No primary news, little secondary action in pre-holiday market as junk closes $4 billion week

By Paul Deckelman and Paul A. Harris

New York, Dec. 21- Contrary to the fears of some people, the world as we know it did not come to an end on Friday with the expiration of the ancient Mayan calendar.

But to hear high-yield market players tell it, most of Junkbondland's regular participants may as well have been hiding in fallout shelters somewhere, waiting for The End - because they surely weren't trading any junk bonds.

The junk market closed out the final full trading week of 2012 on an extremely quiet note, with no new deals either priced or even announced for a second straight session, the market finally entering its traditional year-end lull.

According to data compiled by Prospect News, those twin goose eggs left the week's total issuance volume at some $4.1 billion of new purely junk-rated, U.S. dollar-denominated paper in 12 tranches - well down from the prior week's more than $13 billion total, one of the heaviest weeks of the year. Junk issuance - already at record levels for the year - is running about 54% ahead of its year-ago pace.

Those numbers are not expected to change much, if at all, in the holiday-shortened week ahead, which will see the junk market operating on an abbreviated schedule on Monday, closed completely on Tuesday for Christmas - and probably not doing much for the remainder of the week.

Secondary market dealings were meantime not much busier than the completely moribund primary; traders reported very light volume and lethargic activity. DISH DBS Corp.'s big new issue eased a little.

They said the overall market seemed softer - but did not share in the big slide seen Friday in equities. Statistical performance indicators were mixed on the day, though better on the week.

'Not missing much'

A junk secondary market trader put it succinctly: "you're not missing much" by not being here.

"There was no pricing. The market was off a little bit. It was pretty lethargic."

He said that "some of the accounts were putting out bid-wanted lists" of bonds they might be looking to sell, for "an end-of-the-year clean-up of their balance sheets."

He said that during the time he was in on Friday, "I did all of one trade today," a on a bid wanted, some small stuff."

He said "everybody was either taking off, or just digesting what was going on, or watching TV.

"It was a waste of time just being in."

Outflows have little impact

He said that reports of outflows from high-yield mutual funds and exchange-traded funds in the latest week ended Wednesday "really had no impact.

"For all intents and purposes, the market is already on vacation," he declared.

During the session, word spread that Arcadia, Calif.-based AMG Data Services Inc., a unit of ThomsonReuters' Lipper analytics division, was reporting that in the latest week, $345million more had left those funds than came into them during that time. Those figures usually circulate around the junk market on Thursday afternoons, but were apparently delayed in this case due to unknown reasons.

It was the first such outflow reported by Lipper after three consecutive weeks of inflows totaling $1.176 billion, including the $259 million inflow seen the week before, ended Dec. 12.

On a year-to-date basis, cumulative net inflows have totaled $28 billion, according to a Prospect News analysis of the figures. Inflows have now been in recorded 39 weeks this year, against outflows in a dozen weeks.

The flow of fresh cash into or out of the funds is considered to be a generally reliable barometer of overall junk market liquidity trends.

Those Lipper numbers are more or less line with similar results reported by another fund-tracking service, Cambridge, Mass.-based EPFR Global. On Thursday, the latter service said that in the most recent week, the funds it tracks showed a net outflow of $281 million. As was the case with Lipper, EPFR's outflow followed three consecutive weeks of inflows totaling about $4.55 billion, according to a Prospect News analysis of the data. On a year-to-date basis, EPFR - whose methodology differs considerably from Lipper - has seen $73 billion of net inflows, with 41 weekly inflows against 10 weekly outflows.

Cumulative fund-flow estimates, whether from EPFR or from AMG/Lipper, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

The continued flow of fresh cash into junk - and the mutual funds and ETFs represent but a small, though very observable and quantifiable percentage of the total amount of money coming in - has been seen by analysts as a key element behind the high yield secondary market's strong performance this year versus other fixed-income asset classes, and its active new-deal pace, which surged past 2011's year-to-date totals some weeks ago.

Primary done for year

The Friday primary market failed to generate news, as expected.

"We're done," remarked a syndicate source, expressing the belief that new issue activity for the year 2012 had concluded.

Hence in the U.S. high-yield primary market, 2012 goes into the book having seen a history-making fashion.

Barring further activity - which is highly improbable, sources say - the primary market concludes the year having seen $325.70 billion of issuance in 679 junk-rated dollar-denominated tranches.

DISH bonds easier

Back in the secondary, a market source said that the big new bond deal from DISH DBS was trading off a little, in line with a generally softer market.

He saw the 5% notes due 2023 having traded down to 100 3/8, leaving them at 100¼ bid.

A second trader pegged the bonds at 100 1/18 bid, 100 5/8 offered, calling that down ¼ point.

The Englewood, Colo.-based company - a unit of satellite television broadcaster DISH Networks Corp. - priced $1.5 billion of those bonds at par on Wednesday, after massively upsizing that drive-by offering from the originally announced $1 billion.

Recent deals

There was a little bit of activity in some of the other recently priced junk bond deals, though nothing that would make the volume leaders' lists.

Most of the action was to the downside, in line with the generally easier market.

A trader said that U.S. Foodservice Inc.'s add-on to its 8½% notes due 2019 dropped by ¾ point Friday to end at 102 bid, 102¾ offered. On Thursday, the bonds had been seen in a 102½ to 102¾ bid context.

The Columbia, Md.-based provider of cafeteria services and food products priced the quick-to-market $175 million add-on to its existing $800 million of those bonds on Wednesday at 101.5 for a yield to worst of 8.098%. The issue was upsized from $100 million originally.

The trader also saw Landry's Holdings II Inc.'s 10¼% notes due 2018 at 99¼ bid, 99 3/8 offered, down a quarter point from Thursday's close.

The Houston-based restaurant and gaming company's upsized and quickly shopped $250 million issue had priced on Tuesday at 99 to yield 10.509%, after being upsized from the originally shopped $210 million.

Basking Ridge, N.J.-based communications equipment and software maker Avaya Inc.'s 9% senior secured notes due 2019 finished the day at 101 1/8 bid, 101 3/8 offered, off by 1/8 point on the day.

The $500 million of bonds had priced on Tuesday in a same-day transaction at par.

Petro-Geo gets better

Petroleum-Geo Services ASA's $150 million add-on to its existing 7 3/8% notes due 2018 seemed to buck the trend, with a ¼ point gain to 108 bid, 109 offered, the trader said.

The Norwegian provider of seismic and other geophysical services to the energy industry had priced its addition in a same-day transaction on Wednesday at 107.5 to yield 5.868%.

Equity slides, but not junk

A trader said that he mostly saw "a lot of odd-lot cleanups" going on during the session, with market participants buying and selling small pieces in an effort to get their books in order ahead of the fast-approaching end of the year.

"Even though the equity market was off, you could not say there was a negative tone in bonds - there was just not much volume," he said.

The bellwether Dow Jones Industrial Average slid by 120.88 points, or 0.91%, to finish at 13,190.84, amid investor angst over the looming "fiscal cliff" problem after the Republican leadership in the House failed to get enough of its members to sign on to speaker John Boehner's "Plan B" initiative, which would raise taxes on anyone making $1 million or more annually. Other stock market measures like the Standard & Poor's 500 and the Nasdaq composite index, were also down almost 1 percentage point on the day.

However, the trader said, that had little impact; while junk felt a little easier, there weren't enough people around to do a decent sell-off.

Chrysler Holding LLC's bonds - "a key indicator for us in high yield" - were off around ½ point, the trader said.

The Auburn Hills, Mich.-based Number-Three U.S. carmaker's 8¼% notes due 2021 were seen going home at 111 1/16 bid, on volume of about $10 million.

Sector peer Ford Motor Co.'s benchmark 7.45% bonds due 2031 were off ¼ point at 126¾ bid, 127½ offered.

He said that he was "so far from trading that I was mostly just wishing everyone a happy and healthy new year" all day.

Another trader saw "just isolated instances" of things trading in the secondary market, with "no real pattern.

"The market was hardly even open, with just the bid-wanted lists floating around, and very light volume."

Indicators mixed on day, up on week

Statistical junk market performance indicators were mixed on the day Friday, after having been fairly steady to slightly firmer on Thursday. However, they were up versus the previous week's readings for a fifth consecutive time

The Markit Series 19 CDX North American High Yield index lost 25/32 point on Friday to end at 101 bid, 101¼ offered, after having gained 1/8 point Thursday.

The index was up from 100 29/32 bid, 101 offered at the close the previous Friday, Dec. 14.

The KDP High Yield Daily Index meantime was up marginally on Friday, gaining 1 basis point to end at 75.42. On Thursday, it had been unchanged. Its yield was unchanged for a second straight session, staying at 5.66%. Those levels compare favorably with the 75.30 index reading and 5.72% yield recorded the previous week.

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