Morning Commentary: Junk eases from early morning highs; StandardAero bonds seen above par

By Paul A. Harris

Portland, Ore., July 1 – High-yield bonds, up half a point early Wednesday morning, eased a bit and were up ¼ point to ½ point heading into the late morning, according to a portfolio manager.

There were buyers for on-the-run double-B rated telecom paper, which was up ¼ point to ½ point on the day, the source said.

StandardAero trades higher

The new StandardAero 10% senior notes due July 15, 2023 (Caa2/CCC) were seen trading above their new issue price on Wednesday, the portfolio manager said.

The notes were 99¾ bid, par ¾ offered at underwriter Jefferies LLC, the manager said.

Away from the underwriter the notes were seen trading at par bid, par ¾ offered.

StandardAero priced the $485 million issue at 98.65 to yield 10¼% on Tuesday.

Meanwhile the recently minted TI Group Automotive Systems, LLC 8¾% senior notes due July 15, 2023 (Caa1/B) were softer in Wednesday trading, at 99½ bid, 99¾ offered, versus 99¾ bid, par ¼ offered on Tuesday, the buysider said.

The $450 million issue price at par last Thursday.

Quiet in the primary

Although there are as many as four deals on the active forward calendar, the primary market may presently be in hibernation, awaiting the conclusion of the extended Independence Day holiday weekend in the United States, sources say.

There are rumblings of big deals headed to market in July.

Frontier Communications Corp. could hit the leverage markets with $8 billion of new debt as early as the July 6 week, according to a buyside source (see related story in this issue).

And Charter Communications Inc. is expected to bring $13.8 billion of notes during July, according to a debt capital markets banker.

Sizable outflows

The leverage markets saw substantial redemptions on Tuesday, the portfolio manager said.

High-yield ETFs saw $395 million of outflows.

Asset managers, meanwhile, sustained a whopping $800 million of redemptions.

Dedicated bank loan funds saw $285 million of outflows, which the manager characterized as a big number for that asset class.

The outflows followed in the wake of a big sell-off on Monday, trailing concerns that there could be wider contagion from a possible default involving Greek sovereign debt, the source said.

The net asset valuations of high-yield portfolios fell between 4 cents and 9 cents on Monday, then saw a modest amount of improvement on Tuesday, the buysider added.

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