Morning Commentary: Junk sloppy on weaker stocks; Ascent Resources, Chobani maintain premiums

By Paul A. Harris

Portland, Ore., April 4 – Trading in high-yield bonds was a little sloppy at midmorning on Tuesday against a backdrop of softer equity prices, according to a New York-based trader.

Junk was down around 1/8 point, the trader said.

Although its stock had fallen 36%, bonds of Seadrill Ltd. were only slightly lower at midmorning, the trader said.

The company announced Tuesday that it has reached agreement with its banking group to extend maturities on its bank loans as part of its ongoing restructuring efforts.

At the same time Seadrill warned that its restructuring plan will require a substantial impairment or conversion of its bonds, as well as impairment, losses or substantial dilution for other stakeholders.

“Shareholders are likely to receive minimal recovery for their existing shares,” Seadrill said.

Among recent issues, focusing on last Thursday's $5.33 billion burst of new deals, Ascent Resources Utica Holdings, LLC’s new 10% senior notes due April 1, 2022 (B3/B-) continue a stellar secondary market performance at 103 bid, the trader said.

The issuer and its dealers had to widen talk substantially to get Ascent Resources over the finish line, whereupon the market perceived that the deal ultimately came cheap, the source recounted.

Almost immediately after they priced in a $1.5 billion issue, which came at par, the Ascent Resources bonds traded to 103 bid, and have stayed there since, the trader said.

Elsewhere the new bonds of yogurt-maker Chobani, LLC also continue to trade at a nice premium to new issue price.

The Chobani 7½% senior notes due April 15, 2025 (Caa2/CCC+) were 102½ bid on Tuesday morning, the trader said.

The $530 million issue also priced at par last Thursday.

Petra, Borets on tap

With no new straight-out high-yield issues appearing on Tuesday morning, players focused on a couple of deals that have emerging markets aspects.

Petra Diamonds Ltd., with operations in Tanzania and South Africa, expects to price its $600 million offering of five-year senior secured second-lien notes (B2/B+) on Wednesday.

Initial price talk is in the 7½% area.

The deal has been marketed by means of a two-team emerging markets-style roadshow, which was in New York on Monday and is set to wind up on Tuesday in Boston, Toronto and on the West Coast of the United States.

The offering is playing to both emerging markets and high-yield accounts, sources say.

Joint global coordinator Barclays will bill and deliver. RBC is also a joint global coordinator. BMO is the joint bookrunner.

And Borets International Ltd. tightened talk on its upsized $330 million offering of non-callable five-year notes to 6¾%.

The issue size is increased from $300 million.

Talk tightened from the earlier 6¾% to 7% yield talk.

HSBC is leading the deal.

Mixed Monday flows

The daily cash flows of the dedicated high-yield bond funds were notably mixed on Monday, the trader said.

High-yield ETFs sustained $72 million of outflows on the day.

However actively managed funds saw $305 million of inflows on Monday.

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