The strong performance of two billion-dollar plus high-yield deals priced last week has not only instilled confidence in the market's stability but may have also opened the gates to a busy month of issuance. SunGard Data Systems' three-part $3 billion deal and L-3 Communications' $1 billion of 6 3/8s of '15 both traded up after being priced Wednesday.
"It was a total riot. You've got original deals upsized, skinny-ed down on the talk and up four points a couple hours later," said Kevin Cronk, portfolio manager at Columbia Management Group in Boston. Price talk on SunGard's $1.6 billion of fixed-rate notes was at 9 1/4 %, but the coupon shrunk to 9 1/8%and the notes still traded up four points after being priced. Cronk expects issuance to pick up this month. "The market is accepting paper; the bankers will find it and deliver," he said.
King Penniman, president of independent high-yield research outfit KBP Investment Advisors, explained the market had been looking for an indication new issues could attract interest and excitement as demand for issuance during the second quarter was weak. "I had been looking for these two new issues to put confidence back into the market and it's passed that test," he stated.
While the market is typically dead in August, market participants expect the new issue calendar to build this month. "People put away their vacation schedules when the market has an appetite," noted Penniman. He anticipates August could see $5-10 billion in new junk paper. "That's pretty significant compared with the $3-4 billion seen in April and May--I suspect people who didn't come then, and want to, will try to," he added. This spring, a spate of high yield deals including one for Sirius Satellite Radio, were postponed amid weak market conditions stemming from the turmoil in the auto sector (BW, 4/11). Furthermore, a pick-up in new issuance would likely inspire managers to put excess cash to work and boost the secondary market, agree market participants.
