New Watson still trades around, junk otherwise quiet; Warner Chilcott plans bonds

By Paul Deckelman and Paul A. Harris

New York, Aug. 24 - The high-yield market saw Watson Pharmaceuticals Inc.'s recently issued two tranches of bonds continue to trade relatively actively, clinging to levels above par and a little above the levels where those bonds had priced a week ago. They continue to attract junk-market interest even though the split-rated (Ba1/BBB-/BBB-) deal was priced off the underwriting banks' high-grade desks and was largely aimed at such accounts.

Among true citizens of Junkbondland, traders said not much was going on in purely high yield issues, the market beset by the typical summer Monday doldrums. News that the much-ballyhooed "Cash for Clunkers" program was set to wrap up on Monday, though spurring a frenzied rush of eleventh-hour visits to dealer showrooms by would-be carbuyers desperately seeking to unload their aging gas guzzlers for big trade-in rebates, produced no significant activity in the bonds of such automotive names as General Motors Corp. and Ford Motor Co.

The primary market - though likely asleep for what remains of the summer - saw a flicker of news with news circulating on a low-key pricing of a small deal by a Canadian energy operator, Baytex Energy Trust.

Also in the primary sphere, further on the horizon, came indications that drugmaker Warner Chilcott plc is expected to issue senior notes as part of the financing for its $3.1 billion purchase of Proctor & Gamble's global pharmaceuticals business, which was announced Monday. Meanwhile, the company's existing senior subordinated notes - which will remain as part of the company's final capital structure, post-financing - were not much changed on the P&G news, in relatively sedate dealings.

The high-yield primary market remained quiet as the final week of August got underway.

However news circulated that Baytex Energy Trust priced C$150 million of seven-year series A debentures (B3/B) at par to yield 9.15% late last week.

TD Securities led an all-Canadian syndicate of banks.

The deal was run off the Canadian desk. Market sources in the United States said that there did not appear to be much, if any, interest in the deal among U.S. investors.

Proceeds will be used to partially fund the redemption of the trust's U.S. notes maturing in 2010 and 2011.

Meanwhile there was no primary market news on Monday, nor is any expected before Labor Day, a high-yield syndicate source said after the New York close.

Earlier in the afternoon another syndicate banker professed knowledge of at least two deals - one from the energy sector, the other a telecom - that were originally slated to come last week, but were instead pushed forward into the post-Labor Day period.

Watson still popular

With no real junk new deals to chew on - unlike the situation earlier in the month, when the new issues were coming in at a rapid-fire pace - high yield secondary participants looking for new, or recently priced paper, continued to play in what could best be described as a quasi-junk offering, the two-part split-rated deal from Corona, Calif.-based drugmaker Watson Pharmaceuticals Inc.

Those bonds priced off the investment-grade desks last Tuesday, but then some junk accounts were seen playing in the name, despite coupons and yields that are relatively low by traditional junk market standards.

Watson's $450 million of 5% notes due 2014 priced at 99.589, to yield 5.095%, while its $400 million of 6 1/8% notes due 2019 priced at 99.796 to yield 6.153%. The bonds were seen busily traded last week, particularly on Thursday and again on Friday, making their way to the top of Most Actives lists, traders said, even as they acknowledged that certainly some, or even most of the activity was coming from high-grade accounts. They went out last week with the five-years quoted around 100½ bid and the 10-years at least a point above that.

On Monday, a trader said that the five-year bonds were still trading in a 100¼ -100¾ context, with most of the day's trades taking place within a 1001/2-100¾ range, and they were "probably Number Two on the volume list."

He saw the 6 1/8% notes due 2019 at 101.40, "sort of where it was on Friday," although he saw only that one large trade and a smaller trade, "a little bit cheaper."

A market source at another desk pegged the Watson five-years at about 100¼ bid at mid-afternoon, though on brisk volume of over $20 million, while seeing the 10-years around that 101.40 mark, though on considerably less volume of around $7 million.

Warner Chilcott paper little moved

While the new Watson bonds were trading actively, the same could not be said of sector peer Warner Chilcott's 8 ¾% senior subordinated notes due 2015 - even though the Ardee, Ireland-based pharmaceuticals company was at the center of one of the biggest business news stories of the day - it will acquire multinational consumer products giant Proctor & Gamble's global pharmaceuticals unit for $3.1 billion.

Although that news shot Warner Chilcott's Nasdaq-traded shares up by as much as 35% in the early going and ultimately, up 27.09%, or $4.35, to $20.41, on volume of 11.2 million shares, or over 10 times the norm, its bonds did not really move much as all. A market participant saw a handful of large-block trades, with the bonds going out around the 100.5 level - actually down a point from the day's zenith, and down nearly a point from the most recent prior round-lot level, last week.

Junk marketeers also noted the company's statement, during its conference call to outline the transaction, that its final debt structure following the big acquisition is expected to include both term loans and senior notes, as well as the $380 million of outstanding 2015 sub notes, that according to its chief financial officer, Paul Herendeen (see related story elsewhere in this issue).

Market indicators slightly better

A trader saw the CDX Series 12 High Yield index - which had gained 3/8 point each on Thursday and again on Friday - up 1/8 on Monday, finishing at 89¼ bid, 89¾ offered.

The KDP High Yield Daily Index, which had risen 14 basis points on Friday, gained another 7 bps on Monday to end at 65.88, while its yield tightened by 2 bps to 9.44%.

In the broader market, advancing issues - which led decliners for a fourth straight session on Friday, by about a six-to-five margin, led again on Monday - though only by a mere handful of issues.

' Overall market activity, reflected in dollar-volume totals, was down about 3% from Friday's pace.

Traders queried by Prospect News were unanimous in their characterization of the market.

"Things were fairly quiet," one opined.

The big thing going on, another said was "we were watching the ballgame. It was not a very active day at all. Everyone is just marking time."

A third called the day "awful," noting that "nothing happened," while at yet another shop, a trader labeled Monday "a pretty boring day." He allowed that "if you look at Trace on the volume items, it's sort of like plain vanilla - I think that some large accounts that have to move stuff around that's pretty liquid, that's easy to get markets on, are trading in the context of where things have been."

He said the market "opened up firmer today, and I think there's still more of a need to put money to work than there is to sell paper, and there hasn't been a calendar," meaning that accounts which have been holding some names on the basis of "we'll sell them [to raise cash] when we have something [else] to buy," have not had to sell those credits because "there's nothing compelling out there to buy, so you don't see a lot of the stuff coming out. "It's been just stuff that you might generally see markets in - people are shuffling paper back and forth, rather than trying to take one thing up or down."

High volume names largely unchanged

The volume leaders, he said, included such names as Wells Fargo Corp., Qwest Communications International Inc. and Peabody Energy Corp. "When you look at the overall numbers, it looks like it's not a bad day, but if you look at the number of markets and the activity in the Street, it's been pretty light."

The Peabody 7 3/8% notes due 2016, for instance, were trading around 99-100, but the St. Louis-based coal operator's paper was unchanged on the day - the trader said "that's where they've been - but they were probably in the Top Five today, in activity. The price has been relatively unchanged, but there's been some trading in the context." A market source at another desk saw more than $10 million of the Peabody bonds changing hands.

It was pretty much the same situation with Denver-based telecommunications provider Qwest's floating-rate notes due 2013, issued by the company's Qwest Corp. subsidiary. The trader saw those bonds unchanged around 92 bid. "Same thing there - unchanged - just somebody moving out of it, and somebody taking it down, or the other way around." Volume in the Qwest floater topped $15 million at mid-afternoon, a market source said.

Another active issue - to say the least - was the floating-rate securities due 2042 issued by Wachovia Capital Trust III, a unit of Wachovia Corp., itself now a unit of San Francisco-based Wells Fargo.

The securities were being quoted Monday at 641/4, down from the 65¾ level at which they had been seen on Friday. Trading, which had been tepid on Friday, with under $10 million recorded as of mid-afternoon that session, turned torrid on Monday, with over $50 million of the securities having changed hands by mid-afternoon, the most of any junk issue.

Another high-volume name which the trader saw pretty much unchanged was Phoenix-based mining concern Freeport-McMoRan Copper & Gold Inc. Its 8 3/8% notes due 2017 were hanging in around the 105 level, with over $10 million traded by mid-afternoon.

Autos unaffected by 'Clunkers' conclusion

The end of "Cash for Clunkers" seemed to have little or no impact on the bonds of General Motors or its domestic arch-rival, Ford, with a trader seeing GM's benchmark 8 3/8% bonds due 2033 unchanged at 15 bid, 16 offered, while Ford's 7.45% bonds due 2031 were likewise unchanged at 75 bid, 77 offered.

A second trader quoted GM paper at a "generic" 14-16, "pretty much unchanged, while the Ford 7% notes due 2013 were pretty much unmoved as well, at 88-90.

Bonds of the two carmakers' auto-loan financing units were also largely where they left off Friday, with GMAC LLC's 6 7/8% notes due 2012 seen by a trader unchanged at 86-88.

He also saw Ford Motor Credit Co.'s 7 3/8% notes coming due on Oct. 28 at 991/2-par 1/2, "pretty much unchanged," while a second saw them at par bid, 100½ offered, adding that "it doesn't look like any movement there."

Sinclair settles down

A trader saw "no activity" in Sinclair Broadcast Group Inc.'s 8% notes due 2012, which had firmed about 2 points on Friday to around the 82 level, on news of a debt agreement with a committee of its convertible holders aimed that preventing those holders from pushing the Hunt Valley, Md.-based television station ownership group into eventual bankruptcy by putting their debt back to the company - which cannot afford to pay off those bonds - next year.

He said the bonds were "in the low 80s, which is where they'd been, but I did not see activity" in the name.

A second trader agreed that there had been "no trades today," leaving the bonds still quoted at the same 821/2-83¼ level at which they had been seen finishing up on Friday.

"I'm just seeing old bids out there - nothing today. You don't see any bids in the Street on it." He also saw "a few trades" in the 3% convertible notes due 2027 around 90-901/4, about the levels to which they had risen on Friday on news of the debt deal.

Citizens Banking on the slide

A market source saw the 5¾% senior subordinated notes due 2013 of Citizens Republic Banking Corp. at a 74-75 context, down around 10 points from the levels where the bonds had recently been quoted, although there has not been any actual trading in the credit for some time.

Another source, however, pointed out that there were only two large-block trades on the day at that lower level - and concurred that there have been no trades in the Flint, Mich.-based banking concern's paper in quite a while.

There was no fresh news out about the company, which is in the process of giving the holders of the $125 million of subordinated bonds new company shares in exchange for those bonds, in an offer which will expire Sept. 14. It announced amended terms for that offer at the end of last week.

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