Morning Commentary: Junk opens lower; Neogen brings $350 million senior notes offering

By Paul A. Harris

Portland, Ore., July 5 – The junk bond market opened the post-Independence Day week ¼ point lower amid ongoing concerns about global recession, sources said.

With the Dow Jones industrial average down 2.15% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.8%, or 59 cents, at $73.39.

Desks were thinly staffed on Tuesday morning, according to a sellside source in New York, who characterized liquidity as poor, with very little activity whatsoever taking place in the bond market.

Three high-grade deals had been expected on Tuesday; however, those issuers elected to wait, the source said.

There was news in the high-yield primary market.

Neogen Corp. plans to price a $350 million offering of senior notes due July 2030 (expected ratings B2/BB) on Wednesday.

The deal, which was set to kick off on a Tuesday conference call with investors, is being whispered in the high 8% area.

The offering comes in a debt-for-debt exchange related to the Lancing, Mich.-based food safety company's announced combination with 3M's Food Safety Business. No proceeds will go to Neogen.

Among recent issues, the FTAI Escrow Holdings, LLC (Fortress Transportation and Infrastructure Investors LLC) 10½% senior secured notes due June 2027 (B2/B-) were unchanged at 94 bid, 95 offered, the sellsider said, adding that prices had not moved since the $450 million issue priced at 94.585 to yield 12% on June 29 in what market sources characterized as a “clubby deal” played mainly by investors intending to buy and hold the bonds.

The Iris Holdings Inc. (Intertape Polymer Group, Inc.) 10% senior notes due June 2028 (Caa2/CCC+) were being marked at 80½, unchanged from last Friday, the sellsider said.

The $400 million issue priced at 82 to yield 14.361% on June 15.

Junk ETFs see inflows

The high-yield ETFs saw $471 million of daily cash inflows on Friday, the most recent session for which data was available owing to the Monday Independence Day Holiday, according to a market source.

It was the second consecutive sizable positive daily flow for the high-yield ETFs, which saw $729 million of inflows on Thursday, June 30.

Meanwhile actively managed high-yield funds sustained $250 million of outflows on Friday, according to the market source.

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