Last week saw a mostly flat secondary market through Thursday, with most new issues performing well, as had been the case the previous week. Better-performing sectors such as gaming and homebuilding were weaker, as cyclical names were better bid. Here was other action.
JL French Puts The Pedal To The Metal
Autoparts makerJL French shot up 20 points through Thursday after Tenneco Automotive, also in the autoparts manufacturing business, got a waiver on its bank agreement. Its sole issue, the 11.5% notes of '09 (B3/CCC+), were bid at 53 last Thursday in anticipation of a strong earnings call scheduled for last Friday.
Homebuilder Weakens
Hovnanian was slightly weaker last Thursday. The homebuilder issued $100 million in 8% senior notes of '12 (Ba3/BB-) last Tuesday which was one of the few recent new issues to drop below its issue price. Issued at 99.152, it was bid at 98 on Thursday. A trader attributed the weakness to Treasuries backing up, but another possible explanation is a downgrade from Robert Manowitz, building analyst at UBS Warburg, and the top-ranked building analyst on the 2001 Institutional Investor All-America Fixed-Income Research Team.
Manowitz went from "Buy" to "Hold" on three separate Hovnanian issues, while initiating coverage on the new issue at "Hold." He says he expects the 10.5% senior notes of '07 (Ba3/BB-) and the 9.125% senior notes of '09 (Ba3/BB-) to back up 25 basis points over the next several months. He felt it would be immodest to take credit for the widening, but says the new bonds were priced too tight relative to the broader homebuilding sector and relative to the historical trading levels for the Hovnanian senior and senior subordinated notes.
Gaming Weaker As Treasuries Back Up
The gaming sector was generally a point weaker due to weakness in 10-year Treasuries, say traders. The MGM Mirage 8.375% notes of '10 dropped from 104 to a 102.5 bid. Mandalay Resort's 10.25% notes of '07 (Ba3/BB-) dropped from 108.75 to 108. One exception was the Pinnacle Entertainment 9.25% notes of '07, which were bid up a point to 95. A trader credited a turnaround in company's troubled Belterra Casino Resort property.