New Supervalu, Ingles bonds are hot - but Starwood, Ryland are not; Ford, GMAC gains continue

By Paul Deckelman and Paul A. Harris

New York, May 1 - Supervalu Inc.'s upsized new issue of seven-year notes firmed smartly in secondary dealings Friday, on considerable volume. Interestingly, the new bonds from the other supermarket operator who brought a deal to market on Thursday, Ingles Markets Inc., were also seen having traded very well on the beak.

On the other hand, Starwood Hotels & Resorts Worldwide Inc.'s new bonds were seen in trouble from the get-go - at one point moving several points below their issue price, before being lifted back up and cutting their losses by day's end.

The other new issue that priced Thursday, Ryland Group Inc., was also seen having trouble just treading water.

After Thursday's extremely busy day, there were no further pricings on Friday. However, junk bond syndicate sources said Canadian mining concern Teck Cominco Ltd. is likely to bring a $500 million issue to market in the upcoming week, while packaging concern Rock-Tenn Co., which is tendering for $100 million of existing bonds, may fund that tender offer by selling debt securities.

In the secondary realm, there was further upside for GMAC LLC, building on the strong momentum generated Thursday, when it was announced that the federal government will provide support for GMAC, allowing the company to emerge as the primary lender to dealers and customers of the bankrupt Chrysler LLC.

Ford Motor Co., benefitting largely from the simple fact that it is not Chrysler nor the also-troubled General Motors Corp., was again higher. GM's bonds were seen mixed.

Market indicators point upward

A trader saw the CDX Series 12 High Yield index - which had risen by ¾ point on Thursday - off by 3/8 point Friday at 78½ bid, 79 offered. However, it remained sharply higher than the 75¼ bid, 75¾ offered level at which it had closed out the previous week, last Friday.

Meanwhile, the KDP High Yield Daily Index, which had jumped 70 basis points on Thursday, gained another 39 bps Thursday to 58.80, while its yield tightened by 17 bps to 11.78%.

Cash was up ½ to 1 point, according to a bond trader from a high-yield mutual fund who also specified that Friday volume was low.

"Some of this stuff is running out of gas," the trader remarked, alluding to the cash bond market that has enjoyed a massive, weeks-long technical rally.

Advancing issues for a third straight session handily led decliners, topping them by an almost two-to-one margin.

Overall market activity, measured by dollar-volume totals, rose by 38% from Thursday's levels.

A trader saw "some decent secondary flows, two-way flows, up until around noon [ET]. Since noon, it's really been pretty quiet."

The market, he said, "was firm - but there were a few more sellers who came into the market today."

That having been said, he offered that he had not "seen any major blowups." But after having come so fast, so far, he said, "people are a little guarded."

New Supervalu is a super value

The trader opined that "there was quite a bit of secondary trading in the new deals."

At his shop, "we were very active" in the biggest of the new deals priced Thursday - for Eden Prairie, Minn.-based national supermarket operator Supervalu. The company priced $1 billion of new 8% notes due 2016 on Thursday at 97, to yield 8.58%. That deal was doubled in size from the $500 million initially shopped around the market, and was described by a market source as "a blowout" - oversubscribed before pricing and then strongly received when it hit the secondary sphere.

He said that there were "a surprisingly large number of bonds changing hands," all trading anywhere from ½ point to a full point above the issue.

Several other traders also saw the new Supervalu bonds in a 98 bid, 98.5 offered context, with one of them also terming the bond "very liquid."

Ingles shows improvement

Also among the newly priced supermarket operator bonds, Asheville, N.C.-based regional grocery chain Ingles Markets' new issue of 8 7/8% notes due 2017 "did pretty well," a trader said.

The $575 million tranche - upsized from $500 million originally - had priced at 96.548 on Thursday to yield 9½%.

Those bonds also pushed up above the 98 mark, in "very, very busy" dealings, another trader said, with "the bulk of the trades" taking place in a 97¾ to 98¼ context. "A fairly large volume of bonds did trade," he said.

HOT turns ice-cold

While the new supermarket bonds were sizzling, the other two deals priced on Thursday were fizzling.

Starwood Hotels' new $500 million issue of 7 7/8% notes due 2014, which priced at 96.285 on Thursday to yield 8¾% - but which "didn't do so well," a trader said. In fact, at one point, he said the White Plains, N.Y.-based international lodging giant's bonds were trading down 2 points from their issue price, before "buyers stepped into the market between 94 and 94½ and lifted the bonds off their lows to "north of 95" - but that still left them at least a point below issue.

Starwood's bonds traded "on good volume. Late in the day, he saw them "draped right around" 95, at 94¾ bid, 95¼ offered.

Trading volume for all three new offerings was "fairly heavy, which could mean the allocation process wasn't as seamless as people think."

He said that in his opinion, "it looked like they pushed the pricing on Starwood way too far. They priced it 20, 30, 40, 50 basis points too tight."

While the Starwood notes came at the tight end of the 8 7/8% price talk, a substantial number of accounts lost interest in the lodging and leisure company's first-ever junk issue as the yield was ratcheted down to 8¾% from 8 7/8%, a trader and others said on Friday.

Ryland remains lower

Thursday's other new deal, for Calabasas, Calif.-based homebuilder Ryland, also underperformed. The company priced $230 million of 8.40% notes due 2017 at 98.006 to yield 8¾%, although a trader saw them a little below issue on Friday.

GMAC jumps on Chrysler bankruptcy, Ford firmer

Among more established credits, a trader saw GMAC's bonds "starting the day feeling better," gliding on the momentum of Thursday's big surge. He saw the 8% bonds due 2031 at 63 bid, before finally ending at 62 bid, 63 offered, which he saw as still up about 2 points from the 60 level to which the bonds jumped on Thursday.

He said there was "not as much volume today" as there had been on Thursday, and said that the GMAC paper "seemed to be holding at higher levels."

A market source saw the 8s up 2½ points on the session to a 63 bid finish.

But at another desk, its 6 7/8% notes due 2012 were being quoted as high as 75 bid, up 10 points from recent levels.

The first trader noted that GMAC remained firm, even in the face of a Gimme Credit report advising holders to sell GMAC in the wake of Thursday's big surge. "Response to it was rather muted," he said.

In that report, analyst Kathleen Shanley noted that GMAC had inked an accord with the bankrupt Chrysler under which it will take over many of the functions heretofore done by the carmaker's own Chrysler Financial offering - providing financing for Chrysler's customers and dealers. GMAC said it had received assurance of continued government support as it pursues this new role, which signaled to investors that the Obama administration is committed to keeping GMAC alive as an auto lender. While Shanley acknowledged that GMAC bondholders "are enthusiastic about the Obama administration's plan for Chrysler," she warned that "GMAC is likely facing additional challenges if GM files for bankruptcy" - a scenario which is slowly but surely gaining increased credence in the financial markets.

With that in mind, the analyst urged GMAC investors to "take advantage of the recent rally and sell GMAC debt."

The Return Of ResCap

While GMAC's bonds have recently been soaring, a trader noted that they had company, as Residential Capital LLC's bonds, "a name we haven't seen much of lately, jumped" along with GMAC. He quoted the Minneapolis-based residential lender and wholly owned GMAC subsidiary's 8½% notes due 2010 "in the high 80s, at 87-89; remember that those bonds were trading in the 30s, 40s and 50s at the beginning of the year, and jumped up with the rest of GMAC."

GM steady, Ford firmer

A trader meantime saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 down ¼ point at 8 bid, 9 offered.

He also saw Ford's 7.45% bonds due 2033 a point better at 51 bid, 53 offered.

Another trader saw the GM benchmarks around 10 bid, while he said Ford's long bonds got as good as 54 bid, 55 offered "and holding." The bonds, he added, "were feeling a little better."

At the short end of the curve, the trader saw Ford's 7 3/8% notes coming due later this year in a range of 95-96, with "most of the trades taking place" around 96.

A market source at another desk saw the GM 7 1/8% notes due 2013 up nearly a point at 10 bid.

Swine flu sentiment subsides

Outside of the autosphere, Wall Street worry over the spread of swine flu is by no means over - but the junk market seems to have backed away from the kind of panicky reaction seen over Monday and Tuesday which hurt the bonds of such companies as Smithfield Foods Inc., the largest U.S. pork processor, and for international meatpacker JBS USA LLC's recently priced deal, which was struggling to stay around its pricing level even before the swine flu news. However, a trader - who called that sell off "stupid" - said toward the end of the week that Smithfield seemed to have come off its earlier lows.

The lower levels were "great buying opportunities," he said

He saw the Smithfield, Va.-based company's 7¾% notes due 2017, which had traded as low as 62 bid, 63 offered on Wednesday, firm to round-lot levels of 64¾ bid, 65 offered on Thursday. In Friday's session, he said there were no more large trades - but he saw those bonds push as high as 70 bid on round-lot trades.

He said that looking over Smithfield's finances, the company's large debt burden "is more disconcerting than swine flu."

An open window

The new issue market remained quiet on Friday.

The April-May crossover week was a busy one - the third biggest of 2009 to date in terms of dollar amount of issuance, with issuers raising $2.524 billion in five tranches.

However the past week saw the lowest amount of issuance of the past three weeks: lower than the April 20 week's $2.789 billion in six tranches, and lower than the April 13 week's $3.026 billion in three tranches - the biggest week of 2009 to date.

In any case the week ahead will be a busy one, sources say.

Partly that expectation is predicated upon the $4.4 billion of cash that has come into the high-yield mutual funds over the past seven weeks - $7 billion-plus year to date - according to AMG Data Services.

"We're hearing that next week is going to be busy," said a high-yield syndicate official, Friday morning.

"Since this window is open everyone is going to try to race to the market. We could have two or three big deals coming soon."

The week ahead

Canadian metals and mining firm Teck Cominco is expected to come to the high-yield new issue market with a $500 million offering of notes during the week ahead, market sources said Friday.

No further details were available.

Elsewhere solid information seemed to be in shorter supply.

One name that has circulated the market for the past two weeks is that El Segundo, Calif.-based dialysis services provider DaVita Inc. That name came up in conversations with both the buy-side and sell-side. A trader, noting the fact that on Wednesday DaVita reported that its net profit increased more than 10%, on higher revenue, for the first quarter of 2009, said that if DaVita was coming it should have done so by now.

However another issuer from the health care space - possibly a competitor of DaVita - is expected to bring a $300 million deal during the week ahead, according to a high-yield syndicate official who was unable to produce a name.

Finally Rite Aid Corp., another name that received liberal circulation during the April-May crossover week, might come to the primary market soon, sources say.

If it does come, the deal will almost have to be on a secured basis, a trader said late Friday afternoon. Citigroup will possibly have the books for a Rite Aid deal.

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