Welcome to the High Yield $100,000 Pyramid
August 13, 2009
Here are your clues for the first category: The muses. A baseball team. Dante’s circles of hell. An especially popular symphony by Beethoven. A famous love potion. Deals on the high yield primary market Tuesday.
What’s that you say? Your guess is: “Favorite topics for existential poets?” Ooh, I’m sorry, that is not correct. I think that last clue may have thrown you off. No, the correct answer is ... (you are really going to kick yourself) … “things that total or reach the number nine.”
I know, I know. It seems so easy in retrospect, but cut yourself some slack. It is not so often we see nine deals price on the high yield primary market in one day. In fact, investors seem so enamored with the deals coming to market (strong demand causing upsizing and all that) one might even believe they’d paid a visit to Madame Rue—you know, that gypsy with the gold-capped tooth—and drank down a bottle of her Love Potion Number Nine.
By the end of the day today, investors had snapped up roughly $8.23 billion in high yield bonds for the week, including the $3.7 billion that priced on Tuesday.
A $1 billion offering from Case New Holland subsidiary CNH Global and a $700 million deal from Ball Corp., which came in two tranches, were Tuesday’s two largest issues. The other seven deals, which represented a variety of sectors, came from Quicksilver Resources, Mediacom, American Casino, Brunswick, CMP Holdings, Clean Harbors and Berry Petroleum. And about half of these were upsized due to strong demand.
Nine junk bond deals (or even more) in one day isn’t unheard of, but rare? Yes. According to our friends at KDP Investment Advisors, which has been tracking new issues on a daily basis since Nov. 15, 1996, there have only been 15 days in the last 23 years with nine tranches of bonds or more issued. (I say tranches because KDP lists each tranche separately, so if a deal has two it will count as two.)
Looking at the data, you can see the market’s peak. Seven of the busiest days took place between 1997 and 1999. The day of May 21, 1998 saw 11 tranches price, which ties it with Nov. 15, 2004 as the busiest since KDP began recording the information.
Indeed, five of the top 15 days took place from 2002 to 2004. Then there was June 24, 2008, which saw 10 tranches price, and Nov. 16, 2006, with nine.
So with Tuesday, August 11, 2009 rounding out the top 15, does that mean we’re in for another strong couple of years of new issuance? Maybe the answer to that depends on Madam Rue.