Morning Commentary: Junk eases on rate concerns; Cleveland Cliffs 9 7/8% notes improve

By Paul A. Harris

Portland, Ore., March 21 – The high-yield market eased 1/8 of a point to ¼ of a point on Monday morning, with rate-sensitive names leading the way lower, according to a bond trader in New York.

Trading volume was extremely light, the trader added.

With the Dow Jones industrial average down 0.58% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.41%, or 34 cents, at $82.19.

News that Cleveland-Cliffs Inc. intends to redeem its $607 million of outstanding 9 7/8% senior secured notes due October 2025 on April 20, 2022 pushed the price of those bonds 1 point higher on Monday morning, the trader said, marking them 111¾ bid, 111 7/8 offered versus 110½ bid, 110¾ offered late last week.

The SPX Flow, Inc. (Redwood Star Merger Sub, Inc.) 8¾% notes due April 2030 (Caa2/CCC+) were 95¼ bid, 96¼ offered on Monday after pricing at OID 95.183 to yield 9 5/8% on Friday, the trader said.

The downsized $500 million deal (from $570 million) struggled to get done, according to market sources.

Early Friday the notes were talked at a steep discount, 91.933 to 93.216 (10% to 10¼%), before dealers jacked up the talk to 93.685 to 95.183 in the middle of the day, with the deal ultimately pricing at the rich end of the higher talk on Friday evening.

A partially syndicated $570 million bridge loan backing the bonds was capped at 8¾%, leaving the dealer and the bridge participants on the hook to cover the discount, sources say.

Earlier Monday, a European high-yield bond market source was marking cash bonds there up as much as 3/8 of a point, attributing the improvement to the total lack of a euro high-yield new issue calendar.

Market watchers in Europe tracked the fortunes of the dollar-denominated Crown Americas LLC 5¼% senior notes due April 2030 (Ba3/BB-), a bullet, as a portent of a possible regeneration of the European new issue market, as Crown Americas is a subsidiary of London-based Crown Holdings, Inc., the source noted.

The new Crown Americas 5¼% notes were unchanged on Monday, with a small amount changing hands at 102 1/8, the New York-based trader said.

Those bonds were 101¼ bid, 102¼ offered on Friday, the trader added.

The $500 million issue priced at par on March 14.

As in Europe, so in the United States: There was no primary market news on Monday morning.

The active dollar-denominated forward calendar presently features just one deal.

Owens & Minor Inc. plans to price a $500 million offering of eight-year senior notes (B2/B/BB-) this week.

The acquisition financing notes are in the market with initial guidance in the 7% area.

ETFs see outflows

High-yield ETFs sustained $867 million of daily cash outflows on Friday, according to a market source.

However, actively managed high-yield funds were positive on Friday, posting $55 million of inflows on the day, the source said.

Friday's inflow to the actively managed funds snapped a week-long run of consecutive significant daily outflows.

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