Morning Commentary: Dynegy brings $500 million drive-by amid strong investor appetite

By Paul A. Harris

Portland, Ore., Oct. 5 – With higher equities and the price of crude oil pushing the $50 per barrel threshold, the high-yield market traded higher on Wednesday, sources said.

High-yield ETF prices were higher at midmorning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.25%, or 22 cents, at $86.89 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $36.56 per share, was up 0.18%, or 6 cents per share.

Expectations that the Fed will move to push rates higher before the end of the year may be scaring some investors, but not all of them, a trader said.

High-yield names in the rate-sensitive homebuilder sector tend to be holding in quite well.

The Lennar Corp. 4¾% senior notes due April 1, 2021 were trading inside of Treasuries plus 200 basis points, at 106½ bid on Wednesday, the trader said, by way of illustration.

Dynegy $500 million drive-by

The celebration of Rosh Hashana this week, and the coming extended Columbus Day weekend are serving to damp down primary market activity, a trader said.

One new dollar deal was announced on Wednesday.

Dynegy Inc. plans to price a $500 million offering of senior notes due January 2025 (current ratings B3/B+) on Wednesday trailing a late-morning conference call with investors.

The initial guidance has the deal coming to yield 8% to 8¼%.

Morgan Stanley & Co. LLC, Barclays, BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC, MUFG, RBC and UBS Securities LLC are the joint bookrunners.

With no calendar to speak of, and no prospect of a calendar in the very near term – with dealers inclined to await the passage of the holidays – on-the-run names like Dynegy are welcome, the trader said.

In the European primary market Alliance Automotive Finance plc talked a proposed €180 million add-on to its 6¼% senior secured notes due Dec. 1, 2021 (B2) at 105.5 to 106.

The deal is expected to price shortly.

Credit Suisse is the lead left bookrunner and joint global coordinator. UBS is also a joint global coordinator. Royal Bank of Scotland is the joint bookrunner.

Tuesday inflow

The cash flows of the dedicated high-yield bond funds were positive on Tuesday, a trader said.

High-yield ETFs saw $208 million of inflows on the day.

Actively managed funds saw $60 million of inflows on Tuesday.

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