Morning Commentary: Junk drops; volatility sidelines primary; Power Solutions lower

By Paul A. Harris

Portland, Ore., May 23 – The volatility rocking global equities on Thursday carried over into the high-yield bond market, with the index off around ¼ point at mid-morning, according to a trader based in New York.

With the Dow Jones industrial average down 1¼% at mid-morning, high-yield ETFs were lower. The iShares iBoxx $ High Yield Corporate Bd (HYG) was 0.51% lower at $85.76 per share, down 44 cents.

As a raft of headlines bearing upon trade and geopolitical tensions streamed across the screens, volatility appeared to be sidelining the primary market, the trader said.

Drive-by deals that had been anticipated Thursday business (no issuer names furnished) failed to materialize, the source added.

Amid a paucity of new issue news, German automotive trim supplier Novem Group GmbH, making its debut in the high-yield bond market, talked its €375 million offering of five-year senior secured floating-rate notes (Ba3/B+) at Euribor plus 500 basis points to 525 bps at par with a 0% Euribor floor. Initial guidance was in the mid-500 bps area.

The deal is expected to price on Thursday.

Power Solutions lower

News that the chief executive officer and chief financial officer of Clarios resigned set Power Solutions paper plummeting 1-2 points Thursday morning, the trader said.

The Panther BF Aggregator 2 LP/Panther Finance Co., Inc. (Power Solutions) 6¼% senior secured notes due May 2026 were 103 bid, 104 offered, the trader said.

The Panther BF Aggregator 2 LP/Panther Finance Co., Inc. 8½% unsecured notes due May 2027 were par bid, 101 offered.

The bonds came in mid-March in tranches sized at $1 billion and $1.95 billion, respectively, as part of the financing for Brookfield Business Partners' acquisition of Johnson Controls global energy storage business, which was subsequently named Clarios.

The executives departing Clarios had both been designated “interim” executives, but there was an expectation that both could assume their roles in permanent positions, a source said.

Among more recent issues, both dollar-denominated tranches of the IHO/Schaeffler PIK toggle deal (Ba1/BB+/BB+) were lagging issue prices on Thursday morning.

The IHO Verwaltungs GmbH 6%/6¾% senior secured PIK toggle notes due May 2027 were 99 3/8 bid, 99 7/8 offered.

The 6 3/8%/7 1/8% senior secured PIK toggle notes due May 2029 were 99¼ bid, 99¾ offered on Thursday morning, the trader said.

Both tranches, sized $450 million and $400 million respectively, priced at par on Wednesday.

Mixed Wednesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Wednesday, according to a trader.

High-yield ETFs saw $30 million of inflows on the day.

However actively managed high-yield funds sustained $75 million of outflows on Wednesday, the source said.

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