Morning Commentary: New Vantage Drilling, RegionalCare bonds lag issue prices early

By Paul A. Harris

Portland, Ore., Nov. 16 – With volatility continuing to rock the global stock indexes, junk was down ¼ point to ¾ point in the early going on Friday, according to a trader in New York.

High-yield ETF share prices were lower at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.37%, or 31 cents, at $83.21 per share.

After breaking to a smart premium, bonds issued Thursday by Vantage Drilling International had fallen below the issue price early Friday, the trader said.

The Vantage Drilling 9¼% senior secured first-lien notes due Nov. 15, 2023 (Caa1/B) were 99¾ bid, par offered at mid-morning, after trading late Thursday at par ¾.

In a primary market which is lately seeing deals downsized, restructured and delayed, the upsized $350 million issue came in a conspicuous execution. It priced on an accelerated timeline, was upsized from $300 million and came in a tight-to-talk print.

Meanwhile there was improvement in the secondary price of the market's most recent merger megadeal.

The new RegionalCare Hospital Partners Holdings, Inc./LifePoint Health, Inc. 9¾% senior notes due December 2026 (Caa1/CCC+) were 98½ bid, 98¾ offered on Friday morning after trading as low as the high 97s on Thursday, the trader said.

The downsized $1,425,000,000 issue (from $1,575,000,000) priced at par on Wednesday, having endured a prolonged stay in the primary market, during which the price widened and investor friendly covenant changes were piled on.

After seeing what happened to RegionalCare you wonder if we're not through for 2018, especially given how “sloppy” things are right now in the secondary market, the trader remarked.

Meanwhile an investor saw the RegionalCare bonds trading close to par late Thursday.

Away from recent issues, junk bonds from the chemical sector were under pressure on Friday morning.

Tronox Finance plc’s (Tronox Ltd.) 5¾% senior notes due October 2025 were down 1½ points on the day, along with other names in the space, the trader said.

The only pleasing note in Friday's early going emanated from the oil patch.

The barrel price of West Texas Intermediate crude oil for December 2018 delivery was up 2.18%, or $1.83, at $57.69, rendering the California Resources Corp. 8% senior secured second-lien notes due December 2022, which generally track crude oil prices, an outperformer in the early going.

Quiet primary

One deal was on deck to price on Friday.

However, it was radio silence at mid-morning.

Atlantica Yield is expected to price a $300 million offering of eight-year senior notes (BB/BB+).

With official talk pending, guidance is in the low to mid 6% area but thought to be widening, according to the trader, who heard of interest in the deal with a yield in the sevens.

Meanwhile U.K.-based Co-operative Group Ltd. was scheduled to wrap up a roadshow for its £250 million offering of non-callable five-year fixed-rate green-eligible notes on Thursday in Edinburgh.

Co-operative has decided to postpone pricing of the new issue until the Nov. 19 week, according to a company update on Friday.

Mixed Thursday flows

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

High-yield ETFs, which had been rocked with big outflows earlier in the week, saw $306 million of inflows on Thursday.

However actively managed high-yield funds sustained $100 million of outflows on the day, the source said.

News of Thursday's daily flows follows a Thursday afternoon report that the combined funds saw $487 million of net inflows in the week to Wednesday's close, according to Lipper US Fund Flows.

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