High Yield Market Gets Shut Out


The high yield market was completely shut out last week, which has not happened since last September. And just like last year at this time, there were a number of market descriptions that basically said the same thing: screeched to a halt; slowed to a trickle; a spigot that's been turned off.

Most of the attention the last couple of weeks was focused on the forward calendar - an abbreviated version appears below instead of the typical chart of priced deals - and there was even some disagreement on that.

But the prevailing opinion was one of optimism for the month of September, when the high yield deals are expected by many to be plentiful. The market is simply caught in the seasonal, late summer doldrums and will bounce back, several market sources said last week.

A couple of buy-siders, though, said that even after the Labor Day holiday, they don't expect to see much of an improvement because despite the names getting bantered around as future issuers, they maintained that many of them are quite tentative and not concrete names in the pipeline at all.

And some said it may well become a similar situation to last fall, one in which the known names that are doing straight-forward deals will get done but if there is an undo amount of perceived risk, they won't even make it to a roadshow.

Indeed, in one of the more illustrative descriptions for the upcoming month, Merrill Lynch strategist Martin Fridson said some of the syndicate pros there predicted that September would be a "green light for the plain vanilla, down-the-middle-of-the-plate deals."

The deals that may face the most problems, Fridson said, are the LBO transactions and the offerings from the young telecom companies.

Those pros who do expect an active September acknowledged that deal flow may not pick up until the second half of the month.

Of the many deals that are said to be looming, a couple of the most certain are from Williams Communications and carburetor manufacturer Holley Performance Products.

Williams is expected to come with its much anticipated $1.3 billion deal via Merrill Lynch. Williams first made news in the spring when it first said it was looking to issue a massive debt offering (HYR 03/22, p. 1).

Tulsa, Okla.-based Williams is a telecom subsidiary of an investment-grade oil and gas pipeline company, and it plans to build a nationwide fiber optic network to compete with benchmark names such as Level 3 Communication, Qwest Communications and Metromedia. Level 3 and Qwest are mostly long-distance providers, while analysts said that Williams probably will be more like Metromedia, which provides both long distance and local phone service

The firm plans to build its telecommunications network along its existing pipeline, analysts said, allowing it to use the rights of way it already owns.

Holley is planning to issue a $150 million offering of junk bonds, after the deal was pulled in May due to high interest rates. Goldman, Sachs & Co. is the lead manager and Salomon Smith Barney is co-lead on the deal.