Morning Commentary: Junk up ½ point plus; GM Financial preps $1.5-$2 billion split-rated deal

By Paul A. Harris

Portland, Ore., Jan. 7 – Cash bonds were up ½ point plus heading into the New York mid-morning, according to a trader based on the East Coast of the United States.

“The market is starting to look cheap,” the trader said, adding that the Barclays high-yield index is yielding 6.85%.

“People are stepping in,” the source added.

Junk was also getting a lift from the improvement in crude oil prices, the trader said, spotting the barrel price of West Texas Intermediate at $49.14, up $1.22 on the day.

The California Resources Corp. 6% senior notes due Nov. 15, 2024 were up 1½ points at 81¾ bid, 82½ offered, heading into the mid-morning.

The $2.25 billion deal priced at par in a massive $5 billion amount of issuance that came in three bullet tranches (Ba1/BB) on Sept. 11 and traded as high as 104½ bid in the immediate aftermath.

GM Financial on tap

In the primary market, General Motors Financial Co., Inc. plans to price a benchmark split-rated multi-tranche senior notes offering (expected ratings Ba1/BBB-/BB+) on Wednesday.

The deal, which will be priced on the investment-grade desk, is coming in tranches of five-year and 10-year notes; the long tranche will come as fixed-rate paper; however, the five-year notes may come as fixed-rate and/or floating-rate paper.

Although no official size had been announced heading into the New York mid-morning, the company aims to sell an overall total of $1.5 billion to $2 billion of bonds, according to a trader.

Guidance has the possible five-year fixed-rate tranche coming at Treasuries plus 190 basis points, while the 10-year notes are guided at Treasuries plus 225 bps, the trader said. No guidance was heard on the possible five-year floating-rate tranche.

Citigroup Global Markets Inc., Barclays, Credit Agricole, Credit Suisse Securities (USA) LLC and RBS Securities Inc. are the leads.

Meanwhile there is guidance on two straight junk offers currently on the road, the trader said.

NCI Building Systems, Inc. is guiding its $250 million offering of eight-year senior notes (B3) at 7¾% to 8¼%.

The acquisition deal, via Credit Suisse, Citigroup, RBC Capital Markets and UBS Securities LLC, is expected to price by the end of the week.

And Open Text Corp. aims to get its $600 million offering of 10-year senior notes (Ba2/BB) done in the mid-5% yield context.

Joint bookrunner Barclays will bill and deliver for that deal, which is set to price Monday. Morgan Stanley & Co. LLC, RBC and Citigroup are also joint bookrunners.

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