No primary pricings, though Albertsons, Ultra Petroleum join September calendar; Momentive moves

By Paul Deckelman and Paul A. Harris

New York, Aug. 25 – The high-yield primary went into its second week without any deals having priced on Monday as the traditional late-summer lull continued.

However, market sources indicated that supermarket giant Albertsons LLC’s planned $1.625 billion secured bond deal partly financing its acquisition of sector peer Safeway Inc. – heretofore considered to be out on the horizon somewhere – is now likely to come to market in September.

And they said that energy operator Ultra Petroleum Corp.’s $700 million note offering funding its acquisition of some oil and natural gas assets is also likely to price in September.

But that having been said – and even though other deals have been mentioned as probable September business – some of the sources, who were making optimistic projections of a fast and voluminous start to post-Labor Day pricings and a super-busy September with as much as $40 billion of new paper possible, were heard to have moderated their forecasts somewhat.

In the secondary market, Momentive Performance Materials Inc.’s bonds were again among the busiest issues in Junkbondland – and again were seen on the downside – amid a new delay in resolution of a legal standoff between the bankrupt maker of silicon and other specialty industrial materials and some of its bondholders.

Dynegy Inc. bonds were seen still “hanging in” near the levels at which they finished on Friday, when the power generation company’s paper eased after it announced plans to bring some $5 billion of new bonds to market to finance the acquisition of some generation assets.

Statistical market performance indicators ended higher across the board on Monday, after having been mixed for the previous three sessions before that.

Two on tap

A post-Labor Day calendar continued to come into view, albeit at a slow crawl, as market sources professed expectations that two more deals are likely to come in the near term.

Albertsons is expected to bring its $1,625,000,000 offering of eight-year senior secured notes to the market in September to help fund the acquisition of Pleasanton, Calif.-based food and drug retailer Safeway.

Debt financing also includes a $9.45 billion credit facility.

BofA Merrill Lynch, Citigroup, Credit Suisse, Morgan Stanley, Barclays, Deutsche Bank, PNC, US Bancorp and SunTrust are the lead banks on the debt financing.

Also, Ultra Petroleum plans to offer $700 million of senior notes and make a $225 million draw on its revolver during the next several weeks.

The Houston-based independent exploration and production company plans to use the proceeds to fund the cash portion of its acquisition of the Pinedale field properties from Royal Dutch Shell.

Those two join a couple of smaller offerings that were already aboard the calendar as September business.

SFX Entertainment, Inc. is expected to launch a to-be-determined amount of add-on notes to its outstanding issue of 9 5/8% second-lien senior secured due Feb. 1, 2019 (existing ratings Caa1/B-) following the Aug. 29 expiration of a current consent solicitation for an amendment to the outstanding 9 5/8% notes.

And Rooster Energy Ltd., which has been in the market since July with a $100 million offering of five-year senior secured notes (Caa1/CCC+), is now expected to price its deal in September.

Looking for a moderate start

The new issue market should get off to a moderate start, sources said on Monday.

The post-Labor Day week will likely see modest volume, a trader said, adding that things will likely pick up during the Sept. 8 week.

Monday's forecasts stood in stark contrast to those heard from different sources last week.

At that time, one sellsider was looking for as much as $12 billion of issuance in the post-Labor Day week.

A debt capital markets banker, meanwhile, was looking for issuance possibly in excess of $40 billion for the month of September.

Upon hearing such numbers, a syndicate banker said on Monday, “We might see such an amount in the September-October period,” but added that a $40 billion-plus September does not seem likely.

Mauled Momentive keeps moving

Away from the new-deal arena, a market source said that for a second consecutive session, Momentive Performance Materials’ 8 7/8% first-lien notes due 2020 were the busiest high-yield issue, with over $43 million having traded by late in the day, on top of the more than $52 million of turnover seen on Friday.

While those bonds had been beaten down by about 2½ points on Friday, Monday’s decline was a more moderate 3/8 of a point, leaving them at 98¼ bid.

He saw the 10% 1.5-lien notes, also due 2020, ending at 97 7/16 bid, down 15/16 of a point on volume of over $17 million. On Friday, the bonds had slid by 2¾ points.

Another trader said that the catalyst behind all of the action was the delay announced by U.S. Bankruptcy Court Judge Robert Drain in issuing his ruling on the Waterford, N.Y.-based specialty chemicals manufacturer’s reorganization plan.

It was not the first such delay from the bench; Drain had originally been expected to issue his judgment last week.

“The bonds were weaker leading up to the court hearing, but they’ve all rallied on the news that he’s extended the hearing for a day,” the trader said.

The trader said the 8 7/8s initially fell to levels “just below” 97, while the 10% notes dropped as low as 93. However, both came back later in the session to end in a 98 to 99 context, he said.

Since early last week, the judge has been hearing arguments in his White Plains, N.Y. federal courthouse from the company, which sought Chapter 11 protection from its bondholders and other creditors this past April, as to why the reorganization plan should be approved.

A group of junior bondholders have also presented arguments that claim they are being unfairly subordinated to other debt.

However, Drain’s decision on Monday to delay his ruling did not address their concerns. Rather, it was intended to give the secured holders of the first-lien and 1.5-lien bonds – owed about $1 billion but claiming that they were entitled to a make-whole premium, as their debt was being called earlier than scheduled – more time to seek a consensual agreement with the company.

Those lenders signaled on Monday that they would be willing to give their support to the plan if some sort of agreement could be reached.

Clear Channel busily higher

Another active name, a market source said, was Clear Channel Communications Inc.’s 14% notes due 2021.

More than $14 million of the San Antonio, Texas-based diversified media company’s notes traded, firming by more than ¾ of a point on the day to end at 100 7/8 bid.

The source did not know what was behind the rise, as there was no fresh market-moving news out about the company.

Dynegy ‘hanging in’

Elsewhere, a trader said that it looked as if Dynegy’s 5 7/8% notes due 2023 “kind of hung in there from when they went out last week,” when the Houston-based power-generation company announced plans for between $4.9 billion and $5.1 billion of new notes, plus $950 million of new bank debt, to fund its more than $6 billion acquisition of some 12,300 MW of merchant power generation capacity from Duke Energy and Energy Capital Partners in a pair of separate transactions.

He said, “It doesn’t look like they did much today” in contrast to Friday, when more than $30 million of the notes traded, plunging as much as 3 points intraday before going home down about 1½ points, at 96½ bid.

He added that they were “probably off maybe a point or so from where they were” before the planned bond megadeal was announced, “but they’re hanging in, given that the news is out there that they’re coming to the market” with such a huge amount of new paper.

A market source at another desk pegged the bonds going home at 97, which he called up about ½ of a point from Friday’s finish, though on only $6 million of volume – a fraction of what traded on Friday.

Sears steady after earnings

A trader said that there was no real follow-up in Sears Holding Corp.’s 6 5/8% notes due 2018 after the bonds lost between ½ and ¾ of a point on Thursday following the release of weak second-quarter numbers.

“They’ve been in a 90-to-91context over the past couple of days – they didn’t really get beat up from their earnings report – unchanged basically, or maybe off ¼, but for the most part unchanged from pre- or post-earnings,” the trader noted.

“They may have had a little dip, but that was quick and back to where they were pre-earnings announcement.”

The Hoffman Estates, Ill.-based operator of the iconic Sears and Kmart department-store chains reported a loss of $573 million, or $5.39 per share, in its fiscal second quarter. That was considerably worse than its year-ago red ink of $194 million, or $1.83 per share.

On an adjusted basis excluding one-time items, the loss was $313 million, or $2.87 per share, versus $78 million, or $1.56 per share a year ago. Revenue fell by $858 million, to $8 billion in the quarter.

Indicators turn higher

“[Overall] everything was firmer today, but it just wasn’t moving,” one of the traders said.

“Guys would bid for things, but weren’t chasing after anything, so generically, the market was pretty much unchanged, for the most part. And there weren’t too many oddballs of any kind that stood out – story bonds.”

Statistical indicators of junk market performance turned higher across the board on Monday after having been mixed for three straight sessions.

The KDP High Yield Daily index rebounded on Monday after two days on the slide, which in turn had broken a 12-session winning streak that dated to Aug. 5. It rose by 7 basis points to 74.10, after having eased by 6 bps on Thursday and another 4 on Friday.

The yield came in by 1 bp to 5.03%, after having risen by that same 1 bp on Friday – the first such widening after 13 consecutive sessions of tightening, also going back to Aug. 5.

The Markit CDX Series 22 index gained 5/16 of a point, to end at 108 7/32 bid, 108 9/32 offered, after having dropped by 5/16 on Friday, part of a recently choppy pattern.

The widely followed Merrill Lynch High Yield Master II index has been anything but choppy lately, and it posted its 11th consecutive winning session on Monday, improving by 0.073%, on top of Friday’s 0.009% advance.

The latest upturn lifted the index’s year-to-date return to 5.709% from Friday’s 5.632% level and left that cumulative return not too far off the 5.751% return recorded on July 7, the peak level so far for 2014.

Stephanie N. Rotondo contributed to this review

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