Morning Commentary: Berry slashes size of oversubscribed bonds; Thursday deals improve

By Paul A. Harris

Portland, Ore., May 17 – Friday’s session in the junk market got underway to news that Berry Global Group, Inc. slashed the size of its two-part secured notes offering to $1.75 billion from $3 billion and ratcheted down price talk.

Talk on a downsized $1.25 billion tranche of seven-year first priority notes (Ba2/BBB-) tightened to 4 7/8% to 5%. Earlier talk was in the 5% area. The first priority notes tranche is downsized from $2 billion.

Talk on a downsized $500 million tranche of eight-year second priority notes (B2/BB) tightened to the 5¾% area from earlier talk in the 6% area. The second priority notes tranche is halved from $1 billion.

The $750 million overall decrease in the size of the two-part notes offering comes amid high demand for the paper. Books for Berry's new secured bonds, across both tranches, were heard to be filled with $8.5 billion of orders early Friday, an investor said.

The deal was set to price on Friday.

Meanwhile, Eldorado Gold Corp.’s $300 million offering of five-year senior secured second-lien notes (Caa1/B), which some market watchers were expecting to clear before Friday's close, is pushed into the May 20 week, according to a market source, who added that changes to the deal are expected. Initial talk is in the high 8% to 9% area.

Thursday deals trade up

Deals priced during a busy Thursday session in the new issue market were trading at premiums on Friday morning, sources said.

The American Airlines Group Inc. 5% senior notes due June 2022 (B1/BB-) were par ¼ bid, par ¾ offered in active trading.

The $750 million issue came at par, seeing a big upsize from $350 million, and was driven into the market on a significant amount of reverse inquiry, sources said.

NuStar Logistics, LP's new 6% senior notes due June 2026 (Ba2/BB-/BB) were wrapped around 101 on Friday morning, also in active trading, a New York-based trader said.

The $500 million deal price at par and was heard to be two-times oversubscribed.

In less active trading, Ally Financial Inc.’s 3 7/8% senior holding company notes due May 2024 (BB+/expected BB+) closed Thursday night at 99, the trader said.

The $750 million issue priced at 98.992 to yield 4.1% in an execution that involved both the high-yield and investment-grade syndicate desks.

Away from new issues, one of the junk index's most conspicuously liquid energy issues, the California Resources Corp. 8% senior secured second-lien notes due December 2022, were up a whopping 3¾ points, at 79 bid, 80 offered, Friday morning, on news that lawmakers in the Golden State will not go forward with new setback regulations for oil and gas drilling this year. However, the California legislature is expected to take up the measure again in the year ahead.

Mixed Thursday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Thursday, a trader said.

High-yield ETFs saw $293 million of inflows on the day.

It was risk-on in the junk market on Thursday, sources said, with a trader noting a disproportionately high number of offers-wanted-in-competition (OWIC) lists from the ETFs.

However actively managed high-yield funds, which have sustained a steady stream of negative flows in recent days, saw $295 million of daily outflows on Thursday, the trader said.

News of Thursday's daily flows follows a late Thursday afternoon report that the combined funds sustained $2.572 billion of outflows in the week to Wednesday's close, according to Lipper US Fund Flows.

That's the biggest weekly outflow from the junk fund thus far in 2019, according to a Prospect News analysis of the data.

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