Midday Commentary: Despite outflows, junk regaining some traction; week opens to slim calendar

By Paul A. Harris

Portland, Ore., July 1 - The high-yield market opened the pre-Independence Day week with a firm tone, despite the fact that high-yield mutual funds and ETFs sustained heavy weekly cash outflows during the past month, a trader said on Monday morning.

Last week's megadeal, Valeant Pharmaceuticals International, Inc.'s $3,225,000,000 two-part senior notes transaction (B1/B), has been turning in a robust performance, the trader said.

The 6% notes due August 2018 were trading at 102 7/8 bid, and the 7½% notes due July 2021 were 104 1/8 bid. Both priced at par late last week.

The deal, which played to a $5 billion-plus order book, came at a happy medium, in terms of rates, in a very choppy market, and went extremely well, the trader recounted.

Meanwhile the poster child of the recent sell-off, the H.J. Heinz Co. 4¼% second-lien senior secured notes due October 2020 (B1/BB-/BB), rallied back to 95¾ bid, 96½ offered. The trader saw that deal, which priced at par in a $3.1 billion issue in mid-March, as low as 93 bid, 94 offered, during the mid-to-late June market turbulence.

The deal sold off sharply in part because its low coupon came under pressure as Treasury rates backed up significantly in June, market sources said.

Slim calendar

Meanwhile there was no primary market news on Monday morning, as all eyes are turning to the Independence Day holiday in the United States on Thursday.

Many market participants seem to be turning the Thursday holiday into a four-day weekend by taking vacation days on Friday.

Hence a quiet, abbreviated pre-holiday week is expected in the new issue market.

Only one deal is hanging around on the forward calendar.

France's Technicolor ran a mid-June roadshow for its $330 million offering of seven-year senior secured notes (expected ratings B3/B).

Since then it has been radio silence, market sources say.

The deal is being reworked, according to a trader, who added that price discussions near the end of the roadshow were as high as 9½%.

JPMorgan, Goldman Sachs and Morgan Stanley are the joint bookrunners.

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