Morning Commentary: New Williams Scotsman paper smartens in otherwise quiet market

By Paul A. Harris

Portland, Ore., Nov. 22 – In the U.S. high-yield bond market attention was turning to turkey and cranberries heading into midmorning on Wednesday.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was flat to slightly higher at midmorning, up 8 cents, or 0.09% at $87.75 per share.

Amid otherwise thin liquidity in the secondary market buyers were flocking to the new Williams Scotsman International, Inc. 7 7/8% senior secured notes due 2022 (B2/B-) on Wednesday morning, according to a New York trader, who added that the market perceived that the deal came cheap, and allocations were said to be light.

The notes were trading around 103 at midmorning, the source said.

The $300 million issue priced at par – through the 8% to 8¼% yield talk – on Tuesday.

Sell-off overdone

The market's perception of the volatility that rocked stocks and junk a week ago is that it created a buying opportunity, said an investor, who generally agrees with this assessment.

In the teeth of last week's sell-off US high yield spreads to Treasuries widened to 380 basis points, 30 bps wider than October's tights, the investor said.

“They spiked to 410 bps for a nanosecond last Wednesday, but they have since tightened,” the source added.

“The sell-off appears to have been overdone.”

Sure some deals were pulled, the investor allowed.

However, some of those were marginal.

Others were pulled by issuers who could bide their time.

An example of a deal in the latter category was NRG Energy, Inc., which recently abandoned plans to sell $870 million of 10.25-year senior notes due to market conditions.

The company came with a 5¾% interest rate target and was heard to have a deal wrapped up at 6% but declined to take that higher rate even though it was only 25 bps above their target.

Since NRG was in the market to refinance its 6 5/8% senior notes due 2023, the company could probably afford to wait, the investor said.

Quiet primary

Meanwhile the new issue market was quiet ahead of Wednesday's early pre-Thanksgiving close.

Only one deal remained on the dollar-denominated active calendar.

GNC Holdings, Inc. has been attempting to place $500 million of five-year senior secured notes (Ba3/B), a deal that was announced on Nov. 8.

The most recent word on the offer was initial guidance of 10%, which came soon after it was announced.

Since then it has been radio silence.

Although there has been nothing official, the buzz in the market is that the bond deal will be pulled and the concurrent bank loan may be upsized and/or rejiggered, sources say.

Away from the dollar-denominated new issue market there is a modest euro-denominated calendar that is expected to clear by the end of the week.

Although no one had any potential issuer names for the week ahead, in either the dollar- or the euro-denominated primary market, the post-Thanksgiving pipeline is not believed to be vast, sources said on Wednesday.

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