Morning Commentary: Junk rides risk-free rollercoaster; Cetera eyes $700 million notes

By Paul A. Harris

Portland, Ore., Oct. 23 – After opening the week 1/8 of a point lower, the high-yield bond market headed into the Monday mid-morning unchanged as news headlines generated big swings in risk-free bond rates, according to market sources.

Ten-year Treasuries yielded 4.89% at mid-morning after breaking through the 5% threshold for the first time in over a decade and a half, according to a bond trader.

Asset prices, which generally opened the week lower, recovered ground after Pershing Square’s Bill Ackman announced that he covered his bond short citing “too much risk in the world,” said the trader, noting that the immediate impact of Ackman’s announcement upon the markets – both fixed income and equity – were momentous and global.

The recently minted Venture Global LNG Inc. 9½% senior secured notes due February 2029 were at par 1/8 bid, par 3/8, offered, while the 9 7/8% senior secured notes due February 2032 were 99 bid, 99¼ offered, both unchanged on the morning, the source said.

The $4 billion deal priced last Thursday, with $2.5 billion of the 9½% notes pricing at par and $1.5 billion of the 9 7/8% notes pricing at 99.214 to yield 10%.

Turning to headlines, news that Hess Midstream will be acquired by Chevron in a $53 billion deal sent Hess bonds higher, the trader said.

The Hess Midstream Partners LP 5 1/8% senior notes due June 2028 were up a point on the news, at 91¾ bid, 92¾ offered.

The Hess Midstream Operations LP 5½% senior notes due October 2030 were up 3 points at 91¼ bid, 92¼ offered, the source said.

Turning to distressed issues, news that Akumin Inc. filed a voluntary petition for bankruptcy on Sunday sent the Akumin 7% senior secured notes due November 2025 up 11 points at 85½ bid, 86 offered, the trader said.

In the primary market, Cetera Financial Group Inc. began a brief roadshow on Monday for a $700 million offering of Aretec Escrow Issuer 2 Inc. senior secured notes due August 2030 (B2/B).

Initial guidance has the notes coming to yield in the high-9% to 10% area, according to a market source, who heard that there is $500 million of reverse inquiry in the deal.

Meanwhile the Global Aircraft Leasing Co., Ltd. (GALC) and Global Sea Containers II Ltd. (GSCL II) $1.95 billion offering of five-year senior PIK toggle notes (Ba2//BB-), which has been in the market for the better part of a fortnight, is heard to be in limbo after the company rejected covenant changes demanded by an investor representing an anchor order, which would have taken the book above deal-size, the trader said.

The co-issuers are in the market in order to raise cash to pay off $1.911 billion of GALC 6½% senior PIK toggle notes due September 2024.

GALC made three PIK payments on those 6½% notes during the height of the Covid shutdown, and investors are keen to incentivize the company to make interest payments on the new notes in cash, sources say.

The issuers addressed that concern in the new deal’s structure, with a novel 200 basis points PIK step-up (the customary PIK step-up has been 75 bps).

However, investors want additional guarantees.

Fund flows

High-yield ETFs saw $210 million of daily cash inflows on Friday, according to a market source.

However, the ETFs have sustained $8 billion of net outflows, representing 12% of assets under management, in the past five weeks, the source said.

Actively managed high-yield funds sustained $127 million of daily outflows on Friday, according to the market source.

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