Cash market, index unchanged in low volume; GM lower with Treasuries; new corporate paper holds in

By Paul A. Harris

St. Louis, Oct. 5 - A quiet, abbreviated pre-Columbus Day Friday saw the high yield market almost totally becalmed, sources said.

The primary market produced no news whatsoever.

A trader, noting that new issue supply is presently very limited, spotted the CDX High Yield 9 unchanged at 99 11/16 bid a little less than an hour before the early close.

Meanwhile a hedge fund manager said that news from the Labor Department that the U.S. economy created 110,000 new payroll jobs in September, topping expectations and suggesting that the economy is continuing to grow, caused Treasuries to sell off.

The source added that the payroll news, which lessens the likelihood that the Federal Reserve will follow up its recent 50 basis points cut in the Fed Funds rate with another cut, caused some Treasury sensitive junk to ease.

GM off highs

Spotting 10-year Treasuries a point lower in terms of price and 20 basis points higher in yield, the hedge fund manager said that the General Motors Corp. 8 3/8% notes due 2033 eased during the Friday session.

The source spotted the GM paper at 90 bid, 90½ offered, early Friday afternoon, after having been as high as 90½ bid, 91 offered before the move in Treasuries.

The manager said that the GM paper went out at 90¼ bid, 90¾ offered on Thursday.

Meanwhile a market source marked the GM long bond unchanged on Friday at 90½ bid.

The same source marked GM's shorter dated 7 1/8% notes due 2013 higher on Friday at 93 3/8 bid, up from 92 7/8 bid on Thursday.

Meanwhile the General Motors Acceptance Corp. 8% notes due 2031 were marked at 98¼ bid at the Friday close, down slightly from the previous close of 98 3/8 bid.

The source marked the long bonds of Ford Motor Co., the 7.45% notes due 2031, at 81 bid at the Friday close, a point higher than the previous close of 80 bid.

And the source marked the Ford Motor Credit 7% notes due 2013 substantially tighter at Friday's close: a 453 basis points spread to Treasuries, versus a 460 basis points spread at the Thursday close.

Recent issues unchanged

Sources told Prospect News that recent new corporate issues, most of which have come from well-known high yield names in upsized drive-by deals over the past two weeks, were unchanged on Friday.

The most recent such deal came in a Thursday drive-by when Steel Dynamics, Inc. priced an upsized $700 million issue of five-year senior bullet notes (Ba2/BB+) at par to yield 7 3/8%.

The Banc of America Securities-led deal, which was upsized from $500 million, was a blowout, according to an informed source.

On Friday the hedge fund manager said that the new Steel Dynamics 7 3/8% notes were unchanged from Thursday's close at 100 3/8 bid, 100 5/8 offered

However the source added, the notes probably got as high as 100¾ bid, 101 offered before Treasuries sold off.

"The good news about the economy is being offset by higher yields," the manager commented.

Elsewhere a trader concurred that the new Steel Dynamics paper was unchanged.

Also unchanged, said this trader, who spoke after the shutters came down Friday afternoon, was the new 12% notes of Ryerson Inc.

The Ryerson 12% notes (B2/B+), which priced Wednesday at par in a $425 million tranche, have rallied phenomenally.

On Thursday sources were spotting them at 104 bid, 104½ offered, which is exactly where the trader saw them Friday, unchanged on the day.

As part of the same Wednesday acquisition-financing deal, the Chicago-based metals processing and distribution company also priced a $150 million tranche of seven-year floating-rate notes at three-month Libor plus 737.5 basis points.

The trader who spotted the Ryerson 12% paper unchanged spotted 10-year government paper down ¾ point on the day in price and 12 basis points higher in yield, at 4.63%.

$2.46 billion week

With no issues pricing Friday, the first week of October came to a close having seen slightly less than $2.46 billion of issuance in seven dollar-denominated tranches.

It was the third consecutive week during which the high yield primary market produced in excess of $2 billion of issuance. Previous to the present run the market had not topped the $2 billion mark for weekly issuance since late June. The June 25 to June 29 week saw slightly less than $9.75 billion in 16 tranches.

At Friday's close, year-to-date issuance came to slightly less than $125 billion in 320 tranches.

The mid-summer shutdown of the high yield market notwithstanding, the 2007 new issue market maintains a commanding lead on a year-over-year basis relative to the new issue market of the record-setting year of 2006.

At the Oct. 5, 2006 close, the market had seen $99.5 billion in 282 tranches.

Not much supply

A trader who marked both the cash market and the index unchanged on Friday said that new issue supply in the junk bond market is now very limited.

Just two U.S.-based issuers are known to be headed for the high yield road.

Allison Transmission Inc. will begin a two-day roadshow on Tuesday for $550 million of the overall $1.1 billion of bond financing backing the acquisition of the company.

The deal, launched Thursday by joint bookrunners Citigroup, Lehman Brothers and Merrill Lynch & Co., is comprised of a single tranche of eight-year cash-pay senior notes (Caa1/B-).

Bausch & Lomb will also start a roadshow on Tuesday for its $750 million three-part notes offering via Banc of America Securities.

Meanwhile a high yield syndicate official, reflecting on two consecutive substantial weekly inflows to the high yield mutual funds, as reported by AMG Data Services - a $221 million inflow for week to Oct. 3 and a $465.8 million inflow the previous week (the biggest since June 2005) - commented on Friday that "everything is a little better.

"The market looks pretty good," the official said.

"We've seen some corporate stuff come to market. And Bausch & Lomb and Allison Transmission are out there with their LBOs.

"People are slowly wading into the LBOs. But the corporate deals are going very well, which is making people feel a little better."

Risk overhang

Meanwhile on Friday, there was much discussion in the leveraged loan market on the estimated $300 billion-plus of risk overhang remaining on underwriters' books as the result of unplaced junk bonds and unsyndicated leveraged loans trailing the mid-summer shutdown in the credit markets.

High yield sources tell Prospect News that while the recent spate of corporate deals from well-known high yield credits - most of them coming to refinance debt, as opposed to funding LBOs or dividend payments - is playing to traditional buy-and-hold high yield accounts.

Meanwhile, sources add, the hedge funds are tuned into the risk overhang.

With respect to the overhang, on Friday underwriters upsized to $1 billion from $750 million the portion of ServiceMaster LBO-related risk that is being offered for sale at 95.

And a source reported that the 90-day lock-up on hung debt related to the U.S. Foodservice LBO expired on Friday.

The source, a trader, said that some of that debt - which underwriters can now sell at any price they choose - is reported to have subsequently traded at 94.

Finally, a bank loan trader noted during a Friday conversation with Prospect News there are reports that the big investment banks are teaming to create loan fund to take out $170 billion of that estimated $300 billion-plus of hung debt.

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