Morning Commentary: New Jagged Peak Energy bonds track higher; WeWork debut lags new issue price

By Paul A. Harris

Portland, Ore., April 26 – High-yield bonds had a decent footing Thursday morning, trailing a certain amount of heaviness which had lingered in the market since late last week all the way into Wednesday morning, a trader said.

Wednesday afternoon you could feel things turn, the source added.

High-yield ETFs were also firm Thursday morning. The SPDR Blmbg Barclays High Yield Bd ETF (JNK) was up 6 cents, or 0.17%, at $35.83 per share at mid-morning.

Against a backdrop of supportive crude oil prices, the Jagged Peak Energy Inc. 5 7/8% senior notes due May 2026 (B3/B) were up on the morning at par ½ bid, 101 offered, from par ¼ bid late Wednesday.

The upsized $500 million issue (from $400 million) priced at par on Wednesday, at the tight end of the 5 7/8% to 6% yield talk and tight to early guidance in the 6% to 6¼% area.

In the run-up to the close of books the deal was heard to be playing to $1.5 billion of orders, market sources said.

However, the debut issue from WeWork Cos. Inc. was lagging new issue price at mid-morning on Thursday.

The WeWork 7 7/8% senior notes due May 2025 (Caa1/B+/BB-) were 99¾ bid, par offered.

The bullet deal priced at par in an upsized $702 million issue (from $500 million), said to be as much as five-times oversubscribed.

However, the trader called that notable level of demand into question, given Thursday's trading levels, with the broad market on a decent footing.

Although Wednesday's deal marked WeWork's debut in the junk bond market, it was said to have ridden into the market on a significant amount of reverse inquiry generated on a non-deal roadshow conducted by JPMorgan.

Such a process may enable an issuer and its bookrunner to gauge demand and calculate rates, the trader said.

By these means, FourPoint Energy, LLC lately did a non-deal roadshow, also via JPMorgan, putting feelers into the market, gauging whether bonds might be placed, and at what price, said the trader, who is focused on the energy sector.

Quiet primary

New issue activity was muted Thursday morning, with the new deal bourse becalmed due to an earnings season blackout that should wrap up in the April-May crossover week ahead, sources say.

Amid a paucity of primary market news coming out of Europe, specialty paper manufacturer Fedrigoni set final talk in its €455 million offering of senior secured floating-rate notes due November 2024 (B2/B+) in the Euribor plus 425 basis points area, tight to earlier talk of Euribor plus 425 bps to 450 bps.

There will be no Euribor floor.

Books were scheduled to close early Thursday, New York time, and terms on the deal were expected to follow later on Thursday.

Along with price talk came covenant changes.

Mixed, flat Wednesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed and essentially flat on Wednesday, the trader said.

High-yield ETFs saw $18 million of inflows on the day.

However actively managed funds sustained $50 million of outflows on Wednesday.

Those numbers circulate the market ahead of a closely watched weekly report on the cash flows of the dedicated high-yield bond funds from Lipper US Fund Flows, which customarily appears late Thursday.

Although recent daily numbers have tended to be flat to moderately positive, there was some heaviness in the market during the early part of the present reporting period, the trader said.

Hence a negative weekly number is a possibility, the trader reasoned.

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