Morning Commentary: Tuesday's rising tide lifts junk; Frontier’s 8¾% secured notes soar

By Paul A. Harris

Portland, Ore., May 10 – With equities staging a modest or better recovery in the early going on Tuesday, the high-yield bond market was up 1/8 point, according to a bond trader in New York.

The iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.36%, or 28 cents, at $77.05 at mid-morning.

Bonds priced Monday by Frontier Communications Holdings, LLC soared into the secondary market, traders said.

The Frontier 8¾% first-lien secured notes due May 2030 (B3/B/BB+) were 102 bid, 102¼ offered, a trader said.

The deal, which priced at par in an upsized $1.2 billion issue (from $800 million), came 200-plus basis points cheap to the telecom's existing bonds and were definitely priced to trade, the source commented.

Slightly later a New York-based sellside source had the new Frontier 8¾% first-lien notes trading at 101 7/8 bid, 102 3/8 offered.

The first dollar-denominated offering to hit the junk market in over a week, Frontier’s deal came in a drive-by transaction that was heard to have ultimately generated $4.4 billion of demand, as real money accounts scrap to put coupon payments and cash from called paper to work in new issues, sources say.

However, prospective issuers won't likely derive a great deal of encouragement from Frontier’s cost of capital. The new deal came with 2¾% more coupon, and with security that is superior to the Frontier Communications Holdings 6% second-lien notes due January 2030, which priced last October at par, sources say.

In any event, the Frontier deal thus far appears to have taken place in a vacuum, as the high-yield primary once again went quiet on Tuesday, with the active forward calendar standing empty.

Monday fund flows

High-yield ETFs saw $114 million of daily cash inflows on Monday, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $60 million of outflows on Monday.

The combined funds are tracking $364 million of net inflows for the week that will conclude with Wednesday's close, according to the market source.

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