Junk bonds still digesting latest economic data; NTL dollar notes up; steel firm

By Paul A. Harris

St. Louis, April 5 - The holiday-abbreviated week of April 5 got underway with a quiet session in which no new issues priced in the primary market, although there were developments on deals positioned on the forward calendar - a calendar that sources have taken to calling "massive."

Monday's session was also quiet in the secondary, although one new issue, NTL Cable plc's dollar-denominated 8¾% notes due 2014, was seen trading up smartly.

And traders continued to see firmness in the existing paper of steel-makers.

Meanwhile one trader, on Monday, pointed to the dramatic decline in the price of the 10-year Treasury bond on the heels of last week's positive economic numbers and the massive new issue junk pipeline and told Prospect News that at present the high yield is "A tale of two markets.

"The triple-C stuff and the single-B stuff will probably follow stocks," the trader said. "Whereas the spread-sensitive double-B stuff is probably a point or two weaker across the board.

"Nobody is saying a whole lot, of course. This week, between Passover and Easter, there are a lot of people out.

"March was great," the trader added. "Then all of the sudden you had last week's action on the 10-year. And everybody is trying to figure out where high yield should trade right now.

"People want to know whether or not we're going to see some follow-through on the data that was pointing to job growth.

"If we stumble on one of those numbers we may see some real pullback.

"Right now people are just treading water.

"And then there is the geopolitical situation. There is a lot of noise out there on that front.

"If we get one piece of bad news, whether it's a number or a terrorist strike, all bets are off.

"I wouldn't blow on the bids too hard - they may fade."

Solid bid on NTL dollar bonds

One trader told Prospect News that NTL Cable's new dollar-denominated 8¾% notes due 2014 made notable advances in Monday secondary trading.

The New York City-based cable TV company sold $425 million and €225 million of fixed-rate paper due 2014 (B3/B-) at par last Friday as part of an £811 million multi-tranche bond sale.

"The 8¾% dollar bond was very well spoken for," a trader commented.

He saw the bonds trade up to around 102.75 bid, 103.25 offered, adding, "And that's where it's closing out.

"The euro tranche is trading a little better but the sterling is trading right at par."

NTL also sold £375 million of 9¾% notes due 2014 at par to yield 9¾%.

However, the trader said that demand for the sterling paper was limited.

"I think they tried to do a lot more sterling but nobody wanted it," the New York-based trader said.

"And over here nobody wanted a sterling issue.

"Of course if these things continue to widen, with the dollars trading higher and the sterling trading lower, you will have guys swapping out of the dollar bonds to buy the euro or the sterling, because after all it's the same company.

"There's a limit to the downside here."

Another trader reported seeing NTL's dollar-denominated 83/4s of 2014 at 102.75 bid on Monday morning.

Still another secondary source spotted the notes at 100.75 bid, 101.75 offered.

Cablevision floaters rise with rates

Also on the move among recently issued bonds were notes sold last week by Cablevision Systems Corp.

The Bethpage, N.Y. entertainment, media and telecommunications company sold $2 billion in a three-tranche deal last Tuesday.

CSC Holdings, Inc., the operating company, sold $500 million of eight-year fixed-rate senior notes (B1/BB-) at par to yield 6¾%.

Cablevision Systems Corp., the holding company, sold $1 billion of eight-year fixed-rate senior notes (B3/B+) at par to yield 8%.

Cablevision Systems Corp. also sold $500 million of five-year senior floating-rate notes (B3/B+) at par to yield six-month Libor plus 450 basis points.

"The CVC floaters, as you would expect with the move in Treasuries on Friday and the follow-through today have traded three-quarters of a point better," noted a trader.

He saw the 8% notes below par at 99.5 bid, 99.75 offered and the 63/4s trading around 101.25 after trading as high as 101.75 bid, 102 offered on Wednesday and Thursday last week.

Meanwhile, the paper of Team Health Inc., a Knoxville, Tenn. provider of outsourced physician services, was seen languishing Monday.

The company sold $180 million of 9% senior subordinated notes due 2012 (B3/B-) at par on March 12.

On Monday a trader had those notes at 98.50 "and looking for a bid."

Meanwhile, the 7.9% notes due 2010 of Qwest Communications were a little better, according to one trader, who was at a loss to provide an explanation.

He saw the bonds at 90 bid, 92 offered on Monday, up from 88.50 bid, 90.5 offered late last week.

Steel names continue to firm

Recent news that increased global demand for steel has given some pricing power to U.S. steel-makers had existing paper from Middleton, Ohio flat rolled carbon and stainless steel manufacturer AK Steel Corp. on an upward trajectory on Monday.

One source told Prospect News early in the session that the company's 7 7/8% notes due 2009 and its 7¾% notes due 2012 were both on a positive trajectory, perhaps grinding toward par.

The source had the AK Steel's 7 7/8% notes at 94 bid, 94¾ offered, while the 73/4s were at 91 bid, 92 offered.

Later, a trader had the 7¾% notes "up a couple points. They were 92.5 bid, 93.5 offered, now they're 94 bid, 95 offered," the trader commented.

Yet another trader commented "the trend is friendly," and spotted the 7 7/8s of 2009 at 93 bid, 95 offered while 73/4s were 91 bid, 92 offered - "all recent highs."

"I don't think there is anything new here," said a trader. "They are able to have some price increases that stick. And the Chinese are eating through all the foreign steel."

Treasuries, calendar, outflows could soften market

One trader who spoke to Prospect News late in Monday's session said that in general the market was predictably quiet Monday.

"It seems like stuff is softer in certain areas," the trader commented.

"We continue to have buyers of specific names, but in general it's all for new issues. With regard to secondary names, people either don't care, or they seem to be selective sellers.

"My sense is that moving Treasuries and a heavy calendar are going to continue. And you have outflows every week for the past three weeks. They're small but they add up over time. Eventually that will have an impact on these secondary names.

"We have seen a lot of people talking bearish stands on the market: buying a lot of yield-to-call paper and buying a lot of short-end paper. And I think that's going to continue."

Calendar takes shape; look out for drive-bys

No new issues priced during Monday's session, however news was heard on issues currently positioned on the forward calendar.

The roadshow begins Tuesday for Midwest Generation LLC's $1 billion of 30-year second priority senior secured notes, which are expected to price late in the week of April 12.

Credit Suisse First Boston, Citigroup, Lehman Brothers and JP Morgan are joint bookrunners for the deal from the Rosemead, Calif.-based subsidiary of Edison Mission Energy.

Meanwhile the news that J.C. Penney Co. is selling its Eckerd drugstore chain to CVS Corp. and Jean Coutu Group Inc. for $4.53 billion figures to generate new issuance (see related story in this issue).

And Extendicare Health Services will issue bonds in order to fund the tender for $200 million of its outstanding 9.35% senior subordinated notes due 2007, with Lehman Brothers will running the books.

The Toronto-based extended care company declined to specify the size or tenor of the pending issue during a Monday conversation with Prospect News.

Price talk emerged Monday on a restructured offering by VWR International of $520 million of high-yield bonds, which are expected to price on Wednesday.

Price talk is 7% area on an upsized $200 million (from $175 million) of eight-year non-call-four senior notes. And price talk is 8% area on a downsized $320 million (from $345 million) of 10-year non-call-five senior subordinated notes.

Deutsche Bank Securities, Citigroup and Banc of America Securities are joint bookrunners.

Price talk is 9%-9¼% on MemberWorks Inc.'s planned $150 million of 10-year senior notes (B2/B), also expected to price on Wednesday. Lehman Brothers and UBS Investment Bank are joint bookrunners.

And the price talk is 10½% area on Ashtead Group plc's £130 million of 10-year senior secured second priority bonds (B2/B-), which are expected to price in the middle of the present week via Citigroup and Banc of America Securities.

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