The junk bond market sizzled with new issuance last week, as underwriters scrambled to get shelf space for deals before the holiday season.
An estimated $6.5 billion of new issues were expected to price last week. Part of the momentum was due to the backlog of issues that were delayed by recent stock market volatility.
The sheer volume of new issues made it difficult for underwriters to get investors' attention. Given the late time of year, some investors wanted to sit back and savor the returns they have already made.
"There is uncertainty, given what's happening overseas, and the fact that we've had such a fantastic year makes for nervous investors," one portfolio manager said.
Indeed, spreads have widened as much as 50 basis points in the last 45 days, market participants said.
"There certainly is a market for solid credits," said Derrick Herndon, head of high-yield sales and trading at TD Securities, the investment banking arm of Toronto-Dominion Bank. "The tougher credits have had to come at a concession in order to be done at this kind of market."
Ned Zacher, managing director and co-head of high-yield research at NationsBanc Montgomery Securities Inc., added that the seasonal surge is partially "issuer driven."
"With the high volume, there's definitely a discount for new issues," Mr. Zacher said. "For issuers that need to raise money before year's end, there's a premium to do so."
Given the tepid demand, some deals had to be restructured to be completed. Criimi Mae Inc., for example, set out to raise $125 million in the market last week, but had to tweak its issue to $100 million on Wednesday.
"The 20% of the time when you can influence pricing and structure and covenants, you do," one investor said.
Chase Securities Inc. was in the market last week with three deals, leading a $120 million issue for American Bumper and Manufacturing; a $225 million issue for Centaur Mining and Exploration Ltd.; and a $100 million issue of 10-year notes for Stadtlander Drug Co.
TD Securities also went to market with its second lead-managed deal, a $100 million issue for Bear Island Paper Co. TD led its first high-yield in 1996, a $150 million issue for Cablevision.
Meanwhile, Natwest Markets priced a $110 million issue for Comforce Corp., a high-tech staffing and outsourcing company. The package included a $110 million issue of senior notes priced at 12%, and a $20 million issue of senior-secured, pay-in-kind debt.
Also, BancBoston Securities Inc. priced a $100 million issue of senior subordinated notes for Holmes Products Corp., a heater and fan manufacturer. Proceeds of the bond offering will back the recapitalization of the company by Berkshire Partners LLC and senior management of Pentland Group.