Morning Commentary: Junk bonds rally as energy and steel outperform; GFL Environmental on deck

By Paul A. Harris

Portland, Ore., April 13 – The high-yield bond market was rallying heading into mid-morning on the East Coast of the United States, sources said.

Cash bonds were up ½ point, with bonds in the energy sector up as much as 2 points on recent strength in crude oil prices, a portfolio manager said.

However crude prices slid early Wednesday: the barrel price of West Texas Intermediate crude for May 2016 delivery was down 82 cents, or 1.94%, on the day at $41.35, at mid-morning.

Bonds in the steel sector were also rallying, the portfolio manager said.

High-yield ETFs were also stronger on Wednesday morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 43 cents, or 0.52%, at $82.54 per share. SPDR Barclays High Yield Bond ETF (JNK), at $34.63 per share, was up 21 cents, or 0.61%.

Junk was also up ½ point to 1 point in the European market, according to a London-based debt capital markets banker.

In the primary market GFL Environmental Inc. plans to price a $150 million tack-on to its 9 7/8% senior notes due Feb. 1, 2021 on Wednesday trailing a late-morning conference call with investors.

Early price guidance is 103.25, according to a portfolio manager.

Credit Suisse, BMO and Barclays are the joint bookrunners for the debt refinancing deal.

The original $300 million issue priced at par on Jan. 26.

Arrow Global lender meeting

In the European new issue market Arrow Global Finance plc set an investor meeting in London on Thursday to roll out a €225 million offering of seven-year senior secured floating-rate notes.

The notes are expected to price on Thursday, according to a sellside source in London.

Global coordinator and physical bookrunner Goldman Sachs International will bill and deliver for the acquisition financing deal. JPMorgan and HSBC are also global coordinators and physical bookrunners.

Recent issues

Deals priced on Tuesday were trading above new issue prices heading into the Wednesday mid-morning.

The new Pinnacle Entertainment, Inc. 5 5/8% senior notes due May 1, 2024 (B2/BB-) were par 1/8 bid, par 3/8 offered, according to the portfolio manager.

The upsized $375 million (from $300 million) issue priced at par.

Also the new Virgin Media 5½% first-lien senior secured notes due Aug. 15, 2026 were par 7/8 bid, 101¼ offered.

The upsized $750 million (from $500 million) issue also priced at par.

Mixed cash flows

The cash flows of the dedicated high-yield bond funds were mixed on Tuesday, the portfolio manager said.

High-yield ETFs saw $116 million of inflows on the day.

However actively managed funds sustained $30 million of outflows on Tuesday.

Dedicated bank loan funds were also negative on the day, with $15 million of outflows, the source said.

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