Alltel Corp postponed a $1 billion junk bond sale on Friday, and corporate bond spreads traded at their widest levels since January 2003 as concerns about the US housing market and mortgages sapped demand for risky debt.
Spreads were mixed to slightly wider by 1 to 2 basis points on Friday, traders said. Alltel's pulled bond sale is the latest of a string of scuttled deals as demand for riskier debt has dried up, a source familiar with the deal told Reuters Loan Pricing Corp on Friday.
"You really have a problem selling anything but the absolute top tier," said Robert Grimm, co-head of the high-yield group at J. Giordano Securities in Stamford, Connecticut. "Anything that seems somewhat troubled just isn't going to get done." Alltel, a wireless service provider, is attempting to raise cash to pay for its leveraged buyout by TPG Capital and Goldman Sachs Capital Partners. The company completed the buyout on Friday.
Alltel's bond sale is the fifth junk bond offering to be pulled this month, according to high-yield research firm KDP Investment Advisors. Alltel also on Friday priced a $3.2 billion term loan, sources familiar with the deal said. Bonds of Residential Capital led declines for a second day on concern that the home mortgage lender may be close to violating debt covenants because of a plunge in its net worth.
ResCap's 7.375 percent notes due in 2010 fell to 55.25 cents on the dollar, yielding 35.5 percent, down nearly 3 cents, according to MarketAxess. US junk bond mutual funds reported a $632 million net outflow in the week ended Wednesday, following a $13 million net outflow the prior week, AMG Data reported late Thursday. Junk, or high-yield bonds, are rated below investment grade and carry high yields to compensate for risks.