Primary still silent, but secondary firms; J.C. Penney paper mostly up despite bigger quarterly loss

By Paul Deckelman and Paul A. Harris

New York, Aug. 20 - It was another mostly sleepy day in the high-yield market on Tuesday, with the primary pretty much hanging the "gone fishing" sign for the next two weeks.

Traders in the secondary market said things were not much more lively over there.

However, they noted that some of the recently priced new issues were a little firmer, bouncing back from the easier levels at which they were seen on Monday. These included names such as Foresight Energy, LLC, ACI Worldwide, Inc. and tw telecom inc.

Away from the new deals, there was some trading around in the various issues of J.C. Penney Co., Inc. following the troubled retailer's report of fiscal second-quarter results.

Although sales were down from year-ago levels and the company's net loss and its adjusted loss were considerably larger than last year's, missing analysts' expectations by a wide margin, its bonds were mostly higher, as were its shares.

Overall, Junkbondland was seen to have firmed a little from Monday's lows. Statistical market performance indicators turned mixed, an improvement after having spent the previous three sessions on the downside across the board.

One deal remains on the active calendar.

Australia-based Orionstone Pty Ltd. ran a roadshow for its $200 million offering of seven-year senior secured notes earlier in the month.

The deal remains in the market, an informed source said on Tuesday, adding that it is possible but unlikely that the deal could be finished before the three-day Labor Day holiday weekend in the United States, which commences at the Aug. 30 close.

Morgan Stanley has the books for Orionstone.

Pending market conditions

Syndicate officials professed visibility on a post-Labor Day pipeline, but were unwilling to divulge any names during Tuesday's quiet session.

"There is a bunch of merger-and-acquisition business that will come in September,if the market remains constructive," a syndicate banker said.

If market conditions remain constructive, monthly issuance rates could run as high as $30 billion to $40 billion for the remainder of 2013, the source said, adding that such a level of issuance would represent the "best case scenario."

May's massive volume is not likely to be repeated, however, the banker remarked.

May issuance came to $46.2 billion in 102 junk-rated, dollar-denominated tranches, according to Prospect News data.

That one month saw 23% of the total year-date issuance clear the market.

When the new issue market gets rolling in September, it is almost certain to do so in an interest rate context that is dramatically different from the one that prevailed in May, market sources are saying. At present, the yield context for the 10-year Treasury is 2¾%-plus, with people wondering if and when the 10-year will break through 3%.

In May, the context had been 1½% to 2%.

Until September, with the primary market virtually closed down and focus turned to the secondary market, high yield is apt to languish somewhat, the syndicate official said on Tuesday.

"Given that Labor Day is still almost two weeks away and based upon what we have seen in recent years [...] it would not be too surprising to see things back up a little," the source said.

Recent deals a little firmer

In the secondary market, a trader said that junk was "a little heavy [Monday], and it kind of came back a little bit from yesterday's lows, probably about three-quarters of a point or so."

For instance, some of the recently priced issues seemed to be a little firmer.

A trader said that Foresight Energy's 7 7/8% notes due 2021 were at 99 5/8 bid, 100 1/8 offered, calling that a gain of 3/8 of a point on the session.

A second trader saw those bonds having moved up to 99½ bid, 99¾ offered.

The St. Louis-based thermal coal producer and its Foresight Energy Finance Corp. subsidiary came to market on Friday with its $600 million issue of the notes, pricing the notes at 99.276 to yield 8%, after upsizing the deal from the originally planned $500 million. The bonds initially traded up to par when they were freed for aftermarket dealings, but eased on Monday.

ACI Worldwide's 6 3/8% notes due 2020 were seen by a market source Tuesday trading at 101¾ bid, 102¼ offered.

A second trader pegged the bonds a little wider at 101¾ bid, 102¾ offered.

That was about unchanged from recent levels, but still well above the par level at which the Naples, Fla.-based provider of payment systems had priced that $300 million issue last Thursday.

Another deal from Thursday - Medical Properties Trust's 6 3/8% notes due 2022 - was seen by a trader as having firmed to 102 5/8 bid, 103 /8 offered. The Birmingham, Ala.-based health care investment company had priced its quickly shopped $150 million add-on to its existing notes at 102 to yield 6.07% on Thursday via its MPT Operating Partnership LP and MPT Finance Corp. subsidiaries.

Going back a little further, a trader said that R.R Donnelley & Sons Co.'s 7% notes due 2022 appeared to be holding their own, seeing those bonds at 101 3/8 bid, 102 3/8 offered.

That was a little bit below the highs, which those bonds had reached in initial aftermarket dealings, but was still well above the par level at which the Chicago-based printing, packaging and marketing company had priced its quick-to-market $400 million offering last Monday, after upsizing the deal from an originally announced $300 million.

Another deal that got done during that same Aug. 12 session, tw telecom's $800 million two-part drive-by offering, was a little higher on Tuesday after having retreated on Monday, a market source at another desk said.

He saw the Littleton, Colo.-based network services provider's 5 3/8% notes due 2022 at 95 bid, 95½ offered, up by a quarter-point on the day, although they remained below the levels where they had traded last week after that $450 million of paper - structured as a mirror tranche to its existing notes - had priced at 96.25 to yield 5.913%.

He also saw the company's $350 million of standalone 6 3/8% notes due 2023 up 1/8 of a point on the day at 99 1/8 bid, 99 5/8 offered, although that was still down from last week's late levels and from their pricing at par.

A second trader located the bonds Tuesday at 99 bid, 99¾ offered.

NuStar a bit easier

Bucking the generally slightly positive trends, a trader saw NuStar Logistics, LP's 6¾% notes due 2021 down a quarter-point on the session, at par bid, 100¾ offered.

Another trader quoted the company's paper at 100¼ bid, 100¾ offered .

That would be up a little from the par level at which the San Antonio-based provider of petroleum terminaling and storage services had priced its $300 million offering last Wednesday, but off a little their initial aftermarket levels a little above that.

Out of that same energy space, a trader was quoting Access Midstream Partners, LP's 5 7/8% notes due 2021 at 101¼ bid, 102 offered.

That was down a little from last week's trading levels and down as well from the 101.5 level at which the Oklahoma City-based natural gas services provider and its ACMP Finance Corp. subsidiary had priced its quickly shopped $400 million add-on to its existing 2021 paper last Wednesday to yield 5.503%.

T-Mobile USA Inc.'s 5¼% notes due 2018 were seen by a trader on Tuesday at 100½ bid, 101 offered The Bellevue, Wash.-based No. 4 U.S. wireless carrier had priced its $500 million drive-by offering at par, also last Wednesday.

Penney paper pushes upward

Away from the new issues, one of the day's more notable names was J.C. Penney, after the Plano, Texas-based department store retailer reported earnings for the 2013 fiscal second quarter.

"I think those bonds are up a bit," one of the traders said, with the company's busiest issue, its 6 7/8% notes due 2015, finishing up by three-quarters of a point on the day at 91 bid on round-lot volume of more than $8 million.

There was also a sizable number of smaller odd-lot transactions as well.

Penney's 6 7/8% bonds due 2036 were seen by a market source as having improved by 1½ points on Tuesday, to just over 70 bid, with over $4 million of the bonds having changed hands.

The company's 5¾% notes due 2018 rose by 1¾ point to the 79 level, although round-lot volume was just $2 million. However, the notes were also busy odd-lot trading.

On the equity front, Penney's New York Stock Exchange-traded shares rose 79 cents, or 5.98%, to end at $14.01, on volume of 67.8 million shares, more than five times the norm.

The bonds and shares rose even against a backdrop of poor financial results.

In the fiscal second quarter of 2013, Penney showed a net loss of $586 million, or $2.66 per diluted share, for the second period of fiscal 2011, which was sharply wider than the year-ago red-ink of $147 million, or 67 cents per share.

Excluding unusual items, such as the earnings charge from the extinguishment of the 7 1/8% debentures via the tender offer, its adjusted loss came to $477 million, or $2.16 per share, versus $81 million, or 37 cents per share, a year ago. The adjusted loss came in far wider than the roughly $1.05 to $1.10 area that most analysts had been expecting.

The company last turned a profit two years ago.

Sales slid by 11.9% year-over-year to $2.66 billion, down from $3.02 billion in the year-ago quarter, and came in below the roughly $2.75 billion that Wall Street had been expecting.

Comparable store sales at outlets open at least one year - a key retailing industry performance metric - were also down 11.9% in the quarter from a year ago, when they had plunged by 21.7%, but analysts were looking for around a 7.5% decline.

However, the news was not all bad as the company noted that comparable-store sales had improved sequentially by 470 basis points versus the first quarter and said additionally that sales results had also improved sequentially each month within the second quarter, "a trend the company expects to continue through the back half of the year."

Penney also reported an encouraging start to the back-to-school season, now in full swing and coming to a climax ahead of the post-Labor Day start to the new school term in most parts of the United States. Back-to-school is traditionally the retailing industry's second-largest selling period of the year, trailing only the year-end holidays.

Executives further said that thanks to a big term loan deal the company did during the second quarter, it has ample liquidity of some $1.85 billion, including more than $1.5 billion of cash and equivalents. They predicted that the company would end the year with liquidity of at least $1.5 billion and would probably not to do any further borrowing to augment liquidity in the near-term.

Mostly quiet session

But away from any names that had some news developments spurring them on, a trader said that "nothing" was happening.

He characterized the market as "just offers-wanted for most of the day - guys were in trying to cover shorts and that kind of thing."

He added: "I don't think anything really stuck out being overly up or down. It was a kind of sideways day. It just seems like it's the middle of August and the market's basically closed down."

With the primary having already entered its summertime swoon, "we've got no new issues for the next two weeks."

However, he said that here and there, "we did see some buying, some sort of real money. Insurance companies and high-yield money managers have been in, picking over the secondary market with levels probably in a couple of points from the highs of middle of July."

How long that type of buying could buoy the market is anybody's guess.

He said that going forward, "the real big drivers for the market are going to be what the Fed does and what that tapering [of quantitative easing bond buying] ends up being - if they do it - and if and when they do it, and that's what's got the market kind of hung up."

Market indicators mixed

Statistical junk market performance indicators turned mixed on Tuesday, after having been on the downside across the board for the three prior sessions.

The Markit Series 20 CDX North American High Yield index rose by 21/32 of a point on Tuesday to end at 103 7/8 bid, 104 1/16 offered. That snapped a string of three consecutive losses, including Monday's 21/32 of a point downturn.

But the KDP High Yield Daily index continued to languish, posting its sixth straight loss on Tuesday as it fell by 15 basis points to close at 73.13. On Monday, it dropped by 6 bps. Its yield was higher for a fourth straight session, widening by 4 bps to end at 6.27%, after having edged up by 1 bp on Monday.

And the widely followed Merrill Lynch High Yield Master II index saw its fourth straight loss Tuesday, falling by 0.126%. It had been down by 0.162% on Monday.

The latest loss left the index's year-to-date return at 2.53%, down from Monday's 2.66% .The return was well down from its peak level for the year so far of 5.835%, recorded on May 9, though still up solidly from its 2013 low point of 0.384%, set on June 25.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.