Morning Commentary: High-yield lower, but new issues maintain premiums; commodities under pressure

By Paul A. Harris

Portland, Ore., Aug. 20 – High-yield cash bonds were down 1/8 of a point or so on Thursday morning, according to a trader in New York, who added that junk appeared to be grinding lower.

iShares iBoxx $ High Yield Corporate Bd (HYG) was trading at 85.81 heading into the New York midday, down 0.38.

SPDR Barclays High Yield Bond ETF (JNK) was trading at 36.89, down 0.14.

New issues hold premiums

Many of the deals priced during the past fortnight continue to trade at premiums to their new issue prices, the trader said.

The AMAG Pharmaceuticals Inc. 7 7/8% senior notes due Sept. 1, 2023 (B3/B+) were 102½ bid, 103½ offered on Thursday. The $500 million issue priced at par on Aug. 12.

Post Holdings, Inc.’s 7¾% notes due March 15, 2024, and the 8% notes due July 15, 2025 were both 101½ bid, 102½ offered on Thursday, versus 102 1/8 bid, 102 3/8 offered on Wednesday morning.

The bonds came last week in a $1.2 billion overall transaction that saw both tranches price at par, at the wide ends of talk that had widened significantly from earlier guidance.

Hill-Rom Holdings, Inc.’s 5¾% senior notes due Sept. 1, 2023 (B1/BB-) were 101 bid, 101½ offered, the trader said.

On Wednesday morning a portfolio manager saw the freshly minted Hill-Rom paper at 101¼ bid.

The $425 million deal priced at par on Tuesday.

The most recent deal to clear the market, KIK Custom Products Inc.’s 9% senior notes due Aug. 15, 2023 (Caa2/CCC), was above the deeply discounted new issue price on Thursday at 91 bid, 91¾ offered, according to a syndicate banker.

A trader, who saw them approximately in the same context, said that activity in the paper was very sparse, perhaps an indication that the entire deal was taken down by a few investors.

KIK Custom priced the $390 million issue at 89.57 to yield 11% on Wednesday.

The coupon, yield and price came on top of final price talk. However that talk widened from earlier official talk that had the deal coming at a discount with a 10½% all-in yield.

Initial guidance was in the mid-9% context, market sources said.

There were also covenant changes.

Commodities under pressure

High-yield coal, metals and mining names remained under pressure on Thursday, as the recent Chinese currency devaluation and overall economic weakness in China continue to weigh upon the sector, a trader said.

The First Quantum Minerals Ltd. 7¼% senior notes due October 2019 were continuing a precipitous fall that got underway in early summer.

A lot traded in the 70 to 71 context on Thursday, the source said.

On Wednesday those notes were in the 72½ to 73½ context. At the beginning of August the context was 78 to 79.

At the end of June those bonds were trading at par, the trader recounted.

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