Market in pre-holiday lull; Quiksilver off, Tousa bonds gyrate; Ashland seen as September business

By Paul Deckelman and Paul A. Harris

New York, Aug. 29 - The long-awaited unofficial end of the summer finally arrived in junk bond land on Friday, with most desks half-staffed, if manned at all, and volume well down ahead of the three-day Labor Day holiday weekend. Few issues were seen actually trading - with many market participants having cut out early - although some seemed to have sizable price movements as low volume exaggerated whatever moves they did make.

Traders saw relatively robust activity - given the overall low-level of action - in such names as Quiksilver Inc. and Majestic Star Casino LLC. There was also some profit-taking in IKON Office Solutions Inc., whose bonds had risen smartly over the previous two sessions on the news that the Malvern, Pa.-based provider of office equipment and software would be acquired by Japanese office equipment giant Ricoh.

Out of the severely depressed debt precincts came word that bankrupt Florida-based homebuilder Tousa Inc.'s bonds were moving around in fairly active dealings.

The almost comatose primary sector came alive, if only for a few brief moments, as word seeped out that Ashland Inc.'s planned offering of senior notes, part of the funding for its acquisition of chemical industry peer Hercules Inc., is likely to appear in the market sometime in September.

Market indicators little changed

The widely followed CDX index of junk bond performance was little changed, said a trader who quoted it at 92¾ bid, 93 offered. The KDP High Yield Daily Index meantime rose 2 basis points to end at 70.53, while its yield rose by 1 bp to 10.63%.

In the broader market, advancing issues and decliners were evenly matched. Activity, represented by dollar volume, fell by over 75% from the already-weak levels seen on Thursday.

"This was about as bad as it gets on a holiday-shortened day," a trader said. "Everyone was just sitting around, either talking politics" - John McCain's surprise Friday morning selection of dark-horse Alaska Gov. Sarah Palin as his running mate seemed to be the main topic around Wall Street water-coolers, easily overshadowing Barack Obama's Thursday night acceptance speech - "or they were talking about their beach plans for the weekend."

Another trader cited the Palin news as the only real thing generating buzz on the trading floors. With Friday's short session as the last official trading day of the month, and heading into a three-day weekend, he said, nobody wanted to go long on anything.

Quiksilver relatively active

A trader said that from where he sat, "absolutely nothing happened. The most actively traded issue was Quiksilver."

He saw some $8 million of the bonds changing hands, a relatively sizable amount given the overall quiet of the market. He quoted them at 80.25 bid, 81.25 offered, "pretty much right where they had been after they moved up" earlier in the week on the news that the Huntington Beach, Calif.-based maker of athletic apparel, footwear and sporting equipment had struck a deal to sell its money-losing Rossignol ski gear business.

Those bonds had moved up to around an 80-81 context at midweek from prior levels in the mid-70s on news of the asset sale.

Another trader, however, saw the 80.25 bid level actually down 1¼ points from round-lot levels around 81.5 at which he had seen those bonds on Friday. A third called them down 1 point at 80 bid, 81.5 offered.

Quiksilver had bought Rossignol for over half a billion dollars back in 2005 but its high hopes for the unit never materialized, and by the beginning of this year, it was looking to unload the property, with some analysts believing that a sale was next to impossible.

It finally struck a deal - to sell the company to a syndicate led by Rossignol's former CEO, Bruno Cercley, for €100 million, or about $147 million. Although that fire-sale price was less than a third of what it had originally paid, most market observers saw it as a positive, since Rossignol had been a constant drain on Quiksilver's finances and helped to more than cut its share price in half since the original purchase. They said that with Rossignol gone, it would be a case of "addition by subtraction," with Quiksilver now able to focus on its core product lines, including its eponymous line of athletic clothing.

IKON bonds retreat

Elsewhere, another name which had generated big news earlier in the week was seen lower Friday, with IKON Office Solutions' 6¾% bonds due 2025 seen down 4 points at 102 bid in relatively active dealings, while its 7.30% bonds due 2027 falling nearly 2½ points to the mid-106 region.

Those had been among the IKON bonds which had moved up smartly, all to the 107-108 area Wednesday on the news that Rich would buy out IKON for $1.6 billion. They had continued to firm on Thursday, with some of the IKON notes trading as high as the 109-110 area.

There's been no immediate word from IKON as to whether its bonds would remain outstanding after the sale to Ricoh, whether Ricoh would assume or guarantee them, or whether they would be taken out through a tender offer. The company did not return several Prospect News phone calls and e-mails seeking clarification.

Relatively brisk action in some names

A trader saw Majestic Star Casino's 9½% notes due 2010 down perhaps ½ point at 61.25 bid. He said that over $6 million of the bonds had traded, which "on a day like today [Friday] was pretty good."

He also saw Level 3 Communications Inc.'s 9¼% notes due 2014 up ½ point at 92.25 bid, on volume of $3 million. "On a typical day," he said, that kind of movement by the Broomfield, Colo.-based telecommunications infrastructure company's "wouldn't even rate a mention - but it's pretty large on a day like today."

Also among the most actives, he said was Telefonica de Argentina's dollar-denominated 9 1/8% notes due 2010, "out of the blue," with about $7 million traded as of mid-afternoon.

"That's unusual activity, I would think, on a day like today with no news" that he could find.

He saw them at 102.10 as a last round-lot trade vs. 101.55 late Thursday.

That activity came against a backdrop of no recent news - the last news he saw was back on Aug. 19, when Moody's Investors Service changed its outlook on the company, while keeping its B2 credit rating.

Tousa tumbles on lawsuit uncertainty

A trader said that "about the only thing" he saw in Friday's dealings was a drop in Tousa's bonds, with its senior paper - its 8¼% notes and its two issues of 9% notes due 2010 - falling to 46 bid from 50 previously and its junior paper - its 7½% notes due 2011 and 2015 and its 10 3/8% notes due 2012 - dropping to 2 bid from 6.

A second trader noted "a lot of volume" in the Tousa bonds, though almost all of it odd-lot trades, and opined that "there was definitely activity - there's something going on there." He saw the 9% bonds as having fallen as low as 41.25 on Thursday, versus 49 at the start of the week. He saw the 10 3/8% bonds having traded around 5.5 during the week. In Thursday's over-the-counter dealings, he saw the juniors having traded between 4 and 5, and the senior bonds between 44 and 48.

Yet another trader said that the Tousa bonds "have been moving lower - but all on speculation about what's going on with the lawsuit" filed by bondholders against the company and its senior lenders. He quoted the 9s at 46 bid, 47 offered and the 71/2s at 4 bid, 5 offered while noting that "there's still no resolution on the suit."

In that legal action, the bondholders complained that assets had been improperly pledged as collateral for a bailout loan by the bankers to Tousa's faltering Transeastern Properties joint venture shortly before the JV failed and dragged the company down into bankruptcy as well.

September uncertainties

The summer high-yield market drifted to an appropriately quiet close early Friday afternoon ahead of the three-day Labor Day weekend in the United States.

Sources reported no primary market news.

Although toward the end of the pre-Labor Day week emerging markets sources were speaking of an expected September pipeline, high-yield sources seemed much less certain. And most "pipeline" talk hinged on "market conditions," with sources, especially syndicate sources, saying that stability in the equity markets and improvement in the junk bond secondary are prerequisites to a meaningful regeneration of new issue activity.

There is a near universal perception that the buy-side has cash - some say "a lot" - to be put to work, thanks to the summer's extremely anemic new issue activity, as well as ongoing coupon clipping.

Also, while the picture painted by the week-to-week cash flows seen by the high-yield mutual funds has a mixed one, five of the past six weekly flows reported by AMG Data Services have been positive ones, sources say.

The most recent was a $44.7 million inflow for the week to Aug. 27.

The only negative flow during that six-week period was an $8.6 million outflow for the week to Aug. 20.

Nothing in the market

Sources seemed unsurprised by the fact that at Friday's close there were no new deals in the market.

During the course of the pre-Labor Day week two potential deals surfaced as expected September business.

Ashland Inc. is expected to price $750 million of senior unsecured notes during the month.

Banc of America Securities LLC is in the lead.

Along with a $1.75 billion credit facility, proceeds will be used to help fund the acquisition of Hercules Inc. in a transaction valued at $3.3 billion, including $0.7 billion of net assumed debt.

And SunGard Data Systems Inc. is expected to price $700 million of senior unsecured notes in September, to refinance the bridge loan related to its acquisition of a majority stake in GL Trade.

Goldman Sachs & Co., Citigroup and Lehman Brothers will lead that deal. KKR Capital Markets is one of the initial lenders.

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