Junk slides as investors cut risk; results cushion Bon-Ton drop; funds lose $378 million

By Paul A. Harris and Rebecca Melvin

New York, May 20 - The high-yield secondary market saw further deterioration in pricing Thursday in across-the-board selling in tandem with a slide in the broader markets. Investors were de-risking amid uncertainty about Europe, and possible contagion affecting the United States and global economic recoveries.

New jobs data didn't help matters. The Labor Department said new claims for unemployment benefits rose by 25,000 to 471,000, the largest amount in three months, and contrary to the expected decrease.

The junk bond market fell about 2 or 3 points overall, compared to a ½ to 1 point drop on Wednesday, according to market sources.

Higher beta names were down by even greater amounts. In addition, weakness persisted into the close of markets, suggesting that Friday's session will bring more of the same.

"The market went out on the weak side, so I think nervousness will continue Friday and for at least a few days," a New Jersey-based trader said.

A second trader, this one based in California, said: "People are selling anything that has a halfway decent bid: it's sell what you can, not sell what you want."

But they said the situation hadn't deteriorated to the point that people were forced to sell to raise cash. It was more a matter of lowering risk wherever possible.

Among individual names, Bon-Ton Department Stores Inc. did better than most retailers, having posted better-than-expected earnings, and moving down only 2 points.

Bellwether bonds from the likes of issuers General Motors Corp. and Ford Motor Co. were not spared.

"The bid was king. It was fairly sloppy, and the GM bonds of 2033 were down 2 or 3 points. But volume was light and bids were scarce," a sellsider said.

Meanwhile there was no action in the primary.

AMG $378 million outflow

Meanwhile, the cash flows for high-yield mutual funds remained negative, although not nearly so negative as the week previous.

The funds saw $378.4 million of outflows for the week to Wednesday, according to AMG Data Services, sources said.

Although substantial, the most recent outflow pales in comparison to the previous week's $1.7 billion outflow, the third largest outflow ever recorded, according to market sources.

Cedar Fair shops $500 million

The primary market generated very little news.

Cedar Fair, LP began a roadshow on Thursday for a $500 million offering of 10-year senior unsecured notes (expected ratings B2/B-).

The roadshow wraps up on May 27, and the deal is set to price the same day.

JP Morgan, Wells Fargo Securities and UBS Investment Bank are joint bookrunners for the bank debt refinancing.

The issuing entities are Canadian subsidiary Canada's Wonderland Co. and Ohio-based subsidiary Magnum Management Corp.

Cedar Fair is a Sandusky, Ohio-based owner and operator of amusement parks.

SkillSoft talks $310 million

Elsewhere, SSI Investments II Ltd. and SSI Co-issuer LLC, financing units of SkillSoft plc, talked a $310 million offering of eight-year senior unsecured notes (Caa1/B-) to yield in the 11¼% area.

The bond covenants were also modified.

The deal is expected to price on Monday.

Morgan Stanley, Barclays and Deutsche Bank Securities are the joint bookrunners for the LBO financing.

Meanwhile Capella Healthcare, Inc. has delayed its $500 million offering of seven-year senior notes, according to a portfolio manager from a high-yield mutual fund.

The roadshow was scheduled to wrap up on Thursday.

Bank of America Merrill Lynch, Citigroup Global Markets Inc. and Barclays Capital Inc. are the joint bookrunners for the debt refinancing.

Dave & Buster's holds steady

Despite the overall negative tone, the new bonds of Games Merger Corp. (Dave & Buster's Inc.) held in well on Thursday, trading right around 1001/4, where they went out on Wednesday after $200 million issue of the eight-year senior notes (B3/B-) were priced at par to yield 11%, a trader said.

MBIA plunges, casinos hit

But MBIA Insurance Corp.'s 14% bonds due 2033 were mentioned as a major loser of the day, falling down to about 50, which was called down by as much as 10 points from on recent levels.

"I heard it down 6 or 7 points to 10," a trader said.

Casinos were also hit particularly hard. MGM Mirage Inc. bonds were down about 3 to 4 points, and the bonds of Harrah's Entertainment Inc. were down about the same.

"There was really no distinction among bonds; it was all senior unsecured debt trading down," a Traders said.

Drugstore operator Rite Aid Corp.'s 8 7/8% notes due 2015 were also called down 3.5 points on the day.

New American Tire trades off

American Tire Distributors Inc.'s 9¾% senior notes, of which $250 million of the seven-year senior secured notes (B2/CCC+) were sold Wednesday at the wide end of talk, traded down to 97 from 983/4.

"They didn't hold up so well," a trader said.

Market indicators pushed lower

Among bonds not connected with the new-deal market, a trader saw the CDX Series 14 index close down 1 5/8 points to 93 3/8 bid, 93 5/8 offered. The index had traded lower on Wednesday too, but had managed to end unchanged at 95 1/8 bid, 95 5/8 offered, after sinking to a low of 94 during the session.

Bon-Ton down despite good earnings

A trader said that Bon-Ton Department Stores Inc.'s 10¼% senior notes due 2014 were down about 2 to 2½ points, closing at 97¼ bid, 97½ offered after trading in the 98 context and having started the day at 99.5.

The York, Pa.-based retailer "reported good earnings," a trader said, but the stocks and bonds still came in.

Bon-Ton's first-quarter loss narrowed on a mix of higher sales and lower costs and it raised its guidance for the year.

It lost $23.5 million, or $1.33 per share, for the quarter ended May 1, which compared with a loss of $45.4 million, or $2.67 per share, a year earlier. Revenue, the bulk of which comes from sales, rose 2% to $675.2 million from $662.9 million.

Same-store sales rose 3% in the quarter, while cost of sales fell 1% to $414.3 million and selling, general and administrative expenses fell 4% to $227.9 million.

The retailer guided that it now expects full-year net income between 80 cents and $1.60 per share, up from prior guidance of 30 cents to $1.10 per share. Analysts expect net income of $1.40 per share.

Auto names veer lower

"There's just real uncertainty in the market," a trader said, when pointing out that General Motors Corp.'s bonds were significantly lower on a percentage basis, given that the bonds are already trading in the 30s context.

GM's benchmark 8 3/8% bonds due 2033 changed hands after the close of markets Thursday at 31.75 according to a trader. During the session, the GM bonds traded at 32, which was down 2 points or so, from 34 bid, 34.5 offered after 4 p.m. ET on Wednesday.

"It was fairly sloppy, some of the bellwethers were bid down," the trader said.

A 2 point drop is "pretty significant on a percentage basis," the trader said, citing GM's 0% coupon bonds of 2033 that were down 2.5 points.

"People are going back to basics. It all got ahead of itself, and now people are going to look item by item. You've got a lot of nervous people in the market," the trader said.

The size of the withdrawal of funds from the high-yield mutual funds was expected to have a big impact on Friday's session.

If market participants perceive that money has been withdrawn, then they are going to be more prone to liquidate, the trader said.

There's always overreaction, he said, also citing the financial regulatory reform bill that overcame a major procedural obstacle in the Senate on Thursday as lawmakers voted 60 to 40 to limit debate and move the legislation toward final passage.

GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were quoted at 85 bid, 87 offered, which was down 2 points.

Ford Motor Credit Co.'s 7% bonds due 2013 were at 99.5, compared to 100.875 on Wednesday.

© 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.