Morning Commentary: Junk stages big Monday rally; independent power producers outperform

By Paul A. Harris

Portland, Ore., Nov. 7 – The high-yield bond market was up half a point and staging a big rally on Monday morning, a trader said.

High-yield ETFs were up 1%-plus at mid-morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 1.11%, or 94 cents, at $85.93 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $36.19 per share, was up 1.02%, or 37 cents.

The rally was broad-based, although independent power producers (IPPs) were outperforming, the trader said.

Among the IPP names seeing strong tailwinds were NRG Energy, Inc., which posted strong earnings on Friday, and Dynegy Inc., the source said.

The recently minted Dynegy 8% senior notes due Jan. 15, 2025 were up 1.5 points at 93 bid, 94 offered, the trader said. Those notes, which priced at par in a $750 million issue in early October, were 88 bid, 89 offered last week, according to the trader, who remarked that Dynegy is a big name in the hedge fund community, and tends to “move hard and fast.”

The NRG 6 5/8% senior notes due Jan. 15, 2027 were up 3-plus points, post-earnings, the trader said, marking them at 95 bid, 95¾ offered at mid-morning on Monday, up from 91¼ bid, 91¾ offered before the earnings call.

Primary market

In the primary market Telesat Canada is guiding a $750 million offering of eight-year senior notes (B3/B) to yield 8½% to 9%.

The deal, which is in the market via lead bookrunner JPMorgan, could price as early as Monday, a trader said.

The Ottawa-based satellite communications company plans to use the proceeds, along with proceeds from a new $2.18 billion term loan and cash on hand, to redeem its $900 million of outstanding 6% senior notes due May 15, 2017, repay all debt outstanding under its existing credit facilities and fund the previously announced cash dividend to shareholders.

And CF Industries, Inc. announced a $1.25 billion offering of senior secured notes.

No one had claimed the deal at mid-morning; however, Goldman Sachs and Morgan Stanley are expected to be involved, a trader said.

The Deerfield, Ill.-based manufacturer and distributor of agricultural fertilizers plans to use the proceeds, together with cash on hand and/or a draw on its revolver, to prepay the $1 billion of senior notes due 2022, 2025 and 2027 plus the related make-whole amounts (estimated at about $210 million based on market interest rates on Oct. 31, 2016), with any remaining proceeds to be used for general corporate purposes.

New issue activity is expected to be muted heading into the elections in the United States on Tuesday.

Big Friday outflows

Dedicated high-yield bond funds saw sizable daily cash outflows on Friday, the trader said.

High-yield ETFs sustained $257 million of outflows on the day.

Actively managed funds sustained $395 million of outflows on Friday.

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