Morning Commentary: Junk rallies ahead of the Fed; Citrix/Tibco notes trade to premium

By Paul A. Harris

Portland, Ore., Sept. 21 – After opening unchanged on Wednesday, the high-yield bond market was 1/8 point to ¼ point better heading into mid-morning, according to a sellside source in New York.

As with the stock market, junk was rallying ahead of an anticipated interest rate decision from the Federal Open Market Committee, expected Wednesday afternoon, with the markets appearing to have priced in a 0.75% increase in the benchmark Fed Funds rate, the sellsider said.

With the S&P 500 stock index up 0.5% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.38%, or 28 cents, at $74.

The Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) were up more than ¼ point at 94½ bid, 94¾ offered at mid-morning, after trading at 94¼ earlier in the session, the source said.

They were 93¾ bid, 94¼ offered on Tuesday morning.

The Ford 6.1% green notes came at par on Aug. 16 in a $1.75 billion high-grade-style execution.

Bonds priced in the mammoth Citrix Systems Inc./Tibco Software Inc. $4 billion issue of 6½% senior secured notes due March 2029 (B2/B) traded up handily to 84 7/8 bid, 85¼ offered on Wednesday morning, after pricing at 83.561 late Tuesday, the sellside source said.

The huge buyout deal came with sweeping concessions in price, as well as document changes augmenting protection for investors.

The discount price deepened from initial guidance, the rich end of which was set at 90 (official talk was 85.695 to 84.62). The 10% yield that ultimately printed had widened from the tight end of initial guidance in the high 8% area (official talk was 9½% to 9¾%).

Under duress to syndicate the debt, banks that participated in the bridge commitment to backstop financing for the $16.5 billion buyout of Citrix by Vista Equity Partners and Evergreen Coast Capital are believed to have sustained losses in excess of $600 million, as they were compelled to sell the bonds and the concurrent $4.05 billion term loan B at steep discounts, the sellsider recounted.

In the wake of Citrix, only one dollar-denominated deal remains on the active new issue calendar.

Marketing began earlier in the week for the Connect Holding II LLC $1.865 billion seven-year senior secured notes offering (B2//B+) backing the carve-out acquisition of the Lumen Technologies fixed line assets by Apollo Global Management.

The broadband and telecom services provider will be rebranded as Brightspeed.

Early guidance has the Brightspeed notes coming with an 8% coupon at a discount to yield 10%, sources say.

The deal is scheduled to price late in the Sept. 26 week.

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