Morning Commentary: Junk weakens overnight; Diebold downsizes, sets talk; Valeant bonds rally

By Paul A. Harris

Portland, Ore., April 5 – The high-yield bond market weakened overnight, according to a trader based in New York.

On-the-run names were down a point at mid-morning, the trader said, adding that ETFs were looking to sell, and the index was off ¼ point.

High-yield ETFs were trading lower. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 32 cents, or 0.39%, at $80.85 per share, at mid-morning. SPDR Barclays High Yield Bond ETF (JNK), at $33.85 per share, was down 16 cents, or 0.49%.

Valeant bonds rally

The bonds of Valeant Pharmaceuticals International Inc. rallied on news that an ad hoc committee appointed by its board of directors has completed its review of the company’s now-terminated relationship with specialty pharmacy Philidor and no further financial restatements will be required.

Valeant bonds were up 1 to 2 points, the trader said, adding that investors appeared to be chasing the name, and that there was also possibly some short-squeezing taking place.

The VRX Escrow Corp. (Valeant Pharmaceuticals) 5 7/8% senior notes due May 15, 2023 were 80 bid, 80¼ offered heading into mid-morning, up 2 points, the source said.

Valeant stock was up 15% on the news, the trader added.

Diebold downsizes, sets talk

The primary market news-stream was thin on Tuesday morning.

Diebold Inc. downsized its offering of eight-year senior notes to $400 million from $500 million and set yield talk at 8% to 8¼%.

Official talk comes wide to recent discussions in the 8% area, and to initial guidance in the high 7% to low 8% context, sources say.

Dealers had been unable to fill the order book at the earlier talk, a market source said on Monday, adding that the deal, at its earlier size of $500 million, was only half done at that point.

Books close at 1:30 p.m. ET on Tuesday, and the JPMorgan-led, acquisition-related deal is expected to price thereafter.

With the decrease of the bond deal Diebold shifted $100 million of proceeds to its concurrent term loan, increasing the loan to roughly $1.4 billion equivalent from roughly $1.3 billion equivalent.

Mixed flows on Monday

The flows for dedicated high-yield bond funds were mixed on Monday, according to a portfolio manager.

High-yield ETFs sustained $52 million of outflows on the day.

However actively managed funds saw $210 million of inflows on Tuesday.

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