Post-holiday primary quiet, though WOW! to sell $1billion; Ford, Chesapeake top secondary

By Paul Deckelman and Paul A. Harris

New York, May 29 - It was back to work on Tuesday for the high-yield market, following the Memorial Day holiday break - but as is often the case coming off such an extended weekend, post-holiday activity was quiet in both the primary and secondary markets.

In the new-deal space, no pricings were seen by the time things wound down for the day, although a sizable offering was heard by syndicate sources to have joined the forward calendar -WOW! Internet, Cable & Phone will launch a $1.02 billion bond deal some time next month to fund most of the cost of its recently announced $1.5 billion acquisition of broadband provider Knology Inc.

The primaryside was otherwise quiet.

In the secondary realm, traders saw only a little activity in the deals which priced last week, such as Carrols Restaurant Group, Inc. and Roofing Supply Group LLC.

Away from the new deals, they said that market activity was dominated by a handful of names, including Ford Motor Co., Chesapeake Energy Corp., Chrysler Group, LLC and Petroleos de Venezuela SA.

Most price levels were seen higher, along with statistical indicators of market performance, as junk moved in tandem with firmer equities.

However, traders said that junk remains in a caution mode, as evidenced by last week's huge outflows from high-yield mutual funds, considered a normally reliable barometer of overall market liquidity trends.

However, fund flows, which turned decidedly negative during the pre-Memorial Day week, have reversed with respect to one high-yield portfolio manager's fund.

The manager, who declined to go on the record, reported inflows on Thursday, Friday and Tuesday.

Those inflows follow the massive $2.46 billion outflow for the week to last Wednesday, as reported last Thursday by fund-tracker Lipper-AMG.

Reversal or anomaly?

A banker counted last week's outflow as only the second negative flow of 2012 to date, and added that with over $14 billion of net inflows for the year there is almost certainly a lot of cash left to be put to work in junk bonds.

"You're seeing some pickup in equities, which people are seeing as oversold," said the banker, adding that given this perception some of the cash that came out of high yield last week may have been moved into the stock market.

Meanwhile the buysider who reported the three straight days of inflows following last week's big outflow also said that the movement of cash out of junk might be chalked up to redemptions or reallocations.

However both the buysider and the sellsider allowed that negative financial news emanating from Europe is eroding investors' appetites for risk.

"Right now Europe looks bad," said the banker. "People may want to cash out."

The portfolio manager said that Spain's decision to bail out troubled Spanish lender Bankia to the tune of €24 billion is a positive sign, and added that Europe needs to institute bank deposit insurance that might operate like the Federal Deposit Insurance Corp. does in the United States.

This same suggestion surfaced during several Tuesday conversions with primary market sources.

Looking for a quiet week

At least one deal is squarely parked on the active forward calendar as business for the post-Memorial Day week, sources say.

Rivers Casino Pittsburgh has been roadshowing a $300 million offering of seven-year senior secured second-lien notes (/B/), which is set to price in the middle or late part of this week.

Goldman Sachs is the left bookrunner for the debt refinancing. Credit Agricole and Wells Fargo are the joint bookrunners.

No news on the deal surfaced during Tuesday's session, sources said.

Although there was very little buzz whatsoever in the primary market on Tuesday, several sources said that QR Energy, LP has pulled its $300 million offering of eight-year senior notes (Caa1) due to market conditions.

However, market buzz notwithstanding, calls and email messages to the company and the lead bookrunner merely drew responses of "No comment."

The deal is being led by left bookrunner Citigroup, and joint bookrunners Barclays, Credit Agricole, RBC, RBS and Wells Fargo.

"It's probably going to be a quiet week," a debt capital markets banker said on Tuesday.

The dealers are likely to brave the market in order to complete the committed financings, the banker said.

Opportunistic issuers, who may have been considering a refinancing transaction, will almost certainly wait until the present volatility passes.

Recent deals quiet

In the secondary market, traders did not see much activity at all going on in such recently priced names as Carrols Restaurant Group, Roofing Supply Group or Consolidated Communications Holdings, Inc.

A trader said that Carrols' new 11¼% senior secured second-lien notes due 2018 had been trading around 101¾ bid, 102¼ offered, which he called unchanged from Friday, when the bonds traded at bid levels between 101¼ and 1021/4.

He said that by mid-afternoon, "it looks like it might be a touch better - nothing dramatic, though."

Carrols, a Syracuse, N.Y.-based restaurant chain operator, priced its $150 million offering at par this past Thursday, after upsizing the issue to $150 million from an originally announced $140 million and after restructuring it into a six-year piece of paper, versus original plans for eight-year notes.

A second trader said he had not seen any dealings in the Carrols deal, noting its relatively small size - "only $150 million? That explains it," he said - although he did see a little bit of activity in Roofing Supply Group's $200 million offering of 10% notes due 2020.

He saw a 250-bond lot trading at 101¾ bid, 102¼ offered, but saw nothing after that.

The Dallas-based building materials company priced its deal at par last Thursday; in the immediate aftermarket, they had moved up to about 101 bid, 101¾ offered,

Several traders said that they had not seen any dealings at all in some of the other recent deals, including Consolidated Communications, Wolverine Healthcare Analytics, Inc. or Global Brass & Copper Holdings, Inc.

Consolidated Communications, a Mattoon, Ill.-based telecommunications provider, priced $300 million of 10 7/8% notes due 2020 last Tuesday at 99.345 to yield 11%. The deal priced after it was downsized to $300 million from the originally announced $350 million. It bounced around the aftermarket at mostly higher levels, and had last been seen around 100½ bid, 101½ offered last week.

Wolverine Healthcare Analytics, a provider of data and analytic services to the healthcare industry, priced $327.15 million of 10 5/8% notes due 2020 on Thursday at 99.345 to yield 10¾%. The bonds were not seen trading around the aftermarket after pricing.

Global Brass & Copper Holdings, a Schaumburg, Ill.-based producer of specialized brass and copper products, priced $375 million of 9½% senior secured notes due 2019 at par last Thursday. These notes were also not seen trading around, market sources said.

A small group dominates

Away from the new deals, a trader characterized Tuesday's session as "a kind of weird day."

While there was a considerable amount of secondary activity, he said - particularly given that it was the first day back after a long holiday weekend, when not everyone had managed yet to come straggling back into their offices - "a lot of trades [on Trace] were of PDVSA and Chesapeake, and some Ford and Chrysler, so there was a fair amount of trading in just a few names, maybe boosting the volume more than it might otherwise be.

He saw those four companies as "the top eight names" from a volume standpoint.

A second trader agreed that "the Top Ten was easily just Ford, Chesapeake and Chrysler."

PDVSA percolates around

The first trader said that PDVSA - the Caracas-based Venezuelan state oil monopoly - was among the most actively traded names.

He saw its 9% notes due 2021 "kind of all over the lot," but mostly trading around a 71-ish level.

That, he said was "kind of the same thing as Friday. It has not moved a lot, but there's a lot of volume."

A market source at another desk estimated the volume at some $50 million.

He saw the bonds going home at 71 1/8 bid.

The first trader said that "a couple [of trades] were trading with a 70- handle, a couple with a 72-handle, and there was one oddball trade with a 68-handle, but most had with a 71-handle."

Chesapeake churn continues

A trader said that Chesapeake Energy's bonds were another busy name on Tuesday, seeing the Oklahoma City-based natural gas company's 6.775% notes due 2019 trading most of the day "with a 94-handle" and going out at 94½ bid, 94¾ offered.

He said that those bonds were "up pretty nicely" from their late-Friday levels of 92½ bid, 92¾ offered. Over $20 million of those bonds changed hands.

He also saw brisk upside activity in Chesapeake's 7 5/8% notes due 2013 - even though "the really short maturities can't really move that much, on the upside anyway."

But in this case, he said, the 2013 bonds "did trade up today," opening at 101 1/8 bid, and going home at 102¼ - versus Friday's 101½ bid level.

"So they moved up a little bit," although he attributed that gain to the general upside move in junk on Tuesday, in line with a better equity market. About $17 million of those bonds traded.

Chesapeake's 9½ notes due 2015 were being quoted up by as much as 3 points on the session, at the 106½ level., although by the end of the day, they had come down from those peak levels to end around 104 3/8 bid, still up more than a point on the day, on volume of more than $14 million.

Its 6 1/8% notes due 2021 closed at 92¾ bid, up 2 points, although there were only a handful of trades.

The bonds moved up in tandem with the company's New York Stock Exchange-traded shares, which rose by 54 cents, or 3.42%, to go out at $16.35. Volume of 47 million shares was about 1½ times the usual turnover.

The stock was said to have gotten a boost from the late-Friday announcement that billionaire investor Carl Icahn had taken a 7.6% stake in Chesapeake. While Icahn said that Chesapeake has collected "some of the best oil and gas assets in the world," he also took a slap at current management, saying that said that he believed its stock was undervalued due to "the enormous risk associated with an ever-changing business strategy, enormous capital funding gap, poor governance, and unchecked risk taking." He called for the replacement of four of the company's directors. Chesapeake agreed with his evaluation that the company is undervalued, although it did not endorse his explanation as to why that is, and it said it would consider his request for board representation.

News reports late Tuesday also said that Chesapeake is expected to meet with many of its main lenders this week - and will likely discuss its liquidity needs, in light of the anticipated $9 billion to $10 billion funding shortfall between revenues in the current low-price environment for its natural gas and Chesapeake's aggressively ambitious capital spending and debt reduction plans.

Ford trading heavy

But the heaviest volume was seen, once again, in the bonds of Ford Motor Co. and its Ford Motor Credit Co. LLC loan-funding arm in the wake of the recent upgrade to investment grade by Moody's Investors Service, which has opened the floodgates of trading by high-grade accounts looking for some yield, since the company is now considered investment grade by two of the three major ratings agencies. Moody's rates Ford's bonds at Baa3, Fitch Ratings has them at BBB-, while Standard & Poor's is keeping Ford in Junkbondland for now at BB+.

The Dearborn, Mich.-based Number-Two U.S. carmaker's benchmark 7.45% bonds due 2031 were seen by a trader to be actually off about ½ point at 130½ bid, 131½ offered, on volume of well over $100 million. Those levels are still well above the low-to-mid-120s, where the bonds had traded before last week's upgrade.

Ford Credit's 8% notes due 2016 were being quoted up 2¾ points at 122¾ bid, although its 5 7/8% notes due 2021 were seen down 3/8 point at 114 1/8 bid.

Chrysler cruises

Also moving higher, perhaps getting a tow from the increased interest in Ford, is Chrysler Group LLC's bonds.

A trader said that the Auburn Hills, Mich.-based Number Three domestic carmaker's 8¼% notes due 2021 "moved up pretty nicely," going home at 101½ bid, after spending most of the day trading between 101 and 1013/4. In contrast, he said, the bonds had traded last week at bid levels between 100 and 1001/2.

A second source put those bonds up 1½ points at 101 ½ bid.

Chrysler's 8% notes due 2019 likewise firmed to 101½ bid, on volume of over $10 million, the source said.

Overall market gains

A trader said that "the whole market is up with the equity market," which recovered from Friday's downturn on renewed investor hopes that a way will be found to keep Greece from leaving the euro zone. The bellwether Dow Jones Industrial Average gained 125.86 points, or 1.01%, to close at 12,580.69, while the broader S&P 500 and Nasdaq Composite indexes were also each better by more than a full percentage point.

But while the overall junk market tone was better - one trader estimated that bonds were up by between a quarter and a half point pretty much across the board - he said that apart from the aforementioned heavily traded names, "nothing jumps out at you."

A note of caution

Although junk firmed after equities got their boost on hopes coming out of Europe, another trader took a less-sanguine view of the situation.

"Everybody's [still] concerned about Europe," he said.

Noting that several recent junk deals were pulled from the forward calendar last week, including Generac Power Systems Inc.'s planned $425 million offering of eight-year notes and Univar, Inc.'s $750 million seven-year deal, he opined: "I think you're going to see continued postponements and continued caution until this European situation is resolved. The eurodollar has been getting smacked again."

He added that he had been "speaking to a lot of the fund managers that I've known for years - they're just not buying anything, certainly [bonds of] energy, coal, commodities.

"Now it's 'buyer beware.'

"So you're in a caution mode right now," as evidenced by the recent sizable outflows from junk mutual funds, normally considered a pretty good indicator over overall market liquidity trends," he said, "and I guess it's way overdue.

"As Europe goes - so goes our market right now."

Market indicators firmer

Bearish assessments notwithstanding, statistical indicators of market performance improved on Monday, for a third consecutive session.

The Markit Group CDX North American Series 18 High Yield Index rose by 3/8 point on Tuesday to end at 94 bid, 94¼ offered, after having gained ¼ point in each of the previous two sessions.

The KDP High Yield Daily Index meanwhile rose by 20 bps on Tuesday to end at 72.58, after having been little changed on Friday. Its yield came in by 7 bps, to 7.02% on Thursday, after rising by 1 bp on Friday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index posted its fourth consecutive gain, rising by 0.176% on Tuesday. That followed a gain of 0.065% recorded for Monday, although there was very little trading with the U.S. debt market closed for Memorial Day, and Friday's advance of 0.046%.

The latest gain lifted the index's year-to-date return to 5.103% Tuesday, up from Monday's 4.919% and from Friday's 4.851%, although that cumulative return is still well down from the peak level for 2012 so far, 6.80%, set on May 7.

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