Morning Commentary: PG&E bonds jump 10 points; Tuesday junk deals lag issue prices

By Paul A. Harris

Portland, Ore., Oct. 30 – Despite news reports on wildfires continuing to come out of California, some on-the-run bonds of Pacific Gas & Electric Co. were up as much as 10 points on Wednesday on a perception taking hold in the market that the utility's exposure to liability in the situation has been overblown, traders said.

The Pacific Gas & Electric 6.05% notes due March 2034 were 102 3/8 bid, up 10 points, one trader said.

Another trader had the same bonds at 101¼ bid, 102¼ offered, also up 10 points.

Winds in the vicinity of the sprawling, week-old Kincade fire were expected to recede on Wednesday, with frost warnings replacing them in the weather forecasts.

Elsewhere the euro-denominated bonds of Belden Inc. were down about 2 points on a disappointing earnings report in which the St. Louis-based manufacturer of media-related hardware disclosed it would sell its Grass Valley business.

Among recent issues, a pair of deals priced Tuesday were lagging their new issue prices early Wednesday, reflecting investor sentiment that the bonds were simply priced too tight, traders said.

The new TransDigm Inc. 5½% senior subordinated notes due November 2027 (B3/B-) were 99¾ bid, par offered on Wednesday morning, a trader said.

The upsized $2.65 billion issue (from $2.15 billion) priced at par on Tuesday, in the middle of yield talk in the 5½% area, and was oversubscribed, sources said.

Meanwhile newly minted paper from London-based BBA Aviation plc, its 4% senior notes due March 2028 (Ba2/BB), was 99½ bid, 99¾ offered on Wednesday morning.

The $650 million deal, also oversubscribed, came 12.5 basis points inside of yield talk in the 4¼% area. Initial guidance was in the mid-4% area.

The new issue market was quiet in the early going on Wednesday as two prospective issuers endeavor to price deals before the end of the week.

Wesco Aircraft Holdings, Inc. is in the market with $1,575,000,000 of high-yield notes.

And Blackboard Inc. continues to market $243 million of second-lien notes (Caa2/CCC).

Tuesday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Tuesday, according to a market source.

High-yield ETFs saw $29 million of inflows on the day.

Actively managed high-yield funds saw $75 million of inflows on Tuesday, the sources said.

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