Morning Commentary: NextEra, Mercer bring drive-bys; U.S. Steel drops on dismal numbers

By Paul A. Harris

Portland, Ore., Sept. 19 – Two issuers showed up at the high-yield bond drive-through window on Thursday morning.

NextEra Energy Operating Partners, LP plans to price a $500 million offering of seven-year senior bullet notes (existing ratings Ba1/BB/BB+).

Price talk is in the 3 7/8% area, tight to early whispers in the 4% area.

Wells Fargo Securities LLC is the left bookrunner.

Meanwhile Mercer International Inc. plans to price a $200 million add-on to its 7 3/8% senior notes due Jan. 15, 2025 in a quick-to-market Thursday trade.

Initial price talk is 102.5 to 103, a trader said.

Credit Suisse Securities (USA) LLC is the left lead.

Away from that quick-to-market business is a big-ish $4 billion active calendar of deals expected to clear the market ahead of the coming weekend.

However official talk and timing have yet to emerge on any of that business, market sources say.

One prospective issuer garnering outsized attention, InfraBuild Australia Pty. Ltd., continues a protracted effort to raise cash in the junk bond market, a trader said on Thursday morning.

On Wednesday the company downsized its deal to $325 million from $475 million, as British metals magnate Sanjeev Gupta, who controls the company, injected $150 million of cash into the deal, the trader recounted, adding that the downsizing followed close on the heels of a restructuring that saw the notes morph into secured paper, after hitting the market last week in an unsecured offer.

Most recent price talk was in the 10% area, the trader said.

Earlier talk was 8¾% to 9%, according to market sources.

Following the downsizing, revisions and increased talk, the deal via bookrunner JPMorgan had been expected on Wednesday.

U.S. Steel drops

United States Steel Corp.’s bonds fell as the Pittsburgh steelmaker cited week prices and soft demand, when it announced that it will close plants and lay off workers.

U.S. Steel’s 6 7/8% senior notes due 2025 were down about 2 points in the early going on Thursday, changing hands at 89 3/8, according to a New York-based bond trader.

The company projects a 35 cents per share loss for the quarter ending in September.

Away from the headlines, junk was basically unchanged early Thursday, the trader said.

Among recent issues, bonds priced early in the week by Performance Food Group Co. were unchanged at 102 5/8 bid, 103 offered.

The PFG Escrow Corp. 5½% senior notes due October 2027 (B1/B+) priced earlier in the week at par in a $1.06 billion issue heard to be seven-times oversubscribed.

Wednesday inflows

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

High-yield ETFs saw $154 million of inflows on the day.

Actively managed high-yield funds saw $150 million of inflows on Wednesday, the source said.

News of Wednesday's daily flows surfaces ahead of an expected Thursday afternoon report on the weekly cash flows of funds in the various asset classes, including high-yield bonds.

As the market awaits that report the combined high-yield funds are tracking $3.6 billion of inflows on the week to Wednesday's close, the market source said.

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