Morning Commentary: Tervita surges on acquisition news; California Resources rises with oil price

By Paul A. Harris

Portland, Ore., Dec. 19 – Trailing Thursday’s big rally in the junk bond market, the CDX North American High Yield Index Series 23 opened at 106 1/8 bid, 106¼ offered on Friday, unchanged on the day but well off the 104-handle lows seen earlier in the week, traders said Friday morning.

Against the backdrop of modest strength in equities cash bonds were basically unchanged.

Tervita up 12 points

News that Tervita Corp. is being acquired by Republic Services, Inc. caused Tervita bonds to rally smartly, according to a trader on the East Coast of the United States.

Tervita’s 8% notes due 2018 were 86 bid, 87 offered, up 12 points from Thursday’s levels of 75 bid, 76 offered, the trader said.

Republic, a non-hazardous recycling and solid waste services company, is acquiring the Calgary, Alta.-based pure-play environmental waste solutions provider to oil and natural gas producers for about $485 million.

J.P. Morgan Securities LLC acted as exclusive financial adviser to Republic Services for the transaction, and Goldman Sachs & Co. acted as exclusive financial adviser to Tervita.

Crude oil price improves

The West Texas Intermediate barrel price was $55.67 in the New York mid-morning, up $1.50, and with it came some improvement in the badly beaten-up high-yield bonds of the oil and gas sector.

The California Resources Corp. 6% senior notes due Nov. 15, 2024, a big liquid issue that has served as a benchmark for the crude oil price crash’s impact on junk, was up with the oil price improvement, trading at 86¼ bid, 86¾ offered, off earlier lows of 86 bid, 87 offered, according to traders.

The bond traded in the very low 80s earlier in the week, sources said.

The $2.25 billion deal priced at par in a massive $5 billion amount of issuance that came in three bullet tranches (Ba1/BB) on Sept. 11 and traded as high as 104½ bid in the immediate aftermath.

ETFs see strong inflows

The cash flows picture of the dedicated high-yield funds was mixed on Thursday, a trader said.

High-yield ETFs saw $398 million of daily inflows on Thursday, while actively managed funds saw $120 million of outflows.

The Thursday numbers trail news that dedicated high-yield funds saw a whopping $3.1 billion of aggregate outflows for the week to Wednesday’s close.

Primary quiet

Meanwhile all was quiet in the primary market on Friday morning.

Global Cash Access Holdings Inc. priced a $700 million two-part deal on Thursday, according to market sources.

However there was nothing in the Street on either tranche on Friday morning, sources said.

To recap, the deal included a $350 million tranche of senior secured notes due March 15, 2021 (B1/B+), which priced at par to yield 7¾%.

In addition the company priced a $350 million tranche of 10% senior unsecured notes (Caa1/CCC+/) at 98.921 to yield 10.21%.

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