Morning Commentary: DAE launches $2.3 billion; hospital paper firms on failure to undo ACA

By Paul A. Harris

Portland, Ore., July 21 – High-yield bonds were pretty well bid at mid-morning on Friday, according to a trader.

High-yield ETFs were lower on the morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 11 cents, or 0.12%, at $88.69 per share.

Hospital bonds were outperforming the market on the back of failure in the U.S. Congress to deliver on a key campaign pledge by president Donald Trump to repeal or replace the Affordable Care Act.

The long-dated paper of HCA Inc. was up 1 point to 1½ points week over week, the trader said.

Bonds priced in June by Tenet Healthcare Corp. were up a point week over week, the source said, referring to the THC Escrow Corp. III 7% senior notes due Aug. 1, 2025.

Those bonds, which were trading at 101 3/8 bid at mid-morning on Friday, priced at par in a $500 million issue on June 5.

High beta hospital paper was faring even better, the trader said, adding that Community Health Systems, Inc. bonds, the FWCT-2 Escrow Corp. 6 7/8% senior notes due Feb. 1, 2022, were up 3 points week over week.

Away from the hospital space, recently priced deals which came in executions that saw guidance swan dive from initial whisper to official talk and the final print, continue to get more expensive in a market that finds a lot of cash chasing a thin calendar.

New 5¼% eight-year senior notes (Ba2/BB) priced on July 17 by Lithia Motors, Inc. were doing pretty well at 101¾ bid, the trader said.

The $300 million issue priced at par, 12.5 bps inside of the 5 3/8% to 5 5/8% price talk.

The new AMC Networks Inc. 4¾% senior notes due Aug. 2, 2025 (Ba3/BB) were par ¾ bid on Friday morning.

The notes came in an upsized $800 million (from $500 million) deal, which priced at par last Wednesday, at the tight end of the 4¾% to 5% yield talk, and inside of initial guidance in the 5% area.

DAE launched

In the primary market DAE Funding LLC launched its upsized $2.3 billion three-part offering of senior notes (Ba3/BB), setting tranche sizes and final pricing on Friday morning.

The deal includes $500 million of three-year notes launched at 4%. The three-year notes, which were added to the deal when it was upsized from $1.9 billion, had been talked in the 4% area.

In addition, $800 million of five-year notes launched at 4½%, at the tight end of the 4½% to 4¾% price talk; early guidance was 4¾% to 5%.

The long tranche features $1 billion of seven-year notes launched at 5%, the tight end of the 5% to 5¼% price talk; early guidance was 5 1/8% to 5 3/8%.

The Morgan Stanley deal is set to price shortly.

The DAE deal looked cheap to one trader, who expects participation from a wide variety of investors.

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