Morning Commentary: Tesla sets talk on $1.5 billion deal; junk continues Wednesday slide

By Paul A. Harris

Portland, Ore., Aug. 10 – High-yield bonds continued a slide that got underway on Wednesday, with some names down 1½ points over the two-day period, a trader said on Thursday morning.

Certain names were down ¼ to ½ point on the morning, the source added.

Financial numbers have been underwhelming, the trader remarked.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.16%, or 21 cents, at $87.60 per share, at midmorning.

In the battered telecommunications sector, the bonds of Frontier Communications Corp. remain under pressure.

The Frontier Communications 11% senior notes due Sept. 15, 2025 were down a couple of points, the trader said. The Frontier (New Communications Holdings Inc.) 8½% senior notes due April 15, 2020 were down a point or so.

Bonds of Sprint Corp. also traded lower on the morning, the source said.

The AMC Networks Inc. 4¾% senior notes due Aug. 1, 2025 were down half a point at 102½ bid, with hedge funds shorting the name, the trader said.

The $800 million issue priced at par on July 19, upsized from $500 million.

Among more recent issues, the Triumph Group, Inc. 7¾% senior notes due Aug. 15, 2025 (B3/B-) were continuing to turn in a solid performance in the secondary market on Thursday. The bonds were hanging in a point above new issue. The $500 million deal priced at par on Tuesday.

However new bonds issued by Dynegy Inc., the 8 1/8% senior notes due Jan. 30, 2026 (B3/B+), continued to trade lower. They were feeling heavy at 98½ bid at midmorning, having faded from 99 bid.

The $850 million deal, which priced at 99.259 to yield 8¼% on Wednesday, got going pretty well out of the gates, trading ¼ to 3/8 point higher, initially, the source recounted.

News that a significant Dynegy shareholder had registered shares ahead of a possible sale appears to have been the catalyst for the decline of the bond price, sources say.

Tesla talk 5¼%, big book

In a relatively quiet primary market Tesla, Inc. talked its $1.5 billion offering of eight-year senior notes (B3/B-) to yield 5¼%.

Official talk comes smack on top of initial guidance.

The Palo Alto, Calif.-based company plans to use the proceeds to further strengthen its balance sheet during the present period of rapid scaling with the launch of its Model 3, and for general corporate purposes.

There is no shortage of investors wanting to get in the deal, a trader said, adding that the buzz in the market holds that the Tesla bond offer is playing to $3 billion to $4 billion of orders at 5¼%.

In addition to high-yield accounts, Tesla's bond deal has sparked interest among equity investors and convertibles accounts, sources say.

The deal is set to price on Friday.

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