Morning Commentary: Vericast bonds lifted on ‘potential sale’; junk heads lower early

By Paul A. Harris

Portland, Ore., Aug. 26 – Fed chairman Jerome Powell dispensed heroic medicine for an ailing U.S. economy in Jackson Hole, Wyo., on Friday morning as he dispelled rumors, speculations and hopes that the interest rate-setting Federal Open Market Committee might step away from its inflation fight in the name of heading off economic contraction.

For the FOMC, Powell said, “the overarching focus right now is to bring inflation back down to our 2% goal.”

With the current rate of inflation estimated to be 8.5%, the Fed has some wood to chop, observed a bond trader at work on Friday morning in the New York City area.

The high-yield bond market, which opened unchanged on Friday morning, went clattering lower on the back of Powell's pronouncement, according to the trader, who marked the market 1/8 of a point to as much as ¼ of a point lower at mid-morning.

With the S&P 500 stock index down just over 1.5% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.82%, or 63 cents, at $76.45.

A buzz in the market of a potential acquisition of San Antonio-based marketing solutions provider Vericast Corp. sharply improved the company’s bond prices, sources said.

Hedge fund Chattam Asset Management, LLC, the sole holder of the Verisure 13% second-lien secured notes due in 2027, appears to be staging for a consolidation of the company's debt in a maneuver reminiscent of those that accompanied Chattam's takeover of R.R. Donnelley & Sons Co. late last year, according to a market source.

The Vericast 11% first-lien notes due September 2026 traded at par ¾ on Friday morning, up 2½ points, the bond trader said.

Among recent issues, the Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) were 99½ bid, par offered, unchanged on the back of Powell's speech in Wyoming, according to the bond trader.

Those bonds were 99¼ bid, 99¾ offered on Thursday morning.

The new Ford green bonds came at par on Aug. 16 in a $1.75 billion high-grade-style execution.

In an otherwise quiet primary market, a Norway-based subsidiary of U.K. staffing solutions company NES Fircroft is in the market with a $300 million offering of NES Fircroft Bondco AS senior secured sustainability-linked notes (B2/B), a Nordic deal coming via ABG Sundal Collier and Pareto Securities.

Investor presentations start next week.

Interest in the deal among high-yield investors in the United States appears to be limited at best, market sources say.

Elsewhere the dollar-denominated new issue market remained quiet and is not expected to reactivate before the Labor Day holiday weekend, which begins following the Sept. 2 close.

Fund flows

The dedicated high-yield bond funds sustained $275 million of net daily outflows on Thursday, according to a market source.

Actively managed high-yield funds saw $190 million of outflows on the day.

High-yield ETFs sustained $85 million of outflows on Thursday, the source said.

News of Thursday's daily cash flows followed a Thursday afternoon report that the combined funds sustained $4.568 billion of net outflows in the week to the Wednesday, Aug. 24 close, according to Refinitiv Lipper US Fund Flows.

That negative weekly flow, the biggest outflow since the week to June 15, represented 1.5% of assets under management, and is the 11th largest outflow on record, according to the market source.

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