CIT Canada, American Axle calm down after Tuesday jump; Smithfield suffers; new deals nowhere

By Paul Deckelman and Paul A. Harris

New York, Aug. 19 - Bonds of CIT Group Funding Corp. of Canada and American Axle & Manufacturing Inc. - which had been the two most noteworthy names in Tuesday's otherwise pretty unremarkable session - were seen trading at a significantly lower profile on Wednesday.

The CIT bonds, which had jumped anywhere from 3 to 7 points, depending upon the issue, in very heavy trading on Tuesday on the possibility of an improved return for their holders in the event of a bankruptcy, were seen lower across the board Wednesday, on greatly reduced relative volume.

Meanwhile, American Axle - whose bonds had zoomed anywhere from 10 to 14 points Tuesday on busy volume on the news that former corporate parent and still-biggest customer General Motors Corp. had agreed to provide as much as $210 million in direct aid and funding to the company - were mixed on the session, depending upon whether traders were quoting round-lot levels or all trades, and volume was likewise reduced.

Elsewhere, Freeport-McMoRan Copper & Gold Inc.'s bonds, as usual, were among the most actively traded; they were seen down several points, though on no specific news.

Also seen lower, a trader said, were Smithfield Foods Inc.'s bonds, including its recently priced new issue, hurt by supply and demand concerns in the hog production industry and the continued bad publicity about swine flu.

Most other issues without specific news attached to them were seen little traded in a largely featureless market.

The high yield primary market - after Monday's loss of the postponed Dole Food Co. Inc. deal, at least for now, and Tuesday's split-rated Watson Pharmaceuticals Inc. offering in the high-grade market, which did attract some interest from Junkbondland -- seemed to drop completely off most radar screens on Wednesday.

Among recently priced issues, the mega-deals from Sprint Nextel Corp. and DISH Network Corp. continued to trade below their respective issue prices.

Market indicators move lower

The CDX Series 12 High Yield index, after having gained 1¼ points on Tuesday - recouping all of its losses from the prior session - retreated by ¾ point on Wednesday to finish at 87¼ bid, 87¾ offered.

The KDP High Yield Daily Index, which had lost 35 basis points on Tuesday, fell another 16 bps on Wednesday to end at 65.58, while its yield widened by 7 bps to 9.54%.

In the broader market, advancing issues - which moved ahead of decliners by a narrow margin on Tuesday - continued to lead them by that same relative handful on Wednesday.

Overall market activity, reflected in dollar-volume totals, fell by about 6% from Tuesday's pace.

A trader said that Wednesday's session was "like a total non-event." He added that "the dog days of summer are finally here."

Another trader described the proceedings as "kind of blah," and "boring." He said that normally, even if he was working on something else, "there would be a name or two you would see flash" across the screens in headlines that would lend themselves to being remembered, but in this session, "it's not like I can tell you any one thing that flashed. It's been very hit-and-miss."

CIT Canada cyclone dies down

A trader said of CIT Canadian unit's bonds - which had firmed by anywhere from 3 to 7 points on Tuesday on fairly heavy volume - that "that happened again today [Wednesday] - they were up a little better," although Wednesday's volume in the name was nowhere near Tuesday's, particularly for its 5.20% notes due 2015; those bonds had been the most active junk issue on Tuesday with $46 million traded, but saw just a couple of large-sized trades on Wednesday.

He saw the 4.65% notes due 2010 - which on Tuesday had actually been the least traded of the CIT Canada bonds, with just $5 million of turnover - as probably the most active of the group on Wednesday, with about the same amount having been traded by mid-afternoon. He said there had been "some trades, but not a lot of action," as the bonds traded in an 821/2-83 range - a couple of points above Tuesday's close at 80, though actually not that much changed from the 82-83 area where Tuesday's final round-lot trades had taken place.

Meanwhile the 5.20s were not performing as strongly. The trader saw those bonds around trading between 72½ and 73½ on "not a lot of volume. It was probably within a point of where they were [Tuesday]." He said "a lot" of the final trades on Tuesday had boosted the bonds to the 731/2, level but on Wednesday, the final trades were at 721/2, on considerably less volume.

"They definitely were much more active [Tuesday] than today.'

A market source at another desk saw the 5.20s going out at 72.5, calling that up a point from Tuesday's closing levels but down a point from Tuesday's final significantly-sized trades. Overall volume was perhaps around $5 million, versus the $40 million-plus the day before. The source also saw the 4.65s ending at 81 3/8, off around 1½ points on the day, although the last round-lot trades at 82½ were down only ½ point.

CIT Canada's 5.60% notes due 2011, which had traded over $20 million bonds on Tuesday, traded around $3 million on Wednesday, with the bonds seen ending down 2 points around 77.

The Canadian unit's bonds had jumped on heavy volume Tuesday after the New York-based commercial lender CIT said in its 10-Q filing with the Securities and Exchange Commission that the Canadian unit had issued $2.2 billion of unsecured debt, then lending the proceeds from that deal to another company affiliate, which it did not name in the filing. Media reports suggested the possibility that in the event of a bankruptcy, holders of the CIT Canada bonds could stake a claim against both the Canadian unit - since renamed CIT Group Funding Corp. of Delaware - and might also go after what is at this point the still-unidentified company affiliate as well - potentially putting those holders in line for an increased recovery.

American Axle moves quietly

A trader said that "the [auto] suppliers were big movers and groovers" on Tuesday, notably American Axle & Manufacturing Inc., whose bonds shot up by 10 points or more during that session on the news that its former corporate parent, General Motors, will loan American Axle up to $100 million and give it another $110 million outright in connection with contracts which the two Detroit-based companies entered into before GM's bankruptcy - a traumatic event for American Axle, which still does about 75% of its business with GM.

American Axle was also helped by the news Tuesday that lenders had agreed to extend its waiver of having to comply with its credit facility financial covenants till the end of the month, giving the company additional time to work on restructuring its finances. That waiver was to have expired on Thursday, putting American Axle in danger of a default.

After that huge advance on Tuesday, the trader noted that on Wednesday, there was still "a lot of volume," although much of it was in odd-lot trades rather than the larger and more representative round-lots.

He saw the company's 5¼% notes due 2014 go on "a little wild ride," dipping down to about 66 after closing out Tuesday around 69 - although Tuesday's final trading taking the credit up to that level was in smallish kind of pieces - and then head back up to 69. He said most of the trades came between 67 and 69, "but on good-sized trading. They ended pretty close to where they were [Tuesday]."

Another market source saw those bonds going out at just under 69, calling that actually down ½ point from Tuesday's late levels, but up about 2 points on a round-lot basis from Tuesday. Around $11 million of the bonds traded, slightly below the $13 million seen during Tuesday's surge.

Axle's 7 7/8% notes due 2017 - which had jumped 14 points on Tuesday to around 66, on volume of $16 million - firmed about 5 points on Wednesday to go home at the 71 level, although the last round-lot trade was actually several points lower on the day, at 63 bid. About $7 million of the bonds changed hands.

Freeport bonds fall back

With the CIT Canada bonds' volume levels dropping back to more normal numbers versus Tuesday's heavy dealings, a market source said that Phoenix-based copper and gold producer Freeport-McMoRan reclaimed its usual spot at the top of the Most Actives list, with nearly $30 million of its 8 3/8% notes due 2017 having traded as of mid-afternoon.

Those bonds were seen down several points, falling to around the 103 level from Tuesday's close above 105. No fresh news about the company that might explain the retreat was seen.

Community Health eases in active trade

Community Health Systems Inc.'s 8 7/8% notes due 2015 were also one of the more actively traded issues Wednesday, with over $20 million having changed hands at mid-afternoon, versus $7 million on Tuesday and $5 million each on Monday and last Friday.

The Franklin, Tenn.-based hospital operator's bonds - which are sometimes seen as a proxy for the overall market because of the issue's $3 billion size, widespread distribution and ease of trading - were down slightly, standing at a shade over 98. They had been above par at the end of last week.

Smithfield sings swine flu blues

A trader said that Smithfield Foods' bonds have been in retreat for the past several weeks, hurt by a fall in hog prices as industry supply remains out of whack with demand. "They look like they're in for a couple of weak quarters or so," he said, before the imbalance can be corrected.

He saw the Smithfield, Va.-based hog producer and pork processor's 10% senior secured notes due 2014 offered "at par or below" - well down from the 104 level at which the company priced a $225 million add-on tranche on Aug. 7.

As far as its existing bonds, the 7% notes due 2011 which had traded as high as 96 last week, are now 92½ bid, 93 offered. "That's a pretty bid drop-off for a two-year piece of paper," he said.

He also saw Smithfield's 7¾% notes due 2013, which had traded as high as the 86-87 area last week, now trading around 83-833/4. Its 7¾% notes due 2017 were trading at 7373 1/2, "which is down a lot."

Beyond an oversupply of hogs, the trader noted that the company has also been impact by the continued bad publicity from the swine flu outbreak - even though the meatpacking industry has advised the public that it is highly unlikely that anyone will contract swine flu by ingesting meat, as long as the meat has been properly cooked.

Because of those factors, "the company could be in for a weak quarter." He said that Smithfield "has the money to weather the storm - but nonetheless, it's being impacted by the swine flu and by the supply of hogs on the market place.

Park Ohio gains continue

The trader also said that "one name that keeps going up, up and up" is Park Ohio Holdings Corp.'s 8 3/8% senior subordinated notes due 2014. "Everyone is looking for an offering," he noted, "and the stock is doing very well."

He saw the Cleveland-based industrial supply and logistics company's bonds having moved up solidly from the mid-40s "a couple of weeks ago," first to 50 and now to a 64-65 bid, "looking for paper," with "odd lots trading up even higher." He said there has not been any recent news seen that might explain that advance, adding that "we're trying to find out what the hell is going on."

New Sprint, DISH bonds remain weak

And the trader saw the recent Sprint Nextel 8 3/8% notes due 2017 trading at 95 bid, "pretty much under water." The Overland Park, Kan.-based wireless telecommunications provider priced $1.3 billion of those bonds - drastically upsized from the originally planned $500 million - at 98.575 on Aug. 10 to yield 8 5/8%.

Another new issue which continues to struggle - a mega-deal, like Sprint Nextel - is DISH Network's 7 7/8% notes due 2019. The Englewood, Colo.-based satellite broadcaster priced its $1 billion of bonds on Aug. 12 at 97.467, to yield 8¼%; however, those bonds never got above issue, and were last being quoted this week trading around the 95-96 bid level.

Back to Basic(s)

But a recent new issue which he saw doing well was the Basic Energy Services Inc. 11 5/8% senior secured notes due 2014. The Midland, Tex.-based oilfield services company priced its $225 million issue - after first tinkering with the deal to shorten the maturity and change the originally planned senior notes into senior secured paper - on July 23 at 94.621 to yield 13 1/8%.

After its pricing, the issue rose to peak levels around 103-1031/4, and although it has since come down from that zenith, "they're still hanging in there," around 1011/2- 102¼ .

"Some of those [new] credits are still hanging in there pretty well," he concluded.

A question of sentiment

The primary market remained becalmed on Wednesday, market sources said.

One high-yield mutual fund saw its biggest year-to-date outflow on Tuesday, according to an asset manager from that fund.

Flows turned positive again on Wednesday, the source added.

"Sentiment isn't all that positive," the investor remarked, but added that a "seasonal" factor could be at play, with respect to Tuesday's outflow.

However people seem skittish, the source added.

With respect to the cash position of the buy-side, the abiding metric is the weekly funds flows numbers reported by AMG Data Services, of course.

Those numbers remain dramatically positive, sources say.

Thus far in August the funds which report weekly to AMG have seen over $1.4 billion of inflows - the most recent being a $713 million inflow for the week to Aug. 12.

Year-to-date those funds have seen more than $15 billion of inflows.

As to whether the above-mentioned outflow, reported by the asset manager from the high-yield mutual fund, foretells a broader change in the cash tide, news is expected to surface Thursday, when AMG makes its weekly funds flows report.

Chesapeake Energy's window

Deep into the Dog Days of August the primary market news has not been about deals expected to happen, but rather it has been about deals that could have happened but probably won't - at least for now.

Resignation appears to have set in among the junk syndicates: the new issue market seems unlikely to re-start before the end of the summer-fall terminus - which takes place during the three-day Labor Day holiday weekend in the United States from Sept. 4 to Sept. 7 - they say.

On Tuesday a banker mentioned a pair of expected deals from the energy exploration and production sector - both in the $250 million to $300 million range.

That banker declined to furnish issuer names.

However on Wednesday a high-yield mutual fund manager said that one of the names is Chesapeake Energy Corp.

"They might have missed the window," the buy-sider advised, adding that although it's possible that Chesapeake could come this week or next, a lot of high-yield participants are away on vacation, and it might be smarter for the Oklahoma City-based natural gas company to wait until after Labor Day to bring its deal.

The news for natural gas companies isn't particularly good, added the investor, who keeps close watch on the energy exploration and development sector.

"Natural gas keeps hitting keeps hitting new lows," said the investor, who spotted the current price at $3.13/cmf, for the current month.

Nor did the Tuesday overnight news from China bode well for commodities, the investor added.

Market watchers in New York awoke Wednesday to headlines from Asia which told that China's Shanghai Index has now fallen over 20% from 2009's highs, and thus is officially in bear-market territory.

"People are freaking out about China," the high-yield mutual fund manager said.

"That will have an effect on the commodity prices because of the perception that China has been driving those prices."

© 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.