Morning Commentary: Junk stages modest recovery; IPO buzz sends Avantor bonds higher

By Paul A. Harris

Portland, Ore., Nov. 21 – Having weathered a pre-Thanksgiving beating, junk bonds were modestly higher, in line with equities, on Wednesday, according to a trader, who marked junk ¼ point higher at mid-morning.

High-yield ETF share prices were better on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up half a buck, or 0.6%, at $83.25 per share.

The sun also shone on the oil patch on Wednesday morning.

The barrel price of West Texas Intermediate crude oil for January 2019 delivery was up $1.01, or 1.89%, at $54.44.

The pummeled Transocean Inc. (RIG) 7¼% senior guaranteed notes due November 2025 were up half a point on the morning at 91 bid, 93 offered.

The $750 million issue priced at par on Oct. 22.

The more recently priced Vantage Drilling International 9¼% senior secured first-lien notes due November 2023 (Caa1/B) were basically unchanged at par ¾ bid.

The upsized $350 million issue (from $300 million) came at par in a conspicuously tight Nov. 14 execution that came on an accelerated timeline and at the tight end of talk.

The California Resources Corp. 8% senior secured second-lien notes due December 2022, which generally track crude oil prices, were up 1½ points on Wednesday at 81½ bid, the trader said.

Away from energy, bonds of specialty chemicals supplier Avantor Inc. were higher on an expectation that sponsor New Mountain Capital is considering an initial public offering in 2019.

The Avantor 9% senior notes due October 2025 were up 1¾ points on the news, the trader said.

Meanwhile bonds of Energizer Co. were lower on Wednesday, the trader said.

The Energizer Gamma Acquisition, Inc. (Energizer Holdings Inc.) 6 3/8% senior notes due July 2026 were 96½ bid, down a point.

The St. Louis-based flashlight battery maker’s share price has also dropped, the trader remarked, noting that Jefferies lowered its target price for the shares.

Energizer's stock was trading at $47.32 on Wednesday morning, down from $64.30 on Nov. 9, the source said.

Last week Energizer Holdings announced it would acquire Spectrum Brands’ Global Auto Care business for $938 million in cash and $312 million of newly issued equity to Spectrum Brands, in a deal expected to close in the second quarter of 2019.

Debt financing includes a $600 million senior unsecured bridge loan and a $500 million term loan via JP Morgan, Barclays and Citigroup.

Primary quiet

Quiet customarily pervades the new issue market in the abbreviated session ahead of the Thanksgiving holiday, and Wednesday morning was no exception.

Rates have rocked the bond markets, an investment-grade bond trader said on Wednesday morning, noting that while junk has been gapping wider, high-grade bonds have been 3 points to 5 points wider every day.

Sticker shock has been seizing issuers across the credit spectrum, the trader remarked, adding that companies intending to raise cash by issuing bonds are going to have to recalibrate the costs of capital they are willing to bear upward, or look elsewhere.

Heading into Thanksgiving, credit is not in great shape, the trader said.

New issue activity in the high-yield market might regenerate in the week ahead, according to market sources in Europe and the United States.

However, in order for that to happen volatility in the global capital markets will have to subside meaningfully.

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