Morning Commentary: Fair Isaac brings drive-by; AK Steel up sharply on acquisition news

By Paul A. Harris

Portland, Ore., Dec. 3 – Junk opened unchanged on Tuesday as stock prices slid on news that president Donald Trump is contemplating a delay in further trade talks with China until after the 2020 elections, a New York-based high-yield bond trader said.

High-yield ETF share prices were lower at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.28%, or 24 cents, at $86.30 per share.

The junk bonds of AK Steel Holding Corp. improved notably on news that the Ohio-based steel maker agreed to be acquired by Cleveland-Cliffs Inc. in an all-stock deal valued at $1.1 billion, the trader said.

The long-dated AK Steel Corp. 7% senior notes due March 2027 were up a whopping 12 points on the news, said the trader, who saw a small print at 99 bid.

The nearer maturity 7 5/8% senior notes due October 2021 were pretty active, up about 3/8 of a point at par 5/8 bid, the source added.

Cleveland-Cliffs’ bonds were lower following the news, the trader said.

News of the acquisition comes on a tailwind for steel makers following Monday's announcement by president Trump that he would bring back tariffs on steel imports from Brazil and Argentina, as retaliation for currency devaluations.

Among recent issues, the new Lithia Motors, Inc. 4 5/8% senior notes due 2027 (Ba2/BB) were active on Tuesday, trading at a nice premium to the new issue price: par 5/8 bid, 101 5/8 offered, the trader said.

The $400 million issue priced at par in a Monday drive-by.

The performance of Monday's other drive-by deal, the NCL Corp. Ltd. (Norwegian Cruise Line Holdings Ltd.) 3 5/8% senior notes due 2024 (Ba2/BB+) was far less impressive.

The $565 million deal was straddling the par issue price at 99 5/8 bid, par 1/8 offered, the trader said.

Fair Isaac drive-by

In a generally quiet new issue market, Fair Isaac Corp. is expected to price a $300 million offering of 8.5-year senior notes (existing ratings Ba2/BB+) in a quick-to-market Tuesday trade.

Initial price talk has the deal coming to yield in the 4¼% to 4½% area.

The first two weeks of December are expected to be active ones in the primary market, sources say.

However, the active forward calendar contained only one other dollar-denominated offering heading into lunchtime on Tuesday.

Twitter, Inc. plans to price its $600 million offering of eight-year senior bullet notes (Ba2/BB+) on Thursday at the conclusion of a brief roadshow.

With official price talk pending, early guidance has the deal coming to yield in the mid-4% area, a trader said.

Funds see Monday inflows

The dedicated high-yield bond funds saw $22 million of daily net inflows on Monday, according to a market source.

High-yield ETFs saw $67 million of inflows on the day.

However actively managed high-yield funds sustained $45 million of outflows on Monday, the source said.

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