Week ends with no deals priced, more of same on tap; recent bonds firm; AMR quiet, up on week

By Paul Deckelman and Paul A. Harris

New York, Aug.23 - The high-yield market, as expected, was typically quiet on Friday, but seemed to be ending the not-so-busy week with a firmer feel, traders said.

Friday's session capped a week in which absolutely no U.S.-dollar-denominated, fully junk-rated deals from domestic or industrialized-country borrowers had priced according to data compiled by Prospect News.

That was down from the $4.90 billion that got done in 16 tranches the previous week, ended Aug. 16.

The week's goose-egg matched the similarly barren holiday-shortened week ended July 5. It left year-to-date new-issuance at $202.09 billion in 477 tranches, according to the data, running about 6.6% ahead of the pace seen a year ago - which ended up setting a new record for new junk bonds. Some $189.57 billion had priced in 397 tranches by this time last year, the data indicated.

Syndicate sources were meantime saying that the upcoming week would be just as quiet from a primary perspective as the week just concluded had been.

In the secondary market, traders saw some price action among recently done deals, including Foresight Energy LLC, tw telecom holdings inc. and Iron Mountain Inc., the latter on respectably active volume for an otherwise sleepy summer Friday session.

Elsewhere, AMR Corp. had a very quiet session - the first one this week in which its benchmark 2014 notes were not being actively traded. But the embattled airline operator's bonds were all seen ending the week well up from where they had begun it, bouncing at least part of the way back from the massive losses seen last week after the federal government unexpectedly stepped in to try to ground AMR's planned merger with sector peer US Airways Group.

Lawyers for AMR were in bankruptcy court on Friday, urging the judge overseeing its restructuring to approve the company's re-organization plan - which is built around the US Airways merger - despite the Justice Department's opposition to the combination.

J.C. Penney Co. Inc.'s bonds were trading relatively actively, moving to firmer levels, although there was no fresh news out on the troubled retailer.

There was also brisk volume in Nokia Corp.'s 2019 notes, though not much news out on the underdog wireless phone manufacturer.

Statistical market performance measures ended the day higher across the board - the first time that's happened in since Aug. 8 - following a string of either mixed or lower sessions. And they were mixed on the week versus where they had been last Friday, breaking a four-week losing streak.

Primary stays quiet

The primary market remained becalmed on Friday.

No issues priced and none were announced.

With a full week remaining before the three-day Labor Day holiday weekend in the United States, the traditional summer-fall boundary in the high-yield market, sources expect the week ahead to play out in the same fashion as the one that was just completed, with little or no news on the new issue front expected.

The European September

Likewise in Europe, the primary market is quiet and is expected to remain so until September.

However, as with the United States, there is a pipeline of merger and acquisition-related deals expected to surface during the month ahead in Europe, sources say.

At least one known deal is expected to surface.

In the sterling-denominated market, a £500 million three-part notes offer backing the leveraged buyout of England's Domestic & General Group Ltd. is expected to come in September.

The deal is anticipated to feature a £200 million tranche of seven-year senior secured fixed-rate notes, a £150 million tranche of six-year senior secured floating-rate notes and a £150 million tranche of eight-year senior unsecured fixed-rate notes.

Goldman Sachs, Barclays, Credit Suisse, BNP, Morgan Stanley, SG CIB and UBS are managing the sale.

Proceeds, along with an £80 million revolver, will be used to fund the leveraged buyout of the company by CVC Capital Partners Ltd. from Advent International Corp.

Recent deals trade

A trader saw some activity in a couple of the new deals that priced last week.

He said that Foresight Energy's 7 7/8% notes due 2021 gained ¼ point on the day to end at 99½ bid, 99 7/8 offered.

The St. Louis-based thermal coal producer and its Foresight Energy Finance Corp. unit priced their $600 million offering on Aug. 16 at 99.276 to yield 8%. The bonds traded in that same 99ish context over the next few sessions, and have stayed there since then.

He also saw tw telecom's 6 3/8% notes due 2023 at 98¾ bid, 99½ offered. The Englewood, Colo.-based network services provider's $350 million deal had priced at par on Aug. 12, along with a $400 million mirror tranche of its 5 3/8% notes due 2022. The latter bonds priced at 96.25 to yield 5.913%. The trader saw them unchanged on Friday at 95 bid, 95½ offered.

Iron Mountain's 6% notes due 2023 were up 3/8 point at 99 3/8 bid. For a second straight session round-lot volume was over $6 million - a fairly respectable level of turnover on an otherwise sleepy day.

Boston-based Iron Mountain, which provides document storage and information technology services, priced its $600 million issue of those bonds at par on Aug. 8, as part of a larger two-part drive-by deal that also included a tranche of eight-year Canadian dollar-denominated paper. The U.S. dollar notes priced after having been upsized from an originally announced $450 million, while the Canadian dollar piece was accordingly downsized to C$200 million from the planned C$300 million.

The U.S. dollar bonds initially held around their par issue price but did not advance beyond there, despite the fact that Iron Mountain is a familiar and generally well-regarded issuer. In subsequent days, the bonds came down from that par level, and have been trading below their issue price pretty much since then.

AMR ends week firmer

A trader said that there was "not a lot of activity today" in the bonds of AMR Corp., "but it keeps trending higher."

The bankrupt Fort Worth, Texas-based airline operator's most widely traded issue, its 6¼% notes due 2014, were seen unchanged on the day, on just one or two trades.

But the trader said that "they've been moving up - the [6¼%] converts have been one of the more active ones. They traded around 98½ today, so those continue to move higher."

Those bonds had traded around the 115 mark before last Tuesday's bombshell announcement from the Justice Department that it had filed suit with the federal district court in Washington to block AMR's proposed $11 billion merger with US Airways Group on antitrust grounds, feeling that allowing the fourth- biggest U.S.-based carrier, AMR's American Airlines, to combine with the fifth-biggest in the industry, US Airways, to create the world's biggest air carrier, would cut down on competition and hurt consumers - allegations that both airlines deny.

The 6¼% notes plunged all the way down to the upper 80s by the middle of last week, before coming off those lows to finish out last week in the low 90s - and the bonds kept moving up in brisk trading over the first four days of this week to their current levels. Friday was, in fact, the first session of this week in which those bonds had not moved up in active trading; on Thursday, they had gained 2¼ points to finish at 98½ , on volume of over $6 million.

AMR's 9% notes due 2016 traded around 981/2, again unchanged on just a handful of trades. Those bonds had likewise been hammered around last week and began this week around 92 bid.

The DOJ's move to stop the merger, supported by the attorneys general of six states plus the District of Columbia, threatens AMR's ability to emerge from bankruptcy in a timely fashion, since its plan of reorganization is predicated on the merger deal going through.

On Friday, the airline was in court in New York, urging the bankruptcy judge overseeing its reorganization to confirm its plan despite the Justice Department's action. He set this coming Thursday for a decision on that request.

Meanwhile, the judge in the DOJ suit on Friday called a scheduling conference for that suit for this coming Friday. The airlines are hoping for a speedy trial, starting in November, and resolution of all claims. The government, on the other hand, wants to go to trial in February, much to the chagrin of the airlines and many analysts and investors.

The trader said that that "whether or not people think [the plan] will get the DOJ's blessing is hard to say - but the bonds have rebounded quite a bit from their lows, and they were a little bit better today on very little activity."

Penney pops a little

Elsewhere, J.C. Penney's bonds were seen a little firmer ,with its 5¾% notes due 2018 having moved up ¾ point in round-lot dealings of over $4 million to end at 78½ bid, while its 7.65% notes due 2016 were marginally better at 88½ bid.

Its 6 7/8% notes due 2015 moved about a point higher to 92 3/8, although there were no round-lots traded - just a sizable amount of smaller odd-lot trades.

The trader said that the underachieving Plano, Texas-based retailer was "another notable name" recently in the news, between last week's boardroom battle that saw outspoken dissident director William Ackman step down from the board, followed by disappointing quarterly earnings - but hopeful guidance from management - as the troubled company tries to turn itself around after two consecutive full years of quarterly losses.

Nokia actively traded

Nokia's 5 3/8% notes due 2019 traded down a little to 96 5/16 bid, from prior levels around 96 7/8.

While there were only two or three sizable trades, there was considerably heavier volume in smallish round-lot trades.

There was no fresh news out on the Finland-based maker of wireless devices.

Measures up but mixed on week

Statistical junk market performance indicators turned moved higher across the board on Friday - the first such fully positive session since Aug. 8. They had been mixed on Thursday.

The indicators turned mixed on the week - breaking a strong of four consecutive weeks in which they had been lower all around.

The Markit index rose by 13/32 point on Friday to finish at 104 9/16 bid, 104¾ offered, its second consecutive advance. On Thursday it had gained 21/32 point.

The index also ended up from the 103 15/32 bid, 104 offered level at which it had finished the previous week on Friday Aug. 16.

The KDP High Yield Daily index meanwhile rose by 2 basis points ten end at an even 73.00 - in contrast to Thursday, when it had skidded to its eighth consecutive loss as it dropped by 4 basis points.

Its yield declined by 1 bp to 6.33%, ending a string of six consecutive sessions in which it had risen, including on Thursday, when it had tacked on 2 bps.

But those levels still compared unfavorably to the previous Friday's 73.34 index reading and 6.22% yield.

And the widely followed Merrill Lynch High Yield Master II index also broke out of a sizable rut on Friday as it gained 0.10% to snap a six-session losing streak. On Thursday it had fallen by 0.077%.

The gain raised the index's year-to-date return to 2.478%, up from the 2.376% level seen at the close on Thursday. That return remained well down from its peak level for the year so far of 5.835%, recorded on May 9, though still up solidly from its 2013 low point of 0.384%, set on June 25.

Despite the day's gains, the index showed a 0.339% loss for the week, its fifth consecutive weekly downturn. It had finished last week with a return of 2.827%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.