Morning Commentary: Investors lift Iliad, Weatherford; Sonic Automotive notes on deck

By Paul A. Harris

Portland, Ore., Oct. 15 – Cash bonds in the high-yield market were 1/8 of a point better at Friday’s open, a trader said.

However, junk was lagging other risk assets, the source remarked.

With the stock market in positive territory at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was flat to slightly lower at $87.32, down a nickel, or 0.05%.

Among recent deals, bonds priced Wednesday by French telecom Iliad Holdings SAS, representing the market's latest multi-billion megadeal, continued what has been a high-trajectory performance in the secondary market, a trader said.

The dollar-denominated Iliad 6½% five-year senior notes were 103 bid, 103½ offered Friday morning, while dollar-denominated 7% seven-year senior notes were 104 bid, 104½ offered.

Those notes were trading Thursday in a 102½ context.

All four tranches of the €3.7 billion equivalent deal (B2/B+) came in line with price talk that ended up 3/8% to ½% behind initial guidance, as pricing widened during the deal's extended stay in the market.

There were also covenant concessions.

Bonds priced Thursday by Weatherford International Ltd. also continued to climb in early Friday trading.

The Weatherford 8 5/8% senior notes due April 2030 (B3/CCC+) were 102 bid, 102½ offered on Friday morning.

Late Thursday they were 101 bid, 101½ offered.

The upsized $1.6 billion issue (from $1.5 billion) priced at par.

In the new issue market, Sonic Automotive, Inc. was on deck for a Friday execution.

Price talk on its $1 billion two-part offering of senior notes (B1/BB-/BB) surfaced on Friday morning.

The deal features $500 million of eight-year notes talked to yield in the 4¾% area, versus initial guidance in the high-4% to 5% area, and $500 million of 10-year notes talked to yield in the 5% area, on top of initial guidance that had them coming 25 basis points behind the eight-year notes.

The offering was heard to be playing to $1.9 billion of orders across both tranches.

Thursday inflows

The dedicated high-yield bond funds saw $425 million of net daily inflows on Thursday, according to a market source.

High-yield ETFs saw $520 million of inflows on the day.

However, actively managed funds saw negative cash flows on the day, sustaining $95 million of outflows on Thursday, the source said, adding that outflows from the actively managed junk funds moderated. On Wednesday funds from that cohort sustained $375 million of outflows.

News of Thursday’s daily flows follows a Thursday report that the combined funds sustained $1.8 billion of net outflows in the week to the Wednesday, Oct. 13 close, the largest weekly outflows from junk since mid-June, according to the market source.

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