Morning Commentary: Hexion higher as Apollo said to mull splitting up company; three deals on deck

By Paul A. Harris

Portland, Ore., Feb. 9 – Junk opened ¼ point lower on Friday but had brightened just a tad at mid-morning, sources said.

High-yield ETFs were lower on the morning. The SPDR Blmbg Barclays High Yield Bd ETF (JNK) was down 0.53%, or 19 cents, at $35.64 per share, at mid-morning.

In a week that has seen some selling, bonds in the energy sector have been conspicuous underperformers, in line with energy prices, according to a trader focused on that space.

The barrel price of West Texas Intermediate crude oil for March 2018 delivery was off 88 cents, or 1.44%, Friday morning at $60.27.

Oil prices are off 6% on the week.

Elsewhere bonds of Hexion Inc. were outperformers on Friday morning on rumors in the market that sponsor Apollo Global Management is contemplating a split-up of the company, a trader said.

The Hexion U.S. Finance Corp./Hexion Nova Scotia Finance, ULC (Momentive Performance Materials Holdings) 9% second-priority senior secured notes due November 2020 were up 2½ points to 3 points on the morning at 81¼ bid.

The primary

Volatility in the broader markets notwithstanding, the new issue market is expected to be active on Friday.

Apex Group, LLC talked its $325 million offering of five-year senior notes (existing Caa1/confirmed B-) to yield 8¾% to 9%.

Official talk comes wide of the 8½% to 8¾% initial guidance, a trader said.

Books close at 2 p.m. ET on Friday, and the deal, via left bookrunner Barclays, is set to price thereafter.

Meanwhile pricing has widened on Flexi-Van Leasing, Inc.'s $300 million offering of five-year second-lien senior secured notes (Caa1/B-), a trader said.

The BofA Merrill Lynch deal, which is also expected to price on Friday, is now being guided in the mid-11% area, up from earlier guidance in the high 9% to low 10% area.

Also on deck is Jones Energy Holdings, LLC with a $450 million offering of senior secured first-lien notes due March 15, 2023 (B2).

That deal was talked with a 9½% coupon at approximately 2 points of original issue discount to yield 10% on Thursday.

There were also document changes.

The company’s existing bonds had been under pressure earlier in the week.

It was radio silence on the Credit Suisse-led deal Friday morning, market sources said.

Thursday outflows

The daily cash flows of the dedicated high-yield bond funds were decidedly negative on Thursday, a trader said.

High-yield ETFs sustained $396 million of outflows on the day.

Actively managed funds underwent $220 million of outflows on Thursday.

The news follows a Thursday afternoon report from Lipper US Fund Flows that the dedicated high-yield bond funds sustained $2.74 billion of outflows on the week to Wednesday's close.

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