Morning Commentary: Junk bonds better bid; Western Digital’s book still building, pricing Wednesday

By Paul A. Harris

Portland, Ore., March 30 – The high-yield bond market opened strongly on Wednesday, following Federal Reserve chairman Janet Yellen’s Tuesday comment that the central bank would take a cautious approach to its earlier announced plans for normalizing interest rates in the United States, a trader said.

Some junk names were up ½ point to ¾ point, the trader said.

High-yield ETFs were stronger at mid-morning in New York. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 38 cents, or 0.47%, at $81.67 per share. SPDR Barclays High Yield Bond ETF (JNK), at $34.25 per share, was up 17 cents, or 0.5%.

The new T-Mobile USA, Inc. 6% senior notes due April 15, 2024 (Ba3/BB) were turning in a strong performance in Wednesday’s secondary market, at 101 1/8 bid, 101 3/8 offered, a trader said.

The $1 billion issue priced at par on Tuesday.

After widening prices by as much as 150 basis points versus initial guidance, the closely watched Western Digital Corp. $5.6 billion two-part megadeal has gotten traction, sources said on Wednesday.

A $1.5 billion tranche of split-rated seven-year senior secured notes (Ba1/BBB-/BBB-) is firming up at 7 3/8% to 7½%, versus Tuesday talk in the 7½% area. That talk widened from 7% during the course of Tuesday’s session, according to sources, who added that previous to Tuesday the secured tranche was being shopped in the low 6% yield context.

That tranche could grow to $2.2 billion, as a shift of $700 million to the secured tranche from the unsecured tranche is under consideration, sources say.

Meanwhile the $4.1 billion tranche of straight speculative-grade eight-year senior unsecured notes (Ba2/BB+/BB+) is firming up at 10½% to 10¾%, versus Tuesday’s talk in the 10½% area. That talk widened from 10% during the course of the Tuesday session. In the run-up to Tuesday the unsecured tranche was being guided in the 9% area.

If the above-mentioned shift of proceeds takes place, the unsecured tranche could shrink to $3.4 billion, sources say.

The deal is now said to be playing to orders totaling $9 billion and growing, across both tranches, a trader said.

Books close at 11 a.m. ET on Wednesday, and the deal is expected to price at 4 p.m. ET.

BofA Merrill Lynch, J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC, RBC and HSBC Securities are the joint bookrunners for the deal to help fund the acquisition of SanDisk Corp. and to refinance existing debt at both companies.

Diebold starts roadshow

Diebold Inc. started a roadshow on Wednesday for a $500 million offering of eight-year senior notes.

Initial guidance has it coming with a yield in the high 7% to low 8% context.

The acquisition-related deal is expected to price on Tuesday.

JPMorgan and Credit Suisse are the joint bookrunners.

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