While the market cooled slightly in line with equities, traders say it remains well bid due to the large inflows in recent weeks. Wireless was strong overall and recent new issues were especially well bid. Here is selected action.
Strong Bidding For Donnelly Deal
A recent deal by R. H. Donnelly Corp. continued to attract investor attention. The 10.875% senior subordinated notes of '12 (B2/B+) were offered at 107. The 8.875% senior notes of '10 (B1/B+) were bid at 105.5.
Huge demand for new issue product is driving up the price, according to Dan Evans, portfolio manager at Merrill Lynch Investment Management. "Its tempting to take some off the table when a new issue moves up that quickly," he says. MLIM, which owns both the senior and subordinated tranches, has not sold any yet. Evans says the firm may look to sell the subordinated tranche at 110.5 and the senior paper at 106.5. However, he is not sure what he would buy in its place, and so may continue to hold on to the paper.
United Drops As Bankruptcy Filing Looms
United Airlines' unsecured debt, including the benchmark 9.125% notes of '12, was bid at 10--roughly 10 points lower than the previous week's close. The 7.186% notes of '11, a EETC, were in the low to mid 70's. They traded down a few points early in the week, but had rebounded by Thursday.
One analyst says the EETC issue is still worth buying even if it trades up to 80, but he perceives the subordinated paper as virtually worthless, judging from recoveries in past airlines bankruptcies.
OM Group Climbing Back
Cobalt refiner OM Group saw its 9.25% notes of '11 jump 10 points to 50 last week. Bonds of the Cleveland-based company were clobbered a few weeks ago after it announced a large inventory write down. Joe Von Meister, analyst at Jefferies & Co., argues that the business is fundamentally sound, and that the company has made several good acquisitions. He says OM can make the bonds whole through asset sales and cost cutting. Its plans to do so will be unveiled this week.