Quiet primary closes week at $6 billion, but more deals likely; SuperValu still sliding

By Paul Deckelman and Paul A. Harris

New York, July 13 - The high-yield primary sphere finished out the week Friday on a quiet note with no new deals pricing during the session.

But the new-deal arena went out racking up nearly $6 billion of issuance in 10 tranches during the week - a far cry from last week, which saw the lowest weekly issuance total of the year so far, just $64 million in two tranches.

On a year-to-date basis, $161.875 million of dollar-denominated, junk-rated paper priced by the close, although that ran 16.3% behind comparable year-ago volume of $193.458 million.

However, market participants said they believed the revived market may see further deals before the traditional mid-summer lull sets in within a few weeks.

And there was news out on two of the prospective dollar deals now on the forward calendar. Party City Holdings Inc. was heard by high-yield syndicate sources getting ready to hit the road Monday to market its $700 million of eight year notes.

Meanwhile, a major stockholder of Dutch maritime transportation company Fairstar Heavy Transport NV expressed some dismay over the company's proposed $335 million bond deal.

In the non-U.S. dollar market, specialty golf retailers Golftown Canada and Golfsmith International priced a C$125 million issue of five-year secured notes, in support of the pending combination of the two companies.

And German chemical films maker Klockner Pentaplast priced a euro-denominated five-year deal.

Among bonds that already priced, traders saw the senior portion of Thursday's big mega-deal from WOW! Internet, Cable &Phone continuing to trade at a modest premium to their issue price, but saw the subordinated portion of that two-part deal trading below its pricing level.

Away from the new deals, SuperValu Inc.'s bonds continued to fall, down for a second straight session after the supermarket operator reported disappointing quarterly results.

But Hovnanian Enterprises Inc.'s bonds rose after the builder inked a deal to sell some development lots to an affiliate of Blackstone Partners LP, and do a private debt-for-equity exchange with the company.

Statistical measures of market performance were better on the session and mostly better than week-ago levels.

Klockner comes inside of talk

No dollar-denominated deals priced Friday, however the European market was active.

Klockner Pentaplast priced a €255 million issue of five-year senior secured notes (Caa1/CCC) at par to yield 11 5/8%, 12.5 basis points inside of the 11¾% to 12% yield talk.

The deal traded up to 102¼ bid, according to an investor in the United States, where demand for the paper was considerable.

The deal was well oversubscribed, the investor added.

Jefferies was the sole bookrunner. This is the second time Jefferies handled left books on a euro-denominated deal. The first was Siemens Enterprise Communications, which priced €200 million in late 2010.

Klockner, a Montabaur, Germany producer of chemical films will use the proceeds from Friday's deal to refinance debt.

Golf Town/Golfsmith downsizes

Elsewhere, Golf Town Canada and Golfsmith International priced a downsized C$125 million of six-year senior second-lien notes (B/DBRS B low) at par to yield 10½%.

The deal, via Scotia, TD and BMO, came at the wide end of the revised 10¼% to 10½% yield talk. That talk was hiked from the previous 9½% to 10%.

Earlier conversations took place in the 9½% area, market sources said.

The deal was downsized to C$125 million from C$150 million, with sponsor Omers putting up additional equity investment of C$25 million.

The proceeds will be used to repay debt, replace Golfsmith's existing ABL facility and return capital to shareholders.

Party City starts Monday

With the dollar-denominated market putting up a goose egg Friday, the week came to a close with $5.5 billion of junk-rated, dollar-denominated issuance clearing, right in line with estimates heard heading into the week.

Sources also see a reasonably busy week ahead in the new-deal market.

One offering took its place on the calendar during the Friday session.

Party City Holdings plans to start a roadshow Monday for its $700 million offering of eight-year senior notes (Caa1/).

The deal is set to price late in the July 16 week.

Bank of America Merrill Lynch, Deutsche Bank, Barclays, Goldman Sachs and Morgan Stanley are the joint bookrunners for the acquisition-funding and debt-refinancing deal.

With Party City aboard, the active forward calendar built to $2 billion.

That calendar will play to buyside accounts known to have cash to put to work, sources said.

High-yield mutual funds in the United States saw $1.49 billion of inflows, 0.65% of assets under management and the largest inflow for the asset class since mid-February, bringing year-to-date inflows to $23.3 billion, a buyside source said.

Meanwhile in Europe, high-yield accounts saw €78 million of inflows during the most recent week, representing 0.8% of assets under management and bringing year-to-date inflows to €970 million.

Issuers and their underwriters know that these numbers translate into strong demand for new bonds, sources said.

Hence, opportunistic issuers who have been hesitant to bring deals for fear that volatility in the global capital markets could translate into a costly new-issue premium, now perceive the high-yield primary market window to be unmistakably open, sources add.

WOW! seniors hold levels

In the secondary market, a trader said that WOW! Internet, Cable & Phone's 10¼% senior notes due in July 2019, which priced Thursday at par, were trading around 100 5/8 bid, 101 offered.

That's around the level in which the Denver-based telecommunications and broadband services provider's $725 million issue - upsized from an originally planned $700 million -traded Thursday after its pricing.

But a second trader said that he did not see much of that tranche of new bonds.

He did see the other part of that deal - WOW!'s $295 million of 13 3/8% senior subordinated notes due in October 2019 - continuing to trade below the issue price, just as it did Thursday. He said the bonds were trading earlier in the day at 97¾ bid and were left at 97¾ bid, 98¼ offered by the end of the day.

Another trader also saw the bonds go as low as 973/4.

On Thursday, the subs - downsized from $325 million originally - priced at 98.337 to yield 13¾%, and then fell below the 98 level in initial aftermarket trading.

Unit trades around issue

A trader said that Unit Corp.'s 6 3/8% senior subordinated notes due 2021 traded at 98¾ bid, 99 offered.

"Activity was pretty light," he said.

The Tulsa, Okla.-based oil and gas exploration and production company's $400 million deal - upsized from an originally announced $350 million and structured as an add-on offering to $250 million bonds that priced in May 2011 - priced Thursday at 98.75 for a yield-to-maturity of 6.814%.

The new bonds came to market too late in the session Thursday for any kind of aftermarket dealings at that time.

More to come

A trader said that even though Friday's primary was quiet, "I think next week, you're going to see a lot of deals coming -if this market holds."

He noted the strength of the junk market Friday, bouncing back from Thursday's across-the-board slide.

"Don't forget - you had a good rally today, so that certainly helped a lot," the trader said.

He said it was "absolutely" true that the new-deal realm came bouncing back robustly all this week from last week's July Fourth-induced holiday hiatus.

"You had another inflow" to high-yield mutual funds and exchange-traded funds, he added, a sign that investors still like junk and are putting their money to work there.

Both major fund-tracking services - the AMG Data Services unit of Thomson Reuters' Lipper analytical division and EPFR Global - saw a massive injection of capital into those junk funds in the week ended Wednesday, which was the fifth consecutive cash injection in as many weeks.

Arcata, Calif.-based AMG saw $1.49 billion more come into those funds this week than left them, while Cambridge, Mass.-based EPFR - whose methodology differs from AMG's but whose results usually point in the same direction - saw $2.65 billion of new cash in the funds, a 22-week high.

AMG and EPFR both told Prospect News on Friday that year-to-date inflows to those funds have been absolutely huge. The Reuters unit said that cumulative net inflows since the start of the year - with 23 weeks of inflows so far this year against just five weeks of outflows - total $17.6 billion, excluding exchange-traded funds, and $23.6 billion including the ETFs.

EPFR meantime said that $36.33 billion came into those junk funds since the start of the year.

Market signs up on day, week

Away from the new-deal arena, statistical market performance measures turned higher on the day Friday, after going lower across the board Thursday, and also were mostly higher compared with week-ago levels.

A trader saw the Markit Group CDX North American Series 18 High Yield Index up by 7/16-point on Friday, ending at 96 3/8 bid, 96 5/8 offered after going down 3/8-point on Thursday.

The index had also improved from its close a week ago, on July 6, at 96 bid, 96 ¼ offered.

The KDP High Yield Daily Index ended unchanged on Friday, at 73.49, after dropping by 17 bps on Thursday.

Its yield came in by 1 bp to 6.42% after rising by 4 bps on Thursday - the index's first such increase after 10 straight sessions of declining yields.

A week earlier, the index stood at 73.59-, but with a yield of 6.51%.

And the widely followed Merrill Lynch U.S. High Yield Master II Index got back in the black Friday after its winning streak of 12 consecutive sessions on the upside was snapped Thursday.

It gained 0.016% on Friday, versus Thursday's 0.009% loss.

The gain lifted its year-to-date return to 7.86% from 7.843% on Thursday, although that remained down from Wednesday's 7.94% reading - the peak level for 2012 so far and the highest that the index has been since the end of 2010, when it returned 15.19%.

For the week, the index improved by 0.202%, its sixth consecutive week-over-week gain. It stood at 7.643% last Friday.

Hovnanian heads higher

Among specific names, Hovnanian Enterprises' 10 5/8% notes due 2016 were seen jumping nearly 6 points during the session, to 102¾ bid - their highest levels since May of 2011.

A market source said that more than $26 million of those bonds changed hands by mid-afternoon, making the Red Bank, N.J.-based homebuilder's issue one of the most actively traded names in Junkbondland on Friday.

Those notes headed higher on the news that GSO Capital Partners LP, a unit of Blackstone Partners, entered into a land-banking deal with Hovnanian that could be worth as much as $125 million.

GSO will acquire a portfolio of Hovnanian housing development sites totaling 620 lots for $65 million with an option to buy another $60 million of parcels.

GSO also agreed to exchange $15 million of Hovnanian's 2016 and 2017 senior unsecured notes that it holds for 3,862 million shares of Hovnanian's class A common stock. Taking out those notes is expected to lower Hovnanian's interest costs by $1.7 million annually.

SuperValu continues to suffer

On the downside, traders said that SuperValu's bonds continued to slide for a second straight session Friday due to poor earnings.

A trader said SuperValu was the most notable feature of the otherwise fairly quiet session . He saw its most actively traded maturity, the 8% notes due 2016, losing another 6 points to 85 bid, on top of the 10- or 11-point plunge seen Thursday from their prior level at par.

He also saw its 7¼% notes due 2013 at 1½ points lower to 971/4, in addition to Thursday's loss of about 2 points.

And he saw the 7½% notes due 2014 off by 4½ points, matching Thursday's downturn and ending at 91¾ bid.

While volume levels were a little calmer than Thursday's frenzied activity - more than $88 million of the 2016 bonds bounced around at sharply lower levels and $50 million of the 2013s - the trader said "between those three issues over $90 million traded."

During the fiscal quarter ended June 16, SuperValu had net earnings of $41 million, or 19 cents per diluted share, on net sales of $10.6 billion - badly missing Wall Street expectations of earnings in the 38- to 40-cents per share.

The Eden Prairie, Minn.-based supermarket operator had considerably better earnings a year ago, at $74 million, or 35 cents per share, on revenues of $11.1 billion.

"People still need to eat," one of the traders said. "But it looks like they're going to Costco or Wal-Mart" instead of SuperValu, the third largest traditional supermarket chain operator in the United States.

The company's New York Stock Exchange-traded shares, which lost about half of their remaining value Thursday, on 10-times normal volume, fell another 37 cents, or $13.75%, to end at $2.32. Volume of 40.5 million was almost five times the norm.

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