Morning Commentary: Junk rebounds; Verisure whispers €500 million notes at 9¼%-9½%

By Paul A. Harris

Portland, Ore., Sept. 27 – The high-yield bond market climbed ¼ point at Tuesday’s open as equities rallied back from Monday's sell-off, according to a New York-based bond trader.

With the S&P 500 stock index up 0.78% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.38%, or 27 cents, at $71.55.

In Europe, the closely followed iTraxx Crossover index, comprised of the 75 most liquid sub-investment grade euro-denominated entities, was 15 basis points tighter on the morning, according to a market source.

Among U.S. high-yield credits, the Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) were better on the morning at 89 bid, 89¾ offered, having been lifted at 89¼ late Monday, according to a debt capital markets banker.

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

The long dormant new issue market continues to sputter back to life; suddenly the active calendar of U.S. and European offers – nearly empty since late summer – has a modicum of substance.

The preponderance of the week’s primary market news, thus far, comes from Europe.

On Tuesday morning, Switzerland's Verisure Holding AB circulated initial price talk on its €500 million offering of senior secured notes due 2027 (B1/B) at 9¼% to 9½%.

The roadshow is scheduled to wrap up on Thursday, and the deal is set to price before the end of the week.

Elsewhere in the European market, Villa Dutch Bidco kicked off a €425 million offering of seven-year senior secured notes (B2/B) backing Bain Capital's acquisition of a majority stake in Belgium-based House of HR on Monday.

Turning to the dollar-denominated calendar, the market awaits news on the Connect Holding II LLC $1.865 billion offering of seven-year senior secured notes (B2/B/B+) backing the carve-out acquisition of Lumen Technologies fixed line assets by Apollo Global Management.

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

Initial talk had the Brightspeed deal coming with an 8% coupon to yield 10%, with pricing expected late this week. Some market-watchers have been looking for that talk to push higher, however.

Away from the universe of Yankee issuers, Chile-based Latam Airlines Group SA is marketing a $1.5 billion two-part offering of senior secured notes related to its exit from Chapter 11 bankruptcy during the past summer.

The deal, which is slated to price next week, features five-year notes whispered in the low 13% area and seven-year notes whispered in the low-to-mid 13% area.

The credit's emerging markets provenance notwithstanding, U.S. high-yield accounts are expected to participate in the deal because many of them participated in the Latam Airlines debtor-in-possession financing, sources say.

Fund flows

Actively managed high-yield bond funds sustained $147 million of daily cash outflows on Monday, according to a market source.

High-yield ETFs were essentially flat – although slightly positive – on the day, posting $4 million of inflows on Monday, the source said.

The combined funds are tracking $1.83 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

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