Morning Commentary: Iliad turns in stellar secondary performance; primary market active

By Paul A. Harris

Portland, Ore., Oct. 14 – The signals along the high-yield track shone bright green on Thursday morning.

Cash bonds opened 1/8 point to ¼ point better.

With the major stock indexes in the United States all up at least 1.25% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.41%, or 36 cents, at $87.24.

Dollar- and euro-denominated senior secured notes (B2/B+) priced Wednesday by French telecom Iliad Holdings SAS were turning in hardy secondary market performances, strong enough to take some market watchers by surprise, sources said.

The dollar-denominated bonds, the 6½% five-year notes and the 7% seven-year notes, were up 2 points to 2.5 points ahead of the Thursday New York open, according to a market source.

At the same time, the euro-denominated portion, the 5 1/8% five-year notes and the 5 5/8% seven-year notes, were up 1.5 points to 2 points.

All four tranches of the €3.7 billion equivalent deal came in line with price talk that ended up 25 basis points to 50 bps in back of initial guidance, as pricing widened during the megadeal's extended stay in the market.

There were also covenant concessions.

Meanwhile the new issue machine continued to hum on Thursday.

At least four deals – none of them drive-bys – were headed for the block.

Glatfelter Corp. set yield talk on its $500 million offering of eight-year senior notes (Ba2/BB) at 4½% to 4¾% on Wednesday, in line with initial guidance in the mid-to-high 4% area.

Among Thursday's new deal updates, Weatherford International Ltd. talked its $1.5 billion offering of 8.5-year senior notes (B3/CCC+) in the 8¾% area, tight to initial guidance in the high 8% area.

The deal was heard to be playing to around $2 billion of orders on Thursday morning, according to a bond trader, who suggested that dealers would ultimately prefer a bigger book.

Although the high-yield road may have been a tiptoe through the tulips in May, beneath darker autumn skies it has lately become booby-trapped by rising rates, economic uncertainties and reports of negative cash flows suggesting that money may be migrating away from the junk bond asset class.

Word had been expected earlier in the week on the Monitronics International, Inc. (Brinks Home) $1.1 billion offering of seven-year first-lien notes (Caa1/B-).

Initial talk was in the 10% area, but that may not have been enough, market sources say.

There appears to be interest in the deal at 10½% to 11%, a trader said.

Or, if the company agrees to tighten up the covenants, they might get out the door with a rate that is closer to the 10% area print they were seeking when the roadshow got underway, the source added.

Wednesday outflows

The dedicated high-yield bond funds sustained $407 million of net outflows on Wednesday, according to a market source.

Actively managed high-yield funds saw $375 million of outflows on the day.

High-yield ETFs sustained $32 million of outflows on Wednesday, according to the market source, who added that outflows from the actively managed funds were broad-based.

As the market awaits a report on the weekly cash flows from Refinitiv Lipper, the combined funds are tracking $1.75 billion of outflows for the week that ended with Wednesday’s close, the source said.

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