Morning Commentary: March opens to risk-on appetite in junk market; new Solera bonds well bid

By Paul A. Harris

Portland, Ore., March 1 – As March got underway it was “risk-on” in the junk bond market, a trader said on Tuesday.

“We’re seeing a lot of inquiry,” the trader remarked, adding that a lot of high-yield energy names were trading higher on the back of recently improved energy prices.

Crossover energy names were up 5 to 7 points in the past two days, the trader said.

The strength in energy bonds was taking place against of a backdrop of softer oil prices on Tuesday, however.

The barrel price of West Texas Intermediate crude oil for April delivery was down 31 cents, or 0.92%, at $33.44 heading into the New York mid-morning.

High-yield ETFs were stronger heading into the mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 17 cents, or 0.22%, at $79.83 per share. SPDR Barclays High Yield Bond ETF (JNK), at $33.36 per share, was up 12 cents, or 0.38%.

Solera lays the groundwork

The New Year’s most challenging deal to date, Solera, LLC’s new 10½% senior notes due March 1, 2024 (Caa1/B-), was trading persuasively higher at 96¼ bid heading into the mid-morning, the trader said.

The rejiggered $1.73 billion deal – which ran a roadshow worthy of Homer, was subjected to steadily escalating price talk and extensive covenant changes – priced at 95 on Monday.

The fact that this highly leveraged deal got done lays the groundwork for easier credits to come to the primary market in an easier time, the trader remarked.

The primary

The Tuesday session produced news on the new issue front, both in Europe and the United States.

ThyssenKrupp AG launched a €750 million offering of five-year unsecured unsubordinated notes (expected ratings Ba2/BB/BB+) to yield 2 7/8%.

The deal is playing to about €2 billion of orders, and books are closed, according to a sellside source based in London, who added that pricing is set for Tuesday.

The offer was launched earlier at benchmark size, talked at a spread to mid-swaps in the 300 basis points area to yield in the 3% area, so is shaping up at the tight end of yield talk.

Joint bookrunner Deutsche Bank will bill and deliver. BNP Paribas, Mediobanca, MUFG and SG CIB are also joint bookrunners.

And HCA Inc. is guiding a $1 billion offering of 10-year senior secured notes (//BB+) with initial yield talk in the 5 3/8% area, according to a trader.

The deal is set to price Tuesday.

BofA Merrill Lynch, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, RBC, SunTrust, UBS and Wells Fargo are the joint bookrunners.

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