Morning Commentary: Junk opens unchanged as stocks whipsaw; Domtar notes on deck

By Paul A. Harris

Portland, Ore., Oct. 1 – As October got underway in the high-yield market, cash bonds were basically unchanged while mild-to-moderate turbulence maintained its hold on equities.

At mid-morning the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was unchanged at 87.21, up 0.01%.

Recent issues remained the focus of investors in the secondary market.

Both tranches of Thursday's Medline Industries $7 billion megadeal were better on Friday morning; however, investors were obviously favoring the higher yielding unsecured paper, which became all the more popular because the tranche was downsized.

The Mozart Debt Merger Sub Inc. 5¼% senior unsecured notes due October 2029 (Caa1/B-/B-) were 101½ bid, 102 offered early Friday morning, in active trading, a trader said.

Medline moved $1.5 billion of proceeds to the secured tranches of its bond and bank loan buyout financing as a means of reducing its overall cost of capital. That decreased the unsecured bond tranche to $2.5 billion from $4 billion.

Demand for the unsecured bonds had been strong and steady throughout the time the deal was in the market, sources said.

The secured paper, the 3 7/8% senior secured notes due April 2029 (B1/B+/BB-), was trading at a more modest premium on Friday morning of par bid, par 1/8 offered, the trader said.

Medline printed $4.5 billion of the secured notes.

Both tranches priced at par.

The new ConvaTec (180 Medical, Inc.) 3 7/8% senior notes due October 2029 (Ba2/BB+) were turning in a solid secondary market performance on Friday morning, at 102 bid.

The $500 million issue priced at par on Thursday.

Elsewhere, Foot Locker, Inc.’s 4% senior notes due October 2029 (Ba2/BB+) were par ½ bid, up perhaps 1/8 of a point, on Friday morning.

The $400 million issue priced at par on Wednesday, heard to have played to $2.9 billion of demand across 194 accounts.

Bonds priced in mid-September by cryptocurrency exchange service Coinbase Global, Inc., lately battered because of the Chinese government banning cryptocurrency, was up half a point on Friday.

Coinbase Global’s 3 5/8% senior guaranteed notes due October 2031 (Ba1/BB+), the longer-dated of the two tranches that the company priced in an overall $2 billion pass at the new issue market in the middle part of the past month, was the most active on Friday at 95½ bid, 96 offered.

The $1 billion tranche priced at par on Sept. 14 in a transaction that also included $1 billion of 3 3/8% senior guaranteed notes due October 2028 (Ba1/BB+) that also priced at par.

Although cryptocurrency remains extremely volatile, the Coinbase notes may have benefitted from Fed chairman Jerome Powell's Thursday remark that the central bank had “no intention” of banning crypto.

Away from recent issues the bonds of AMC Entertainment Holdings, Inc. were up 1½ points on the morning, the trader said.

Domtar on deck

Thursday's $9.5 billion burst of issuance nearly cleared what had been a huge active forward calendar.

One deal is on deck as Friday business.

Domtar Corp. talked its $775 million offering of seven-year senior secured notes (Ba2/BB+/BB+) to yield 6¾% to 7%, wide to initial guidance in the mid-6% area.

The deal also underwent covenant changes which primarily bear upon how the company may disburse cash and incur additional debt.

Books close at noon ET.

Thursday inflows

The dedicated high-yield bond funds saw $84 million of daily net inflows on Thursday, according to a market source.

Actively managed high-yield funds saw $45 million of inflows on the day.

High-yield ETFs saw $39 million of inflows on Thursday, the source said.

News of Thursday’s daily flows trails a Thursday report that the combined funds saw $196 million of net inflows in the week to the Wednesday, Oct. 28 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

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