Morning Commentary: Junk edges up early; Fresh Market bonds jump on acquisition news

By Paul A. Harris

Portland, Ore., May 11 – The high-yield bond market opened better on Wednesday, traders said.

With one trader spotting junk as much as ¼ point higher at the open, another – asserting that dramatic price moves one way and another were making the market difficult to triangulate – said junk was probably “up a smidge.”

With the S&P 500 stock index up half a percent at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.1%, or 8 cents, at $77.29.

Bonds of Fresh Market, Inc. saw dramatic improvement on news that Cencosud, an entity backed by Apollo Global Management Inc., has agreed to acquire a 67% stake in the Greensboro, N.C.-based specialty food retailer.

News of the deal, representing a $676 million investment on the part of Cencosud, lifted the Pomegranate Merger Sub, Inc. (Fresh Market) 9¾% first-priority senior secured notes due May 2023 to par, up 5 points on the morning, the trader said.

Elsewhere, the Frontier Communications Holdings, LLC 8¾% first-lien secured notes due May 2030 (B3/B/BB+) changed hands at 102¾ on Wednesday morning.

The only deal to clear the new issue market in over a week, the upsized $1.2 billion issue (from $800 million) priced Monday at par, coming with 2¾% more coupon, and with security that is superior to the Frontier Communications Holdings 6% second-lien notes due January 2030, which priced at par last October.

The market seems to be ruling that Frontier's latest deal came “way too cheap,” the trader said.

Away from such situational items, expectations of economic weakness and higher rates continued to exert a drag on junk, sources said.

Caught up in the gyrations of cryptocurrency, bonds of Coinbase Global, Inc. – the 3 3/8% notes due October 2028 and the 3 5/8% notes due October 2031, both unsecured – were down 8 points on the day and trading in the 60s, the trader said.

The bonds priced at par in an upsized blowout deal last September in tranches sized at $1 billion apiece.

The more recently minted Carvana Co. 10¼% senior notes due May 2030 (Caa2/CCC) changed hands at 89½ on Wednesday, down 10½ points from a week ago, the trader said, noting that used car prices, which had been commanding a handsome premium in the supply chain mess set in train by the coronavirus pandemic, have finally begun to fall.

Carvana priced $3.275 billion of the 10¼% notes (upsized from $2.275 billion) in late April, with Apollo Global Management reported to have taken down nearly half the upsized issue ($1.6 billion).

The high-yield new issue market remained quiet on Wednesday morning, with the active dollar-denominated forward calendar standing empty.

Fund flows

High-yield ETFs saw a substantial $412 million of daily cash inflows on Tuesday, according to a market source.

Actively managed high-yield funds were negative on the day, however, sustaining $272 million of Tuesday outflows, the source said.

© 2015 Prospect News.
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