Morning Commentary: Junk opens higher; recent deals firm in secondary; primary quiet

By Paul A. Harris

Portland, Ore., March 29 – Junk opened 1/8 point higher on Friday and maintained that level into the midmorning, according to a bond trader based in New York.

High-yield exchange-traded fund share prices were also better on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.09%, or 8 cents, at $86.33 per share.

The most recent new issues were firm in the secondary market.

The new Darling Ingredients Inc. 5¼% senior notes due April 2027 (Ba3/BB+) were up 1½ points, the trader said.

The $500 million issue priced Thursday at par, at the tight end of the 5¼% to 5 3/8% talk, and well inside of initial talk in the high 5% area.

The Surgery Partners, Inc. (Surgery Center Holdings, Inc.) 10% senior notes due April 2027 (Caa2/CCC) were playing to a very warm reception in the aftermarket at 101¼ bid, 102 offered on Friday morning.

The deal appeared to run a gauntlet, as the execution unfolded, with the coupon hitting 10% after the notes had been formally talked at 9½% to 9¾%, and earlier whispered at 9¼% to 9½%, the trader recounted, remarking that the new Surgery Center paper, at 10%, is trading as though the market senses a bargain.

The $430 million issue priced at par on Thursday.

A look at issues that came earlier in the week also turns up a couple of bonds that are trading at smart premiums.

Realogy Group LLC’s 9 3/8% senior notes due April 2027 (B2) were doing very well on Friday morning at 102 bid, 102½ offered, the trader said.

The upsized $550 million issue (from $400 million) priced at par on Wednesday.

The deal was said to have been driven to market on reverse inquiry for the full original amount of the offer.

And the MGM Resorts International 5½% eight-year bullet, which doubled in size to $1 billion from $500 million, was trading at par 7/8 bid, 101 3/8 offered on Friday.

That paper was seen Thursday at par 5/8 bid, par 7/8 offered.

The strong aftermarket performance comes in the face of the fact that the deal was both dramatically upsized and priced in the middle of final talk, and inside of initial talk in the 5¾% area, sources say.

The reoffer price was par.

Staples in the wings

As the primary market awaits prospective issuers to report fresh earnings numbers, and thus move past their end of quarter issuance blackout periods, sources anticipate the formal unveiling of the Staples, Inc. $2,125,000,000 two-part offering, expected in the week ahead.

The deal is set to feature $750 million of secured notes, with early guidance in the mid-to-high 7% area, and $1,375,000,000 of unsecured notes with early guidance in the high 9% to low 10% area.

Goldman Sachs & Co. LLC has the helm for the big debt refinancing deal.

Junk deals from E.W. Scripps and Multi-Color Corp. are also believed to be headed to market soon, sources say.

Thursday inflows

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

High-yield ETFs saw $194 million of inflows on the day.

Actively managed high-yield funds saw $90 million of inflows on Thursday, the trader said.

News of those daily flows follows a Thursday afternoon report that the combined funds saw $590 million of inflows on the week to Wednesday's close, according to Lipper US Fund Flows.

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