Morning Commentary: Junk sees profit-taking in Europe, opens weaker in U.S.; Lowell on tap

By Paul A. Harris

Portland, Ore., Oct. 13 – High-yield bonds opened weaker on Tuesday, trailing the extended Columbus Day holiday weekend in the United States, according to a trader in New York.

Cash bonds were down around a quarter of a point, the trader said.

High-yield ETF share prices were softer heading into mid-morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was 16 cents lower at $84.79 per share.

SPDR Barclays High Yield Bond ETF (JNK) was down a nickel at $36.22 per share.

Headline financial news was not having much impact in the secondary market, the trader said.

News that Dell Inc. agreed to buy data storage company EMC Corp. for $67 billion in a history-making merger of technology companies so far appeared credit neutral, the trader said.

There was a slight amount of activity in Dell's investment-grade 5 5/8% secured notes due 2020, which were basically unchanged.

Meanwhile there was no activity of note in Dell's speculative grade unsecured paper, the source added.

There will be $49.5 billion in debt financing to help fund the acquisition, according to documents filed with the Securities and Exchange Commission.

Credit Suisse, JPMorgan, Barclays, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs and RBC are the leads on the debt.

Lowell roadshow

In Europe there was profit-taking on Tuesday following a fair amount of buying on Monday, and even more vigorous buying late last week, a London-based sellside source said.

The iTraxx Euro Crossover index was 13 basis points wider on Tuesday at 337 bps bid. However the index, a useful means of measuring the appetite for risk among European junk bond investors, tightened significantly during the past week, the source said, adding that it has got as wide as 383 bps bid early last week, the sellsider said.

The sole deal on the high-yield road is Lowell Group's £795 million two-part offering of notes.

The roadshow started on Monday.

The deal, via issuers Garfunkelux Holdco 3 SA, a special purpose vehicle, and Garfunkelux Holdco 2 SA, the parent company of Lowell, is structured with £555 million of seven-year senior secured notes (B+) and £240 million eight-year senior unsecured notes (B-).

Thus far no guidance or whispers have been heard, according to the sellsider, who added that it has to get done, and Lowell will be a price-taker.

Price talk is expected on Thursday, and the bonds are likely to price before the end of the week, the source said.

Meanwhile the dollar-denominated primary market sat becalmed on Tuesday morning, although activity is expected to surface as the week advances, sources say.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.