Morning Commentary: Mercer on deck with $350 million; crude rally lifts energy names

By Paul A. Harris

Portland, Ore., Nov. 29 – High-yield bonds slid 1/8 point or more on Thursday after rallying on Wednesday on a perception that interest rates may not be going much higher, triggered by a statement from Fed chairman Jerome Powell that present rates are just below the neutral rate.

The suggestion that a more modest interest rate trajectory may be in store for 2019 brought a notable number of offers-wanted-in-competition (OWIC) lists from the high-yield ETFs on Wednesday, a New York-based trader recounted.

A day later it was good news/bad news.

Against a backdrop of softer equity prices high-yield ETFs were lower on Thursday morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.22%, or 18 cents, at $83.57 per share.

On the run names were giving up some ground at mid-morning.

Bonds of Intelsat Corp. were down 2½ points.

However, rallying crude prices set in motion an improvement in the badly beaten prices of energy related bonds.

The paper of Houston-based McDermott International, Inc. was up 3 points at mid-morning.

The McDermott Escrow 1, Inc./McDermott Technology (Americas), Inc./McDermott Escrow, Inc. 2 (McDermott Technology (US), Inc.) (McDermott International Inc.) 10 5/8% senior notes due May 2024 were 88 3/8 bid, the trader said.

With the barrel price of West Texas Intermediate crude for January 2019 delivery up 2.53%, or $1.27, at $51.56, the California Resources Corp. 8% senior secured second-lien notes due December 2022, which generally track crude oil prices, were ¾ of a point better at 78½ bid.

Among recent issues, the RegionalCare Hospital Partners Holdings, Inc. and LifePoint Health, Inc. 9¾% senior notes due December 2026 were 99 bid, par offered, the trader said.

That paper was seen at 98¾ bid, 99 offered on Wednesday.

The $1,425,000,000 deal priced at par on Nov. 14.

Much of the junk issued since mid-October continues to lag new issue prices, the trader remarked.

Mercer on deck

In the dollar-denominated primary market, Mercer International Inc. talked a $350 million offering of senior notes due Jan. 15, 2025 (current ratings Ba3/BB-) to yield in the 7¼% area.

Books close at 12:30 p.m. ET on Thursday, and the acquisition-related deal, via left bookrunner Credit Suisse, is set to price thereafter.

In the euro-denominated market, Cognita was scheduled to wrap up a roadshow for a €255.3 million offering of eight-year senior notes on Wednesday.

Thursday morning there was no official word on the deal – a bridge refinancing related to the acquisition of the private school operator by Jacobs Holding from Bregal Investments and KKR.

However, the buzz in the market was that the Milton Keynes, England-based company may elect not to go forward with the new issue, a market source in Europe said.

Mixed Wednesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Wednesday, according to a trader.

High-yield ETFs saw $68 million of inflows on the day.

However, actively managed high-yield bond funds sustained $120 million of outflows on Wednesday, according to the source.

As the market awaits a weekly report from Lipper US Fund Flows on the cash flows of the dedicated junk funds over the past seven days, the combined funds are tracking $1 billion of outflows during that period, which began with last Thursday’s open, the trader added.

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