Morning Commentary: Rowan bonds trade higher on merger news; Treasuries swamp primary

By Paul A. Harris

Portland, Ore., Oct. 9 – Bonds of Rowan Cos. plc traded higher on Tuesday on news that the company will merge with Ensco plc in an all-stock deal valued at $2.38 billion, according to a New York-based trader.

The Rowan Cos., Inc. 4 7/8% senior notes due June 2022 were up 1½ points at 96½ bid at mid-morning.

The merger follows Transocean Ltd.'s acquisition of ultra-deepwater driller Ocean Rig in September, representing further consolidation in the drilling sector.

Elsewhere the deeply distressed bonds of American Tire Distributors Inc. were 2¼ points better on news that the company reached a restructuring deal with its senior lenders, the trader said.

The American Tire Distributors 10¼% senior subordinated notes due March 2022 were 23¼ bid on Tuesday, the source added.

Among recent issues, the W&T Offshore, Inc. 9¾% second-lien notes due November 2023 (B3/B) were up 3/8 point to ½ point at par bid, par ¼ offered on Tuesday, the trader said.

The $625 million issue priced at par to yield 9¾% on Friday.

The Resideo Funding Inc. 6 1/8% senior notes due November 2026 (B1/BB+) were par bid, par ½ offered on Tuesday, on not much volume, the trader said, adding that the paper had actively traded late in the Oct. 1 pre-holiday week.

The $400 million issue priced at par last Thursday.

Meanwhile the Envision Healthcare Corp. 8¾% senior notes due October 2026 (Caa1/B-) continue to sag, the trader said, marking them at 97 1/8 bid, 97 5/8 offered.

The $1,225,000,000 issue backing the buyout of the company by KKR priced at par in late September.

Although the stock indexes were mixed in Tuesday morning trading, high-yield ETF prices were higher. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.15%, or 12 cents, at $85.24 per share.

The new issue market was quiet on Tuesday, and the active forward calendar empty.

Volatility, particularly in Treasuries, is creating headwinds for high-yield new issue business, syndicate bankers say.

The yield on 10-year government paper rose more than 20 basis points in the past week amid apprehensions that low unemployment and rising wages are sparking inflation.

After recently peaking above 3¼%, the 10-year Treasury yield slid to 3.208% at mid-morning on Tuesday.

A modicum of stability in Treasuries and equities are precursors to a revived junk new issue calendar, syndicate sources say.

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