 billion in the new issuance pipeline, expected to come in the four to six weeks.

However, primary market observers added, the buildup in the forward calendar is expected to be moderate.

"There are 10 to 12 on the shelf that are probably going to be coming in the next two weeks," one source said Monday, declining to name names.

Late in Monday's session another primary market source confirmed the color heard on the secondary side.

"It feels better out there, but what the exact reason is the mystery," this official said. "And the new supply seems slow to materialize."

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