Morning Commentary: Junk market softens after big Monday rally; funds see big inflows

By Paul A. Harris

Portland, Ore., March 15 – The high-yield market opened a touch weaker on Tuesday amid weaker stocks and lower oil prices, a portfolio manager said.

The European high-yield space was also weaker.

“We're seeing a little pullback from yesterday, when things ran pretty hard,” the manager remarked.

High-yield ETFs were lower heading into the New York mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 72 cents, or 0.88%, at $81.19 per share. SPDR Barclays High Yield Bond ETF (JNK), at $33.98 per share, was down 27 cents, or 0.8%.

The prices of Valeant Pharmaceuticals International Inc.’s bonds declined as the company reduced guidance for the current quarter on a Monday morning conference call with analysts and warned that it faces a potential event of default, a trader said, noting that the company’s stock was down 38% heading into mid-morning.

The call was not going well, the trader remarked.

The Valeant (VRX Escrow Corp.) 6 1/8% senior notes due April 15, 2025 are down 5 to 6 points at 81 bid; they were 87 5/8 bid on Monday.

Monday deals

Yesterday’s issues were fair-to-middling, sources said.

CNH Industrial NV’s new 4 7/8% senior notes due April 1, 2021 were 98¾ bid, 99¾ offered heading into the mid-morning. The $500 million bullet came at 99.447 to yield 5% on Monday.

However Avis Budget Car’s new 6 3/8% senior notes due April 1, 2024 (B1/B+) were par 1/8 bid, par 5/8 offered, a trader said. Earlier in the day they were up a quarter of a point, according to a portfolio manager.

The upsized $350 million issue (from $300 million) priced at par on Monday.

The deal was heard to be playing to an order book that was five-times oversubscribed.

The primary

In the primary market Radian Group Inc. talked its $325 million offering of non-callable five-year senior notes (BB-) to yield in the 7 1/8% area. The deal is set to price Tuesday.

In the European primary market, ParexGroup talked its €150 million offering of seven-year senior secured floating-rate notes (B1/B) to price with a 550 basis points spread to Euribor at 99.

Books were set to close late-morning, New York time, representing an acceleration of the deal’s timing. Earlier scheduling had the offer on a roadshow through a substantial portion of the Tuesday session.

And ThyssenKrupp AG launched a €100 million add-on to its 2¾% unsubordinated unsecured fixed-rate notes due March 8, 2021 (expected ratings Ba2/BB/BB+) to yield 2 5/8%.

The quick-to-market Regulation S deal is set to price Tuesday.

Joint bookrunner Deutsche Bank will bill and deliver. BNP Paribas, Mediobanca, MUFG and SG CIB are also joint bookrunners.

Substantial inflows

The cash flows of the dedicated high-yield bond funds were strongly positive on Monday, a portfolio manager said.

High-yield ETFs saw $623 million of inflows on the day.

Asset managers saw $330 million of inflows on Monday.

Dedicated bank loan funds saw $190 million of inflows on the day.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.