Morning Commentary: Junk unchanged on low volume; Varex on deck; outflows continue

By Paul A. Harris

Portland, Ore., Sept. 25 – Junk was unchanged in thin trading on Friday, a high-yield bond trader said.

With U.S. stock indexes bobbing above and below the balkline at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) was 0.25% lower, down 21 cents, at $82.89 per share.

The freshly minted PennyMac Financial Services, Inc. 5 3/8% senior notes due October 2025 (B2/B+) were par 1/8 bid, par 3/8 offered on Friday morning.

The upsized $500 million issue (from $400 million) priced at par on Thursday.

However, among bonds priced during the hot market conditions that prevailed during torrid post-Labor Day period, it tends to be a slightly different story, the trader said.

The Energizer Holdings, Inc. 4 3/8% senior notes due March 2029 (B2/B+) were 99½ bid, 99¾ offered on Friday, unchanged.

The $800 million deal came at par on Sept. 16.

It's getting to be a kind of sub-par market for post-Labor Day issues that came when conditions were red hot, the trader remarked.

Both recently priced tranches of Carvana Co.’s senior notes (Caa2/CCC+), the 5 5/8% notes due October 2025 and the 5 7/8% notes due October 2028, were 98¼ bid, 98¾ offered on Friday morning.

A rich deal, it got destroyed out of the gate, the trader said, adding that the bonds in both tranches traded as low as 97½.

The bonds priced in tranches sized $500 million and $600 million (upsized from $500 million), respectively, in a Wednesday trade that was at least three-times oversubscribed, according to a market source.

Earlier Friday in the European high-yield market cash bonds were down ¼ to ½ point, with lower credit quality paper off as much as a point to 1½ points, a market source said.

Varex talk 7¾% to 8%

In the primary market a sole deal was teed up to price ahead of the coming weekend.

Varex Imaging Corp. talked its $300 million offering of seven-year senior secured notes (B1/B) to yield 7¾% to 8%.

Official talk comes wide of initial talk in the low 7% area.

Along with price talk came covenant changes.

Thursday outflows

The dedicated high-yield bond funds saw $1.26 billion of daily net outflows on Thursday, according to a market source, who noted that the funds continue to hemorrhage cash.

Thursday’s outflows follow Wednesday’s $1.05 billion of daily net outflows.

On Thursday, actively managed junk funds sustained $855 million of outflows, while high-yield ETFs saw $406 million of outflows on the day, the source said.

News of Thursday’s daily cash flows follows a Thursday report that the combined funds sustained $4.22 billion of net outflows in the week to the Wednesday, Sept. 23, close, from the Refinitiv Lipper Fund Flow Report Newsline.

That was the biggest weekly outflow since the week ended July 1, which saw $5.55 billion of outflows, according to the market source.

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