Morning Commentary Talen Energy on tap; pricing, covenant tweaks revive Michaels Stores

By Paul A. Harris

Portland, Ore., June 21 – Following a scrap over pricing and lender protection, Michaels Stores, Inc. is set to price its $500 million offering of eight-year senior notes (B1/B) later on Friday, an investor said.

Official price talk was pending in the mid-to-late Friday morning time frame, but the deal appears set to come in the 8% area, the source added.

It has been facing headwinds. However meaningful concessions on price (the deal hit the market whispered in the low 7% area) and a stronger covenant package have the Michaels Stores offer back on track.

Meanwhile Talen Energy Supply, LLC plans to price a $470 million offering of 8.5-year senior secured notes in a Friday drive-by.

Initial guidance has the deal coming with a yield in the high 6% to 7% area, a trader said.

J.P. Morgan Securities LLC is leading the bank debt refinancing deal.

And Alpha Auto Group could price its $225 million offering of five-year notes on Friday.

With official talk pending, the whisper on Alpha Auto is 8% to 8¼%.

A bid for junk

In the wake of the Federal Open Market Committee meetings earlier in the week – where concerns about a slowing U.S. economy surfaced, and future Fed Funds rate cuts suggested as a palliative – it's risk on in the high-yield market, the investor said on Friday.

With stock prices in the United States hovering just below the balk line at mid-morning, junk was reasonably well bid, the source said.

High-yield ETF share prices were lower on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.25%, or 22 cents, at $87.39 per share.

Among recent issues, the U.S. Renal Care, Inc./BCPE Cycle Merger Sub II, Inc. 10 5/8% senior notes due 2027 – another deal that faced significant investor pushback – were trading at a handsome premium to new issue price on Friday morning: 103 bid, 103¾ offered, the investor said.

The $505 million issue priced at par on June 13 after undergoing extensive covenant changes.

Meanwhile in Europe, the new Piraeus Group Finance plc 9¾% subordinated tier 2 capital due June 26, 2029 (Caa3/CCC) – the first subordinated deal from Greece in a decade, a source said – was trading at par bid, par ½ offered on Friday.

The upsized €400 million (from €350 million) bank capital issue played to €850 million of orders from more than 135 investors when it priced at par on Wednesday, the source said.

Big ETF inflows eyed

In another indication of a vigorous appetite for risk among junk bond investors, high-yield ETFs saw another massive daily inflow of cash, $1.165 billion, on Thursday, according to a market source.

That daily inflow follows the slightly more modest but nevertheless massive $872 million of inflows which the high-yield ETFs saw on Wednesday.

Actively managed high-yield funds saw $35 million of inflows on Thursday, the source said.

News of Thursday’s daily flows trails a late Thursday afternoon report that the combined funds saw $602 million net inflows in the week to Wednesday’s close, according to Lipper US Fund Flow.

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