Junk pressured by stocks; Tops prices; CIT level to down; Ford, GM off on sales; funds add $22.6 million

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Oct. 1 - A "sloppy" equity market was given the blame for weakness in the high-yield market Thursday.

"It was definitely weaker today," a trader said. "It depends on where you look as to how much."

CIT Group Inc., for one, felt that weakness, as the company moved forward with its restructuring plan. However, traders saw the bonds either falling - though "not a lot," according to one trader - or holding their ground.

Meanwhile, Ford Motor Co. and General Motors Corp. released disappointing sales for September. As a result, both carmakers saw their debt moving lower.

Funds gain $122.6 million

The high-yield mutual funds saw $122.6 million of inflows for the week to Sept. 30, according to AMG Data Services, a market source said.

It's the sixth consecutive inflow for over $1.7 billion in total capital, the source added.

The most recent inflow extends the year-to-date total to over $16.7 billion among funds that report on a weekly basis to AMG, according to the market source.

Meanwhile, funds that report to AMG on a monthly basis have seen more than $10.4 billion of year-to-date inflows.

Hence the aggregate flows, which tally both the weekly and monthly reporting funds, came to more than $27.1 billion, for the year to Wednesday's close.

Tops brings $275 million

In the primary, Tops Holding Corp. and Tops Markets, LLC priced an upsized $275 million issue of 10 1/8% six-year senior secured notes (B3/B) at 98.354 to yield 10½% on Thursday.

The yield was printed at the wide end of the 10¼% to 10½% price talk while the size was increased from $250 million.

Morgan Stanley & Co. Inc. and Bank of America Merrill Lynch were joint bookrunners for the deal.

Proceeds, along with funds from an ABL facility and cash on hand, will be used to refinance bank debt and the company's warehouse mortgage agreement, to pay the related swap agreement termination costs and to make a distribution to equity holders.

Tops is a grocery store chain based in Buffalo, N.Y.

Veneco for Friday

In other primary market news, Venoco, Inc. set price talk for its $150 million offering of eight-year senior notes (Caa2/CCC+) at an all-in yield of 12% area.

The books close noon ET on Friday.

UBS Investment Bank is the left bookrunner for the Denver-based oil and gas exploration and development company's debt refinancing deal. BMO Nesbitt Burns, Credit Suisse Securities and RBS Securities Inc. are joint bookrunners.

Deluxe Entertainment to price

Elsewhere Deluxe Entertainment Services plans to price $600 million of eight-year senior secured first-lien notes (B2/B) late next week, following a full roadshow.

Credit Suisse and JP Morgan are joint bookrunners.

The Hollywood, Calif.-based digital cinema services company will use the proceeds to refinance bank debt.

Recent issues

Among junk bonds recently priced, CEVA Group plc's new 11 5/8% seven-year senior secured notes (Caa1/CCC/) which priced Wednesday at 97.127, were at par bid, par ¾ offered at mid-morning on Thursday, according to a Boston-based asset manager.

In the aftermarket Wednesday, the 11 5/8% Ceva paper had been at 99½ bid, par ¼ offered.

Late Thursday afternoon a hedge fund manager spotted the CEVA 11 5/8% paper at 99½ bid, par ½ offered.

Meanwhile TransDigm Group Inc.'s new 7¾% senior subordinated notes due July 15, 2014 (B3/B-/), which priced Wednesday in a $425 million add-on at 97.125 to yield 8½%, were at 98 7/8 bid, 99 offered mid-morning on Thursday, according to an investment banker.

Shortly before the banker spoke, the Boston-based asset manager spotted the paper at 99 offered, but added that earlier the bonds were 99 bid, 99¾ offered.

"With equities down, high-yield is continuing to fade," the manager said.

The hard-cranking primary market, which has seen issuers raise more than $20 billion since the beginning of September, has not alarmed this investor.

"It was rumored over the summer that there was a lot of stuff set to go after Labor Day, and that is apparently playing out," the buy-sider recounted.

"There is a tremendous risk appetite out there, and there is a lot of money being dedicated to risk assets," the source added.

The investor said that although defaults are presently around 10%, the damage has been negligible because the credit erosion has been orderly and expected.

"You haven't had any bolts out of the blue," the buy-sider said.

"Basically things are priced as if the defaults had been expected, so when it happened it really didn't make a material change in the price of the bonds."

Global Crossing soared in secondary

Among other recently priced issues, Global Crossing Ltd.'s 12% senior secured notes due 2015 (B2/B-), which priced on Sept. 11 in a $750 million issue at 97.944 to yield 12½%, were trading Thursday in a 104½ bid, 105½ offered context, the Boston-based investor said, adding that the deal, which had been upsized by $100 million at pricing, had been multiple-times oversubscribed.

Bonds dragged down by stocks

High-yield debt was under some pressure Thursday, which many sources attributed to a declining equity market.

"It was weak today, as you might expect," said one market source.

Another source said that "things in general were softer" with the "sloppy equity market."

The CDX High Yield Index dropped a point to 90¼ bid, 90¾ offered, according to a source. The KDP High Yield Index was also lower at 68.83, with a yield of 8.46%, compared to levels Wednesday of 69.02, yielding 8.40%.

Even new issues were seen losing ground. A trader said the new Cincinnati Bell Inc. 8¼% eight-year notes - which priced Wednesday at 98.62 and moved up to 99 bid - came in to 98 bid, 98¼ offered during Thursday's session.

"It should be interesting tomorrow," opined one trader.

CIT steady to lower

CIT Group debt continued to generate interest as the company attempts to move forward with a debt exchange.

"They were unchanged in the morning and then started backing off over the course of the day," a trader said. "Bids were fading by the end of the day and offerings were coming in."

He said the 4¼% notes due 2010 were down - but "not a lot" - and he saw them offered at 71.

"The best bid I saw was 68, but I am not even sure if that's there anymore," he said.

The 4¾% notes due 2010 meanwhile were hanging around the high-60s, though he said they traded as low as 65 toward the end of business.

"I think the focus is still CIT," said another trader. "People are waiting to hear what happens."

However, he said that the company's early and middle maturities were largely unchanged in the mid-60s.

Yet another source called the 5.20% notes due 2014 down 1 to 2 points at 50¾ bid, 51½ offered.

On Wednesday, reports surfaced indicating the New York-based lender was set to begin a debt exchange that also required debtholders to vote on a pre-packaged bankruptcy plan. The company reportedly wants to include the vote in case the swap is not successful.

Some market players are wondering if the swap will be similar to an exchange done by Residential Capital LLC late last year. In that scenario, longer-dated bondholders were pitted against those holding shorter maturities.

The general feeling is that a bankruptcy is imminent.

A CIT bankruptcy could also have what is being termed a "ripple effect" on retailers who rely on CIT for financing. One trader said that sector saw weakness, though whether that was in reaction to overall market weakness or CIT troubles was unclear.

Michael's Stores Inc.'s 11 3/8% notes due 2016 fell "a couple of points," he said to 91½ bid, 92 offered. Neiman Marcus Group Inc.'s debt also "drifted off" to 85 bid, 86 offered from 86 bid, 87 offered previously.

"That one was pretty active today," he added.

Elsewhere in the financial realm, First Data Corp.'s 9 7/8% notes due 2015 were seen falling to 90 bid, 91 offered, versus levels around 93 previously.

"So they are down a fair piece," a trader said.

Another trader saw the 11¼% notes due 2016 softening to around 85.

"That's down about a buck," he said.

Ford, GM decline on sales

General Motors and Ford Motor saw their debt falling some on the back of a disappointing sales report.

A market source said GM was "down in the dumps," the benchmark 8 3/8% notes due 2033 at 15¼ bid, 16¼ offered. He deemed that down about ¼ point.

The source also saw Ford's benchmark 7.45% notes due 2031 drifting in a point to 79 bid, 81 offered.

Another source called the Ford 7% notes due 2013 just ½ point weaker at 93 bid, while another said the 7.45% notes were unchanged around 81.

The latter source also said that GM's 7.20% notes due 2011 fell a point to 14 bid, 15 offered.

For the month of September, total Ford sales were 114,655, down 5.1% from 120,788 in September 2008.

Total car sales for the month were 38,890, down 3.9% from 40,453 last year.

And, total truck sales were 71,049, down 6.9% from 76,281 in the prior year.

GM meanwhile saw 156,673 cars head out of its dealerships, a 45% decrease year-over-year. The industry as a whole attributed the steep declines in part to the end of the "Cash for Clunkers" program.

"September was a tough transitional month for the industry, and a difficult year-over-year comparison for GM," said Mark LaNeve, vice president of U.S. sales, in a press release. "Fortunately, the fourth quarter looks brighter and our year-over-year comparisons should look more favorable.

"As expected, the market returned to pre-Cash for Clunkers levels in September, but we believe that our four core brands - Chevrolet, GMC, Buick and Cadillac - are well positioned with new products to generate enthusiasm with our 60-day satisfaction guarantee and 'May the Best Car Win' marketing campaigns," he continued. "We're gearing-up fourth quarter production to replenish depleted dealer stocks and improve availability of our vehicles for customers."

Sara Rosenberg contributed to this article.

© 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.